-----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, Ek2wbfxfovo4XWVtMeUTXIPF/NdRk6+YaxYTJ1er3Qpl2M7s20Yyq69mW+KeY9Bq nau86LM2eiFr3783K02dxA== 0000893220-96-001808.txt : 19961108 0000893220-96-001808.hdr.sgml : 19961108 ACCESSION NUMBER: 0000893220-96-001808 CONFORMED SUBMISSION TYPE: S-11/A PUBLIC DOCUMENT COUNT: 29 FILED AS OF DATE: 19961107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRANDYWINE REALTY TRUST CENTRAL INDEX KEY: 0000790816 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 232413352 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-11/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-13969 FILM NUMBER: 96655831 BUSINESS ADDRESS: STREET 1: TWO GREENTREE CENTRE STREET 2: STE 100 CITY: MARLTON STATE: NJ ZIP: 08053 BUSINESS PHONE: 2152519111 MAIL ADDRESS: STREET 1: TWO GREENTREE CENTRE STREET 2: SUITE 100 CITY: MARLTON STATE: NJ ZIP: 08053 FORMER COMPANY: FORMER CONFORMED NAME: LINPRO SPECIFIED PROPERTIES DATE OF NAME CHANGE: 19920703 S-11/A 1 AMEND #1 TO FORM S-11, BRANDYWINE REALTY TRUST 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996 REGISTRATION NO. 333-13969 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-11 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BRANDYWINE REALTY TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS) 16 CAMPUS BOULEVARD NEWTOWN SQUARE, PENNSYLVANIA 19073 (610) 325-5600 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ------------------------ GERARD H. SWEENEY PRESIDENT AND CHIEF EXECUTIVE OFFICER 16 CAMPUS BOULEVARD NEWTOWN SQUARE, PENNSYLVANIA 19073 (610) 325-5600 (NAME AND ADDRESS OF AGENT FOR SERVICE) ------------------------ Copies to: MICHAEL H. FRIEDMAN, ESQ. STEVEN L. LICHTENFELD, ESQ. PEPPER, HAMILTON & SCHEETZ BATTLE FOWLER LLP 3000 TWO LOGAN SQUARE PARK AVENUE TOWER 18TH & ARCH STREETS 75 EAST 55TH STREET PHILADELPHIA, PENNSYLVANIA 19103-2799 NEW YORK, NEW YORK 10022 (215) 981-4563 (212) 856-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - ------------------ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - ------------------ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1996 PROSPECTUS 3,700,000 SHARES BRANDYWINE REALTY TRUST COMMON SHARES OF BENEFICIAL INTEREST ------------------ Brandywine Realty Trust (the "Company") is a self-administered, self-managed and fully integrated real estate investment trust ("REIT") that owns a portfolio of 23 office buildings and one industrial facility (the "Initial Properties") containing an aggregate of approximately 1.3 million net rentable square feet located primarily in the Suburban Philadelphia Office and Industrial Market (as defined in the "Glossary" and also referred to as the "Market"). In addition, the Company has entered into agreements to purchase 11 additional office buildings and two industrial facilities (the "Acquisition Properties" and, together with the Initial Properties, the "Properties") that contain an aggregate of approximately 700,000 net rentable square feet located primarily in the Market. The Company also owns an interest in and operates a commercial real estate management services company that as of September 30, 1996 managed approximately 2.0 million net rentable square feet (including 23 of the Initial Properties). As of September 30, 1996, the Properties were approximately 94.3% leased. All of the common shares of beneficial interest, par value $.01 per share, of the Company (the "Common Shares") offered hereby are being sold by the Company. The Company pays regular distributions to its shareholders and expects to increase its quarterly distributions to shareholders following the closing of the offering contemplated hereby (the "Offering") to $0.35 per share, beginning with a pro rata distribution with respect to the quarter ending December 31, 1996. See "Distribution Policy." Concurrent with the Offering and subject to certain conditions, the Company is directly placing with: (i) a voting trust (the "SERS Voting Trust") established for the benefit of the Commonwealth of Pennsylvania State Employees' Retirement System ("SERS"), as advised by Radnor Advisors Inc. ("RAI"), $10.5 million of Common Shares at the price per Common Share sold in the Offering (the "SERS Private Placement"); and (ii) two investment funds advised by Morgan Stanley Asset Management Inc. $11.7 million of Common Shares at a price per Common Share of $16.50 (the "Morgan Stanley Private Placement" and together with the SERS Private Placement, the "Concurrent Investments"). The Underwriters will not receive a discount or commission on the sale of Common Shares in the Concurrent Investments. See "The Company -- The SERS Private Placement and -- The Morgan Stanley Private Placement" and "Principal Shareholders." Nine of the Acquisition Properties will be acquired from the SERS Voting Trust in exchange for, among certain other consideration, $26.5 million of convertible preferred shares which represents, assuming conversion of all such preferred shares into Common Shares, an effective price per Common Share of $16.50. See "The Company -- The SERS Transaction." The Common Shares are traded on the American Stock Exchange (the "AMEX") under the symbol "BDN." On November 6, 1996, the last reported sale price of the Common Shares was $16.50 (adjusted to give effect to a one-for-three reverse share split that will become effective immediately prior to the closing of the Offering). See "Price Range of Common Shares and Distribution History." The Company qualified as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 1986. To assist the Company in complying with certain qualification requirements applicable to REITs, the Company's Declaration of Trust will provide that no shareholder or group of affiliated shareholders may actually or constructively own more than 9.8% in value of the outstanding Common Shares, subject to certain exceptions. See "Description of Shares of Beneficial Interest -- Restrictions on Transfer." SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON SHARES. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - --------------------------------------------------------------------------------------------------------- PER SHARE.................... $ $ $ - --------------------------------------------------------------------------------------------------------- TOTAL(3)..................... $ $ $ - --------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $3,000,000. (3) The Company has granted the Underwriters a 30-day option to purchase up to 555,000 additional Common Shares solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. ------------------ The Common Shares are being offered by the several Underwriters named herein, subject to prior sale, when, as and if delivered to and accepted by them, and subject to certain conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that certificates for the Common Shares offered hereby will be available for delivery on or about , 1996, at the offices of Smith Barney Inc., 333 West 34th Street, New York, NY 10001. ------------------ SMITH BARNEY INC. LEGG MASON WOOD WALKER INCORPORATED , 1996 3 THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 4 TABLE OF CONTENTS
PAGE --- PROSPECTUS SUMMARY..................... 1 The Company.......................... 1 Risk Factors......................... 3 Business and Growth Strategies....... 5 Recent Developments.................. 8 Business and Properties.............. 10 Structure of the Company............. 13 Benefits of the Offering to Affiliates of the Company......... 13 The Offering and Concurrent Investments....................... 14 Distribution Policy.................. 14 Tax Status of the Company............ 15 Summary Selected Financial Data...... 15 RISK FACTORS........................... 20 Limited Geographic Concentration..... 20 Redemption of Preferred Shares....... 20 Risks Associated with the Recent Acquisition of Many of the Company's Properties; Lack of Operating History................. 20 Lack of Appraisals................... 21 Risks Relating to Distributions...... 21 Conflicts of Interests............... 21 Real Estate Investment Considerations.................... 22 Risks Associated with Indebtedness... 24 Historical Losses.................... 25 Risk of Acquisition, Development, and Renovation Activities............. 25 Tax Risks............................ 25 ERISA................................ 27 Possible Environmental Liabilities... 28 Uninsured Losses..................... 28 Risk of Third-Party Management, Leasing, and Related Service Business.......................... 29 Changes in Policies Without Shareholder Approval.............. 29 Influence of Executive Officers, Trustees and Principal Shareholders...................... 29 Dependence on Key Personnel.......... 30 Limits on Changes in Control......... 30 Effect on Price of Shares Available for Future Sale................... 31 Immediate Dilution................... 32 Effect on Holders of Common Shares of an Issuance of Preferred Shares............................ 32 Effect of Market Interest Rates on Price of Common Shares............ 32 THE COMPANY............................ 33 General.............................. 33 The SSI/TNC Transaction.............. 35 PAGE --- The SERS Transaction................. 36 Other Pending Acquisitions........... 37 SERS Private Placement............... 37 Morgan Stanley Private Placement..... 37 The Management Company............... 37 BUSINESS AND GROWTH STRATEGIES......... 39 General.............................. 39 Management and Operating Strategies........................ 39 Acquisition Strategies............... 40 Corporate Service Activities......... 41 Financing Policies................... 41 USE OF PROCEEDS........................ 42 DISTRIBUTION POLICY.................... 43 PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY................. 43 CAPITALIZATION......................... 44 DILUTION............................... 45 SELECTED FINANCIAL DATA................ 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 51 Overview............................. 51 Results of Operations................ 51 Liquidity and Capital Resources...... 54 Cash Flows........................... 56 Inflation............................ 56 Funds from Operations................ 57 SUBURBAN PHILADELPHIA ECONOMY AND OFFICE MARKETS.............................. 58 General.............................. 58 Suburban Philadelphia Office and Industrial Market................. 60 BUSINESS AND PROPERTIES................ 64 General.............................. 64 Properties........................... 66 Tenants.............................. 68 Lease Expirations.................... 71 Historical Tenant Improvements and Leasing Commissions............... 83 Historical Capital Expenditures...... 84 Potential Revenue Increase at Replacement Cost Rents............ 84 Historical Occupancy................. 85 Submarkets and Property Information....................... 90 Competition.......................... 100
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PAGE --- Environmental Matters................ 100 Insurance............................ 102 Certain Property Tax Information..... 102 Employees............................ 102 Legal Proceedings.................... 102 Mortgage Debt and Credit Facility.... 102 Credit Facility...................... 104 Option Properties.................... 105 C&W Mid-Year Report and C&W Market Analyses.......................... 107 STRUCTURE OF THE COMPANY............... 107 Operating Partnership................ 107 BRP.................................. 108 Ownership............................ 108 Management Company................... 109 POLICIES WITH RESPECT TO CERTAIN ACTIVITIES........................... 109 Investment Policies.................. 109 Dispositions......................... 110 Financing Policies................... 110 Working Capital Reserves............. 111 Conflict of Interests Policies....... 111 Policies with Respect to Other Activities........................ 111 MANAGEMENT............................. 113 Trustees and Executive Officers...... 113 Trustees of the Company.............. 113 Executive Officers................... 114 Other Key Officers................... 115 Committees of the Board of Trustees.......................... 115 Compensation Committee Interlocks and Insider Participation............. 115 Compensation of Trustees............. 115 Executive Compensation............... 116 Employment Agreements................ 116 Stock Options Granted to Executive Officers During Last Fiscal Year.............................. 117 Stock Options held by Certain Executive Officer at December 31, 1995...... 117 401(k) Plan.......................... 118 Indemnification...................... 118 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 118 SSI/TNC Transaction.................. 118 Partnership Agreement; Redemption Rights............................ 119 Repayment of Certain Advances to SSI............................... 119 Indemnification of Certain Limited Partners.......................... 119 Partnership Agreement; General Indemnity......................... 119 PAGE --- Termination of Standstill Agreements........................ 120 Option Properties.................... 120 SSI Right of First Refusal on Additional Financings............. 120 Lease with SSI Affiliate............. 120 Environmental Indemnity.............. 120 Employment Agreements; Award of Warrants.......................... 120 Prior Involvement of Legg Mason...... 121 Investment by RMO Fund............... 121 Prior Involvement of LCOR............ 121 PRINCIPAL SHAREHOLDERS................. 122 DESCRIPTION OF SHARES OF BENEFICIAL INTEREST............................. 124 General.............................. 124 Transfer Agent and Registrar......... 124 Shares............................... 124 Preferred Shares..................... 125 Reverse Share Split; Treatment of Fractional Shares................. 126 Restrictions on Transfer............. 127 CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF TRUST AND BYLAWS........................... 129 Duration............................. 129 Board of Trustees.................... 129 Meetings of Shareholders............. 129 Preferred Shares..................... 129 Business Combinations................ 130 Control Share Acquisitions........... 130 Amendment to the Declaration of Trust............................. 131 Termination of the Company and REIT Status............................ 131 Transactions Between the Company and its Trustees or Officers.......... 131 Limitation of Liability and Indemnification................... 132 Maryland Asset Requirements.......... 132 FEDERAL INCOME TAX CONSIDERATIONS...... 133 General.............................. 133 Taxation of the Company as a REIT.... 133 Qualification of the Company as a REIT.............................. 134 Income Tests......................... 135 Asset Tests.......................... 136 Annual Distribution Requirements..... 137 Failure to Qualify................... 138 Income Taxation of the Operating Partnership, the Title Holding Partnerships and Their Partners... 138
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PAGE --- Classification of the Operating Partnership and Title Holding Partnerships as Partnerships...... 138 Partnership Allocations.............. 139 Tax Allocations With Respect to Contributed Properties............ 139 Depreciation......................... 140 Basis in Operating Partnership Interest.......................... 140 Sale of Partnership Property......... 141 Taxation of Taxable Domestic Shareholders...................... 141 Backup Withholding................... 142 Taxation of Tax-Exempt Shareholders...................... 142 Taxation of Foreign Shareholders..... 143 Statement of Stock Ownership......... 144 Other Tax Consequences............... 144 Possible Federal Tax Developments.... 144 Real Estate Transfer Taxes........... 144 OPERATING PARTNERSHIP AGREEMENT........ 144 Management........................... 145 Classes of Partnership Interests; Distributions to Partners......... 145 Tax Allocation....................... 145 Capital Contributions................ 146 Number, Class and Owner of Units..... 146 Additional Issuances of Class A Units............................. 146 Cancellation of Class A Units........ 147 Redemption Rights.................... 147 PAGE --- Business Operations.................. 147 Registration Rights.................. 148 Amendments........................... 148 Tax Matters.......................... 148 Representations and Warranties....... 148 Term................................. 148 Indemnification...................... 148 BRP GENERAL PARTNERSHIP AGREEMENT...... 149 General.............................. 149 Management........................... 149 Amendments........................... 149 ERISA CONSIDERATIONS................... 149 Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs......... 150 Status of the Company Under ERISA.... 150 SHARES AVAILABLE FOR FUTURE SALE....... 152 Registration Rights.................. 153 UNDERWRITING........................... 154 EXPERTS................................ 155 LEGAL MATTERS.......................... 155 TAX MATTERS............................ 155 AVAILABLE INFORMATION.................. 155 GLOSSARY............................... 157 INDEX TO FINANCIAL STATEMENTS.......... F-1
CAUTIONARY STATEMENT WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS PROSPECTUS PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. iii 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus. Unless otherwise indicated, the information contained in this Prospectus assumes that: (i) the Underwriters' over-allotment option is not exercised; (ii) no outstanding options or warrants are exercised; (iii) the Company has combined its Common Shares by means of a one-for-three reverse share split immediately prior to the closing of the Offering (the "Reverse Split"); and (iv) the Company will acquire all of the Acquisition Properties on or prior to the closing of the Offering. Unless the context otherwise requires, all references in this Prospectus to the "Company" shall mean Brandywine Realty Trust and its subsidiaries and affiliated entities, including Brandywine Operating Partnership, L.P. (the "Operating Partnership") and Brandywine Realty Services Corporation (the "Management Company"), and, with respect to the period prior to the Company's acquisition of the business of The Nichols Company ("TNC"), the term "Company" shall also include the management and development operations of TNC. See "Glossary" for the definitions of certain capitalized terms used in this Prospectus. THE COMPANY The Company is a self-administered, self-managed and fully integrated real estate investment trust ("REIT") engaged in the ownership, management, leasing, acquisition and development of primarily suburban office properties. The Initial Properties consist of 23 suburban office buildings and one industrial facility containing an aggregate of approximately 1.3 million net rentable square feet located primarily in the Suburban Philadelphia Office and Industrial Market. In addition, the Company has entered into agreements to purchase, on or prior to the closing of the Offering, the 13 Acquisition Properties, which contain an aggregate of approximately 700,000 net rentable square feet located primarily in the Market. Nine of the Acquisition Properties (the "SERS Properties") will be acquired for an aggregate purchase price of approximately $30.3 million, payable as follows: (i) by issuing preferred shares (the "Preferred Shares") that, subject to certain conditions, are convertible into 1,606,060 Common Shares; (ii) by making deferred payments aggregating $3.8 million in cash or Preferred Shares; and (iii) by issuing two-year warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per share. See "The Company -- The SERS Transaction." The purchase prices for the four remaining Acquisition Properties aggregate $22.8 million in cash. The Company developed 19 of the Initial Properties and will manage 36 of the Properties upon the closing of the Offering. In addition, the Company manages approximately 575,000 net rentable square feet at office properties on behalf of third parties and approximately 159,000 net rentable square feet at four other properties that are subject to a purchase option held by the Company (the "Option Properties"). As of September 30, 1996, the Properties were approximately 94.3% leased to 222 tenants. The Properties consist primarily of suburban office and industrial buildings (36 of which are Class A properties). The Company considers Class A suburban office and industrial properties to be those that have desirable locations, are well maintained and professionally managed and have the potential of achieving rental and occupancy rates that are typically at or above those prevailing in their respective markets. The average age of the Properties is approximately 10.8 years. The Company's 10 largest tenants (based on pro forma annualized base rent at September 30, 1996) aggregate approximately 29.8% of the Company's total base rent and approximately 27.5% of the Company's net rentable square feet, and have a weighted average remaining lease term of approximately 7.8 years. As of September 30, 1996, no single tenant accounted for more than 8.7% of the Company's pro forma aggregate annualized base rent and only 30 tenants individually represented more than 1.0% of such aggregate annualized base rent. 1 8 Leases representing approximately 58.5% of the net rentable square footage at the Properties were signed during the period January 1, 1993 through December 31, 1995, a time when management believes market rental rates were at or below current market rental rates. This belief is supported by the fact that for the nine months ended September 30, 1996: (i) renewal leases at the Initial Properties were signed covering approximately 154,000 net rentable square feet of office space at a weighted average rental rate of $13.25 per square foot, compared to leases that expired for that space during such period with a weighted average rental rate of $12.66 per square foot (representing a 4.7% increase); and (ii) new leases at the Initial Properties were signed covering approximately 264,000 net rentable square feet of office space at a weighted average rental rate of $15.96 per square foot, compared to leases that expired for that space during such period with a weighted average rental rate of $14.52 per square foot (representing a 9.9% increase). In all cases, weighted average rental rates include expense recoveries, free rent and scheduled rent increases that would be taken into account under generally accepted accounting principles. The Company believes that the strength of its leasing department and tenant retention capabilities should enable it to continue to capitalize on rental rate differentials as the Company's leases expire. The Company expects to focus its office and industrial building ownership in submarkets located within the Suburban Philadelphia Office and Industrial Market where it believes it can accumulate a critical mass of properties in order to enhance operating efficiencies and, in turn, cash flow. The Company's primary business objective is to realize and maximize growth in cash flow per share and to increase shareholder value by: - optimizing cash flow from the Properties through continued active property management and prudent operating strategies; - acquiring Class A suburban office and industrial properties and/or portfolios of such properties located in the Market and surrounding areas at prices that are below replacement cost and at yields which exceed the Company's cost of capital; - redeveloping and improving acquired properties and, to a lesser extent, developing build-to-suit properties as opportunities arise; - generating third party fee-related revenues; and - operating within a conservative capital structure with financing policies that allow for continued growth. According to the Mid-Year 1996 Philadelphia Office Market Report and Philadelphia Industrial Market Report (together, the "C&W Mid-Year Report") prepared by Cushman & Wakefield of Pennsylvania, Inc. ("C&W"), the office and industrial market located in the Philadelphia metropolitan area, which includes the Suburban Philadelphia Office and Industrial Market, contains an aggregate of approximately 383.3 million net rentable square feet. The Company believes that the Suburban Philadelphia Office and Industrial Market has significant rental growth potential due to declining vacancy rates, limited new construction, and steady employment growth. Furthermore, the Company believes that the Market contains opportunities to acquire Class A suburban office and industrial properties at attractive yields and at prices which are significantly below replacement costs. The Company's confidence in the Market is bolstered by the fact that the Class A office direct vacancy rate in the six Pennsylvania counties within the Market (Bucks, Chester, Delaware, Lehigh, Montgomery, and Northampton) fell from approximately 16.4% at June 30, 1995 to approximately 9.1% at June 30, 1996, and the Class A office direct vacancy rate in the two New Jersey counties within the Market (Burlington and Camden) fell from approximately 18.4% at June 30, 1995 to approximately 11.3% at June 30, 1996, according to the C&W Mid-Year Report. The overall vacancy rates within the Market of 12.4% also compare favorably with the overall average national office vacancy rate of 14.2% at June 30, 1996. In addition, the net absorption (i.e., the net change in occupied space for a given period of time, excluding sublet space and preleasing) of office space for the Market was approximately 1.3 million net rentable square feet for the six-month period ended June 30, 1996 compared to negative net absorption of 80,000 net rentable square feet for the six-month period ended June 30, 1995, according to the C&W Mid-Year Report. The Company commenced its operations in 1986 as a finite life REIT that owned eight properties. In October 1994, the Company's shareholders approved amendments to the Company's Declaration of Trust 2 9 that eliminated the Company's finite life status and increased the Company's authorized capital. Since that time, the Company has sought to enhance the value of its portfolio by: (i) actively managing its Properties; (ii) exploring acquisitions of individual and portfolio properties in its submarkets; and (iii) seeking financing transactions that could be used to fund future growth. These efforts culminated in the August 1996 acquisition of substantially all of the real estate holdings of Safeguard Scientifics, Inc. ("SSI") and SSI's real estate affiliate, The Nichols Company ("TNC"), a private real estate development and management services company operating in the Market (the "SSI/TNC Transaction"). The SSI/TNC Transaction included the acquisition by the Company of 19 office and industrial properties containing approximately 958,000 net rentable square feet with an occupancy rate of approximately 93.8% as of September 30, 1996 (the "SSI/TNC Properties") and an option to acquire the four Option Properties, each of which is located within the Market. The SSI/TNC Transaction also included the combination of the real estate management, marketing and development functions of TNC with those of the Company. The Company believes that the SSI/TNC Transaction has significantly enhanced its position as an owner and operator of office and industrial properties in the Market. Since 1982, TNC has operated exclusively in the Suburban Philadelphia Office and Industrial Market and has been responsible for the development of approximately 3.2 million net rentable square feet of office and industrial properties in this Market, including the development of build-to-suit facilities for GMAC (Mortgage Division former headquarters), Penn Mutual Life Insurance Company (headquarters), Advanta Corp. (former headquarters), Sartomer Company, Inc. (a U.S. subsidiary of TOTAL) (headquarters), General Accident Group, General Electric, Ford Motor Company, and ARCO Chemical. In addition, TNC acquired, developed, marketed, and managed nine corporate campuses. The Company is led by an experienced management team, the senior members of which include Anthony A. Nichols, Sr., Chairman of the Board and former President of TNC, and Gerard H. Sweeney, President and Chief Executive Officer. The Company's four senior executives have an average of approximately 22 years of real estate experience. In aggregate, the Company's management team has been responsible for the management of approximately 7.5 million net rentable square feet and the development of approximately 3.2 million net rentable square feet of office and industrial properties primarily within the Market. RISK FACTORS An investment in the Common Shares involves various risks, and investors should carefully consider the matters discussed under "Risk Factors." Such risks include, among others: - the limited geographic concentration of the Properties, which increases the risk of the Company being adversely affected by a downturn in the Philadelphia economy; - the possibility that the Preferred Shares to be issued in connection with the acquisition of the SERS Properties (which will be convertible, subject to certain conditions, into an aggregate of 1,606,060 Common Shares) will become (i) entitled to receive distributions after July 1, 1997 equal to 120% of the distributions payable in respect to the number of Common Shares into which such Preferred Shares are convertible and (ii) subject to redemption after July 1, 1998 at the greater of: (a) the fair market value of the number of the Common Shares into which the Preferred Shares may be converted and (b) an amount equal to $16.50 multiplied by the number of Common Shares into which the Preferred Shares may be converted plus an 8.0% return thereon, if prior to such respective dates the shareholders do not approve the conversion of the Preferred Shares into Common Shares, an event that would materially and adversely effect the financial condition of the Company; - risks associated with the acquisition of new properties, generally, and with the Company's recent acquisition of many of the Properties and contemplated acquisition of the Acquisition Properties, including risks of acquiring properties over which the Company has had no control and which may have characteristics or deficiencies unknown to the Company affecting the value or revenue potential thereof; the risk that recently acquired Properties or newly acquired properties will fail to perform as expected; risks associated with integrating such acquisitions into the Company's existing management 3 10 structure; risks associated with the Company's lack of operating history with regard to the most recently acquired Properties and the Acquisition Properties; risks that certain types of losses could exceed the Company's insurance coverage and the potential costs of compliance with the Americans With Disabilities Act of 1990 (the "ADA"); - the lack of appraisals for the Properties, giving rise to the risk that the combined value of the Common Shares, the Preferred Shares, and Units in the Operating Partnership that are redeemable for Common Shares may be greater than the aggregate fair market value of the Company's equity in the Properties; - the risk that the actual amount of Cash Available for Distribution will be substantially below the Company's expectations, including the risk that the actual Cash Available for Distribution will be insufficient to permit the Company to sustain its expected increased quarterly distribution rate; - conflicts of interest between the Company and certain of its executive officers and members of the Board of Trustees, all of which could lead to decisions that do not reflect solely the interests of shareholders, including: (i) conflicts associated with sales of, or prepayment of debt secured by, the Properties that may arise due to the more adverse tax consequences of such sales or prepayment to certain members of management and of the Board of Trustees as holders of Units; and (ii) the possible failure by the Company to enforce the material terms of its acquisition agreements with SSI and TNC, particularly the indemnification provisions for breaches of representations and warranties, even when such enforcement would be in the best interests of the Company; - risks generally associated with real estate investment and property management, such as: (i) the need to renew leases or relet space upon lease expirations on equal or more favorable terms and, at times, to pay renovation and reletting costs in connection therewith; (ii) the effect of economic and other conditions on office property cash flows and values; (iii) the ability of tenants to make lease payments; (iv) the ability of a property to generate revenue sufficient to meet operating expenses, including future debt service; and (v) the illiquidity of real estate investments, all of which may adversely affect the Company's ability to make expected distributions to shareholders and its ability to qualify as a REIT; - risks associated with borrowing, including the uncertainty associated with the ability of the Company to refinance mortgage indebtedness at maturity dates ranging from June 1997 to April 2001, that indebtedness might be refinanced at higher interest rates or otherwise on terms less favorable to the Company, that interest rates might increase on variable rate indebtedness (which is expected to equal approximately $4.1 million upon completion of the Offering) and on any borrowings under the Company's expected two-year $80.0 million secured revolving credit facility (the "Credit Facility") (none of which is expected to be outstanding as of the closing of the Offering), all of which could adversely affect the Company's ability to make expected distributions to shareholders and its ability to qualify as a REIT; - the absence of any provision in the organizational documents of the Company limiting the amount of indebtedness the Company may incur; - the possibility that the Company will incur net losses in the future; - taxation of the Company as a corporation if it fails to qualify as a REIT, treatment of the Operating Partnership as an association taxable as a corporation if it fails to qualify as a partnership for federal income tax purposes (and the resulting failure of the Company to qualify as a REIT), the Company's liability for federal, state and local income taxes in such event and the resulting decrease in the Cash Available for Distribution; - possible environmental liabilities in connection with the Company's ownership and/or operation of the Properties; - risks associated with the business and ownership of the Company's property management business (the "Management Company"), including potential tax liabilities, lack of control over the Management Company and the risk that most property management contracts are cancelable by the property owners with 30 days' notice or upon a sale of the property under management; 4 11 - the possibility that the Board may in the future amend or revise the investment, financing, borrowing and distribution policies of the Company without a vote of shareholders; - dependence on key personnel; - anti-takeover effect of limiting actual or constructive ownership of Common Shares by a single person to 9.8% of the outstanding shares, subject to certain specified exceptions, and of certain other provisions contained in the organizational documents of the Company, including the authority of the Board to designate and issue one or more series of preferred shares, without shareholder approval, which may discourage a change in control and limit the opportunity for shareholders to receive a premium over the then-current market price for their Common Shares; - the immediate and substantial dilution in the net book value of the Common Shares to be experienced by the purchasers of Common Shares in the Offering; - the preferential rights as to distributions, liquidation, and voting that the Board has the authority to establish for the benefit of holders of preferred shares including preferential liquidation distribution and redemption rights that the Board will establish for the benefit of the holders of the Preferred Shares to be issued in connection with the SERS Transaction; and - possible increase in market interest rates, which may lead prospective purchasers of the Common Shares to expect a higher anticipated annual yield from future distributions, and the possible issuance of additional Common Shares, all of which may adversely affect the market price of Common Shares. BUSINESS AND GROWTH STRATEGIES The Company's strategy is to focus its growth in the Suburban Philadelphia Office and Industrial Market. The Company believes that certain economic fundamentals in the Market provide an attractive environment for owning, acquiring and operating Class A office and industrial properties. This belief is supported by the following: - The recent decline in vacancy rates within the Market: the Class A office direct vacancy rate in the six Pennsylvania counties within the Market fell from approximately 16.4% at June 30, 1995 to approximately 9.1% at June 30, 1996, and the Class A office direct vacancy rate in the two New Jersey counties within the Market fell from approximately 18.4% at June 30, 1995 to approximately 11.3% at June 30, 1996, according to the C&W Mid-Year Report; - The net absorption of office space within the Market during the six-month period ended June 30, 1996 was approximately 1.3 million net rentable square feet compared to a negative net absorption of 80,000 net rentable square feet within the Market during the six-month period ended June 30, 1995, according to the C&W Mid-Year Report; - The weighted average Class A office rental asking rate of $18.94 per square foot within the Market as identified in the C&W Mid-Year Report, compared to an average annualized rental rate of $15.15 per square foot at the office Properties as of September 30, 1996; and - The limited new construction of office buildings within the Market during the 1990's, with construction primarily on a build-to-suit basis. As reported by C&W, office development from January 1, 1995 through June 30, 1996 was limited to approximately 254,000 net rentable square feet in the Market, which contained a total office inventory of approximately 43.7 million net rentable square feet as of June 30, 1996. The Company further believes that, based on its evaluation of market conditions, the growth rates attainable within the Suburban Philadelphia Office and Industrial Market will improve overall occupancy levels and rental rates and reduce owner leasing concessions. The Company believes that the foundation of its growth will consist of: (i) the quality and strategic location of the Properties; (ii) the strengthening regional economy and real estate fundamentals of the 5 12 Market; (iii) the knowledge and experience of its senior management team; (iv) the limited new construction of office space in the Market; (v) the presence of distressed sellers and inadvertent owners (through foreclosure or otherwise); and (vi) the limited capital available to many of the Company's competitors for acquisitions and capital improvements. The Company expects to focus its office building ownership in submarkets located within the Market where it believes it can accumulate a critical mass of properties in order to enhance operating efficiencies and, in turn, cash flow. The Company's primary business objective is to realize and maximize growth in cash flow per share and to increase shareholder value by: (i) optimizing cash flow from the Properties through continued active property management and prudent operating strategies; (ii) acquiring quality suburban office and industrial properties and/or portfolios of such properties located in the Market and surrounding areas at prices that are below replacement cost and at yields which exceed the Company's cost of capital; (iii) redeveloping and improving acquired properties and, to a lesser extent, developing build-to-suit properties as opportunities arise; (iv) generating third party fee-related revenues; and (v) operating within a conservative capital structure with financing policies that allow for continued growth. MANAGEMENT AND OPERATING STRATEGIES The Company expects to realize and maximize cash flow growth due to the strength and experience of its management team through: - Contractual Rental Rate Increases: As of September 30, 1996, 100 leases, representing approximately 43.1% of the total leases at the Properties and approximately 52.6% of the net rentable square feet at the Properties, included built-in contractual rental rate increases. Between September 30, 1996 and June 30, 2011, the contractual base rents received by the Company under such leases are expected to increase by an aggregate of approximately $11.8 million (not including increases attributable to the transition from free or partial rent to full rent or rent increases that are tied to indices such as the consumer price index (the "CPI")); - Leasing Expiring/Vacant Space: The Company expects to experience cash flow growth through the releasing of approximately 324,000 net rentable square feet of space under 89 leases that expire at the Properties between October 1, 1996 and December 31, 1997 and that have a weighted average annual rental rate as of their expiration dates of $14.14 per square foot. The Company believes that the majority of such leases are currently at or below market rental rates. In addition, the Company expects to realize additional cash flow through the potential leasing of approximately 115,000 net rentable square feet of vacant space at the Properties as of September 30, 1996 (approximately 5.7% of the Company's total net rentable square feet). There can be no assurance, however, that the Company will meet any of the foregoing expectations; and - Tenant Services: The Company believes it has been able to provide tenants with a high level of service as evidenced by the tenant retention rates of the Initial Properties in 1993, 1994 and 1995 and the nine-month period ended September 30, 1996 of 71.4%, 56.7%, 75.1% and 93.5%, respectively, based on net rentable square footage renewed as a percentage of the square footage of leases expiring during each period. ACQUISITION STRATEGIES The Company believes that it will be able to identify and capitalize on acquisition opportunities through: (i) management's and the Board's significant local market expertise; (ii) management's and the Board's relationships with private and institutional real estate owners, potential sellers of individual and portfolio properties, area real estate brokers and tenants; (iii) its current market penetration in the Suburban Philadelphia Office and Industrial Market; (iv) its access to capital as a public company, including, but not limited to, proceeds available under the Company's $80 million Credit Facility and the Operating Partnership's ability to exchange Units for interests in properties, thereby permitting certain sellers to defer the tax gain associated with the sale of such properties; and (v) its fully integrated real estate operations, which allow the Company to respond quickly to acquisition opportunities and enable it to provide real estate management 6 13 services to third parties as a means of identifying such opportunities. The Company's acquisition program will focus on both portfolio and individual acquisitions. See "Business and Properties -- Credit Facility." The Company will seek to acquire additional office and industrial properties that meet one or more of the following investment criteria: (i) the property is well designed, well constructed and well located within the Suburban Philadelphia Office and Industrial Market; (ii) the property offers attractive current yield and long-term growth potential based on its occupancy characteristics, including lease structure, tenant credit and occupancy history; (iii) the property can be acquired at a substantial discount to replacement cost; and (iv) the property is located in a submarket that contains barriers to entry and repositioning opportunities. LibertyView Acquisition. As an example of these strategies, in July 1996, the Company acquired the LibertyView Building, a 121,737 net rentable square foot suburban office building built in 1990 and located in Cherry Hill, New Jersey, for $10.6 million. This represents a purchase price of $87.07 per square foot versus management's estimate of this Property's replacement cost of approximately $150 per square foot. As of September 30, 1996, the LibertyView Building was approximately 82.8% leased (up from 66.7% at the date of acquisition). The LibertyView Building was acquired by the Company at a capitalization rate of approximately 11.0% (calculated by dividing (a) the expected net operating income (including the effect of straight line rents) generated by the property based on annualized revenues from signed leases in place and lease commitments at the date of acquisition by (b) the consideration paid for the property after adjusting for the additional capital costs of new leases). The Company estimates that the capitalization rate for this Property would be approximately 12.9% upon the establishment of an occupancy level greater than or equal to 95%, given current market rental rates, and after adjusting for the anticipated additional capital costs required to achieve such occupancy levels. There can be no assurance that the Company will achieve such occupancy levels at prevailing market rates. In addition, there can be no assurance that the Company will be successful in making acquisitions on comparable terms in the future. The Company believes it could add, in addition to the Acquisition Properties, a number of office properties to its existing portfolio without requiring a material increase in management personnel due to the Company's expertise, depth of current management, financial reporting systems and the efficiencies created by its centralized management structure. The Company also holds an option from an affiliate of TNC to purchase the Option Properties containing approximately 159,000 net rentable square feet. The Option Properties are located in the Market, are managed by the Company, and were approximately 95.5% leased to 16 tenants as of September 30, 1996. There can be no assurance that the Company will exercise its option to acquire any of the Option Properties or, if it does, that it will be able to satisfy the conditions relating to the exercise of such option. See "Business and Properties -- Option Properties." CORPORATE SERVICE ACTIVITIES The Company, through the Management Company, managed, as of September 30, 1996, approximately 2.0 million net rentable square feet, including 575,000 net rentable square feet of office properties on behalf of third parties and approximately 159,000 net rentable square feet at the Option Properties. The Company's services for such third parties include corporate tenant representations, property management, leasing and brokerage and construction management services. The Company typically provides a full range of real estate services to companies that do not maintain in-house real estate departments. The Company believes that these corporate service activities will help it to expand its base of national tenants, further enhance property management economies of scale and increase its market penetration. The Company also believes it will benefit from the increasing tendency of institutional owners of real estate to engage established real estate companies to handle their property and asset management requirements. Third party clients of the Company include BetzDearborn Inc., CompuCom Systems, Inc., Cambridge Technology Partners (Massachusetts), Inc., Coherent Communications Systems Corporation, Integrated Systems Consulting Group, Inc., Premier Solutions, Inc., and Sanchez Computer Associates, Inc., four of which are publicly-traded companies in which SSI maintains an ownership interest. For the nine months ended September 30, 1996, the real estate management services business had revenues of approximately $943,000. The Company's management expects to continue its relationships with its corporate clientele as well as to selectively market its services to corporate users of commercial real estate and building owners. 7 14 FINANCING POLICIES As a general policy, following the closing of the Offering and the Concurrent Investments, the Company intends, but is not obligated, to adhere to a policy of maintaining a debt-to-total market capitalization ratio of no more than 50%. This policy is intended to provide the Company with financial flexibility to select the optimal source of capital (whether debt or equity) with which to finance external growth. The Company's debt-to-total market capitalization ratio immediately following the closing of the Offering and the Concurrent Investments and the application of the net proceeds therefrom, will be approximately 21.6% (approximately 20.5% if the Underwriters' over-allotment option is exercised in full). Because such ratio is based upon the market values of equity, it will fluctuate with changes in the price of Common Shares. See "Policies with Respect to Certain Activities." RECENT DEVELOPMENTS RECENTLY COMPLETED ACQUISITIONS - On August 22, 1996, the Company consummated the SSI/TNC Transaction in which it acquired 19 of the Initial Properties in exchange for 258,333 Common Shares, warrants to purchase 258,333 Common Shares at an exercise price of $19.50 per share and 540,159 Units (including Units which the Operating Partnership is required to issue by no later than September 1999) that are convertible into 540,159 Common Shares. Such Units will be subsequently reduced to 509,856 in connection with the repayment of debt upon the closing of the Offering. See "Use of Proceeds." The 19 Initial Properties were acquired subject to mortgage indebtedness aggregating approximately $64.0 million as of the date of acquisition, a portion of which will be repaid from the net proceeds of the Offering and the Concurrent Investments. See "Use of Proceeds" and "The Company -- The SSI/TNC Transaction." The Company completed the SSI/TNC Transaction for the following reasons: (i) to increase the size and diversity of the Company's asset base, providing for a more stable entity with which to generate cash flow; (ii) to increase the Company's market capitalization, which the Company believes enhances its access to the capital markets; and (iii) to combine the real estate expertise of the Company and TNC, resulting in an increase in the Company's senior management depth from three to seven executives and total employees from six to 26. - On July 19, 1996, the Company completed the acquisition of the LibertyView Building, a 121,737 net rentable square foot suburban office building located in Cherry Hill, New Jersey, for a purchase price of approximately $10.6 million. See "-- Acquisition Strategies." PENDING ACQUISITIONS - The Company has entered into an agreement to purchase the SERS Properties. The SERS Properties aggregate approximately 418,000 net rentable square feet, have an average age of approximately 12 years and are located within the Market. As of September 30, 1996, the SERS Properties were approximately 92.4% leased to 62 tenants. The SERS Properties will be acquired by the Company for an aggregate purchase price of approximately $30.3 million, payable as follows: (i) by issuing Preferred Shares that, subject to certain conditions, are convertible into 1,606,060 Common Shares (which represents, assuming the conversion of all such Preferred Shares into Common Shares, an effective price per Common Share of $16.50); (ii) by making deferred payments aggregating $3.8 million; and (iii) by issuing two-year warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per share. See "The Company -- The SERS Transaction." - The Company has signed an agreement of sale to purchase the Delaware Corporate Center (One Righter Parkway), a 104,828 net rentable square foot office building located in New Castle County, Delaware, for $12.7 million in cash. The building was built in 1989 and was 100% leased as of September 30, 1996. See "The Company -- Other Pending Acquisitions." - The Company has signed an agreement of sale to purchase two buildings in Horsham, Pennsylvania for an aggregate purchase price of $7.1 million in cash. The buildings include 700 Business Center Drive, a 8 15 30,773 net rentable square foot office building built in 1986 and 800 Business Center Drive, a 51,236 net rentable square foot office building built in 1986. 700 and 800 Business Center Drive were each 100% leased as of September 30, 1996. See "The Company -- Other Pending Acquisitions." - The Company has signed an agreement of sale to purchase 8000 Lincoln Drive, a 54,923 net rentable square foot office building built in 1983 and located in Evesham, New Jersey, for $3.0 million in cash. The building was 100% leased as of September 30, 1996. These pending acquisitions are subject to completion of customary closing conditions (other than the completion of due diligence which has occurred) and, as a result, no assurance can be given that these, or any other, acquisitions will be completed. If these acquisitions are consummated, the Company's portfolio will consist of 37 properties aggregating approximately 2.0 million net rentable square feet. CONCURRENT INVESTMENTS - Concurrent with the closing of the Offering the SERS Voting Trust has agreed, subject to certain conditions, to purchase $10.5 million of Common Shares directly for the Company in a private placement at the price per Common Share sold in the Offering. See "The Company -- The SERS Private Placement." - Concurrent with the closing of the Offering two investment funds (the "Morgan Stanley Funds") advised by Morgan Stanley Asset Management Inc. have agreed to purchase $11.7 million of Common Shares directly from the Company in a private placement at a price per Common Share of $16.50. See "The Company -- The Morgan Stanley Private Placement." FINANCING TRANSACTION Richard M. Osborne, an Ohio-based investor and Trustee of the Company, has made investments in the Company resulting in his beneficial ownership of 213,718 Common Shares and warrants to purchase 34,118 Common Shares at an exercise price of $19.50 per share. Approximately 179,600 of Mr. Osborne's Common Shares were acquired in January 1996 from third parties for a weighted average purchase price per share of approximately $15.03 and the balance of Mr. Osborne's Common Shares was acquired from the Company on June 21, 1996 and August 23, 1996 at $16.89 per share. In June 1996, an affiliate of Mr. Osborne invested approximately $1.3 million in the Company by (i) loaning to the Company approximately $1.0 million on an unsecured basis at the prime rate (the "Osborne Loan") and (ii) by acquiring 19,983 paired units ("Paired Units") at a per unit price of $16.89. Each Paired Unit included one Common Share and one six-year warrant to purchase an additional Common Share at an exercise price of $19.50 per share. Immediately following the closing of the Offering, the Osborne Loan will be repaid, pursuant to its terms, through the issuance of additional Paired Units. The actual number of Paired Units so issued will equal the outstanding balance of the Osborne Loan on the date of its repayment, including accrued interest (which outstanding balance and interest aggregated approximately $774,000 as of September 30, 1996) divided by $16.89 (or approximately 45,844 Paired Units as of September 30, 1996). CREDIT FACILITY The Company has received a commitment from a group of lenders to provide the Company with a two-year, $80.0 million revolving Credit Facility. The Credit Facility will be used, among other things, to finance the acquisition of properties, provide funds for tenant improvements and capital expenditures and provide for working capital and other general purposes. See "Business and Properties -- Credit Facility." REVERSE SHARE SPLIT Immediately prior to the closing of the Offering, the Company will combine the outstanding Common Shares by means of a one-for-three reverse share split. As a result, the number of Common Shares issuable upon exercise of outstanding options and warrants, including the per share exercise prices, and the number of Common Shares issuable upon conversion of Units will be proportionately adjusted. The Reverse Split will 9 16 result in certain shareholders owning fractional shares of the Company. The Company will not issue fractional shares, but will instead aggregate and sell any fractional shares and distribute the cash proceeds to shareholders who would otherwise be entitled to receive fractional shares. See "Description of Shares of Beneficial Interest -- Reverse Share Split; Treatment of Fractional Shares." BUSINESS AND PROPERTIES PROPERTIES The Initial Properties are comprised of 23 office properties (22 of which are Class A properties) totalling approximately 1.2 million net rentable square feet and one Class A industrial property (1510 Gehman Road) totalling approximately 152,000 net rentable square feet. Twenty-two of the Initial Properties are located in the Market. Concurrently with the closing of the Offering, the Company will acquire the Acquisition Properties. The Acquisition Properties (all of which are Class A properties) are comprised of 11 office properties totalling approximately 600,000 net rentable square feet and two industrial facilities totalling approximately 100,000 net rentable square feet. The Company generally considers Class A suburban office and industrial properties to be those that have desirable locations, are well maintained and professionally managed and have the potential of achieving rental and occupancy rates that are typically at or above those prevailing in their respective markets. As of September 30, 1996, the 34 office Properties and the three industrial Properties were approximately 93.5% and 100% leased, respectively, by 222 tenants. The 34 office Properties are primarily one to three story suburban office buildings containing an average of 51,000 net rentable square feet. All of the Properties are in business parks or commercial business districts, and 19 of the Properties were developed by the Company. 10 17 The following table sets forth certain information with respect to the Properties:
AVERAGE TOTAL BASE TOTAL BASE RENT RENT PLUS EXPENSE FOR THE RECOVERIES PER NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE RENTABLE LEASED AS OF ENDED FOOT LEASED INITIAL PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30, SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3) - --------------------------------------------- ----- --------- ------------- --------------------- ------------------- HORSHAM/WILLOW GROVE/JENKINTOWN, PA 650 Dresher Road............................ 1984 30,138 100.0% $ 329 $ 15.67 1155 Business Center Drive.................. 1990 51,388 99.4% 591 16.31 500 Enterprise Road......................... 1990 67,800 98.5% 674 13.74 One Progress Avenue......................... 1986 79,204 100.0% 563 9.54 SOUTHERN ROUTE 202 CORRIDOR, PA 456 Creamery Way............................ 1987 47,604 100.0% 336 7.15 486 Thomas Jones Way........................ 1990 51,500 50.9% 416 23.26 468 Creamery Way............................ 1990 28,934 100.0% 293 14.54 110 Summit Drive............................ 1985 43,660 67.6% 262 13.51 BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON, PA 2240/50 Butler Pike......................... 1984 52,183 99.4% 560 15.82 120 West Germantown Pike.................... 1984 30,546 100.0% 421 19.16 140 West Germantown Pike.................... 1984 25,953 98.7% 297 16.56 2260 Butler Pike............................ 1984 31,892 100.0% 377 16.84 MAIN LINE, PA 16 Campus Boulevard......................... 1990 65,463 100.0% 430 9.94 18 Campus Boulevard......................... 1990 37,700 100.0% 410 15.01 LEHIGH VALLEY, PA 7310 Tilghman Street........................ 1985 40,000 99.0% 329 11.44 7248 Tilghman Street........................ 1987 42,863 93.8% 399 15.06 6575 Snowdrift Road......................... 1988 46,250 100.0% 300 9.06 LANSDALE, PA 1510 Gehman Road............................ 1990 152,625 100.0% 773 7.70 BURLINGTON COUNTY, NJ One Greentree Centre........................ 1982 55,838 100.0% 869 16.97 Two Greentree Centre........................ 1983 56,075 100.0% 816 14.53 Three Greentree Centre...................... 1984 69,101 96.2% 1,049 16.51 CAMDEN COUNTY, NJ 457 Haddonfield Road (LibertyView).......... 1990 121,737 82.8% 1,160 16.34 OTHER MARKETS 168 Franklin Corner Road.................... 1976 32,000 54.5% 186 13.43 Lawrenceville, NJ Twin Forks Office Park Raleigh, NC 5910-6090 Six Forks......................... 1982 73,339 100.0% 1,008 13.83 --------- ----- ------- ------ CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE INITIAL PROPERTIES.......................... 1,333,793 93.8% 12,848 14.04(10) ========= ===== ======= ====== AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF INITIAL PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996 SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE - --------------------------------------------- ------------------ -------- ------------ ------------------------- < HORSHAM/WILLOW GROVE/JENKINTOWN, PA 650 Dresher Road............................ $16.50 $18.02 9.2% GMAC (100%) - 5/03 1155 Business Center Drive.................. 17.22 18.02 4.6% IMS (79%) - 3/06; Motorola (14%) - 2/99 500 Enterprise Road......................... 15.03 14.50 (3.5)% Conti Mortgage (80%) - 4/01; Pioneer (19%) - 10/00 One Progress Avenue......................... 11.75 18.02 53.4% Reed Technologies (100%) - 6/11 SOUTHERN ROUTE 202 CORRIDOR, PA 456 Creamery Way............................ 7.25(7) 7.89(8) 8.8% Neutronics (100%) - 1/03 486 Thomas Jones Way........................ 15.46 15.55 0.5% First American Real Estate (20%) - 4/00 468 Creamery Way............................ 13.88 13.61 (1.9)% Franciscan Health (82%) - 6/99; American Day Treatment (18%) - 6/00 110 Summit Drive............................ 7.20(8) 7.89(8) 9.6% Maris Equipment (49%) - 4/99 BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON, PA 2240/50 Butler Pike......................... 17.55 18.70 6.6% CoreStates (59%) - 4/06; TWA Marketing (33%) - 10/99 120 West Germantown Pike.................... 17.52 18.70 6.7% Clair O'Dell (82%) - 7/01; Kleinerts (13%) - 10/98 140 West Germantown Pike.................... 17.38 18.70 7.6% Healthcare, Inc. (46%) - 9/99; Henkel (29%) - 6/98; National Health Equity (20%) - 5/99 2260 Butler Pike............................ 17.82 18.70 4.9% Information Resources (66%) - 12/00; Med Resorts (26%) - 1/01 MAIN LINE, PA 16 Campus Boulevard......................... 13.58 20.27 49.3% New England Mutual (52%) - 5/06; Atlantic Employees C.U. (35%) - 1/06 18 Campus Boulevard......................... 18.62 20.27 8.9% Prudential (25%) - 6/01; Devco Mutual (35%) - 1/01; Scott Paper (17%) - 11/97; Marshall Dennehey (18%) - 10/01 LEHIGH VALLEY, PA 7310 Tilghman Street........................ 8.89(8) 10.50(8) 18.1% AT&T (83%) - 12/96-8/98 7248 Tilghman Street........................ 14.76 15.34 3.9% IDS Financial (29%) - 7/01; Ohio Casualty (46%) - 7/01; Meridian Mortgage (12%) - 6/99 6575 Snowdrift Road......................... 7.15(8) 10.50(8) 46.9% Corning Packaging (100%) - 2/99 LANSDALE, PA 1510 Gehman Road............................ 4.72(8) 5.95(8) 26.1% Ford Electronics (35%) - 6/98; Nibco (65%) - 8/99 BURLINGTON COUNTY, NJ One Greentree Centre........................ 16.07 19.30 20.0% American Executive Centers (30%) - 1/06; West Jersey (15%) - 4/01; Temple Sports Med. (18%) - 12/97 Two Greentree Centre........................ 16.02 19.30 20.5% Merrill Lynch (23%) - 11/05; ReMax Suburban (12%) - 11/05 Three Greentree Centre...................... 16.41 19.30 17.6% Parker, McCay & Criscuolo (39%) - 5/01; Marshall Dennehey (20%) - 5/97; Olde Discounts (12%) - 3/00; Surety Title (13%) - 11/03 CAMDEN COUNTY, NJ 457 Haddonfield Road (LibertyView).......... 18.63 21.81 17.1% HIP Health Plan (31%) - 12/07 OTHER MARKETS 168 Franklin Corner Road.................... 15.55 18.00(9) 15.8% Dr. Belden (12%) - 5/01; Lawrenceville, NJ Crawford & Co. (14%) - 11/99 Twin Forks Office Park Raleigh, NC 5910-6090 Six Forks......................... 14.25 15.50(9) 8.8% N/A ----- ----- ----- CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE INITIAL PROPERTIES.......................... $14.63(10) $16.83(10)(11) 15.0% ===== ===== =====
11 18
AVERAGE TOTAL BASE TOTAL BASE RENT RENT PLUS EXPENSE FOR THE RECOVERIES PER NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE RENTABLE LEASED AS OF ENDED FOOT LEASED ACQUISITION PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30, SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3) - ----------------------------------------------- ----- --------- ------------- --------------------- ------------------- HORSHAM/WILLOW GROVE/JENKINTOWN, PA 700 Business Center Drive(12)................. 1986 82,009 100.0% $ 793 $ 11.59 800 Business Center Drive(12)................. 1986 82,009 100.0% $ 793 $ 11.59 KING OF PRUSSIA, PA 500 North Gulph Road.......................... 1979 92,851 86.1% 1,387 15.02 BUCKS COUNTY, PA 2200 Cabot Boulevard.......................... 1979 55,081 100.0% 259 5.75 2250 Cabot Boulevard.......................... 1982 40,000 100.0% 170 5.22 2260 Cabot Boulevard(12)...................... 1984 29,638 100.0% 246 10.17 2270 Cabot Boulevard(12)...................... 1984 29,638 100.0% 246 10.17 3000 Cabot Boulevard.......................... 1986 34,640 83.9% 364 12.85 3329 Street Road -- Greenwood Sq.(12)......... 1985 165,929 92.1% 2,234 14.56 3331 Street Road -- Greenwood Sq.(12)......... 1986 165,929 92.1% 2,234 14.56 3333 Street Road -- Greenwood Sq.(12)......... 1988 165,929 92.1% 2,234 14.56 BURLINGTON COUNTY, NJ 8000 Lincoln Drive............................ 1983 54,923 100.0% 445 8.25 NORTHERN SUBURBAN WILMINGTON One Righter Parkway........................... 1989 104,828 100.0% 2,044 19.50 --------- ----- ------- ------ CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE ACQUISITION PROPERTIES........................ 659,899 95.2% $ 7,942 $ 12.93 ========= ===== ======= ====== CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL PROPERTIES.................................... 1,993,692 94.3% $20,790 $ 13.67 ========= ===== ======= ====== I,2 AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF ACQUISITION PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996 SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE - ----------------------------------------------- --------------- -------- ------------ ------------------------- < HORSHAM/WILLOW GROVE/JENKINTOWN, PA 700 Business Center Drive(12)................. $13.11 $18.02 37.5% Metpath (35%) - 1/12; Sprint (19%) - 3/01; Macro (19%) - 800 Business Center Drive(12)................. $13.11 $18.02 37.5% 4/01; Advanta (10%) - 6/99 KING OF PRUSSIA, PA 500 North Gulph Road.......................... 16.51 21.39 29.6% Transition Software (16%) - 8/00, Strohl Syst (12%) - 10/99 BUCKS COUNTY, PA 2200 Cabot Boulevard.......................... 4.40 4.50 2.3% Hussman Corp (38%), Nobel Printing (38%) - 6/97; McCaffrey Mgt (24%) - 8/00 2250 Cabot Boulevard.......................... 3.50 4.50 28.6% Bucks County Nut (100%) - 7/99 2260 Cabot Boulevard(12)...................... 8.78 9.00 2.5% Sager Electrical (14%) - 10/98; Terminix Intrntnl 2270 Cabot Boulevard(12)...................... 8.78 9.00 2.5% (13%) - 11/96 3000 Cabot Boulevard.......................... 17.03 18.95 11.3% Geraghty & Miller (31%) - 11/97; Prudential Insur. (21%) - 7/98; Luigi Bormioli Co. (11%) - 6/98 3329 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6% 3331 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6% Waste Management (27%) - 3333 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6% 3/97 BURLINGTON COUNTY, NJ 8000 Lincoln Drive............................ 17.13 19.30 $ 12.7% CSC (67%) - 11/01; Blue Cross (33%) - 2/07 NORTHERN SUBURBAN WILMINGTON One Righter Parkway........................... $ 19.30 20.50 6.2% Kimberly Clark (89%) - 12/05 ----- ----- ----- CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE ACQUISITION PROPERTIES........................ $ 16.23(13) $19.01(11)(13) 17.2% ===== ===== ===== CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL PROPERTIES.................................... $ 15.15(14) $17.54(11)(14) 15.8% ===== ===== ===== I,2
- --------------- (1) Calculated by dividing net rentable square feet included in leases dated on or before September 30, 1996 by the aggregate net rentable square feet included in the Property. (2) "Total Base Rent" for the twelve months ended September 30, 1996 represents base rents received during such period, excluding tenant reimbursements, calculated in accordance with generally accepted accounting principles determined on a straight-line basis. Tenant reimbursements generally include payment of real estate taxes, operating expenses, and escalations and common area maintenance and utility charges. (3) Represents the Total Base Rent for the twelve months ended September 30, 1996, plus tenant reimbursements for the twelve months ended September 30, 1996, divided by the net rentable square feet leased. (4) "Average Annualized Rental Rate" is calculated as follows: (i) for office leases written on a triple net basis, the sum of the annualized contracted base rental rates payable for all space leased as of September 30, 1996 (without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles) plus the 1996 budgeted operating expenses excluding tenant electricity; and (ii) for office leases written on a full service basis, the annualized contracted base rate payable for all space leased as of September 30, 1996. In both cases, the annualized rental rate is divided by the total square footage leased as of September 30, 1996 without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles. (5) Represents the weighted average asking rates, as of June 30, 1996, of directly competitive properties in the relevant submarket within the Market, as identified by C&W. (6) Represents the percentage by which the June 30, 1996 C&W weighted average asking rate exceeds the September 30, 1996 average annualized rental rate of the applicable Property. (7) Property occupied by a single tenant under a triple net lease agreement, pursuant to which the tenant subcontracts directly with third party contractors for all building services. (8) These rates represent triple net lease rates (leases under which tenants are required to pay all real property taxes, insurance and expenses of maintaining the leased space). (9) Rental rates represent management's estimate of asking rental rates in these markets for comparable properties. (10) Excludes 1510 Gehman Road, which is an industrial Property. (11) Represents the Class A weighted average rental rate for the submarkets in which the Properties are located (weighted by Property net rentable square footage) as compared to the Class A office weighted average asking rate of $18.94 per square foot for the Market (weighted by Market net rentable square footage)as identified in the C&W Mid-Year Report. (12) The data reflected for these properties are presented on a consolidated basis. (13) Excludes 2200 Cabot Boulevard and 2250 Cabot Boulevard, which are industrial properties. (14) Excludes 1510 Gehman Road, 2200 Cabot Boulevard and 2250 Cabot Boulevard, which are industrial properties. 19 STRUCTURE OF THE COMPANY As set forth under "Structure of the Company -- Ownership," the following diagram depicts the ownership of the Company and the Operating Partnership upon closing of the Offering: LOGO - --------------- (1) The Operating Partnership holds controlling interests in each of the property partnerships. (2) The Operating Partnership owns all of the non-voting preferred stock and 5% of the common stock of the Management Company and is entitled to receive 95% of the dividends payable by the Management Company on its capital stock. Four executive officers of the Company, Messrs. Nichols, Sweeney, Belcher and Gallagher, are the partners in a general partnership that owns the remaining 95% of the common stock of the Management Company. Ownership of the Management Company was structured in a manner intended to comply with REIT qualification requirements. BENEFITS OF THE OFFERING TO AFFILIATES OF THE COMPANY Certain affiliates of the Company will realize material benefits in connection with the Offering, including the following: - The Units that the Operating Partnership issued and committed to issue in the SSI/TNC Transaction will, as a result of the Offering and pursuant to their terms, be convertible into an equal number of Common Shares and, accordingly, such Units will be more liquid as a result of the Offering; - SSI and TNC, as holders of Units, will realize an immediate accretion in the net tangible book value of their investment in the Company of approximately $5.47 per Common Share; 13 20 - Approximately $1.8 million of indebtedness secured by the Properties and for which TNC and SSI are liable will be repaid from proceeds of the Offering, thereby relieving TNC and SSI of such potential liability. In addition, pursuant to the SSI/TNC Transaction, the Company will become obligated to indemnify TNC and SSI against liability under approximately $10.4 million of recourse indebtedness secured by four of the Properties; - Approximately $764,000 of the proceeds of the Offering will be used to repay in full loans made by SSI to the Operating Partnership; - The Osborne Loan, having an outstanding balance, including accrued interest, of approximately $774,000 as of September 30, 1996, will be prepaid pursuant to its terms through the issuance of Paired Units. The actual number of Paired Units issued in respect of the repayment of such loan will be equal to the outstanding balance of the Osborne Loan on the date of its, including accrued and unpaid interest, divided by $16.89 (45,844 Paired Units as of September 30, 1996); and - Agreements imposing restrictions on the ability of each of SSI, Anthony A. Nichols, Sr. and Richard M. Osborne and their respective affiliates to transfer their Common Shares, and restricting the manner in which they may vote such Common Shares, will terminate. THE OFFERING AND CONCURRENT INVESTMENTS All of the Common Shares offered hereby are being sold by the Company. None of the Company's shareholders are selling any Common Shares in the Offering. Common Shares offered hereby............................. 3,700,000 Common Shares offered in the Concurrent Investments...... 1,345,453 Common Shares outstanding after the Offering and the Concurrent Investments................................. 8,118,399(1) Use of Proceeds from the Offering and the Concurrent Investments............................................ Repayment of certain indebtedness related to the Properties, pay a portion of the purchase prices of the Acquisition Properties, fund initial Credit Facility fees and expenses and for working capital purposes. See "Use of Proceeds." AMEX Symbol.............................................. "BDN"
- --------------- (1) Includes: (i) 509,856 Common Shares reserved for issuance upon the conversion of Units into Common Shares; (ii) 45,844 Common Shares to be issued immediately following the Offering in connection with the prepayment of the Osborne Loan; (iii) 1,606,060 Common Shares reserved for issuance upon the conversion of the Preferred Shares into Common Shares; and (iv) 709,090 Common Shares issued to the Morgan Stanley Funds in the Morgan Stanley Private Placement. Excludes: (i) 535,784 Common Shares reserved for issuance, at an exercise price of $19.50 per share, upon the exercise of warrants; (ii) 133,333 Common Shares reserved for issuance, at an exercise price of $25.50 per share, upon the exercise of warrants; and (iii) 46,666 Common Shares reserved for issuance, at exercise prices of $14.31 and $6.21 per share, upon the exercise of options in respect of 33,333 and 13,333 Common Shares, respectively. DISTRIBUTION POLICY The Company has paid dividends on a regular basis since the beginning of 1994. See "Price Range of Common Shares and Distribution History." Following the Offering, the Company intends to increase its quarterly distributions to $0.35 per share beginning with a pro rata distribution with respect to the period commencing on the closing of the Offering and ending on December 31, 1996. On an annualized basis, this would be $1.40 per share. Although the Company intends to maintain the stated distribution rate, future 14 21 distributions by the Company to holders of Common Shares will be made at the discretion of the Board of Trustees. The Company currently expects that the principal factors the Board will consider in setting distributions will be the annual REIT distribution requirements (described below) and the Board's determination of the relative benefits of distribution versus reinvestment in the Company. The Board will also consider the actual cash flow of the Company, the Company's financial condition and capital requirements, and such other factors as the Board deems relevant. See "Risk Factors -- Risks Relating to Distributions." TAX STATUS OF THE COMPANY The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), and so long as it remains qualified as a REIT, the Company generally will not be subject to Federal income tax on that portion of its ordinary income or capital gains that is currently distributed to shareholders so long as it distributes at least 95% of its REIT taxable income each year. Based on the Company's pro forma results from operations for the twelve months ended September 30, 1996, the Company would have been required to distribute approximately $4.9 million or $0.64 per share, in order to maintain its status as a REIT. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to Federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. See "Federal Income Tax Considerations -- Failure to Qualify" for a more detailed discussion of the consequences of a failure of the Company to remain qualified as a REIT. Even if the Company remains qualified as a REIT, the Company may be subject to certain state and local taxes on its income and property and to Federal income and excise taxes on its undistributed income and certain other categories of income. The Management Company is subject to Federal and state income tax on its taxable income at regular corporate rates. See "Federal Income Tax Considerations." SUMMARY SELECTED FINANCIAL DATA The following tables set forth certain summary selected historical financial and operating information and on a combined basis for the Company and the SSI/TNC Properties and on a pro forma basis for the Company. The following tables also set forth certain historical selected financial data for the Company for each of the five years during the period ended December 31, 1995, and as of and for the nine months ended September 30, 1995 and 1996. Such information should be read in conjunction with the financial statements and notes thereto included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The unaudited pro forma financial and operating information for the nine months ended September 30, 1996 and for the year ended December 31, 1995 is presented as if the following transactions had been consummated on September 30, 1996 for balance sheet purposes and at the beginning of the period presented for purposes of the statements of operations: (i) the Company acquired the Acquisition Properties and contributed them to the Operating Partnership; (ii) the Company consummated the Concurrent Investments and contributed the net proceeds therefrom to the Operating Partnership; and (iii) the Company consummated the Offering and applied the net proceeds therefrom as set forth under the caption "Use of Proceeds." The pro forma financial information is not necessarily indicative of what the actual financial position or results of the Company would have been as of and for the periods indicated, nor does it purport to represent the Company's future financial position or results of operations. 15 22 BRANDYWINE REALTY TRUST COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA (UNAUDITED)
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ ------------------------------------ COMBINED COMBINED HISTORICAL HISTORICAL ----------------- PRO FORMA ------------------- PRO FORMA 1994 1995 1995 1995 1996 1996 ------- ------- ---------- ------- ------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Revenue -- Base rents........................................ $12,209 $11,346 $ 18,813 $ 8,469 $ 9,122 $ 15,605 Tenant reimbursements............................. 3,130 2,961 3,946 2,207 2,717 3,255 Management fees................................... 946 617 -- 492 778 -- Other............................................. 79 86 86 54 169 169 ------- ------- ------- ------- ------- ------ Total revenue............................... 16,364 15,010 22,845 11,222 12,786 19,029 ------- ------- ------- ------- ------- ------ Expenses -- Interest.......................................... 7,877 6,648 3,396 5,015 4,664 2,573 Depreciation and amortization..................... 4,988 5,738 7,456 4,139 3,890 5,465 Property expenses................................. 5,897 5,032 10,129 3,618 4,698 8,027 General and administrative........................ 2,054 1,588 790 1,177 1,039 587 Provision for loss on real estate investments..... 5,400 202 -- -- -- -- ------- ------- ------- ------- ------- ------ Total expenses.............................. 26,216 19,208 21,771 13,949 14,291 16,652 ------- ------- ------- ------- ------- ------ Income (loss) before gains on sales of real estate investments, minority interest and extraordinary items............................................. (9,852) (4,198) 1,074 (2,727) (1,505) 2,377 Gains on sales of real estate investments........... 1,410 -- -- -- -- -- Equity income of management company................. -- -- 72 -- 54 244 Income (loss) before extraordinary items............ (2,807) (4,203) 984 (2,727) (1,451) 2,399 Income (loss) allocated to Common Shares............ (1,264 ) 713 Weighted average number of shares outstanding....... 6,008,540 6,007,577 Earnings per share: Income (loss) before extraordinary items.......... $ 0.16 $ 0.40 Income (loss) allocated to Common Shares.......... $ (0.21 ) $ 0.12
SEPTEMBER 30, 1996 ---------------------- HISTORICAL PRO FORMA -------- --------- BALANCE SHEET DATA: Real estate investments, net of accumulated depreciation.................................... $98,818 $151,527 Total assets...................................... 106,183 161,726 Mortgages and notes payable....................... 83,020 36,839 Total liabilities................................. 86,116 39,614 Minority interest................................. 8,758 613 Convertible preferred shares...................... -- 26,444 Beneficiaries' equity............................. 11,309 95,055
16 23
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------------ COMBINED COMBINED HISTORICAL HISTORICAL -------------------- PRO FORMA -------------------- PRO FORMA 1994 1995 1995 1995 1996 1996 -------- ------- --------- ------- -------- --------- (IN THOUSANDS, EXCEPT FOR PROPERTY DATA) OTHER DATA: Funds from Operations(a)........................ $ 645 $ 1,382 $ 7,131 $ 1,307 $ 2,661 $ 7,103 Cash flows provided by (used in): Operating activities.......................... 1,534 1,886 (b) 1,575 1,710 (b) Investing activities.......................... 7,844 (3,490) (b) (1,704) (11,409) (b) Financing activities.......................... (10,171) 1,013 (b) (557) 11,126 (b) Total cash distributions declared............... 3,680 1,021 -- 835 226 -- PROPERTY DATA: Number of properties owned at period end........ 22 23 37 22 24 37 Gross net rentable square feet owned at period end........................................... 1,180 1,212 1,994 1,181 1,334 1,994
17 24 BRANDYWINE REALTY TRUST HISTORICAL SELECTED FINANCIAL DATA
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------ ------ ------- ------- ------- ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------- OPERATING DATA: Total operating revenue(c)................. $ -- $ -- $ -- $ 4,192 $ 3,666 $ 2,691 $ 4,599 Income from acquisition of limited partner interests in Brandywine Specified Property Investors Limited Partnership... -- -- 2,469 -- -- -- -- Provision for loss on real estate investments.............................. (6,700) -- -- (5,400) -- -- -- Gain on sales of real estate investments... -- -- -- 1,410 -- -- -- Extraordinary item-gain on extinguishment of debt.................................. -- -- -- 7,998 -- -- -- Net income (loss).......................... (6,705) (1) 2,468 7,567(b) (824) (592) (128) Net income (loss) per share................ (10.83) -- 3.99 11.22 (1.32) (0.95) (0.19) Cash distributions declared................ -- -- -- 2,914 1,021 835 226 Cash distributions per share(c)............ -- -- -- 4.71 1.65 1.35 0.36(d)
DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------ ------ ------- ------- ------- -------- BALANCE SHEET DATA: Real estate investments, net of accumulated depreciation.............................. $ -- $ -- $ -- $13,948 $13,709 $13,570 $ 98,818 Total assets................................ 2,128 2,123 4,604 17,873 17,105 17,225 106,183 Mortgages and notes payable(e).............. -- -- -- 6,899 8,931 8,957 83,020 Total liabilities........................... 58 55 68 8,684 9,761 9,463 86,116 Minority interest........................... -- -- -- -- -- -- 8,758 Beneficiaries' equity....................... 2,070 2,068 4,536 9,189 7,344 7,762 11,309
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------ ------ ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PROPERTY DATA) OTHER DATA: Funds from Operations(a)..................... $ (5) $ (1) $ (1) $ (533) $ 537 $ 453 $ 837 Cash flows provided by (used in): Operating activities....................... -- -- -- (628) 497 363 887 Investing activities....................... -- -- 2,469 9,559 (701) (943) (9,914) Financing activities....................... -- -- -- (9,635) (722) (326) 10,046 PROPERTY DATA: Number of properties owned at period end..... 7 7 7 4 4 4 24 Gross net rentable square feet owned at period end................................. 546 546 546 255 255 255 1,334
- --------------- (a) Management generally considers Funds from Operations to be a useful measure of the operating performance of an equity REIT because, together with net income and cash flows, Funds from Operations provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures. Funds from Operations does not represent net income or cash flows from operations as defined by generally accepted accounting principles ("GAAP") and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It 18 25 should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Funds from Operations does not measure whether cash flow is sufficient to fund all of the Company's cash needs, including principal amortization, capital improvements and distributions to shareholders. Funds from Operations also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Further, Funds from Operations as disclosed by other REITs may not be comparable to the Company's calculation of Funds from Operations. The Company adopted the NAREIT definition of Funds from Operations in 1996 and has used it for all periods presented. Funds from Operations is calculated as net income (loss) adjusted for depreciation expense attributable to real property, amortization expense attributable to capitalized leasing costs, tenant allowances and improvements, gains on sales of real estate investments and extraordinary and nonrecurring items. (b) Pro forma information relating to cash flows from operating, investing and financing activities has not been included because management believes that the information would not be meaningful due to the number of assumptions required in order to calculate this information. (c) Prior to 1994, the Company accounted for its investment in Brandywine Realty Partners ("BRP") using the equity method of accounting and, accordingly, received no rents and tenant reimbursements from its investment in BRP and received allocated income from BRP totalling $148,000, $290,000, and $568,000 for the years ended December 31, 1991, 1992, and 1993, respectively. Subsequent to 1993, the Company acquired control of BRP and consolidated this investment. (d) Excludes a $0.21 per share distribution declared by the Company on November 1, 1996 relating to third quarter operations that is payable to shareholders of record as of November 11, 1996. (e) The Company paid $1,114,000 from escrowed cash reserves to its then mortgage lender on December 28, 1994 in exchange for termination of its obligation to make future participating interest payments to the lender. 19 26 RISK FACTORS An investment in the Common Shares involves various risks. Prospective investors should carefully consider the following information in conjunction with the other information contained in the Prospectus before making a decision to purchase Common Shares in the Offering. LIMITED GEOGRAPHIC CONCENTRATION Thirty-four of the 37 Properties are located in the Suburban Philadelphia Office and Industrial Market. In addition, a fundamental element of the Company's growth strategy is to acquire additional properties in the Market. Consequently, the Company is dependent upon the demand for office and other commercial space in the Market. The Company's revenue and the value of the Properties may be affected by a number of factors in the Market, including the local economic climate (which may be adversely impacted by business layoffs or downsizing, industry slowdowns, changing demographics, and other factors) and local real estate conditions (such as oversupply of, or reduced demand for, office and other competing commercial properties). Therefore, the Company's performance and its ability to make distributions to shareholders will likely be dependent, to a large extent, on the economic conditions in the Market. REDEMPTION OF PREFERRED SHARES Prior to the occurrence of a Conversion Approval (as defined below), the Preferred Shares will be convertible into up to 181,325 Common Shares, and following the occurrence of a Conversion Approval, the Preferred Shares will be convertible into an additional 1,424,735 Common Shares. A "Conversion Approval" means approval of the unlimited conversion of the Preferred Shares into Common Shares by a majority of the votes cast by holders of Common Shares at a meeting of shareholders in which holders of the Preferred Shares have no right to vote. In the event that a Conversion Approval has not occurred by July 1, 1997, holders of the Preferred Shares will become entitled to receive distributions equal to 120% of the distributions payable in respect of the number of Common Shares into which such Preferred Shares are convertible (i.e., 1,606,160) (the "Conversion Number"). In the event that a Conversion Approval has not occurred by July 1, 1998, holders of the Preferred Shares will have the right to require the Company to redeem their Preferred Shares at a price (the "Redemption Price") equal to the greater of: (i) the product of (a) $16.50 plus an amount (the "Return Amount") equal to 8.0% of $16.50 per annum from the date of issuance of the Preferred Shares through the redemption date less an amount (not to exceed the Return Amount) equal to distributions actually received by the holder on account of such Preferred Shares and (b) the Conversion Number; and (ii) the product of the market price of a Common Share and the Conversion Number. If the Company is required to redeem the Preferred Shares, it is expected that the Company would be required to significantly increase the leverage on its portfolio or sell a significant number of Properties in order finance such redemption, either of which events would likely materially and adversely affect the Cash Available for Distribution and the market price for the Common Shares. In addition, a mandatory redemption by the Company of the Preferred Shares could require the Company, on its own behalf or through the Operating Partnership, to borrow funds on a short-term basis to meet the distribution requirements, applicable to REITs value tax code. In such instances, the Company, in order to avoid the adverse tax consequences associated with loss of REIT status, might need to: (i) borrow funds even if management believed that then prevailing market conditions generally were not favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations; and/or (ii) liquidate certain of its investments on adverse terms. See "The Company -- The SERS Transaction" and "Description of Shares of Beneficial Interest -- Preferred Shares." RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE COMPANY'S PROPERTIES; LACK OF OPERATING HISTORY Twenty of the Company's 24 Initial Properties have been acquired within the past six months, including 19 Properties acquired in the SSI/TNC Transaction. These recently acquired Properties, as well as the 13 Acquisition Properties, may have characteristics or deficiencies unknown to the Company affecting their valuation or revenue potential, and it is also possible that the operating performance of such Properties may decline under the Company's management. 20 27 The Company is currently experiencing a period of rapid growth. Following the SSI/TNC Transaction and after giving effect to the purchase of the Acquisition Properties, the Company's property portfolio will have increased from five properties, consisting of approximately 375,000 net rentable square feet, to 37 properties, consisting of approximately 2.0 million net rentable square feet. The Company's ability to manage its growth effectively will require it to successfully integrate its new acquisitions into its existing management structure. As the Company acquires additional properties, the Company will be subject to risks associated with managing new properties, including lease-up and tenant retention. No assurances can be given that the Company will be able to succeed with such integration or effectively manage additional properties or that newly acquired properties will perform as expected. In addition, the Company's ability to manage its growth effectively will depend on whether the integration of the TNC management team into its existing management structure will, over time, prove to be successful. In connection with the SSI/TNC Transaction, the Company added approximately 20 administrative, property management, leasing, marketing, and related personnel previously employed by TNC. There can be no assurance that the integration of these additional employees into the Company's organization will be successful or that the Company will manage the combined operations with TNC effectively. LACK OF APPRAISALS The Company did not obtain independent appraisals of the SSI/TNC Properties, the SERS Properties, or the other Acquisition Properties recently acquired or to be acquired by it, and has not obtained appraisals of any of the Properties in connection with the Offering. There can be no assurance that the consideration paid or payable by the Company for the Properties accurately reflects their value and, specifically, that the combined value of the Common Shares, Preferred Shares and Units may be greater than the aggregate fair market value of the Company's equity in the Properties. RISKS RELATING TO DISTRIBUTIONS The Company pays regular distributions to its shareholders and expects to increase its quarterly distribution rate following closing of the Offering to $0.35 per share, beginning with a pro rata distribution with respect to the quarter ending December 31, 1996. See "Distribution Policy." In addition, the Common Shares issued in connection with the Offering, as well as any Common Shares and Preferred Shares that will be issued in connection with the SERS Transactions and the Concurrent Investments or may in the future be issued to finance acquisitions, upon the conversion of Units or upon the exercise of options or warrants or otherwise will further increase required Cash Available for Distribution to make anticipated distributions to shareholders. In addition, if the distribution preference payable on the Preferred Shares increases as a result of the failure of a Conversion Approval to occur by July 1, 1997, such event will also increase required cash available to distribution needed for the Company to maintain its proposed new distribution rate. The Company's determination to increase distributions as described above was based on the Company's expectations with respect to pro forma Cash Available for Distribution following the Offering. No assurance can be given, however, that actual Cash Available for Distribution following the Offering will not be substantially below the Company's expectations. In addition, the Company's ability to make distributions will depend, in large part, on the performance of its Properties and any other properties it may acquire in the future, including occupancy levels, the Company's ability to enter into new leases upon expiration of current leases and costs associated with the renewal or reletting of space, expenditures with respect to existing and newly acquired properties, the amount of the Company's debt and the interest rates thereon, default or bankruptcy by tenants and other costs relating to the Properties, as well as the absence of significant expenditures relating to environmental or other regulatory matters. Most of these matters are beyond the control of the Company and any significant difference between the Company's expectations with respect to these matters and actual results could have a material adverse effect on the Company and its ability to make or sustain distributions. CONFLICTS OF INTERESTS Tax Consequences Upon Sale or Refinancing of SSI/TNC Properties. Direct or indirect holders of Units may suffer different and more adverse tax consequences than the Company upon the sale or refinancing of any of the SSI/TNC Properties and, therefore, such holders (including Mr. Nichols, the Company's Chairman of 21 28 the Board, and Warren V. Musser, a Trustee of the Company and Chairman of the Board of SSI) and the Company may have different objectives regarding the appropriate pricing and timing of any sale or refinancing of such Properties. While the Company, as the sole general partner of the Operating Partnership, has the exclusive authority as to whether and on what terms to sell or refinance an individual Property, those members of the Company's management and Board of Trustees who directly or indirectly hold Units may influence the Company not to sell or refinance the SSI/TNC Properties even though such sale might otherwise be financially advantageous to the Company, or may influence the Company to refinance such Properties with a high level of debt. Failure to Enforce Terms of Acquisition Agreements. As shareholders and members of TNC and its affiliates and recipients of Common Shares, Units and warrants in the SSI/TNC Transaction, certain members of the Company's management, including Messrs. Nichols, Belcher and Gallagher, will have a conflict of interest with respect to their obligations as Trustees or executive officers of the Company in enforcing the terms (including customary representations and warranties as to ownership and operation) of the agreements relating to the transfer to the Company of SSI/TNC Properties. The failure to enforce the material terms of those agreements, particularly the indemnification provisions for breaches of representations and warranties, could result in a monetary loss to the Company, which loss could have a material adverse effect on the Company's financial condition or results of operations. In addition, the aggregate liability of SSI, TNC and certain of their affiliates under those agreements is limited to the 497,895 Units issued to them. The Company will therefore have no right of recovery as to any damages in excess of the value of the Units that may result from breaches of such representations and warranties. REAL ESTATE INVESTMENT CONSIDERATIONS General. Real property investments are subject to varying degrees of risk. The yields available from equity investments in real estate depend in large part on the amount of income generated and expenses incurred. If the Properties do not generate revenue sufficient to meet operating expenses, including debt service, tenant improvements, leasing commissions, and other capital expenditures, the Company may have to borrow additional amounts to cover fixed costs and the Company's Cash Available for Distribution and ability to make expected distributions to its shareholders will be adversely affected. The Company's revenue and the value of its Properties may be adversely affected by a number of factors, including the national economic climate; the local economic climate; local real estate conditions; the perceptions of prospective tenants of the attractiveness of the property; the ability of the Company to manage and maintain the Properties and secure adequate insurance and increased operating costs (including real estate taxes and utilities). In addition, real estate values and income from properties are also affected by such factors as applicable laws, including tax laws, interest rate levels and the availability of financing. Significant Lease Expirations. The Company is subject to the risk that, upon expiration, leases may not be renewed, the space may not be relet, or the terms of renewal or reletting (including the cost of required renovations) may be less favorable than the current lease terms. Leases accounting for approximately 18% of the aggregate annualized base rents from the Properties as of September 30, 1996 (representing approximately 16.2% of the net rentable square feet at the Properties) expire without penalty or premium through the end of 1997, and leases accounting for approximately 6.5% of aggregate annualized base rent from the Properties as of September 30, 1996 (representing approximately 7.2% of the net rentable square feet at the Properties) are scheduled to expire in 1998. Other leases grant their tenants early termination rights upon payment of a termination penalty. See "Business and Properties -- General." The Company has estimated the expenditures for new and renewal leases for 1997 and 1998 but no assurances can be given that the Company has correctly estimated such expenses. Lease expirations will require the Company to locate new tenants and negotiate replacement leases with such tenants. Replacement leases typically require the Company to incur tenant improvements, other tenant inducements and leasing commissions, in each case, which may be higher than the costs relating to renewal leases. If the Company is unable to promptly relet or renew leases for all or a substantial portion of this space, if the rental rates upon such renewal or reletting are significantly lower than expected or if the Company's reserves for these purposes prove inadequate, the Company's Cash Available for Distribution and ability to make expected distributions to shareholders could be adversely affected. 22 29 Dependence on Key Tenants. The Company's 10 largest tenants (based on pro forma base rent as of September 30, 1996) aggregate approximately 29.8% of the Company's total base rent and approximately 27.5% of the Company's net rental square feet and have a weighted average remaining lease term of approximately 7.8 years. As of September 30, 1996, the Company's largest tenant, Kimberly Clark, represents approximately 8.7% of the pro forma aggregate annualized base rent as of September 30, 1996 and 5.0% of the pro forma net rentable square feet at the Properties. Although the Company believes that it has a good relationship with each of its principal tenants, the Company's revenues and Cash Available for Distribution to shareholders would be disproportionately and adversely affected if any of these tenants did not renew their lease or leases with the Company upon expiration or renewed their leases on terms less favorable to the Company. Financially Distressed Tenants. In the event of any default by a tenant, the Company may experience delays in enforcing its rights as a landlord and may incur substantial costs in protecting its investment. In addition, at any time a tenant of the Properties may seek the protection of bankruptcy laws, which could result in the rejection and termination of such tenant's lease and thereby cause a reduction in Cash Available for Distribution to shareholders. Four of the Company's tenants are currently in bankruptcy proceedings. Such tenants are parties to leases providing for payments representing approximately $199,000 of aggregate annualized base rent as of September 30, 1996. There can be no assurance that these or other tenants will not reject their leases in a bankruptcy proceeding or that the Company will not experience significant tenant defaults in the future, each of which could have an adverse effect on the Company's revenues and Cash Available for Distribution to shareholders. Competition. The Company competes with a number of real estate developers, operators, and institutions for tenants and acquisition opportunities. Many of these competitors have significantly greater resources than the Company. No assurances can be given that such competition will not adversely affect the Company's revenues and Cash Available for Distribution to shareholders. Illiquidity of Real Estate. Equity real estate investments are relatively illiquid and therefore tend to limit the ability of the Company to vary its portfolio promptly in response to changes in economic or other conditions. In addition, the Code limits the Company's ability to sell properties held for fewer than four years, which may affect the Company's ability to sell properties without adversely affecting returns to shareholders. Changes in Laws. Because increases in income and service taxes are generally not passed through to tenants under leases, such increases may adversely affect the Company's cash flow and its ability to make expected distributions to shareholders. The Properties are also subject to various federal, state, and local regulatory requirements, such as requirements of the ADA and state and local fire and safety requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. The Company believes that the Properties are currently in material compliance with all such requirements. However, there can be no assurance that these requirements will not change or that new requirements will not be imposed which would require significant unanticipated expenditures by the Company and could have an adverse effect on the Company's cash flow and ability to make distributions. Compliance with Americans with Disabilities Act. Under the ADA, all public accommodations and commercial facilities are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Compliance with the ADA requirements could require removal of access barriers and noncompliance could result in imposition of fines by the U.S. government or an award of damages to private litigants. Although the Company believes that the Properties are in material compliance with these requirements, the Company may incur additional costs to comply with the ADA. Although the Company believes that such costs will not have a material adverse effect on the Company, if required changes involved a greater expenditure than the Company currently anticipates, the Company's ability to make expected distributions could be adversely affected. Risks Associated with Partnership and Joint Venture Property Ownership Structures. The Company owns its interests in 23 of the Initial Properties through the Operating Partnership and it expects that the 13 Acquisition Properties will be held by the Operating Partnership. In addition, the Company may also participate with other entities in property ownership through joint ventures or partnerships in the future. 23 30 Partnership or joint venture investments may, under certain circumstances, involve risks not otherwise present, including the possibility that the Company's partners or co-venturers might become bankrupt, that such partners or co-venturers might at any time have economic or other business interests or goals which are inconsistent with the business interests or goals of the Company and that such partners or co-venturers may be in a position to take action contrary to the Company's instructions or requests or contrary to the Company's policies or objectives, including the Company's policy with respect to maintaining its qualification as a REIT. The Company will, however, seek to maintain sufficient control of such partnerships or joint ventures to permit the Company's business objectives to be achieved. There is no limitation under the Company's organizational documents as to the amount of funds that may be invested in partnerships or joint ventures. RISKS ASSOCIATED WITH INDEBTEDNESS Debt Financing and Existing Debt Maturities. The Company will be subject to risks normally associated with debt financing, including the risk that the Company's cash flow will be insufficient to meet required payments of principal and interest and, the risk that existing indebtedness on the Properties (which in all cases will not have been fully amortized at maturity) will not be able to be refinanced or that the terms of such refinancing will not be as favorable as the terms of existing indebtedness. Upon the closing of the Offering and the Concurrent Investments and the application of the net proceeds therefrom, the Company expects to have outstanding indebtedness of approximately $36.8 million, which will have principal repayments of $3.0 million, $13.6 million, $9.4 million, $2.7 million, and $7.9 million in 1997, 1998, 1999, 2000 and 2001, respectively. In addition, upon the closing of the Offering, it is expected that the Company will enter into the $80 million Credit Facility that will have a term of two years. If principal payments due at maturity cannot be refinanced, extended, or paid with the proceeds of other capital transactions, such as new equity capital, the Company may not be able to pay distributions at expected levels and to repay all such maturing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates, the interest expense relating to such refinanced indebtedness would increase, which could adversely affect the Company's cash flow and its ability to make expected distributions to its shareholders. In addition, if the Company is unable to meet its obligations under any of its mortgage financings (including the Credit Facility), the Properties securing such indebtedness could be foreclosed on, which would have a material adverse effect on the Company and its ability to make expected distributions and, depending on the number of Properties foreclosed on, could threaten the continued viability of the Company. See "Policies With Respect to Certain Activities -- Financing Policies." Risk of Rising Interest Rates and Variable Rate Debt. Upon the closing of the Offering and the Concurrent Investment and the application of the use of proceeds therefrom, the Company will have outstanding approximately $4.1 million of variable rate indebtedness. In addition, the Credit Facility will bear interest at a variable rate. See "Business and Properties -- Credit Facility." In addition, the Company may incur other variable rate indebtedness in the future. Increases in interest rates on such indebtedness would increase the Company's interest expense, which could adversely affect the Company's cash flow and its ability to pay expected distributions to shareholders. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." No Limitation on Debt. Upon the closing of the Offering and the Concurrent Investments and the application of the net proceeds therefrom, on a pro forma basis the debt-to-total market capitalization ratio of the Company will be approximately 21.6%. Although the Company has adopted a policy that limits the debt-to-total market capitalization ratio of the Company to 50%, the organizational documents of the Company do not contain any limitation on the amount of indebtedness the Company may incur. Accordingly, the Board of Trustees could alter or eliminate this policy. If this policy were changed, the Company could become more highly leveraged, resulting in an increase in debt service that could adversely affect the Company's cash flow and, consequently, Cash Available for Distribution and could increase the risk of default on the Company's indebtedness. 24 31 HISTORICAL LOSSES The Company had net losses of approximately $824,000 for the year ended December 31, 1995 and approximately $128,000 for the nine-month period ended September 30, 1996. The SSI/TNC Properties also experienced net losses of approximately $2.2 million, $1.8 million, and $1.3 million for the years ended December 31, 1993 and 1994, and the six months ended June 30, 1996, respectively. These net losses reflect certain noncash charges such as depreciation and amortization as well as the substantial interest expense associated with the acquisition and development financing of the Initial Properties. These historical results may not be indicative of future results. Nonetheless, there can be no assurance that the Company will not incur net losses in the future. RISK OF ACQUISITION, DEVELOPMENT, AND RENOVATION ACTIVITIES The Company intends to continue acquiring office and industrial properties. See "Business and Growth Strategies." Acquisitions of office and industrial properties entail risks that investments will fail to perform in accordance with expectations. Estimates of renovation costs and costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate. In addition, there are general investment risks associated with any new real estate investment. The Company anticipates that future acquisitions and renovations may be financed through a combination of advances under the Credit Facility, other lines of credit and other forms of secured or unsecured financing. If new developments are financed through construction loans, there is a risk that, upon completion of construction, permanent financing for newly developed properties may not be available or may be available only on disadvantageous terms. While the Company has generally limited its acquisition, development, renovation, management, and leasing business primarily to the Market, it is possible that the Company will in the future expand its business to new geographic markets. The Company will not initially possess the same level of familiarity with new markets outside of the Suburban Philadelphia Office and Industrial Market, which could adversely affect its ability to acquire, develop, manage, or lease properties in any new localities. Changing market conditions, including competition from other purchasers of Class A suburban office and industrial properties, may diminish the Company's opportunities for attractive additional acquisitions. The Company also intends to review from time to time the possibility of developing and constructing office buildings and other commercial properties. Risks associated with the Company's development and construction activities may include: (i) abandonment of development opportunities; (ii) construction costs of a property exceeding original estimates, possibly making the property uneconomical; (iii) occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable; (iv) financing may not be available on favorable terms for development of a property; and (v) construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs. In addition, new development activities, regardless of whether they would ultimately be successful, typically require a substantial portion of management's time and attention. Development activities would also be subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. TAX RISKS Consequences of Failure to Qualify as a REIT. Since 1986, the Company has operated, and continues to operate, in such a manner as to qualify as a REIT under the Code. Although the Company believes that it is currently organized and will continue to operate so as to qualify as a REIT, no assurance can be given that the Company will qualify or remain qualified as a REIT in the future. Qualification as a REIT involves the application of highly technical and complex Code provisions, many of which have only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within the Company's control may affect its ability to qualify as a REIT. For example, in order to qualify as a REIT, at least 95% of the Company's gross income in any year must be derived from qualifying sources and the Company must pay distributions to its shareholders aggregating at least 95% of its REIT taxable income (excluding net capital gains). The complexity of these provisions and of the applicable income tax regulations 25 32 that have been promulgated under the Code is even greater in the case of a REIT that holds its assets in partnership form. In addition, no assurance can be given that future legislation, new regulations, administrative interpretations, or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the Federal income tax consequences of such qualification. The Company is relying on the opinion of Arthur Andersen LLP, tax advisor to the Company, regarding various issues affecting the Company's ability to qualify, and retain qualification, as a REIT. Such tax opinion is based on various assumptions and factual representations by the Company regarding the Company's ability to meet the various requirements for qualification as a REIT, and no assurance can be given that actual operating results will meet these requirements. Such tax opinion is not binding on the IRS or any court. See "Federal Income Tax Considerations." One of the requirements for maintaining REIT status is that a REIT not own more than 10% of the voting stock of a corporation other than the stock of a qualified REIT subsidiary (of which the REIT is required to own all of such stock) and stock in another REIT. The Operating Partnership owns 5% of the voting common stock and all of the non-voting preferred stock of the Management Company and, therefore, the Company believes it will comply with this rule. However, the IRS could contend that the Operating Partnership's ownership of all of the non-voting preferred stock of the Management Company should be viewed as voting stock because of its substantial economic position in the Management Company. If the IRS were to be successful in such a contention, the Company's status as a REIT would be lost and the Company would become subject to Federal corporate income tax on its net income, which would have a material adverse affect on the Company's Cash Available for Distribution. See "Federal Income Tax Considerations." If in any taxable year the Company were to fail to qualify as a REIT, the Company would not be allowed a deduction for distributions to shareholders in computing its taxable income and would be subject to Federal income tax (including any applicable alternative minimum tax) on its taxable income at the applicable corporate rate. In addition, unless it were entitled to relief under certain statutory provisions, the Company would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. This disqualification would reduce the funds of the Company available for investment or distribution to shareholders because of the additional tax liability of the Company for the year or years involved. If the Company were to fail to qualify as a REIT, it no longer would be subject to the distribution requirements of the Code. To the extent that distributions to shareholders would have been made in anticipation of the Company's qualifying as a REIT, the Company might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. Although the Company currently intends to operate in a manner designed to allow it to qualify as a REIT, it is possible that future economic, market, legal, tax, or other considerations may cause the Board of Trustees to revoke the REIT election. See "Federal Income Tax Considerations." Required Distributions; Potential Requirement to Borrow. To obtain the favorable tax treatment associated with qualification as a REIT, the Company generally will be required each year to distribute to its shareholders at least 95% of its REIT taxable income (excluding net capital gain). In addition, the Company will be subject to tax on its undistributed net taxable income and net capital gain, and a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by it with respect to any calendar year are less than the sum of 85% of its ordinary income plus 95% of its capital gain net income for the calendar year, plus certain undistributed amounts from prior years. The Company intends to make distributions to its shareholders to comply with the distribution provisions of the Code and to avoid income and other taxes. The Company's income will consist primarily of the Company's share of the income of the Operating Partnership and the Properties it owns directly, and the Company's cash flow will consist primarily of its share of distributions from the Operating Partnership and cash flow from the Properties it owns directly. Differences in timing between the receipt of income and the payment of expenses in arriving at taxable income (of the Company or the Operating Partnership), the effect of required debt amortization payments and the possible redemption by the Company of the Preferred Shares could require the Company, on its own behalf or through the Operating Partnership, to borrow funds on a short-term basis to meet the distribution requirements in order to remain qualified as a REIT. In such instances, the Company, in order to avoid adverse tax consequences, might need to: (i) borrow funds even if 26 33 management believed that then prevailing market conditions generally were not favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations; and/or (ii) liquidate investments on adverse terms. For Federal income tax purposes, distributions paid to shareholders may consist of ordinary income, capital gains, nontaxable return of capital or a combination thereof. The Company will provide its shareholders with an annual statement indicating the tax character of the distributions. See "Federal Income Tax Considerations." Distributions by the Company will be determined by the Board of Trustees and will be dependent on a number of factors, including Cash Available for Distribution, the Company's financial condition, any decision by the Board of Trustees to reinvest funds rather than to distribute such funds, the Company's capital expenditures, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant. Accordingly, there is no assurance that the Company will maintain its distribution rate or continue to satisfy the annual distribution requirements so as to qualify as a REIT. Consequences of Failure of the Operating Partnership (or a Subsidiary Partnership) to be Treated as a Partnership. The Company will receive an opinion of Arthur Andersen LLP, tax advisor to the Company, stating that, assuming that the Operating Partnership and each subsidiary partnership is being operated in accordance with its respective organization documents, the Operating Partnership and each of the subsidiary partnerships will be treated as a partnership and not as an association taxable as a corporation, for federal income tax purposes. Such opinion is not binding on the IRS. If the IRS were to successfully challenge the tax status of the Operating Partnership or any of its subsidiary partnerships for federal income tax purposes, the Operating Partnership or the affected subsidiary partnership would be taxable as a corporation. In such event, the Company would cease to qualify as a REIT for federal income tax purposes. The imposition of a corporate tax on the Operating Partnership or any of the subsidiary partnerships would also reduce the amount of Cash Available for Distribution to the Company and its shareholders. See "Federal Income Tax Considerations -- Income Taxation of the Operating Partnership, the Title Holding Partnerships and Their Partners." Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be subject to certain federal, state and local taxes on its income and property. In addition, the Management Company generally is subject to federal and state income tax at regular corporate rates on its net taxable income, which will include the Management Company's management, leasing and related service business. If the Company has net income from a prohibited transaction, such income will be subject to a 100% tax. See "Federal Income Tax Considerations." Real Estate Transfer Taxes. The transfers of 10 Properties to the Operating Partnership or a subsidiary partnership have been structured as transfers of 89% of the capital interests and 99% of the cash flow and profits interests in the limited partnerships owning such Properties with the Residual Interests to be acquired by the Operating Partnership not later than September 1999. This transaction structure is intended to comply with the provisions of informal advice from the Pennsylvania Department of Revenue to the effect that such transfers are not subject to Pennsylvania real estate transfer taxes. However, the Company has not obtained a formal ruling from the Pennsylvania Department of Revenue on this issue. If the Company desired or were required, for financing purposes or otherwise, to acquire such Residual Interests within such period, the Company could be required to pay real estate transfer taxes in an amount aggregating approximately $640,000. Transfer of an eleventh Property (16 Campus Boulevard) to the Operating Partnership was structured in a similar manner in order to avoid certain transfer taxes, although a tenant in such Property holds a 35% profits interest in the applicable partnership. ERISA Depending upon the particular circumstances of the plan, an investment in Common Shares may be an appropriate investment for an ERISA Plan, a Qualified Plan, or an IRA. In deciding whether to purchase Common Shares, a fiduciary of an ERISA Plan, in consultation with its advisors, should carefully consider its fiduciary responsibilities under ERISA, the prohibited transaction rules of ERISA and the Code, and the effect of the "plan asset" regulations issued by the U.S. Department of Labor. See "ERISA Considerations." 27 34 POSSIBLE ENVIRONMENTAL LIABILITIES General. Under various Federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or releases at such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. In connection with the ownership (direct or indirect), operation, management and development of real properties, the Company may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. All of the Properties have been subject to a Phase I or similar environmental site assessment (which involves general inspections without soil sampling or groundwater analysis) completed by independent environmental consultants. Except as indicated below with respect to the Whitelands Business Park in Exton, Pennsylvania (the "Whitelands Property"), these environmental site assessments have not revealed any significant environmental liability, nor is the Company aware of any environmental liability with respect to the Properties that the Company's management believes would have a material adverse effect on the Company. An environmental assessment has identified environmental contamination of potential concern with respect to the Whitelands Property. Petroleum products, solvents and heavy metals were detected in the groundwater. These contaminants are believed to be associated with debris deposited by third parties in a quarry formerly located on the Whitelands Property. The Whitelands Property previously appeared on the Comprehensive Environmental Response Compensation and Liability Information System List, a list maintained by the United States Environmental Protection Agency (the "EPA") of abandoned, inactive or uncontrolled hazardous waste sites which may require cleanup. The EPA conducted a preliminary assessment of the Property in 1984, and subsequently the Whitelands Property was removed from the list. While the Company believes it is unlikely that it will be required to undertake remedial action with respect to such contamination, there can be no assurance in this regard. If the Company were required to undertake remedial action on the Whitelands Property, it has been indemnified through August 2001 against the cost of such remediation by SSI, subject to a limitation of approximately $2.0 million. In the event SSI is unable to fulfill its obligations under its indemnity agreement or the Company is required to undertake remedial action after the expiration of the indemnity, the costs associated with any remediation could materially and adversely impact Cash Available for Distribution. Because the Company does not believe that any remediation at the Whitelands Property is probable, no amounts have been accrued for any such potential liability. No assurance can be given that existing environmental studies with respect to the Properties reveal all environmental liabilities or that any prior owner of any such property did not create any material environmental condition not known to the Company. Moreover, no assurance can be given that: (i) future laws, ordinances or regulations will not impose any material environmental liability; or (ii) the current environmental condition of the Properties will not be affected by tenants and occupants of the Properties, by the condition of properties in the vicinity of the Properties (such as the presence of underground storage tanks) or by third parties unrelated to the Company. UNINSURED LOSSES The Company carries comprehensive liability, fire, flood (where appropriate), extended coverage, and rental loss insurance for the Initial Properties (and will carry such coverage for the Acquisition Properties), with policy specification and insured limits which the Company believes are adequate and appropriate under the circumstances. There are certain types of losses (such as from nuclear accidents, wars, civil disturbances, and environmental matters) that generally are not insured against because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of the insured limits occur, the Company could lose both its investment in, and anticipated future revenues and cash flow from, the affected Property and would continue to be obligated in respect of any recourse mortgage indebtedness or other financial 28 35 obligations on such Property. Any such loss would adversely affect the Company. Moreover, as the general partner of the Operating Partnership, the Company will be liable for any of the Operating Partnership's unsatisfied obligations other than the non-recourse obligations. RISK OF THIRD-PARTY MANAGEMENT, LEASING, AND RELATED SERVICE BUSINESS Possible Termination of Management Contracts. The Company intends to selectively pursue the management of properties owned by third parties. Risks associated with the management of properties owned by third parties include the risk that the management contracts (which are generally cancelable upon 30 days' notice or upon certain events, including sale of the property) will be terminated by the property owner or will be lost in connection with a sale of such property, that contracts may not be renewed upon expiration or may not be renewed on terms consistent with current terms and that the rental revenues upon which management fees are based will decline as a result of general real estate market conditions or specific market factors affecting properties managed by the Company, resulting in decreased management fee income. Possible Adverse Consequences of Lack of Control Over the Business of the Management Company. In order to satisfy certain technical requirements applicable to REITs, certain of the executive officers, as partners of a general partnership that holds 95% of the voting common stock of the Management Company, and not the Company, have the ability to elect the board of directors of the Management Company. The Company is not able to elect directors of the Management Company and, consequently, the Company has no ability to influence the decisions of such entity. As a result, the board of directors and management of the Management Company may implement business policies or decisions that would not have been implemented by persons controlled by the Company and that are adverse to the interests of the Company or that lead to adverse financial results, which would adversely affect the Company's ability to pay distributions to shareholders. CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL The investment, financing, borrowing, and distribution policies of the Company, and its policies with respect to all other activities, including its growth, debt, capitalization, distributions, REIT status, and operating policies, is determined by the Board of Trustees. Although the Board of Trustees has no present intention to amend or revise any of these policies, these policies may be amended or revised from time to time at the discretion of the Board of Trustees without notice to or a vote of the shareholders of the Company. See "Policies with Respect to Certain Activities." Accordingly, shareholders may not have control over changes in policies of the Company and changes in the Company's policies may not fully serve the interests of all shareholders. A change in these policies could adversely affect the Company's distributions, financial condition, results of operations or the market price of Common Shares. INFLUENCE OF EXECUTIVE OFFICERS, TRUSTEES AND PRINCIPAL SHAREHOLDERS None of the Trustees, officers or other shareholders of the Company are selling Common Shares in the Offering. Upon the closing of the Offering and the Concurrent Investments, all Trustees and executive officers as a group will own approximately 5.9% of the total issued and outstanding Common Shares (assuming the conversion of all Preferred Shares to be issued in the SERS Transaction into Common Shares and the conversion of all Units held by Trustees and executive officers into Common Shares). Such ownership would increase to 9.5% if all options and warrants held by them were exercised. Upon the closing of the Offering and the Concurrent Investments, SERS will own 481,818 Preferred Shares (convertible under certain circumstances into 1,606,060 Common Shares), 636,363 Common Shares, and warrants to purchase an additional 133,333 Common Shares (representing 26.8% of the outstanding Common Shares assuming conversion of such Preferred Shares and exercise of such warrants). Accordingly, such persons will have substantial influence on the Company, which influence might not be consistent with the interests of other shareholders, and may in the future have a substantial influence on the outcome of any matters submitted to the shareholders for approval. See "Principal Shareholders." In addition, the Company's Declaration of Trust, subject to certain exceptions, authorizes the Trustees to take such actions as are necessary and desirable to preserve its qualification as a REIT and pursuant to such authority the Board of Trustees has agreed to limit any person to direct or indirect ownership of no more than 9.8% in value of the Company's outstanding 29 36 shares of beneficial interest (the "Ownership Limit"). Excepted from the Ownership Limit is SSI who will, immediately following completion of the Offering (and assuming the conversion of all Preferred Shares to be issued in the SERS Transaction into Common Shares), beneficially own 8.3% of the Common Shares assuming the conversion of all Units held by SSI into Common Shares. However, SERS is subject to a separate contractual ownership limitation of 14.75%. The ownership restrictions could have the effect of further solidifying the control SSI has over the Company. DEPENDENCE ON KEY PERSONNEL The Company is dependent on the efforts of its executive officers, particularly Anthony A. Nichols, Sr. and Gerard H. Sweeney. While the Company believes that it could find replacements for these key personnel, the loss of their services could have an adverse effect on the operations of the Company. Messrs. Nichols and Sweeney have entered into employment agreements with the Company. However, these agreements do not restrict the ability of either Mr. Nichols or Mr. Sweeney to become employed by a competitor of the Company following termination of his employment with the Company. See "Management -- Employment Agreements." LIMITS ON CHANGES IN CONTROL Certain provisions of the Declaration of Trust and bylaws (the "Bylaws") may have the effect of delaying, deferring, or preventing a third party from making an acquisition proposal for the Company and may thereby inhibit a change in control of the Company. For example, such provisions may: (i) deter tender offers for the Common Shares, which offers may be attractive to the shareholders; or (ii) deter purchases of large blocks of Common Shares, thereby limiting the opportunity for shareholders to receive a premium for their Common Shares over then-prevailing market prices. See "Description of Shares of Beneficial Interest" and "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws." These provisions include the following: Ownership Limit Necessary to Maintain REIT Qualification. In order for the Company to maintain its qualification as a REIT, not more than 50% in value of the Company's outstanding Shares may be owned, actually or constructively, under the applicable attribution rules of the Code, by five or fewer individuals (as defined in the Code to include certain tax-exempt entities, other than, in general, qualified domestic pension funds) at any time during the last half of any taxable year (other than the first taxable year for which the election to be taxed as a REIT has been made). In order to protect the Company against the risk of losing REIT status due to the concentration of ownership among its shareholders, the Ownership Limit adopted by the Board of Trustees pursuant to the Declaration of Trust limits direct or indirect ownership to 9.8% in value of the outstanding Shares, subject to certain exceptions. See "Description of Shares of Beneficial Interest -- Restrictions on Transfer." The Board of Trustees could waive this restriction with respect to a particular shareholder if it were satisfied, based upon the advice of tax counsel, that ownership by such shareholder in excess of the Ownership Limits would not jeopardize the Company's status as a REIT and the Board of Trustees otherwise decided such action would be in the best interests of the Company. Actual or constructive ownership of Common Shares in excess of the Ownership Limits will cause the violative transfer or ownership to be void with respect to the transferee or owner as to that number of shares in excess of the Ownership Limits and such shares will be automatically transferred to a trust for the benefit of a person to whom an interest in the Common Shares may be permissably transferred. Such transferee shall have no right to vote such shares or be entitled to distributions with respect to such shares. Preferred Shares. The Company's Declaration of Trust authorizes the Board of Trustees to issue up to 5,000,000 preferred shares and to establish the preferences, rights, and other terms (including the right to vote and the right to convert into Common Shares) of any shares so issued. See "Description of Shares of Beneficial Interest -- Shares -- Preferred Shares of Beneficial Interest." In addition to the Preferred Shares to be issued in the SERS Transaction, the Board of Trustees could establish a series of preferred shares that could have the effect of delaying, deferring, or preventing a tender offer or a change in control of the Company 30 37 that might involve a premium price of the Common Shares or otherwise be in the best interests of the shareholders. Exemptions from the Maryland Business Combination Law. Under the Maryland General Corporation Law, as amended ("MGCL"), as applicable to real estate investment trusts, certain "business combinations" (including certain issuances of equity securities) between a Maryland real estate investment trust and any person who beneficially owns 10% or more of the voting power of the trust's shares (an "Interested Shareholder") or an affiliate thereof are prohibited for five years after the most recent date on which the Interested Shareholder becomes an Interested Shareholder. Thereafter, any such business combination must be recommended by the board of trustees and approved by two super-majority shareholder votes unless, among other conditions, the trust's common shareholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Shareholder for its shares. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees prior to the time that the Interested Shareholder becomes an Interested Shareholder. Pursuant to the statute, the Company has exempted any business combination involving SSI, TNC, Gerard H. Sweeney and any affiliate or associate of theirs from the business combination statute and, consequently, the five-year prohibition and the super-majority vote requirements described above will not apply to business combinations between any of them and the Company. As a result, SSI, TNC, Mr. Sweeney, and affiliates and associates thereof (including Mr. Nichols) may be able to enter into business combinations with the Company, which may not be in the best interest of the shareholders, without compliance by the Company with the super-majority vote requirements and other provisions of the statute. In addition, the Company has exempted any business combination involving SERS or the SERS Voting Trust and any of their respective affiliates or associates, and Morgan Stanley Asset Management Inc. and the Morgan Stanley Funds and any of the respective affiliates or associates from the business combination statute. See "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws -- Business Combinations." Maryland Control Share Acquisition Statute. The MGCL, as applicable to real estate investment trusts, provides that "control shares" of a Maryland real estate investment trust acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquiror, by officers or by trustees who are employees of the trust. If voting rights are not approved at a meeting of shareholders, then, subject to certain conditions and limitations, the issuer may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value. If voting rights for control shares are approved at a shareholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. Pursuant to the statute, the Company has exempted any and all acquisitions by SSI, TNC, and any current or future affiliate or associate of theirs from the control shares statute. As a result, SSI or TNC will be able to possess voting power not generally available to other persons and the effect may be to further solidify their control of the Company. In addition, pursuant to to the statute, the Company has exempted any and all acquisitions by SERS and the SERS Voting Trust and any of their respective affiliates or associates and Morgan Stanley Asset Management Inc. and the Morgan Stanley Funds and any of the respective affiliates or associates from the control shares statute. Common Shares beneficially owned by Richard M. Osborne have not been exempted from the statute. See "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws -- Control Share Acquisitions." EFFECT ON PRICE OF SHARES AVAILABLE FOR FUTURE SALE Sales of a substantial number of Common Shares, or the perception that such sales could occur, could adversely affect prevailing prices for the Common Shares. The Company has reserved: (i) 509,856 Common Shares for issuance upon conversion of Units; (ii) 627,067 Common Shares for issuance upon exercise of outstanding options and warrants (after giving effect to the 45,844 additional warrants to be issued in connection with the prepayment of the Osborne Loan and the 133,333 warrants to be issued in the SERS Transaction); and (iii) 1,606,060 Common Shares issuable upon conversion of the Preferred Shares. In addition, the Company may issue additional equity securities in connection with future acquisitions. Each of 31 38 SSI, TNC, the SERS Voting Trust, the Trustees and executive officers of the Company and certain of their respective affiliates have agreed, subject to certain limited exceptions, not to sell, offer to sell, solicit an offer to buy, contract to sell, grant any option to purchase, or otherwise transfer or dispose of, any Common Shares, or any securities convertible into or exercisable or exchangeable for Common Shares, during the 180-day period after the effective date of this Prospectus (the "Lock-Up Period") without the prior written consent of Smith Barney Inc. The Company has also agreed with the Underwriters not to offer, sell, contract to sell or issue Common Shares or securities convertible into or exercisable for Common Shares (except in the Concurrent Investments or pursuant to the conversion of outstanding Units or Preferred Shares, the exercise of outstanding options or warrants, and the prepayment of the Osborne Loan) during the Lock-up Period. See "Shares Available for Future Sale." At the conclusion of such periods, the Common Shares issuable upon the exchange of Units or Preferred Shares or the exercise of outstanding options or warrants may be sold in the public market pursuant to the registration statement the Company is obligated to file prior to 1997 or pursuant to any available exemptions from registration. No prediction can be made regarding the effect that future sales of Company securities will have on the market price of Common Shares. IMMEDIATE DILUTION As more fully set forth under "Dilution," the pro forma net tangible book value per share of the assets of the Company after the Offering will be substantially less than the expected public offering price per share in the Offering. Accordingly, shareholders acquiring Common Shares in the Offering will experience an immediate dilution of $1.13 per share (based on an assumed public offering price of $16.50, the last reported sale price of the Common Shares on the AMEX on November 6, 1996 after giving effect to the Reverse Split) in the net tangible book value of the Common shares. EFFECT ON HOLDERS OF COMMON SHARES OF AN ISSUANCE OF PREFERRED SHARES The Board of Trustees is empowered by the Company's Declaration of Trust to designate and issue from time to time one or more classes or series of preferred shares without shareholder approval. The Board of Trustees may determine the relative rights, preferences, and privileges of each class or series of preferred shares so issued. See "Description of Shares of Beneficial Interest -- Shares -- Preferred Shares of Beneficial Interest." Because the Board of Trustees has the power to establish the preferences and rights of each class or series of Preferred Shares, it may afford the holders in any series or class of preferred shares preferences, distributions, powers and rights, voting or otherwise, senior to the rights of holders of Common Shares. The Company has agreed to issue Preferred Shares to the SERS Voting Trust in the SERS Transaction. See "The Company -- The SERS Transaction." EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES One of the factors that influences the market price of the Common Shares in the public market is the annual distribution rate on the shares. Increasing market interest rates may lead prospective purchasers of the Common Shares to demand a higher annual distribution rate from future distributions. Such an increase in the required distribution may adversely affect the market price of the Common Shares. 32 39 THE COMPANY GENERAL The Company is a self-administered, self-managed and fully integrated REIT engaged in the ownership, management, leasing, acquisition and development of primarily suburban office properties. The Initial Properties consist of 23 suburban office buildings and one industrial facility containing an aggregate of approximately 1.3 million net rentable square feet located primarily in the Suburban Philadelphia Office and Industrial Market. In addition, the Company has entered into agreements to purchase on or prior to the closing of the Offering, the 13 Acquisition Properties, which contain an aggregate of approximately 700,000 net rentable square feet located primarily in the Market. The SERS Properties (which account for nine of the 13 Acquisition Properties) will be acquired for an aggregate purchase price of approximately $30.3 million, payable as follows: (i) by issuing the Preferred Shares that, subject to certain conditions, are convertible into 1,606,060 Common Shares; (ii) by agreeing to make deferred payments aggregating $3.8 million in cash or Preferred Shares; and (iii) by issuing to SERS two-year warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per share. See "-- The SERS Transaction." The purchase prices for the four remaining Acquisition Properties aggregate $22.8 million in cash. The Company developed 19 of the Initial Properties and will manage 36 of the Properties upon the closing of the Offering. In addition, the Company manages approximately 575,000 net rentable square feet at office properties on behalf of third parties and approximately 159,000 net rentable square feet at the Option Properties. As of September 30, 1996, the Properties were approximately 94.3% leased to 222 tenants. The Properties consist primarily of suburban office and industrial buildings (36 of which are Class A properties). The Company considers Class A suburban office and industrial properties to be those that have desirable locations, are well maintained and professionally managed and have the potential of achieving rental and occupancy rates that are typically at or above those prevailing in their respective markets. The average age of the Properties is approximately 10.8 years. The Company's 10 largest tenants (based on pro forma annualized base rents at September 30, 1996) aggregate approximately 29.8% of the Company's total base rent and approximately 27.5% of the Company's net rentable square feet and have a weighted average remaining lease term of approximately 7.8 years. As of September 30, 1996, no single tenant accounted for more than 8.7% of the Company's pro forma aggregate annualized base rent and only 30 tenants individually represented more than 1.0% of such aggregate annualized base rent. Leases representing approximately 58.5% of the net rentable square footage at the Properties were signed during the period January 1, 1993 through December 31, 1995, a time when management believes market rental rates were at or below current market rental rates. This belief is supported by the fact that for the nine months ended September 30, 1996: (i) renewal leases at the Initial Properties were signed covering approximately 154,000 net rentable square feet of office space at a weighted average rental rate of $13.25 per square foot, compared to leases that expired for that space during such period with a weighted average rental rate of $12.66 per square foot (representing a 4.7% increase); and (ii) new leases at the Initial Properties were signed covering approximately 264,000 net rentable square feet of office space at a weighted average rental rate of $15.96 per square foot, compared to leases that expired for that space during such period with a weighted average rental rate of $14.52 per square foot (representing a 9.9% increase). In all cases, weighted average rental rates include expense recoveries, free rent and scheduled rent increases that would be taken into account under generally accepted accounting principles. The Company believes that the strength of its leasing department and tenant retention capabilities should enable it to continue to capitalize on rental rate differentials as the Company's leases expire. 33 40 The Company expects to focus its office and industrial building ownership in submarkets located within the Suburban Philadelphia Office and Industrial Market where it believes it can accumulate a critical mass of properties in order to enhance operating efficiencies and, in turn, cash flow. The Company's primary business objective is to realize and maximize growth in cash flow per share and to increase shareholder value by: - optimizing cash flow from the Properties through continued active property management and prudent operating strategies; - acquiring Class A suburban office and industrial properties and/or portfolios of such properties located in the Market and surrounding areas at prices that are below replacement cost and at yields which exceed the Company's cost of capital; - redeveloping and improving acquired properties and, to a lesser extent, developing build-to-suit properties as opportunities arise; - generating third party fee-related revenues; and - operating within a conservative capital structure with financing policies that allow for continued growth. According to the C&W Mid-Year Report, the office and industrial market located in the Philadelphia metropolitan area, which includes the Suburban Philadelphia Office and Industrial Market, contains an aggregate of approximately 383.3 million net rentable square feet. In addition, the Company believes that the Suburban Philadelphia Office and Industrial Market has significant rental growth potential due to declining vacancy rates, limited new construction and steady employment growth. Furthermore, the Company believes that the Market contains opportunities to acquire Class A suburban office and industrial properties at attractive yields and at prices which are significantly below replacement costs. The Company's confidence in the Market is bolstered by the fact that the Class A office direct vacancy rate in the six Pennsylvania counties within the Market (Bucks, Chester, Delaware, Lehigh, Montgomery and Northampton) fell from approximately 16.4% at June 30, 1995 to approximately 9.1% at June 30, 1996, and the Class A office direct vacancy rate in the two New Jersey counties within the Market (Burlington and Camden) fell from approximately 18.4% at June 30, 1995 to approximately 11.3% at June 30, 1996, according to the C&W Mid-Year Report. The overall vacancy rates within the Market of 12.4% also compare favorably with the overall average national office vacancy rate of 14.2% at June 30, 1996. In addition, the net absorption of office space for the Market was approximately 1.3 million net rentable square feet for the six-month period ended June 30, 1996 compared to a negative net absorption of 80,000 net rentable square feet for the six-month period ended June 30, 1995, according to the C&W Mid-Year Report. The Company commenced its operations in 1986 as a finite life REIT that owned eight properties. In October 1994, the Company's shareholders approved amendments to the Company's Declaration of Trust that eliminated the Company's finite life status and increased the Company's authorized capital. Since that time, the Company has sought to enhance the value of its portfolio by: (i) actively managing its Properties; (ii) exploring acquisitions of individual and portfolio properties in its submarkets; and (iii) seeking financing transactions that could be used to fund future growth. These efforts culminated in the SSI/TNC Transaction in which the Company acquired substantially all of the real estate holdings of SSI, and SSI's real estate affiliate, TNC, a private real estate development and management services company operating in the Market. SSI is a publicly-traded company that invests in and actively supports technology-driven growth companies. As of September 30, 1996, SSI owned significant investments in more than 20 companies, including the following publicly-traded companies: Novell, Inc., CompuCom Systems, Inc., Cambridge Technology Partners (Massachusetts), Inc., Coherent Communications Systems Corporation, USDATA Corporation and Integrated Systems Consulting Group, Inc. The SSI/TNC Transaction included the acquisition by the Company of 19 office and industrial properties (containing approximately 958,000 net rentable square feet with an occupancy rate of approximately 93.8% as of September 30, 1996) and an option to acquire the four Option Properties, each of which is located in the Market. The SSI/TNC Transaction also included the combination of the real estate 34 41 management, marketing and development functions of TNC with those of the Company. The Company believes that the SSI/TNC Transaction has significantly enhanced its position as an owner and operator of office and industrial properties in the Market. Since 1982, TNC has operated exclusively in the Suburban Philadelphia Office and Industrial Market and has been responsible for the development of approximately 3.2 million square feet of office and industrial properties in the Market, including the development of build-to-suit facilities for GMAC (former Mortgage Division headquarters), Penn Mutual Life Insurance Company (headquarters), Advanta Corp. (former headquarters), Sartomer Company, Inc. (a U.S. subsidiary of TOTAL)(headquarters), General Accident Group, General Electric, Ford Motor Company and ARCO Chemical. In addition, TNC acquired, developed, marketed and managed nine corporate campuses. The Company is led by an experienced management team, senior members of which include Anthony A. Nichols, Sr., Chairman of the Board and former President of TNC, and Gerard H. Sweeney, President and Chief Executive Officer. The Company's four senior executives have an average of approximately 22 years of real estate experience. In aggregate, the Company's management team has been responsible for the management of approximately 7.5 million square feet and the development of approximately 3.2 million square feet of office and industrial properties primarily within the Market. THE SSI/TNC TRANSACTION On August 22, 1996, the Company completed the SSI/TNC Transaction pursuant to which the Operating Partnership acquired: (i) directly, title to six suburban office properties located in the Suburban Philadelphia Office and Industrial Market; (ii) indirectly, through subsidiary limited partnerships (collectively, the "Title Holding Partnerships"), controlling interests in 13 additional suburban office properties located in the Market; and (iii) all of the non-voting preferred stock and 5% of the voting common stock (which collectively are entitled to receive 95% of the dividends) of the Management Company. The Operating Partnership, together with a subsidiary of the Company, acquired two Title Holding Partnerships that own two of the Initial Properties. The Operating Partnership, together with a subsidiary of the Company, acquired an 89% capital interest and a 99% cash flow and profits interest in 10 of the 13 Title Holding Partnerships, and an 89% capital interest and a 64% cash flow and profits interest in an eleventh Title Holding Partnership. Except as indicated below, ownership of the Residual Interests in these Title Holding Partnerships was retained by TNC and SSI in order to avoid the incurrence of transfer taxes in connection with the Company's acquisition of the Properties owned by the Title Holding Partnerships. A tenant in one of the Properties owned by a Title Holding Partnership (16 Campus Boulevard, Newtown Square) holds a subordinated 35% cash flow interest in such partnership. See "Structure of the Company -- Ownership." The Company acquired its interests in the SSI/TNC Properties, together with approximately $426,000 in cash, in exchange for: (i) 258,333 Common Shares; (ii) a six-year warrant to purchase 258,333 Common Shares at an exercise price of $19.50 per share; (iii) 495,837 Units, which are convertible into 495,837 Common Shares and (iv) the obligation of the Operating Partnership to acquire by September 1999 the Residual Interests in exchange for 44,322 Units, which are convertible into 44,322 Common Shares, plus an amount equal to all distributions that would have been payable in respect of such Units had they been issued as of the closing of the SSI/TNC Transaction. The Units are redeemable for cash or, at the option of the Company, for Common Shares. The SSI/TNC Properties were conveyed to the Operating Partnership subject to approximately $64.0 million in mortgage indebtedness as of the date of acquisition, a portion of which will be repaid from the net proceeds of the Offering and the Concurrent Investments. See "Use of Proceeds." Pursuant to the terms of the SSI/TNC Transaction, if certain mortgage indebtedness encumbering the Properties (as described below) is repaid at a discount, 75% of the resulting increase in equity created would be allocated to the original owners of such properties and 25% of such equity would be allocated to the Company through the issuance of additional interests in the Operating Partnership at the rate of one Unit for each $16.50 of additional equity so created. Following the closing of the Offering and the Concurrent 35 42 Investments and the application of the net proceeds therefrom, the mortgage indebtedness that is subject to this provision will have an outstanding principal balance of approximately $15.4 million and will encumber six of the SSI/TNC Properties. See "Business and Properties -- Mortgage Debt and Line of Credit." In addition, in connection with the SSI/TNC Transaction, SSI made loans to the Operating Partnership and a subsidiary in order to enable the Operating Partnership to pay certain expenses in connection with such transaction, provide working capital, make certain preferred distributions to the Company and finance tenant improvements (collectively, the "SSI Loan"). As of September 30, 1996, the outstanding balance of the SSI Loan, including accrued interest, was approximately $774,000. Upon the closing of the Offering, the SSI Loan and accrued interest thereon, will be repaid in full. See "Certain Relationships and Related Transactions -- Repayment of Certain Advances to SSI." Pursuant to the terms of the SSI/TNC Transaction, an affiliate of TNC granted the Operating Partnership the right to acquire, during the two-year period following the closing of the transaction (subject to two additional one-year extensions), the four Option Properties. Exercise of the option is subject to a right of first refusal in favor of, and the consent of, the holder of the mortgage encumbering the Option Properties. There can be no assurance that the Company will exercise its option or that the holder of such mortgage will consent to the exercise of the option. See "Business and Properties -- Option Properties: General." In connection with the SSI/TNC Transaction, the Company entered into two-year employment agreements with the Company's four executive officers and the Company issued to these four executive officers six-year warrants to purchase, in the aggregate, 220,000 Common Shares at an exercise price of $19.50 per share. See "Management -- Employment Agreements." THE SERS TRANSACTION The Company has entered into an agreement with RAI Real Estate Advisers, Inc. (the "Voting Trustee"), as voting trustee of the SERS Voting Trust, to purchase the SERS Properties. The SERS Properties aggregate approximately 418,000 net rentable square feet, have an average age of approximately 12 years and are located in the Market. As of September 30, 1996, the SERS Properties were approximately 92.4% leased to 62 tenants. The SERS Properties will be acquired by the Company for an aggregate purchase price of $30.3 million, payable as follows: (i) by issuing 481,818 Preferred Shares that, subject to certain conditions, are convertible into 1,606,060 Common Shares; (ii) by agreeing to make deferred payments aggregating $3.8 million (as described below); and (iii) by issuing two-year warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per share. In addition, at the closing of the SERS transaction, SERS will deposit approximately $1.3 million into an escrow account to be used for tenant improvements and leasing commissions in the Greenwood Square and 500 North Gulph Road Properties. Each Preferred Share will entitle the holder to: (i) receive distributions equal to the distributions payable in respect of a number of Common Shares equal to the Conversion Number; (ii) vote, together with holders of Common Shares, as a class, and to cast the number of votes equal to the Conversion Number; and (iii) a liquidation preference equal to the greater of (a) the amount that would have been payable with respect to the Common Shares into which such Preferred Shares would have been convertible immediately prior to the liquidation had the condition to convertibility been satisfied and (b) the product of $16.50 multiplied by the Conversion Number plus all declared but unpaid dividends. The Company will be required to pay $2.5 million of the deferred purchase price on June 30, 1998 and $1.3 million on December 31, 1999 in cash or, at the Company's option, through the issuance of additional Preferred Shares that will be convertible, subject to certain conditions, into a number of Common Shares equal to the applicable amount of the deferred purchase price divided by the greater of the Market Value Per Share or the Book Value Per Share (as such terms are defined in the Glossary). Prior to a Conversion Approval, Preferred Shares will be convertible into up to 181,325 Common Shares. In the event that a Conversion Approval has not occurred by July 1, 1997, holders of Preferred Shares will become entitled to receive distributions equal to 120% of the distributions payable in respect of a number of Common Shares equal to the Conversion Number. In the event that a Conversion Approval has not occurred by July 1, 1998, holders of Preferred Shares will have the right to require the Company to redeem their 36 43 Preferred Shares at the Redemption Price. SSI and Richard M. Osborne have agreed to vote Common Shares beneficially owned by them in favor of the unlimited conversion. See "Risk Factors -- Redemption of Preferred Shares." Concurrent with the closing of the Offering, the Company will issue to the SERS Voting Trust $10.5 million of Common Shares. See "-- SERS Private Placement" below. OTHER PENDING ACQUISITIONS - The Company has signed an agreement of sale to purchase the Delaware Corporate Center (One Righter Parkway), a 104,828 net rentable square foot office building located in New Castle County, Delaware for $12.7 million in cash. The building was built in 1989 and was 100% leased as of September 30, 1996. - The Company has signed an agreement of sale to purchase two buildings in Horsham, Pennsylvania for an aggregate purchase price of $7.1 million in cash. The buildings include: 700 Business Center Drive, a 30,773 net rentable square foot office building built in 1986 and 800 Business Center Drive, a 51,236 net rentable square foot office building built in 1986. 700 and 800 Business Center Drive were each 100% leased, as of September 30, 1996. - The Company has signed an agreement of sale to purchase 8000 Lincoln Drive, a 54,923 net rentable square foot office building built in 1983 and located in Evesham, New Jersey, for $3.0 million in cash. The building was 100% leased as of September 30, 1996. These pending acquisitions are subject to completion of customary closing conditions (other than the completion of due diligence, which has occurred) and, as a result, no assurance can be given that these, or any other, acquisitions will be completed. If these acquisitions are consummated, the Company's portfolio will consist of 37 properties aggregating approximately 2.0 million net rentable square feet. SERS PRIVATE PLACEMENT - Concurrent with the closing of the Offering the SERS Voting Trust has agreed, subject to certain conditions, to purchase $10.5 million of Common Shares directly from the Company in a private placement at the price per Common Shares sold in the Offering. See "The Company -- The SERS Private Placement." MORGAN STANLEY PRIVATE PLACEMENT - Concurrent with the closing of the Offering the Morgan Stanley Funds advised by Morgan Stanley Asset Management Inc. have agreed to purchase $11.7 million in Common Shares directly from the Company in a private placement at a price per Common Share of $16.50. See "The Company -- The Morgan Stanley Private Placement." THE MANAGEMENT COMPANY The Company conducts its real estate management services business through the Management Company. The Company manages all but one of the Initial Properties through the Management Company; the Twin Forks Building, located in North Carolina, is managed for the Company by an unaffiliated third party. The Company manages, through the Management Company, additional properties on behalf of unaffiliated third parties. As of September 30, 1996, the Management Company was managing properties containing an aggregate of approximately 2.0 million net rentable square feet, of which approximately 1.3 million net rentable square feet related to Initial Properties owned by the Company, 159,000 net rentable square feet related to the Option Properties, and approximately 575,000 net rentable square feet related to properties owned by unaffiliated third parties. The Company will manage each Acquisition Property following its acquisition through the Management Company. Through its ownership of 100% of the preferred stock and 5% 37 44 of the common stock of the Management Company, the Operating Partnership is entitled to receive 95% of amounts paid as dividends by the Management Company. See "Structure of the Company -- Management Company." The Company was organized as a Maryland real estate investment trust in 1986. The Company's principal executive offices are located at 16 Campus Boulevard, Newtown Square, Pennsylvania 19073 and its telephone number is 610-325-5600. 38 45 BUSINESS AND GROWTH STRATEGIES GENERAL The Company's strategy is to focus its growth in the Suburban Philadelphia Office and Industrial Market. The Company believes that certain economic fundamentals in the Market provide an attractive environment for owning, acquiring and operating Class A office and industrial properties. This belief is supported by the following: - The recent decline in vacancy rates within the Market: the Class A office direct vacancy rate in the six Pennsylvania counties within the Market fell from approximately 16.4% at June 30, 1995 to approximately 9.1% at June 30, 1996, and the Class A office direct vacancy rate in the two New Jersey counties within the Market fell from approximately 18.4% at June 30, 1995 to approximately 11.3% at June 30, 1996, according to the C&W Mid-Year Report; - The net absorption of office space within the Market during the six-month period ended June 30, 1996 was approximately 1.3 million net rentable square feet compared to a negative net absorption of 80,000 net rentable square feet during the six-month period ended June 30, 1995, according to the C&W Mid-Year Report; - The weighted average Class A office rental asking rate of $18.94 per square foot within the Market, as identified in the C&W Mid-Year Report, compared to an average annualized rental rate of $15.15 per square foot at the Properties as of September 30, 1996; and - The limited new construction of office buildings within the Market during the 1990's, with construction being primarily on a build-to-suit basis. As reported by C&W, office development from January 1, 1995 through June 30, 1996 was limited to approximately 254,000 net rentable square feet in the Market, which contained a total office inventory of approximately 43.7 million net rentable square feet as of June 30, 1996. The Company further believes that, based on its evaluation of market conditions, the growth rates attainable within the Suburban Philadelphia Office and Industrial Market will improve overall occupancy levels and rental rates and reduce owner leasing concessions. The Company believes that the foundation of its growth will consist of: (i) the quality and strategic location of the Properties; (ii) the strengthening economy and real estate fundamentals of the Market; (iii) the knowledge and experience of its senior management team; (iv) the limited new construction of office space in the Market; (v) the presence of distressed sellers and inadvertent owners (through foreclosure or otherwise); and (vi) the limited capital available to many of the Company's competitors for acquisitions and capital improvements. The Company expects to focus its office building ownership in submarkets located within the Market where it believes it can accumulate a critical mass of Properties in order to enhance operating efficiencies and, in turn, cash flow. The Company's primary business objective is to realize and maximize growth in cash flow per share and to increase shareholder value by: (i) optimizing cash flow from the Properties through continued active property management and prudent operating strategies; (ii) acquiring quality suburban office and industrial properties and/or portfolios of such properties located in the Market and surrounding areas at prices that are below replacement cost and at yields which exceed the Company's cost of capital; (iii) redeveloping and improving acquired properties and, to a lesser extent, developing build-to-suit properties as opportunities arise; (iv) generating third party fee-related revenues; and (v) operating within a conservative capital structure with financing policies that allow for continued growth. MANAGEMENT AND OPERATING STRATEGIES The Company expects to realize and maximize cash flow growth due to the strength and experience of its management team through: - Contractual Rental Rate Increases: As of September 30, 1996, 100 leases, representing approximately 43.1% of the total leases at the Properties and approximately 52.6% of the net rentable square feet at 39 46 the Properties, include built-in contractual rental rate increases. Between September 30, 1996 and June 30, 2011, the contractual base rents under such leases are expected to increase by an aggregate of approximately $11.8 million (not including increases attributable to the transition from free or partial rent to full rent or rent increases that are tied to indices such as the CPI); - Leasing Expiring/Vacant Space: The Company expects to experience cash flow growth through the releasing of approximately 324,000 net rentable square feet of space under 89 leases that expire at the Properties between October 1, 1996 and December 31, 1997 and that have a weighted average annual rental rate as of their expiration dates of $14.14 per square foot. The Company believes that the majority of such leases are currently at or below market rental rates. In addition, the Company expects to realize additional cash flow through the potential leasing of approximately 115,000 net rentable square feet of vacant space at the Properties as of September 30, 1996 (approximately 5.7% of the Company's total net rentable square feet). There can be no assurance, however, that the Company will meet any of the foregoing expectations; and - Tenant Services: The Company believes it has been able to provide tenants with a high level of service as evidenced by the tenant retention rates of the Initial Properties in 1993, 1994 and 1995 and the nine-month period ended September 30, 1996 of 71.4%, 56.7%, 75.1% and 93.5%, respectively, based on net rentable square footage renewed as a percentage of the square footage of leases expiring during each period. ACQUISITION STRATEGIES The Company believes that it will be able to identify and capitalize on acquisition opportunities through: (i) management's and the Board's significant local market expertise; (ii) management's and the Board's relationships with private and institutional real estate owners, potential sellers of individual and portfolio properties, area real estate brokers and tenants; (iii) its current market penetration in the Suburban Philadelphia Office and Industrial Market; (iv) its access to capital as a public company, including but not limited to proceeds available under the Company's expected two-year, $80.0 million secured revolving Credit Facility and the ability to exchange Units for interests in properties, thereby permitting certain sellers to defer the tax gain associated with sale of such properties; and (v) its fully integrated real estate operations which allow the Company to respond quickly to acquisition opportunities and enable it to provide real estate management services to third parties as a means of identifying such opportunities. The Company's acquisition program will focus on both portfolio and individual acquisitions. See "Business and Properties -- Credit Facility." The Company will seek to acquire additional office and industrial properties that meet one or more of the following investment criteria: (i) the property is well designed and well constructed and well located within the Suburban Philadelphia Office and Industrial Market; (ii) the property offers attractive current yield and long-term growth potential based on its occupancy characteristics, including lease structure, tenant credit and occupancy history; (iii) the property can be acquired at a substantial discount to replacement cost; and (iv) the property is located in a submarket that contains barriers to entry and repositioning opportunities. LibertyView Acquisition. As an example of these strategies, in July 1996 the Company acquired the LibertyView Building, a 121,737 square foot net rentable suburban office building built in 1990 and located in Cherry Hill, New Jersey, for $10.6 million. This represents a purchase price of $87.07 per square foot versus management's estimate of this Property's replacement cost of approximately $150 per square foot. As of September 30, 1996, the LibertyView Building was approximately 82.8% leased (up from 66.7% at the date of acquisition). The LibertyView Building was acquired by the Company at a capitalization rate of approximately 11.0% (calculated by dividing (a) the expected net operating income (including the effect of straight line rents) generated by the property based on annualized revenues from signed leases in place and lease commitments at the date of acquisition by (b) the consideration paid for the property). The Company estimates that the capitalization rate for this Property would be approximately 12.9% upon the establishment of an occupancy level greater than or equal to 95%, given current market rental rates, and after adjusting for the anticipated additional capital costs required to achieve such occupancy levels. There can be no assurances that the Company will achieve such occupancy levels at prevailing market rates. In addition, there can be no 40 47 assurance that the Company will be successful in making acquisitions on comparable terms in the future. The Company believes it could add a number of office properties to its existing portfolio without requiring a material increase in management personnel due to the Company's expertise, depth of current management, financial reporting systems and the efficiencies created by its centralized management structure. The Company also holds an option from an affiliate of TNC to purchase the Option Properties which contain approximately 159,000 net rentable square feet. The Option Properties are located in the Market, are managed by the Company and were approximately 95.5% leased to 16 tenants as of September 30, 1996. There can be no assurance that the Company will exercise its option to acquire any of the Option Properties or, if it does, that it will be able to satisfy the conditions relating to the exercise of such option. See "Business and Properties -- Option Properties: General." The Company has obtained a commitment for an $80 million Credit Facility from Smith Barney Mortgage Capital Group, Inc., and NationsBank, N.A. It is expected that the Credit Facility will close concurrent with the Offering. It is expected that the Credit Facility will have a two-year term and will be secured by mortgages on 25 of the Properties. The Credit Facility will assist the Company in executing targeted acquisition opportunities and expanding its market presence. CORPORATE SERVICE ACTIVITIES The Company, through the Management Company, managed, as of September 30, 1996, approximately 2.0 million net rentable square feet, including 575,000 net rentable square feet of office properties on behalf of third parties and approximately 159,000 net rentable square feet at the Option Properties. The Company's services for such third parties include corporate tenant representations, property management, leasing and brokerage and construction management services. The Company typically provides a full range of real estate services to companies that do not maintain in-house real estate departments. The Company believes that these corporate service activities will help it to expand its base of national tenants, further enhance property management economies of scale and increase its market penetration. The Company also believes it will benefit from the increasing tendency of institutional owners of real estate to engage established real estate companies for their property and asset management requirements. Third party clients of the Company include BetzDearborn Inc., CompuCom Systems, Inc., Cambridge Technology Partners (Massachusetts), Inc., Coherent Communications Systems Corporation, Integrated Systems Consulting Group, Inc., Premier Solutions, Inc. and Sanchez Computer Associates, Inc., four of which are publicly-traded companies in which SSI maintains an ownership interest. For the nine months ended September 30, 1996, the real estate management services business had revenues of approximately $943,000. The Company's management expects to continue its relationships with its corporate clientele as well as to selectively market its services to corporate users of commercial real estate and building owners. FINANCING POLICIES As a general policy, following the closing of the Offering and the Concurrent Investments, the Company intends, but is not obligated, to adhere to a policy of maintaining a debt-to-total market capitalization ratio (i.e., the total consolidated debt of the Company as a percentage of the market value of issued and outstanding Shares plus total consolidated debt) of no more than 50%. This policy is intended to provide the Company with financial flexibility to select the optimal source of capital (whether debt or equity) with which to finance external growth. The Company's debt-to-total market capitalization ratio immediately following the Offering and the Concurrent Investments and the application of the net proceeds therefrom, will be approximately 21.6% (approximately 20.5% if the Underwriters' over-allotment option is exercised in full). Because such ratio is based upon the market values of equity, it will fluctuate with changes in the price of Common Shares. See "Policies with Respect to Certain Activities." 41 48 USE OF PROCEEDS The net proceeds to the Company from the Offering and the Concurrent Investments, after estimated underwriting discounts and commissions and estimated expenses of the Offering, are expected to be approximately $75.4 million (approximately $83.9 million if the Underwriters' over-allotment option is exercised in full), based on an assumed public offering price of $16.50 per share. The Company will contribute $74.1 million of the net proceeds to the Operating Partnership, which will use such contribution as follows: (i) to repay approximately $48.4 million of mortgage debt secured by the Properties (including prepayment premiums and penalties); (ii) to repay approximately $800,000 of debt owed to SSI; (iii) to fund $24.1 million of the cash portion of the purchase price and related expenses in connection with the purchase of the Acquisition Properties; (iv) to pay $600,000 in fees and expenses relating to the Credit Facility; and (v) for working capital purposes. The remaining $1.3 million of net proceeds will be obtained by the Company and will be used for working capital purposes. If the Underwriters' over-allotment option is exercised in full, the Company expects to use the additional net proceeds to repay additional mortgage debt or for working capital or to make additional acquisitions. Pending the application of the net proceeds from the Offering and from the Concurrent Investments, the Company will invest such portion of the net proceeds in interest-bearing accounts and short-term, interest-bearing securities, which are consistent with the Company's intention to qualify for taxation as a REIT. The following table sets forth certain information regarding the debt to be repaid upon completion of the Offering, which consists of mortgage debt encumbering certain of the Properties. The mortgages and other indebtedness to be repaid upon completion of the Offering had a weighted average interest rate of approximately 7.8% (before additional interest relating to cash flow participations) and a weighted average remaining term to maturity of approximately 4.5 years as of September 30, 1996.
PRINCIPAL BALANCE OUTSTANDING PREPAYMENT PREMIUMS INTEREST SEPTEMBER 30, 1996 OR PENALTIES RATE MATURITY PROPERTY (000'S)(1) (000'S) AT SEPTEMBER 30, 1996 DATE - ------------------------------ ------------------ ------------------- --------------------- ------- 1155 Business Center Drive.... $ 31,224(2) None 8.23%(3) 11/2000 500 Enterprise Road........... (2) One Progress Avenue........... (2) 456 Creamery Way.............. (2) 16 Campus Boulevard........... (2) 18 Campus Boulevard........... (2) 1510 Gehman Road.............. (2) 168 Franklin Corner Road...... (2) 2240/50 Butler Pike........... 13,426(4) $ 500 7.125%(5) 7/2000 120 West Germantown Pike...... (4) 140 West Germantown Pike...... (4) 2260 Butler Pike.............. (4) 7248 Tilghman Street.......... 3,218 None(7) 7.0%(6) 6/2004 ---------- ------ Total............... $ 47,868 $ 500 ============== ================
- --------------- (1) Exact repayment amounts may differ due to amortization and exclusion of accrued interest estimated to be approximately $300,000. (2) All of these Properties secure a single loan. (3) Interest rate is variable and equal to lender's composite commercial paper rate plus 2.75% per annum. (4) All of these Properties secure a single loan. (5) Additional interest in an amount equal to 50% of cash flow (as defined in the applicable loan documents) is also payable on such loan. (6) Additional interest in an amount equal to 80% of cash flow (as defined in the applicable loan documents) is also payable on such loan. (7) Subject to a yield maintenance penalty if paid after December 2, 1996. 42 49 DISTRIBUTION POLICY The Company has paid dividends on a regular basis since the beginning of 1994. See "Price Range of Common Shares and Distribution History." Following the Offering, the Company intends to increase its regular quarterly distributions to $0.35 per share beginning with a pro rata distribution with respect to the period commencing on the closing of the Offering and ending on December 31, 1996. On an annualized basis, this would be $1.40 per share. The Company's determination to increase distributions as described above was based on the Company's expectations with respect to pro forma Cash Available for Distribution following the Offering. Although the Company intends to maintain the stated distribution rate, future distributions by the Company to holders of Common Shares will be made at the discretion of the Board of Trustees. The Company currently expects that the principal factors the Board will consider in setting distributions will be the annual REIT distribution requirements (described below) and the Board's determination of the relative benefits of distribution versus reinvestment in the Company. The Board will also consider the actual cash flow of the Company, the Company's financial condition and capital requirements and such other factors as the Board deems relevant. See "Risk Factors -- Risks Relating to Distributions." Cash Available for Distribution may exceed the Company's earnings and profits due to non-cash expenses, consisting primarily of depreciation. Distributions by the Company to the extent of its current or accumulated earnings and profits for federal income tax purposes will be taxable to shareholders as ordinary dividend income. Distributions in excess of earnings and profits generally will be treated as a non-taxable reduction of a shareholder's basis in its Common Shares, to the extent of its basis, and thereafter as taxable gain. Distributions treated as a non-taxable reduction of basis will have the effect of deferring taxation until the shareholder's disposition of the Common Shares. For additional discussion of the tax treatment of distributions to the holders of Common Shares, see "Federal Income Tax Consideration -- Taxation of Taxable Domestic Shareholders" and "Federal Income Tax Considerations -- Taxation of Tax-Exempt Shareholders." PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY The Common Shares are traded on the AMEX under the symbol "BDN." On November 1, 1996, there were approximately 335 holders of record of the Common Shares. On November 6, 1996, the last reported sale price of the Common Shares on the AMEX was $16.50 (adjusted to give effect to the Reverse Split). The following table sets forth the quarterly high and low closing sale price per share reported on the AMEX commencing with the quarter beginning January 1, 1994 and the distributions paid by the Company with respect to each such period after giving effect to the Reverse Split.
SHARE PRICE SHARE PRICE DISTRIBUTIONS HIGH LOW DECLARED FOR QUARTER ----------- ----------- -------------------- First Quarter 1994.................. $11 1/4 $ 5 1/16 $ 0.12 Second Quarter 1994................. $11 13/16 $ 9 3/8 $ 0.15 Third Quarter 1994.................. $18 $12 $ 2.19(1) Fourth Quarter 1994................. $13 1/2 $10 7/8 $ 2.25(1) ----------- ----------- ------ First Quarter 1995.................. $14 1/4 $10 1/2 $ 1.20(1) Second Quarter 1995................. $12 3/8 $10 11/16 $ 0.15 Third Quarter 1995.................. $11 13/16 $10 11/16 $ 0.15 Fourth Quarter 1995................. $11 1/4 $10 1/8 $ 0.15 ----------- ----------- ------ First Quarter 1996.................. $16 5/16 $10 1/2 $ 0.18(2) Second Quarter 1996................. $22 1/8 $15 15/16 $ 0.18(3) Third Quarter 1996.................. $18 3/8 $17 1/16 $ 0.21(4) ----------- ----------- ------
- --------------- (1) Includes a regular dividend of $0.15 plus extraordinary dividends related to the sale of Properties, in the case of 1994, and the refinancing of Properties, in the case of 1995. (2) On May 1, 1996, the Company declared a distribution of $0.18 per share relating to first quarter operations that was paid to shareholders of record as of May 10, 1996. (3) On July 11, 1996, the Company declared a distribution of $0.18 per share relating to second quarter operations that was paid to shareholders of record as of July 26, 1996. (4) On November 1, 1996, the Company declared a distribution of $0.21 per share relating to third quarter operations that is payable to shareholders of record as of November 11, 1996. 43 50 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1996 and on a pro forma basis as of that same date assuming the closing of the SERS Transaction and the closing of the Offering and the Concurrent Investments and the application of the net proceeds therefrom as described under "Use of Proceeds." The information set forth in the table should be read in conjunction with the financial statements of the Company and notes thereto, the pro forma consolidating financial information and notes thereto and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1996 ------------------------------ HISTORICAL PRO FORMA ------------- ------------ Debt: Mortgages and notes payable.......................... $ 83,020,000 $ 36,839,000(1) Credit Facility...................................... -- -- Minority Interest in the Operating Partnership....... 8,758,000 613,000 Convertible Preferred Shares........................... -- 26,444,000(1) Beneficiaries' Equity: Preferred Shares of beneficial interest, $.01 par value per share; 5,000,000 shares authorized; 0 historical and 481,818 pro forma convertible preferred shares issued and outstanding........... -- -- Common Shares of beneficial interest, $.01 par value per share; 25,000,000 shares authorized; 911,185 historical and 6,002,482 pro forma shares issued and outstanding................................... 9,000 60,000(2) Additional paid-in capital........................... 20,443,000 103,834,000 Share warrants....................................... 658,000(3) 962,000(4) Accumulated deficit.................................. (9,801,000) (9,801,000) ----------- ------------ Total beneficiaries' equity....................... 11,309,000 95,055,000 ----------- ------------ Total capitalization......................... $103,087,000 $158,951,000 =========== ============
- --------------- (1) Assumes the payment in cash by the Company of deferred payments aggregating $3.8 million in connection with the SERS Transaction. The preferred shares are convertible, subject to satisfaction of certain conditions, into 1,606,060 of Common Shares. See "The Company -- The SERS Transaction." (2) Includes 45,844 Common Shares to be issued immediately following the Offering in connection with the prepayment of the Osborne Loan. Excludes: (i) 509,856 Common Shares reserved for issuance upon the conversion of Units into Common Shares; (ii) 1,606,060 Common Shares reserved for issuance upon the conversion of the Preferred Shares into Common Shares; (iii) 535,784 Common Shares reserved for issuance, at an exercise price of $19.50 per share, upon the exercise of warrants; (iv) 133,333 Common Shares reserved for issuance, at an exercise price of $25.50 per share, upon the exercise of warrants; and (v) 46,666 Common Shares reserved for issuance, at exercise prices of $14.31 and $6.21 per share, upon the exercise of options, in respect of 33,333 and 13,333 Common Shares, respectively. (3) Represents 19,983 warrants issued to the RMO Fund at a price of $2.10 per warrant, 258,333 warrants issued to SSI at a price of $2.10 per warrant, and 14,135 warrants issued to the RMO Fund at a price of $5.19 per warrant. (4) Represents, on a pro-forma basis, an additional 45,844 warrants issued to the RMO Fund at a price of $5.40 per warrant and, together with the other warrants issued to the RMO Fund, represents a total value of $248,000. In addition, the Company issued 133,333 warrants to SERS for Common Shares at a price of $0.42 per warrant in connection with the Preferred Shares. 44 51 DILUTION At September 30, 1996, the Company had a net tangible book value of $9.0 million, or $9.90 per outstanding Common Share. Without taking into account any other changes in such net tangible book value after September 30, 1996, other than to give effect to the sale by the Company of 3,700,000 Common Shares in this Offering and 1,345,453 Common Shares in the Concurrent Investments and the application of the net proceeds therefrom, the net tangible book value of the Company at September 30, 1996 would have been $92.1 million, or $15.37 per share. This amount represents an immediate increase in net tangible book value per share of $5.47 to current shareholders and an immediate dilution in net tangible book value per share to purchasers of Common Shares in the Offering of approximately $1.13 per share. The following table illustrates this dilution: Assumed public offering price per Common Share................... $ 16.50 Net tangible book value per Common Share before the Offering(1)................................................. $ 9.90 Increase in net tangible book value per Common Share attributable to the Offering(2)............................. 5.47 Net tangible book value per Common Share after the Offering(2)... $ 15.37 Dilution in net tangible book value per Common Share to new investors(3)(4)................................................ $ 1.13
- --------------- (1) Net tangible book value per share before the Offering and the Concurrent Investments is determined by dividing net tangible book value of the Company (total assets of $106,183 less prepaid financing costs of $2,290, less total liabilities of $86,116 and minority interests of $8,758 to holders of Units) by the number of Common Shares outstanding. (2) Based on an assumed public offering price of $16.50 per Common Share, and after deducting Underwriters' discounts and commissions and estimated Offering expenses. Includes 45,844 Common Shares to be issued immediately following the Offering in prepayment of the Osborne Loan. Excludes: (i) 509,856 Common Shares reserved for issuance upon the conversion of Units into Common Shares; (ii) 1,606,060 Common Shares reserved for issuance upon the conversion of Preferred Shares into Common Shares; (iii) 535,784 Common Shares reserved for issuance, at an exercise price of $19.50 per share, upon the exercise of warrants; (iv) 133,333 Common Shares reserved for issuance, at an exercise price of $25.50 per share, upon the exercise of warrants; and (v) 46,666 Common Shares reserved for issuance, at exercise prices of $14.31 and $6.21 per share, upon the exercise of options in respect of 33,333 and 13,333 Common Shares, respectively. (3) Dilution is determined by subtracting net tangible book value per Common Share after the Offering and the Concurrent Investment from the assumed per share public offering price of $16.50. (4) Dilution in net tangible book value per Common Share to purchasers of Common Shares would be $5.14 if the 509,856 Units were converted into Common Shares and the Preferred Shares were converted into 1,606,060 Common Shares, resulting in 8,118,399 total Common Shares outstanding. The following table summarizes, on a pro forma basis giving effect to the Offering, the number of Common Shares to be sold by the Company in the Offering and the number of Units to be issued and convertible subsequent to the Offering, the net tangible book value as of September 30, 1996 and the net tangible book value per share based on total Common Shares and Units after the Offering.
COMMON SHARES/ NET TANGIBLE NET TANGIBLE UNITS BOOK VALUE BOOK VALUE ------------------ ------------------- -------------- NUMBER PERCENT $ PERCENT PER SHARE/UNIT ------ ------- ------- ------- -------------- (IN THOUSANDS EXCEPT PERCENTAGES) New investors in the Offering.......... 3,700 56.8% $53,167 57.7% $16.50(1) Concurrent Investments................. 1,345 20.7% $22,200 24.1% $16.50(1) Common Shares and Units of Continuing Investors............................ 1,467 22.5% $16,894(2) 18.2% $11.52 ----- ------ ------- ------ Total........................ 6,512 100.0% $92,261 100.0% ===== ====== ======= ======
- --------------- (1) Before deducting underwriting discounts and commissions and estimated expenses of the Offering. (2) Based on the September 30, 1996 net book value of the assets of $92,261 (including financing costs of $2,794 and net of liabilities to be assumed of $66,058 on a pro forma basis), and after minority interest of $613 assuming all Units issued or issuable are converted into Common Shares. (3) Excludes 1,606,060 Common Shares reserved for issuance upon the conversion of 481,818 Preferred Shares at a pro-forma value of $26,444,000. 45 52 SELECTED FINANCIAL DATA The following tables set forth certain selected historical financial and operating information on a combined basis for the Company and the SSI/TNC Properties and on a pro forma basis for the Company. The selected combined financial and operating information for the nine months ended September 30, 1996 and September 30, 1995 has been derived from the unaudited historical financial statements of the Company and of the SSI/TNC Properties included elsewhere in this Prospectus. The following tables also set forth certain selected historical financial data for the Company for each of the five years during the period ended December 31, 1995, and as of and for the nine months ended September 30, 1995 and 1996. Such information should be read in conjunction with the financial statements and notes thereto included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The unaudited pro forma financial and operating information for the nine months ended September 30, 1996 and for the year ended December 31, 1995 is presented as if the following transactions had been consummated on September 30, 1996, for balance sheet purposes and at the beginning of the period presented for purposes of the statements of operations: (i) the Company acquired the Acquisition Properties and contributed them to the Operating Partnership; (ii) the Company consummated the Concurrent Investments and contributed the net proceeds therefrom to the Operating Partnership; and (iii) the completion of this Offering and the application of the net proceeds therefrom as set forth under the caption "Use of Proceeds." The pro forma financial information is not necessarily indicative of what the actual financial position or results of the Company would have been as of and for the periods indicated, nor does it purport to represent the Company's future financial position or results of operations. 46 53 BRANDYWINE REALTY TRUST COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER YEAR ENDED DECEMBER 31, 30, ----------------------------- ----------------------------- COMBINED COMBINED HISTORICAL HISTORICAL ----------------- PRO FORMA ----------------- PRO FORMA 1994 1995 1995 1995 1996 1996 ------- ------- --------- ------- ------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Revenue -- Base rents.............................................. $12,209 $11,346 $18,813 $ 8,469 $ 9,122 $15,605 Tenant reimbursements................................... 3,130 2,961 3,946 2,207 2,717 3,255 Management fees......................................... 946 617 -- 492 778 -- Other................................................... 79 86 86 54 169 169 ------- ------- ------- ------- ------- ------ Total revenue..................................... 16,364 15,010 22,845 11,222 12,786 19,029 ------- ------- ------- ------- ------- ------ Expenses -- Interest................................................ 7,877 6,648 3,396 5,015 4,664 2,573 Depreciation and amortization........................... 4,988 5,738 7,456 4,139 3,890 5,465 Property expenses....................................... 5,897 5,032 10,129 3,618 4,698 8,027 General and administrative.............................. 2,054 1,588 790 1,177 1,039 587 Provision for loss on real estate investments........... 5,400 202 -- -- -- -- ------- ------- ------- ------- ------- ------ Total expenses.................................... 26,216 19,208 21,771 13,949 14,291 16,652 ------- ------- ------- ------- ------- ------ Income (loss) before gains on sales of real estate investments, minority interest and extraordinary items................................................... (9,852) (4,198) 1,074 (2,727) (1,505) 2,377 Gains on sales of real estate investments................. 1,410 -- -- -- -- -- Equity income of management company....................... -- -- 72 -- 54 244 Income (loss) before extraordinary items.................. (2,807) (4,203) 933 (2,727) (1,451) 2,399 Income (loss) allocated to Common Shares.................. (1,264) 713 Weighted average number of shares outstanding............. 6,008,540 6,007,577 Earnings per share: Income (loss) before extraordinary items................ $ 0.16 $ 0.40 Income (loss) Allocated to Common Shares................ $ (0.21) $ 0.12
SEPTEMBER 30, 1996 --------------------- PRO HISTORICAL FORMA -------- -------- BALANCE SHEET DATA: Real estate investments, net of accumulated depreciation............................................ $98,818 $151,527 Total assets.............................................. 106,183 161,726 Mortgages and notes payable............................... 83,020 36,839 Total liabilities......................................... 86,116 39,614 Minority interest......................................... 8,758 613 Convertible preferred shares.............................. -- 26,444 Beneficiaries' equity..................................... 11,309 95,055
47 54
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------- ------------------------------- COMBINED COMBINED HISTORICAL HISTORICAL -------------------- PRO FORMA ------------------- PRO FORMA 1994 1995 1995 1995 1996 1996 -------- ------- --------- ------- ------- --------- (IN THOUSANDS, EXCEPT PROPERTY DATA) OTHER DATA: Funds from Operations(a)............................. $ 645 $ 1,382 $ 7,131 $ 1,307 $ 2,661 $ 7,103 Cash flows provided by (used in): Operating activities............................... 1,534 1,886 (b) 1,575 1,710 (b) Investing activities............................... 7,844 (3,490) (b) (1,704) (11,409) (b) Financing activities............................... (10,171) 1,013 (b) (557) 11,126 (b) Total cash distributions declared.................... 3,680 1,021 -- 835 226 -- PROPERTY DATA: Number of properties owned at period end............. 23 23 37 22 24 37 Gross net rentable square feet owned at period end... 1,214 1,214 1,994 1,181 1,334 1,994
48 55 BRANDYWINE REALTY TRUST HISTORICAL SELECTED FINANCIAL DATA
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------ ------ ------- ------- ------- ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) ------------------- OPERATING DATA: Total operating revenue(c)................... $ -- $ -- $ -- $ 4,192 $ 3,666 $ 2,691 $ 4,599 Income from acquisition of limited partner interests in Brandywine Specified Property Investors Limited Partnership.............. -- -- 2,469 -- -- -- -- Provision for loss on real estate investments................................ (6,700) -- -- (5,400) -- -- -- Gain on sales of real estate investments..... -- -- -- 1,410 -- -- -- Extraordinary item-gain on extinguishment of debt.................................... -- -- -- 7,998 -- -- -- Net income (loss)............................ (6,705) (1) 2,468 7,567(b) (824) (592) (128) Net income (loss) per share.................. (10.83) -- 3.99 11.22 (1.32) (0.95) (0.19) Cash distributions declared.................. -- -- -- 2,914 1,021 835 226 Cash distributions per share................. -- -- -- 4.71 1.65 35 0.36(d)
DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------ ------ ------- ------- ------- ------- BALANCE SHEET DATA: Real estate investments, net of accumulated depreciation............................... $ -- $ -- $ -- $13,948 $13,709 $13,570 $98,818 Total assets................................. 2,128 2,123 4,604 17,873 17,105 17,225 106,183 Mortgages and notes payable(e)............... -- -- -- 6,899 8,931 8,957 83,020 Total liabilities............................ 58 55 68 8,684 9,761 9,463 86,116 Minority interest............................ -- -- -- -- -- -- 8,758 Beneficiaries', equity....................... 2,070 2,068 4,536 9,189 7,344 7,762 11,309
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------ ------ ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PROPERTY DATA) OTHER DATA: Funds from Operations(a)..................... $ (5) $ (1) $ (1) $ (533) $ 537 $ 453 $ 837 Cash flows provided by (used in): Operating activities....................... -- -- -- (628) 497 363 887 Investing activities....................... -- -- 2,469 9,559 (701) (943) (9,914) Financing activities....................... -- -- -- (9,635) (722) (326) 10,046 PROPERTY DATA: Number of properties owned at period end..... 7 7 7 4 4 4 24 Gross net rentable square feet owned at period end................................. 546 546 546 255 255 255 1,334
- --------------- (a) Management generally considers Funds from Operations to be a useful measure of the operating performance of an equity REIT because, together with net income and cash flows, Funds from Operations provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures. Funds from Operations does not represent net income or cash flows from operations as defined by generally accepted accounting principles ("GAAP") and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Funds from Operations does not measure whether 49 56 cash flow is sufficient to fund all of the Company's cash needs, including principal amortization, capital improvements and distributions to shareholders. Funds from Operations also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP. Further, Funds from Operations as disclosed by other REITs may not be comparable to the Company's calculation of Funds from Operations. The Company adopted the NAREIT definition of Funds from Operations in 1996 and has used it for all periods presented. Funds from Operations is calculated as net income (loss) adjusted for depreciation expense attributable to real property, amortization expense attributable to capitalized leasing costs, tenant allowances and improvements, gains on sales of real estate investments and extraordinary and nonrecurring items. (b) Pro forma information relating to cash flows from operating, investing and financing activities has not been included because management believes that the information would not be meaningful due to the number of assumptions required in order to calculate this information. (c) Prior to 1994, the Company accounted for its investment in BRP using the equity method of accounting and, accordingly, received no rents and tenant reimbursements from its investment in BRP and received allocated income from BRP totalling $148,000, $290,000 and $568,000 for the years ended December 31, 1991, 1992 and 1993, respectively. Subsequent to 1993, the Company acquired control of BRP and consolidated this investment. (d) Excludes a $0.21 per share distribution declared by the Company on November 1, 1996 relating to third quarter operations that is payable to shareholders of record as of November 11, 1996. (e) The Company paid $1,114,000 from escrowed cash reserves to its then mortgage lender on December 28, 1994 in exchange for termination of its obligation to make future participating interest payments to the lender. 50 57 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with Selected Financial Data and the financial statements appearing elsewhere in this Prospectus. The results of operations, liquidity and capital resources and cash flows of the Company include the historical results of operations of the four Properties held by the Company prior to August 22, 1996. The combined historical presentation includes the historical results of the Company and the SSI/TNC Properties as if they were combined for the earliest period presented. The pro forma presentation includes the historical results of the Company, the SSI/TNC Properties, the acquisitions of the LibertyView Building, the Acquisition Properties and the effects of the Offering. These effects are reflected in the pro forma condensed consolidated financial statements located elsewhere in this Prospectus. The Company receives income primarily from rental revenue (including tenant reimbursements) from the Properties and, to a lesser extent, from the management of certain properties owned by third parties. In August 1996, the Company consummated the SSI/TNC Transaction whereby the Company acquired the SSI/TNC Properties which constitute 19 of the Company's 24 Initial Properties and 45.4% of the Company's pro forma rental revenue (including tenant reimbursements) for the nine months ended September 30, 1996. The SSI/TNC Transaction also included the combination of real estate management, marketing and development functions of TNC with those of the Company. The Company will continue to provide management, leasing and other related services for the Properties and, in addition, will selectively pursue providing such services to third parties, as well as exploring acquisitions of individual and portfolios of properties in the Market. In connection with the Company's pursuit of potential acquisitions of additional real estate and third party debt investments, the Company has entered into agreements to purchase 13 Acquisition Properties, which contain an aggregate of approximately 700,000 net rentable square feet located primarily in the Market. Nine of the 13 Acquisition Properties represent the "SERS Properties" which will be acquired for an aggregate purchase price of approximately $30.3 million, payable as follows: (i) by issuing Preferred Shares that, subject to certain conditions, are convertible into an aggregate of 1,606,060 Common Shares; (ii) by making deferred payments aggregating $3.8 million in cash or Preferred Shares; and (iii) by issuing two-year warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per share. The purchase prices for the four remaining Acquisition Properties aggregate $22.8 million and will be paid in cash. The Company expects that revenue growth in the next two years will result primarily from additional acquisitions, as well as from rent increases in its current portfolio. The Company believes that if the commercial rental market within the Market continues to improve, then rental rate increases will become a more substantial part of its revenue growth over time. RESULTS OF OPERATIONS HISTORICAL OPERATING RESULTS OF THE COMPANY Comparison of the Nine Months Ended September 30, 1996 to the Nine Months Ended September 30, 1995. Rental revenue increased by approximately $1.9 million or 71.8% for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995. This increase was primarily due to increased revenue attributable to the Company's acquisitions of the LibertyView Building and the SSI/TNC Properties during the third quarter of 1996. Interest expense increased by $770,000 or 134.6% for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995. This increase was primarily due to interest on increased debt attributable to the Company's acquisitions of the LibertyView Building and the SSI/TNC Properties during the third quarter of 1996. Depreciation and amortization expense increased by $89,000 or 8.2% for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995. This increase was primarily due to increased depreciation and amortization attributable to the Company's acquisitions of the LibertyView Building and the SSI/TNC Properties during the third quarter of 1996, offset by the non-recurring write-off of approximately $254,000 in 1995 of deferred loan costs associated with 51 58 refinancing of mortgage debt in April 1995. For the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995, utilities expense increased by $94,000 or 23.7%, real estate taxes increased by $135,000 or 45.5%, maintenance expense increased by $369,000 or 90.7%, management fees increased by $64,000 or 145.5%, and other operating expenses increased by $17,000 or 39.5%. Each of these increases was primarily due to increased expenses attributable to the Company's acquisitions of the LibertyView Building and the SSI/TNC Properties during the third quarter of 1996. Equity in net income of the Management Company totalled $54,000 for the nine months ended September 30, 1996 compared to zero for the nine months ended September 30, 1995. This variance is a result of the Company's formation of the Management Company in connection with the SSI/TNC Transaction during the third quarter of 1996. As a result of the foregoing, the Company's consolidated net loss for the period January 1, 1996 to September 30, 1996 was $128,000 or $0.19 per share as compared to a consolidated net loss of $592,000 or $0.95 per share for the period January 1, 1995 to September 30, 1995. Comparison of the Year Ended December 31, 1995 to the Year Ended December 31, 1994. Primarily as a result of the sales of three of the Company's properties during 1994 as part of the Company's strategic decision to refocus its efforts in the Market, rental revenues decreased by approximately $576,000 or 13.8% and property operating expenses decreased by approximately $494,000 or 23.5% for the year ended December 31, 1995 compared to the year ended December 31, 1994. Depreciation and amortization expense remained relatively constant for the year ended December 31, 1995 compared to the year ended December 31, 1994. This was primarily due to the nonrecurring write-off of deferred loan fees in 1995 totaling approximately $354,000 resulting from: (i) the refinancing of mortgage debt in April 1995; and (ii) the termination of a loan commitment, which was offset by a comparable reduction in depreciation and amortization for the three properties sold in 1994. Interest expense decreased by approximately $1.2 million or 59.6% for the year ended December 31, 1995 compared to the year ended December 31, 1994 due to the overall reduced interest expense associated with mortgage loans obtained from the Principal Financial Group in April 1995. Administrative expense decreased by approximately $152,000 or 18.2% primarily due to nonrecurring 1994 costs related to mortgage restructuring efforts. In the first quarter of 1994, a writedown of $5.4 million was recorded to adjust the carrying value of the then seven properties of the Company to the then estimated net realizable value. Such writedown was recorded as a provision for loss on real estate investments in the Company's 1994 financial statements. For the year ended December 31, 1995, no such writedown was required to be recorded. As a result of the foregoing, the Company's consolidated net loss was approximately $824,000 or $1.32 per share for the year ended December 31, 1995 compared to consolidated net income of approximately $7.6 million or $11.22 per share for the year ended December 31, 1994. Comparison of the Year Ended December 31, 1994 to the Year Ended December 31, 1993. The Company's net income for 1994 was attributable to an extraordinary gain of approximately $8.0 million upon extinguishment of debt resulting from the January 1994 refinancing of the Company's four properties owned at that time coupled with an approximately $1.4 million gain resulting from the sales of three properties during 1994, offset primarily by the approximately $1.1 million payment of all future additional interest (a 25% participation right) to the then mortgage lender in December 1994. The Company's 1993 income was primarily attributable to the settlements which the Company obtained with two of the limited partners of Brandywine Specified Property Investors Limited Partnership, a partner in BRP, whereby the Company received approximately $2.5 million in cash. As a result of the foregoing, the Company's consolidated net income was approximately $7.6 million or $11.22 per share for the year ended December 31, 1994 compared to net income of approximately $2.5 million or $3.99 per share for the year ended December 31, 1993. 52 59 COMBINED HISTORICAL OPERATING RESULTS OF THE COMPANY Comparison of the Nine Months Ended September 30, 1996 to the Nine Months Ended September 30, 1995. Total revenue, on a combined historical basis, increased by approximately $1,564,000 or 13.9% for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995. Base rental revenue accounted for approximately $653,000 of the increase and was primarily due to the acquisition of the LibertyView Building coupled with improved occupancy levels of certain of the Properties. Tenant reimbursements accounted for approximately $510,000 of the increase and was primarily due to the acquisition of the LibertyView Building coupled with increased tenant recoveries resulting from increased operating expenses. Interest expense, on a combined historical basis, decreased by approximately $351,000 or 7.0% for the nine months ended September 30, 1996 as compared to the nine months ended September 30, 1995. Such decrease was primarily a result of a debt reduction in connection with an approximately $30.5 million debt refinancing in the fourth quarter of 1995 on certain of the SSI/TNC Properties. Depreciation and amortization decreased by approximately $249,000 or 6.0% for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995 primarily as a result of the non-recurring write-off of approximately $254,000 in deferred loan costs associated with the April 1995 refinancing of mortgage debt. Property expenses increased by approximately $1,080,000 or 29.9% for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995 primarily due to increased maintenance costs resulting from snow removal costs incurred during the winter of 1996 on all of the Properties. General and administrative expenses decreased by approximately $138,000 or 11.7% primarily due to reduced payroll costs. As a result of the foregoing, on a combined historical basis, the net loss before gains on sales of real estate, minority interest and extraordinary items for the Company and the SSI/TNC Properties was approximately $1.5 million for the nine months ended September 30, 1996 compared to approximately $2.7 million for the nine months ended September 30, 1995. Comparison of the Year Ended December 31, 1995 to the Year Ended December 31, 1994. Total revenue, on a combined historical basis, decreased by approximately $1.4 million or 8.3% for the year ended December 31, 1995 compared to the year ended December 31, 1994. Base rental revenue and tenant reimbursements accounted for approximately $1.0 million of the decrease, which was primarily due to the sale of three of the Company's properties during 1994, interim vacancy from lease rollovers in certain of the SSI/TNC Properties and a decrease in tenant reimbursements due, in part, to decreases in property expenses in certain of the SSI/TNC Properties. Management fee revenue decreased by approximately $329,000 or 34.8% for the year ended December 31, 1995 compared to the year ended December 31, 1994 primarily as a result of discontinued contracts on certain managed properties sold and fewer brokerage transactions. Interest expense, on a combined historical basis, decreased by approximately $1.2 million or 15.6% for the year ended December 31, 1995 compared to the year ended December 31, 1994. Such decrease was primarily a result of significantly reduced interest expense in connection with the Principal Financial Group mortgage loans obtained in April 1995 on the four Properties owned by the Company at that time. Depreciation and amortization increased by approximately $750,000 or 15.0% for the year ended December 31, 1995 compared to the year ended December 31, 1994. This increase was attributable to additional tenant improvements completed in 1995 in certain of the SSI/TNC Properties and the write-off of unamortized tenant improvements associated with leases which terminated at certain of the SSI/TNC Properties. Property expenses decreased by approximately $865,000 or 14.7% primarily due to the sale of three of the Company's properties during 1994, as well as reductions in property expenses of the SSI/TNC Properties, including reductions in real estate taxes resulting from tax assessment appeals and reductions in building operating expenses associated with occupancy levels. General and administrative expenses decreased by $466,000 or 22.7% primarily due to staff reductions and the elimination of certain non-recurring expenses. In the first quarter of 1994, the Company recorded a writedown of $5.4 million to adjust the carrying value of the seven properties owned by the Company to the then estimated net realizable value. Such writedown was recorded as a provision for loss on real estate investments in the Company's 1994 financial statements. For the year ended December 31, 1995, a writedown of $202,000 was recorded in the fourth quarter to adjust the carrying value of one of the SSI/TNC Properties to its then estimated net realizable value. 53 60 As a result of the foregoing, on a combined historical basis, the net loss before gains on sales of real estate, minority interest and extraordinary items for the Company and the SSI/TNC Properties was approximately $4.2 million for the year ended December 31, 1995 compared to approximately $9.9 million for the year ended December 31, 1994. PRO FORMA OPERATING RESULTS OF THE COMPANY Comparison of the Nine Months Ended September 30, 1996 on a Pro Forma Basis to the Nine Months Ended September 30, 1996 on a Historical Basis. Pro forma total revenue was approximately $19.0 million for the nine months ended September 30, 1996, representing an approximately $14.4 million or 313.8% increase over historical results for this period, resulting primarily from an increase in rental revenue associated with the Company's completed acquisitions of the LibertyView Building and the SSI/TNC Properties and the pro forma acquisitions of the Acquisition Properties in 1996. The historical 1996 interest expense of approximately $1.3 million increased to $2.6 million on a pro forma basis. Interest expense as a percentage of total revenue decreased from 29.2% of total revenue in historical 1996 to 13.5% of total revenue on a pro forma basis. The net reduction of 15.7% was attributable to the Company's acquisition of the SSI/TNC Properties which reflected interest expense of 44.7% as a percentage of total revenue on a pro forma basis for the nine months ended September 30, 1996, offset by a reduction in interest expense based on the effects of the Offering. On a pro forma basis, combined net income of the Company (before the impact of the minority interest in the Operating Partnership) would have been approximately $2.4 million for the nine months ended September 30, 1996 comparing positively to the historical net loss of approximately $128,000 for the nine months ended September 30, 1996. This positive comparison results primarily from a substantial increase in total revenue, due to the benefit of a pro forma full nine months of revenue from the LibertyView Building and the SSI/TNC Properties acquired and the Acquisition Properties to be acquired in 1996. Comparison of the Year Ended December 31, 1995 on a Pro Forma Basis to the Year Ended December 31, 1995 on a Historical Basis. Pro forma total revenue was approximately $22.8 million for the year ended December 31, 1995, representing an approximately $19.2 million or 523.2% increase over historical results for this period, resulting primarily from an increase in rental revenue associated with the completed acquisitions of the LibertyView Building and the SSI/TNC Properties and the pro forma acquisition of the Acquisition Properties in 1996. The historical 1995 interest expense of approximately $793,000 increased to $3.4 million on a pro forma basis. Interest expense as a percentage of total revenue decreased from 21.6% of total revenue for the historical year ended December 31, 1995 to 14.9% of total revenue on a pro forma basis. The net reduction of 6.7% was attributable to the Company's acquisition of the SSI/TNC Properties which reflected interest expense of 51.6% as a percentage of total revenue on a historical basis for the year ended December 31, 1995 offset by a reduction in interest expense based on the effects of the Offering. On a pro forma basis, combined net income of the Company (before the impact of the minority interest in the Operating Partnership) would have been approximately $1.1 million for the year ended December 31, 1995 comparing positively to the historical net loss of approximately $824,000 for the year ended December 31, 1995. This positive impact results primarily from a substantial increase in total revenue, due to the benefit of a pro forma full year of revenue from the LibertyView Building and the SSI/TNC Properties acquired and the Acquisition Properties to be acquired in 1996. LIQUIDITY AND CAPITAL RESOURCES In connection with the Offering and the Concurrent Investments, the Company expects to sell an additional 5,045,453 Common Shares and realize net proceeds of approximately $75.4 million. The net proceeds to the Company from the Offering and the Concurrent Investments after estimated underwriting discounts and commissions and estimated expenses of the Offering, are expected to be approximately $75.4 million (approximately $83.9 million if the Underwriter's over-allotment option is exercised in full), based on 54 61 an assumed public offering price of $16.50 per share. The Company will contribute $74.1 million of the net proceeds to the Operating Partnership, which will use such contribution as follows: (i) to repay approximately $48.4 million of mortgage debt secured by the Properties (including prepayment premiums and penalties); (ii) to repay approximately $800,000 of debt owed to SSI; (iii) to fund $24.1 million of the cash portion of the purchase price and related expenses in connection with the purchase of the Acquisition Properties; (iv) to pay $600,000 in fees and expenses relating to the Credit Facility; and (v) and the balance for working capital purposes. The remaining $1.3 million of net proceeds will be retained by the Company and will be used for working capital purposes. As of September 30, 1996, and following the closing of the Offering, the Company will have approximately $36.8 million of pro forma debt outstanding consisting of nine mortgage notes totalling $33.6 million (which have a weighted average interest rate of 8.4% and will mature between June 1997 and April 2001) and $3.8 million in deferred payments owed to the seller of SERS Properties, which amount has been discounted to $3.2 million based on its terms. The mortgage note on 110 Summit Drive matures in June 1997, and totalled approximately $1.6 million at September 30, 1996. The Company is currently pursuing extending the maturity date or refinancing the mortgage. If the Company does not extend or refinance this mortgage note, the Company could either repay the debt using cash reserves or borrow on the Credit Facility. Based upon the Company's total market capitalization at September 30, 1996 of approximately $170.8 million, the Company's consolidated debt represents 21.6% of its total market capitalization. The Company and Operating Partnership have obtained a commitment from Smith Barney Mortgage Capital Group, Inc. and NationsBank, N.A. for a two-year, $80 million secured revolving Credit Facility. The Credit Facility will be used to refinance existing indebtedness, fund acquisitions and new development projects, and for general working capital purposes, including capital expenditures and tenant improvements. The amount available to be borrowed under the Credit Facility will be reduced by the amount of the letters of credit issued by the lenders for as long as such letters of credit are outstanding. The Credit Facility will be recourse to the Company and the Operating Partnership and will be secured by, among other items, cross-collateralized and cross-defaulted first mortgage liens on approximately 25 Properties, owned directly or indirectly by the Company, the Operating Partnership or the Subsidiaries. The Credit Facility will bear interest at a per annum floating rate equal to the 30, 60, or 90-day LIBOR, plus 175 basis points. The Credit Facility will require monthly payments of interest only, with all outstanding advances and all accrued but unpaid interest due two (2) years from the closing of the Credit Facility. A fee equal to 0.75% of the maximum amount available under the Credit Facility will be paid to the lenders in respect of the Credit Facility at closing. In addition, a fee of 0.25% per annum (0.125% per annum until 4/1/97) on the unused amount of the Credit Facility will be payable quarterly in arrears. An annual fee in the amount of $35,000 will be payable annually in advance to NationsBank, N.A. as compensation for administration of the Credit Facility. The Credit Facility will carry minimum debt service coverage, fixed charge, debt-to-tangible net worth ratios and other financial covenants and tests, and will require payment of prepayment premiums in certain instances. Closing of the Credit Facility is subject to satisfactory completion of this offering, the negotiation and execution of a definitive Credit Facility agreement and related documentation, and other customary closing conditions. The Company's operating properties require periodic investments of capital for tenant related capital expenditures and for general capital improvements. For the years ended December 31, 1993, 1994 and 1995 and for the nine months ended September 30, 1996, tenant related capital expenditures including related leasing commissions totalled $1,259,000, $2,115,000, $2,833,000 and $1,537,000 respectively, for 23 of the 24 Initial Properties (including the 23 office buildings and excluding the one industrial property). See "Business and Properties -- Historical Tenant Improvements and Leasing Commissions." The Company has estimated its next annual tenant related capital expenditures and leasing commissions relating to the 37 properties including the Initial Properties and the Acquisition Properties to be approximately $4.4 million. Sources available to cover these costs include approximately $700,000 in available lender financing pursuant to an existing commitment from the lender on the LibertyView Building, approximately $800,000 in 55 62 cash reserves in connection with the Greentree Office and Twin Forks Properties and approximately $1.4 million in funds that will be set aside by the seller for the SERS Properties. The Company intends to fund the balance of these costs through its rental revenues and operating expense reimbursements from tenants and borrowings under the Credit Facility. The Company's primary sources of Cash Available for Distribution will be from rental revenues and operating expense reimbursements from tenants and the management services income (and dividends) from providing services to the Properties and for third parties. The Company intends to use these funds to pay operating expenses, repay borrowings under the Credit Facility, pay debt service, fund recurring capital expenditures, make acquisitions, fund tenant allowances and pay regular quarterly distributions to shareholders. Cash and cash equivalents were $840,000 and $3.3 million at December 31, 1995 and on a pro forma basis at September 30, 1996, respectively. The increase in cash and cash equivalents primarily resulted from cash flows provided by operating and financing activities in excess of cash used in investing activities, including the impact of the Offering. The Company expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operations. The Company believes that its net cash provided by operations will be sufficient to allow the Company to make distributions necessary to enable the Company to continue to remain qualified as a REIT. The Company also believes that the foregoing sources of liquidity will be sufficient to fund its short-term liquidity needs for the foreseeable future. The Company expects to meet its long-term liquidity requirements such as property acquisitions, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness and the issuance of additional equity securities. The Company also expects to use funds available under the Credit Facility to finance acquisitions and capital improvements on an interim basis. CASH FLOWS Cash and cash equivalents were $840,000 and $3.3 million at December 31, 1995 and on a pro forma basis at September 30, 1996, respectively. The increase in cash and cash equivalents primarily resulted from cash flows provided by operating and financing activities in excess of cash used in investing activities, including the impact of the Offering. Net cash provided by operating activities increased in 1995 by $1.1 million in comparison to 1994. The increase was primarily attributed to a decrease in interest expense of approximately $1.2 million due to the overall reduced interest expense associated with mortgage loans obtained from the Principal Financial Group in April 1995, which refinanced 100% of the debt encumbering the Company's properties. Net cash used in investing activities decreased in 1995 by approximately $10.3 million in comparison to 1994. The decrease was primarily attributable to the net proceeds on sales of three properties in 1994 of $9.2 million. Net cash used in financing activities decreased by $8.9 million in 1995 in comparison to 1994. The decrease was primarily attributable to repayment of mortgage indebtedness and distributions to shareholders arising from sales of three properties in 1994. INFLATION Substantially all of the office leases provide for separate escalations of real estate taxes and operating expenses either on a triple net basis or over a base amount. In addition, many of the office leases provide for fixed base rent increases or indexed escalations (based on the CPI or other measure). The Company believes that inflationary increases in expenses will be offset by the expense reimbursement and contractual rent increases. 56 63 FUNDS FROM OPERATIONS Management generally considers Funds from Operations as one measure of REIT performance. The Company adopted the NAREIT definition of Funds from Operations in 1996 and has used this definition for all periods presented in this Prospectus. Funds from Operations is calculated as net income (loss) adjusted for depreciation expense attributable to real property, amortization expense attributable to capitalized leasing costs, tenant allowances and improvements, gains on sales of real estate investments and extraordinary and nonrecurring items. Funds from Operations should not be considered as an alternative to net income as an indication of the Company's performance or to cash flows as a measure of liquidity. Funds from Operations on a pro forma basis for the year ended December 31, 1995 and the nine months ended September 30, 1996 is summarized in the following table (in thousands, except share data).
PRO FORMA ---------------------------------------------- YEAR ENDED NINE MONTHS DECEMBER 31, 1995 ENDED SEPTEMBER 30, 1996 ----------------- ------------------------ Income before extraordinary items..................... $ 984 $ 2,399 Add: Depreciation attributable to real property, net of minority interest........................... 5,601 4,362 Amortization attributable to leasing costs, tenant allowances and improvements, net of minority interest.............................. 546 342 --------- --------- Funds from Operations............................ $ 7,131 $ 7,103 ========= ========= Weighted average Common Shares outstanding(1).... 7,614,600 7,613,637 ========= =========
- --------------- (1) Includes 45,844 Common Shares to be issued immediately following the Offering in connection with prepayment of the Osborne Loan and 1,606,060 Common Shares issuable upon the conversion of Preferred Shares. Excludes 509,856 Common Shares issuable upon the conversion of 509,856 Units and 715,784 Common Shares reserved for issuance upon the exercise of outstanding warrants and options. See "Capitalization" and "Operating Partnership Agreement -- Redemption Rights." During 1995, the Company declared distributions totaling $1.65 per share. On May 1, 1996, July 11, 1996, and November 1, 1996, the Company declared distributions of $0.18, $0.18 and $0.21 per share, respectively. 57 64 SUBURBAN PHILADELPHIA ECONOMY AND OFFICE MARKETS GENERAL The Company believes that current and projected economic trends in the Market present a favorable economic climate for commercial real estate. According to the C&W Mid-Year Report, there has been a marked decrease in the Class A office direct vacancy rate in the six suburban Pennsylvania counties (9.1% at June 30, 1996 compared to 16.4% at June 30, 1995) and in the two New Jersey counties (11.3% at June 30, 1996 compared to 18.4% at June 30, 1995) in the Market. In addition, according to the C&W Mid-Year Report, the net absorption of office space (i.e., net change in occupied space for a given period of time, excluding sublet space and preleasing) for the Market was approximately 1.3 million net rentable square feet for the six-month period ended June 30, 1996 compared to a negative net absorption of 80,000 net rentable square feet for the six-month period ended June 30, 1995. In addition, leasing activity for the six-month period ended June 30, 1996 of approximately 1.6 million net rentable square feet represented a 21.5% increase over the leasing activity during the six-month period ended June 30, 1995. The Company believes that the momentum in leasing and absorption that the Market is experiencing has had a positive effect on rental rates within the Market. The Company believes that the rollover of currently below market leases in its portfolio presents the opportunity for internal growth and that increased leasing activity, coupled with minimal new construction, creates an opportunity for future external growth through the strategic acquisition of office and industrial properties in the Market. As of June 30, 1996, the weighted average asking rental rate for Class A office space in the Market was $18.94 per square foot, compared to the average annualized rental rate of $15.15 in the Company's office portfolio as of September 30, 1996. Philadelphia is the nation's fourth largest metropolitan area and is located at the center of the Northeast Corridor. In addition, according to the Philadelphia Chamber of Commerce, the Philadelphia primary metropolitan statistical area (including Bucks, Chester, Delaware and Montgomery counties in Pennsylvania and Burlington, Camden, Gloucester, Mercer and Salem Counties in New Jersey) (the "Philadelphia PMSA") is the fifth largest retail market in the nation with total 1994 sales of approximately $43.0 billion. Philadelphia has a diverse economic base, as evidenced by the presence of over 90.0% of all standard industrial classifications. An important dynamic in the Philadelphia regional economy has been the increasingly significant role played by small business. According to the United States Department of Commerce, businesses with fewer than 100 employees account for approximately 97.0% of the businesses in the Philadelphia area. Furthermore, according to the United States Department of Commerce, from 1973 to 1993, the number of small businesses grew by 62.0% within the Philadelphia area. The Company believes that, due to the fact that small business operators locate their business operations in those areas readily accessible to and situated near residential areas, the growth of small businesses can be expected to increase the demands for suburban office space. According to C&W, the job growth that has recently occurred within the Market comes from small to midsize technology-driven firms that tend to seek suburban locations that are closer to their employees. The Philadelphia metropolitan area is served by an excellent transportation system. The combination of Interstate 95, Interstate 476 (referred to locally as the "Blue Route") and the Pennsylvania Turnpike form an integrated roadway system that loops the entire Philadelphia area and provides ready access, via car, to all points in the Northeast Corridor, Midwest, and New England. Philadelphia's Amtrak station is the second busiest station in the U.S., with hourly trains reaching Washington, D.C. in less than two hours and New York City in approximately one hour. In addition, the Philadelphia International Airport is served by 24 national and international carriers flying to over 100 domestic and 15 foreign destinations. The Company's strategy is to operate in those submarkets located within the Market that are experiencing, or are expected by the Company to experience, economic growth in excess of that experienced and anticipated for the regional economy as a whole and competitive with or better than the U.S. economy as a whole. The Company believes that employment growth is a reliable indicator of projected demand for both suburban office and industrial space. As indicated by the table below, the suburban office markets in which the Company operates have significantly outpaced, and are expected to continue to outpace, the population growth rates experienced by the Philadelphia PMSA. 58 65 POPULATION GROWTH (000'S)(1)
1980 1990 % CHG 2000 % CHG 2010 % CHG ----- ----- ----- ----- ----- ----- ----- Suburban Philadelphia(2)........... 3,336 3,597 7.8% 3,875 7.7% 4,090 5.5% Philadelphia Region(3).... 5,025 5,183 3.1% 5,437 4.9% 5,621 3.3%
CUMULATIVE CHANGE 1980-1990 Suburban Philadelphia(2)............................................ 7.8% Philadelphia Region(3).............................................. 3.1% U.S. National Average............................................... 9.5%
- --------------- (1) 1980 and 1990 data were obtained from U.S. Census and population forecasts were obtained from the Delaware Valley Regional Planning Commission. (2) Defined as Bucks, Chester, Delaware and Montgomery Counties in Pennsylvania and Burlington, Gloucester, Camden and Mercer Counties in New Jersey. (3) Includes Philadelphia County. As evidenced by the historic trend between 1980 and 1990, the population growth rate in suburban Philadelphia was approximately 252% of the Philadelphia regional average and approximately 82.1% of the national average. The following table compares historic and projected employment growth in suburban Philadelphia with the Philadelphia region. EMPLOYMENT GROWTH (000'S)(1)
1980 1990 % CHG 2000 % CHG 2010 % CHG ----- ----- ----- ----- ----- ----- ----- Suburban Philadelphia(2)........... 1,446 1,857 28.4% 2,001 7.7% 2,172 8.5% Philadelphia Region(3).... 2,282 2,694 18.1% 2,849 5.7% 3,065 7.6%
CUMULATIVE CHANGE 1980-1990 Suburban Philadelphia(2)............................................ 28.4% Philadelphia Region(3).............................................. 18.1% U.S. National Average............................................... 24.9%
- --------------- (1) 1980 and 1990 data were obtained from the U.S. Census and the employment forecasts were obtained from the Delaware Valley Regional Planning Commission. (2) Defined as Bucks, Chester, Delaware and Montgomery Counties in Pennsylvania and Burlington, Gloucester, Camden and Mercer Counties in New Jersey. (3) Includes Philadelphia County. The data set forth above indicate that employment growth has accompanied population growth and that the suburban Philadelphia area has outpaced the Philadelphia region as a whole and surpassed the national average for the 10-year period from 1980 to 1990 with respect to employment growth. The Company's belief in the strong relationship between population and employment growth is further supported by the following unemployment statistics as of June 30, 1996. 59 66 HISTORICAL ANNUAL UNEMPLOYMENT RATES
MEASUREMENT PERIOD MARKET AVER- PHILADELPHIA U.S. NATIONAL (FISCAL YEAR COVERED) AGE COUNTY AVERAGE 1993 6.1 8.1 7.0 1994 5.5 7.6 6.5 1995 5.1 7.0 5.5 1996 4.6 6.8 5.6
The Company further believes that growth in the service sector will increase the demand for office space in its submarkets. According to the Delaware Valley Planning Commission, in 1990, the service sector (including the financial, insurance and real estate segments) employed approximately 1.1 million employees within the Philadelphia PMSA which represented approximately 40.5% of regional employment. This sector is projected to create approximately 89,000 and 179,000 new jobs from 1990 to 2000 and 2010, respectively. Other sectors that have contributed to office sector growth within the Philadelphia PMSA include the biotechnology, pharmaceutical, healthcare and education industries. During 1995, the approximately 120 biotechnology and pharmaceutical companies that reside in the Philadelphia area generated over $5.3 billion in revenue, representing an approximately 23.8% increase from 1994. Drawing from a labor force of approximately 275,000 high-tech workers, 360,000 professional and 230,000 precision production workers, this industry works closely with surrounding educational institutions and financial/venture capital organizations. The Philadelphia area has the second largest concentration of healthcare resources in the nation. More than 11.0% of the area's workforce is employed in healthcare and the percentage of physicians engaged in research is the highest of all metropolitan areas in the U.S. Philadelphia is home to 89 degree granting institutions which include six medical schools, 24 teaching hospitals and five local law schools. The area annually graduates over 50,000 students including over 1,000 Ph.D.'s and 3,000 MBA's and more than 40.0% of the region's graduates are in the field of science. The Company believes that growth in these sectors will add to the demand for office space in the future. A strong, regional financial services and venture capital industry has financially supported the emergence of high-growth technology companies in the suburban Philadelphia area. According to the 1995 annual report published by the National Venture Capital Association, New Jersey ranked second in the nation and Pennsylvania ranked eleventh for the amount of money venture capital investors placed with companies within the two states. In terms of number of venture capital transactions completed, Pennsylvania and New Jersey were respectively ranked fourth and fifth in the nation. SUBURBAN PHILADELPHIA OFFICE AND INDUSTRIAL MARKET According to C&W, the total Philadelphia PMSA consists of approximately 383.3 million net rentable square feet of office and industrial space. This space is comprised of approximately 83.3 million net rentable square feet of office space and 300 million net rentable square feet of industrial space. Office Market According to C&W, the Pennsylvania counties within the Market contain approximately 34.3 million net rentable square feet of office space which, as of June 30, 1996, had a direct vacancy rate of approximately 9.5%, which is down significantly from the direct vacancy rate of 15.7% as of June 30, 1995. The June 30, 1996 direct vacancy rate for Class A buildings within the Pennsylvania counties within the Market was 9.2%, which 60 67 compares favorably with the total direct vacancy rate in the Market of 11.2% as of such date. The Market in Pennsylvania consists of the four counties that immediately surround Philadelphia: Bucks, Chester, Delaware, and Montgomery and also includes Lehigh and Northampton Counties in the Lehigh Valley area. The Market in Pennsylvania is further divided into nine smaller submarkets. Vacancy rates within these nine submarkets as of June 30, 1996 range from a high of 12.6% in the Southern Route 202 Corridor submarket to a low of 5.0% for the Blue Bell/Plymouth Meeting/Fort Washington submarket. Vacancy rates for all nine submarkets are lower than they were at June 30, 1995. During the six-month period ended June 30, 1996, absorption for the Pennsylvania counties within the Market was approximately 1.2 million square feet compared to a negative net absorption of approximately 117,100 square feet at June 30, 1995. During the six-month period ended June 30, 1996, leasing activity in the Pennsylvania counties within the Market was approximately 1.6 million square feet, an increase of 21.5% over leasing activity during the six-month period ended June 30, 1995. The Company's target office market also includes Southern New Jersey. The primary counties comprising this market are Burlington and Camden, which as of June 30, 1996, consisted of approximately 173 buildings aggregating approximately 9.4 million net rentable square feet. The direct vacancy rate for Southern New Jersey as of June 30, 1996 was 17.5% as compared to 18.8% as of June 30, 1995. Absorption of approximately 41,000 square feet for the six-month period ended June 30, 1996 reflects a slight improvement over the absorption of approximately 36,800 square feet for the six-month period ended June 30, 1995. According to C&W, Southern New Jersey's high vacancy rate is the result of poor Class B and Class C markets. Both Burlington and Camden Counties are experiencing a lack of available Class A office space. The direct vacancy rate for Class A space in Southern New Jersey was 11.3% as of June 30, 1996, as compared to 18.4% as of June 30, 1995. Four of the Company's Initial Properties are combination office/flex facilities (500 Enterprise Road; 456 Creamery Way; 7310 Tilghman Street; and 6575 Snowdrift Road). The term "flex" signifies that the overall design of the building is flexible in accommodating users with needs of between 10% and 100% of the leased area finished as office area or laboratories or display use. Flex buildings typically have lower ceiling heights than typically found in traditional industrial properties and generally higher quality construction. Throughout the four suburban counties that are adjacent to the City of Philadelphia (Bucks, Montgomery, Chester and Delaware) and in which all of the Company's flex buildings are located, there is an estimated 13.5 million net rentable square feet of flex space. According to C&W, the vacancy rate for flex space in those four counties was 10.6% as of June 30, 1996. This vacancy rate represents a decline from the 12.0% vacancy rate as of June 30, 1995. One of the Initial Properties, 1510 Gehman Road, is a combination office and industrial facility. HISTORICAL OVERALL OFFICE VACANCY PENNSYLVANIA SUBURBS LOGO 61 68 The following table indicates the inventories and availabilities of office properties in the Suburban Philadelphia Office and Industrial Market as of June 30, 1996. SUBURBAN PHILADELPHIA OFFICE MARKET STATISTICS (EXCLUDES PHILADELPHIA COUNTY)
LEASING ACTIVITY C&W OVERALL ABSORPTION (JANUARY 1, 1996 WEIGHTED AVAILABLE DIRECT CLASS A (JANUARY 1, 1996 TO JUNE 30, AVERAGE INVENTORY SPACE VACANCY VACANCY TO JUNE 30, 1996) 1996) RENTAL SUBMARKET NAME (SQUARE FEET) (SQUARE FEET) RATE(1) RATE(2) (SQUARE FEET) (SQUARE FEET)(3) RATES(4) - ---------------------------- ------------- ------------- -------- -------- ----------------- ---------------- --------- Horsham/Willow Grove /Jenkintown............... 3,275,323 394,888 11.4% 10.4% 140,801 187,550 $ 17.60 Southern Route 202 Corridor.................. 3,487,383 484,085 12.6% 13.8% 166,465 209,594 18.45 Blue Bell/Plymouth Mtg./ Ft. Washington ........... 4,911,211 340,587 5.0% 5.0% 136,984 158,412 18.14 Main Line................. 2,481,194 210,049 7.3% 8.3% 49,043 61,537 20.27 Lehigh & Northampton........ 4,370,024 505,529 11.6% 11.3% (2,799) 54,609 14.41 Bala Cynwyd................. 2,812,907 241,189 5.8% 4.5% 25,457 114,071 23.91 Conshohocken................ 1,094,018 70,777 5.9% 5.3% 90,994 154,953 22.36 King of Prussia/ Valley Forge.............. 9,303,771 1,001,867 10.4% 8.3% 439,237 586,438 21.39 Southern Bucks County....... 2,601,676 331,894 12.4% 12.8% 167,397 114,713 18.59 ---------- --------- ---- ---- --------- --------- ------ TOTAL/WEIGHTED AVERAGE PENNSYLVANIA SUBURBS...... 34,337,507 3,580,865 9.5% 9.1% 1,213,579 1,641,877 $ 18.77 ========== ========= ==== ==== ========= ========= ====== Burlington County........... 4,581,772 883,008 17.2% 12.6% (87,589) 146,349 $ 20.23 Camden County............... 4,789,329 939,615 17.7% 9.0% 129,012 119,690 21.81 ---------- --------- ---- ---- --------- --------- ------ TOTAL/WEIGHTED AVERAGE SOUTHERN NEW JERSEY....... 9,371,101 1,822,623 17.5% 11.3% 41,423 266,039 $ 20.70 ========== ========= ==== ==== ========= ========= ====== TOTAL/WEIGHTED AVERAGE SUBURBAN PHILADELPHIA..... 43,708,608 5,403,488 11.2% 9.2% 1,255,002 1,907,916 $ 18.94 ========== ========= ==== ==== ========= ========= ======
Source: C&W. - --------------- (1) C&W defines "Direct Vacancy Rate" as the space available directly under prime leases and relets divided by the inventory. Space in buildings under construction or renovation is not included. (2) C&W defines "Class A" as buildings that are well-leased, professionally managed, attract high quality tenants and command upper tier rental rates. (3) C&W defines "Leasing Activity" as the sum of all finished/closed transactions for a given period of time including subleasing activity. (4) C&W defines "Weighted Average Rental Rates" as the gross annual asking rates of existing buildings. Industrial Market According to C&W, the Philadelphia industrial market consists of a total estimated inventory of approximately 300 million net rentable square feet with an overall vacancy rate of 13.1% as of June 30, 1996. Vacancy rates as of June 30, 1996 range from a high of 22.3% in Montgomery County to a low of 6.2% in Camden County. The industrial market within the four Pennsylvania counties adjacent to Philadelphia County (Bucks, Delaware, Chester and Montgomery) aggregates approximately 130 million net rentable square feet. Sales and leasing activity for the quarter ended June 30, 1996 totaled 2.1 million square feet, an increase of 1.5 million square feet over the quarter ended March 31, 1996. The overall available inventory in these counties was approximately 20.4 million net rentable square feet as of June 30, 1996 and was characterized as 49% warehouse/distribution space, 30% manufacturing space, 2% office service space and 19% flex/other space. This represents an overall vacancy rate of 15.7% within these counties. 62 69 According to C&W, the industrial markets in Burlington and Camden Counties include approximately 70.0 million net rentable square feet. Available inventory decreased over 1.0 million square feet during the three-month period ended June 30, 1996, reducing the vacancy rate from 11.0% to 9.5% as of June 30, 1996. According to C&W, as of June 30, 1996, the industrial market within the Philadelphia PMSA had an overall vacancy rate of 13.1%. Within this market, leasing activity was approximately 2.7 million net rentable square feet and sales activity was approximately 1.8 million net rentable square feet for the six-month period ended June 30, 1996. The following table indicates availability of industrial space within the Philadelphia PMSA as of June 30, 1996:
ESTIMATED OVERALL ESTIMATED INVENTORY AVAILABLE SPACE OVERALL COUNTY NAME (SQUARE FEET) (SQUARE FEET) VACANCY RATE ------------------------------------------- ------------- --------------- ------------ Philadelphia County........................ 100,000,000 12,330,129 12.3% Montgomery County.......................... 40,000,000 8,905,479 22.3% Bucks County............................... 37,000,000 6,228,141 16.8% Chester County............................. 25,000,000 2,459,075 9.8% Delaware County............................ 28,000,000 2,856,238 10.2% Burlington County.......................... 15,000,000 3,227,307 21.5% Camden County.............................. 35,000,000 2.158,308 6.2% Gloucester County.......................... 20,000,000 1,279,992 6.4% ----------- ---------- ---- Total/Weighted Average........... 300,000,000 39,444,669 13.1% =========== ========== ====
HISTORICAL OVERALL INDUSTRIAL VACANCY PHILADELPHIA PMSA LOGO 63 70 BUSINESS AND PROPERTIES GENERAL The Initial Properties include 23 suburban office buildings (22 of which are Class A properties) totalling approximately 12 million net rentable square feet and one Class A industrial facility (1510 Gehman Road) totalling approximately 152,000 net rentable square feet. The Company developed 19 of the Initial Properties and currently manages 23 of the Initial Properties, in addition to managing approximately 575,000 net rentable square feet on behalf of third parties and approximately 159,000 net rentable square feet at the four Option Properties. In addition, the Company has entered into agreements to purchase the 13 Acquisition Properties. The Properties are located in the Market, with the exception of: (i) the Twin Forks Office Park located in Raleigh, North Carolina, which was acquired by the Company in 1986 in connection with the Company's formation; (ii) 168 Franklin Corner Road located in Lawrenceville, New Jersey; and (iii) Delaware Corporate Center (an Acquisition Property) located in New Castle County, Delaware. The Properties are easily accessible from major thoroughfares and are in close proximity to numerous amenities, including restaurants, retail shopping malls, hotels and banks. The Properties contain an aggregate of approximately 2.0 million net rentable square feet and, as of September 30, 1996, were approximately 94.3% leased to 222 tenants. The Company's tenants include many service sector employers, as well as a large number of professional firms and local, national and foreign businesses. The Company believes, based in part on recent engineering reports, that all of its Properties are well maintained and do not require significant capital improvements. The Properties consist primarily of suburban and industrial buildings (36 of which are Class A properties). The Company considers Class A suburban office and industrial properties to be those that have desirable locations, are well maintained and professionally managed and have the potential of achieving rental and occupancy rates that are typically at or above those prevailing in their respective markets. The average age of the Properties is approximately 10.8 years. The Company's 10 largest tenants (based on pro forma annualized base rent at September 30, 1996) aggregate approximately 29.8% of the Company's total base rent and approximately 27.5% of the Company's net rentable square feet and have a weighted average remaining lease term of approximately 7.8 years. As of September 30, 1996 and on a pro forma basis assuring the acquisition properties had been acquired on such date, no single tenant accounted for more than approximately 8.7% of the Company's aggregate pro forma annualized base rent and only 30 tenants individually represented more than 1.0% of such aggregate annualized base rent. Leases representing approximately 58.5% of the net rentable square footage at the Properties were signed during the period January 1, 1993 through December 31, 1995, a time when management believes market rental rates were at or below current market rental rates. This belief is supported by the fact that for the nine months ended September 30, 1996: (i) renewal leases at the Initial Properties were signed covering approximately 154,000 net rentable square feet of office space at a weighted average rental rate of $13.25 per square foot, compared to leases that expired for that space during such period with a weighted average rental rate of $12.66 per square foot (representing a 47% increase); and (ii) new leases at the Initial Properties were signed covering approximately 264,000 net rentable square feet of office space at a weighted average rental rate of $15.96 per square foot, compared to leases that expired for that space during such period with a weighted average rental rate of $14.52 per square foot (representing a 9.9% increase). In all cases, weighted average rental rates include expense recoveries, free rent and scheduled rent increases that would be taken into account under generally accepted accounting principles. The Company believes that the strength of its leasing department and tenant retention capabilities should enable it to continue to capitalize on rental rate differentials as the Company's leases expire. The Company's leases are typically structured for terms of three, five, seven or ten years. Due to conditions within the Market, the Company utilizes two primary lease structures: (i) triple net leases (which represented approximately 75.0% of the aggregate net rentable leased square footage at the Initial Properties as of September 30, 1996 and under which tenants are required to pay all real property taxes, insurance and expenses of maintaining the leased space); and (ii) full service gross leases (which represented approximately 25.0% of the aggregate leased net rentable square footage as of September 30, 1996 and under which the tenants typically pay for all real estate taxes and operating expenses above those for an established base year). 64 71 Under the Company's leases at the Initial Properties, the landlord is generally responsible for structural repairs. Most leases do not permit early termination; however, approximately 12 leases at the Initial Properties (covering an aggregate of approximately 184,000 net rentable square feet and having a weighted average base rental rate of approximately $11.53) permit the tenant to terminate the lease prior to its initial term (excluding rights pursuant to casualty, condemnation, eminent domain and changes in zoning classifications) (generally upon six to twelve months' notice and generally after the end of the third year of a five year lease or the fifth year of a 10 year lease, subject to the tenant's obligation to pay a fixed termination penalty, typically consisting of unamortized tenant improvements, leasing commissions plus an additional negotiated payment). Approximately eight leases at the Acquisition Properties (covering an aggregate of approximately 94,000 net rentable square feet and having a weighted average base rental rate of approximately $14.10) similarly permit the tenant to terminate the lease prior to its initial term. The Company's asset management strategy is designed to efficiently balance the sound business and reporting fundamentals necessary for a public company with the operating efficiency of a responsive market-oriented real estate organization. The Properties will be financially and operationally managed under active central control. All financial reporting, administration (including the formation and implementation of policies and procedures), marketing, leasing, capital expenditure and construction decisions are administered at the Company's corporate office. The Company employs asset managers to oversee and direct the ongoing property operations, as well as the on-site personnel which may include a property manager, leasing agent and other necessary staff. The asset managers actively participate with the executive officers in the formation of the Company's policies and procedures. In addition, the Company's financial and property management reporting systems are designed to ensure operational compliance with the Company's policies and procedures. On-site staffing for each Property is determined by the Property's size, tenant profile and location relative to other Properties. The Company has an active tenant relations program and a maintenance staff to ensure that all of the Properties are maintained in accordance with the Company's standard of excellence. The Company also contracts with third parties for cleaning services, day porters, landscaping, engineering and other service personnel necessary to operate each Property. 65 72 PROPERTIES The following table sets forth certain information with respect to the Properties:
AVERAGE TOTAL BASE TOTAL BASE RENT RENT PLUS EXPENSE FOR THE RECOVERIES PER NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE RENTABLE LEASED AS OF ENDED FOOT LEASED INITIAL PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30, SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3) - --------------------------------------------- ----- --------- ------------- --------------------- ------------------- HORSHAM/WILLOW GROVE/JENKINTOWN, PA 650 Dresher Road............................ 1984 30,138 100.0% $ 329 $ 15.67 1155 Business Center Drive.................. 1990 51,388 99.4% 591 16.31 500 Enterprise Road......................... 1990 67,800 98.5% 674 13.74 One Progress Avenue......................... 1986 79,204 100.0% 563 9.54 SOUTHERN ROUTE 202 CORRIDOR, PA 456 Creamery Way............................ 1987 47,604 100.0% 336 7.15 486 Thomas Jones Way........................ 1990 51,500 50.9% 416 23.26 468 Creamery Way............................ 1990 28,934 100.0% 293 14.54 110 Summit Drive............................ 1985 43,660 67.6% 262 13.51 BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON, PA 2240/50 Butler Pike......................... 1984 52,183 99.4% 560 15.82 120 West Germantown Pike.................... 1984 30,546 100.0% 421 19.16 140 West Germantown Pike.................... 1984 25,953 98.7% 297 16.56 2260 Butler Pike............................ 1984 31,892 100.0% 377 16.84 MAIN LINE, PA 16 Campus Boulevard......................... 1990 65,463 100.0% 430 9.94 18 Campus Boulevard......................... 1990 37,700 100.0% 410 15.01 LEHIGH VALLEY, PA 7310 Tilghman Street........................ 1985 40,000 99.0% 329 11.44 7248 Tilghman Street........................ 1987 42,863 93.8% 399 15.06 6575 Snowdrift Road......................... 1988 46,250 100.0% 300 9.06 LANSDALE, PA 1510 Gehman Road............................ 1990 152,625 100.0% 773 7.70 BURLINGTON COUNTY, NJ One Greentree Centre........................ 1982 55,838 100.0% 869 16.97 Two Greentree Centre........................ 1983 56,075 100.0% 816 14.53 Three Greentree Centre...................... 1984 69,101 96.2% 1,049 16.51 CAMDEN COUNTY, NJ 457 Haddonfield Road (LibertyView).......... 1990 121,737 82.8% 1,160 16.34 OTHER MARKETS 168 Franklin Corner Road.................... 1976 32,000 54.5% 186 13.43 Lawrenceville, NJ Twin Forks Office Park Raleigh, NC 5910-6090 Six Forks......................... 1982 73,339 100.0% 1,008 13.83 --------- ----- ------- ------ CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE INITIAL PROPERTIES.......................... 1,333,793 93.8% 12,848 14.04(10) ========= ===== ======= ====== AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF INITIAL PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996 SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE - --------------------------------------------- ------------------ -------- ------------ ------------------------- < HORSHAM/WILLOW GROVE/JENKINTOWN, PA 650 Dresher Road............................ $16.50 $18.02 9.2% GMAC (100%) - 5/03 1155 Business Center Drive.................. 17.22 18.02 4.6% IMS (79%) - 3/06; Motorola (14%) - 2/99 500 Enterprise Road......................... 15.03 14.50 (3.5)% Conti Mortgage (80%) - 4/01; Pioneer (19%) - 10/00 One Progress Avenue......................... 11.75 18.02 53.4% Reed Technologies (100%) - 6/11 SOUTHERN ROUTE 202 CORRIDOR, PA 456 Creamery Way............................ 7.25(7) 7.89(8) 8.8% Neutronics (100%) - 1/03 486 Thomas Jones Way........................ 15.46 15.55 0.5% First American Real Estate (20%) - 4/00 468 Creamery Way............................ 13.88 13.61 (1.9)% Franciscan Health (82%) - 6/99; American Day Treatment (18%) - 6/00 110 Summit Drive............................ 7.20(8) 7.89(8) 9.6% Maris Equipment (49%) - 4/99 BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON, PA 2240/50 Butler Pike......................... 17.55 18.70 6.6% CoreStates (59%) - 4/06; TWA Marketing (33%) - 10/99 120 West Germantown Pike.................... 17.52 18.70 6.7% Clair O'Dell (82%) - 7/01; Kleinerts (13%) - 10/98 140 West Germantown Pike.................... 17.38 18.70 7.6% Healthcare, Inc. (46%) - 9/99; Henkel (29%) - 6/98; National Health Equity (20%) - 5/99 2260 Butler Pike............................ 17.82 18.70 4.9% Information Resources (66%) - 12/00; Med Resorts (26%) - 1/01 MAIN LINE, PA 16 Campus Boulevard......................... 13.58 20.27 49.3% New England Mutual (52%) - 5/06; Atlantic Employees C.U. (35%) - 1/06 18 Campus Boulevard......................... 18.62 20.27 8.9% Prudential (25%) - 6/01; Devco Mutual (35%) - 1/01; Scott Paper (17%) - 11/97; Marshall Dennehey (18%) - 10/01 LEHIGH VALLEY, PA 7310 Tilghman Street........................ 8.89(8) 10.50(8) 18.1% AT&T (83%) - 12/96-8/98 7248 Tilghman Street........................ 14.76 15.34 3.9% IDS Financial (29%) - 7/01; Ohio Casualty (46%) - 7/01; Meridian Mortgage (12%) - 6/99 6575 Snowdrift Road......................... 7.15(8) 10.50(8) 46.9% Corning Packaging (100%) - 2/99 LANSDALE, PA 1510 Gehman Road............................ 4.72(8) 5.95(8) 26.1% Ford Electronics (35%) - 6/98; Nibco (65%) - 8/99 BURLINGTON COUNTY, NJ One Greentree Centre........................ 16.07 19.30 20.0% American Executive Centers (30%) - 1/06; West Jersey (15%) - 4/01; Temple Sports Med. (18%) - 12/97 Two Greentree Centre........................ 16.02 19.30 20.5% Merrill Lynch (23%) - 11/05; ReMax Suburban (12%) - 11/05 Three Greentree Centre...................... 16.41 19.30 17.6% Parker, McCay & Criscuolo (39%) - 5/01; Marshall Dennehey (20%) - 5/97; Olde Discounts (12%) - 3/00; Surety Title (13%) - 11/03 CAMDEN COUNTY, NJ 457 Haddonfield Road (LibertyView).......... 18.63 21.81 17.1% HIP Health Plan (31%) - 12/07 OTHER MARKETS 168 Franklin Corner Road.................... 15.55 18.00(9) 15.8% Dr. Belden (12%) - 5/01; Lawrenceville, NJ Crawford & Co. (14%) - 11/99 Twin Forks Office Park Raleigh, NC 5910-6090 Six Forks......................... 14.25 15.50(9) 8.8% N/A ----- ----- ----- CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE INITIAL PROPERTIES.......................... $14.63(10) $16.83(10)(11) 15.0% ===== ===== =====
66 73
AVERAGE TOTAL BASE TOTAL BASE RENT RENT PLUS EXPENSE FOR THE RECOVERIES PER NET PERCENTAGE TWELVE MONTHS NET RENTABLE SQUARE RENTABLE LEASED AS OF ENDED FOOT LEASED ACQUISITION PROPERTIES: YEAR SQUARE SEPTEMBER 30, SEPTEMBER 30, 1996(2) SEPTEMBER 30, SUBMARKET/PROPERTY BUILT FEET 1996(1) (000'S) 1996(3) - ----------------------------------------------- ----- --------- ------------- --------------------- ------------------- HORSHAM/WILLOW GROVE/JENKINTOWN, PA 700 Business Center Drive(12)................. 1986 82,009 100.0% $ 793 $ 11.59 800 Business Center Drive(12)................. 1986 KING OF PRUSSIA, PA 500 North Gulph Road.......................... 1979 92,851 86.1% 1,387 15.02 BUCKS COUNTY, PA 2200 Cabot Boulevard.......................... 1979 55,081 100.0% 259 5.75 2250 Cabot Boulevard.......................... 1982 40,000 100.0% 170 5.22 2260 Cabot Boulevard(12)...................... 1984 29,638 100.0% 246 10.17 2270 Cabot Boulevard(12)...................... 1984 3000 Cabot Boulevard.......................... 1986 34,640 83.9% 364 12.85 3329 Street Road -- Greenwood Sq.(12)......... 1985 3331 Street Road -- Greenwood Sq.(12)......... 1986 165,929 92.1% 2,234 14.56 3333 Street Road -- Greenwood Sq.(12)......... 1988 BURLINGTON COUNTY, NJ 8000 Lincoln Drive............................ 1983 54,923 100.0% 445 8.25 NORTHERN SUBURBAN WILMINGTON One Righter Parkway........................... 1989 104,828 100.0% 2,044 19.50 --------- ----- ------- ------ CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE ACQUISITION PROPERTIES........................ 659,899 95.2% $ 7,942 $ 12.93 ========= ===== ======= ====== CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL PROPERTIES.................................... 1,993,692 94.3% $20,790 $ 13.67 ========= ===== ======= ====== AVERAGE C&W RENTAL RATE TENANTS LEASING 10% OR ANNUALIZED WEIGHTED INCREASE MORE OF RENTABLE RENTAL AVERAGE POTENTIAL SQUARE FOOTAGE PER RATE AS OF CLASS A UNTIL MARKET PROPERTY AS OF ACQUISITION PROPERTIES: SEPTEMBER 30, RENTAL RATE IS SEPTEMBER 30, 1996 SUBMARKET/PROPERTY 1996(4) RATES(5) ACHIEVED(6) AND LEASE EXPIRATION DATE - ----------------------------------------------- --------------- -------- ------------ ------------------------- < HORSHAM/WILLOW GROVE/JENKINTOWN, PA 700 Business Center Drive(12)................. $13.11 $18.02 37.5% Metpath (35%) - 1/12; Sprint (19%) - 3/01; Macro (19%) - 800 Business Center Drive(12)................. 4/01; Advanta (10%) - 6/99 KING OF PRUSSIA, PA 500 North Gulph Road.......................... 16.51 21.39 29.6% Transition Software (16%) - 8/00, Strohl Syst (12%) - 10/99 BUCKS COUNTY, PA 2200 Cabot Boulevard.......................... 4.40 4.50 2.3% Hussman Corp (38%), Nobel Printing (38%) - 6/97; McCaffrey Mgt (24%) - 8/00 2250 Cabot Boulevard.......................... 3.50 4.50 28.6% Bucks County Nut (100%) - 7/99 2260 Cabot Boulevard(12)...................... 8.78 9.00 2.5% Sager Electrical (14%) - 10/98; Terminix Intrntnl 2270 Cabot Boulevard(12)...................... (13%) - 11/96 3000 Cabot Boulevard.......................... 17.03 18.95 11.3% Geraghty & Miller (31%) - 11/97; Prudential Insur. (21%) - 7/98; Luigi Bormioli Co. (11%) - 6/98 3329 Street Road -- Greenwood Sq.(12)......... 3331 Street Road -- Greenwood Sq.(12)......... 16.54 18.95 14.6% Waste Management (27%) - 3/97 3333 Street Road -- Greenwood Sq.(12)......... BURLINGTON COUNTY, NJ 8000 Lincoln Drive............................ 17.13 19.30 $ 12.7% CSC (67%) - 11/01; Blue Cross (33%) - 2/07 NORTHERN SUBURBAN WILMINGTON One Righter Parkway........................... $ 19.30 20.50 6.2% Kimberly Clark (89%) - 12/05 ----- ----- ----- CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR THE ACQUISITION PROPERTIES........................ $ 16.23(13) $19.01(11)(13) 17.2% ===== ===== ===== CONSOLIDATED TOTAL/WEIGHTED AVERAGE FOR ALL PROPERTIES.................................... $ 15.15(14) $17.54(11)(14) 15.8% ===== ===== =====
- --------------- (1) Calculated by dividing net rentable square feet included in leases dated on or before September 30, 1996 by the aggregate net rentable square feet included in the Property. (2) "Total Base Rent" for the twelve months ended September 30, 1996 represents base rents received during such period, excluding tenant reimbursements, calculated in accordance with generally accepted accounting principles determined on a straight-line basis. Tenant reimbursements generally include payment of real estate taxes, operating expenses, and escalations and common area maintenance and utility charges. (3) Represents the Total Base Rent for the twelve months ended September 30, 1996, plus tenant reimbursements for the twelve months ended September 30, 1996, divided by the net rentable square feet leased. (4) "Average Annualized Rental Rate" is calculated as follows: (i) for office leases written on a triple net basis, the sum of the annualized contracted base rental rates payable for all space leased as of September 30, 1996 (without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles) plus the 1996 budgeted operating expenses excluding tenant electricity; and (ii) for office leases written on a full service basis, the annualized contracted base rate payable for all space leased as of September 30, 1996. In both cases, the annualized rental rate is divided by the total square footage leased as of September 30, 1996 without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles. (5) Represents the weighted average asking rates, as of June 30, 1996, of directly competitive properties in the relevant submarket within the Market, as identified by C&W. (6) Represents the percentage by which the June 30, 1996 C&W weighted average asking rate exceeds the September 30, 1996 average annualized rental rate of the applicable Property. (7) Property occupied by a single tenant under a triple net lease agreement, pursuant to which the tenant subcontracts directly with third party contractors for all building services. (8) These rates represent triple net lease rates (leases under which tenants are required to pay all real property taxes, insurance and expenses of maintaining the leased space). (9) Rental rates represent management's estimate of asking rental rates in these markets for comparable properties. (10) Excludes 1510 Gehman Road, which is an industrial Property. (11) Represents the Class A weighted average rental rate for the submarkets in which the Properties are located (weighted by Property net rentable square footage) as compared to the Class A office weighted average asking rate of $18.94 per square foot for the Market (weighted by Market net rentable square footage)as identified in the C&W Mid-Year Report. (12) The data reflected for these properties are presented on a consolidated basis. (13) Excludes 2200 Cabot Boulevard and 2250 Cabot Boulevard, which are industrial properties. (14) Excludes 1510 Gehman Road, 2200 Cabot Boulevard and 2250 Cabot Boulevard, which are industrial properties. 67 74 TENANTS Initial Properties. The Initial Properties are leased to approximately 146 tenants that are engaged in a variety of businesses. The following table sets forth information regarding the Company's leases with its 20 largest tenants based upon annualized base rent for the Initial Properties as of September 30, 1996:
PERCENTAGE OF REMAINING AGGREGATE NET PERCENTAGE OF ANNUALIZED AGGREGATE NUMBER OF LEASE TERM RENTABLE SQUARE AGGREGATE LEASED BASE RENT ANNUALIZED TENANT NAME LEASES IN MONTHS FEET LEASED SQUARE FEET (000'S) BASE RENT - ---------------------- --------- ------------- --------------- ----------------- --------------- --------------- Reed Technology....... 1 178 79,204 5.9% $ 733 5.1% Conti Mortgage........ 1 56 53,906 4.0% 596 4.2% IMS................... 1 115 40,774 3.1% 494 3.5% HIP Health Plan of NJ.................. 1 136 37,515 2.8% 463 3.2% Clair O'Dell Agency... 1 59 25,177 1.9% 441 3.1% CoreStates............ 1 116 30,359 2.2% 410 2.9% Nibco, Inc............ 1 36 98,725 7.4% 395 2.8% Parker, McKay & Criscuolo........... 1 57 25,905 1.9% 388 2.7% GMAC.................. 1 81 30,138 2.3% 354 2.5% Neutronics............ 1 77 47,604 3.6% 346 2.4% Corning Packaging..... 1 30 46,250 3.5% 331 2.3% Ford Motor Co......... 1 22 53,900 4.0% 327 2.3% Marshall, Dennehey.... 2 (a) 19,633 1.5% 321 2.2% New England Mutual.... 1 117 31,907 2.4% 320 2.2% AT&T Communications... 3 (b) 32,774 2.5% 288 2.0% Information Resources........... 1 52 21,008 1.6% 284 2.0% American Executive Centers............. 1 114 16,853 1.3% 279 2.0% Devco Mutual.......... 1 54 13,332 1.0% 230 1.6% Ohio Casualty......... 1 59 19,877 1.5% 229 1.6% Franciscan Health Systems............. 1 34 23,588 1.8% 225 1.6% -- ---- ------- ---- ----- ---- Consolidated Total/ Weighted Average..... 23 75 748,429 56.1% $ 7,457 52.3% == ==== ======= ==== ===== ====
- --------------- (a) Consists of two leases: a lease representing 12,971 square feet that expires in May 1997 and a lease representing 6,662 square feet that expires in October 2001. (b) Consists of three leases: a lease representing 11,000 square feet that expires in August 1998; a lease representing 13,107 square feet that expires in December 1996 and a lease representing 8,667 square feet that expires in November 1997. 68 75 Acquisition Properties. The Acquisition Properties are leased to approximately 76 tenants that are engaged in a variety of businesses. The following table sets forth information regarding leases with the 20 largest tenants at the Acquisition Properties based upon annualized base rent for the Acquisition Properties as of September 30, 1996:
PERCENTAGE OF REMAINING AGGREGATE NET PERCENTAGE OF ANNUALIZED AGGREGATE NUMBER OF LEASE TERM RENTABLE SQUARE AGGREGATE LEASED BASE RENT ANNUALIZED TENANT NAME LEASES IN MONTHS FEET LEASED SQUARE FEET (000'S) BASE RENT - ---------------------- --------- ------------- --------------- ----------------- --------------- --------------- Kimberly Clark........ 1 112 93,014 14.1% $ 1,814 20.1% Waste Management...... 1 6 45,764 6.9% 715 8.0% CSC................... 1 63 36,830 5.6% 626 6.9% Blue Cross............ 1 126 18,093 2.7% 315 3.5% FPA Corporation....... 1 6 16,453 2.5% 280 3.1% Prudential............ 2 (a) 13,945 2.1% 271 3.0% Sprint................ 1 55 15,348 2.3% 253 2.8% Metpath............... 1 185 28,475 4.3% 249 2.8% Macro................. 1 56 15,425 2.3% 231 2.6% Transition Software... 1 48 15,101 2.3% 227 2.5% KWS&P................. 1 31 22,706 3.4% 212 2.4% Nason Cullen Inc...... 1 59 12,566 1.9% 201 2.2% Strohl Systems........ 1 38 11,277 1.7% 186 2.1% Nextel Communication....... 1 56 11,004 1.7% 182 2.0% Geraghty & Miller..... 1 15 10,840 1.6% 173 1.9% Outdoor World Corp.... 1 20 9,579 1.5% 153 1.7% Bucks County Nut...... 1 35 40,000 6.1% 140 1.6% Advanta............... 1 34 8,339 1.3% 129 1.4% Orbital Engineer...... 1 53 7,468 1.1% 117 1.3% First American........ 1 39 6,258 0.9% 114 1.3% -- ---- ------- ---- ----- ---- Consolidated Total/Weighted Average..... 21 65 432,227 65.5% $ 6,474 72.2% == ==== ======= ==== ===== ====
- --------------- (a) Consists of two leases: a lease representing 7,445 square feet that expires in July 1998, and a lease representing 6,500 square feet that expires in November 1996. 69 76 Properties. On a combined basis, the Properties are leased to 222 tenants that are engaged in a variety of businesses. The following table sets forth information, on a combined basis, regarding leases at the Properties with the 20 largest tenants based upon annualized base rent from the Properties as of September 30, 1996:
PERCENTAGE OF REMAINING AGGREGATE NET PERCENTAGE OF ANNUALIZED AGGREGATE NUMBER OF LEASE TERM RENTABLE SQUARE AGGREGATE LEASED BASE RENT ANNUALIZED TENANT NAME LEASES IN MONTHS FEET LEASED SQUARE FEET $ (000'S) BASE RENT - ---------------------- --------- ------------- --------------- ----------------- --------------- --------------- Kimberly Clark........ 2 (a) 99,238 5.0% $ 2,013 8.7% Waste Management...... 1 6 45,764 2.3% 752 3.2% Reed Technology....... 1 178 79,204 4.0% 733 3.1% CSC................... 1 63 36,830 1.9% 626 2.7% Conti Mortgage........ 1 56 53,906 2.7% 596 2.6% IMS................... 1 115 40,774 2.0% 495 2.1% HIP Health Plan NJ.... 1 136 37,515 1.9% 463 2.0% Clair O'Dell Agency... 1 59 25,177 1.3% 441 1.9% CoreStates............ 1 116 30,359 1.5% 410 1.8% Nibco, Inc............ 1 36 98,725 5.0% 395 1.7% Parker, McKay & Criscuolo........... 1 57 25,905 1.3% 389 1.7% GMAC.................. 1 81 30,138 1.5% 355 1.5% Neutronics............ 1 77 47,604 2.4% 346 1.5% Corning Packaging..... 1 30 46,250 2.3% 331 1.4% Ford Electronics...... 1 22 53,900 2.7% 327 1.4% Marshall, Dennehey.... 2 (b) 19,633 1.0% 321 1.4% New England Mutual.... 1 117 31,907 1.6% 320 1.4% Blue Cross............ 1 126 18,093 0.9% 315 1.4% AT&T Communications...... 3 (c) 32,774 1.6% 288 1.2% Information Resources........... 1 52 21,008 1.1% 284 1.2% -- ---- ------- ---- ---------- ---- Consolidated Totals/ Weighted Average..... 24 76 874,704 43.9% $10,200 43.8% == ======= ==== ========== ====
- --------------- (a) Consists of two leases: a lease representing 93,014 square feet that expires in December 2005, and a lease representing 6,224 square feet that expires in November 1997. (b) Consists of two leases: a lease representing 12,971 square feet that expires in May 1997 and a lease representing 6,662 square feet that expires in October 2001. (c) Consists of three leases: a lease representing 11,000 square feet that expires in August 1998; a lease representing 13,107 square feet that expires in December 1996 and a lease representing 8,667 square feet that expires in November 1997. 70 77 LEASE EXPIRATIONS Initial Properties. The following table sets forth detailed lease expiration information for the Initial Properties for leases in place as of September 30, 1996, assuming that none of the tenants exercise renewal options or termination rights, if any, at or prior to the scheduled expirations:
PERCENTAGE OF TOTAL RENTABLE FINAL NUMBER OF SQUARE FINAL ANNUALIZED ANNUALIZED LEASES FOOTAGE FINAL BASE RENT PER BASE EXPIRING SUBJECT TO ANNUALIZED SQUARE FOOT RENT UNDER YEAR OF LEASE EXPIRATION DECEMBER WITHIN THE EXPIRING BASE RENT UNDER UNDER EXPIRING CUMULATIVE 31 YEAR(1) LEASES EXPIRING LEASES EXPIRING LEASES(1) LEASES TOTAL - ----------------------------------- ---------- ---------- --------------- ------------------ ---------- ---------- 1996(2)............................ 15 54,004 $ 676,134 $12.52 4.4% 4.4% 1997............................... 42 115,886 1,701,924 14.69 11.1% 15.5% 1998............................... 20 100,621 (3) 977,905(3) 9.72 6.4% 21.9% 1999............................... 28 296,212 (3) 2,495,062(3) 8.42 16.3% 38.2% 2000............................... 10 62,670 874,483 13.95 5.7% 45.5% 2001............................... 20 212,726 2,970,875 13.97 19.4% 63.3% 2002............................... 1 8,912 169,328 19.00 1.1% 64.4% 2003............................... 7 109,336 1,361,239 12.45 8.9% 73.3% 2004............................... 1 9,262 185,240 20.00 1.2% 74.5% 2005............................... 2 19,387 365,564 18.86 2.4% 76.9% 2006............................... 6 145,449 1,942,732 13.36 12.7% 89.6% 2007 and thereafter................ 2 116,719 1,580,118 13.54 10.4% 100.0% --- --------- ----------- ------ ------ ---- Consolidated Total/Weighted Average.......................... 154 1,251,184 $15,300,602 $12.23 100.0% 100.0% === ========= =========== ====== ====== ====
- --------------- (1) "Final Annualized Base Rent" for each lease scheduled to expire represents the cash rental rate of base rents, excluding tenant reimbursements, in the final month prior to expiration multiplied by 12. Tenant reimbursements generally include payments on account of real estate taxes, operating expense escalations and common area utility charges. (2) Represents lease expirations from September 30, 1996 through December 31, 1996. (3) Includes 152,625 net rentable square feet and $780,711 of final annualized base rent ($5.12 per net rentable square foot) associated with 1998 and 1999 lease expirations on the Company's sole industrial property included in the Initial Properties. 71 78 Acquisition Properties. The following table sets forth detailed lease expiration information for the Acquisition Properties for leases in place as of September 30, 1996, assuming none of the tenants exercise renewal options or termination rights, if any, at or prior to the scheduled expirations:
PERCENTAGE OF TOTAL RENTABLE FINAL NUMBER OF SQUARE FINAL ANNUALIZED ANNUALIZED LEASES FOOTAGE FINAL BASE RENT PER BASE EXPIRING SUBJECT TO ANNUALIZED SQUARE FOOT RENT UNDER YEAR OF LEASE EXPIRATION DECEMBER WITHIN THE EXPIRING BASE RENT UNDER UNDER EXPIRING CUMULATIVE 31 YEAR(1) LEASES EXPIRING LEASES EXPIRING LEASES(1) LEASES TOTAL - ----------------------------------- ---------- ---------- --------------- ------------------ ---------- ---------- 1996(2)............................ 7 23,245 $ 334,950 $14.41 3.4% 3.4% 1997............................... 18 130,449 1,866,640 14.31 19.0% 22.4% 1998............................... 14 42,303 659,835 15.60 6.7% 29.1% 1999............................... 20 143,085 1,605,792 11.22 16.3% 45.4% 2000............................... 4 35,008 445,238 12.72 4.5% 49.9% 2001............................... 10 108,623 1,849,219 17.02 18.8% 68.7% 2002............................... 1 4,433 82,764 18.67 0.8% 69.5% 2003............................... -- -- -- -- -- 69.5% 2004............................... -- -- -- -- -- 69.5% 2005............................... 1 93,014 2,252,799 24.22 22.9% 92.4% 2006............................... -- -- -- -- -- 92.4% 2007 and thereafter................ 3 48.069 742,447 15.45 7.6% 100.0% --- -------- - ----------- ------ ------ Consolidated Total/Weighted Average.......................... 78 628,229 $ 9,839,684 $15.66 100.0% 100.0% === ========= =========== ====== ======
- --------------- (1) "Final Annualized Base Rent" for each lease scheduled to expire represents the cash rental rate of base rents, excluding tenant reimbursements, in the final month prior to expiration multiplied by 12. Tenant reimbursements generally include payments on account of real estate taxes, operating expense escalations and common area utility charges. (2) Represents lease expirations from September 30, 1996 through December 31, 1996. 72 79 Properties. The following table sets forth detailed lease expiration information for the Properties on a combined basis for leases in place as of September 30, 1996, assuming that none of the tenants exercise renewal options or termination rights, if any, at or prior to the scheduled expirations:
PERCENTAGE OF TOTAL RENTABLE FINAL NUMBER OF SQUARE FINAL ANNUALIZED ANNUALIZED LEASES FOOTAGE FINAL BASE RENT PER BASE EXPIRING SUBJECT TO ANNUALIZED SQUARE FOOT RENT UNDER YEAR OF LEASE EXPIRATION DECEMBER WITHIN THE EXPIRING BASE RENT UNDER UNDER EXPIRING CUMULATIVE 31 YEAR(1) LEASES EXPIRING LEASES EXPIRING LEASES(1) LEASES TOTAL - ----------------------------------- ---------- ---------- --------------- ------------------ ---------- ---------- 1996(2)............................ 22 77,249 $ 1,011,084 $13.09 4.0% 4.0% 1997............................... 60 246,335 3,568,563 14.49 14.2% 18.2% 1998............................... 34 142,924 (3) 1,637,739(3) 11.46 6.5% 24.7% 1999............................... 48 439,297 (3) 4,100,854(3) 9.34 16.3% 41.0% 2000............................... 14 97,678 1,319,720 13.51 5.3% 46.3% 2001............................... 30 321,349 4,820,094 15.00 19.2% 65.5% 2002............................... 2 13,345 252,092 18.89 1.0% 66.5% 2003............................... 7 109,336 1,361,239 12.45 5.4% 71.9% 2004............................... 1 9,262 185,240 20.00 0.7% 72.6% 2005............................... 3 112,401 2,618,363 23.29 10.4% 83.0% 2006............................... 6 145,449 1,942,732 13.36 7.7% 90.7% 2007 and thereafter................ 5 164,788 2,322,565 9.24 9.3% 100.0% --- --------- ----------- ------ ------ Consolidated Total/ Weighted Average................. 232 1,879,413 $25,140,286 $13.38 100.0% 100.0% === ========= =========== ====== ======
- --------------- (1) "Final Annualized Base Rent" for each lease scheduled to expire represents the cash rental rate of base rents, excluding tenant reimbursements, in the final month prior to expiration multiplied by 12. Tenant reimbursements generally include payments on account of real estate taxes, operating expense escalations and common area utility charges. (2) Represents lease expirations from September 30, 1996 through December 31, 1996. (3) Includes 152,625 net rentable square feet and $780,711 of final annualized base rent ($5.12 per net rentable square foot) associated with 1998 and 1999 lease expirations on the Company's sole industrial property included in the Initial Properties. 73 80 LEASING EXPIRATIONS -- PROPERTY BY PROPERTY The following table sets forth detailed lease expiration information for each of the Properties for leases in place as of September 30, 1996, assuming that none of the tenants exercise renewal options or termination rights, if any, at or prior to the scheduled expirations.
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- INITIAL PROPERTIES: HORSHAM/WILLOW GROVE/ JENKINTOWN, PA 650 Dresher Road Square Footage of Expiring Leases..... -- -- -- -- -- -- -- Percentage of Total Leased Square Feet................................. -- -- -- -- -- -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- -- -- Number of Leases Expiring............. -- -- -- -- -- -- -- 1155 Business Center Drive Square Footage of Expiring Leases..... -- -- 1,023 6,988 2,298 -- -- Percentage of Total Leased Square Feet................................. -- -- 2.0% 13.7% 4.5% -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- $11,253 $97,622 $29,070 -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- $11.00 $13.97 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- 1.7% 14.4% 4.3% -- -- Number of Leases Expiring............. -- -- 1 1 1 -- -- 500 Enterprise Road Square Footage of Expiring Leases..... -- -- -- -- 12,845 53,906 -- Percentage of Total Leased Square Feet................................. -- -- -- -- 19.2% 80.8% -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- $122,028 $595,661 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- $9.50 $11.05 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- 17.0% 83.0% -- Number of Leases Expiring............. -- -- -- -- 1 1 -- One Progress Avenue Square Footage of Expiring Leases..... -- -- -- -- -- -- -- Percentage of Total Leased Square Feet................................. -- -- -- -- -- -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- -- -- Number of Leases Expiring............. -- -- -- -- -- -- -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- INITIAL PROPERTIES: HORSHAM/WILLOW GROVE/ JENKINTOWN, PA 650 Dresher Road Square Footage of Expiring Leases..... 30,138 -- -- -- -- 30,138 Percentage of Total Leased Square Feet................................. 100.0% -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... $403,849 -- -- -- -- $403,849 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $13.40 -- -- -- -- $13.40 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 100.0% -- -- -- -- 100.0% Number of Leases Expiring............. 1 -- -- -- -- 1 1155 Business Center Drive Square Footage of Expiring Leases..... -- -- -- 40,774 -- 51,083 Percentage of Total Leased Square Feet................................. -- -- -- 79.8% -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- $538,217 -- $676,162 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- $13.20 -- $13.24 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 79.6% -- 100.0% Number of Leases Expiring............. -- -- -- 1 -- 4 500 Enterprise Road Square Footage of Expiring Leases..... -- -- -- -- -- 66,751 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $717,689 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $10.75 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 2 One Progress Avenue Square Footage of Expiring Leases..... -- -- -- -- 79,204 79,204 Percentage of Total Leased Square Feet................................. -- -- -- -- 100.0 % 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- $967,873 $967,873 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- $12.22 $12.22 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- 100.0 % 100.0% Number of Leases Expiring............. -- -- -- -- 1 1
- --------------- Footnotes appear on page 82. 74 81
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- INITIAL PROPERTIES (CONTINUED): SOUTHERN ROUTE 202 CORRIDOR, PA 456 Creamery Way Square Footage of Expiring Leases..... -- -- -- -- -- -- -- Percentage of Total Leased Square Feet................................. -- -- -- -- -- -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- -- -- Number of Leases Expiring............. -- -- -- -- -- -- -- 486 Thomas Jones Way Square Footage of Expiring Leases..... 2,676 3,895 8,612 10,086 961 -- -- Percentage of Total Leased Square Feet................................. 10.2 % 14.9% 32.8% 38.5% 3.7% Final Annual Base Rent Under Expiring Leases(2)................... $30,774 $46,935 $99,944 $113,468 $11,532 -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $11.50 $12.05 $11.61 $11.25 $12.00 -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 0 0 33.0% 37.5% 3.8% Number of Leases Expiring............. 1 1 3 1 1 -- -- 468 Creamery Way Square Footage of Expiring Leases..... -- -- -- 23,588 5,346 -- -- Percentage of Total Leased Square Feet................................. -- -- -- 81.5% 18.5% -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- $224,086 $67,627 -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- $9.50 $12.65 -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 76.8% 23.2% -- -- Number of Leases Expiring............. -- -- -- 1 1 -- -- 110 Summit Drive Square Footage of Expiring Leases..... 2,600 -- -- 26,920 -- -- -- Percentage of Total Leased Square Feet................................. 8.8 % 91.2% Final Annual Base Rent Under Expiring Leases(2)................... $22,646 -- -- $191,110 -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $8.71 -- -- $7.10 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 10.6 % 89.4% Number of Leases Expiring............. 1 -- -- 2 -- -- -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- INITIAL PROPERTIES (CONTINUED): SOUTHERN ROUTE 202 CORRIDOR, PA 456 Creamery Way Square Footage of Expiring Leases..... 47,604 -- -- -- -- 47,604 Percentage of Total Leased Square Feet................................. 100.0% -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... $357,030 -- -- -- -- $357,030 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $7.50 -- -- -- -- $7.50 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 100.0% -- -- -- -- 100.0% Number of Leases Expiring............. 1 -- -- -- -- 1 486 Thomas Jones Way Square Footage of Expiring Leases..... -- -- -- -- -- 26,230 Percentage of Total Leased Square Feet................................. 100.00% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $302,652 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $11.54 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 100.00% Number of Leases Expiring............. -- -- -- -- -- 7 468 Creamery Way Square Footage of Expiring Leases..... -- -- -- -- -- 28,934 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $291,713 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $10.08 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 2 110 Summit Drive Square Footage of Expiring Leases..... -- -- -- -- -- 29,520 Percentage of Total Leased Square Feet................................. 100.00% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $213,756 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $7.24 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 100.00% Number of Leases Expiring............. -- -- -- -- -- 3
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YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- INITIAL PROPERTIES (CONTINUED): BLUE BELL/PLYMOUTH MEETING/ FORT WASHINGTON, PA 2240/50 Butler Pike Square Footage of Expiring Leases..... -- -- 4,430 17,080 -- -- -- Percentage of Total Leased Square Feet................................. -- -- 8.5% 33.0% -- -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- $56,483 $187,880 -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- $12.75 $11.00 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- 8.1% 27.0% -- -- -- Number of Leases Expiring............. -- -- 1 1 -- -- -- 120 West Germantown Pike Square Footage of Expiring Leases..... -- -- 1,450 -- -- 29,096 -- Percentage of Total Leased Square Feet................................. 4.8% 95.2% Final Annual Base Rent Under Expiring Leases(2)................... -- -- $17,400 -- -- $510,427 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- $12.00 -- -- $17.54 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- 3.3% 96.7% Number of Leases Expiring............. -- -- 1 -- -- 2 -- 140 West Germantown Pike Square Footage of Expiring Leases..... -- -- 7,460 16,900 1,264 -- -- Percentage of Total Leased Square Feet................................. -- -- 29.1% 66.0% 4.9% -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- $125,701 $215,059 $16,432 -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- $16.85 $12.73 $13.00 -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- 35.2% 60.2% 4.6% -- -- Number of Leases Expiring............. -- -- 1 2 1 -- -- 2260 Butler Pike Square Footage of Expiring Leases..... -- -- -- 3,041 21,008 7,843 -- Percentage of Total Leased Square Feet................................. 9.5% 65.9% 24.6% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- $41,662 $283,608 $98,038 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- $13.70 $13.50 $12.50 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 9.8% 67.0% 23.2% -- Number of Leases Expiring............. -- -- -- 1 1 1 -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- INITIAL PROPERTIES (CONTINUED): BLUE BELL/PLYMOUTH MEETING/ FORT WASHI 2240/50 Butler Pike Square Footage of Expiring Leases..... -- -- -- 30,359 -- 51,869 Percentage of Total Leased Square Feet................................. -- -- -- 58.5% -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- $450,831 -- $695,194 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- $14.85 -- $13.40 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 64.9% -- 100.0% Number of Leases Expiring............. -- -- -- 1 -- 3 120 West Germantown Pike Square Footage of Expiring Leases..... -- -- -- -- -- 30,546 Percentage of Total Leased Square Feet................................. 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $527,827 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $17.28 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 100.0% Number of Leases Expiring............. -- -- -- -- -- 3 140 West Germantown Pike Square Footage of Expiring Leases..... -- -- -- -- -- 25,624 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $357,192 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $13.94 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 4 2260 Butler Pike Square Footage of Expiring Leases..... -- -- -- -- -- 31,892 Percentage of Total Leased Square Feet................................. 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $423,307 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $13.27 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 3
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YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- INITIAL PROPERTIES (CONTINUED): MAIN LINE, PA 16 Campus Boulevard Square Footage of Expiring Leases..... -- -- -- -- -- 8,000 -- Percentage of Total Leased Square Feet................................. -- -- -- -- -- 12.2% -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $96,000 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $12.00 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 13.4% -- Number of Leases Expiring............. -- -- -- -- -- 1 -- 18 Campus Boulevard Square Footage of Expiring Leases..... -- 6,224 -- 2,042 -- 29,434 -- Percentage of Total Leased Square Feet................................. -- 16.5% -- 5.4% -- 78.1% -- Final Annual Base Rent Under Expiring Leases(2)................... -- $78,360 -- $26,546 -- $447,354 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- $12.59 -- $13.00 -- $15.20 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- 14.2% -- 4.8% -- 81.0% -- Number of Leases Expiring............. -- 1 -- 1 -- 3 -- LEHIGH VALLEY, PA 7310 Tilghman Street Square Footage of Expiring Leases..... 13,107 8,667 11,000 3,829 -- 2,980 -- Percentage of Total Leased Square Feet................................. 33.1 % 21.9% 27.8% 9.7% -- 7.5% -- Final Annual Base Rent Under Expiring Leases(2)................... $108,788 $86,670 $92,950 $34,461 -- $29,055 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $8.30 $10.00 $8.45 $9.00 -- $9.75 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 30.9 % 24.6% 26.4% 9.8% -- 8.3% -- Number of Leases Expiring............. 1 1 1 1 -- 1 -- 7248 Tilghman Street Square Footage of Expiring Leases..... -- 5,327 -- 2,695 -- 32,180 -- Percentage of Total Leased Square Feet................................. -- 13.2% -- 6.7% -- 80.1% -- Final Annual Base Rent Under Expiring Leases(2)................... -- $59,929 -- $30,993 -- $348,540 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- $11.25 -- $11.50 -- $10.83 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- 13.6% -- 7.1% -- 79.3% -- Number of Leases Expiring............. -- 1 -- 1 -- 2 -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- INITIAL PROPERTIES (CONTINUED): MAIN LINE, PA 16 Campus Boulevard Square Footage of Expiring Leases..... -- -- -- 57,463 -- 65,463 Percentage of Total Leased Square Feet................................. -- -- -- 87.8% -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- $620,837 -- $716,837 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- $10.80 -- $10.95 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 86.6% -- 100.0% Number of Leases Expiring............. -- -- -- 3 -- 4 18 Campus Boulevard Square Footage of Expiring Leases..... -- -- -- -- -- 37,700 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $552,260 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $14.65 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 5 LEHIGH VALLEY, PA 7310 Tilghman Street Square Footage of Expiring Leases..... -- -- -- -- -- 39,583 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $351,924 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $8.89 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 5 7248 Tilghman Street Square Footage of Expiring Leases..... -- -- -- -- -- 40,202 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $439,461 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $10.93 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 4
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YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- INITIAL PROPERTIES (CONTINUED): 6575 Snowdrift Road Square Footage of Expiring Leases..... -- -- -- 46,250 -- -- -- Percentage of Total Leased Square Feet................................. -- -- -- 100.0% -- -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- $330,688 -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- $7.15 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 100.0% -- -- -- Number of Leases Expiring............. -- -- -- 1 -- -- -- LANSDALE, PA 1510 Gehman Road Square Footage of Expiring Leases..... -- -- 53,900 98,725 -- -- -- Percentage of Total Leased Square Feet................................. -- -- 35.3% 64.7% -- -- -- Final Annual Base Rent Under Expiring Leases(2)................... -- -- $361,130 $419,581 -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- $6.70 $4.25 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- 46.3% 53.7% -- -- -- Number of Leases Expiring............. -- -- 1 1 -- -- -- BURLINGTON COUNTY, NJ One Greentree Centre Square Footage of Expiring Leases..... 3,701 15,394 5,172 4,415 -- 10,303 -- Percentage of Total Leased Square Feet................................. 6.6 % 27.6% 9.3% 7.9% -- 18.5% -- Final Annual Base Rent Under Expiring Leases(2)................... $60,813 $247,192 $84,954 $78,366 -- $182,038 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $16.43 $16.06 $16.43 $17.75 -- $17.67 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 6.2 % 25.1% 8.6% 8.0% -- 18.5% -- Number of Leases Expiring............. 2 6 3 1 -- 2 -- Two Greentree Centre Square Footage of Expiring Leases..... 5,680 18,838 3,732 3,183 -- -- -- Percentage of Total Leased Square Feet................................. 10.1 % 33.6% 6.7% 5.7% -- -- -- Final Annual Base Rent Under Expiring Leases(2)................... $99,400 $283,350 $43,853 $50,928 -- -- -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $17.50 $15.04 $11.75 $16.00 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 10.3 % 29.2% 7.2% 5.3% -- -- -- Number of Leases Expiring............. 1 5 2 1 1 -- -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- INITIAL PROPERTIES (CONTINUED): 6575 Snowdrift Road Square Footage of Expiring Leases..... -- -- -- -- -- 46,250 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $330,688 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $7.15 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 1 LANSDALE, PA 1510 Gehman Road Square Footage of Expiring Leases..... -- -- -- -- -- 152,625 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $780,711 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $5.12 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 2 BURLINGTON COUNTY, NJ One Greentree Centre Square Footage of Expiring Leases..... -- -- -- 16,853 -- 55,838 Percentage of Total Leased Square Feet................................. -- -- -- 30.2% -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- $332,847 -- $986,210 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- $19.75 -- $17.66 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 33.8% -- 100.0% Number of Leases Expiring............. -- -- -- 1 -- 15 Two Greentree Centre Square Footage of Expiring Leases..... 5,255 -- 19,387 -- -- 56,075 Percentage of Total Leased Square Feet................................. 9.4% -- 34.5% -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... $99,845 -- $365,564 -- -- $942,940 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $19.00 -- $18.86 -- -- $16.82 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 10.3% -- 37.7% -- -- 100.0% Number of Leases Expiring............. 1 -- 2 -- -- 12
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YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- INITIAL PROPERTIES (CONTINUED): Three Greentree Centre Square Footage of Expiring Leases..... -- 17,676 -- -- 13,150 26,430 -- Percentage of Total Leased Square Feet................................. -- 26.6% -- -- 19.8% 39.8% -- Final Annual Base Rent Under Expiring Leases(2)................... -- $317,173 -- -- $242,155 $450,885 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- $17.94 -- -- $18.41 $17.06 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- 26.9% -- -- 20.5% 38.2% -- Number of Leases Expiring............. -- 3 -- -- 2 2 -- CAMDEN COUNTY, NJ 457 Haddonfield Road Square Footage of Expiring Leases..... 11,521 -- 7,233 5,798 6,978 8,912 Percentage of Total Leased Square Feet................................. 11.4% -- 7.2% 5.6% 6.9% 8.8% Final Annual Base Rent Under Expiring Leases(2)................... $184,682 -- $105,819 $102,032 $144,134 $169,328 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $16.03 -- $14.63 $17.60 $20.66 $19.00 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 10.4% -- 6.0% 5.8% 8.1% 9.6% Number of Leases Expiring............. 1 -- 1 2 3 1 OTHER MARKETS 168 Franklin Corner Road, Lawrenceville, NJ Square Footage of Expiring Leases..... 8,467 550 -- 4,504 -- 3,902 -- Percentage of Total Leased Square Feet................................. 48.6 % 3.2% -- 25.8% -- 22.4% -- Final Annual Base Rent Under Expiring Leases(2)................... $106,041 $7,150 -- $62,200 -- $39,020 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $12.52 $13.00 -- $13.81 -- $10.00 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 49.5 % 3.3% -- 29.0% -- 18.2% -- Number of Leases Expiring............. 3 1 -- 1 -- 1 -- 5910-6090 Six Forks, Raleigh, NC Square Footage of Expiring Leases..... 17,773 27,794 3,842 18,733 -- 1,674 -- Percentage of Total Leased Square Feet................................. 24.2 % 37.9% 5.2% 25.6% -- 2.3% -- Final Annual Base Rent Under Expiring Leases(2)................... $247,672 $390.483 $58,175 $286,723 -- $26,784 -- Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. 13.94 14.05 15.14 15.31 -- 16.00 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 23.2 % 36.5% 5.4% 26.8% -- 2.5% -- Number of Leases Expiring............. 6 22 5 10 -- 1 -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- INITIAL PROPERTIES (CONTINUED): Three Greentree Centre Square Footage of Expiring Leases..... 9,226 -- -- -- -- 66,482 Percentage of Total Leased Square Feet................................. 13.9% -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... $170,681 -- -- -- -- $1,180,890 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $18.50 -- -- -- -- $17.76 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 14.5% -- -- -- -- 100.0% Number of Leases Expiring............. 1 -- -- -- -- 8 CAMDEN COUNTY, NJ 457 Haddonfield Road Square Footage of Expiring Leases..... 13,589 9,262 -- -- 37,515 100,808 Percentage of Total Leased Square Feet................................. 13.5% 9.2% -- -- 37.2 % 100.0% Final Annual Base Rent Under Expiring Leases(2)................... $269,926 $185,240 -- -- $612,245 $1,773,406 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. $19.86 20.00 -- -- $16.32 $17.59 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 15.2% 10.5% -- -- 34.5 % 100.0% Number of Leases Expiring............. 2 1 -- -- 1 12 OTHER MARKETS 168 Franklin Corner Road, Lawrenceville, NJ Square Footage of Expiring Leases..... -- -- -- -- -- 17,423 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... -- -- -- -- -- $214,411 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. -- -- -- -- -- $12.31 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 6 5910-6090 Six Forks, Raleigh, NC Square Footage of Expiring Leases..... 3,524 -- -- -- -- 73,340 Percentage of Total Leased Square Feet................................. 4.8% -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)................... $59,908 -- -- -- -- $1,069,744 Final Annual Base Rent per Square Foot Under Expiring Leases(3)............. 17.00 -- -- -- -- 14.59 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 5.6% -- -- -- -- 100.0% Number of Leases Expiring............. 1 -- -- -- -- 45
- --------------- Footnotes appear on page 82. 79 86
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- CONSOLIDATED TOTALS FOR INITIAL PROPERTIES Square Footage of Expiring Leases.... 57,002 115,886 100,621 296,212 62,670 212,726 8,912 Percentage of Total Leased Square Feet............................... 4.6 % 9.2% 8.0% 23.6% 5.0% 17.0% .7% Total Annual Base Rent Under Expiring Leases(2).......................... $733,246 $1,701,924 $977,905 $2,495,062 $874,483 $2,970,875 $169,328 Total Annual Base Rent per Square Feet Under Expiring Leases(3)...... $12.86 $14.69 $9.72 $8.42 $13.95 $13.97 $19.00 Percentage of Total Final Annual Base Rate Represented by Expiring Leases............................. 4.8 % 11.0% 6.4% 16.2% 5.7% 19.3% 1.1% Number of Leases Expiring............ 15 42 20 28 10 20 1 YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- CONSOLIDATED TOTALS FOR INITIAL PROPERTIES Square Footage of Expiring Leases.... 109,336 9,262 19,387 145,449 116,719 1,251,184 Percentage of Total Leased Square Feet............................... 8.7% 0.8% 1.5% 11.6% 9.3 % 100.0% Total Annual Base Rent Under Expiring Leases(2).......................... $1,361,239 $185,240 $365,564 $1,942,732 $1,580,118 $15,300,615 Total Annual Base Rent per Square Feet Under Expiring Leases(3)...... $12.45 $20.00 $18.86 $13.36 $13.54 $12.23 Percentage of Total Final Annual Base Rate Represented by Expiring Leases............................. 8.9% 1.2% 2.4% 12.7% 10.3 % 100.0% Number of Leases Expiring............ 7 1 2 6 2 154
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- ACQUISITION PROPERTIES: HORSHAM/WILLOW GROVE/JENKINTOWN PA 700/800 Business Center Drive Square Footage of Expiring Leases..... -- -- -- 22,761 -- 30,773 -- Percentage of Total Leased Square Feet................................. -- -- -- 27.8% -- 37.5% -- Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- $348,223 -- $499,965 -- Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- $15.30 -- $16.25 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 27.5% -- 39.5% -- Number of Leases Expiring............. -- -- -- 3 -- 2 -- KING OF PRUSSIA, PA 500 North Gulph Road Square Footage of Expiring Leases..... 2,362 8,214 6,617 35,085 15,101 12,566 -- Percentage of Total Leased Square Feet................................. 3.0 % 10.3% 8.3% 43.9% 18.9% 15.7% -- Final Annual Base Rent Under Expiring Leases(2)............................ $43,697 $133,067 $123,521 $608,010 $286,919 $226,188 -- Final Annual Base Rent per Square Foot under Expiring Leases(3)............. $18.50 $16.20 $18.67 $17.33 $19.00 $18.00 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 3.1 % 9.4% 8.7% 42.8% 20.2% 15.9% -- Number of Leases Expiring............. 1 1 3 5 1 1 -- Bucks County, PA 2200 Cabot Boulevard Square Footage of Expiring Leases..... -- 20,700 -- 21,000 13,381 -- -- Percentage of Total Leased Square Feet................................. -- 37.6% -- 38.1% 24.3% -- -- Final Annual Base Rent Under Expiring Leases(2)............................ -- $108,054 -- $80,850 $53,524 -- -- Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- $5.22 -- $3.85 $4.00 -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- 44.6% -- 33.3% 22.1% -- -- Number of Leases Expiring............. -- 1 -- 1 1 -- -- 2250 Cabot Boulevard Square Footage of Expiring Leases..... -- -- -- 40,000 -- -- -- Percentage of Total Leased Square Feet................................. -- -- -- 100.0% -- -- -- Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- $140,000 -- -- -- Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- $3.50 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- 100.0% -- -- -- Number of Leases Expiring............. -- -- -- 1 -- -- -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- ---------- ---------- ----------- ACQUISITION PROPERTIES: HORSHAM/WILLOW GROVE/JENKINTOWN PA 700/800 Business Center Drive Square Footage of Expiring Leases..... -- -- -- -- 28,475 82,009 Percentage of Total Leased Square Feet................................. -- -- -- -- 34.7 % 100.0% Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- $418,583 $1,266,770 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- $14.70 $15.45 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- 33.0 % 100.0% Number of Leases Expiring............. -- -- -- -- 1 6 KING OF PRUSSIA, PA 500 North Gulph Road Square Footage of Expiring Leases..... -- -- -- -- -- 79.945 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- -- $1,421,402 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- -- $17.78 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 12 Bucks County, PA 2200 Cabot Boulevard Square Footage of Expiring Leases..... -- -- -- -- -- 55,081 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- -- $242,428 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- -- $4.40 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 3 2250 Cabot Boulevard Square Footage of Expiring Leases..... -- -- -- -- -- 40,000 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- -- $140,000 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- -- $3.50 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 1
- --------------- Footnotes appear on page 82. 80 87
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------------- -------- ---------- -------- ---------- ---------- ---------- -------- ACQUISITION PROPERTIES (CONTINUED): 2260/2270 Cabot Boulevard Square Footage of Expiring Leases..... 11,283 7,356 8,203 -- 2,796 -- -- Percentage of Total Leased Square Feet................................. 38.1 % 24.8% 27.7% -- 9.4% -- -- Final Annual Base Rent Under Expiring Leases(2)............................ $94,613 $72,021 $70,782 -- $34,111 -- -- Final Annual Base Rent per Square Foot under Expiring Leases(3)............. $8.39 $9.79 $8.63 -- $12.20 -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 34.9 % 26.5% 26.1% -- 12.6% -- -- Number of Leases Expiring............. 3 4 3 -- 1 -- -- 3000 Cabot Boulevard Square Footage of Expiring Leases..... 1,900 10,840 11,378 4,933 -- -- -- Percentage of Total Leased Square Feet................................. 6.5 % 37.3% 39.2% 17.0% -- -- -- Final Annual Base Rent Under Expiring Leases(2)............................ $34,200 $173,440 $203,048 $84,101 -- -- -- Final Annual Base Rent per Square Foot under Expiring Leases(3)............. $18.00 $16.00 $17.85 $17.05 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 6.9 % 35.1% 41.1% 17.0% -- -- -- Number of Leases Expiring............. 1 1 2 2 -- -- -- GREENWOOD SQUARE Square Footage of Expiring Leases..... 6,500 80,658 16,105 11,373 3,730 28,454 4,433 Percentage of Total Leased Square Feet................................. 4.3 % 52.8% 10.6% 7.5% 2.4% 18.6% 2.9% Final Annual Based Rent Under Expiring Leases(2)............................ $141,440 $1,334,481 $262,484 $193,957 $70,684 $460,126 $82,764 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. $21.76 $16.54 $16.30 $17.05 $18.95 $16.17 $18.67 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... 5.6 % 52.4% 10.3% 7.6% 2.8% 18.1% 3.2% Number of Leases Expiring............. 1 10 6 5 1 6 1 Burlington County, NJ 8000 Lincoln Drive Square Footage of Expiring Leases..... -- -- -- -- -- 36,830 -- Percentage of Total Leased Square Feet................................. -- -- -- -- -- 67.1% -- Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- -- $662,940 -- Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- -- $18.00 -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 67.2% -- Number of Leases Expiring............. -- -- -- -- -- 1 -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------------- ---------- -------- -------- --------- ---------- --------- ACQUISITION PROPERTIES (CONTINUED): 2260/2270 Cabot Boulevard Square Footage of Expiring Leases..... -- -- -- -- -- 29,638 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- -- $271,527 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- -- $9.16 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 11 3000 Cabot Boulevard Square Footage of Expiring Leases..... -- -- -- -- -- 29,051 Percentage of Total Leased Square Feet................................. -- -- -- -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- -- $494,789 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- -- $17.03 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- -- 6 GREENWOOD SQUARE Square Footage of Expiring Leases..... -- -- -- -- 1,501 152,754 Percentage of Total Leased Square Feet................................. -- -- -- -- 1.0 % 100.0% Final Annual Based Rent Under Expiring Leases(2)............................ -- -- -- -- -- $2,545,938 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- -- $16.67 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- -- 100.0% Number of Leases Expiring............. -- -- -- -- 1 31 Burlington County, NJ 8000 Lincoln Drive Square Footage of Expiring Leases..... -- -- -- -- 18,093 54,923 Percentage of Total Leased Square Feet................................. -- -- -- -- 32.9 % 100.0% Final Annual Base Rent Under Expiring Leases(2)............................ -- -- -- -- $323,865 $986,805 Final Annual Base Rent per Square Foot under Expiring Leases(3)............. -- -- -- -- $17.90 $17.97 Percentage of Total Final Annual Base Rent Represented by Expiring Leases............................... -- -- -- -- 32.8 % 100.0% Number of Leases Expiring............. -- -- -- -- 1 2
- --------------- Footnotes appear on page 82. 81 88
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Northern Suburban Wilmington One Righter Parkway Square Footage of Expiring Leases......................... 1,200 2,681 -- 7,933 -- -- -- Percentage of Total Leased Square Feet.................... 1.1% 2.6% -- 7.6% -- -- -- Final Annual Base Rent Under Expiring Leases(2)............. $21,000 $45,577 -- $150,651 -- -- -- Final Annual Base Rent per Square Foot under Expiring Leases(3)...................... $17.50 $17.00 -- $18.99 -- -- -- Percentage of Total Final Annual Base Rent Represented by Expiring Leases................ 0.9% 1.9% -- 6.1% -- -- -- Number of Leases Expiring....... 1 1 -- 3 -- -- -- 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------- Northern Suburban Wilmington One Righter Parkway Square Footage of Expiring Leases......................... -- -- 93,014 -- -- 104,828 Percentage of Total Leased Square Feet.................... -- -- 88.7% -- -- 100.0% Final Annual Base Rent Under Expiring Leases(2)............. -- -- $2,252,799 -- -- $2,470,027 Final Annual Base Rent per Square Foot under Expiring Leases(3)...................... -- -- $24.22 -- -- $23.56 Percentage of Total Final Annual Base Rent Represented by Expiring Leases................ -- -- 91.2% -- -- 100.0% Number of Leases Expiring....... -- -- 1 -- -- 6
- --------------- (1) Represents lease expirations from September 30, 1996 to December 31, 1996. (2) Represents annual base rent for the final annual period in accordance with lease terms. (3) Calculated by dividing the annual base rent for the final annual period by the net rentable square feet subject to such leases. CONSOLIDATED TOTALS FOR ACQUISITION PROPERTIES
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Square Footage of Expiring Leases......................... 23,245 130,449 42,303 143,085 35,008 108,623 4,433 Percentage of Total Leased Square Feet.................... 3.7% 20.8% 6.7% 22.8% 5.6% 17.2% 0.7% Final Annual Base Rent Under Expiring Leases(2)............. $334,950 $1,866,640 $659,835 $1,605,792 $445,238 $1,849,219 $82,764 Final Annual Base Rent per Square Foot under Expiring Leases(3)...................... $14.41 $14.31 $15.60 $11.22 $12.72 $17.02 $18.67 Percentage of Total Final Annual Base Rent Represented by Expiring Leases................ 3.4% 19.0% 6.7% 16.3% 4.5% 8.8% 0.8% Number of Leases Expiring....... 7 18 14 20 4 10 1 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------- Square Footage of Expiring Leases......................... -- -- 93,014 -- 48,069 628,229 Percentage of Total Leased Square Feet.................... -- -- 14.8% -- 7.7 % 100.0% Final Annual Base Rent Under Expiring Leases(2)............. -- -- $2,252,799 -- $742,447 $9,839,684 Final Annual Base Rent per Square Foot under Expiring Leases(3)...................... -- -- $24.22 -- $15.45 $15.66 Percentage of Total Final Annual Base Rent Represented by Expiring Leases................ -- -- 22.9% -- 7.6 % 100.0% Number of Leases Expiring....... -- -- 1 -- 3 78
- --------------- (1) Represents lease expirations from September 30, 1996 to December 31, 1996. (2) Represents annual base rent for the final annual period in accordance with lease terms. (3) Calculated by dividing the annual base rent for the final annual period by the net rentable square feet subject to such leases. CONSOLIDATED TOTALS FOR ALL PROPERTIES
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 - -------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- -------- Square Footage of Expiring Leases......................... 77,249 246,335 142,924 439,297 97,678 321,349 13,345 Percentage of Total Leased Square Feet.................... 4.1% 13.1% 7.6% 22.8% 5.2% 17.1% 0.7% Final Annual Base Rent Under Expiring Leases(2)............. $1,011,084 $3,568,563 $1,637,739 $4,100,854 $1,319,720 $4,820,094 $252,092 Final Annual Base Rent per Square Foot under Expiring Leases(3)...................... $13.09 $14.49 $11.46 $9.34 $13.51 $15.00 $18.89 Percentage of Total Final Annual Base Rent Represented by Expiring Leases................ 4.0% 14.2% 6.5% 16.3% 5.3% 19.2% 1.0% Number of Leases Expiring....... 22 60 34 48 14 30 2 2007 AND YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 THEREAFTER TOTAL - -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------- Square Footage of Expiring Leases......................... 109,336 9,262 112,401 145,449 164,788 1,879,413 Percentage of Total Leased Square Feet.................... 5.8% 0.5% 6.0% 7.7% 8.8 % 100.0% Final Annual Base Rent Under Expiring Leases(2)............. $1,361,239 $185,240 $2,618,363 $1,942,732 $2,322,565 $25,140,286 Final Annual Base Rent per Square Foot under Expiring Leases(3)...................... $12.45 $20.00 $23.29 $13.36 $9.24 $13.38 Percentage of Total Final Annual Base Rent Represented by Expiring Leases................ 5.4% 0.7% 10.4% 7.7% 9.3 % 100.0% Number of Leases Expiring....... 7 1 3 6 5 232
- --------------- (1) Represents lease expirations from September 30, 1996 to December 31, 1996. (2) Represents annual base rent for the final annual period in accordance with lease terms. (3) Calculated by dividing the annual base rent for the final annual period by the net rentable square feet subject to such leases. 82 89 HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS The following table sets forth certain historical information regarding tenant improvements ("TI") and leasing commission ("LC") costs attributable to leases that commenced (i.e., the date the renewal or replacement tenant began to pay rent) for the Initial Properties during each of the periods presented. TI and LC costs for commenced leases during a particular period do not equal the cash paid during such period due to the timing of payments. The following results for the nine-month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the full fiscal year. Historical TI and LC data relating to the Acquisition Properties was not made available to the Company.
JANUARY 1 TO TOTAL/WEIGHTED 1993 1994 1995 SEPTEMBER 30, 1996 AVERAGE -------- -------- -------- ------------------ -------------- NEW TENANTS(1)(2) Number of Leases........... 21 8 31 17 77 Square feet of re-tenanted space.................... 91,590 52,312(2) 168,618 160,863 473,383 TI per square foot......... $ 7.01 $ 22.72(2) $ 4.26 $ 3.88 $ 6.70 LC per square foot......... $ 2.87 $ 2.67 $ 2.19 $ 1.42 $ 2.11 -------- -------- -------- ------------------ -------------- Total TI and LC per square foot........... $ 9.88 $ 25.39(2) $ 6.45 $ 5.30 $ 8.81 ======== ======== ======== ============== =========== RENEWAL/EXPANSION LEASES(1) Number of Leases........... 24 29 32 20 105 Square feet of Renewals/Expansions...... 72,961 122,178 308,331 148,309 651,779 TI per square foot......... $ 4.21 $ 4.31 $ 4.88 $ 3.46 $ 4.38 LC per square foot......... $ .64 $ 2.13 $ 0.79 $ 1.14 $ 1.10 -------- -------- -------- ------------------ -------------- Total TI and LC per square foot........... $ 4.85 $ 6.44 $ 5.67 $ 4.60 $ 5.48 ======== ======== ======== ============== =========== TOTAL NEW TENANTS AND RENEWAL/EXPANSION LEASES(1)(2) Number of Leases........... 45 37 63 37 182 Square feet................ 164,551 174,490 476,949 309,172 1,125,162 TI per square foot......... $ 5.77 $ 9.83 $ 4.66 $ 3.68 $ 5.36 LC per square foot......... $ 1.88 $ 2.29 $ 1.28 $ 1.29 $ 1.52 -------- -------- -------- ------------------ -------------- Total TI and LC per square foot........... $ 7.65 $ 12.12 $ 5.94 $ 4.97 $ 6.88 ======== ======== ======== ============== ===========
- --------------- (1) Includes TI and LC costs relating to the 23 Initial Properties that are office buildings and excludes the one industrial property. (2) Represents costs associated with conversion of approximately 44,000 net rentable square feet of warehouse/laboratory space to office space. 83 90 HISTORICAL CAPITAL EXPENDITURES The following table sets forth information relating to the combined historical capital expenditures (excluding those expenditures which are recoverable from tenants) of the 23 Initial Properties that are office buildings. Historical capital expenditure data relating to the Acquisition Properties was not made available to the Company.
JANUARY 1 TO SEPTEMBER 30, 1993 1994 1995 1996 ---------- ---------- ---------- ------------- Number of Net Rentable Square Feet(1).... 1,027,431 1,027,431 1,032,764 1,082,257 Capital Expenditures Incurred............ $ -- $ 46,060 $ 78,601 $ 126,738 Capital Expenditures per net rentable square foot............................ $ -- $ 0.04 $ 0.08 $ 0.12 Annual Weighted Average per square foot (January 1, 1993 to September 30, 1996)............................................ $ 0.07
- --------------- (1) Net net rentable square feet are weighted to reflect the acquisitions of 168 Franklin Corner Road in November 1995 and the LibertyView Building (457 Haddonfield Road) in July 1996. In all instances the one industrial property (1510 Gehman Road) included in the Initial Properties and the Acquisition Properties are excluded from the calculations. POTENTIAL REVENUE INCREASE AT REPLACEMENT COST RENTS The Company believes that the SSI/TNC Properties, the Acquisition Properties and LibertyView have been purchased at substantial discounts to replacement cost and have the potential for significant internal revenue growth as rental rates for office properties in their respective submarkets recover to levels that would provide a reasonable return on investment to a developer of a new Class A multi-tenant office building ("Replacement Cost Rents"). ESTIMATED REPLACEMENT COST RENT ANALYSIS MULTI-TENANT OFFICE BUILDINGS (PER NET RENTABLE SQUARE FOOT)
SUBURBAN MARKET(1) ------------------- LOW HIGH ------- ------- Total Construction (Replacement) Costs(1)................ $135.00 $145.00 Estimated Replacement Cost Rents(1)...................... $ 22.00 $ 24.00 Weighted Average Class A Rental Rates(2)................. $ 18.94 $ 18.94 ------- ------- Increase in Class A Rental Rates Necessary to Reach Replacement Cost Rents................................. $ 3.06 $ 5.06 Percentage Increase in Class A Rental Rates Necessary to Reach Replacement Cost Rents........................... 16.2 % 26.7 %
- --------------- (1) Replacement cost data obtained from C&W Market Analyses. C&W consulted the Marshall Valuation Service, a nationally recognized construction cost manual, which indicated that the total cost of development ranges from approximately $135 to $145 per square foot. This cost includes land, both direct and indirect costs of construction, a contingency for initial leasing expenses and an allowance for overhead. This Replacement Cost Rents data excludes any provision for developers' profit. (2) Market estimate, provided by C&W. The Company believes that large corporate users of Class A office space are beginning to face a shortage of large contiguous blocks of Class A space. This is illustrated by the fact that, according to C&W, there has been extremely limited office development for the period from January 1, 1995 to June 30, 1996 (approxi- 84 91 mately 255,000 net rentable square feet of new office development out of a total inventory of approximately 43.7 million square feet of office space in the submarkets where the Properties are located). HISTORICAL SQUARE FEET UNDER CONSTRUCTION PHILADELPHIA MSA LOGO HISTORICAL OCCUPANCY The table below sets forth the average occupancy rates, based on square feet leased, of the Initial Properties at the indicated dates. Historical occupancy data relating to the Acquisition Properties was not made available to the Company.
AGGREGATE RENTABLE PERCENTAGE LEASED DATE SQUARE FEET(1) AT PERIOD END(2) -------------------------------------------- ------------------ ----------------- September 30, 1996.......................... 1,333,794 93.8% December 31, 1995........................... 1,212,056 89.7% December 31, 1994........................... 1,180,056 94.0% December 31, 1993........................... 1,180,056 92.1% December 31, 1992........................... 1,180,056 91.4% December 31, 1991........................... 1,180,056 83.8%
- --------------- (1) The Properties at 168 Franklin Corner Road and 457 Haddonfield Road (LibertyView) are excluded from the data for these years because the Company acquired such Properties subsequent to the applicable period. 168 Franklin Corner Road was acquired in November 1995 and, at that time, was 54% leased. 457 Haddonfield Road was acquired in July 1996, and at that time was 67% leased. (2) Percentage leased for four of the Initial Properties (One, Two and Three Greentree Centre and Twin Forks Office Park) is as of January 31. The Company does not believe that percentages at December 31 for such Properties are materially different than the percentages at January 31. 85 92 OCCUPANCY AND RENTAL RATES -- PROPERTY BY PROPERTY The following table sets forth the occupancy rates, average annual effective rental rate per leased square foot and total annual rental revenue for each of the Initial Properties during the periods specified. Historical occupancy data and average annual effective rental rates relating to the Acquisition Properties were not made available to the Company.
AS OF AND FOR THE PERIOD YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------------------------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- ------------- HORSHAM/WILLOW GROVE/ JENKINTOWN, PA 650 DRESHER ROAD Percentage Leased at Period End.......................... 100% 100% 100% 100% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 17.39 $ 17.39 $ 17.09 $ 16.89 $ 15.23 $ 16.50 Total Annual Rental Revenue (2).......................... $ 524,000 $ 524,000 $ 515,000 $ 509,000 $ 306,000 -- 1155 BUSINESS CENTER DRIVE Percentage Leased at Period End.......................... 99% 100% 96% 97% 100% 99% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 16.43 $ 16.68 $ 17.14 $ 16.51 $ 16.50 $ 17.22 Total Annual Rental Revenue (2).......................... $ 751,000 $ 854,000 $ 863,000 $ 813,000 $ 827,000 -- 500 ENTERPRISE ROAD Percentage Leased at Period End.......................... 74% 74% 74% 93% 84% 98% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 11.92 $ 12.80 $ 13.70 $ 11.55 $ 13.13 $ 15.03 Total Annual Rental Revenue (2).......................... $ 471,000 $ 638,000 $ 683,000 $ 626,000 $ 813,000 -- ONE PROGRESS AVENUE Percentage Leased at Period End.......................... 100% 100% 100% 100% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 12.64 $ 12.06 $ 11.88 $ 12.56 $ 11.45 $ 11.75 Total Annual Rental Revenue (2).......................... $1,001,000 $ 955,000 $ 941,000 $ 995,000 $ 907,000 -- SOUTHERN ROUTE 202 CORRIDOR, PA 456 CREAMERY WAY Percentage Leased at Period End.......................... 100% 100% 100% 100% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 8.82 $ 5.13 $ 7.71 $ 7.18 $ 7.12 $ 7.25 Total Annual Rental Revenue (2).......................... $ 420,000 $ 244,000 $ 367,000 $ 342,000 $ 339,000 -- 486 THOMAS JONES WAY Percentage Leased at Period End.......................... 66% 66% 88% 88% 86% 50.9% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 14.91 $ 15.18 $ 14.75 $ 14.74 $ 14.58 $ 15.46 Total Annual Rental Revenue (2).......................... $ 416,000 $ 517,000 $ 646,000 $ 669,000 $ 649,000 --
86 93
AS OF AND FOR THE PERIOD YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------------------------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- ------------- 468 CREAMERY WAY Percentage Leased at Period End.......................... 100% 100% 100% 100% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 12.44 $ 12.96 $ 13.00 $ 13.31 $ 12.89 $ 13.88 Total Annual Rental Revenue (2).......................... $ 360,000 $ 375,000 $ 376,000 $ 385,000 $ 373,000 -- 110 SUMMIT DRIVE Percentage Leased at Period End.......................... 79% 90% 100% 100% 87% 68% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 8.30 $ 10.13 $ 9.42 $ 9.60 $ 8.46 $ 7.20 Total Annual Rental Revenue (2).......................... $ 314,000 $ 356,000 $ 377,000 $ 419,000 $ 360,000 -- BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON, PA 2240/50 BUTLER PIKE Percentage Leased at Period End.......................... 79% 100% 100% 100% 100% 99% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 17.66 $ 17.66 $ 16.69 $ 16.50 $ 16.27 $ 17.55 Total Annual Rental Revenue (2).......................... $ 819,000 $ 842,000 $ 871,000 $ 861,000 $ 849,000 -- 120 WEST GERMANTOWN PIKE Percentage Leased at Period End.......................... 100% 100% 100% 100% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 19.28 $ 20.26 $ 20.66 $ 20.43 $ 18.73 $ 17.52 Total Annual Rental Revenue (2).......................... $ 589,000 $ 619,000 $ 631,000 $ 624,000 $ 563,000 -- 140 WEST GERMANTOWN PIKE Percentage Leased at Period End.......................... 100% 72% 96% 100% 100% 99% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 16.65 $ 16.86 $ 16.19 $ 15.34 $ 15.61 $ 17.38 Total Annual Rental Revenue (2).......................... $ 432,000 $ 367,000 $ 365,000 $ 394,000 $ 405,000 -- 2260 BUTLER PIKE Percentage Leased at Period End.......................... 100% 100% 75% 75% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 16.23 $ 16.62 $ 18.42 $ 17.30 $ 16.76 $ 17.82 Total Annual Rental Revenue (2).......................... $ 497,000 $ 530,000 $ 455,000 $ 416,000 $ 436,000 -- MAIN LINE, PA 16 CAMPUS BOULEVARD Percentage Leased at Period End.......................... 100% 100% 100% 100% 0% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 16.57 $ 17.53 $ 18.68 $ 18.15 $ 17.22 $ 13.58 Total Annual Rental Revenue (2).......................... $1,122,000 $1,187,000 $1,265,000 $1,229,000 $1,069,000 -- 18 CAMPUS BOULEVARD Percentage Leased at Period End.......................... 35% 77% 77% 82% 82% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 18.33 $ 16.94 $ 17.69 $ 17.56 $ 17.14 $ 18.62 Total Annual Rental Revenue (2).......................... $ 224,000 $ 350,000 $ 513,000 $ 524,000 $ 532,000 --
87 94
AS OF AND FOR THE PERIOD YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------------------------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- ------------- LEHIGH VALLEY, PA 7310 TILGHMAN STREET Percentage Leased at Period End.......................... 78% 90% 82% 82% 93% 99% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 10.26 $ 10.91 $ 11.85 $ 11.99 $ 11.23 $ 8.89 Total Annual Rental Revenue (2).......................... $ 366,000 $ 350,000 $ 402,000 $ 395,000 $ 393,000 -- 7248 TILGHMAN STREET Percentage Leased at Period End.......................... 96% 96% 83% 92% 92% 94% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 12.68 $ 12.66 $ 13.82 $ 14.22 $ 13.81 $ 14.76 Total Annual Rental Revenue (2).......................... $ 439,000 $ 522,000 $ 537,000 $ 549,000 $ 557,000 -- 6575 SNOWDRIFT ROAD Percentage Leased at Period End.......................... 100% 100% 100% 100% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 7.82 $ 7.98 $ 8.09 $ 8.52 $ 7.35 $ 7.15 Total Annual Rental Revenue (2).......................... $ 315,000 $ 369,000 $ 374,000 $ 394,000 $ 340,000 -- 1510 GEHMAN ROAD Percentage Leased at Period End.......................... 50% 85% 85% 100% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 5.53 $ 5.82 $ 7.47 $ 7.27 $ 7.21 $ 4.72 Total Annual Rental Revenue (2).......................... $ 419,000 $ 676,000 $ 969,000 $1,082,000 $1,101,000 -- BURLINGTON COUNTY, NJ ONE GREENTREE CENTRE Percentage Leased at Period End (3).......................... 81% 97% 100% 93% 91% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 16.82 $ 14.96 $ 15.53 $ 15.80 $ 18.42 $ 16.07 Total Annual Rental Revenue (2).......................... $ 815,000 $ 744,000 $ 855,000 $ 854,000 $ 949,000 -- TWO GREENTREE CENTRE Percentage Leased at Period End (3).......................... 83% 84% 79% 75% 100% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 16.74 $ 17.78 $ 18.49 $ 16.18 $ 13.60 $ 16.02 Total Annual Rental Revenue (2).......................... $ 794,000 $ 832,000 $ 845,000 $ 698,000 $ 666,000 -- THREE GREENTREE CENTRE Percentage Leased at Period End (3).......................... 100% 95% 100% 74% 99% 96% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 17.77 $ 17.77 $ 18.35 $ 15.94 $ 15.78 $ 16.41 Total Annual Rental Revenue (2).......................... $1,226,000 $1,194,000 $1,234,000 $ 957,000 $ 942,000 --
88 95
AS OF AND FOR THE PERIOD YEAR ENDED DECEMBER 31, ENDED ---------------------------------------------------------------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- ------------- CAMDEN COUNTY, NJ 457 HADDONFIELD ROAD (LIBERTYVIEW) Percentage Leased at Period End (4).......................... -- -- -- -- 63% 83% Average Annual Effective Rental Rate Per Leased Square Foot (4).......................... -- -- -- -- -- $ 18.63 Total Annual Rental Revenue (4).......................... -- -- -- -- -- -- OTHER MARKETS 168 FRANKLIN CORNER ROAD, LAWRENCEVILLE, NJ Percentage Leased at Period End (5).......................... -- -- -- -- 55% 55% Average Annual Effective Rental Rate Per Leased Square Foot (5).......................... -- -- -- -- $ 15.95 $ 15.55 Total Annual Rental Revenue (5).......................... -- -- -- -- $ 23,000 -- 5910-6090 SIX FORKS, RALEIGH, NC Percentage Leased at Period End (3).......................... 92% 93% 97% 100% 97% 100% Average Annual Effective Rental Rate Per Leased Square Foot (1).......................... $ 11.16 $ 12.37 $ 11.22 $ 13.13 $ 14.27 $ 14.25 Total Annual Rental Revenue (2).......................... $ 630,000 $ 833,000 $ 779,000 $ 944,000 $1,026,000 --
- --------------- (1) For the years ended December 31, 1991 through 1995, represents annual rental revenue divided by the average occupancy level. For the nine-month period ended September 30, 1996, represents: (i) for office leases written on a triple net lease basis, the sum of the annualized contracted base rental rates payable for all space leased as of September 30, 1996 without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles plus the 1996 budgeted operating expense excluding tenant electricity; and (ii) for office leases written on a full service basis, the annualized contracted base rental rate payable for all space leased as of September 30, 1996 without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles. In both cases, the annualized rental is divided by the total square footage leased as of September 30, 1996. (2) Represents rental revenue including tenant reimbursements, determined on a straight-line basis in accordance with generally accepted accounting principles. Tenant reimbursements generally include payment of real estate taxes, operating expenses and escalations and common area maintenance and utility charges. (3) Percentage leased for four of the Properties (One, Two and Three Greentree Centre and Twin Forks Office Park) is as of January 31. The Company does not believe that percentages at December 31 for such Properties are materially different than the percentages at January 31. (4) Property acquired in July 1996. (5) Property acquired in November 1995. 89 96 SUBMARKETS AND PROPERTY INFORMATION The Properties owned and operated by the Company contain an aggregate of approximately 2.0 million net rentable square feet. Thirty-five of the Properties are located in the Market. The C&W Mid-Year Report divides the six Pennsylvania counties included within the Market into nine submarkets. While the Company considers all nine of these Pennsylvania submarkets and the two southern New Jersey counties within the Market as its primary market, its currently owned Properties are concentrated in several key submarket areas. These submarkets are discussed below. Unless otherwise indicated, the market data contained in the following discussion have been derived from the C&W Mid-Year Report and from nine additional market analyses prepared by C&W at the request of the Company (the "C&W Market Analyses"). HORSHAM/WILLOW GROVE/JENKINTOWN The Company owns four Initial Properties and will acquire two Properties in the Horsham/Willow Grove/Jenkintown submarket. This submarket contains, as of June 30, 1996, approximately 3.3 million net rentable square feet of commercial office space. As of June 30, 1996, total vacancy was approximately 12.1%, down from 15.6% as of June 30, 1995. Demand for office space in this submarket has historically come from the movement of users outward from Philadelphia and from the formation of new high-tech/service oriented businesses. HORSHAM BUSINESS CENTER Horsham Business Center is a business park developed by the Company and consists of 16 Class A suburban office buildings aggregating approximately 600,000 net rentable square feet. Horsham Business Center is located on the northwestern side of the Philadelphia metropolitan area in Montgomery County, Pennsylvania. As of June 30, 1996, the direct competition to the Company's Properties within this submarket consisted of approximately 1.1 million net rentable square feet of existing Class A office space (in 22 buildings), with an overall vacancy rate of 8.9%, as compared to 17.2% as of June 30, 1995. The weighted average asking rental rate in directly competitive properties is $18.02 per square foot compared to the average existing rental rates of $16.50 and $17.22 in the Company's two buildings as of September 30, 1996. 650 Dresher Road 650 Dresher Road is a one story office building completed in 1984. This Property contains 30,138 net rentable square feet and is situated on 4.2 acres. This Property is constructed of structural steel framing with a brick exterior. As of September 30, 1996, this Property was 100% leased to GMAC Mortgage Corporation at an average annualized existing base rent of $11.75 per leased square foot. After factoring in 1996 projected operating expense recoveries, the annualized existing rental rate at the building as of August 31, 1996 excluding tenant utilities was $16.50 per leased square foot. The lease is scheduled to expire in May 2003 and is structured on a triple net basis which allows for a complete pass through of all property operating expenses. 1155 Business Center Drive 1155 Business Center Drive is a two story office building completed in 1990. This Property contains 51,388 net rentable square feet and is situated on 5 acres. This Property is constructed of structural steel framing with a brick exterior. As of September 30, 1996, this Property was 99.4% leased to four tenants with an average annualized existing base rent of $12.37 per leased square foot. After factoring in 1996 projected operating expense recoveries, the average annualized existing rental rate at the building as of September 30, 1996 excluding tenant utilities was $17.22 per leased square foot. The largest tenant in this property is IMS (International Mill Service) occupying 40,774 square feet or 79.4% of the total net rentable square feet, with a lease scheduled to expire in March 2006. There are no existing leases at this property that are scheduled to expire in 1996 or 1997. 90 97 700/800 Horsham Business Center Drive (Acquisition Properties) 700/800 Business Center Drive is a two building, one and two story office complex completed in 1986. These buildings aggregate 82,009 net rentable square feet and are situated on 13.2 acres. The buildings are constructed of structural steel framing with a brick exterior. As of September 30, 1996, the buildings were 100% leased to five tenants. After factoring in 1996 projected operating expense recoveries, the average annualized existing rental rate at the buildings as of September 30, 1996 excluding tenant utilities was $14.60 per leased square foot. The primary tenant, is Metpath, which occupies 28,475 net rentable square feet, expanding to 51,236 net rentable square feet in July 1999, under a lease scheduled to expire in January 2012. KEITH VALLEY BUSINESS CENTER Keith Valley Business Center contains two office buildings, and is located in Horsham, Montgomery County, Pennsylvania. Keith Valley Business Center is located several miles from, and is within the same submarket as, Horsham Business Center. 500 Enterprise Road 500 Enterprise Road is a one story office/flex building completed in 1990. This Property contains 67,800 net rentable square feet and is situated on 7.4 acres. This Property is constructed of structural steel framing with a brick exterior. As of September 30, 1996, this Property was 98.5% leased to two tenants, with an average annualized existing base rent per leased square foot of $10.75. After factoring in 1996 projected operating expense recoveries, the average annualized existing rental rate at this Property as of September 30, 1996 excluding tenant utilities was $15.03 per leased square foot. Conti Trade Services Corporation, a wholly owned subsidiary of Continental Grain, leases 53,906 square feet (representing 79.6% of the net rentable square feet) under a lease scheduled to expire in April 2001, provided that Conti Trade Services Corporation may terminate the lease in April 2000 with a penalty payment. The other lessee (constituting 12,845 net rentable square feet) at this Property is Pioneer Technologies, under a lease scheduled to expire in October 2000. This property competes for tenants in the same office submarket as the Properties in the Horsham Business Center. One Progress Drive One Progress Drive is a two story office building completed in 1986. This Property contains 79,204 net rentable square feet and is constructed of structural steel framing with a brick exterior. As of September 30, 1996, this Property was 100% leased to Reed Technology at an average existing base rent per leased square foot of $9.25. After factoring in 1996 projected operating expense recoveries, the annualized existing rental rate at the building as of September 30, 1996, excluding tenant utilities, is $11.75 per leased square foot. Reed Technology is a wholly-owned subsidiary of Reed Elsevier, and the lease is scheduled to expire in June 2011. In connection with this tenancy, the interior of the building was substantially renovated at the tenant's expense. The lease contains the following two early termination provisions: in July 2001 the tenant may terminate the lease upon one year's prior written notice to the Company and by making a termination payment of $3.2 million; in July 2006 the tenant may terminate the lease upon one year's written notice and by making a termination payment of $840,000. According to C&W, One Progress Drive competes for tenants in the same office submarket as the Horsham Business Center properties. The tenant has a right of first offer to purchase this Property during the term of its lease. SOUTHERN ROUTE 202 CORRIDOR The Company owns four Properties in the Southern Route 202 Corridor submarket. This submarket contains, as of June 30, 1996, approximately 3.5 million net rentable square feet of commercial office space and an additional approximately 2.6 million net rentable square feet of flex space. As of June 30, 1996, total vacancy for commercial office space in this submarket was approximately 13.9%, down from 22.9% as of 91 98 June 30, 1995. Over the 18-month period ended June 30, 1996, net absorption of office space in this submarket averaged 39,800 square feet per quarter or approximately 160,000 square feet per annum. Leasing activity during this period averaged approximately 100,000 square feet per quarter or 400,000 square feet per annum. As of June 30, 1996, total vacancy for flex space in this submarket was approximately 2.8%, down from 8.5% at the end of the first quarter of 1995. The Company's Properties in this submarket are located in two separate business complexes: Whitelands Business Park and Oaklands Corporate Center, in which the Company developed a total of seven buildings. Of these seven buildings, four were build-to-suit and were sold to the occupant. The buildings were constructed between 1987 and 1990, contain an aggregate of 171,698 net rentable square feet and are situated on 17.6 acres. OAKLANDS BUSINESS CENTER 456 Creamery Way 456 Creamery Way is a single story office/flex building completed in 1987. This Property contains 47,604 net rentable square feet and is situated on 5.2 acres and is currently 100% leased to Neutronics, Inc. under a lease scheduled to expire in January 2003 at an existing rental rate of $7.25 per square foot. This lease is written on a triple net basis and, pursuant to its terms, the tenant contracts directly with third parties that provide building services, including landscaping, janitorial service and snow removal. 486 Thomas Jones Way 486 Thomas Jones Way is a two story office building completed in 1990. This Property contains 51,500 net rentable square feet and is situated on 4.6 acres. This Property is constructed of steel framing with a brick exterior. As of September 30, 1996, this Property was 50.93% leased to seven tenants at an average annualized existing rental rate of $11.54 per square foot. After factoring in 1996 projected operating expense recoveries, the average annualized existing rental rate at this Property as of September 30, 1996 excluding tenant utilities was $15.46 per leased square foot. The primary tenant at this Property is First American Real Estate, which occupies 10,086 square feet under a lease scheduled to expire in December 1999. 468 Creamery Way 468 Creamery Way is a single story office building completed in 1990. This Property contains 28,934 net rentable square feet and is situated on 2.6 acres. As of September 30, 1996, this Property was 100% leased to two tenants at an average annualized existing rental rate of $10.08 per square foot. After factoring in 1996 projected operating expense recoveries, the average annualized existing rental rate at this Property as of September 30, 1996 excluding tenant utilities was $13.88 per leased square foot. The primary tenant at this Property is Franciscan Health System, which occupies 23,588 square feet under a lease scheduled to expire in June 1999. WHITELANDS BUSINESS CENTER 110 Summit Drive 110 Summit Drive is a single story office building completed in 1985. This Property contains 43,660 net rentable square feet and is situated on 5.2 acres. As of September 30, 1996, this Property was 67.6% leased to three tenants at an average existing base rent of $7.20 per square foot. The primary tenant is Maris Equipment, which occupies 21,580 square feet under a lease scheduled to expire in April 1999. 92 99 BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON The Company owns four Properties in the Blue Bell/Plymouth Meeting/Fort Washington submarket. As of June 30, 1996, this submarket contains approximately 4.9 million square feet of commercial office space. As of June 30, 1996, total vacancy for commercial office space was approximately 6.9%, down from 11.8% as of June 30, 1995. As of September 30, 1996, there were no projects under construction. Absorption of office space in this submarket has averaged 55,000 square feet per quarter or 218,000 square feet annually during the 18-month period ended June 30, 1996. Leasing activity has averaged approximately 95,000 square feet per quarter or 380,000 square feet per annum during the 18-month period ended June 30, 1996. MEETINGHOUSE BUSINESS CENTER Meetinghouse Business Center was developed by the Company and consists of five office buildings aggregating approximately 140,000 net rentable square feet. This complex is located on the northeastern side of the Philadelphia metropolitan area in Montgomery County, Pennsylvania. The buildings were completed in 1984 and are situated on 20.5 acres. The buildings are one and two story, with structural steel framing and stone and stucco exteriors. This complex was developed consistent with the requirements of the Meetinghouse historical district. The complex is at the interchange of the Pennsylvania Turnpike (both East-West and Northeast Extension) and Interstate 476, which is the largest interchange on the Pennsylvania Turnpike. Meetinghouse Business Center competes for tenants in the Blue Bell/Plymouth Meeting/Fort Washington submarket which consists of approximately 4.9 million square feet. As of June 30, 1996, total vacancy in this marketplace was 6.9%, which represents a significant decline from 11.8% as of June 30, 1995. C&W identified five other buildings which directly compete with Meetinghouse Business Center. These buildings aggregate 443,000 net rentable square feet, and as of June 30, 1996 were less than 1.9% vacant. Average annual asking rental rates for this direct competition range from $18.00 to $19.00 per square foot while existing tenants at this Property were paying $15.45 to $18.60 per square foot as of September 30, 1996. 2240/50 Butler Pike 2240/50 Butler Pike is a one story office building completed in 1984. This Property contains 52,183 net rentable square feet and is situated on 7.5 acres. As of September 30, 1996, this Property was 99.4% leased to three tenants. The primary tenant is CoreStates Bank, which occupies 30,359 net rentable square feet (representing 59% of the aggregate net rentable square feet at the Property) at an existing annualized rental rate of $13.50 per square foot under a lease scheduled to expire in April 2006. The other major tenant in this Property is Worldwide Marketing, which occupies 17,080 net rentable square feet (representing 33% of the net rentable square feet at the Property) at an existing annualized rental rate of $11.00 per square foot under a lease scheduled to expire in October 1999. After factoring in 1996 projected operating expense recoveries, the annual average existing rental rate for this Property as of September 30, 1996 (excluding tenant utilities) was $17.55 per leased square foot. 120 W. Germantown Pike 120 W. Germantown Pike is a two story office building completed in 1984. This Property contains 30,546 net rentable square feet and is situated on 3.2 acres. As of September 30, 1996, this Property was 100% leased to three tenants. The primary tenant is Clair O'Dell, a regional insurance agency, which occupies 25,177 net rentable square feet (representing 82% of the net rentable square feet at the Property) under a lease scheduled to expire in July 2001 at an existing annualized rental rate of $17.50 per square foot. After factoring in 1996 projected operating expense recoveries, the average annual existing rental rate for this Property as of September 30, 1996 excluding tenant utilities was $17.52 per leased square foot. 140 W. Germantown Pike 140 W. Germantown Pike is a two story office building completed in 1984. This Property contains 25,953 net rentable square feet and is situated on 3.6 acres. As of September 30, 1996, this Property was 93 100 98.7% leased to four tenants. The primary tenant is Healthcare, Inc., which occupies 11,822 net rentable square feet (representing 46% of the net rentable square feet at the Property) under a lease scheduled to expire in September 1999 at an average annualized existing rental rate of $12.50 square foot. After factoring in 1996 projected operating expense recoveries, the annual existing rental rate for all tenants at this Property as of September 30, 1996 (excluding tenant utilities) was $17.38 per leased square foot. 2260 Butler Pike 2260 Butler Pike is a one story office building completed in 1984. This Property contains 31,892 net rentable square feet and is situated on 6.2 acres. As of September 30, 1996, this Property was 100% leased to three tenants. The primary tenant is Information Resources, which occupies 21,008 net rentable square feet (representing 66% of the net rentable square feet at the Property) under a lease scheduled to expire in December 2000 at an existing annualized rental rate of $13.50 per square foot. After factoring in 1996 projected operating expense recoveries, the annual existing rental rate for all tenants at this Property as of September 30, 1996 (excluding tenant utilities) was $17.82 per leased square foot. MAIN LINE The Company owns two Properties in the Main Line submarket. This submarket contains, as of June 30, 1996, approximately 2.5 million square feet of commercial office space. As of June 30, 1996, the total vacancy rate was approximately 8.5%, down from 14.5% at June 30, 1995. Over the 18-month period ended June 30, 1996, net absorption of office space in this submarket totalled approximately 150,000 square feet, while leasing activity exceeded 315,000 square feet. The Company's Properties in this submarket are located in the Newtown Square Corporate Campus. NEWTOWN SQUARE CORPORATE CAMPUS According to C&W, as of June 30, 1996, there were 21 buildings aggregating approximately 2.3 million net rentable square feet that are in direct competition to the Company's Newtown Square Properties. The vacancy rate in these directly competitive properties was 7.2% as of June 30, 1996. As a result, vacancy rates in these directly competitive properties compare favorably to the 8.5% vacancy rate in the overall Main Line office submarket area as of June 30, 1996. Rental rates in the directly comparable properties range from $18.00 per square foot full service (which includes a pro rata share of all costs of operating the property) to $24.00 per square foot plus tenant electricity. On a gross rental rate basis, excluding tenant utilities, existing tenants in 16 and 18 Campus Boulevard were paying from $11.49 to $17.60 and from $16.50 to $17.95, respectively, per leased square foot plus electricity as of September 30, 1996. 16 Campus Boulevard 16 Campus Boulevard is a three story office building completed in 1990. This Property contains 65,463 net rentable square feet and is situated on 14.6 acres. This Property is constructed of structural steel framing with a brick exterior. As of September 30, 1996, this Property was 100% leased to four tenants at an average annualized base rent per leased per square foot of $9.43. The largest tenant at this Property, New England Mutual Life, occupies 31,907 net rentable square feet under a lease scheduled to expire in 2006. 16 Campus Boulevard also is the headquarters building of the Company. After factoring in 1996 projected operating expense recoveries, the average annual existing rental rate for the building as of September 30, 1996 (excluding tenant utilities) was $13.58 per square foot. A tenant at this Property has a right of first offer to purchase this Property during the term of its lease, which is scheduled to expire in June 2006. 18 Campus Boulevard 18 Campus Boulevard is a two story office building completed in 1990. This Property contains 37,700 net rentable square feet and is situated on 6.4 acres. This Property is constructed of structural steel framing with a brick exterior. This Property is currently 100% leased to tenants at an average existing annualized base rent per square foot of $14.62. The major tenant at the Property, Devco Mutual, occupies 13,332 net rentable square feet under a lease expiring in January 2001, provided, that, Devco may terminate the lease at January 1998 with a penalty payment. There are no existing leases that are 94 101 scheduled to expire in 1996. The aggregate net rentable square footage of leases expiring in 1997 represent 14.2% of this Property's total net rentable square feet. After factoring in 1996 projected operating expense recoveries, the annual existing rental rate for this Property as of September 30, 1996 (excluding tenant utilities) was $18.62 per leased square foot. LEHIGH VALLEY The Company owns three Properties in the Lehigh Valley submarket. This submarket contains approximately 4.4 million square feet of commercial office space. As of June 30, 1996, total vacancy in this submarket was approximately 11.6% down from 15.4% at June 30, 1995. Over the 18-month period ended June 30, 1996, absorption of office space in this submarket was approximately 37,000 square feet per quarter or 148,000 square feet per year. In addition to competing in the office market within this submarket, certain of the Properties compete in the industrial/flex market sector. According to C&W, as of June 30, 1996 there was an estimated 19.1 million net rentable square feet of industrial space located in 12 business parks throughout this market sector. As of June 30, 1996, the vacancy rate in this market sector was 9.9%. Included in this market sector was an estimated 1.7 million square feet of flex space as of June 30, 1996. As of that date, the vacancy rate for flex space was only 14.2%. C&W identified seven flex complexes aggregating 629,000 net rentable square feet that are in direct competition with the Properties located within this submarket. Such competing properties had an overall vacancy rate of 5.2% as of June 30, 1996, compared to 36.7% as of June 30, 1995. Average asking rents in these competing properties ranged from $3.75 to $10.50 per square foot. IRON RUN CORPORATE CENTER The Company owns three Properties in the Iron Run Corporate Center, a 725 acre business park located in Allentown, Pennsylvania. The park contains 37 buildings containing over 3 million net rentable square feet. The Company developed five buildings in the park totalling over 326,000 net rentable square feet. Two buildings, aggregating 200,000 net rentable square feet, were build-to-suit for an end user and a life insurance company. The Company's three Iron Run Corporate Center buildings aggregate 129,113 net rentable square feet and are both office and office/flex buildings. 7310 Tilghman Street 7310 Tilghman Street is a one story office building completed in 1985. This Property contains 40,000 net rentable square feet and is situated on 5.2 acres. The structural steel framed building has a brick exterior and an interior ceiling height capability of 18 feet. As of September 30, 1996, this Property was 99% leased to three tenants at an average annualized existing base rent of $8.89 per square foot. The primary tenant is AT&T, which occupies 32,774 net rentable square feet under three leases scheduled to expire as follows: December 1996 (13,107 net rentable square feet); November 1997 (8,667 net rentable square feet); and August 1998 (11,000 net rentable square feet). 7248 Tilghman Street 7248 Tilghman Street is a one story office/flex building completed in 1987. This Property contains 42,863 net rentable square feet and is situated on 4.2 acres. As of September 30, 1996, this Property was 94% leased to four tenants. The primary tenant is Ohio Casualty, which occupies 19,877 net rentable square feet under a lease scheduled to expire in July 2001. After factoring in 1996 projected operating expense recoveries, the annual existing rental rate for this Property as of September 30, 1996 excluding tenant utilities was 14.76 per leased square foot. According to C&W, these properties compete for office tenants in the Lehigh Valley area which contains of 4.3 million net rentable square feet and, as of June 30, 1996, had a total vacancy of 11.6%, down from 15.4% at June 30, 1995. The average asking rental rate for properties directly competing with the Properties in this submarket ranges between $8.75 to $13.50 per square foot on a triple net basis. 95 102 6575 Snowdrift Road 6575 Snowdrift Road is a one story office/flex building completed in 1989. This Property contains 46,250 net rentable square feet and is situated on 6.3 acres. As of September 30, 1996, this Property was 100% leased to Corning Packaging under a lease scheduled to expire in February 1999 at an average annual rental rate of $7.15 per leased square foot. LANSDALE The Company has a warehouse/distribution facility located in Lansdale, Pennsylvania, which is located along the Northeast Extension of the Pennsylvania Turnpike between Plymouth Meeting and Allentown, Pennsylvania. C&W indicated that, in the four suburban Pennsylvania counties that are adjacent to the City of Philadelphia, there were an estimated 67.5 million net rentable square feet of warehouse/distribution space with a vacancy rate of 13.5% as of June 30, 1996. C&W has indicated that the Company's Property in this submarket competes within the Western Montgomery County area submarket. Within this submarket, there are approximately 4.5 million net rentable square feet of warehouse/distribution space with a vacancy rate as of June 30, 1996 of 15.0%. During the 18-month period ended June 30, 1996, the vacancy rate for warehouse space in the Western Montgomery County market area was highly variable, with a rate as low as 11.4% and as high as 16.3%. During such period, leasing activity amounted to over 700,000 square feet which equated to 120,000 square feet per quarter. 1510 Gehman Road 1510 Gehman Road is a warehouse/flex building located in northern Montgomery County completed in 1990 and situated in a park that contains three buildings that were developed by the Company. Two of the buildings were build-to-suit for a user and the other facility was sold to an institutional investor in 1992. This Property contains 152,625 net rentable square feet and is situated on 14.8 acres. This Property is constructed of structural steel framing, insulated metal panels and exterior masonry units with an interior ceiling height of 24 feet. This Property consists of 65% warehouse space and 35% finished space. As of September 30, 1996, this Property was 100% leased to two tenants with an average annualized existing base rent per leased square foot of $4.72. Nibco, Inc. occupies 98,725 net rentable square feet as warehouse space under a lease scheduled to expire in August 1999 at an existing rate of $4.00 per net rentable square foot. Ford Electronics occupies 53,900 net rentable square feet utilized as design space under a lease scheduled to expire in June 1998 at an existing rental rate of $6.05 per net rentable square foot. Ford has contractual right to acquire the 1510 Gehman Road property provided Ford occupies greater than 50% of the building. As of November 7, 1996, Ford occupied 35% of the building and the balance was occupied by Nibco, Inc. BUCKS COUNTY OFFICE AND INDUSTRIAL MARKET Eight of the Acquisition Properties are located in the Bucks County Office and Industrial market. This submarket contains, as of June 30, 1996 approximately 37 million net rentable square feet of industrial space and 2.6 million net rentable square feet of office space. As of June 30, 1996, the vacancy rate in this submarket was approximately 16.8% for industrial properties and 12.8% for office properties, down from 18.4% at January 1, 1996. As of June 30, 1996, the average rental rate for Class A office space was $18.95 (full service), per net rentable square foot. Office leasing activity during the past few years has averaged approximately 150,000 to 200,000 net rentable square feet per year while net absorption of office space has averaged approximately 75,000 to 200,000 net rentable square feet per year. The average rental rate for industrial space in this submarket was $3.37 per square foot for the six-month period ended June 30, 1996, but varies between $3.00 to $5.00 per net rentable square foot depending on tenant size, percentage of office and special finishes. The average rental rate for office/flex space was $6.45 per net rentable square foot for the six month period ended June 30, 1996 but was between $6.00 and $10.00 per net rentable square foot depending on tenant size, percentage of office and special finishes. Leasing activity 96 103 in this submarket during the six month period ended June 30, 1996 was approximately 353,000 net rentable square feet. 2200 Cabot Boulevard (an Acquisition Property) 2200 Cabot Boulevard is a one story industrial building completed in 1979. This Property contains 55,081 net rentable square feet and is situated on 3.98 acres. This Property is constructed of structural steel framing with a brick and glass exterior. As of September 30, 1996, this Property was 100% leased to three tenants with an average annualized existing base rent of $4.40 per square foot. The largest tenants in this Property are Hussman and Noble Printing, occupying 21,000 and 20,700 square feet, respectively, with leases scheduled to expire in March 1999 and May 1997, respectively, provided, that, Hussman may terminate the lease at September 1997 with a penalty payment. 2250 Cabot Boulevard (an Acquisition Property) 2250 Cabot Boulevard is a one story industrial building completed in 1982. This Property contains 40,000 net rentable square feet and is situated on 3.3 acres. This Property is constructed of structural steel framing with a brick and glass exterior. As of September 30, 1996, this Property was 100% leased to one tenant with an average annualized existing base rent of $3.50 per square foot. This tenant, Bucks County Nut, occupies 40,000 square feet under a lease scheduled to expire in July 1999. 2260/2270 Cabot Boulevard (Acquisition Properties) 2260/2270 Cabot Boulevard consists of two one story office/flex buildings completed in 1984. This Property contains an aggregate of 29,638 net rentable square feet and is situated on 2.1 acres. This Property is constructed of structural steel framing with a brick and glass exterior. As of September 30, 1996, this Property was 100% leased to 12 tenants with an average annualized existing base rent of $8.54 per square foot. The largest tenant in this Property, Sager Electrical, occupies 4,238 square feet under a lease scheduled to expire in October 1998. 3000 Cabot Boulevard (an Acquisition Property) 3000 Cabot Boulevard is a one story office building completed in 1986. This Property contains 34,640 net rentable square feet and is situated on 4.9 acres. This Property is constructed of structural steel framing with a brick and glass exterior. As of September 30, 1996, this Property was 83.8% leased to six tenants with an average annualized existing base rent of $17.03 per square foot. The largest tenant in this Property, Geraghty Miller, occupies 10,840 square feet under a lease scheduled to expire in November 1997. 3333, 3331, 3329 Street Road -- Greenwood Square (Acquisition Properties) The Greenwood Square Property consists of three multi-story office buildings completed from 1985 through 1988. 3333 Street Road is a three story office building, containing 60,408 net rentable square feet situated on 3.4 acres; 3331 Street Road is a four story office building, containing 80,521 net rentable square feet situated on 4.5 acres; and 3329 Street Road is a two story office building, containing 25,000 net rentable square feet situated on 1.5 acres. All three buildings are constructed of structural steel with brick and glass exteriors. As of September 30, 1996 this Property was 92.1% leased to 30 tenants with an average annualized existing gross rent of $16.54 per square foot. The largest tenant in this Property, Waste Management, occupies 45,764 net rentable square feet under a lease scheduled to expire in March 1997. KING OF PRUSSIA/VALLEY FORGE MARKET The Company is acquiring one building in the King of Prussia/Valley Forge market. As of June 30, 1996, this submarket contained approximately 9.3 million square feet of office space. As of June 30, 1996, vacancy in this submarket was approximately 10.8%, down from 17.6% at June 30, 1995. Leasing activity in this 97 104 submarket for the six months ended June 30, 1996 was 586,438 net rentable square feet. Absorption in this submarket for the six months ended June 30, 1996 was 939,237 net rentable square feet compared to 167,504 net rentable square feet for the comparable period during 1995. 500 North Gulph Road (an Acquisition Property) 500 North Gulph Road is a five story office building completed in 1979. This Property contains 92,851 net rentable square feet and is situated on 5.3 acres. This Property is constructed of structural steel framing with a pre-cast concrete exterior. As of September 30, 1996, this Property was 86.1% leased to 13 tenants with an average annualized existing gross rent of $16.51 per square foot. The largest tenants in this Property are Strohl Systems and Transition Software, which are related companies and occupy 26,378 net rentable square feet under two separate leases scheduled to expire in October 1999 and September 2000. SOUTHERN NEW JERSEY The Southern New Jersey market is divided into two principal submarket areas: Burlington County and Camden County. BURLINGTON COUNTY SUBMARKET The Company owns three Initial Properties and will acquire one Property in Burlington County. This submarket contains approximately 4.6 million net rentable square feet of commercial office space. As of June 30, 1996, total office vacancy was 19.3% down from 21.2% as of June 30, 1995 in this submarket. However, the vacancy rate of Class A space as of June 30, 1996 was 12.6% compared to the market average of 19.3%. Leasing activity within the Burlington County market was approximately 93,000 square feet per quarter or 371,000 square feet per annum during the 18-month period ended June 30, 1996. One Greentree Centre One Greentree Centre is a three story midrise office building completed in 1982. This Property contains 55,838 net rentable square feet and is situated on 4.2 acres. This Property is constructed of structural steel framing with a brick exterior. The lobby in this Property was renovated in 1996. As of September 30, 1996, this Property was 100% leased to fourteen tenants at an average annualized base rent per leased square foot of $16.07 full service. The largest tenant in this Property is American Executive Centers, which occupies 16,853 square feet under a lease scheduled to expire in January, 2006. Aggregate square footage of leases scheduled to expire in 1996, 1997 and 1998 represent 7%, 28% and 9% of this Property's total net rentable square footage. Two Greentree Centre Two Greentree Centre is a three story midrise office building completed in 1983. This Property contains 56,075 net rentable square feet and is situated on 4.2 acres. This Property is a sister building to One Greentree Center and is constructed of structural steel framing with a brick exterior. The lobby was renovated in 1996. As of September 30, 1996, this Property was 100% leased to eleven tenants at an average annualized base rent per lease square foot of $16.02 full service. The largest tenant in this Property is Merrill, Lynch, Pierce, Fenner and Smith, which occupies 12,672 net rentable square feet under a lease scheduled to expire in November 2005. Aggregate square footage of leases scheduled to expire in 1996, 1997 and 1998 represent 0%, 30%, and 5%, respectively, of this Property's total net rentable square feet. Three Greentree Centre Three Greentree Centre is a four story midrise office building completed in 1984. This Property contains 69,101 net rentable square feet and is situated on 5.4 acres. This Property is constructed of structural steel framing with a brick and dryvit exterior. The two story lobby was renovated in 1996. As of 98 105 September 30, 1996, this Property was 96% leased to eight tenants at an average annualized base rent per lease square foot of $16.41 full service. The largest tenant at the Property is Parker, McKay, Criscuolo & Associates, a regional law firm, which occupies 25,905 net rentable square feet under a lease scheduled to expire in May 2001. Aggregate square footage of leases scheduled to expire in 1996, 1997 and 1998 represent 0%, 25% and 0%, respectively, of this Property's total net rentable square feet. 8000 Lincoln Drive (an Acquisition Property) 8000 Lincoln Drive is a five story office building completed in 1983. This Property contains 54,923 net rentable square feet and is situated on 7.5 acres. This Property is constructed of structural steel framing with a pre-cast concrete exterior. As of September 30, 1996, this Property was 100% leased for occupancy by January 1997 to two tenants with an average annualized existing base rent of $17.13 per square foot. The largest tenant in this Property will be Computer Science Corp. occupying 36,830 net rentable square feet under a lease scheduled to expire in November 2001, provided that, Computer Science may terminate the lease at November 1999 with a penalty payment. C&W identified 15 office buildings aggregating approximately 1.3 million net rentable square feet that, as of June 30, 1996, compete directly with the Greentree Centre Properties. As of June 30, 1996, these competing properties were approximately 22% vacant, with rental rates ranging from $19.50 to $22.00, per square foot for leases with full operating expenses included. CAMDEN COUNTY SUBMARKET The Company owns one Property in Camden County. This submarket contains approximately 4.8 million net rentable square feet of commercial office space. At June 30, 1996, the vacancy rate was approximately 20%. This high vacancy rate is primarily attributable to vacancy rates of 18.4% and 21% on Class B and Class C space, respectively. At June 30, 1996, the vacancy rate for Class A office space was 9.0%. While there has been negative absorption in this submarket in the 18-month period ended June 30, 1996, C&W has reported that during the three-month period ended June 30, 1996, absorption has been a positive 112,572 square feet. In addition, during the 18-month period ended June 30, 1996, leasing activity in this submarket has approximated 70,000 square feet per quarter or 280,000 square feet annually. 457 Haddonfield Road 457 Haddonfield Road (known as the LibertyView Building) is a seven story midrise office building completed in 1990. This Property contains 121,737 net rentable square feet and is situated on approximately 7 acres. This Property features a structural steel framing, reinforced concrete footings with an exterior of precast panels with reflective glass. Key features in this Property include a two story marble lobby, working balconies on the upper floors, permanent neon lighting and dramatic views of Center City Philadelphia. As of September 30, 1996, this Property was 83% leased to twelve tenants at an average annualized existing rental rate of $18.63 per square foot. The largest tenant of this Property is HIP Health of N.J., which occupies 37,515 net rentable square feet under a lease scheduled to expire in December 2007. NORTHERN SUBURBAN WILMINGTON New Castle County Delaware The Company is acquiring one building in the Northern Suburban Wilmington submarket. As of June 30, 1996 the subtotal market contained approximately 3.0 net rentable million square feet of commercial office space, with a vacancy rate of 12.6% which is down from 15.7% at June 30, 1995. C&W has identified eleven Class A Buildings aggregating approximately 1.2 million net rentable square feet which are directly competitive with the Company's Property in this submarket. As of June 30, 1996, vacancy in the competitive submarket product was approximately 3.7%. The average rental rate for comparable properties in the submarket for Class A space is $20.50 per net rentable square foot. Leasing 99 106 activity in the submarket during the eighteen months period ended June 30, 1996 has averaged 544,000 net rentable square feet on an annualized basis, while annual net absorption of office space has averaged approximately 350,000 net rentable square feet. One Righter Parkway -- Delaware Corporate Center I (an Acquisition Property) Delaware Corporate Center I is a three story office building completed in 1989. This Property contains 104,828 net rentable square feet and is situated on 3 acres. This Property is constructed of structural steel framing and precast concrete exterior. As of September 30, 1996, this Property was 100% leased to six tenants with an average annualized existing base rent of $19.30 per square foot. The largest tenant in this Property, Kimberly Clark, occupies 93,014 net rentable square feet under a lease scheduled to expire in December 2005. Delaware Corporate Center I is a ground leased property. Fee ownership is held by Woodlawn Trustees, Incorporated, and the ground lessee's interest will be acquired by the Operating Partnership from the seller. Fifty-one years remain on the original term of the ground lease and the ground lessee has the option to extend the term for two consecutive ten-year terms. The ground lessee holds a right of first refusal to acquire the fee interest in the property. The property is ground leased on a triple-net basis, with the ground lessee assuming all carrying charges respecting the property, in addition to payment of base rent. OTHER MARKETS 168 Franklin Corner Road 168 Franklin Corner Road is located in Lawrenceville, Mercer County, New Jersey and was completed in 1976. This Property contains 32,000 net rentable square feet. As of September 30, 1996, this Property was 55% leased to six tenants at an average annualized existing rental rate of $12.31 per leased square foot. Twin Forks Office Park Twin Forks Office Park is located in Raleigh, North Carolina. This Property was completed in 1982 and contains 73,339 net rentable square feet. As of September 30, 1996 this Property was 100% leased to 46 tenants at an average annualized existing rental rate of $14.25 per leased square foot. The primary tenant in this Property is GE Mortgage, occupying 19,373 square feet (26% of the total net rentable square feet at the Property) under a lease that expired in October 1996. GE Mortgage has announced its intention to vacate and to relocate its Raleigh operations to Cherry Hill, NJ. Since this announcement the Company has actively been marketing this space and, as of September 30, 1996, has re-leased 8,801 of the total 19,373 square feet to three tenants at an annualized existing rental rate of $15.25 per square foot. COMPETITION The Company competes with other owners and developers that have greater resources and more experience than the Company. Within the Suburban Philadelphia Office and Industrial Market, the Company's office and industrial Properties compete generally with properties owned by other real estate developers and institutions principally on the basis of price, property quality and location, especially proximity to major area highways, suburban residential areas, and access to the central Philadelphia business district and the northeast corridor business communities of New York, Baltimore and Washington. The Company's industrial Properties compete principally with buildings owned by other local developers largely on the basis of services provided and access to transportation, both highway and rail, and access to Northeast corridor and national markets. ENVIRONMENTAL MATTERS Under various Federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of certain hazardous or toxic 100 107 substances on, in or under such property. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner's or operator's ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may be liable for the costs of removal or remediation of such wastes at the disposal or treatment facility, regardless of whether such facility is owned or operated by such person. Certain other federal, state and local laws, ordinances and regulations may impose liability on an owner of real property where on-site contamination discharges into waters of the state, including groundwater, or otherwise affects the beneficial use of such waters. Other federal, state and local laws, ordinances and regulations require abatement or removal of certain asbestos-containing materials in the event of demolition or certain renovations or remodeling and also govern emissions of asbestos fibers in the air. The operation and subsequent removal of certain underground storage tanks are also regulated by federal, state and local laws, ordinances and regulations. In connection with its ownership and operation of the Properties, the Company could be held liable for the costs of remedial action with respect to contamination, asbestos-containing materials or tanks or related claims. All of the Properties have been subjected to either Phase I environmental site assessments, or updates of earlier assessments, performed by independent third parties. Phase I environmental site assessments are intended to evaluate the environmental condition of, and potential environmental liabilities associated with, the Property and include a site visit and review of public and historical records, but involve no soil or groundwater sampling or subsurface investigation. Such assessments generally consist of an investigation of environmental conditions of the Properties, including a preliminary investigation of the Properties and identification of publicly known conditions concerning properties in the vicinity of the Properties, an investigation as to the presence of polychlorinated biphenyls and aboveground and underground storage tanks at the Properties and the preparation and issuance of written reports. The primary focus of the recent Phase I environmental site assessments and updates of earlier assessments conducted on the Properties was to identify any "recognized environmental conditions." These are conditions arising from the presence or likely presence of hazardous substances or petroleum products that would present a risk of harm to the public health or environment or that would be the subject of an enforcement action if brought to the attention of appropriate governmental agencies, or of third party actions. Except as discussed below with respect to the Whitelands Property, the environmental site assessments have not revealed any significant environmental liability, nor is the Company aware of any environmental liability with respect to the Properties that the Company's management believes would have a material adverse effect on the Company. An environmental assessment has identified environmental contamination of potential concern with respect to the Whitelands Property. Petroleum products, solvents and heavy metals were detected in the groundwater. These contaminants are believed to be associated with debris deposited by others in a quarry formerly located on the Whitelands Property. The quarry previously appeared on the Comprehensive Environmental Response Compensation and Liability Information System List, a list maintained by the United States Environmental Protection Agency (the "EPA") of abandoned, inactive or uncontrolled hazardous waste sites which may require cleanup. The EPA conducted a preliminary assessment in 1984 with the result that no further action was taken. Subsequently, the quarry was removed from the list. While the Company believes it is unlikely that the Operating Partnership will be required to undertake remedial action with respect to such contamination, there can be no assurance in this regard. If the Operating Partnership were required to undertake remedial action on the Whitelands Property, it has been indemnified against the cost of such remediation by the seller, SSI, subject to a maximum of $2,018,000. The term of SSI's indemnity agreement expires on August 22, 2001. If SSI is unable to fulfill its obligations under its indemnity agreement or if the Operating Partnership is required to undertake remedial action after the expiration of the five-year term of the agreement, the costs of such remediation could be substantial. Because the Company does not believe that any remediation at the Whitelands Property is probable, no amounts have been accrued for any such potential liability. 101 108 No assurance can be given that existing environmental studies with respect to the Properties reveal all environmental liabilities or that any prior owner of any such property did not create any material environmental condition not know to the Company. Moreover, no assurance can be given that: (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Properties will not be affected by tenants and occupants of the Properties, by the condition of properties in the vicinity of the Properties (such as the presence of underground storage tanks) or by third parties unrelated to the Company. INSURANCE The Operating Partnership carries comprehensive liability, fire, extended coverage and rental loss insurance covering all of the Properties, with policy specifications and insured limits which the Company believes are adequate and appropriate under the circumstances. There are, however, certain types of losses that are not generally insured because they are either uninsurable or not economically feasible to insure. Should an uninsured loss or a loss in excess of insured limits occur, the Company could lose its capital invested in the Property, as well as the anticipated future revenues from the Property and, in the case of debt which is with recourse to the Company, would remain obligated for any mortgage debt or other financial obligations related to the Property. Any such loss would adversely affect the Company. Moreover, the Company will generally be liable for any unsatisfied obligations other than non-recourse obligations. Company management believes that the Properties are adequately insured. No assurance can be given that material losses in excess of insurance proceeds will not occur in the future. CERTAIN PROPERTY TAX INFORMATION The aggregate real estate property tax obligations paid by the Company (with or without tenant reimbursement) for calendar 1995 were approximately $391,000. The aggregate real estate property tax obligations paid by SSI and TNC (with or without tenant reimbursement) for calendar 1995 with respect to the SSI/TNC Properties were approximately $968,000. These amounts do not include real estate property taxes paid directly by tenants. On a pro forma basis, more than 95.3% of the aggregate annualized base rent at the Properties as of September 30, 1996 is generated by leases which contain provisions requiring tenants to pay as additional rent their proportionate share of any real estate taxes or increases in real estate taxes over base amounts. EMPLOYEES As of September 30, 1996, the Company employed 26 persons, including four executive officers. LEGAL PROCEEDINGS The Company is not currently involved in any material litigation nor, to the Company's knowledge, is any material litigation currently threatened against the Company, other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance. MORTGAGE DEBT AND CREDIT FACILITY Mortgage Indebtedness The following table sets forth the Company's mortgage indebtedness that will remain outstanding after the closing of the Offering and the Concurrent Investments and the application of the use of proceeds therefrom. In addition to mortgage indebtedness listed below, the Credit Facility is expected to be secured by 102 109 cross-collateralized mortgages and assignments and rents on all Properties, except for those set forth in the table below.
PROPERTIES -- INDEBTEDNESS (DOLLARS IN THOUSANDS) PRINCIPAL BALANCE INTEREST AS OF RATE AT ANNUAL DEBT MATURITY PREPAYMENT PROPERTY/LOCATION SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 SERVICE(1) DATE PREMIUMS - --------------------------- ------------------ ------------------ ----------- --------- ---------- Horsham Business Center Horsham, PA 650 Dresher Road(2)...... $ 2,500 8.0% $ 200 8/1998 None After 2/1/97 Oaklands Corporate Center Exton, PA 486 Thomas Jones Way(3).. 468 Creamery Way(3)...... 6,427 8.00% 637 2/1998 None Whitelands Business Park Exton, PA 110 Summit Drive(4)...... 1,583 9.25% 220 4/1997 None Iron Run Industrial Park Allentown, PA 7310 Tilghman Street..... 2,533 9.25% 255 3/2000 (9) 6575 Snowdrift Road...... 2,348 8.00% 230 2/1998 None Greentree Centre Marlton, New Jersey One Greentree Centre(5)(6) Two Greentree Centre(5)(6) Three Greentree Centre(5)(6) 6,147 9.00% 628 4/2001 (10) LibertyView Cherry Hill, NJ 457 Haddonfield Road(7)(8)............ 8,461 8.00 % 339 1/1999 (11) 910 8.00 % 0 12/1997 None Twin Forks Office Park Raleigh, NC 5910-6090 Six (12) Forks(6)(7)........... $ 2,704 9.00 % $ 276 4/2001 ------ TOTAL MORTGAGE INDEBTEDNESS............. $ 33,613 $ 2,785 ======
- --------------- (1) "Annual Debt Service" is calculated for the twelve-month period ending December 31, 1996. For loans that bear interest at a variable rate, the rates in effect at September 30, 1996 have been assumed to remain constant for the balance of 1996. (2) On July 31, 1996, this loan was refinanced by paying the former mortgage lender $2.4 million in full satisfaction thereof with the partial proceeds of a new loan from GMAC in the principal amount of $2.5 million. The new mortgage loan matures on August 1, 1998, bears interest at a variable rate equal to LIBOR plus 250 basis points and provides for principal amortization of $4,000 per month during the period September 1, 1997 through July 1, 1998. (3) Both of these properties secure a single loan. (4) Interest rate is variable and equal to the prime rate plus 1.0%. 103 110 (5) These properties secure two loans payable to a single lender. The interest rate was fixed at 9.0% through October 15, 1996 and is currently fixed at 9.31% through April 15, 1998. After April 15, 1998, the interest rate is reset based upon the mortgage lender's evaluation of such factors as financial performance and projected risk of the Properties securing such loan. The mortgage loans are due on April 15, 2001, and the lender has the right to call the loans at par on April 15, 1998. (6) The Company has made an application to the lender that, if accepted, would result in (i) an increase in the principal amount of the Greentree Centre loan to $7.3 million and the Twin Forks loan to $2.7 million, (ii) a fixed interest rate of 7.6%, (iii) a maturity date of 5 years from closing, and (iv) a 20-year amortization of principal. (7) The $8,461 debt was incurred as a result of the acquisition of the Property on July 19, 1996 and the amount of debt service reflects debt service from July 19, 1996 through December 31, 1996. Pursuant to the terms of this loan, the Company has the right to borrow up to approximately $1.3 million to fund tenant improvements and leasing commissions. (8) The $910,000 of debt was incurred as a result of the acquisition of the Property on July 19, 1996. The mortgage note payable is in the principal amount of $1.0 million, is due in December 1997 and does not bear interest. The Company recorded a $104,000 adjustment to the purchase price and a corresponding reduction in debt to reflect the fair value of the note payable to the seller and will accrue interest expense to the date of maturity. (9) Four percent through December 31, 1996, which prepayment penalty is reduced by 1% for each subsequent year through 1999. (10) This loan may not be prepaid unless the Twin Forks loan is also prepaid. The prepayment penalty equals greater of 1% of principal amount prepaid or a yield maintenance premium. (11) One percent of any portion of the original acquisition portion of the loan being prepaid. (12) This loan may be prepaid without prepayment of the loan secured by One Greentree Centre, Two Greentree Centre and Three Greentree Centre, provided certain loan-to-value ratios and coverage tests with regard to the Greentree Centre loan are satisfied and upon payment of a premium equal to the greater of 1% of the principal amount prepaid or a yield maintenance premium. CREDIT FACILITY The Company and Operating Partnership have obtained a commitment from Smith Barney Mortgage Capital Group, Inc. and NationsBank, N.A. for a two year, $80 million secured revolving Credit Facility. The Credit Facility will be used to refinance existing indebtedness, fund acquisitions and new development projects, and for general working capital purposes, including capital expenditures and tenant improvements. The amount available to be borrowed under the Credit Facility will be reduced by the amount of the letters of credit issued by the lenders for as long as such letters of credit are outstanding. The Credit Facility will be recourse to the Company and the Operating Partnership and will be secured by, among other items, cross-collateralized and cross-defaulted first mortgage liens on approximately 25 Properties, owned directly or indirectly by the Company, the Operating Partnership or their representative subsidiaries. The Credit Facility will bear interest at a per annum floating rate equal to the 30, 60, or 90-day LIBOR, plus 175 basis points. The Credit Facility will require monthly payments of interest only, with all outstanding advances and all accrued but unpaid interest due 2 years from the closing of the Credit Facility. A fee equal to 0.75% of the maximum amount available under the Credit Facility will be paid to the lenders in respect of the Credit Facility at closing. In addition, a fee of 0.25% per annum (0.125% per annum until 4/1/97) on the unused amount of the Credit Facility will be payable quarterly in arrears. An annual fee in the amount of $35,000 will be payable annually in advance to NationsBank, N.A. as compensation for administration of the Credit Facility. The Credit Facility will carry minimum debt service coverage, fixed charge, debt-to-tangible net worth ratios and other financial covenants and tests, and will require payment of prepayment premiums in certain instances. 104 111 Closing of the Credit Facility is subject to satisfactory completion of this Offering, the negotiation and execution of a definitive Credit Facility agreement and related documentation, and other customary closing conditions. OPTION PROPERTIES At the closing of the SSI/TNC Transaction, the Operating Partnership acquired an option from an affiliate of TNC (C/N Horsham Towne Limited Partnership) entitling the Company to acquire, at its discretion, the four Option Properties at any time during the two-year period ending August 22, 1998 (subject to two extensions of one year each). The Operating Partnership may not exercise its option for less than all of the Option Properties. The parties have agreed that the purchase price payable by the Operating Partnership upon exercise of its option will consist of $1.00 in excess of the mortgage debt encumbering the Option Properties at the time of exercise (which, as of September 30, 1996, aggregated $20.0 million, including approximately $3.3 million of accrued debt and unpaid interest). The right of the Operating Partnership to exercise its option to acquire the Option Properties is conditioned on receipt of consent of the mortgage lender for the Option Properties. As of the date hereof, no lender consent has been requested, and no determination to seek any such consent has been made. There can be no assurance that any of the Option Properties will be acquired. The following table summarizes certain information with respect to the Option Properties:
AVERAGE TOTAL TOTAL BASE RENT PERCENTAGE BASE RENT PLUS EXPENSE LEASED AS OF FOR THE TWELVE RECOVERIES PER NET SEPTEMBER MONTHS ENDED RENTABLE SQUARE YEAR RENTABLE 30, SEPTEMBER 30, 1996 FOOT LEASED AT PROPERTY/LOCATION BUILT SQUARE FEET 1996(1) (000'S)(2) SEPTEMBER 30, 1996(3) - ---------------------------------------- ----- ----------- ------------ --------------------- --------------------- HORSHAM BUSINESS CENTER HORSHAM, PA 255 Business Center Drive............. 1987 50,616 100% $ 492 $ 17.03 355 Business Center Drive............. 1987 26,637 87% 137 15.70 455 Business Center Drive............. 1988 51,505 93.9% 396 17.12 555 Business Center Drive............. 1988 30,122 98% 310 16.33 -------- ------------ 158,880 $ 1,335 ======= ==== TENANTS LEASING 10% OR MORE OF RENTABLE SQUARE FOOTAGE PER PROPERTY AS OF SEPTEMBER 30, PROPERTY/LOCATION 1996 AND LEASE EXPIRATION DATE - ---------------------------------------- ------------------------------ < HORSHAM BUSINESS CENTER HORSHAM, PA 255 Business Center Drive............. Stroehmann (38%) - 6/99; Great Expectations (23%) - 3/97; GMAC (13%) - 9/97-9/01; Buckman Van Buren (21%) - 2/97 355 Business Center Drive............. Anthem Electronic (34%) - 9/01; Seimens Printing Sys. (22%) - 8/98; GE Capital (16%) - 9/01 455 Business Center Drive............. Astea (65%) - 10/02; Letven/Diccicco (29%) - 7/00 555 Business Center Drive............. GMAC (77%) - 9/99; First American Home Care (13%) - 4/00
- --------------- (1) Based on all leases dated on or before September 30, 1996. (2) "Total Base Rent" for the twelve months ended June 30, 1996 represents base rents excluding tenant reimbursements calculated in accordance with generally accepted accounting principles determined on a straight-line basis. Tenant reimbursements generally include payment of real estate taxes, operating expenses and escalations and common area maintenance and utility charges. (3) Represents Total Base Rent for the twelve months ended September 30, 1996, plus tenant reimbursements for the twelve months ended September 30, 1996, divided by net rentable square feet leased. 105 112 AGGREGATE TAX BASIS -- INITIAL PROPERTIES The following table sets forth the aggregate tax basis of the Initial Properties as of December 31, 1995 for federal income tax purposes:
31.5 19 AGGREGATE 40 YEAR 39 YEAR YEAR YEAR 19 YEAR 18 YEAR 7 YEAR 5 YEAR SUBMARKET/PROPERTY TAX BASIS LAND MACRS(1) MACRS(1) MACRS(1) ACRS(2) STRAIGHT-LINE STRAIGHT-LINE MACRS(3) ACRS(2) - ------------------- --------- ------ ------- ------- ------- ------ ------------- ------------- ------- ------ (IN THOUSANDS) HORSHAM/WILLOW GROVE/JENKINTOWN, PA 650 Dresher Road........... $ 2,702 $ 413 -- -- -- $1,158 -- $ 967 $ 120 $ 44 1155 Business Center Drive... 5,434 943 -- $4,491 -- -- -- -- -- -- 500 Enterprise Road........... 4,981 814 -- 4,167 -- -- -- -- -- -- One Progress Avenue......... 3,687 803 -- 2,884 -- -- -- -- -- -- SOUTHERN ROUTE 202 CORRIDOR, PA 456 Creamery Way............ 1,865 311 -- 1,554 -- -- -- -- -- -- 486 Thomas Jones Way............ 4,607 467 -- 322 $3,818 -- -- -- -- -- 468 Creamery Way............ 2,370 253 -- 118 1,999 -- -- -- -- -- WHITELANDS BUSINESS PARK 110 Summit Drive.......... 2,727 343 -- -- 183 888 1,039 -- 265 9 BLUE BELL/PLYMOUTH MEETING/FORT WASHINGTON, PA 2240/50 Butler Pike........... 4,995 448 -- -- 275 903 -- 2,693 548 128 120 West Germantown Pike........... 3,558 379 -- -- 97 2,794 -- -- 283 5 140 West Germantown Pike........... 2,867 318 -- -- 509 1,723 -- -- 292 25 2260 Butler Pike........... 3,023 381 -- -- 496 1,962 -- -- 159 25 MAIN LINE, PA 16 Campus Boulevard...... 6,178 1,082 -- 5,096 -- -- -- -- -- -- 18 Campus Boulevard...... 3,414 692 -- 2,722 -- -- -- -- -- -- LEHIGH VALLEY, PA 7310 Tilghman Street......... 2,788 213 -- -- 413 1,701 -- -- 437 24 7248 Tilghman Street......... 2,519 371 -- -- 2,148 -- -- -- -- -- 6575 Snowdrift Road........... 3,184 245 -- 245 2,694 -- -- -- -- -- 1510 Gehman Road........... 4,998 526 -- 4,472 -- -- -- -- -- -- BURLINGTON COUNTY, NJ One Greentree Centre......... 7,436 751 401 -- 617 5,667 -- -- -- -- Two Greentree Centre......... 8,030 744 897 -- 594 5,795 -- -- -- -- Three Greentree Centre......... 10,170 987 1,134 -- 423 7,626 -- -- -- -- CAMDEN COUNTY, NJ 457 Haddonfield Road(4)........ 0 -- -- -- -- -- -- -- -- -- OTHER MARKETS 168 Franklin Corner Road, Lawrenceville, NJ............. 3,199 481 -- 2,718 -- -- -- -- -- -- Twin Forks Office Park 5910-6090 Six Forks Raleigh, NC...... 7,779 2,487 961 -- 537 3,794 -- -- -- --
- --------------- (1) Modified accelerated cost recovery system -- straight line. (2) Accelerated cost recovery system. (3) Modified accelerated cost recovery system -- accelerated. (4) Acquired in July 1996. 106 113 C&W MID-YEAR REPORT AND C&W MARKET ANALYSES The C&W Market Analyses were prepared for the Company by Cushman & Wakefield of Pennsylvania, Inc., which is a real estate service firm with significant experience and expertise relating to the Suburban Philadelphia Office and Industrial Market and the various submarkets therein. The information in the C&W Mid-Year Report and C&W Market Analyses reflect data available at June 30, 1996 and August 1, 1996, respectively, and do not reflect data or changes subsequent to those dates. The information contained in the C&W Mid-Year Report and C&W Market Analyses have been gathered by C&W from sources assumed to be reliable, including publicly available records. Because records of all transactions are not readily available, the information contained in the C&W Mid-Year Report and C&W Market Analyses may not reflect all transactions occurring in the geographic area discussed in the C&W Mid-Year Report and C&W Market Analyses. In addition, transactions that are reported may not be described accurately or completely in the publicly available records. C&W shall not be responsible for and does not warrant the accuracy or completeness of any such information derived from such publicly available records (or information relating to transactions that were not reported). In connection with the C&W Mid-Year Report and C&W Market Analyses, C&W made numerous assumptions with respect to industry performance, general business and economic conditions, and other matters. Any estimates or approximations contained therein could reasonably be subject to different interpretations by other parties. Because predictions of future events are inherently subject to uncertainty, none of C&W, the Company or any other person can assume that such predicted rental rates, absorption or other events will occur as outlined or predicted in the C&W Mid-Year Report or C&W Market Analyses. Reported asking rental rates of properties, replacement cost rents or estimated replacement costs do not purport to necessarily reflect the rental rates at which properties may actually be rented, actual rents required to support new development or the actual cost of replacement. In many instances, asking rents and actual rental rates differ significantly. Changes in local, national and international economic conditions will affect the markets described in the C&W Mid-Year Report and C&W Market Analyses. Therefore, C&W can give no assurance that occupancy and absorption levels and rental rates as of the date of the C&W Mid-Year Report or C&W Market Analyses will continue or that such occupancy levels and rental rates will be attained at any time in the future. Forecasts of absorption rates, rental activity, replacement cost rents and replacement costs are C&W's estimates as of the dates of the C&W Mid-Year Report and C&W Market Analyses. Actual future market conditions may differ materially from the forecasts and projections contained therein. C&W is a part of a national network of affiliated companies providing real estate services. As such, from time to time, C&W and its affiliates have provided and in the future may provide real estate related services, including brokerage and leasing agent services, to the Company or its principals, or may represent the Company, its principals or others doing business with the Company. C&W received compensation of $21,000 from the Company in connection with C&W's preparation of the C&W Market Analyses. STRUCTURE OF THE COMPANY The Company carries on its activities directly and through subsidiaries, as described below. Currently, the Company holds fee title to one of the Initial Properties and holds interests in two partnerships (the Operating Partnership and BRP) that, in turn, either own Initial Properties in fee or hold interests in partnerships that own Initial Properties in fee. In addition, the Company intends to contribute the Acquisition Properties and $74.1 million net proceeds from the Offering and the Concurrent Investments to the Operating Partnership in exchange for 6,470,576 GP Units. OPERATING PARTNERSHIP The Operating Partnership owns fee title to six of the Initial Properties and owns partnership interests in partnerships that own 17 Initial Properties. The Company is the sole general partner of the Operating Partnership, which was formed in connection with the SSI/TNC Transaction as a vehicle to: (i) consolidate 107 114 the Company's real estate holdings with those of SSI and TNC; (ii) facilitate future acquisitions; (iii) enable the Company to comply with certain requirements under the Code relating to REITs; and (iv) preserve certain tax advantages to SSI and TNC. As the sole general partner of the Operating Partnership, the Company generally has the exclusive power under the Partnership Agreement to manage and conduct the business of the Operating Partnership, subject to certain limitations. See "Operating Partnership Agreement -- Management." The Company's interest in the Operating Partnership will entitle it to share in cash distributions from, and in profits and losses of, the Operating Partnership. On a pro forma basis, the Company will hold 7,242,576 GP Units and will be issued an additional 85,400 GP Units automatically in August 1997 in respect of the BRP Partnership, the operating partnership it does not own currently, and the limited partners of the Operating Partnership will hold 509,856 Class A Units (after giving effect to the issuance of 44,322 Units in exchange for the Residual Interests). Each of the Class A Units will be redeemable for cash or, at the option of the Company, will be convertible into one Common Share. With each conversion of Class A Units into Common Shares, the Company's percentage interest in the Operating Partnership will increase. See "Operating Partnership Agreement -- Number, Class and Owner of Units." BRP BRP is a general partnership that holds fee title to four of the Initial Properties. The Company, the Operating Partnership and a third party are the general partners of BRP, although the Company and the Operating Partnership collectively hold a 98% interest in the profits and a 70% interest in the capital of BRP. In addition, the Company and the Operating Partnership have the exclusive power under the BRP Partnership Agreement to manage and conduct the business of BRP. See "BRP General Partnership Agreement -- Management." OWNERSHIP The Company owns the Initial Properties directly and through its interests in general and limited partnerships, as described below. Fee title to the Property at 457 Haddonfield Road (LibertyView) is held by the Company. Fee title to each of One Greentree Centre, Two Greentree Centre and Three Greentree Centre and Twin Forks Office Park is held by BRP. Fee title to the Property at 108 Franklin Corner Road is held by a limited partnership owned by the Operating Partnership and a subsidiary of the Company. Fee title to the Properties at each of 7248 Tilghman, 6575 Snowdrift Road, One Progress Avenue, 500 Enterprise Road, 1510 Gehman Road, 120 West Germantown Pike, 18 Campus Boulevard, 456 Creamery Way, 468 Creamery Way and 486 Thomas Jones Way is held by limited partnerships in which a subsidiary of the Company and the Operating Partnership collectively own a 99% interest in the cash flow and profits and an 89% interest in the capital in such partnership. The Operating Partnership will be obligated to acquire the residual 1% cash flow and profits interest and 11% capital interest in such partnership by September 1999 in exchange for 44,322 Units. Fee title to the Property at 16 Campus Boulevard is held by a limited partnership (the "Newtech Partnership") in which a subsidiary of the Company and the Operating Partnership collectively own a 64% interest in the cash flow and profits and an 89% interest in the capital in such partnership. The Operating Partnership will be required to acquire an additional 1% cash flow and profits interest and 11% capital interest by September 1999. An affiliate of a tenant, N.E. Leasing, is a limited partner in Newtech Partnership and is entitled to 35% of the residual cash flow of Newtech Partnership. "Residual Cash Flow" means (i) with respect to operating cash flow, cash flow remaining after the payment of debt service, the establishment of reserves and payment of a 10% return on invested equity and (ii) with respect to cash flow from the sale of 16 Campus Boulevard, the cash remaining after the payment of all debt, the establishment of reserves, payment of a 10% return on invested equity and return of the invested equity. 108 115 Fee title to the Properties at each of 650 Dresher Road, 7310 Tilghman Street, 2240/50 Butler Pike, 2260 Butler Pike, 140 West Germantown Pike and 110 Summit Drive is held directly by the Operating Partnership. Fee title to the Property at 1155 Business Center Drive is held by a limited partnership indirectly owned by the Operating Partnership and a wholly-owned subsidiary of the Company. MANAGEMENT COMPANY The Company conducts its real estate management services business through the Management Company. The Company manages all of the Initial Properties located within the Market through the Management Company; the Twin Forks Building, located in North Carolina, is managed for the Company by an unaffiliated third party. Through the Management Company, the Company also manages properties on behalf of unaffiliated third parties. As of September 30, 1996, the Management Company managed properties containing an aggregate of approximately 2.0 million net rentable square feet, of which approximately 1.3 million net rentable square feet related to Initial Properties owned by the Company, 159,000 net rentable square feet related to the Option Properties and approximately 575,000 net rentable square feet related to office properties managed on behalf of third parties. The Company, through the Management Company, will manage each Acquisition Property following its acquisition thereof. Through its ownership of preferred stock and common stock of the Management Company, the Operating Partnership is entitled to receive 95% of amounts paid as dividends by the Management Company. POLICIES WITH RESPECT TO CERTAIN ACTIVITIES The following is a discussion of certain investment, financing and other policies of the Company. These policies have been determined by the Company's Board of Trustees and may be amended or revised from time to time by the Board of Trustees without a vote of shareholders. No assurance can be given that the Company's investment objectives will be attained or that the value of the Company will not decrease. INVESTMENT POLICIES Investments in Real Estate or Interests in Real Estate. The primary business objective of the Company is to realize and maximize cash flow and to increase shareholder value by: (i) optimizing cash flow from the Properties through continued active property management and prudent operating strategies; (ii) acquiring Class A suburban office and industrial properties and/or portfolios of such properties located in the Market and surrounding areas at prices that are below replacement cost and at yields which exceed the Company's cost of capital; (iii) redeveloping and improving acquired properties and, to a lesser extent, developing build-to-suit properties as opportunities arise; (iv) generating third party fee-related revenue; and (v) operating within a conservative capital structure with financing policies that allow for continued growth. For a discussion of the Properties and the Company's acquisition and other strategic objectives, see "The Company," "Business and Growth Strategies" and "Business and Properties." Thirty-four of the 37 Properties are located in the Suburban Philadelphia Office and Industrial Market, and the Company expects that future developments and acquisitions are likely to continue to be made primarily in the Market. The Company may, however, develop or acquire properties elsewhere if the Board of Trustees determines that such developments or acquisitions would be desirable. Future investments are not limited by property type, although the Company expects that it will invest principally in suburban office and industrial properties. The Company will not have any limit on the amount or percentage of its assets invested in one property. The Company may develop, purchase or lease income-producing properties for long-term investment, expand and improve the Properties presently owned or other properties purchased, or sell such properties, in whole or in part, when circumstances warrant. Although there is no limitation on the types of development activities that the Company may undertake, the Company expects that its development activities will generally be on a build-to-suit basis for particular tenants, or where a significant portion of the building is pre-leased before construction begins. The Company may also participate with other entities in property ownership 109 116 through joint ventures or other types of co-ownership. Equity investments may be subject to existing or future mortgage financing and other indebtedness that will have priority over the equity interests in the Company. Securities of or Interests in Entities Primarily Engaged in Real Estate Activities and Other Issuers. Subject to the percentage of ownership limitations and gross income tests necessary for REIT qualification, the Company also may invest in securities of other REITs, other entities engaged in real estate activities or securities of other issuers. The Company may enter into joint ventures or partnerships for the purpose of obtaining an equity interest in a particular property in accordance with the Company's investment policies. The Company does not currently intend to invest in the securities of other issuers except in connection with acquisitions of indirect interests in properties (normally limited partnership interests in special purpose partnerships owning properties). Investments in Real Estate Mortgages. While the Company's current portfolio consists of, and the Company's business objectives emphasize, equity investments in commercial real estate, the Company may, in the discretion of the Board of Trustees, invest in other types of equity real estate investments, mortgages and other real estate interests. The Company does not presently intend to invest to a significant extent in mortgages or deeds of trust, but may invest in participating or convertible mortgages if the Company concludes that it may benefit from the cash flow or any appreciation in the value of the property. Investment through the Operating Partnership. The Company has made no determination to conduct all of its activities through the Operating Partnership. As of the date hereof, the Company owns one Property, the LibertyView Building, directly and owns the balance of the Initial Properties indirectly both through the Operating Partnership and through its residual interest in BRP (which residual interest will be automatically transferred to the Operating Partnership on August 23, 1997). Although the Partnership Agreement of the Operating Partnership contains no provision restricting the Company's ability to acquire additional properties outside the Operating Partnership, the Partnership Agreement provides that if the Company acquires additional properties outside the Operating Partnership, the percentage of administrative fees of the Company allocated to the Operating Partnership will be reduced to an amount that is fair and equitable under the circumstances, as determined by the Company with the consent of the holders of a majority of the outstanding Units. An inability of the Company and holders of Units to agree upon such an allocation would be subject to resolution through the arbitration provisions included within the Partnership Agreement. It is expected that the Operating Partnership will hold title to all of the Acquisition Properties. DISPOSITIONS The Company does not currently intend to dispose of any of the Properties, although it reserves the right to do so if, based upon management's periodic review of the Company's portfolio, the Board of Trustees determines that such action would be in the best interests of the Company. The tax consequences of the disposition of the Properties may, however, influence the decision of certain Trustees and executive officers of the Company who hold Units as to the desirability of a proposed disposition. See "Risk Factors -- Conflicts of Interest." FINANCING POLICIES Upon the closing of the Offering and the Concurrent Investments and the application of the net proceeds therefrom, the debt-to-total market capitalization ratio (i.e., the total consolidated debt of the Company as a percentage of the market value of issued and outstanding Common Shares, Preferred Shares and Units plus total consolidated debt) of the Company will be approximately 21.6% (20.5% if the Underwriters' over-allotment option is exercised in full). This ratio will fluctuate with changes in the price of the Common Shares (and the issuance of additional Common Shares) and differs from the debt to book capitalization ratio, which is based upon book values. As the debt to book capitalization ratio may not reflect the current income potential of a company's assets and operations, the Company believes that the debt-to-total market capitalization ratio provides a more appropriate indication of leverage for a company whose assets are primarily income-producing real estate. 110 117 The Company has adopted a policy to operate with a conservative ratio of debt-to-total market capitalization of not more than 50%. The Company's Declaration of Trust and Bylaws do not, however, limit the amount or percentage of indebtedness that the Company may incur. In addition, the Company may from time to time modify its debt policy in light of current economic conditions, relative costs of debt and equity capital, market values of its properties, general conditions in the market for debt and equity securities, fluctuations in the market price of its Common Shares, growth opportunities and other factors. Accordingly, the Company may increase or decrease its debt-to-market capitalization ratio beyond the limits described above. To the extent that the Board of Trustees decides to obtain additional capital, the Company may raise such capital through additional equity offerings (including offerings of senior or convertible securities), debt financings or retention of cash flow (subject to provisions in the Code concerning taxability of undistributed REIT income), or a combination of these methods. Borrowing may be unsecured or secured by any or all of the assets of the Company, the Operating Partnership or any existing or new property-owning partnership and may have full or limited recourse to all or any portion of the assets of the Company, the Operating Partnership or any existing or new property-owning partnership. Indebtedness incurred by the Company may be in the form of bank borrowing, purchase money obligations to sellers of the properties, publicly or privately placed debt instruments or financing from institutional investors or other lenders. The proceeds from any borrowing by the Company may be used for working capital, to refinance existing indebtedness, to finance acquisition, expansion or development of new properties and for the payment of distributions. The Company has not established any limit on the number or amount of mortgages that may be placed on any single property or on its portfolio as a whole. The Company has established its debt policy relative to the total market capitalization of the Company rather than relative to the book value of its assets. The Company has used total market capitalization because it believes that the book value of its assets (which to a large extent is the depreciated value of real property, the Company's primary tangible asset) does not accurately reflect its ability to borrow and to meet debt service requirements. The market capitalization of the Company, however, is more variable than book value, and does not necessarily reflect the fair market value of the underlying assets of the Company at all times. The Company will also consider factors other than market capitalization in making decisions regarding the incurrence of indebtedness, such as the purchase price of properties to be acquired with debt financing, the estimated market value of its properties upon refinancing and the ability of particular properties and the Company as a whole to generate cash flow to cover expected debt service. WORKING CAPITAL RESERVES The Company will maintain working capital reserves (and when not sufficient, access to borrowings) in amounts that the Board of Trustees determines to be adequate to meet normal contingencies in connection with the Company's business and investments. CONFLICT OF INTERESTS POLICIES Trustees and officers of the Company may be subject to certain conflicts of interests in fulfilling their responsibilities to the Company. See "Risk Factors -- Conflicts of Interest." The Company has not adopted any formal or informal policies intended to eliminate the influence of conflicts of interest. Under the Company's Declaration of Trust, a transaction effected by the Company or any entity controlled by the Company in which a Trustee or officer has a financial interest may only be consummated if the transaction is first approved by a majority of the Trustees who have no interest in the transaction. POLICIES WITH RESPECT TO OTHER ACTIVITIES The Company has authority to offer Common Shares, preferred shares, senior securities or other capital stock or options to purchase shares in exchange for property and, to the extent permitted by applicable law, to repurchase or otherwise acquire its Common Shares or other securities in the open market or otherwise and may engage in such activities in the future. The Board of Trustees has no present intention of causing the Company to repurchase any Common Shares. The Company expects (but is not obligated) to issue Common Shares to holders of Units in the Operating Partnership upon exercise of their redemption rights. The 111 118 Company may issue Preferred Shares from time to time, in one or more series, as authorized by the Board of Trustees without the need for shareholder approval. The Company has agreed to issue Series A Preferred Shares in the SERS Transaction. The Series A Preferred Shares so issued will be convertible, under certain circumstances, into up to 1,606,060 Common Shares and will be subject to redemption under certain circumstances upon demand of the holder. See "The Company -- The SERS Transaction" and "Description of Shares of Beneficial Interest -- Preferred Shares." The Company has not engaged in trading, underwriting or agency distribution or sale of securities of issuers, nor has the Company invested in the securities of issuers (other than the Operating Partnership and its subsidiaries) for the purposes of exercising control, and does not intend to do so. The Company intends to operate in a manner that will not subject it to regulation as an investment company under the Investment Company Act. At all times, the Company intends to make investments in such a manner as to qualify as a REIT, unless because of circumstances or changes in the Code (or the Treasury Regulations), the Board of Trustees determines that it is no longer in the best interest of the Company to qualify as a REIT. The Company has not made any loans to third parties, although it may in the future make loans to third parties, including, without limitation, to joint ventures in which it participates. The Company's policies with respect to such activities may be reviewed and modified or amended from time to time by the Company's Board of Trustees without a vote of the shareholders. 112 119 MANAGEMENT TRUSTEES AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the Trustees and executive officers of the Company:
NAME AGE POSITION ----------------------------------- --- ------------------------------------------------ Anthony A. Nichols, Sr. ........... 57 Chairman of the Board and Trustee Gerard H. Sweeney.................. 40 President, Chief Executive Officer and Trustee Joseph L. Carboni.................. 60 Trustee Richard M. Osborne................. 51 Trustee Warren V. Musser................... 69 Trustee Walter D'Alessio................... 62 Trustee Charles P. Pizzi................... 46 Trustee Brian F. Belcher................... 45 Executive Vice President -- Marketing and Development John P. Gallagher.................. 56 Executive Vice President -- Finance
Each Trustee has been elected to serve for a one-year term expiring at the 1997 annual meeting of shareholders and until the election and qualification of his successor. TRUSTEES OF THE COMPANY The following are biographical summaries of the Trustees of the Company: ANTHONY A. NICHOLS, SR., Chairman of the Board and Trustee. Mr. Nichols was elected a Trustee upon the closing of the SSI/TNC Transaction in August 1996. Mr. Nichols founded TNC through a corporate joint venture with SSI, and has been its President and Chief Executive Officer since 1982. From 1968 to 1982, Mr. Nichols was Senior Vice President of Colonial Mortgage Service Company (now GMAC Mortgage Corporation), a subsidiary of CoreStates Bank, N.A. Mr. Nichols has been a member of the National Association of Real Estate Investment Trusts ("NAREIT"), a member of the Board of Governors of the Mortgage Banking Association and Chairman of the Income Loan Committee of the regional Mortgage Bankers Association. Mr. Nichols also serves on the Board of Directors of CenterCore Inc. and is a member of the National Association of Industrial and Office Parks, the Philadelphia Board of Realtors, and the Urban Land Institute. GERARD H. SWEENEY, President, Chief Executive Officer and Trustee. Mr. Sweeney was elected a Trustee on February 9, 1996. Mr. Sweeney has served as President and Chief Executive Officer of the Company since August 8, 1994 and as President since November 9, 1989. Prior to August 8, 1994, Mr. Sweeney served as Vice President of LCOR, Incorporated ("LCOR"), a real estate development firm. Mr. Sweeney was employed by The Linpro Company (a predecessor of LCOR) from 1983 to 1994 and served in several capacities, including Financial Vice President and General Partner. During this period, Mr. Sweeney had operational and financial responsibility for a portfolio of office and industrial properties located in the Market that aggregated approximately 3.9 million net rentable square feet. These responsibilities encompassed marketing, financing, leasing, and property and construction management. Mr. Sweeney is a member of NAREIT, the Urban Land Institute, the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants. JOSEPH L. CARBONI, Trustee. Mr. Carboni was elected a Trustee on May 14, 1991 and served as Chairman of the Board from October 11, 1994 until the closing of the SSI/TNC Transaction in August 1996. Mr. Carboni has served as President of JLC Associates, Inc., a commercial and real estate consulting firm since 1990. Prior to 1990, Mr. Carboni was a Senior Vice President of BNE Realty Credit Corporation. 113 120 RICHARD M. OSBORNE, Trustee. Mr. Osborne was elected a Trustee on February 9, 1996. Mr. Osborne is President and Chief Executive Officer of OSAIR, Inc., a property developer and manufacturer of industrial gases for pipeline delivery. Mr. Osborne is a director of Great Lakes Bank, Mentor, Ohio. WARREN V. MUSSER, Trustee. Mr. Musser was elected a Trustee upon the closing of the SSI/TNC Transaction in August 1996. He has served as Chairman and Chief Executive Officer of SSI since 1953. Mr. Musser also serves as the Chairman of the Board of Directors of Cambridge Technology Partners, Inc., and is a director of Coherent Communications Systems Corporation and CompuCom Systems, Inc. Mr. Musser also serves on a variety of civic, educational, and charitable Boards of Directors, including the Franklin Institute and the Board of Overseers of the Wharton School of the University of Pennsylvania. He also serves as Vice President/Development, Cradle of Liberty Council, Boy Scouts of America and as Vice Chairman of the Technology Council of the Philadelphia metropolitan area. WALTER D'ALESSIO, Trustee. Mr. D'Alessio was elected a Trustee upon the closing of the SSI/TNC Transaction in August 1996. He has served as President and Chief Executive Officer of Legg Mason Real Estate Services, Inc., a mortgage banking firm headquartered in Philadelphia, Pennsylvania since 1982. Legg Mason Real Estate Services, Inc. is a wholly-owned subsidiary of Legg Mason, Inc., the parent corporation of Legg Mason Wood Walker, Incorporated, one of the Underwriters of the Offering. Previously, Mr. D'Alessio served as Executive Vice President of the Philadelphia Industrial Development Corporation and Executive Director of the Philadelphia Redevelopment Authority. He also serves on the Board of Directors of the Philadelphia Electric Company, Pennsylvania Blue Shield and Independence Blue Cross, the Philadelphia Private Industry Council and the Greater Philadelphia Chamber of Commerce. CHARLES P. PIZZI, Trustee. Mr. Pizzi was elected a Trustee upon the closing of the SSI/TNC Transaction in August 1996. Mr. Pizzi has served as President of the Greater Philadelphia Chamber of Commerce since 1989. Mr. Pizzi also serves on a variety of civic, educational and charitable Boards of Directors including the American Chamber of Commerce Executives, Boy Scouts of America (Philadelphia Council), Drexel University, Greater Philadelphia Chamber of Commerce, Independence Blue Cross, Pennsylvania Academy of the Fine Arts, Philadelphia Convention & Visitors Bureau, Temple University School of Business Management, United Way of Southeastern Pennsylvania, University of Pennsylvania Graduate School of Education Board of Overseers and the Urban League of Philadelphia. EXECUTIVE OFFICERS The following are biographical summaries of the executive officers of the Company who are not Trustees of the Company: BRIAN F. BELCHER, Executive Vice President -- Marketing and Development. Mr. Belcher became an executive of the Company upon the closing of the SSI/TNC Transaction in August 1996. Mr. Belcher joined TNC in 1982 as Vice President of Marketing and, from 1986 until completion of the SSI/TNC Transaction, served as its Executive Vice President. From 1978 to 1982, Mr. Belcher was a marketing specialist for Evans-Pitcairn Corporation, a real estate development firm. Prior to that time, Mr. Belcher was a real estate broker with Cushman & Wakefield, a national real estate firm, in the Philadelphia metropolitan area. Mr. Belcher previously served as President of the Delaware Valley Chapter of the National Association of Industrial and Office Parks, and is currently a member of the Philadelphia Board of Realtors. JOHN P. GALLAGHER, Executive Vice President -- Finance. Mr. Gallagher became an executive of the Company upon the closing of the SSI/TNC Transaction in August 1996. Mr. Gallagher served as Chief Financial Officer of TNC from 1989 until completion of the SSI/TNC Transaction. From 1983 until 1989, Mr. Gallagher was employed by Pitcairn Financial Management Group, where he served in various capacities, including Vice President of Finance, Senior Vice President and Director. Prior to that time, he was Vice President of Finance for Evans-Pitcairn Corporation, a real estate development firm. Mr. Gallagher was associated with Price Waterhouse from 1964 until 1972. Mr. Gallagher is a certified public accountant and a member of the American Institute of Certified Public Accountants and the Institute of Management Accountants. 114 121 OTHER KEY OFFICERS JOHN M. ADDERLY, JR., Vice President -- Operations. Mr. Adderly has served as an officer of the Company since January 1995. Mr. Adderly was employed by the Rodin Group, a Philadelphia-based real estate development, management and brokerage firm from 1982 until 1995, where he served as Vice President and Chief Financial Officer from 1986 until 1995, and as Corporate Controller from 1982 until 1986. FRANCINE M. HAULENBEEK, Vice President, Secretary and Treasurer. Ms. Haulenbeek has served as an executive of the Company since October 1994 and previously from February 1991 through January 1993. Since January 1993, Ms. Haulenbeek has served as President of Francine M. Haulenbeek & Company, a certified public accounting firm. Prior to January 1993, Ms. Haulenbeek was an employee of LCOR, Incorporated, and, prior to April, 1992, Ms. Haulenbeek was an employee of The Linpro Company, a real estate development firm. During this time period, Ms. Haulenbeek served in several capacities, including Regional Controller and Assistant Financial Vice President. Ms. Haulenbeek is a member of the American Institute of Certified Public Accountants, the Pennsylvania Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants. ANTHONY A. NICHOLS, JR., Vice President -- Marketing. Mr. Nichols became an officer of the Company upon the closing of the SSI/TNC Transaction in August 1996. Previously Mr. Nichols was employed at TNC which he joined in 1989 as a marketing representative. In 1992 Mr. Nichols became an Assistant Vice President -- Property Management of TNC and in 1995 he became Vice President -- Marketing. Mr. Nichols is the son of Anthony A. Nichols, Sr., the Company's Chairman of the Board. COMMITTEES OF THE BOARD OF TRUSTEES Audit Committee. The audit committee of the Board of Trustees (the "Audit Committee") currently consists of Messrs. Carboni, D'Alessio and Pizzi. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the plans and results of the audit engagement, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of the Company's internal accounting controls. Compensation Committee. The compensation committee of the Board of Trustees (the "Compensation Committee"), established in August 1996, currently consists of Messrs. Carboni, D'Alessio and Pizzi. The Compensation Committee determines compensation for the Company's executive officers and, pursuant to the employment agreements between the Company and its executive officers, will establish an incentive compensation program for the Company's employees. Executive Committee. The executive committee of the Board of Trustees (the "Executive Committee"), established in August 1996, currently consists of Messrs. Nichols, the Chairman of the Executive Committee, Mr. Musser, Mr. Osborne and Mr. Sweeney. The Executive Committee has been delegated all powers of the Board of Trustees except the power to: (i) declare dividends or other distributions on Shares; (ii) elect trustees; (iii) issue Shares (other than as permitted by the By-Laws as in effect from time to time); (iv) recommend to shareholders any action that requires shareholder approval; (v) amend the Bylaws of the Company; or (vi) approve any merger or share exchange which does not require shareholder approval. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the completion of the SSI/TNC Transaction, the Board of Trustees had not established a separate compensation committee. No executive officer of the Company serves on the Compensation Committee that was established by the Board of Trustees in August 1996. COMPENSATION OF TRUSTEES The Company intends to pay its Trustees who are not officers of the Company fees for their services as Trustees. Trustees will receive annual compensation of $5,000 and a fee of $500 plus expenses for attendance 115 122 in person at each meeting of the Board of Trustees or committee thereof and $500 for participation in each telephonic meeting of the Board of Trustees or committee thereof. EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation paid to the Company's President and Chief Executive Officer for the years ended December 31, 1995, 1994 and 1993. No information is presented in the table for the Company's other executive officers, Messrs. Nichols, Belcher or Gallagher, because none of them became employees of the Company until completion of the SSI/TNC Transaction on August 22, 1996. The terms of their compensation are summarized below. See "-- Employment Agreements." SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM COMPENSATION COMPENSATION SALARY($) SECURITIES ----------------- UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS(#) ------------------------------------------------- ---- -------- --------------- Gerard H. Sweeney, President and Chief Executive Officer...................... 1995 $130,000 -0- 1994 $ 55,000(1) 46,666 1993 (1) -0-
- --------------- (1) Prior to August 8, 1994, the date on which Mr. Sweeney became employed by the Company, Mr. Sweeney's salary and bonus were paid to him by LCOR, pursuant to his employment agreement with that firm. In February 1994, the Company paid LCOR $110,000, and LCOR in turn used $60,000 of this amount to pay Mr. Sweeney a bonus in recognition of his contribution to the Company's January 1994 debt restructuring and its sale of the Lincoln Centre property in February 1994. (2) Amount reflects fully vested options to purchase 33,333 and 13,333 Common Shares at excise prices of $14.31 and $6.21 per share, respectively. EMPLOYMENT AGREEMENTS On August 22, 1996, each of Messrs. Nichols, Sweeney, Belcher and Gallagher entered into a two-year employment agreement with the Management Company. With the consent of the Company's executives, these employment agreements were subsequently assigned to the Company. These employment agreements established annual base salaries for each of Messrs. Nichols, Sweeney, Belcher and Gallagher at $141,500, $141,500, $125,500 and $104,500, respectively, which compensation may be increased by the Board of Trustees in its discretion. In the event the Company were to terminate the employment of any of the foregoing executives without cause, or were to elect not to renew the applicable employment agreement on the second anniversary of the date it was entered into, the Company would be obligated to provide the applicable executive with severance for the greater of the remaining term under his employment agreement or 12 months at a rate equal to his then effective salary. In addition, in the event the particular executive were to terminate his employment with the Company following a change in control, the Company would be obligated to provide the applicable executive with the severance payments described in the preceding sentence. The term "change in control," as defined in the employment agreements, means the acquisition by any person (other than the Company and its affiliates) of a majority of the outstanding Common Shares or voting securities of the Company. At the time each of the foregoing individuals entered into their employment agreements, each received from the Company non-transferable warrants exercisable for a six-year period at a price of $19.50 per share. The number of Common Shares for which such warrants are exercisable are 40,000, 100,000, 40,000, and 40,000, for the warrants held by Messrs. Nichols, Sweeney, Belcher and Gallagher, respectively. 116 123 In furtherance of the Company's efforts to preserve its REIT status and ensure that not more than 50% in value of its outstanding Shares is owned, directly or indirectly, by five or fewer individuals in the last half of any taxable year, the warrants issued to the executives give the Company the right to refuse to issue Common Shares upon the exercise thereof if the issuance of such Common Shares would result in the Company being "closely held" within the meaning of Section 856(h) of the Code or would bring the number of Common Shares beneficially owned by the holder in excess of the ownership limit applicable to such holder contained in the Declaration of Trust. If the Company were to exercise such right, it would be required to pay to the holder an amount in cash equal to the excess, if any (the "Spread"), of the current market price of a Common Share over the exercise price in respect of each Common Share as to which exercise had been sought but was denied. Upon such payment, the number of Common Shares covered by the warrant would be automatically reduced. In addition, each warrant includes a provision voiding the warrant ab initio if the issuance thereof would, but for such provision, cause the Company to be "closely held" and providing that, upon such a voiding, the warrant will be replaced with a share appreciation right giving the Company the option, upon exercise thereof, either to deliver cash in an amount equal to the Spread or Common Shares having an aggregate market price equal to the Spread. Any such share appreciation right would have the same term, and be exercisable in respect of the same number of Common Shares, as the warrant it replaced. Section 162(m) of the Code provides that a publicly-held corporation may not deduct compensation paid to any one of certain specified officers in excess of $1 million per year unless such compensation qualifies as "performance-based" compensation within the meaning of that Section. Neither the options nor the warrants granted by the Company qualify as performance-based compensation under Section 162(m) of the Code. Therefore, if the aggregate taxable income recognized in any year by certain of the executive officers of the Company, including any income recognized upon the exercise of options or warrants and any bonuses, exceeds $1 million, the excess will not be deductible by the Company unless it qualified as performance-based compensation. The Company has filed a registration statement covering the Common Shares issuable upon exercise of the warrants awarded to each of the foregoing executives under the Securities Act so that, subject to restrictions arising under the Securities Act applicable to "affiliates" of the Company, such Common Shares may be publicly sold. STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS DURING LAST FISCAL YEAR No options were granted by the Company to executive officers during 1995. During 1996, as indicated above, the Company granted warrants exercisable for an aggregate of 220,000 Common Shares to its executive officers. Each warrant has a six-year term expiring in August 2002 and has an exercise price per share of $19.50. STOCK OPTIONS HELD BY CERTAIN EXECUTIVE OFFICER AT DECEMBER 31, 1995 The following table sets forth certain information regarding options for the purchase of Common Shares that were exercised and/or held by the Trust's President and Chief Executive Officer at December 31, 1995. 117 124 No other executive officer of the Trust held options for the purchase of Common Shares at any time during 1995. AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1995 AND 1995 FISCAL YEAR END OPTION VALUES
NUMBER OF VALUE OF SECURITIES UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS OPTIONS AT AT FY-END(#) FY-END($) SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE - ------------------------ --------------- ----------- ------------------- --------------------- Gerard H. Sweeney N/A N/A 40,000/6,666 $30,000(2)/$30,000(3) President and Chief Executive Officer
- --------------- (1) Does not include outstanding warrants. (2) Amount reflects the market value of 6,666 Common Shares in respect of vested options that were in the money at year-end ($10.69 per share) minus the exercise price of $6.21 per share. The remaining options to purchase 33,333 Common Shares have an exercise price of $14.31 per share and were not in the money at year-end. (3) Amount reflects the market value of 6,666 Common Shares in respect of vested options that were in the money at year-end ($10.69 per share) minus the exercise price of $6.21 per share. 401(K) PLAN TNC established a Section 401(k) and Profit Sharing Plan (the "401(k) Plan") to cover its eligible employees and other designated affiliates. It is anticipated that the Company will also adopt the 401(k) Plan for the benefit of all of its eligible employees. The 401(k) Plan will permit eligible employees of the adopting employers (the "Participating Companies") to defer up to a designated percentage of their annual compensation, subject to certain limitations imposed by the Code. The employees' elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(k) Plan. Each Participating Company reserves the right to make matching contributions or discretionary profit sharing contributions in the future. The 401(k) Plan is designed to qualify under section 401 of the Code so that contributions by employees or by the Participating Companies to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by the Participating Companies, if any, will be deductible by them when made. INDEMNIFICATION For a description of the limitation of liability and indemnification rights of the Company's Trustees and officers, see "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws -- Limitation of Liability and Indemnification." CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SSI/TNC TRANSACTION The terms of the acquisition of interests in the SSI/TNC Properties by the Operating Partnership are described under "The Company -- The SSI/TNC Transaction" and "Structure of the Company." 118 125 PARTNERSHIP AGREEMENT; REDEMPTION RIGHTS In connection with the SSI/TNC Transaction, the Company entered into the Partnership Agreement with SSI, TNC and 11 other persons (collectively, the "Limited Partners"). The number of Units issued by the Operating Partnership to the Limited Partners at the closing of the SSI/TNC Transaction (495,837) plus the number of additional Units that the Operating Partnership will be required to issue to the Limited Partners by September 1999 (44,322) were and will be issued in exchange for direct and indirect interests of the Limited Partners in the 19 SSI/TNC Properties contributed to the Operating Partnership. The Partnership Agreement provides, among other things, for the Limited Partners to have the right to cause the Company to redeem their Units for cash, at a per Unit price based on the average closing price of the Common Shares for the five consecutive trading days prior to such determination (or, at the option of the Company, Common Shares on a one Common Share per Unit basis, subject to customary antidilution adjustments), at any time after the occurrence of an equity offering meeting certain targets (a "Qualified Offering"). Because each of the SERS Transaction and the Offering will constitute a Qualified Offering, the Limited Partners will have the right to exercise the foregoing redemption right at any time after the closing of the SERS Transaction or the Offering. See "Operating Partnership Agreement -- Exchange Rights." In addition, as a result of the $500,000 prepayment penalty associated with the payoff of the debt encumbering 2240/2250 Butler Pike, 120 West Germantown Pike, 140 West Germantown Pike and and 2260 Butler Pike, approximately 30,003 units held by Limited Partners will be cancelled by the Operating Partnership. See "Operating Partnership Agreement -- Cancellation of Class A Units." REPAYMENT OF CERTAIN ADVANCES TO SSI In connection with the SSI/TNC Transaction, SSI agreed to loan the Operating Partnership an aggregate of $400,000 on account of transaction expenses and agreed to advance the Operating Partnership up to $700,000 to provide it with working capital for the operation of certain of the Properties. SSI also agreed to advance funds to the Operating Partnership to enable it to make certain preferred distributions to the Company. These advances bear interest at the prime rate. In addition, in June 1996, SSI provided a second mortgage loan in the amount of $460,000 to a subsidiary of the Operating Partnership to fund the cost of tenant improvements at one of the Properties (650 Dresher Road). This loan also bears interest at prime rate. As of September 30, 1996, an aggregate of $364,000, excluding accrued interest, was owed to SSI by the Operating Partnership, all of which, by its terms, shall become due and payable upon completion of the Offering. See "The Company -- The SSI/TNC Transaction" and "Use of Proceeds." INDEMNIFICATION OF CERTAIN LIMITED PARTNERS The Partnership Agreement obligates the Company either to contribute sufficient proceeds from the Offering to the Operating Partnership to enable it to repay or refinance the mortgage debt (approximately $63.7 million as of September 30, 1996) encumbering the SSI/TNC Properties, in lieu thereof, either obtain general releases from the holders of such mortgages indebtedness releasing the Limited Partners from all liability with respect thereto or make other arrangements satisfactory to such Limited Partners to indemnify them against such liability. Following the Offering, approximately $13.6 million of such mortgage debt will remain outstanding, of which $8.6 million constitutes recourse debt. Accordingly, the Company will indemnify the Limited Partners who are liable on such recourse debt against liability thereon. PARTNERSHIP AGREEMENT; GENERAL INDEMNITY In the Partnership Agreement, SSI and TNC made customary representations and warranties, on a several basis, in favor of the Company. The Company also made customary representations and warranties in favor of SSI and TNC. In the event the Company were to suffer a loss as a result of the inaccuracy of any of the representations and warranties made in its favor, the recourse of the Company against SSI and TNC is limited to the 497,896 Units issued to them in the SSI/TNC Transaction. "See Risk Factors -- Conflicts of Interest -- Failure to Enforce Terms of Acquisition Agreements." 119 126 TERMINATION OF STANDSTILL AGREEMENTS Each of SSI and Richard M. Osborne, a Trustee of the Company, is a party to an agreement with the Company which, by its terms, will terminate upon completion of the Offering. In its respective agreement, each of SSI and Mr. Osborne agreed generally to vote its or his Common Shares in accordance with the recommendation of a majority of the Board of Trustees on any matter submitted to a vote of shareholders and to refrain from disposing of its or his Common Shares other than in transactions under Rule 144, in certain private transactions and in certain extraordinary transactions such as a third party tender offer or merger. Following the Offering, neither SSI nor Mr. Osborne will hold Common Shares subject to any contractual restrictions imposed by the Company. Notwithstanding the termination of the standstill agreements, each of Mr. Osborne and Warren V. Musser, Chairman and Chief Executive Officer of SSI, will continue as Trustees of the Company. OPTION PROPERTIES At the closing of the SSI/TNC Transaction, the Operating Partnership acquired an option from an affiliate of TNC entitling it to acquire, in the Operating Partnership's discretion, the four Option Properties at any time during the two-year period ending August 22, 1998 (subject to two extensions of one year each). The parties have agreed that the purchase price payable by the Operating Partnership upon exercise of its option will consist of $1.00 in excess of the mortgage debt encumbering the Option Properties at the time of exercise (which as of September 30, 1996, aggregated $20.0 million, including approximately $3.3 million of accrued debt and unpaid interest). The right of the Operating Partnership to exercise its option to acquire the Option Properties is conditioned on receipt of consent of the mortgage lender for the Option Properties, of which there can be no assurance. As of the date hereof, no lender consent has been requested, and no determination to seek any such consent has been made. See "Business and Properties -- Option Properties: General." SSI RIGHT OF FIRST REFUSAL ON ADDITIONAL FINANCINGS The Partnership Agreement provides that any time the Operating Partnership proposes to issue any additional partnership interests for cash, it shall first offer SSI the right to acquire such interests on terms no less favorable to SSI than those on which the Operating Partnership proposes to issue such additional interests to other persons. This right of first refusal will terminate upon the consummation of the SERS Transaction or the Offering. LEASE WITH SSI AFFILIATE Approximately 21,580 net rentable square feet is leased by the Company to an affiliate of SSI at an average rental rate of $9.66 per square foot under a lease that expires in April 1999. The Company believes that this is the prevailing market rate for comparable space. ENVIRONMENTAL INDEMNITY SSI has agreed to indemnify the Operating Partnership against the cost of remediation that may be required to be undertaken on account of certain environmental conditions at one of the SSI/TNC Properties acquired subject to an aggregate maximum of approximately $2.0 million. The term of the SSI indemnity agreement expires on August 22, 2001. See "Business and Properties -- Environmental Matters." EMPLOYMENT AGREEMENTS; AWARD OF WARRANTS At the closing of the SSI/TNC Transaction, each of Messrs. Nichols, Sweeney, Belcher and Gallagher entered into a two year employment agreement with the Management Company. These employment agreements were, with the consent of such executives, subsequently assigned to and assumed by the Company. In order to induce each such executive to enter into such employment agreements, Messrs. Nichols, Sweeney, Belcher and Gallagher were awarded warrants to purchase 40,000, 100,000, 40,000 and 40,000 Common Shares, respectively, at an exercise price of $19.50 per share. See "Management -- Employment Agreements." 120 127 PRIOR INVOLVEMENT OF LEGG MASON One of the Underwriters, Legg Mason Wood Walker, Incorporated ("Legg Mason"), served as financial advisor to the Company in connection with the SSI/TNC Transaction. In connection with the SSI/TNC Transaction, Legg Mason delivered to the Board of Trustees its opinion to the effect that, as of July 12, 1996, the SSI/TNC Transaction was fair to the Company's shareholders from a financial point of view. The Company paid Legg Mason a $100,000 fee for its advisory services and reimbursed it $10,000 for expenses. Legg Mason is the parent of Legg Mason Real Estate Services, a mortgage banking firm of which Walter D'Alessio, a member of the Company's Board of Trustees and Compensation Committee, is President. INVESTMENT BY RMO FUND On June 21, 1996 (the "Investment Date"), Turkey Vulture Fund XIII, Ltd. (the "RMO Fund"), a company controlled by Richard M. Osborne, a Trustee of the Company, invested approximately $1.3 million in the Company, by: (i) making the Osborne Loan to the Company and (ii) by acquiring 19,983 Paired Units at a per unit price of $16.89. Under certain circumstances following the issuance by the Company of additional Common Shares, the Company is obligated to issue additional Paired Units, valued at $16.89 each, as a mandatory prepayment of the Osborne Loan. Immediately following the closing of the SSI/TNC Transaction, the Company issued to the RMO Fund an additional 14,135 Paired Units and thereby reduced the outstanding balance of the Osborne Loan by approximately $239,000. The Osborne Loan matures on the third anniversary of the Investment Date. Pursuant to the terms of the Osborne Loan, upon completion of the Offering, the outstanding balance thereof, including accrued interest (which was approximately $774,000 as of September 30, 1996) will become due and payable and will be repaid through the issuance by the Company of additional Paired Units. The actual number of Paired Units so issued will equal the outstanding balance of the Osborne Loan on the date of its repayment including accrued interest, divided by $16.89. The Company has agreed to provide the RMO Fund with registration rights covering the Common Shares issued and issuable as part of its investment. See "Shares Available For Future Sale -- Registration Rights." PRIOR INVOLVEMENT OF LCOR Approximately 40 individual partners operating through more than 350 different limited partnerships, joint ventures and corporations (collectively, the "Linpro Entities") were originally doing business under the name "The Linpro Company". Central administrative and management functions for The Linpro Entities are currently conducted by LCOR. Since its formation and through February 1, 1995, the Company directly and, through its investment in BRP, indirectly entered into several transactions with Linpro Entities. Administration. Administrative and management functions for the Company were performed by LCOR, Incorporated through August 8, 1994. Beginning in 1993 and continuing through August 8, 1994, the Company reimbursed LCOR up to $100,000 per year for certain administrative expenses directly attributable to the Company, consisting, in part, of a portion of the salaries for certain personnel provided by LCOR. During 1994, this reimbursement totaled $75,000. During 1995, no such reimbursement was made. Effective February 1, 1995, the Company assumed management of three of the four Properties owned by BRP and entered into a management agreement with an unrelated party for management of the fourth. BRP Property Management. In connection with the acquisition of each Property owned by BRP in 1986, BRP entered into management agreements with the Linpro Entities engaged in the property management business pursuant to which the property manager provided leasing and property management services. During 1994, six of the then seven remaining Properties owned by BRP were operated under a management agreement with a Linpro Entity and one of the Properties was operated under a management agreement with an entity which is not a Linpro Entity. For the period from January 1, 1995 through January 31, 1995, three of the four Properties currently owned by BRP were operated under an agreement with a Linpro entity and one of the BRP Properties was operated under a management agreement with an entity which is not a Linpro Entity. For their services rendered pursuant to the management agreements, the property managers were entitled to reimbursement for certain expenses incurred in connection with their management of the BRP Properties 121 128 and were paid a management fee monthly in arrears equal to 5% of the rental income of the BRP Properties. Such management fees paid to Linpro Entities during 1995 and 1994 amounted to $10,000 and $187,000, respectively. In addition, during 1994 and through January 31, 1995, the management companies received a 50% override in leasing commissions payable to third party brokers and a full market commission on non-brokered transactions. Such leasing commissions paid to the Linpro Entities during 1995 and 1994 amounted to $47,000 and $56,000, respectively. For the BRP Properties operated under a management agreement with a Linpro Entity, during this same period, LCOR absorbed an amount equal to 2% of gross rents and 40% of a defined commission structure representing administrative costs, which costs would otherwise have been borne by the Company. Such amounts absorbed by LCOR representing administrative costs, which would otherwise have been borne by the Company, totaled $23,000 in 1995 and $92,000 in 1994. PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of Common Shares (and Common Shares for which Units and Preferred Shares may be exchanged) by each Trustee, by each executive officer, by all Trustees and executive officers as a group, and by each person known to the Company to be the beneficial owner of 5% or more of the outstanding Common Shares immediately following the completion of the Offering and assuming the issuance of Units in exchange for the Residual Interests. Except as indicated below, to the Company's knowledge, all of such Common Shares are owned directly, and the indicated person has sole voting and investment power. Share amounts have been adjusted to reflect the Reverse Split.
NAME AND BUSINESS NUMBER OF PERCENTAGE OF ADDRESS OF BENEFICIAL OWNER(1) COMMON SHARES COMMON SHARES(2) ----------------------------------------------------- ------------- ---------------- RAI Real Estate Advisers, Inc.(3).................... 951,022 15.05% Morgan Stanley Institutional Fund, Inc. -- U.S. Real Estate Portfolio(4)................................ 425,454 7.09 Morgan Stanley SICAV Subsidiary S.A.(4).............. 283,636 4.73 Safeguard Scientifics Inc.(5)........................ 738,756 11.37 The Nichols Company.................................. 199,078 3.21 Anthony A. Nichols, Sr.(6)........................... 275,844 4.41 Joseph L. Carboni(7)................................. 166 * Richard M. Osborne(8)................................ 339,525 5.58 Gerard H. Sweeney(9)................................. 146,934 2.39 Warren V. Musser(10)................................. 0 * Walter D'Alessio(11)................................. 0 * Charles P. Pizzi(12)................................. 0 * John P. Gallagher(13)................................ 239,078 3.83 Brian F. Belcher(14)................................. 246,324 3.94 All Trustees and Executive Officers as a Group (9 persons)............................. 849,714 12.94% ------ ------
- --------------- * Less than one percent. (1) Unless indicated otherwise, the business address of each person listed is 16 Campus Boulevard, Newtown Square, Pennsylvania 19073. (2) Assumes that all Units and Preferred Shares eligible for conversion held by each named person or entity are converted into Common Shares. The total number of Common Shares outstanding used in calculating the percentage of Common Shares assumes that none of the Units or Preferred Shares eligible for conversion held by other named persons or entities are converted into Common Shares. (3) The business address of RAI Real Estate Advisers, Inc. ("RAI") is 259 Radnor-Chester Road, Radnor, Pennsylvania 19087. Includes (a) 636,363 Common Shares, (b) 133,333 Common Shares issuable upon exercise of warrants and (c) 181,325 Common Shares issuable upon conversion of Preferred Shares prior to Conversion Approval. Does not include 1,424,735 Common Shares issuable upon conversion of Preferred Share after Conversion Approval. RAI serves as the voting trustee under the SERS Voting Trust established for the benefit of SERS. RAI disclaims beneficial ownership of such shares in which it has no pecuniary interest. (4) Morgan Stanley Asset Management Inc. ("MSAM"), as investment adviser of the Morgan Stanley Funds, and Morgan Stanley Group Inc., as the owner of all the common stock of MSAM, are deemed to beneficially own the common shares beneficially owned by such funds. Morgan Stanley SICAV Subsidiary S.A. (the "SICAV Subsidiary") is a wholly owned subsidiary of Morgan Stanley SICAV, an investment company with variable capital ("societe d investissement a capital variable") incorporated with limited liability under the laws of the Grand Duchy of Luxembourg, and Morgan Stanley SICAV, on behalf of its U.S. Real Estate Securities Fund (a sub-fund of Morgan Stanley SICAV), is deemed to beneficially own all the common shares beneficially owned 122 129 by the SICAV Subsidiary. Morgan Stanley Institutional Fund, Inc. and MSAM maintain their principal office at 1221 Avenue of the Americas, New York, New York 10020. Morgan Stanley SICAV and the SICAV Subsidiary maintain their principal office at 6C route de Treves, L-2633 Senningerberg, Grand Duchy of Luxembourg. Morgan Stanley Group Inc. maintains its principal office at 1585 Broadway, New York, New York 10036. (5) The business address of SSI is 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087. Includes (a) 241,560 Common Shares, (b) 241,560 Common Shares issuable upon exercise of warrants and (c) 255,636 Units, convertible into Common Shares. (6) Includes (a) 16,773 Common Shares, (b) 56,773 Common Shares issuable upon exercise of warrants and (c) 199,078 Units held by TNC, in which Mr. Nichols, Mr. Gallagher and Mr. Belcher have shared investment voting power and of which Mr. Nichols is a 44.2% stockholder and disclaims beneficial ownership of the remaining 55.8% of such shares in which he has no pecuniary interest. All of such 16,773 Common Shares and warrants to purchase an additional 16,773 Common Shares were acquired by Mr. Nichols, as a joint tenant with his spouse, from SSI on November 5, 1996 at a price per share and warrant of $16.89. (7) The business address of Mr. Carboni is Two Greentree Centre, Marlton, New Jersey 08053. (8) The business address of Mr. Osborne is 7001 Center Street, Mentor, Ohio 44060. Includes (a) 179,600 Common Shares owned by The Richard M. Osborne Trust (the "RMO Trust"), of which Mr. Osborne is the sole trustee and (b) 79,962 Common Shares and warrants exercisable for 79,962 Common Shares included within Paired Units held by the RMO Fund (including Paired Units that will be issued in repayment of the Osborne Loan immediately following closing of the Offering). Mr. Osborne has advised the Company that he possesses sole authority over the voting and disposition of Common Shares owned by the RMO Fund. (9) Includes (a) 267 Common Shares, (b) 46,666 Common Shares issuable upon the exercise of options and (c) 100,000 Common Shares issuable upon the exercise of warrants. (10) The business address of Mr. Musser is 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087. (11) The business address of Mr. D'Alessio is 1735 Market Street, Philadelphia, Pennsylvania 19103. (12) The business address of Mr. Pizzi is 1234 Market Street, Philadelphia, Pennsylvania 19107. (13) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants and (b) 199,078 Units held by TNC, in which Mr. Gallagher, Mr. Nichols and Mr. Belcher have shared investment and voting power and of which Mr. Gallagher is a 25% stockholder and disclaims beneficial ownership of the remaining 75% of such shares in which he has no pecuniary interest. (14) Includes (a) 40,000 Common Shares issuable upon the exercise of warrants and (b) 199,078 Units held by TNC, in which Mr. Gallagher, Mr. Nichols and Mr. Belcher have shared investment and voting power and of which Mr. Belcher is a 25% stockholder and disclaims beneficial ownership of the remaining 75% of such shares in which he has no pecuniary interest and (c) 7,246 units convertible into Common Shares. 123 130 DESCRIPTION OF SHARES OF BENEFICIAL INTEREST The following summary of the terms of the shares of beneficial interest of the Company does not purport to be complete and is subject to and qualified in its entirety by reference to the Declaration of Trust, the Articles Supplementary and the Bylaws of the Company, copies of which are exhibits to the Registration Statement of which this Prospectus is a part. See "Available Information." GENERAL The Declaration of Trust of the Company provides that the Company is authorized to issue up to 80,000,000 shares of beneficial interest of the Company ("Shares"), consisting of 75,000,000 common shares of beneficial interest, par value $.01 per share ("Common Shares"), and 5,000,000 preferred shares of beneficial interest, par value $.01 per share ("preferred shares"). Upon the closing of the Offering and after giving effect to the Reverse Split, the Company will be authorized to issue up to 25,000,000 Common Shares and 5,000,000 preferred shares. Upon completion of the Offering (and after giving effect to the closing of the SERS Transaction and the Concurrent Investments): (i) 6,002,483 Common Shares will be issued and outstanding (6,557,483 Common Shares if the Underwriters' over-allotment option is exercised in full), including 45,844 Common Shares that will be issued in repayment of the Osborne Loan and excluding Common Shares that may be issued upon the conversion of Units; and (ii) 481,818 preferred shares (all of which will consist Preferred Shares) will be issued and outstanding. Both Maryland statutory law governing real estate investment trusts organized under Maryland law (the "Maryland REIT Law") and the Company's Declaration of Trust provide that no shareholder of the Company will be personally liable, by reason of his status as a shareholder of the Company, for any obligation of the Company. The Company's Bylaws further provide that the Company shall indemnify each shareholder against any claim or liability to which such shareholder may become subject by reason of his being or having been a shareholder, and that the Company shall reimburse each shareholder who has been successful, on the merits or otherwise, in the defense of a proceeding to which he has been made a party by reason of his status as such for all reasonable expenses incurred by him in connection with any such claim or liability. In addition, it is a requirement of the Declaration of Trust that all written contracts to which the Company is a party shall include a provision to the effect that shareholders shall not be personally liable thereon. The Declaration of Trust provides that, subject to the provisions of any class or series of preferred shares then outstanding and to the mandatory provisions of applicable law, the shareholders are entitled to vote only on the following matters: (i) election or removal of Trustees; (ii) amendment of the Declaration of Trust; (iii) a determination by the Trust to invest in commodities contracts (other than interest rate futures intended to hedge the Company against interest rate risk), engage in securities trading (as compared to investment) activities or hold properties primarily for sale to customers in the ordinary course of business; and (iv) a merger of the Company with another entity. Except with respect to the foregoing, no action taken by the shareholders of the Company at any meeting shall in any way bind the Board of Trustees. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Shares is Bank of New York. SHARES Common Shares of Beneficial Interest Each outstanding Common Share entitles the holder thereof to one vote on all matters submitted to a vote of shareholders, including the election of Trustees. There is no cumulative voting in the election of Trustees, which means that, subject to such voting rights as may be granted by the Board of Trustees in connection with future issuances of preferred shares, the holders of a majority of the outstanding Common Shares can elect all of the Trustees then standing for election. Subject to such preferential rights as may be granted by the Board of Trustees of the Company in connection with the future issuance, if any, of preferred 124 131 shares, holders of Common Shares are entitled to such distributions as may be declared from time to time by the Board of Trustees out of funds legally available therefor. Holders of Common Shares have no conversion, exchange, redemption or preemptive rights to subscribe to any securities of the Company. All outstanding Common Shares will be fully paid and nonassessable. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, subject to such preferential rights as may be granted by the Board of Trustees of the Company in connection with the future issuance, if any, of Preferred Shares, holders of Common Shares will be entitled to share ratably in the assets of the Company remaining after provision for payment of liabilities to creditors. All Common Shares have equal dividend, distribution, liquidation and other rights. Preferred Shares of Beneficial Interest The preferred shares authorized by the Company's Declaration of Trust may be issued from time to time in one or more series. Prior to the issuance of preferred shares of each such series, the Board of Trustees is required by the Maryland REIT Law and the Company's Declaration of Trust to set for each series the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption, as are permitted by the Maryland REIT Law. Such rights, powers, restrictions and limitations could include the right to receive specified distributions and payments on liquidation prior to any such payments being made to the holders of Common Shares. Under certain circumstances, the issuance of preferred shares could have the effect of delaying, deferring or preventing a change of control of the Company and may adversely affect the voting and other rights of the holders of the Common Shares. Classification or Reclassification of Preferred Shares The Declaration of Trust authorizes the Trustees to classify or reclassify, in one or more series, any unissued preferred shares by setting or changing the number of shares constituting such series and the designation, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of such shares. PREFERRED SHARES General In connection with the SERS Transaction, the Company will establish and issue 481,818 Preferred Shares, which shall be designated as Series A Preferred Shares. Dividends In the event that the Company pays a dividend or makes any distribution with respect to the Common Shares, regardless of the form of such distribution, the holders of the Preferred Shares shall be entitled to participate with the holders of the Common Shares in all such dividends and distributions, such that the holders of the Preferred Shares shall receive, with respect to each such Preferred Share held, an amount equal to the product of: (i) the dividend or distribution payable with respect to each such Common Share multiplied by (ii) the number of Common Shares into which such Preferred Share is convertible as of the record date for such dividend or distribution or the payment date with respect to such dividend or distribution, if there is no record date. In the event that a Conversion Approval has not occurred by July 1, 1997, then the holders of the Preferred Shares shall be entitled to receive, with respect to each such Preferred Share held, an amount equal to the product of: (i) 120% of the dividend or distribution payable with respect to each such Common Share multiplied by (ii) the number of Common Shares into which such Preferred Share is convertible as of the record date for such dividend or distribution or the payment date with respect to such dividend or distribution, if there is no record date. 125 132 Liquidation Preference; Merger or Consolidation In the event of any liquidation, dissolution or winding up of the Company (a "Liquidation"), regardless of whether such event is voluntary or otherwise, each Preferred Share will entitle the holder to receive, before any distributions are made on Common Shares, an amount equal to the greater of: (i) the amount as would have been payable with respect to the Common Shares into which such Preferred Share would have been convertible immediately prior to the Liquidation if a Conversion Approval had previously occurred and (ii) the product of $16.50 multiplied by the Conversion Number plus all declared but unpaid dividends. In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares or otherwise, is permitted under applicable law, amounts that would be needed, if the Company were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of Preferred Shares will not be added to the Company's total liabilities. Upon a merger, consolidation or similar transaction involving the Company, holders of Preferred Shares will be entitled to receive such payments as would have been made with respect to the Common Shares into which such Preferred Shares would have been convertible immediately prior to such event if a Conversion Event had previously occurred. Redemption In the event that a Conversion Approval has not occurred by July 1, 1998, each holder of Preferred Shares will have the right, at its option, to require the Company to redeem all or a portion of the Preferred Shares held by it at a price per share equal to the Redemption Price as defined and described under "Risk Factors -- Redemption Preferred Shares." Voting Rights Except as otherwise provided by law and as indicated below, the holders of Preferred Shares shall be entitled to vote on all matters as to which the holders of Common Shares shall be entitled to vote, together with the holders of Common Shares as a single class, and shall be entitled to cast a number of votes equal to the Conversion Number. Holders of Preferred Shares will not be entitled to vote on the unlimited convertibility of Preferred Shares into Common Shares. Conversion Rights Subject to the conditions set forth below, each holder of the Preferred Shares shall have the right, at any time, at such holder's option, to convert, without the payment of any additional consideration, each Preferred Share held by such holder into that number of non-assessable Common Shares equal to the Conversion Number. Until Conversion Approval has occurred, the number of Common Shares that may be issued in respect of the conversion of Preferred Shares is limited to 181,325 in the aggregate. After Conversion Approval, there are no limitations on the convertibility of the Preferred Shares into Common Shares. If, at any time, the Company: (i) pays a dividend or makes a distribution on any of its Shares in Common Shares; (ii) subdivides its outstanding Common Shares into a greater number of shares; (iii) combines outstanding Common Shares into a smaller number of Shares; or (iv) issues Common Shares by reclassification of any of its Shares, then the Conversion Number in effect immediately prior to such action shall be adjusted such that the holders of Preferred Shares may receive upon conversion the number of Common Shares that such holders would have owned immediately following such action if the holders had converted their Preferred Shares immediately prior to such action. REVERSE SHARE SPLIT; TREATMENT OF FRACTIONAL SHARES Immediately prior to closing of the Offering, each three outstanding Common Shares will be combined into one Common Share of the Company. The purpose of the Reverse Split is to increase the liquidity and marketability of the Common Shares by increasing the trading price per Common Share and attracting investors and analysts who would otherwise be reluctant to deal in a lower-priced stock. 126 133 The Reverse Split will result in certain existing shareholders owning fractional shares of the Company. The Company will not issue fractional shares, but will instead distribute cash to such shareholders in redemption of such fractional shares. To make such payments, fractional shares will be aggregated into whole shares and a certificate evidencing those shares will be sold by an independent agent in the open market on behalf of shareholders who otherwise would be entitled to receive fractional shares. Those shareholders will receive a cash payment in the amount of their pro rata share of the total sales proceeds. The independent agent will make such sales at such times and in such amounts and through broker-dealers selected in the sole discretion of the independent agent. None of the independent agent's actions will be subject to the control of the Company. As long as the distribution of cash in payment for such fractional shares represents merely a mechanical rounding off of the fractions in the exchange and is not a separately bargained-for consideration, the payments will be treated as redemptions, which should result in the recognition of capital gain or loss, and not ordinary income, to the shareholders. Promptly after the occurrence of the Reverse Split, a letter of transmittal will be mailed to shareholders (other than shareholders who acquired Common Shares in the Offering) containing instructions relating to the surrender of outstanding certificates representing Common Shares in exchange for certificates representing post-Reverse Split Common Shares. SHARE CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. RESTRICTIONS ON TRANSFER For the Company to qualify as a REIT under the Code, not more than 50% in value of its outstanding Shares may be owned, directly or indirectly, by five or fewer individuals (defined in the Code to include certain entities such as qualified pension plans) during the last half of a taxable year and Shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of twelve months (or during a proportionate part of a shorter taxable year). Because the Board of Trustees believes it is at present essential for the Company to continue to qualify as a REIT, the Declaration of Trust, subject to certain exceptions, contains provisions that restrict the number of Shares that a person may own and that are designed to safeguard the Company against an inadvertent loss of REIT status. In order to prevent any shareholder from owning Shares in an amount that would cause more than 50% in value of the outstanding Shares to be held by five or fewer individuals, the Board, pursuant to authority granted in the Declaration of Trust, has passed a resolution that, subject to certain exceptions described below, provides that no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8% in value of the outstanding Shares, except for SSI who, pursuant to a separate agreement with the Company, may own no more than 14.75% in value of the outstanding shares (the "Ownership Limit"). The Board of Trustees, subject to limitations, retains the authority to effect additional increases to, or establish exemptions from, the Ownership Limit. In addition, pursuant to the Declaration of Trust, no purported transfer of Shares may be given effect if it would result in ownership of all of the outstanding Shares by fewer than 100 persons (determined without any reference to the rules of attribution) or result in the Company being "closely held" within the meaning of Section 856(h) of the Code (the "Ownership Restrictions"). In the event of a purported transfer or other event that would, if effective, result in the ownership of Shares in violation of the Ownership Limit or the Ownership Restrictions, such transfer would be deemed void ab initio and such Shares would automatically be exchanged for "Excess Shares" authorized by the Declaration of Trust, according to rules set forth in the Declaration of Trust, to the extent necessary to ensure that the purported transfer or other event does not result in the ownership of Shares in violation of the Ownership Limit or the Ownership Restrictions. Holders of Excess Shares are not entitled to voting rights (except to the extent required by law), dividends or distributions. If, after the purported transfer or other event resulting in an exchange of Shares for Excess Shares and prior to the discovery by the Company of such exchange, dividends or distributions are paid with respect to Shares that were exchanged for Excess Shares, then such dividends or distributions would be repayable to the Company upon demand. While outstanding, Excess Shares would be held in trust by the Company for the benefit of the ultimate transferee of an interest in such trust, as described below. While Excess Shares are held in trust, an interest in that trust may be transferred by the purported transferee or other purported holder with respect to such Excess Shares only to a person whose ownership of the Shares would not 127 134 violate the Ownership Limit or the Ownership Restrictions, at which time the Excess Shares would be automatically exchanged for Shares of the same type and class as the Shares for which the Excess Shares were originally exchanged. The Declaration of Trust contains provisions that are designed to ensure that the purported transferee or other purported holder of the Excess Shares may not receive in return for such a transfer an amount that reflects any appreciation in the Shares for which such Excess Shares were exchanged during the period that such Excess Shares were outstanding. Any amount received by a purported transferee or other purported holder in excess of the amount permitted to be received would be required to be turned over to the Company. The Declaration of Trust also provides that Excess Shares shall be deemed to have been offered for sale to the Company, or its designee, which shall have the right to accept such offer for a period of 90 days after the later of: (i) the date of the purported transfer or event which resulted in an exchange of Shares for such Excess Shares; and (ii) the date the Board of Trustees determines that a purported transfer or other event resulting in an exchange of Shares for such Excess Shares has occurred if the Company does not receive notice of any such transfer. The price at which the Company may purchase such Excess Shares would be equal to the lesser of: (i) in the case of Excess Shares resulting from a purported transfer for value, the price per share in the purported transfer that caused the automatic exchange for such Excess Shares or, in the case of Excess Shares resulting from some other event, the market price of such Shares on the date of the automatic exchange for Excess Shares; or (ii) the market price of such Shares on the date that the Company accepts such Excess Shares. Any dividend or distribution paid to a proposed transferee on Excess Shares prior to the discovery by the Company that such Shares have been transferred in violation of the provisions of the Declaration of Trust shall be repaid to the Company upon demand. If the foregoing restrictions are determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the intended transferee or holder of any Excess Shares may be deemed, at the option of the Company, to have acted as an agent on behalf of the Company in acquiring or holding such Excess Shares and to hold such Excess Shares on behalf of the Company. The Trustees may waive the Ownership Restrictions if evidence satisfactory to the Trustees and the Company's tax counsel or tax accountants is presented showing that such waiver will not jeopardize the Company's status as a REIT under the Code. As a condition of such waiver, the Trustees may require that an intended transferee give written notice to the Company, furnish such opinions of counsel, affidavits, undertakings, agreements and information as may be required by the Trustees and/or an undertaking from the applicant with respect to preserving the status of the Company. The Ownership Restrictions will not apply if the Company determines that it no longer will attempt to qualify, or continue to qualify, as a REIT. Any transfer of Shares or any security convertible into Shares that would: (i) create a direct or indirect ownership of Shares in excess of the Ownership Limit; or (ii) result in the violation of the Ownership Restrictions will be void with respect to the intended transferee and will result in Excess Shares as described above. Neither the Ownership Restrictions nor the Ownership Limit will be automatically removed even if the REIT provisions of the Code are changed so as no longer to contain any ownership concentration limitation or if the ownership concentration limitation is increased. Except as otherwise described above, any change in the Ownership Restrictions would require an amendment to the Declaration of the Trust. Amendments to the Declaration require the affirmative vote of holders owning not less than a majority of the outstanding Shares entitled to vote thereon. In addition to preserving the Company's status as a REIT, the Ownership Restrictions and the Ownership Limit may have the effect of precluding an acquisition of control of the Company without the approval of the Board of Trustees. All persons who own, directly or by virtue of the applicable attribution provisions of the Code, more than 4.0% of the value of any class of outstanding Shares, must file an affidavit with the Company containing the information specified in the Declaration by January 31 of each year. In addition, each shareholder shall upon demand be required to disclose to the Company in writing such information with respect to the direct, indirect and constructive ownership of Shares as the Trustees deem necessary to comply with the provisions of the Code applicable to REITs, to comply with the requirements of any taxing authority or governmental agency or to determine any such compliance. 128 135 The Ownership Limit could have the effect of delaying, deferring or preventing a transaction or a change in control of the Company that might involve a premium price for the Common Shares or otherwise be in the best interest of the shareholders of the Company. All certificates representing Shares that are hereafter issued will bear a legend referring to the restrictions and limitations described above. CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF TRUST AND BYLAWS The following summary of certain provisions of Maryland law and of the Declaration of Trust and Bylaws does not purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and to the Declaration of Trust and Bylaws, copies of which are exhibits to the Registration Statement of which this Prospectus is a part. See "Available Information." DURATION Under the Company's Declaration of Trust, the Company has a perpetual term and will continue perpetually subject to the authority of the Board of Trustees to terminate the Company's existence and liquidate its assets and subject to termination pursuant to the Maryland REIT Law. BOARD OF TRUSTEES The Company's Declaration of Trust provides that the number of Trustees of the Company shall not be less than three nor more than 15. Any vacancy (including a vacancy created by an increase in the number of Trustees) will be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the Trustees (although less than a quorum). The Trustees will each serve for a term of one year (except that an individual who has been elected to fill a vacancy will hold office only until the next annual meeting of shareholders and until his successor has been duly elected and qualified). The Declaration of Trust provides that a Trustee may be removed from office only at a meeting of the shareholders called for that purpose, by the affirmative vote of the holders of not less than a majority of the Shares entitled to vote in the election of Trustees; provided, however, that in the case of any Trustees elected solely by holders of a series of preferred shares, such Trustees may be removed by the affirmative vote of a majority of the preferred shares of that series then outstanding and entitled to vote in the election of Trustees, voting together as a single class. MEETINGS OF SHAREHOLDERS The Declaration of Trust requires the Company to hold an annual meeting of shareholders for the election of Trustees and the transaction of any other proper business. Special meetings of shareholders may be called upon the written request of shareholders holding at least 10% of the Common Shares. Special meetings of shareholders may also be called by the holders of preferred shares to the extent, if any, determined by the Board of Trustees in connection with the establishment of a class or series of preferred shares. Any action required or permitted to be taken by shareholders must be taken at a duly called annual or special meeting of shareholders and may not be effected by any consent in writing of shareholders. PREFERRED SHARES The Company's Declaration of Trust authorizes the Board of Trustees to establish one or more series of preferred shares and to determine, with respect to any series of preferred shares, the number of shares constituting such series and the designation, preferences, rights and other terms of such series. See "Description of Shares of Beneficial Interest -- Shares -- Preferred Shares of Beneficial Interest." The Company believes that the ability of the Board of Trustees to issue one or more series of preferred shares will provide the Company with increased flexibility in structuring possible future financings and acquisitions, and in meeting other trust needs which might arise. The authorized Preferred Shares, as well as the authorized 129 136 Common Shares, will be available for issuance without further action by the Company's shareholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which the Company's securities may be listed or traded. In connection with the SERS Transaction, the Company will issue 481,818 Preferred Shares that are convertible, under certain circumstances, into 1,606,060 Common Shares. See "The Company -- The SERS Transaction." BUSINESS COMBINATIONS Under the MGCL, as applicable to Maryland real estate investment trusts, certain "business combinations" (including a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland real estate investment trust and any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the trust's shares (an "Interested Shareholder") must be: (a) recommended by the trustees of such trust and (b) approved by the affirmative vote of at least: (i) 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest of the trust; and (ii) two-thirds of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest other than shares held by the Interested Shareholder with whom the business combination is to be effected, unless, among other conditions, the trust's common shareholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Shareholder for its shares. In addition, an Interested Shareholder or any affiliate thereof may not engage in a "business combination" with the trust for a period of five years following the most recent date on which the Interested Shareholder becomes an Interested Shareholder. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees of the trust prior to the time that the Interested Shareholder becomes an Interested Shareholder. An amendment to a Maryland REIT's declaration of trust electing not to be subject to the foregoing requirements must be approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest of the trust, voting together as a single voting group, and two-thirds of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest other than shares of beneficial interest held by Interested Shareholders. Any such amendment shall not be effective until 18 months after the vote of shareholders and does not apply to any business combination of the trust with an Interested Shareholder on the date of the shareholder vote. The Board of Trustees has exempted any business combinations involving SSI, TNC, Gerard H. Sweeney and their respective affiliates from the business combination provisions of the MGCL and, consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between any of them and the Company. As a result, SSI, TNC, Gerard H. Sweeney and their respective affiliates may be able to enter into business combinations that may not be in the best interest of the shareholders without compliance by the Company with the super-majority vote requirements and the other provisions of the statute. In addition, the Company has exempted any business combination involving SERS or the SERS Voting Trust and any of their respective affiliates or associates and Morgan Stanley Asset Management Inc. and the Morgan Stanley Funds and any of their respective affiliates or associates from the business combination provisions of the MGCL. The business combination statute could have the effect of delaying, deferring or preventing offers to acquire the Company and of increasing the difficulty of consummating any such offer. CONTROL SHARE ACQUISITIONS The MGCL, as applicable to Maryland real estate investment trusts, provides that "control shares" of a Maryland real estate investment trust acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter by shareholders, excluding shares owned by the acquiror, by officers or by trustees who are employees of the trust in question. "Control shares" are voting shares which, if aggregated with all other shares previously acquired by such acquiror, would entitle the acquiror to exercise voting power in the election of trustees within one of the following ranges of voting power: (a) one-fifth or more but less than one-third, (b) one-third or more but less than a majority, or (c) a majority or more of all voting power. Control shares do not include shares the 130 137 acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. A "control share acquisition" means the acquisition of control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the trust's board of trustees to call a special meeting of shareholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the trust may itself present the question at any shareholders meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the trust may redeem any or all of the control shares, except those for which voting rights have previously been approved, for fair value determined, without regard to the absence of voting rights, as of the date of the last control share acquisition by the acquiror or of any meeting of shareholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a shareholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition, and certain limitations and restrictions otherwise applicable to the exercise of dissenters' rights do not apply in the context of a control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the trust is a party to the transaction, or to acquisitions approved or exempted by the declaration of trust or bylaws of the trust. Pursuant to the statute, the Company has exempted any and all acquisitions of Shares by SSI, TNC and any affiliate or associate of theirs from the control share provisions of the MGCL. As a result, SSI or TNC will be able to possess voting power not generally available to other persons and the effect may be to further enhance their ability to control of the Company. In addition, pursuant to the statute, the Company has exempted any and all acquisitions of Shares by SERS and the SERS Voting Trust and any of their respective affiliates or associates and Morgan Stanley Asset Management Inc. and the Morgan Stanley Funds and any of their respective affiliates or associates from the control share provisions of the MGCL. The control share acquisition statute could have the effect of delaying, deferring or preventing offers to acquire the Company and of increasing the difficulty of consummating any such offer. AMENDMENT TO THE DECLARATION OF TRUST The Company's Declaration of Trust may be amended only by the affirmative vote of the holders of not less than a majority of the Shares then outstanding and entitled to vote thereon, except for the provisions of the Declaration of Trust relating to the MGCL provisions on business combinations, amendment of which require the affirmative vote of the holders of not less than 80% of the Shares then outstanding and entitled to vote. In addition, in the event that the Board of Trustees shall have determined, with the advice of counsel, that any one or more of the provisions of the Company's Declaration of Trust (the "Conflicting Provisions") are in conflict with the Maryland REIT Law, the Code or other applicable Federal or state law(s), the Conflicting Provisions shall be deemed never to have constituted a part of the Declaration of Trust, even without any amendment thereof. TERMINATION OF THE COMPANY AND REIT STATUS Subject to the rights of any outstanding preferred shares and to the provisions of the Maryland REIT Law, the Company's Declaration of Trust permits the termination of the Company and the discontinuation of the election by the Board of Trustees that the Company be taxed as a REIT. TRANSACTIONS BETWEEN THE COMPANY AND ITS TRUSTEES OR OFFICERS The Company's Declaration of Trust provides that any contract or transaction between the Company and one or more Trustees or officers of the Company must be approved by a majority of the disinterested Trustees. 131 138 LIMITATION OF LIABILITY AND INDEMNIFICATION The Maryland REIT Law permits a Maryland real estate investment trust to include in its Declaration of Trust a provision limiting the liability of its trustees and officers to the trust and its shareholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. The Declaration of Trust of the Company contains such a provision which eliminates such liability to the maximum extent permitted by Maryland law. The Company's Bylaws require it to indemnify (a) any present or former Trustee, officer or shareholder who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of such status, against reasonable expenses incurred by him in connection with the proceeding; (b) any present or former Trustee or officer against any claim or liability to which he may become subject by reason of his status as such unless it is established that (i) his act or omission was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful; and (c) each shareholder or former shareholder against any claim or liability to which he may be subject by reason of his status as a shareholder or former shareholder. In addition, the Company's Bylaws require it to pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a present or former Trustee, officer or shareholder made a party to a proceeding by reason of his status as a Trustee, officer or shareholder provided that, in the case of a Trustee or officer, the Company shall have received (i) a written affirmation by the Trustee or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Company as authorized by the Bylaws and (ii) a written undertaking by or on his behalf to repay the amount paid or reimbursed by the Company if it shall ultimately be determined that the standard of conduct was not met. The Company's Bylaws also (i) permit the Company to provide indemnification and payment or reimbursement of expenses to a present or former Trustee, officer or shareholder who served a predecessor of the Company in such capacity, and to any employee or agent of the Company or a predecessor of the Company, (ii) provide that any indemnification or payment or reimbursement of the expenses permitted by the Bylaws shall be furnished in accordance with the procedures provided for indemnification and payment or reimbursement of expenses under Section 2-418 of the MGCL for directors of Maryland corporations and (iii) permit the Company to provide such other and further indemnification or payment or reimbursement of expenses as may be permitted by the MGCL for directors of Maryland corporations. The Partnership Agreement also provides for indemnification by the Operating Partnership of the Company, as general partner, and its Trustees and officers for any costs, expenses or liabilities incurred by them by reason of any act performed by them for or on behalf of the Operating Partnership or the Company; provided that such person's actions were taken in good faith and in the belief that such conduct was in the best interests of the Operating Partnership and that such person was not guilty of fraud, willful misconduct or gross negligence. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Trustees and officers of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that, although the validity and scope of the governing statute has not been tested in court, in the opinion of the Securities Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In addition, indemnification may be limited by state securities laws. MARYLAND ASSET REQUIREMENTS To maintain its qualification as a Maryland real estate investment trust, the Maryland REIT Law requires that the Company hold, either directly or indirectly, at least 75% of the value of its assets in real estate assets, mortgages or mortgage related securities, government securities, cash and cash equivalent items, including high-grade short-term securities and receivables. The Maryland REIT Law also prohibits using or applying land for farming, agricultural, horticultural or similar purposes. 132 139 FEDERAL INCOME TAX CONSIDERATIONS The following summary of material Federal income tax considerations regarding the Offering is based on current Federal income tax law and is for general information only and is not tax advice. In the opinion of Arthur Andersen LLP, tax advisor to the Company (the "Tax Advisor") the discussion below, insofar as it relates to Federal income tax matters, is correct in all material respects, and fairly summarizes the federal income tax considerations that are material to a shareholder. This discussion does not purport to deal with all aspects of taxation that may be relevant to particular shareholders in light of their personal investment or tax circumstances, or to certain types of shareholders (including insurance companies, tax-exempt organizations, financial institutions or broker dealers, foreign corporations and persons who are not citizens or residents of the United States, except to the extent discussed under "Taxation of Foreign Shareholders" below) subject to special treatment under the Federal income tax laws. EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS. GENERAL The Company first elected to be taxed as a REIT for its taxable year ended December 31, 1986, and has operated and expects to continue to operate in such a manner so as to qualify as a REIT for Federal income tax purposes. In the opinion of the Tax Advisor, and based on certain representations made by the Company relating to the organization and operation of the Company and the Operating Partnership, the Company will continue to qualify as a REIT under the Code. However, the opinion of the Tax Advisor is not binding upon the IRS and no absolute assurance can be given that the Company will continue to operate in a manner so as to remain qualified as a REIT. The following is a general summary of the Code sections that govern the Federal income tax treatment of a REIT and its shareholders. These sections of the Code are highly technical and complex. This summary is qualified in its entirety by the applicable Code provisions, rules and regulations promulgated thereunder ("Treasury Regulations"), and administrative and judicial interpretations thereof as currently in effect. There is no assurance that there will not be future changes in the Code or administrative or judicial interpretation thereof which could adversely affect the Company's ability to continue to qualify as a REIT or adversely affect the taxation of holders of Common Shares or which could further limit the amount of income the Company may derive from the management, construction, development, leasing or sale of properties owned by the Operating Partnership or by third parties or in partnerships with third parties. TAXATION OF THE COMPANY AS A REIT An entity that qualifies for taxation as a REIT and distributes to its shareholders at least 95% of its REIT taxable income is generally not subject to Federal corporate income taxes on net income that it currently distributes to shareholders. This treatment substantially eliminates the "double taxation" (at the corporate and shareholder levels) that generally results from investment in a corporation. However, the Company will be subject to Federal income tax as follows: (i) The Company will be taxed at regular corporate rates on any undistributed REIT taxable income, including undistributed net capital gains. (ii) Under certain circumstances, the Company may be subject to the "alternative minimum tax" on its items of tax preference, if any. (iii) If the Company has net income from prohibited transactions (which are, in general, certain sales or other dispositions of property other than foreclosure property held primarily for sale to customers 133 140 in the ordinary course of business) such income will be subject to a 100% tax. See "-- Sale of Partnership Property." (iv) If the Company should fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), and has nonetheless maintained its qualification as a REIT because certain other requirements have been met, it will be subject to a 100% tax on the net income attributable to the greater of the amount by which the Company fails the 75% or 95% test, multiplied by a fraction intended to reflect the Company's profitability. (v) If the Company should fail to distribute during each calendar year at least the sum of (1) 85% of its REIT ordinary income for such year, (2) 95% of its REIT capital gain net income for such year, and (3) any undistributed taxable income from prior years, it would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. (vi) If the Company has (1) net income from the sale or other disposition of "foreclosure property" (which is, in general, property acquired by the Company by foreclosure or otherwise or default on a loan secured by the property) which is held primarily for sale to customers in the ordinary course of business or (2) other nonqualifying income from foreclosure property, it will be subject to tax on such income at the highest corporate rate. (vii) If the Company acquires any asset from a C corporation (i.e., generally a corporation subject to tax at the corporate level) in a transaction in which the basis of the asset in the Company's hands is determined by reference to the basis of the asset (or any other property) in the hands of the C corporation, and the Company recognizes gain on the disposition of such asset during the 10-year period (the "Restriction Period") beginning on the date on which such asset was acquired by the Company then, pursuant to guidelines issued by the IRS, the excess of the fair market value of such property at the beginning of the applicable Restriction Period over the Company's adjusted basis in such asset as of the beginning of such Restriction Period will be subject to a tax at the highest regular corporate rate. The results described above with respect to the recognition of built-in gain assume that the Company will make an election pursuant to IRS Notice 88-19 or applicable future administrative rules or Treasury Regulations to avail itself of the benefits of the Restriction Period. QUALIFICATION OF THE COMPANY AS A REIT The Code defines a REIT as a corporation, trust or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable as a domestic corporation but for Sections 856 through 859 of the Code; (4) which is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) which has the calendar year as its taxable year; (6) the beneficial ownership of which is held by 100 or more persons; (7) during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain exempt organizations); and (8) which meets certain income, asset and distribution tests, described below. Conditions (1) through (5), inclusive, must be satisfied during the entire taxable year, and condition (6) must be satisfied during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. The Company has previously issued Common Shares in sufficient proportions to allow it to satisfy requirements (6) and (7) (the "100 Shareholder" and "five-or- 134 141 fewer" requirements), respectively. In addition, the Company's Declaration of Trust provides restrictions regarding the transfer of its Shares that are intended to assist the Company in continuing to satisfy the share ownership requirements described in (6) and (7) above. See "Description of Shares of Beneficial Interest -- Restrictions on Transfer." However, these restrictions may not ensure that the Company will, in all cases, be able to satisfy the share ownership requirements described in (6) and (7) above. If the Company fails to satisfy such share ownership requirements, the Company's status as a REIT will terminate. See "-- Failure to Qualify." A REIT is permitted to have a wholly-owned subsidiary (also referred to as a "qualified REIT subsidiary"). A qualified REIT subsidiary is not treated as a separate entity for Federal income tax purposes. Rather, all of the assets and items of income, deductions and credit of a qualified REIT subsidiary are treated as if they were those of the REIT. The Company may in the future form one or more qualified REIT subsidiaries. A REIT is deemed to own its proportionate share of the assets of a partnership in which it is a partner and is deemed to receive its proportionate share of the income of the partnership. Thus, the Company's proportionate share of the assets and items of income of the Operating Partnership and each of the Title Holding Partnerships will be treated as assets and items of income of the Company for purposes of applying the requirements described herein, provided that the Operating Partnership and the Title Holding Partnerships are treated as partnerships for Federal income tax purposes. In addition, the character of the assets and gross income of such partnerships shall retain the same character in the hands of the REIT for purposes of the requirements applicable to REITs under the Code including satisfying the income tests and the asset tests. See " -- Income Taxation of the Operating Partnership, the Title Holding Partnerships and Their Partners." INCOME TESTS To maintain qualification as a REIT, there are three gross income requirements that must be satisfied annually. First, at least 75% of the Company's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property (including "rents from real property" and interest on obligations secured by a mortgage on real property) or from "qualified temporary investment income" (described below). Second, at least 95% of the Company's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from investments qualifying under the 75% test above, and from dividends, interest, and gain from the sale or disposition of stock or securities or from any combination of the foregoing. Third, short-term gain from the sale or other disposition of stock or securities, gain from prohibited transactions, and gain on the sale or other disposition of real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must represent less than 30% of the Company's gross income (including gross income from prohibited transactions) for each taxable year. In applying these tests, the Company will be treated as realizing its share of any income and bearing its share of any loss of the Operating Partnership and the character of such income or loss, as well as other partnership items, will be determined at the partnership level. Rents received by the Company will qualify as "rents from real property" for purposes of satisfying the 75% and 95% gross income tests only if several conditions are met. First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales. Second, the Code provides that rents received from a tenant will not qualify as "rents from real property" if the REIT, or an owner of 10% or more of the REIT, directly or constructively owns 10% or more of such tenant (a "Related Party Tenant"). Third, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property." Finally, for rents received to qualify as "rents from real property," the REIT generally must not operate or manage the property or furnish or render services to the tenants of such property, other than through an "independent contractor" who is adequately compensated and from whom the REIT does not derive any income; provided, however, that the Company may directly perform certain customary 135 142 services (e.g., furnishing water, heat, light and air conditioning, and cleaning windows, public entrances and lobbies) other than services which are considered rendered to the occupant of the property (e.g., renting parking spaces on a reserved basis to tenants). It is expected that the Company's real estate investments, which include its allocable share of income from the Operating Partnership, will give rise to income that qualifies as "rents from real property" for purposes of the 75 percent and 95 percent gross income tests, other than rents received from Maris Equipment, Inc., which is a Related Party Tenant. However, the Company has represented that the rents received from Maris Equipment, Inc., in addition to all other income which is not qualifying income for the 75 percent and 95 percent gross income tests, does not exceed five percent of the Company's gross income, and therefore, the Company's status as a REIT should not be jeopardized. The Company has represented that it does not and will not (i) charge rent for any property that is based in whole or in part on the income or profits of any person (other than being based on a percentage of receipts or sales); (ii) receive rents in excess of a de minimis amount from Related Party Tenants; (iii) derive rents attributable to personal property which constitute greater than 15% of the total rents received under the lease; or (iv) perform services considered to be rendered to the occupant of property, other than through an independent contractor from whom the Company derives no income. The Operating Partnership owns 5% of the voting common stock, and all of the preferred stock of the Management Company, a corporation that is taxable as a regular corporation. The Management Company performs management, development and leasing services for the Operating Partnership and other real properties owned in whole or in part by third parties. The income earned by and taxed to the Management Company would be nonqualifying income if earned directly by the Company. As a result of the corporate structure, the income will be earned by and taxed to the Management Company and will be received by the Company only indirectly as dividends. Although interest and dividends are generally qualifying income under the 95% test, the IRS has announced a no-ruling policy on this issue when the dividends and interest are earned in this manner. If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. These relief provisions will be generally available if (i) the Company's failure to meet such tests was due to reasonable cause and not due to willful neglect, (ii) the Company attaches a schedule of the sources of its income to its return, and (iii) any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances the Company would be entitled to the benefit of these relief provisions. As discussed above in "Taxation of the Company as a REIT," even if these relief provisions apply, a tax would be imposed with respect to the excess net income. No similar mitigation provision applies to provide relief if the 30% income test is failed, and in such case, the Company would cease to qualify as a REIT. See "-- Failure to Qualify." ASSET TESTS In order for the Company to maintain its qualification as a REIT, at the close of each quarter of its taxable year it must also satisfy three tests relating to the nature of its assets. First, at least 75% of the value of the Company's total assets must be represented by real estate assets (which for this purpose include (i) its allocable share of real estate assets held by partnerships in which the Company or a "qualified REIT subsidiary" of the Company owns an interest and (ii) stock or debt instruments purchased with the proceeds of a stock offering or a long-term (at least five years) debt offering of the Company and held for not more than one year from the date the Company receives such proceeds), cash, cash items, and government securities. Second, not more than 25% of the Company's total assets may be represented by securities other than those described above in the 75% asset class. Third, of the investments included in the 25% asset class, the value of any one issuer's securities owned by the Company may not exceed 5% of the value of the Company's total assets, and the Company may not own more than 10% of any one issuer's outstanding voting securities (excluding securities of a qualified REIT subsidiary, of which the REIT is required to own all of such stock, or another REIT). 136 143 The Company anticipates that it will be able to comply with these asset tests. The Company is deemed to hold directly its proportionate share of all real estate and other assets of the Operating Partnership and should be considered to hold its proportionate share of all assets deemed owned by the Operating Partnership through its ownership of partnership interests in other partnerships. As a result, the Company plans to hold more than 75% of its assets as real estate assets. In addition, the Company does not plan to hold any securities representing more than 10% of any one issuer's voting securities, other than any qualified REIT subsidiary of the Company, nor securities of any one issuer exceeding 5% of the value of the Company's gross assets (determined in accordance with generally accepted accounting principles). As previously discussed, the Company is deemed to own its proportionate share of the assets of a partnership in which it is a partner so that the partnership interest, itself, is not a security for purposes of this asset test. After initially meeting the asset tests at the close of any quarter, the Company will not lose its status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. The Company intends to maintain adequate records of the value of its assets to ensure compliance with the asset tests, and to take such other action within 30 days after the close of any quarter as may be required to cure any noncompliance. However, there can be no assurance that such other action will always be successful. If the Company fails to cure any noncompliance with the asset test within such time period, its status as a REIT would be lost. As noted above, one of the requirements for qualification as a REIT is that a REIT not own more than 10 percent of the voting stock of a corporation other than the stock of a qualified REIT subsidiary (of which the REIT is required to own all of such stock) and stock in another REIT. The Operating Partnership will own only approximately 5 percent of the voting stock and all of the non-voting preferred stock of the Management Company and therefore will comply with this rule. However, the IRS could contend that the Company's ownership, through its interest in the Operating Partnership, of all of the non-voting preferred stock in the Management Company should be viewed as voting stock because of its substantial economic position in the Management Company. If the IRS were to be successful in such a contention, the Company's status as a REIT would be lost and the Company would become subject to federal corporate income tax on its net income, which would have a material adverse affect on the Company's Cash Available for Distribution. The Company does not have the ability to designate a seat on the Board of Directors of the Management Company. The Company does not believe that it will be viewed as owning in excess of 10 percent of the voting stock of the Management Company. ANNUAL DISTRIBUTION REQUIREMENTS The Company, in order to qualify as a REIT, is required to distribute dividends (other than capital gain dividends) to its Shareholders in an amount at least equal to (A) the sum of (i) 95% of the Company's "REIT taxable income" (computed without regard to the dividends paid deduction and the REIT's net capital gain) and (ii) 95% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of non-cash income. Such distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before the Company timely files its tax return for such year and if paid on or before the first regular dividend payment after such declaration. To the extent that the Company does not distribute all of its net capital gain or distributes at least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax on the undistributed amount at regular capital gains and ordinary corporate tax rates. Furthermore, if the Company should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT net capital gain income for such year, and (iii) any undistributed taxable income from prior periods, the Company would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. The Company intends to make timely distributions sufficient to satisfy the annual distribution requirements. In this regard, the Partnership Agreement authorizes the Company, as general partner, to take such steps as may be necessary to cause the Operating Partnership to distribute to its partners an amount sufficient to permit the Company to meet these distribution requirements. It is possible that the Company, from time to 137 144 time, may not have sufficient cash or other liquid assets to meet the 95% distribution requirement due primarily to the expenditure of cash for nondeductible items such as principal amortization or capital expenditures and for the redemption of the Preferred Shares if a Conversion Event has not occurred prior to July 1, 1998. (See "The Company -- The SERS Transaction"). In order to meet the 95% distribution requirement, the Company may borrow or may cause the Operating Partnership to arrange for short-term or other borrowing to permit the payment of required distributions or attempt to declare a consent dividend, which is a hypothetical distribution to holders of Common Shares out of the earnings and profits of the Company. The effect of such a consent dividend (which, in conjunction with distributions actually paid, must not be preferential to those holders who agree to such treatment) would be that such holders would be treated for federal income tax purposes as if they had received such amount in cash, and they then had immediately contributed such amount back to the Company as additional paid-in capital. This would result in taxable income to those holders without the receipt of any actual cash distribution but would also increase their tax basis in their Common Shares by the amount of the taxable income recognized. Under certain circumstances, the Company may be able to rectify a failure to meet the distribution requirement for a certain year by paying "deficiency dividends" to shareholders in a later year that may be included in the Company's deduction for distributions paid for the earlier year. Thus, the Company may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Company will be required to pay to the IRS interest based upon the amount of any deduction taken for deficiency dividends. FAILURE TO QUALIFY If the Company fails to qualify for taxation as a REIT in any taxable year and the relief provisions do not apply, the Company will be subject to tax (including any applicable corporate alternative minimum tax) on its taxable income at regular corporate rates. Distributions to shareholders in any year in which the Company fails to qualify will not be deductible by the Company, nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable to them as ordinary income, and, subject to certain limitations of the Code, corporate distributees may be eligible for the dividends received deduction. Unless entitled to relief under specific statutory provisions, the Company also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances the Company would be entitled to such statutory relief. INCOME TAXATION OF THE OPERATING PARTNERSHIP, THE TITLE HOLDING PARTNERSHIPS AND THEIR PARTNERS The following discussion summarizes certain Federal income tax considerations applicable to the Company's investment in the Operating Partnership and its subsidiary partnerships (referred to herein as the "Title Holding Partnerships"). CLASSIFICATION OF THE OPERATING PARTNERSHIP AND TITLE HOLDING PARTNERSHIPS AS PARTNERSHIPS The Company will hold a substantial part of its investments through the Operating Partnership. The Company will be entitled to include in its income its distributive share of the income and to deduct its distributive share of the losses of the Operating Partnership (including the Operating Partnership's share of the income or losses of the Title Holding Partnerships) only if the Operating Partnership and the Title Holding Partnerships (collectively, the "Partnerships") are classified for Federal income tax purposes as partnerships rather than as associations taxable as corporations. An organization formed as a partnership will be treated as a partnership for Federal income tax purposes rather than as a corporation only if it has no more than two of the four corporate characteristics that the Treasury Regulations use to distinguish a partnership from a corporation for tax purposes. These four characteristics are continuity of life, centralization of management, limited liability, and free transferability of interests. Neither the Operating Partnership nor any of the Title Holding Partnerships has requested, nor do they intend to request, a ruling from the IRS that they will be treated as partnerships for Federal income tax purposes. The Company will receive an opinion of the Tax Advisor, which is not binding on the IRS, that the 138 145 Operating Partnership and the Title Holding Partnerships will each be treated as partnerships for Federal income tax purposes and not as an association or publicly traded partnership taxable as a corporation. The opinion of the Tax Advisor is based on the provisions of the Partnership Agreement and the limited partnership agreements of the Title Holding Partnerships, respectively, and certain factual assumptions and representations described in the opinion. There is no assurance that the IRS will not challenge the status of the Operating Partnership or the Title Holding Partnerships as partnerships for federal income tax purposes. If such challenge were sustained by a court, the Operating Partnership and/or a Title Holding Partnership could be treated as a corporation for federal income tax purposes. If for any reason the Operating Partnership or a Title Holding Partnership was classified as an association taxable as a corporation rather than as a partnership for Federal income tax purposes, the Company would not be able to satisfy the income and asset requirements for REIT status. See "-- Income Tests" and "-- Asset Tests." In addition, any change in any such Partnership's status for tax purposes might be treated as a taxable event, in which case the Company might incur a tax liability without any related cash distribution. See "-- Annual Distribution Requirements." Further, items of income and deduction of any such Partnership would not pass through to its partners (e.g., the Company), and its partners would be treated as shareholders for tax purposes. Any such Partnership would be required to pay income tax at corporate tax rates on its net income and distributions to its partners would constitute dividends that would not be deductible in computing such Partnership's taxable income. Recently proposed Treasury Regulations (the "Proposed Regulations") would eliminate the four-factor test described above and instead permit a partnership or limited liability company to elect to be taxed as a partnership for federal income tax purposes without regard to the number of corporate characteristics possessed by such entity. The Proposed Regulations would apply for tax periods beginning on or after the date that such regulations are finalized. Until such time, the existing regulations will continue to apply. The Proposed Regulations would not permit the IRS to challenge the classification of an existing partnership or limited liability company for tax periods to which the existing Treasury Regulations apply if (1) the entity had a reasonable basis for its claimed classification, (2) the entity claimed that same classification in all prior years and (3) as of the date that the Proposed Regulations were published, neither the entity nor any member of the entity had been notified in writing that the classification of the entity is under examination by the IRS. PARTNERSHIP ALLOCATIONS Although a partnership agreement will generally determine the allocation of income and losses among partners, such allocations will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b) and the Treasury Regulations promulgated thereunder, which require that partnership allocations respect the economic arrangement of the partners. If an allocation is not recognized for Federal income tax purposes, the item subject to the allocation will be reallocated in accordance with the partners' interests in the partnership, which will be determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. The Operating Partnership's allocations of taxable income and loss are intended to comply with the requirements of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES The Company has represented that the fair market values of the Properties contributed directly or indirectly to the Operating Partnership as part of the SSI/TNC Transaction were higher than the tax basis of such Properties. Pursuant to Section 704(c) of the Code, items of income, gain, loss, and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated for Federal income tax purposes in a manner such that the contributor is charged with or benefits from the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property at the time of contribution and the 139 146 adjusted tax basis of such property at the time of contribution (the "Pre-Contribution Gain or Loss"). The partnership agreement of the Operating Partnership requires allocations of income, gain, loss and deduction attributable to such contributed property to be made in a manner that is consistent with Section 704(c) of the Code. Thus, if the Operating Partnership sells contributed property at a gain or loss, such gain or loss will be allocated to the contributing partners, and away from the Company, generally to the extent of the Pre-Contribution Gain or Loss. The Treasury Department has issued final and temporary regulations under Section 704(c) of the Code (the "Regulations") which give partnerships great flexibility in ensuring that a partner contributing property to a partnership receives the tax burdens and benefits of any Pre-Contribution Gain or Loss attributable to the contributed property. The Regulations permit partnerships to use any "reasonable method" of accounting for Pre-Contribution Gain or Loss. The Regulations specifically describe three reasonable methods, including (i) the "traditional method" under current law, (ii) the traditional method with the use of "curative allocations" which would permit distortions caused by Pre-Contribution Gain or Loss to be rectified on an annual basis, and (iii) the "remedial allocation method" which is similar to the traditional method with "curative allocations." The Partnership Agreement permits the Company, as a general partner, to select one of these methods to account for Pre-Contribution Gain or Loss. DEPRECIATION The Operating Partnership's assets other than cash consist largely of appreciated property contributed by its partners. Assets contributed to a partnership in a tax-free transaction generally retain the same depreciation method and recovery period as they had in the hands of the partner who contributed them to the partnership. Accordingly, the Operating Partnership's depreciation deductions for its real property are based largely on the historic tax depreciation schedules for the Properties prior to their contribution to the Operating Partnership. The Properties are being depreciated over a range of 15 to 40 years using various methods of depreciation which were determined at the time that each item of depreciable property was placed in service. Any real property purchased by the Partnerships will be depreciated over at least 39 years. In certain instances where a partnership interest rather than real property is contributed to the Partnership, the real property may not carry over its recovery period but rather may, similarly, be subject to the lengthier recovery period. Section 704(c) of the Code requires that depreciation as well as gain and loss be allocated in a manner so as to take into account the variation between the fair market value and tax basis of the property contributed. Thus, because most of the property contributed to the Operating Partnership is appreciated, the Company will generally receive allocations of tax depreciation in excess of its percentage interest in the Operating Partnership. Depreciation with respect to any property purchased by the Operating Partnership subsequent to the admission of its partners, however, will be allocated among the partners in accordance with their respective percentage interests in the Partnerships. As described above (see "-- Tax Allocations with Respect to Contributed Properties"), the Treasury Department has recently issued Regulations which give partnerships flexibility in ensuring that a partner contributing property to a partnership receives the tax benefits and burdens of any Pre-Contribution Gain or Loss attributable to the contributed property. As described previously, the Company, as a general partner, may select any permissible method to account for Pre-Contribution Gain or Loss. The use of certain of these methods may result in the Company being allocated lower depreciation deductions than if a different method were used. The resulting higher taxable income and earnings and profits of the Company, as determined for federal income tax purposes, should decrease the portion of distributions by the Company which may be treated as a return of capital. See "-- Annual Distribution Requirements." BASIS IN OPERATING PARTNERSHIP INTEREST The Company's adjusted tax basis in each of the partnerships in which it has an interest generally (i) will be equal to the amount of cash and the basis of any other property contributed to such partnership by the Company, (ii) will be increased by (a) its allocable share of such partnership's income and (b) its allocable 140 147 share of any indebtedness of such partnership, and (iii) will be reduced, but not below zero, by the Company's allocable share of (a) such partnership's loss and (b) the amount of cash and the fair market value of any property distributed to the Company and by constructive distributions resulting from a reduction in the Company's share of indebtedness of such partnership. If the Company's allocable share of the loss (or portion thereof) of any partnership in which it has an interest would reduce the adjusted tax basis of the Company's partnership interest in such partnership below zero, the recognition of such loss will be deferred until such time as the recognition of such loss (or portion thereof) would not reduce the Company's adjusted tax basis below zero. To the extent that distributions from a partnership to the Company, or any decrease in the Company's share of the nonrecourse indebtedness of a partnership (each such decrease being considered a constructive cash distribution to the partners), would reduce the Company's adjusted tax basis below zero, such distributions (including such constructive distributions) would constitute taxable income to the Company. Such distributions and constructive distributions normally would be characterized as long-term capital gain if the Company's interest in such partnership has been held for longer than the long-term capital gain holding period (currently one year). SALE OF PARTNERSHIP PROPERTY Generally, any gain realized by a partnership on the sale of property held by the partnership for more than one year will be long-term capital gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture. However, under the requirements applicable to REITs under the Code, the Company's share as a partner of any gain realized by the Operating Partnership on the sale of any property held as inventory or other property held primarily for sale to customers in the ordinary course of a trade or business will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. See "-- Taxation of the Company as a REIT." Such prohibited transaction income will also have an adverse effect upon the Company's ability to satisfy the income tests for REIT status. See "-- Income Tests." Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. A safe harbor to avoid classification as a prohibited transaction exists as to real estate assets held for the production of rental income by a REIT for at least four years where in any taxable year the REIT has made no more than seven sales of property or, in the alternative, the aggregate of the adjusted bases of all properties sold does not exceed 10% of the adjusted bases of all of the REIT's properties during the year and the expenditures includible in a property's net sales price. The Company, as general partner of the Operating Partnership, has represented that the Operating Partnership and the Title Holding Partnerships intend to hold the Properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning, and operating and leasing properties and to make such occasional sales of the properties as are consistent with the Company's and the Operating Partnership's investment objectives. No assurance can be given, however, that every property sale by the Partnerships will constitute a sale of property held for investment. TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS As long as the Company qualifies as a REIT, distributions made to the Company's taxable U.S. shareholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be dividends taxable to such U.S. shareholders as ordinary income and will not be eligible for the dividends received deduction for corporations. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed the Company's actual net capital gain for the taxable year) without regard to the period for which the shareholder has held its shares of beneficial interest. However, corporate shareholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. Distributions in excess of current and accumulated earnings and profits will not be taxable to a shareholder to the extent that they do not exceed the adjusted basis of the shareholder's shares, but rather will reduce the adjusted basis of such shares. To the extent that distributions in excess of current and accumulated earnings and profits exceed the adjusted basis of a shareholder's shares, such distributions will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for one 141 148 year or less) assuming the shares are a capital asset in the hands of the shareholder. In addition, any distribution declared by the Company in October, November or December of any year payable to a shareholder of record on a specified date in any such month shall be treated as both paid by the Company and received by the shareholder on December 31 of such year, provided that the distribution is actually paid by the Company during January of the following calendar year. Shareholders may not include in their individual income tax returns any losses of the Company. In general, any loss upon a sale or exchange of shares by a shareholder who has held such shares for six months or less (after applying certain holding period rules) will be treated as a long-term capital loss to the extent such shareholder has received distributions from the Company required to be treated as long-term capital gain. Distributions from the Company and gain from the disposition of Common Shares will not be treated as passive activity income and, therefore, shareholders may not be able to apply any "passive losses" against such income. Dividends from the Company (to the extent they do not constitute a return of capital or capital gain dividends) and, on an elective basis, capital gain dividends and gain from the disposition of Common Shares will generally be treated as investment income for purposes of the investment income limitation. BACKUP WITHHOLDING The Company will report to its U.S. shareholders and the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a shareholder may be subject to backup withholding at the rate of 31% with respect to distributions paid unless such holder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A shareholder that does not provide the Company with his correct taxpayer identification number may also be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the shareholder's income tax liability. In addition, the Company may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their non-foreign status to the Company. See "-- Taxation of Foreign Shareholders." TAXATION OF TAX-EXEMPT SHAREHOLDERS Distributions by the Company to a shareholder that is a tax-exempt entity should not constitute "unrelated business taxable income" ("UBTI"), as defined in Section 512(a) of the Code provided that the tax-exempt entity has not financed the acquisition of its shares with "acquisition indebtedness" within the meaning of the Code and the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity. In the case of a "qualified trust" (generally, a pension or profit-sharing trust) holding shares in a REIT, the beneficiaries of such a trust are treated as holding shares in the REIT in proportion to their actuarial interests in the qualified trust, instead of treating the qualified trust as a single individual (the "look-through exception"). A qualified trust that holds more than 10 percent of the shares of a REIT is required to treat a percentage of REIT dividends as UBTI if the REIT incurs debt to acquire or improve real property. This rule applies, however, only if (i) the qualification of the REIT depends upon the application of the "look through" exception (described above) to the restriction on REIT shareholdings by five or fewer individuals, including qualified trusts (see "Description of Shares of Beneficial Interest -- Restrictions on Transfer") and (ii) the REIT is "predominantly held" by qualified trusts, i.e., if either (x) a single qualified trust holds more than 25 percent by value of the interests in the REIT or (y) one or more qualified trusts, each owning more than 10 percent by value, holds in the aggregate more than 50 percent of the interests in the REIT. The percentage of any dividend paid (or treated as paid) to such a qualified trust that is treated as UBTI is equal to the amount of modified gross income (gross income less directly connected expenses) from the unrelated trade or business of the REIT (treating the REIT as if it were a qualified trust), divided by the total modified gross income of the REIT. A de minimis exception applies where the percentage is less than 5 percent. 142 149 TAXATION OF FOREIGN SHAREHOLDERS The rules governing United States Federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships and other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt will be made herein to provide more than a summary of such rules. Prospective Non-U.S. Shareholders should consult with their own tax advisors to determine the impact of Federal, state and local income tax laws with regard to an investment in shares, including any reporting requirements. Distributions that are not attributable to gain from sales or exchanges by the Company of United States real property interests and not designated by the Company as capital gains dividends will be treated as dividends of ordinary income to the extent that they are made out of current or accumulated earnings and profits of the Company. Such distributions will ordinarily be subject to a withholding tax equal to 30% of the gross amount of the distribution unless an applicable tax treaty reduces or eliminates that tax. However, if income from the investment in the shares is treated as effectively connected with the Non-U.S. Shareholder's conduct of a United States trade or business, the Non-U.S. Shareholder generally will be subject to a tax at graduated rates, in the same manner as U.S. shareholders are taxed with respect to such distributions (and may also be subject to the 30% branch profits tax in the case of a shareholder that is a foreign corporation). The Company expects to withhold United States income tax at the rate of 30% on the gross amount of any such distributions made to a Non-U.S. Shareholder unless (i) a lower treaty rate applies or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming that the distribution is effectively connected income. Distributions in excess of current and accumulated earnings and profits of the Company will not be taxable to a shareholder to the extent that such distributions do not exceed the adjusted basis of the shareholder's shares, but rather will reduce the adjusted basis of such shares. To the extent that distributions in excess of current and accumulated earnings and profits exceed the adjusted basis of a Non-U.S. Shareholder's shares, such distributions will give rise to tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale or disposition of his shares in the Company, as described below. If it cannot be determined at the time a distribution is made whether or not such distribution will be in excess of current and accumulated earnings and profits, the distributions will be subject to withholding at the same rate as dividends. However, amounts thus withheld are refundable if it is subsequently determined that such distribution was, in fact, in excess of current and accumulated earnings and profits of the Company. For any year in which the Company qualifies as a REIT, distributions that are attributable to gain from sales or exchanges by the Company of United States real property interests will be taxed to a Non-U.S. Shareholder under the provisions of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of United States real property interests are taxed to a Non-U.S. Shareholder as if such gain were effectively connected with a United States business. Non-U.S. Shareholders would thus be taxed at the normal capital gain rates applicable to U.S. shareholders (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). Also, distributions subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a foreign corporate shareholder not entitled to treaty exemption. The Company is required by applicable Treasury Regulations to withhold 35% of any distribution that could be designated by the Company as a capital gains dividend. The amount is creditable against the Non-U.S. Shareholder FIRPTA tax liability. Gain recognized by a Non-U.S. Shareholder upon a sale of Shares generally will not be taxed under FIRPTA if the Company is a "domestically controlled REIT," defined generally as a REIT in which at all times during a specified testing period less than 50% in value of the shares of beneficial interest was held directly or indirectly by foreign persons. It is currently anticipated that the Company will be a "domestically controlled REIT," and therefore the sale of Shares will not be subject to taxation under FIRPTA. However, because the Common Shares will be publicly traded, no assurance can be given that the Company will continue to be a "domestically controlled REIT." Gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in the shares is effectively connected with the Non-U.S. Shareholder's United States trade or business, in which case the Non-U.S. Shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains. If the gain on the sale 143 150 of Shares were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as U.S. shareholders with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). STATEMENT OF STOCK OWNERSHIP The Company is required to demand annual written statements from the record holders of designated percentages of its Shares disclosing the actual owners of the Shares. The Company must also maintain, within the Internal Revenue District in which it is required to file its federal income tax return, permanent records showing the information it has received as to the actual ownership of such Shares and a list of those persons failing or refusing to comply with such demand. OTHER TAX CONSEQUENCES The Company, the Operating Partnership, the Title Holding Partnerships and the Company's shareholders may be subject to state or local taxation in various state or local jurisdictions, including those in which it or they transact business or reside. The state and local tax treatment of the Company, the Operating Partnership, the Title Holding Partnerships and the Company's shareholders may not conform to the Federal income tax consequences discussed above. Consequently, prospective shareholders should consult their own tax advisors regarding the effect of state and local tax laws on an investment in the Company. POSSIBLE FEDERAL TAX DEVELOPMENTS The rules dealing with Federal income taxation are constantly under review by the IRS, the Treasury Department and Congress. New Federal tax legislation or other provisions may be enacted into law or new interpretations, rulings, Treasury Regulations or court decisions could be adopted, all of which could adversely affect the taxation of the Company or of its shareholders. No prediction can be made as to the likelihood of passage of any new tax legislation or other provisions or court decisions either directly or indirectly affecting the Company or its shareholders. Consequently, the tax treatment described herein may be modified prospectively or retroactively by legislative, judicial or administrative action. REAL ESTATE TRANSFER TAXES The transfer to the Operating Partnership of certain limited partnership interests in Title Holding Partnerships as part of the SSI/TNC Transaction was structured as transfers of 89% of the capital interests and 99% of the cash flow and profit interests in the Title Holding Partnership owning such properties with the Residual Interests to be acquired by the Operating Partnership on or before September 1999. This transaction structure is intended to comply with non-binding informal advice provided by the Pennsylvania Department of Revenue to the effect that such transfers are not subject to Pennsylvania real estate transfer taxes. However, the Company has not obtained a formal ruling from the Pennsylvania Department of Revenue on this issue. If the Operating Partnership desired or were required, for financing purposes or otherwise, to acquire such Residual Interests before September 1999, or if the use of this structure resulted in the imposition of Pennsylvania real estate transfer taxes, the Operating Partnership could be required to pay such real estate transfer taxes, which are estimated at $640,000. OPERATING PARTNERSHIP AGREEMENT The following summary of the Partnership Agreement, including the descriptions of certain provisions set forth elsewhere in this Prospectus, is qualified in its entirety by reference to the Partnership Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "Available Information." 144 151 MANAGEMENT Brandywine Operating Partnership, L.P. (the "Operating Partnership") has been organized as a Delaware limited partnership pursuant to the terms of an agreement of limited partnership, as amended (the "Partnership Agreement"). Generally, pursuant to the Partnership Agreement, the Company, as the sole general partner of the Operating Partnership, has full and complete power, authority and discretion in the management and control of the Operating Partnership and the limited partners of the Operating Partnership (the "Limited Partners") will have no authority to transact business for, or participate in the management activities or decisions of, the Operating Partnership. CLASSES OF PARTNERSHIP INTERESTS; DISTRIBUTIONS TO PARTNERS At the time of its formation in connection with the SSI/TNC Transaction, the partnership interests issued by the Operating Partnership consisted of four classes: (i) general partnership interests ("GP Units"); (ii) Class A Units (referred to generally in this Prospectus as "Units"); (iii) Class B Units; and (iv) Class C Units. All of the GP Units and Class B and Class C Units were issued to the Company, and all of the Class A Units were issued to SSI, TNC and 11 other persons contributing interests in the SSI/TNC Properties to the Operating Partnership. Upon completion of the Offering or the SERS Transaction, the Class B Units and the Class C Units will automatically convert into an equal number of GP Units. Accordingly, upon completion of the Offering or the SERS Transaction, the partnership interests in the Operating Partnership will consist of two classes: GP Units (all of which will be owned by the Company) and Class A Units (all of which will be owned by SSI, TNC and the other persons who contributed interests in the SSI/TNC Properties as part of the SSI/TNC Transaction). References elsewhere in this Prospectus to "Units" without any specific designation of class are intended to refer to Class A Units. Distributions made by the Operating Partnership following the Offering will be made on a pro rata basis among holders of GP Units and Class A Units. The Partnership Agreement provides that whenever the Operating Partnership makes a distribution, it will be required to distribute to the holders of the Class A Units, as a group, an amount equal to the product that results from multiplying the total amount to be distributed by the ratio of: (i) the number of Class A Units outstanding divided by; (ii) the sum of (x) the number of Class A Units outstanding plus the number of outstanding Shares (other than Excluded Shares, as defined below). The term "Excluded Shares" means any Shares issued by the Company after May 1, 1996 the net proceeds of which issuance are not contributed to the Operating Partnership. Immediately following closing of the Offering and the Concurrent Investments and repayment of the Osborne Loan, an aggregate of 7,608,543 Common Shares will be issued and outstanding (assuming no Class A Units are converted into Common Shares and assuming conversion of all outstanding Preferred Shares into Common Shares), of which 286,136 will constitute Excluded Common Shares. Immediately following the Offering 509,856 Class A Units (after taking into account the impact of 30,303 Units that will be cancelled by the Operating Partnership in connection with the prepayment of certain mortgage debt) will be outstanding or issuable no later than September 1999. On the basis of the foregoing, approximately 7% of distributions made by the Operating Partnership would be allocated to holders of the Class A Units, as a group, and the remaining amount would be distributed to the Company in respect of its GP Units. TAX ALLOCATION Upon completion of the Offering, income, gain, loss and deduction of the Operating Partnership will be allocated among the holders of the Class A Units and the holders of GP Units in a manner consistent with such holders' rights to receive distributions and applicable federal income tax principles. Thus, such profits will generally be allocated to such partners, first, to eliminate deficit capital accounts; second, to the extent necessary to cause the positive capital account balances of such partners to be in proportion to their percentage interests; and third, to such partners in proportion to their percentage interests. Similarly, such losses, if any, will generally be allocated, first, so as to cause the positive capital account balances of such partners to be in proportion to their percentage interests; second, to each such partner in proportion to its percentage interest 145 152 until the capital account balances of the partners equal zero; and third, to the partners in proportion to their percentage interests. CAPITAL CONTRIBUTIONS Although the Partnership Agreement does not obligate the Company to contribute net proceeds of any equity offering to the Operating Partnership, the Partnership Agreement provides that if the Company contributes proceeds of an offering to the Operating Partnership, the Operating Partnership shall issue to the Company that number of GP Units equal to the number of Common Shares issued in respect of such Offering. Because the Company will contribute all of the net proceeds of the Offering and the Concurrent Investments to the Operating Partnership, the Operating Partnership will, in turn, issue to the Company a number of GP Units equal to the number of Common Shares that produced such net proceeds in the Offering. See "Use of Proceeds." The Operating Partnership may in the future issue additional Class A Units (or other newly-created classes of limited partnership interests) to third parties in exchange for cash or other property. Any such newly-created classes of limited partnership interests may have a priority as to distributions or upon liquidation over any other class of partnership interest. NUMBER, CLASS AND OWNER OF UNITS The table below sets forth the number, class and holder of Units outstanding immediately following the Offering, assuming the Operating Partnership has issued an aggregate of 44,322 Units in exchange for the Residual Interests: UNITS FOLLOWING OFFERING
NUMBER HOLDER - ---------- ----------- 104,303 SSI(1) 363,290 TNC 42,263 Other(2) 7,242,576 Company(3)
- --------------- (1) SSI owns 40% of the capital stock of TNC. The number of Units shown as owned by SSI does not include any Units owned by TNC and as to which SSI has an indirect interest. (2) "Other" consists of 11 other persons who contributed interests in the SSI/TNC Properties as part of the SSI/TNC Transaction. (3) Includes 6,470,576 GP Units to be issued to the Company in exchange for its contribution to the Operating Partnership of the SERS Properties and the net proceeds from the Offering and the Concurrent Investments. Also includes an additional 85,400 GP Units that will be automatically issued to the Company on August 23, 1997 in respect of the contribution of its interests in BRP to the Operating Partnership. ADDITIONAL ISSUANCES OF CLASS A UNITS Under certain circumstances, the Operating Partnership will be required to issue additional Class A Units on account of the contribution to it of certain of the SSI/TNC Properties, as summarized below. Repayment of Certain Mortgage Indebtedness at a Discount The Partnership Agreement provides that in the event additional equity is created in certain of the SSI/TNC Properties on account of the refinancing of the indebtedness encumbering such Properties at a discount, additional Units will be issued at the rate of one Unit for each $16.50 of additional equity so created. Twenty-five percent of the additional Units (comprised of GP Units) will be issued to the Company and 75% 146 153 of the additional Units (comprised of Class A Units) will be issued to the persons who contributed such Properties to the Operating Partnership. Following the Offering, mortgage indebtedness having an aggregate outstanding balance of approximately $15.4 million as of September 30, 1996 and secured by six of the Properties will remain outstanding and subject to the foregoing provisions. Acquisition of Residual Interests The transfer to the Operating Partnership of certain limited partnership interests in Title Holding Partnerships as part of the SSI/TNC Transaction was structured as transfers of 89% of the capital interest and 99% of the cash flow and profits interests in the Title Holding Partnership owning such Properties (collectively, the "Residual Interests"). See "Structure of the Company -- Ownership." This transaction structure is intended to comply with non-binding informal advice provided by the Pennsylvania Department of Revenue to the effect that such transfers are not subject to Pennsylvania real estate transfer taxes. The Operating Partnership has the right to acquire, at any time, and the obligation to acquire by September 1999, the Residual Interests (11% capital and 1% cash flow and profits) in each of such Title Holding Partnerships in exchange for an aggregate of 44,322 Class A Units. At the time the Operating Partnership acquires the Residual Interests, it will be required to pay to each person receiving Class A Units on account thereof the amount, if any, that is equal to the excess of (i) the aggregate amount that would have been distributed to them prior to such acquisition in respect of such Units had they been issued on August 22, 1996 (the closing date of the SSI/TNC Transaction) over (ii) the aggregate amount distributed in respect of the Residual Interests between the closing date and the date of such acquisition. CANCELLATION OF CLASS A UNITS The Partnership Agreement provides for the forfeiture of Units upon the repayment of indebtedness encumbering certain of the SSI/TNC Properties if a "participation payment" is made to the lender in connection with such repayment. The number of Units subject to forfeiture would be in the amount of the participation payment divided by $16.50. In connection with the prepayment of certain mortgage indebtedness encumbering the Initial Properties, a yield maintenance penalty in the estimated amount of $500,000 will be paid from a portion of the net proceeds of the Offering and the Concurrent Investments. As a result of such payment, SSI and TNC have agreed to forfeit a number of Units (estimated to be 30,303) equal to the amount of such penalty divided by $16.50. Such forfeited Units will be cancelled. REDEMPTION RIGHTS At any time following the Offering, a holder of a Class A Unit may require the Operating Partnership to redeem such Unit for cash. At its option, the Company may assume the Operating Partnership's obligation to redeem any such Unit and either pay the redemption price in cash or deliver one Common Share (subject to antidilution adjustments). The Company presently anticipates that it will elect to issue Common Shares in exchange for Units in connection with a redemption request, rather than having the Operating Partnership pay cash. BUSINESS OPERATIONS The Partnership Agreement requires that the Operating Partnership be operated in a manner that will enable the Company to satisfy the requirements for being classified as a REIT and to avoid any Federal income or excise tax liability. The Partnership Agreement provides that following the Offering all fees and other costs that the Company incurs for legal and accounting services provided to it in connection with the preparation and maintenance of the Company's books and records, financial statements, tax returns and reports to shareholders and the Securities and Exchange Commission shall be allocated to the Operating Partnership, provided that if the Company acquires properties that it holds outside of the Operating Partnership (such as the LibertyView Building), such fees and other costs will be allocated between the Company and the Operating Partnership in a fair and equitable manner. 147 154 REGISTRATION RIGHTS For a description of certain registration rights held by holders of Class A Units, see "Shares Available for Future Sale -- Registration Rights." AMENDMENTS The Partnership Agreement generally may be amended only with the consent of holders of at least 75% of the Class A units then outstanding except to: (i) add to the obligations of the general partner; (ii) reflect the issuance of additional partnership interests in the Operating Partnership; and (iii) cure ambiguities. TAX MATTERS The Company will be the tax matters partner of the Operating Partnership and, as such, will have authority to make tax elections under the Code on behalf of the Operating Partnership. The net taxable income or net taxable loss of the Operating Partnership will generally be allocated to the Company and the Limited Partners in accordance with their percentage interests, subject to compliance with the provisions of Sections 704(b) and 704(c) of the Code and the regulations promulgated thereunder. REPRESENTATIONS AND WARRANTIES SSI and TNC made customary representations and warranties as part of the SSI/TNC Transaction regarding the SSI/TNC Properties contributed directly and indirectly to the Operating Partnership, including representations and warranties relating to compliance with laws, environmental matters, title and the absence of liens and encumbrances, tenant leases, litigation, contractual obligations, absence of undisclosed liabilities and existence of insurance. The Partnership Agreement provides that the representations and warranties thereunder will survive the SSI/TNC Transaction, provided that no claim for breach may be maintained by the Operating Partnership or the Company unless notice shall have been delivered to SSI or TNC, as applicable, on or before August 22, 1998. Recourse by the Company for a breach of such representations and warranties is limited to the ownership interest of the breaching limited partner in the Units issued to it and any Common Shares acquired by such limited partner upon conversion of its Units into Common Shares. TERM The Operating Partnership will continue in full force and effect until December 31, 2094 or until sooner dissolved upon the bankruptcy or the dissolution of the Company (unless the Limited Partners elect to continue the Operating Partnership), the election of the Company and the Limited Partners to effect a dissolution, the entry of a dissolution decree by a court or the sale or other disposition of all or substantially all of the assets of the Operating Partnership. INDEMNIFICATION The Partnership Agreement provides for indemnification by the Operating Partnership of the Company, as general partner, and its Trustees and officers for any costs, expenses or liabilities incurred by them by reason of any act performed by them for or on behalf of the Operating Partnership or the Company; provided that such person's conduct was taken in good faith and in the belief that such conduct was in the best interests of the Operating Partnership and that such person was not guilty of fraud, willful misconduct or gross negligence. 148 155 BRP GENERAL PARTNERSHIP AGREEMENT The following summary of the General Partnership Agreement, as amended, of BRP (the "BRP Partnership Agreement") is qualified in its entirety by reference to the BRP Partnership Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "Available Information." GENERAL The Company owns four of its Properties through BRP. The Operating Partnership currently owns a 97% profits interest and a 49% capital interest in BRP and the Company currently owns directly a 1% profits interest and a 21% capital interest in BRP. On August 23, 1997, pursuant to the BRP Partnership Agreement, the Operating Partnership will acquire the Company's profits and capital interest in BRP in exchange for 85,400 GP Units, thereby giving the Operating Partnership a 98% profits interest and a 70% capital interest in BRP. The other partner in BRP is a limited partnership, Brandywine Specified Property Investors Limited Partnership (the "Class B Partner"). MANAGEMENT In the BRP Partnership Agreement, the Class B Partner waived any rights it might have to vote on or approve any matter relating to the affairs of BRP, and the Company has the full and complete power, authority and discretion in the management and control of BRP, and the Class B Partner has no authority to transact business for, or participate in the management activities or decisions of, the Operating Partnership. AMENDMENTS The BRP Partnership Agreement confers on the Company complete power and authority, without having to obtain the consent of the Class B Partner, to amend any provisions of the BRP Partnership Agreement so long as no amendment has the effect of requiring any capital contributions by the Class B Partner not otherwise required by the BRP Partnership Agreement or which would affect any right of the Class B Partner to receive distributions of cash or property or allocations of taxable income, gain or loss under the BRP Partnership Agreement. ERISA CONSIDERATIONS The following is a summary of material considerations arising under ERISA and the prohibited transaction provisions of Section 4975 of the Code that may be relevant to a prospective purchaser (including, with respect to the discussion contained in "Status of the Company under ERISA," to a prospective purchaser that is not an employee benefit plan, another tax-qualified retirement plan, or an individual retirement account (an "IRA")). This discussion does not purport to deal with all aspects of ERISA or Section 4975 of the Code or, to the extent not preempted, state law that may be relevant to particular employee benefit plan shareholders (including plans subject to Title I of ERISA, other retirement plans and IRAs subject to the prohibited transaction provisions of Section 4975 of the Code and governmental plans or church plans that are exempt from ERISA and Section 4975 of the Code but that may be subject to state law requirements) in light of their particular circumstances. A FIDUCIARY MAKING THE DECISION TO INVEST IN COMMON SHARES ON BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED RETIREMENT PLAN OR AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE CODE AND (TO THE EXTENT NOT PREEMPTED) STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF COMMON SHARES BY SUCH PLAN OR IRA. 149 156 EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS Each fiduciary of a pension, profit-sharing, or other employee benefit plan subject to Title I of ERISA (an "ERISA Plan") should carefully consider whether an investment in Common Shares is consistent with his fiduciary responsibilities under ERISA. The fiduciary requirements of Part 4 of Title I of ERISA generally require that an ERISA Plan's investments be (i) prudent and for the exclusive benefit of the ERISA Plan, its participants and beneficiaries, (ii) diversified in order to reduce the risk of large losses, unless it is clearly prudent not to do so, and (iii) authorized under the terms of the governing documents of the ERISA Plan. In determining whether any investment in Common Shares is prudent for purposes of ERISA, the appropriate fiduciary of an ERISA Plan should consider all of the facts and circumstances, including those matters described under "Risk Factors." Fiduciaries of IRAs, retirement plans for self-employed individuals ("Keogh Plans") and other plans subject to Section 4975 of the Code but not subject to ERISA (IRAs, Keogh Plans and such other plans are referred to herein as "IRC Plans") should consider that an IRC Plan may only make investments that are authorized by the appropriate governing documents and under applicable state law. Fiduciaries of ERISA Plans, as well as fiduciaries of IRC Plans, should also consider in making their investment decision the application of the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code. Administrators of ERISA Plans and IRC Plans and individuals with IRAs should consult their own legal advisors regarding potential prohibited transaction issues and whether an exemption is applicable. STATUS OF THE COMPANY UNDER ERISA This section discusses certain principles that apply in determining whether the fiduciary requirements of ERISA and the prohibited transaction provisions of ERISA and the Code apply to an entity because one or more investors in the entity's acquired interests is an ERISA Plan or an IRC Plan. This section also identifies considerations that would be relevant in the unlikely event that the ERISA fiduciary requirements were applicable to the Company's operation. In certain circumstances, where equity interests in any entity are owned by one or more ERISA Plans or IRC Plans, the investing plans will, for purposes of ERISA and Section 4975, be considered to own not only the equity interest in the entity, but a proportionate individual interest in the underlying assets of the entity. In such a case, the underlying assets of the entity are deemed to be "plan assets" and, as described below, ERISA's fiduciary requirements and the excise tax under Section 4975 of the Code would be relevant to the operations of the entity. As described below, the Company does not believe that its assets will be considered "plan assets" of investing plans for these purposes. The U.S. Department of Labor ("DOL"), which has certain administrative responsibility with respect to ERISA Plans and certain IRC Plans, has issued a regulation defining the term "plan assets" (the "DOL Regulation"). The DOL Regulation generally provides that when an ERISA Plan or an IRC Plan acquires a security that is an equity interest in an entity and that security is neither a "publicly offered security" nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA Plan's or IRC Plan's assets include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an "operating company" or that equity participation in the entity by benefit plan investors is not significant. The Company believes that its Common Shares are a publicly offered security within the meaning of the DOL Regulation. The DOL Regulation defines a publicly offered security as a security that is "widely held," "freely transferable" and either part of a class of securities registered under the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act") or sold pursuant to an effective registration statement under the Securities Act (provided the class of securities of which such security is part is registered under the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year of the issuer during which the offering occurred). The Common Shares are being issued pursuant to an effective registration statement under the 150 157 Securities Act and the class of securities of which Common Shares are part has been registered under the Securities Exchange Act. The DOL Regulation provides that a security is "widely held" only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. A security will not fail to be "widely held" because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer's control. The Company believes that the Common Shares are currently "widely held" and expects the Common Shares to continue to be "widely held" upon completion of the Offering. The DOL Regulation provides that whether a security is "freely transferable" is a factual question to be determined on the basis of all relevant facts and circumstances. The DOL Regulation further provides that where a security is part of an offering in which the minimum investment is $10,000 or less (as is the case with the Offering), certain restrictions ordinarily will not, alone or in combination, affect a finding that such securities are freely transferable. The restrictions on transfer enumerated in the DOL Regulation as ordinarily not affecting that finding include: (i) any restriction on or prohibition against any transfer or assignment that would result in a termination or reclassification of the Company for Federal or state tax purposes, or that would otherwise violate any state or Federal law or court order, (ii) any requirement that advance notice of a transfer or assignment be given to the Company, (iii) any requirement that either the transferor or the transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer that are among those enumerated in the final DOL Regulation as not affecting free transferability, (iv) any administrative procedure that establishes an effective date, or any event (such as completion of the Offering) prior to which a transfer or assignment will not be effective, and (v) any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer. The Company believes that the restrictions imposed under the Declaration of Trust on the transfer of Common Shares are limited to restrictions on transfer which, under the DOL Regulation, ordinarily do not affect a finding of free transferability, and are unlikely to result in the failure of the Common Shares to be considered "freely transferable" for purposes of the DOL Regulation. In addition, the Company is not aware of any other facts or circumstances limiting the transferability of the Common Shares that are not included among those enumerated as not affecting their free transferability under the DOL Regulation, and the Company does not expect or intend to impose in the future (or to permit any person to impose on its behalf) any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions. The DOL Regulation only establishes a presumption in favor of a finding of free transferability, and no assurances can be given that the DOL, the Treasury Department or a court will not reach a contrary conclusion. Assuming that Common Shares will be "widely held" and that no other facts and circumstances exist that restrict transferability of Common Shares, the Company believes that the Common Shares should be treated as a "publicly offered security" within the meaning of the DOL Regulation and, accordingly, that the underlying assets of the Company should not be considered to be "plan assets" of any ERISA Plan or IRC Plan investing in Common Shares. If the assets of the Company were deemed to be "plan assets" under ERISA and Section 4975 of the Code, (i) the prudence standards and other provisions of Part 4 of Subtitle B of Title I of ERISA would be applicable to any transactions involving the Company's assets, (ii) persons who exercise any authority or control over the Company's assets, or who provide investment advice to the Company, would (for purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of the Code) be fiduciaries of each ERISA Plan or IRC Plan that acquires Common Shares, (iii) transactions involving the Company's assets undertaken at the direction or pursuant to the advice of such fiduciaries might be violative of their fiduciary responsibilities under ERISA, especially with regard to conflicts of interest, (iv) a fiduciary exercising its investment discretion over the assets of the ERISA Plan to cause it to acquire or hold Common Shares could be liable under the aforementioned Part 4 of Subtitle B of Title I of ERISA for transactions entered into by the Company that do not conform to ERISA standards of prudence and fiduciary responsibility, (v) certain transactions that the Company might enter into in the ordinary course of its business and operations might constitute "prohibited transactions" under ERISA and the Code, and (vi) fiduciaries of ERISA Plans may 151 158 violate ERISA's prohibition against the improper delegation of control or responsibility for "plan assets" and may be liable for breaches of ERISA's fiduciary duties committed by co-fiduciaries. SHARES AVAILABLE FOR FUTURE SALE Upon completion of the Offering and the Concurrent Investments, there will be 6,002,483 Common Shares issued and outstanding 6,557,483 Common Shares if the Underwriters' over-allotment option is exercised in full), including 45,844 Common Shares that will be issued in connection with the prepayment of the Osborne Loan. In addition, (i) 509,856 Common Shares will be reserved for issuance upon the conversion of Units into Common Shares, (ii) 761,628 Common Shares will be reserved for issuance upon exercise of outstanding options and warrants and (iii) 481,818 Preferred Shares will be outstanding and, prior to the occurrence of a Conversion Event, will be convertible into 181,325 Common Shares, and, following the occurrence of a Conversion Event, will be convertible into an additional 1,424,735 Common Shares. All of the Common Shares issued in the Offering will be freely tradable by persons other than "affiliates" of the Company without registration or other restrictions under the Securities Act, subject to limitations on ownership set forth in the Declaration of Trust. See "Description of Shares of Beneficial Interest -- Restrictions on Transfer." 618,733 of the Common Shares outstanding prior to the Offering are also freely tradeable by persons other than affiliates of the Company without registration or other restriction under the Securities Act, subject to the above-referenced limitations on ownership set forth in the Declaration of Trust. The remaining 292,452 Common Shares outstanding prior to the Offering; the Common Shares issuable upon the conversion of Units; the Common Shares issuable upon conversion of the Preferred Shares to be issued in the SERS Transaction; the Common Shares issuable to the Voting Trust and the Morgan Stanley Funds in the Concurrent Investments; and the Common Shares that will be issued in connection with the prepayment of the Osborne Loan (collectively, "Restricted Shares"), will be "restricted" securities within the meaning of Rule 144 under the Securities Act and may be sold only pursuant to an effective registration statement under the Securities Act or an applicable exemption, including an exemption under Rules 144 and 144A under the Securities Act. The Company has registered the issuance of 290,000 Common Shares upon the exercise of outstanding options and warrants, and the resale of 266,666 of such Common Shares, so that such securities may be freely sold by the holders, whether or not affiliates of the Company, without registration or other restriction. In general, under Rule 144, as currently in effect, if two years have elapsed since the later of the date of the acquisition of Restricted Shares from the Company or the date of acquisition of Restricted Shares from any "affiliate" of the Company, as that term is defined in the Securities Act, the acquiror or subsequent holder is entitled to sell within any three-month period a number of Common Shares that does not exceed the greater of 1% of the then-outstanding Common Shares or the average weekly trading volume of Common Shares on all exchanges and reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the date on which notice of the sale is filed with the Commission. Sales under Rule 144 are also subject to certain restrictions on the manner of sales, notice requirements and the availability of current public information about the Company. If three years have elapsed since the date of acquisition of Restricted Shares from the Company or from any "affiliate" of the Company, and the acquiror or subsequent holder thereof is deemed not to have been an affiliate of the Company at any time during the 90 days preceding a sale, such person would be entitled to sell such Common Shares in the public market under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly, through the use of one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer. In connection with the Offering, the Company and the Trustees, officers, and certain shareholders of the Company (including SSI, TNC, the Osborne Trust and SERS) have agreed not to sell, offer to sell, solicit an offer to buy, contract to sell, grant any option to purchase or otherwise transfer or dispose of any Common Shares or any securities convertible into or exchangeable or exercisable for Common Shares until expiration of the 180-day period after the effective date of this Prospectus, except for the issuance of Common Shares in 152 159 connection with property acquisitions, the repayment of the Osborne Loan, the exercise of outstanding options and warrants or the conversion of Units, without the written consent of the Underwriters. No prediction can be made as to the effect that future market sales of Restricted Shares or the availability of such Restricted Shares for sale will have on the market price of the Common Shares prevailing from time to time. Sales of substantial amounts of Restricted Shares in the public market (or the perception that such sales could occur) might adversely affect prevailing market prices for the Common Shares. See "Risk Factors -- Effect on Price of Shares Available for Future Sale." REGISTRATION RIGHTS The Company has entered into a registration rights agreement with each holder of Units, with SSI and with the RMO Fund (the "Initial Registration Rights Agreement") obligating the Company to register: (i) 258,333 Common Shares initially issued to SSI; (ii) 258,333 Common Shares that may be issued upon the exercise of warrants initially issued to SSI; (iii) Common Shares that may be issued upon the conversion of Units; (iv) Common Shares issued to the RMO Fund in connection with its investment in the Company in June 1996 or in repayment of the Osborne Loan; and, pursuant to an amendment to the Initial Registration Rights Agreement, additional Common Shares acquired in the open market by the foregoing (collectively, "Registrable Securities"). The Initial Registration Rights Agreement provides that, at the request of the holders of Registrable Securities, the Company will, at its expense, register up to two underwritten distributions of Common Shares and provide for an annual shelf registration of such Common Shares for sale at the market through brokers' transactions and thereafter with market makers; provided, however, that the Company will not be obligated to pay the expenses of an underwritten offering during the period ending August 22, 1997. The holders of Registrable Securities are also entitled to "piggyback" on the Company's future registrations of its Common Shares, if any. In connection with such registrations, the Company and the selling shareholders will mutually indemnify each other against certain liabilities, including liabilities under the federal securities laws. At the closings of the SERS Transaction and the Morgan Stanley Private Placement, the Company will enter into agreements with the Voting Trust and the Morgan Stanley Funds on terms substantially similar to those in the Initial Registration Rights Agreement obligating the Company to register the Common Shares to be issued in the Concurrent Investments and the Common Shares issuable upon conversion or exercise of the Series A Preferred Shares and warrants to be issued in the SERS Transaction as well as additional Common Shares acquired in the open market by or for SERS and the Morgan Stanley Funds (collectively, the "Additional Registrable Securities"). In these registration rights agreements and an amendment to the Initial Registration Rights Agreement, the Company will agree to use commercially reasonable best efforts to register the resale of the Registrable Securities and the Additional Registrable Securities no later than the earlier of :(i) March 31, 1997 and (ii) 120 days following the consummation of the Concurrent Investments. The Company has filed a registration statement on Form S-8 registering the issuance of an aggregate of 290,000 Common Shares upon the exercise of outstanding options and warrants held by employees of the Company and the resale of 266,666 of such Common Shares by persons who may be deemed to be affiliates of the Company. 153 160 UNDERWRITING Upon the terms and subject to the conditions stated in the Underwriting Agreement dated the date hereof, each Underwriter named below has severally agreed to purchase, and the Company has agreed to sell to such Underwriter, the number of Common Shares set forth opposite the name of such Underwriter.
UNDERWRITER NUMBER OF SHARES --------------------------------------------------------------------- ---------------- Smith Barney Inc..................................................... Legg Mason Wood Walker, Incorporated................................. Total...................................................... 3,700,000 ==========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares offered hereby are subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the Common Shares offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters, for whom Smith Barney Inc. and Legg Mason Wood Walker, Incorporated are acting as the Representatives, propose to offer part of the shares directly to the public at the public offering price set forth on the cover page of this Prospectus and part of the shares to certain dealers at a price which represents a concession not in excess of $ . per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ . per share to certain other dealers. After the offering of the shares to the public, the public offering price and such concessions may be changed by the Representatives. The Representatives of the Underwriters have advised the Company that the Underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority. The Company has granted to the Underwriters an option, exercisable for thirty days from the date of this Prospectus, to purchase up to 555,000 additional Common Shares at the price to public set forth on the cover page of this Prospectus minus the underwriting discounts and commissions. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, in connection with the offering of the shares offered hereby. To the extent such option is exercised, each Underwriter will be obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares set forth opposite each Underwriter's name in the preceding table bears to the total number of shares listed in such table. In connection with the Offering, the Company and the Trustees, officers, and certain shareholders of the Company (including SSI, TNC, the Osborne Trust and SERS) have agreed not to sell, offer to sell, solicit an offer to buy, contract to sell, grant any option to purchase or otherwise transfer or dispose of any Common Shares or any securities convertible into or exchangeable or exercisable for Common Shares until expiration of the 180-day period after the effective date of this Prospectus, except for the issuance of Common Shares in connection with property acquisitions, the repayment of the Osborne Loan, the exercise of outstanding options and warrants or the conversion of Units, without the written consent of the Underwriters. At the request of the Company, the Underwriters have reserved up to 50,000 Common Shares for sale at the public offering price to certain Trustees and employees of the Company, their business affiliates and related parties who have expressed an interest in purchasing shares. Such purchases will be made under the same terms and conditions as will be offered by the Underwriters in the public offering. 154 161 The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933. The Company has agreed to pay to Smith Barney Inc. and Legg Mason Wood Walker, Incorporated an advisory fee equal to 1.70% of the gross proceeds of the Offering (including any exercise of the Underwriters' over-allotment option) for advisory services rendered by them in connection with the evaluation, analysis and structuring of the Offering. Smith Barney Mortgage Capital Group, Inc. an affiliate of Smith Barney Inc., is the syndication agent for the Credit Facility. In connection with the closing of the Credit Facility, the Company will pay Smith Barney Mortgage Capital Group, Inc. a fee of $300,000. In addition, Smith Barney Mortgage Capital Group, Inc. is entitled to receive a pro rata portion of the fee on the unused portion of the Credit Facility equal to 1/8% per annum from the date of the closing of the Credit Facility through March 31, 1997, and 1/4% per annum thereafter. In connection with the SSI/TNC Transaction, Legg Mason Wood Walker, Incorporated, one of the Representatives, rendered advisory services and provided an opinion to the Board of Trustees of the Company for which it was paid a total of $100,000. Walter D'Alessio, a member of the Company's Board of Trustees, is President of Legg Mason Real Estate Services, a subsidiary of Legg Mason Wood Walker, Incorporated. EXPERTS The financial statements and schedules included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports and are included herein in reliance upon the authority of said firm as experts in giving said reports. The C&W Market Analyses were prepared for the Company by Cushman & Wakefield of Pennsylvania, Inc., which is a real estate service firm with significant experience and expertise relating to the Suburban Philadelphia Office and Industrial Market. C&W is a part of a national network of affiliated companies providing real estate related services. The statistical and other information from the C&W Mid-Year Report and C&W Market Analyses appearing in this Prospectus and the Registration Statement have been included herein in reliance on C&W's expertise as a real estate service firm, with respect to the Suburban Philadelphia Office and Industrial Market. LEGAL MATTERS The validity of the Common Shares offered hereby, as well as certain legal matters relating to the Company, will be passed upon for the Company by Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania. Certain legal matters related to the Offering will be passed upon for the Underwriters by Battle Fowler LLP. Pepper, Hamilton & Scheetz and Battle Fowler LLP will rely on Ballard Spahr Andrews & Ingersoll as to certain matters of Maryland law. TAX MATTERS The statements in this Prospectus under the caption "Federal Income Tax Considerations" and the other statements herein relating to the Company's qualification as a REIT and the taxation of the Company's shareholders, are based upon the opinion of Arthur Andersen LLP. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"), pursuant to the Exchange Act. The Registration Statement, as well as such reports, proxy statements and other information filed by the Company with the Commission, may be examined without charge at, or copies obtained upon payment of 155 162 prescribed fees from, the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and are also available for inspection and copying at the regional offices of the Commission located at Seven World Trade Center, New York, New York 10048 and at Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Such material can also be inspected and copied at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006. The Company has filed with the Commission a Registration Statement on Form S-11 under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder, with respect to the Common Shares offered pursuant to this Prospectus. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and financial schedules thereto. For further information concerning the Company and the Common Shares offered hereby, reference is made to the Registration Statement and the exhibits and schedules filed therewith, which may be examined without charge at, or copies obtained upon payment of prescribed fees from, the Commission and its regional offices at the locations listed above. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. 156 163 GLOSSARY Unless the context otherwise requires, the following capitalized terms shall have the meanings set forth below for the purposes of this Prospectus: "ADA" means the Americans with Disabilities Act of 1990, as amended. "AMEX" means American Stock Exchange, Inc. "Average Annualized Rental Rate" means (i) for office leases written on a triple net basis, the sum of the annualized contracted base rental rates payable for all space leased as of September 30, 1996 without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles plus the 1996 budgeted operating expenses excluding tenant electricity; and (ii) for office leases written on a full service basis, the annualized rental rate is divided by the total square footage leased as of September 30, 1996 without giving effect to free rent or scheduled rent increases that would be taken into account under generally accepted accounting principles. Acquisition Properties" means, collectively, the SERS Properties and the four additional office buildings that the Company will acquire prior to or concurrent with the closing of the Offering. "Board of Trustees" means the Board of Trustees of the Company. Book Value Per Share" means, as of any date: (i) the total beneficiaries' equity as shown on the Company's consolidated balance sheet as of the fiscal quarter end immediately prior to the applicable date (with appropriate adjustments for any material events subsequent thereto) prepared in accordance with rules and regulations of the SEC and GAAP applied on a consistent basis (as adjusted to reflect the consideration received by the Company upon the Exercise (defined below) of any Convertible Securities (defined below) which are included in the computation in (ii) below), divided by (ii) the sum of the number of Common Shares outstanding on such date plus the number of Common Shares issuable upon the exercise, conversion or exchange (collectively, "Exercise") of outstanding options, warrants, Preferred Shares and other convertible securities or similar rights (collectively, "Convertible Securities") to the extent that the consideration payable upon the exercise of such Convertible Securities is less than the Market Value Per Share of the Common Shares issuable upon such Exercise. "BRP" means Brandywine Realty Partners, a general partnership that owns the four BRP Properties. "BRP Partnership Agreement" means the General Partnership Agreement, as amended, of BRP. "BRP Properties" means the following four Properties owned by BRP: One Greentree Centre, Two Greentree Centre, Three Greentree Centre and Twin Forks. "Bylaws" means the Bylaws of the Company. "C&W" means Cushman & Wakefield of Pennsylvania, Inc. "C&W Market Analyses" means the 10 market analyses prepared for the Company by C&W. "C&W Mid-Year Report" means the Mid-Year 1996 Philadelphia Office Market Report and Philadelphia Industrial Market Report prepared by C&W. "Cash Available for Distribution" means Funds from Operations adjusted for principal amortization payments and reserves for capital expenditures. "Class A Units" means the limited partnership interests of the Operating Partnership that will remain outstanding upon completion of the Offering and that will be exchangeable for Common Shares. "Code" means the Internal Revenue Code of 1986, as amended. "Common Shares" means the common shares of beneficial interest, par value $.01 per share, of the Company. 157 164 "Company" means Brandywine Realty Trust, a Maryland real estate investment trust, and those entities over which Brandywine Realty Trust has control or of which it owns a majority of the economic interests, unless the context otherwise indicates. "Concurrent Investments" means, collectively, the Morgan Stanley Private Placement and the SERS Private Placement. "Conflicting Provisions" means provisions of the Company's Declaration of Trust which are in conflict with the Maryland REIT Law, the Code or other applicable federal or state law(s). "Conversion Approval" means approval of the unlimited conversion of Series A Preferred Shares into Common Shares by a majority of the votes cast by holders of Common Shares at a meeting of shareholders in which holders of Preferred Shares have no right to vote. "Conversion Number" means the number of Common Shares into which a Preferred Share is, or Preferred Shares are, convertible. "CPI" means the consumer price index. "Credit Facility" means the $80 million, two-year revolving line of credit for which the Company has obtained a commitment from a group of lenders. "Declaration of Trust" means the Declaration of Trust of the Company, as amended. "Employment Agreements" means the two-year employment agreements dated July 31, 1996 entered into by the Company with its Chief Executive Officer and its three other executive officers. "EPA" means Environmental Protection Agency. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Plan" means a pension, profit-sharing, or other employee benefit plan subject to Title 1 of ERISA. "Excluded Common Shares" means any Common Shares issued by the Company after May 1, 1996, the net proceeds of which issuance are not contributed to the Operating Partnership. "Final Annualized Base Rent" means the base rental rate payable under the applicable lease in the month that the lease expires multiplied by twelve. "FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as amended. "Funds from Operations" means net income (loss) adjusted for depreciation expense attributable to real property, amortization expense attributable to capitalized leasing costs, tenant allowances and improvements, gains on sales of real estate investments and extraordinary nonrecurring items. "GAAP" means generally accepted accounting principles. "Initial Properties" means, collectively, the BRP Properties, the SSI/TNC Properties and the LibertyView Building. "Interested Shareholder" means any person, or an affiliate thereof, who beneficially owns 10% or more of the voting power of a Maryland real estate investment trust's outstanding shares. "Investment Date" means June 21, 1996. "IRA" means individual retirement account. "IRS" means the United States Internal Revenue Service. "LCOR" means LCOR Incorporated, a real estate development firm. ""Legg Mason" means Legg Mason Wood Walker, Incorporated. "LibertyView Building" means the Property at 457 Haddonfield Road, Cherry Hill, New Jersey. 158 165 "Limited Partners" means the limited partners of the Operating Partnership. "Linpro Entities" means the more than 350 different limited partnerships, joint ventures and corporations which were originally doing business under the name "The Linpro Company". "Lock-up Period" means the 180-day period after the effective date of this Prospectus. "Management Company" means Brandywine Realty Services Corporation, the Company's property management subsidiary. "Market" means the Suburban Philadelphia Office and Industrial Market. "Market Value Per Share" means, as of any date (the "Valuation Date"), the average of the closing per share sale price(s) of the Common Shares for the period of 20 consecutive trading days ending on the trading date immediately preceding the Valuation Date as such prices are reported by the principal United States securities exchange on which the Common Shares are then traded or, if the Common Shares are not then traded on any such exchange, the closing per share sale price (or the average of the quoted per share closing bid and asked prices if no sale is reported) as reported by the National Association of Securities Dealers, Inc. ("NASD"), Automated Quotation System ("NASDAQ") or any comparable system or, if the Common Shares are not then quoted on NASDAQ or any comparable system, the average of the closing per share bid and asked prices as furnished by any member of the NASD selected by the Board of Trustees. "Maryland REIT Law" means Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland. "MGCL" means the Maryland General Corporation Law. "Morgan Stanley Funds" means the two investment funds managed by Morgan Stanley Asset Management Inc. that have agreed to purchase Common Shares in the Morgan Stanley Private Placement. "Morgan Stanley Private Placement" means the private placement by the Company of 709,091 Common Shares to the Morgan Stanley Funds at a price per share of $16.50 (representing an aggregate purchase price of $11.7 million) to be consummated concurrent with the closing of the Offering. "NAREIT" means the National Association of Real Estate Investment Trusts. "Net Operating Income" means the total property gross income less operating expenses exclusive of interest expense, income taxes and all non-cash charges. "Newtech Partnership" means the limited partnership which holds fee title to the Property at 16 Campus Boulevard. "Non-ERISA Plan" means a qualified retirement plan not subject to Title 1 of ERISA because it is a governmental or church plan or because it does not cover common law employees. "Non-U.S. Shareholders" means nonresidential alien individuals, foreign corporations, foreign partnerships and foreign trusts and estates. "Offering" means the offering of Common Shares to the public by the Underwriters pursuant to this Prospectus. "Operating Partnership" means Brandywine Operating Partnership, L.P., a limited partnership organized under the laws of Delaware. "Option Properties" means the four properties that the Company acquired options to purchase in the SSI/TNC Transaction. "Osborne Loan" means the loan made by the RMO Fund to the Company on June 21, 1996 in the original principal amount of approximately $990,000. "Owners" means SSI, TNC and the 11 other persons who contributed interests in the 19 SSI/TNC Properties to the Operating Partnership as part of the SSI/TNC Transaction. 159 166 "Ownership Limits" means the Company's Declaration of Trust provisions prohibiting, subject to certain exceptions, any shareholder or group of affiliated shareholders from owning more than 9.8% in value of the Common Shares. "Ownership Restrictions" means the provisions of the Declaration of Trust prohibiting any transfer of Common Shares if, as a result of such transfer, the Common Shares would be held by fewer than 100 persons or results in the Company being "closely held" within the meaning of Section 856(h) of the Code. "Paired Unit" means a unit comprised of one Common Share and a six-year warrant exercisable for one additional Common Share at the exercise price of $19.50 per share (subject to customary antidilution adjustments). "Partnership Agreement" means the agreement of limited partnership, as amended, of the Operating Partnership. "Phase I" means an environmental site assessment performed by independent third parties to evaluate the environmental condition of, and potential environmental liabilities associated with, the Properties. "Philadelphia PMSA" means Philadelphia primary metropolitan statistical area. "Preferred Shares" means the Series A preferred shares of beneficial interest, par value $.01 per share, of the Company issued to the SERS Voting Trust in connection with the SERS Transaction. "Properties" means, collectively, the Initial Properties and the Acquisition Properties. "Qualified Offering" means a public or private sale of equity securities generating at least $35 million of net proceeds to the Company at a price per share at least equal to the per share book value of the Common Shares as of the end of the most recently preceding quarter preceding the sale or at least $25 million of net proceeds, but less than $35 million of net proceeds, at a price per share of at least $16.50 (subject to adjustment in the event of stock dividends, stock splits or reverse stock splits). "RAI" means Radnor Advisors Inc. "Redemption Price" means, in respect of a Preferred Share, the greater of: (i) the product of (a) $16.50 plus an amount (the "Return Amount") equal to 8.0% of $16.50 per annum from the date of issuance of such Series A Preferred Share to the redemption date thereof less an amount (not to exceed the Return Amount) equal to distributions actually received by the holder of account of such Share and (b) the Conversion Number and (ii) the product of the market price of a Common Share and the Conversion Number. "Registration Rights Agreement" means the agreement among the Company, SSI, each holder of Class A Units and the RMO Fund obligating the Company to register Common Shares issued and issuable to such person under certain circumstances. "REIT" means a real estate investment trust as defined by Sections 856 through 860 of the Code and applicable Treasury regulations. "Replacement Cost Rents" the rental rate that would provide a reasonable return on investment to a developer of a new Class A multi-tenant office building. "Residual Interests" means the residual 11% capital and 1% cash flow and profits interest in certain of the Title Holding Partnerships that the Operating Partnership has the obligation to acquire by September 1999. "Reverse Split" means the combination of outstanding Common Shares by means of a one-for-three reverse share split immediately prior to the closing of the Offering. "RMO Fund" means Turkey Vulture Fund XIII, Ltd. "RMO Trust" means the Richard M. Osborne Trust. "Rule 144" means the rule promulgated under the Securities Act that permits holders of restricted securities as well as affiliates of an issuer of securities, pursuant to certain conditions and subject to certain restrictions, to sell their securities publicly without registration under the Securities Act. 160 167 "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "SERS" means the Pennsylvania State Employes' Retirement System and its subsidiaries. "SERS Private Placement" means the private placement by the Company of $10.5 million of Common Shares to the SERS Voting Trust at a price per share equal to the public offering price that will be consummated concurrent with the closing of the Offering. "SERS Properties" means the nine Acquisition Properties that the Company will acquire from SERS pursuant to the SERS Transaction on or prior to closing of the Offering. "SERS Transaction" means the transaction in which the Company will acquire the SERS Properties. "SERS Voting Trust" means the voting trust established for the benefit of SERS, as shareholder, and of which RAI Real Estate Advisers, Inc. is the voting trustee. "Shares" means, collectively, the up to 30,000,000 shares of beneficial interest of the Company. "SSI" means Safeguard Scientifics, Inc. "SSI Loan" means the several loans by SSI to the Operating Partnership or a subsidiary in the aggregate principal amount of $539,000, as of September 30, 1996, to finance certain expenses in connection with the SSI/TNC Transaction, provide working capital, finance certain preferred distributions to the Company and finance tenant improvements. "SSI/TNC Properties" means the 19 Properties, either individually or in combination, acquired by the Operating Partnership in the SSI/TNC Transaction. "SSI/TNC Transaction" means the transactions pursuant to which the Company acquired interests in the SSI/TNC Properties." "Suburban Philadelphia Office and Industrial Market" means the areas comprised of the following counties: Bucks, Chester, Delaware, Lehigh, Montgomery and Northampton in Pennsylvania and Burlington and Camden in New Jersey. "Title Holding Partnerships" means the Company's partnership subsidiaries holding fee title to certain of the Properties. "TNC" means The Nichols Company and its affiliates. "Total Base Rent" for the twelve months ended September 30, 1996 means base rents received during such period, excluding tenant reimbursements calculated on a straight-line basis in accordance with generally accepted accounting principles. Tenant reimbursements generally include payment of real estate taxes, operating expenses and escalations and common area maintenance and utility charges. "Treasury Regulations" means the income tax regulations that have been promulgated under the Code. "Trustees" means the Trustees of the Company. "Underwriters" means the underwriters named in this Prospectus, for whom Smith Barney Inc. and Legg Mason Wood Walker, Incorporated are acting as representatives. "Underwriting Agreement" means the Underwriting Agreement between the Company and the Underwriters. "United States" means the United States of America (including the District of Columbia), its territories, possessions and other areas subject to its jurisdiction. "Units" means Class A Units of limited partnership interests of the Operating Partnership. "Whitelands Property" means the Whitelands Business Park in Exton, Pennsylvania. 161 168 "Witmer Properties" means the eight Properties held by a subsidiary of the Operating Partnership and that secure repayment of a mortgage loan made by General Electric Credit Corporation. The following Properties are the Witmer Properties: 1155 Business Center Drive; One Progress Avenue; 500 Enterprise Road; 1510 Gehman Road; 168 Franklin Corner Road; 16 Campus Boulevard; 18 Campus Boulevard; and 456 Creamery Way. 162 169 BRANDYWINE REALTY TRUST INDEX TO FINANCIAL STATEMENTS I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - Pro Forma Condensed Consolidating Balance Sheet as of September 30, 1996.................................................................. F-4 - Pro Forma Condensed Consolidating Statements of Operations for the Year Ended December 31, 1995, and the Nine-Months Ended September 30, 1996.................................................................. F-5 - Notes and Management's Assumptions to Unaudited Pro Forma Condensed Consolidating Financial Statements.................................... F-7 II. BRANDYWINE REALTY TRUST - Report of Independent Public Accountants.............................. F-14 - Consolidated Balance Sheets as of December 31, 1994 and 1995 (audited) and September 30, 1996 (Unaudited)...................................... F-15 - Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 (audited) and for the Nine-Months Ended September 30, 1995 and 1996 (Unaudited)......................................... F-16 - Consolidated Statements of Beneficiaries' Equity for the Years Ended December 31, 1993, 1994 and 1995 (audited), and for the Nine-Months Ended September 30, 1996 (Unaudited).................................. F-17 - Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 (audited), and for the Nine-Months Ended September 30, 1995 and 1996 (Unaudited)......................................... F-18 - Notes to Consolidated Financial Statements............................ F-19 III. SSI/TNC PROPERTIES - Report of Independent Public Accountants.............................. F-35 - Combined Balance Sheets as of December 31, 1994 and 1995 (audited) and June 30, 1996 (Unaudited)............................................. F-36 - Combined Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30, 1995 and 1996 (Unaudited)............................................. F-37 - Combined Statements of Owners' Deficit for the Years Ended December 31, 1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30, 1996 (Unaudited)...................................................... F-38 - Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30, 1995 and 1996 (Unaudited)............................................. F-39 - Notes to Combined Financial Statements................................ F-40 IV. LIBERTYVIEW BUILDING - Report of Independent Public Accountants.............................. F-46 - Statements of Revenue and Certain Expenses for the Year Ended December 31, 1995, and Six-Months Ended June 30, 1996 (Unaudited)................ F-47 - Notes to Financial Statements......................................... F-48
F-1 170 V. SERS PROPERTIES - Report of Independent Public Accountants.............................. F-50 - Statements of Revenue and Certain Expenses for the Year Ended December 31, 1995, and Nine-Months Ended September 30, 1995 and 1996 (Unaudited)........................................................... F-51 - Notes to Financial Statements......................................... F-52 VI. DELAWARE CORPORATE CENTER I - Report of Independent Public Accountants.............................. F-53 - Statements of Revenue and Certain Expenses for the Year Ended December 31, 1995, and Nine-Months Ended September 30, 1995 and 1996 (Unaudited)........................................................... F-54 - Notes to Financial Statements......................................... F-55 VII. 700/800 BUSINESS CENTER DRIVE - Report of Independent Public Accountants.............................. F-57 - Statements of Revenue and Certain Expenses for the Year Ended December 31, 1995, and Nine-Months Ended September 30, 1995 and 1996 (Unaudited)........................................................... F-58 - Notes to Financial Statements......................................... F-59 VIII. FINANCIAL STATEMENT SCHEDULE - Schedule III -- Real Estate and Accumulated Depreciation -- December 31, 1995.............................................................. F-60
F-2 171 BRANDYWINE REALTY TRUST PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION The following sets forth the pro forma condensed consolidating balance sheet of Brandywine Realty Trust ("the Company) as of September 30, 1996, and the pro forma condensed consolidating statements of operations for the year ended December 31, 1995 and the nine-month period ended September 30, 1996. The unaudited pro forma condensed consolidating financial information is presented as if the following transactions had been consummated on September 30, 1996, for balance sheet purposes, and at the beginning of the period presented, for purposes of the statements of operations: - The Company consummated the Offering and applied the net proceeds therefrom as described under "Use of Proceeds". This pro forma condensed consolidating financial information should be read in conjunction with the historical financial statements of the Company, the SSI/TNC Properties, the LibertyView Building, and the Acquisition Properties (defined below) and the related notes thereto included elsewhere herein. In management's opinion, all adjustments necessary to reflect the effects of the transactions to be consummated have been made. - The Company issued 3,700,000 Common Shares at $16.50 per share, the last reported sales price of the Common Shares on the AMEX on November 6, 1996. - The $774,000 loan from the RMO Fund was satisfied by the Company by the issuance of 45,844 Paired Units to the RMO Fund. - The Company acquired its partnership interests in the Operating Partnership. - The Operating Partnership acquired the 19 SSI/TNC Properties in connection with the SSI/TNC transaction. - The Company acquired the LibertyView Building. - In conjunction with the Offering the Company acquired the SERS Properties, Delaware Corporate Center I, 700/800 Business Center Drive, and 8000 Lincoln Drive (hereinafter referred to as the "Acquisition Properties") for $26,444,000 of Preferred Shares, $3,225,000 of deferred payments, $56,000 of warrants and $24,059,000 of cash. - The Company will contribute $54.0 million of net proceeds from the Offering to the Operating Partnership in exchange for 3,519,062 general partnership units. - The Company will issue 636,363 Common Shares at $16.50 per share to SERS Voting Trust, as advised by RAI in exchange for $10.5 million and contribute such proceeds to the Operating Partnership in exchange for 636,363 general partnership units. - Following the Offering and the application of the net proceeds therefrom, the Operating Partnership will repay $47,868,000 of indebtedness secured by the Properties, $764,000 of loans made by SSI to the Operating Partnership and a $500,000 prepayment penalty. - The Company will issue 709,090 Common Shares at $16.50 per share in the Morgan Stanley Private Placement and contribute the proceeds to the Operating Partnership in exchange for 709,090 general partnership units. The pro forma condensed consolidating financial information is unaudited and is not necessarily indicative of what the actual financial position would have been at September 30, 1996, nor does it purport to represent the future financial position and the results of operations of the Company. F-3 172 BRANDYWINE REALTY TRUST PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET AS OF SEPTEMBER 30, 1996 (NOTES 1 AND 2) (UNAUDITED) (IN THOUSANDS)
BRANDYWINE REALTY TRUST PRO FORMA HISTORICAL ACQUISITION OFFERING PRO FORMA CONSOLIDATED(A) PROPERTIES(B) ADJUSTMENTS CONSOLIDATED --------------- ------------- ----------- ------------ ASSETS: Real estate investments, net................. $ 98,818 $ 52,709 $ -- $151,527 Cash and cash equivalents.................... 1,859 (24,059) 25,459(C) 3,259 Escrowed cash................................ 966 1,265 (145)(D) 2,086 Deferred costs, net.......................... 2,290 -- 504(E) 2,794 Other assets................................. 2,250 (190) -- 2,060 -------- ------- ------- -------- Total assets......................... $ 106,183 $ 29,725 $ 25,818 $161,726 ======== ======= ======= ======== LIABILITIES: Mortgages and notes payable.................. $ 83,020 $ 3,225 $ (49,406)(F) $ 36,839 Other liabilities............................ 3,096 -- (321)(G) 2,775 -------- ------- ------- -------- Total liabilities.................... 86,116 3,225 (49,727) 39,614 -------- ------- ------- -------- MINORITY INTEREST.............................. 8,758 -- (8,145)(H) 613 -------- ------- ------- -------- Convertible Preferred Shares................... -- 26,444 -- 26,444 -------- ------- ------- -------- BENEFICIARIES' EQUITY: Common shares of beneficial interest......... 9 -- 51(I) 60 Additional paid-in capital................... 20,443 -- 83,391(J) 103,834 Stock warrants............................... 658 56 248(K) 962 Accumulated equity (deficit)................. (9,801) -- -- (9,801) -------- ------- ------- -------- Total beneficiaries' equity.......... 11,309 56 83,690 95,055 -------- ------- ------- -------- Total liabilities and beneficiaries' equity............................. $ 106,183 $ 29,725 $ 25,818 $161,726 ======== ======= ======= ========
The accompanying notes and management assumptions are an integral part of these statements. F-4 173 BRANDYWINE REALTY TRUST PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (NOTES 1 AND 3) (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
TOTAL ADJUSTED SSI/TNC PROPERTIES BRANDYWINE AND REALTY LIBERTYVIEW TOTAL TRUST BUILDING ADJUSTED HISTORICAL COMBINED ACQUISITION PRO FORMA TOTAL PRO CONSOLIDATED HISTORICAL PROPERTIES OFFERING FORMA (A) (B) (C) ADJUSTMENT CONSOLIDATED ------------ ------------- ----------- ---------- ------------ Revenue: Base rents........................... $ 3,517 $ 8,948 $ 6,348 $ -- $ 18,813 Tenant reimbursements................ 66 3,430 450 -- 3,946 Other................................ 83 3 -- -- 86 ------ ------- ------ ------- ------- Total revenue................ 3,666 12,381 6,798 -- 22,845 ------ ------- ------ ------- ------- Operating expenses: Interest............................. 793 6,700 258 (4,355)(D) 3,396 Depreciation and amortization........ 1,402 4,090 1,687 277(E) 7,456 Property expenses.................... 1,608 4,222 3,408 891(G) 10,129 General and administrative........... 682 670 -- (562)(H) 790 ------ ------- ------ ------- ------- Total operating expenses..... 4,485 15,682 5,353 (3,749) 21,771 ------ ------- ------ ------- ------- Income (loss) before minority interest................... (819) (3,301) 1,445 3,749 1,074 Minority interest in income (loss)..... 5 (1,182) -- 1,339(F) 162 ------ ------- ------ ------- ------- Income (loss) before uncombined entity and extraordinary items.............. (824) (2,119) 1,445 2,410 912 Equity income of management company.... -- 179 -- (107)(I) 72 ------ ------- ------ ------- ------- Income (loss) before extraordinary items................................ (824) (1,940) 1,445 2,303 984 Income allocated to Preferred Shares... -- -- -- 2,248(J) 2,248 ------ ------- ------ ------- ------- Income (loss) allocated to Common Shares........................ $ (824) $(1,940) $ 1,445 $ 55 $ (1,264) ====== ======= ====== ======= ======= Earnings (loss) per share before extraordinary items:................. Income (loss) before extraordinary items............................. $ (1.32) $ 0.16 ====== ======= Income (loss) allocated to Common Shares............................ $ (1.32) $ (0.21) ====== ======= Weighted average number of shares outstanding including share equivalents.......................... 624,791 6,008,540 ====== =======
The accompanying notes and management assumptions are an integral part of these statements. F-5 174 BRANDYWINE REALTY TRUST PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (NOTES 1 AND 3) (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
TOTAL ADJUSTED SSI/TNC PROPERTIES BRANDYWINE AND REALTY LIBERTYVIEW TOTAL TRUST BUILDING ADJUSTED HISTORICAL COMBINED ACQUISITION PRO FORMA TOTAL PRO CONSOLIDATED HISTORICAL PROPERTIES OFFERING FORMA (A) (B) (C) ADJUSTMENT CONSOLIDATED ------------ ------------- ----------- ---------- ------------ Revenue: Base rents........................... $ 4,063 $ 5,714 $ 5,828 $ -- $ 15,605 Tenant reimbursements................ 467 2,511 277 -- 3,255 Other................................ 69 100 -- -- 169 ------- ------- ------ ------- --------- 4,599 8,325 6,105 -- 19,029 ------- ------- ------ ------- --------- Operating expenses: Interest............................. 1,342 3,783 194 (2,746)(D) 2,573 Depreciation and amortization........ 1,173 2,819 1,265 208(E) 5,465 Property expenses.................... 1,867 2,831 2,724 605(G) 8,027 General and administrative........... 439 715 -- (567)(H) 587 ------- ------- ------ ------- --------- Total operating expenses..... 4,821 10,148 4,183 (2,500) 16,652 ------- ------- ------ ------- --------- Income (loss) before minority interest................... (222) (1,823) 1,922 2,500 2,377 Minority interest in income (loss)..... (40) (513) (--) 775(F) 222 ------- ------- ------ ------- --------- Income (loss) before uncombined entity and extraordinary items.............. (182) (1,310) 1,922 1,725 2,155 Equity income of management company.... 54 75 (--) 115(I) 244 ------- ------- ------ ------- --------- Income (loss) before extraordinary items................................ $ (128) $(1,235) $ 1,922 $ 1,840 $ 2,399 Income (loss) allocated to Preferred Shares............................... -- -- -- 1,686(J) 1,686(I) ------- ------- ------ ------- --------- Income (loss) allocated to Common Shares............................... $ (128) $(1,235) $ 1,922 $ 154 $ 713 ======= ======= ====== ======= ========= Earnings per common share before extraordinary items.................. Income (loss) before extraordinary items............................. $ (0.19) $ 0.40 ======= ========= Income (loss) allocated to Common Shares............................ $ (0.19) $ 0.12 ======= ========= Weighted average number of shares outstanding.......................... 676,801 6,007,577(K) ======= =========
The accompanying notes and management assumptions are an integral part of these statements. F-6 175 BRANDYWINE REALTY TRUST NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS) 1. BASIS OF PRESENTATION: Brandywine Realty Trust (the "Company") is a Maryland real estate investment trust. As of September 30, 1996, the Company owned interests in 24 properties, consisting of 23 suburban office buildings in three states and one industrial property. The Company is the sole general partner and has an approximately 59% interest in Brandywine Operating Partnership, L.P. (the "Operating Partnership"). The minority interests in the Operating Partnership include TNC and other owners, and SSI, which have ownership interests of 31% and 10%, respectively. These pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of the Company, the SSI/TNC Properties, the LibertyView Building and the Acquisition Properties included elsewhere herein. In management's opinion, all adjustments necessary to reflect the effects of the Offering and the Concurrent Investments, the acquisitions of the SSI/TNC Properties, the LibertyView Building and the Acquisition Properties by the Company have been made. 2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET: (A) Reflects the historical consolidated balance sheet of the Company as of September 30, 1996. Acquisition Properties (B) Reflects the combined balance sheets of the acquisitions of the Acquisition Properties as follows:
DELAWARE 700/800 CORPORATE BUSINESS 8000 SERS CENTER CENTER LINCOLN PROPERTIES(I) I(II) DRIVE(II) DRIVE(II) COMBINED ------------- ---------- --------- --------- -------- Real estate investments, net........ $29,352 $ 12,954 $ 7,313 $ 3,090 $ 52,709 Cash and cash equivalents........... (892) (12,839) (7,263) (3,065) (24,059) Other assets........................ -- (115) (50) (25) (190) Escrowed cash....................... 1,265 -- -- -- 1,265 Total assets.............. $29,725 $ -- $ -- $ -- $ 29,725 ======= ======== ======= ======= ======== Liabilities: Mortgages and notes payable....... $ 3,225 $ -- $ -- $ -- $ 3,225 ------- -------- ------- ------- -------- Total liabilities......... 3,225 -- -- -- 3,225 ------- -------- ------- ------- -------- Convertible Preferred Shares........ 26,444 -- -- -- 26,444 ------- -------- ------- ------- -------- Total beneficiaries' equity.................. 56 -- -- -- 56 ------- -------- ------- ------- -------- Total liabilities and beneficiaries' equity... $29,725 $ -- $ -- $ -- $ 29,725 ======= ======== ======= ======= ========
- --------------- (i) The purchase price for the SERS Properties consists of: (i) 481,818 Series A Preferred Shares, convertible, under certain circumstances, into 1,606,060 Common Shares; (ii) two year warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per share and based on a $.42 per warrant value (based on a modified Black Scholes calculation); and (iii) deferred payments aggregating $3.8 million, of which $2.5 million is payable in June 1998 and $1.3 million is due in December 1999. The Company recorded a $575 adjustment to the purchase price to reflect the fair value of the deferred payments. In addition, closing costs of $892 have been capitalized to real estate investments, net. F-7 176 (ii) Reflects the Company's acquisition of these properties based upon the purchase price plus closing costs as follows:
PURCHASE CLOSING PRICE COSTS TOTAL -------- ------- ------- Delaware Corporate Center I............................. $ 12,700 $ 254 $12,954 700/800 Business Center Drive........................... $ 7,100 $ 213 $ 7,313 8000 Lincoln Drive...................................... $ 3,000 $ 90 $ 3,090
Offering (C) Pro forma cash and cash equivalents were determined as follows: - Net proceeds from this Offering after underwriting discounts and commissions and estimated Offering expenses of $7,883............. $ 53,167 - Net proceeds from the Morgan Stanley Private Placement............ 11,700 - Net proceeds from issuance of common shares to SERS Voting Trust............................................................. 10,500 - Repayment of mortgages and notes payable including related costs............................................................. (49,132) - Payment of commitment fee on the Credit Facility.................. (600) Other cash activities -- - Release of escrowed cash resulting from the repayment of mortgage notes payable....................................................... 145 - Payment of accrued interest....................................... (321) - Net increase in cash and cash equivalents......................... $ 25,459 (D) Release of escrowed cash resulting from the repayment of mortgage notes payable....................................................... $ (145) (E) Reflects the increase in deferred financing costs as follows: - Credit Facility................................................... $ 600 - Repayment of mortgage notes....................................... (96) $ 504 (F) Reflects the net decrease in mortgages and notes payable: - Repayment of mortgages and notes payable from net proceeds of this Offering.......................................................... $(48,632) - Payment of the note payable to the RMO Fund through the issuance of Paired Units..................................................... (774) $(49,406) (G) Reflects the payment of accrued interest in connection with the repayment of mortgages and notes payable............................ $ (321) (H) Reflects the reduction of minority interest upon the Company's equity contribution of $54 million of net proceeds from the Offering to the Operating Partnership and $22.2 million of net proceeds from the private placement and the issuance of Common Shares. Upon making this contribution, the Company will receive 6,470,576 GP units which will increase its ownership percentage to 93%....................... $ (8,145) (I) Par value of the Common Shares to be issued......................... $ 51
F-8 177 (J) Reflects (i) the issuance of 3,700,000 Common Shares, par value of $.01 per share, at an assumed offering price of $16.50 per share the last reported sales price of the Common Shares on the AMEX on November 6, 1996; (ii) the issuance of 709,090 Common Shares, at per share in the Morgan Stanley private placement; (iii) the issuance of 636,364 Common Shares at an assumed Offering Price of $16.50 per share to SERs Voting Trust; and (iv) the issuance of 45,844 Paired Units to the RMO Fund. The following table sets forth the adjustments to additional paid-in capital: - Net proceeds from the Offering of Common Shares after underwriting discounts and commissions and Offering expenses................................................. $53,167 Less: Adjusted par value of Common Shares at $.01 par...... (37) $53,130 ------- - Net proceeds from the Concurrent Investments net of par value of $13............................................... 22,187 - Write-off of deferred financing costs.................... (96) - Additional capital contribution to the Operating Partnership.............................................. 8,145 - Prepayment of note payable to the RMO Fund, net of par value of $1................................................ 525 - Other.................................................... (500) ------- Net increase in additional paid-in capital................. $83,391 ======= (K) Reflects the issuance of 45,844 warrants to the RMO Fund, based on a $5.40 per warrant value (based on a modified Black Scholes calculation)................................. $ 248 =======
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS: (A) Reflects the historical consolidated operations of the Company. SSI/TNC Transaction and LibertyView Building Acquisition (B) Reflects the adjusted historical operations of the SSI/TNC Properties which were acquired on August 22, 1996 and LibertyView Building which was acquired on July 19, 1996. The historical operations of the SSI/TNC Properties exclude the extraordinary gains on restructuring of debt of $5,559 and $494 for the year ended December 31, 1995 and the nine-month period ended September 30, 1996, respectively. F-9 178 FOR THE YEAR ENDED DECEMBER 31, 1995
TOTAL ADJUSTED SSI/TNC PROPERTIES AND SSI/TNC LIBERTYVIEW PROPERTIES LIBERTYVIEW BUILDING HISTORICAL BUILDING PRO FORMA COMBINED COMBINED HISTORICAL ADJUSTMENTS HISTORICAL ---------- ------------ ----------- -------------- Revenue: Base rents............................... $ 7,829 $1,119 $ -- $ 8,948 Tenant reimbursements.................... 2,895 535 -- 3430 Management fees.......................... 617 -- (617)(iv) -- Other.................................... 3 -- -- 3 ---------- ------------ ----------- -------------- Total revenue......................... 11,344 1,654 (617) 12,381 ---------- ------------ ----------- -------------- Operating expenses: Interest................................. 5,855 -- 845(i) 6,700 Depreciation and amortization............ 4,336 -- (246)(ii) 4,090 Property expenses........................ 3,424 798 -- 4,222 General and administrative............... 1,108 -- (438)(iv) 670 ---------- ------------ ----------- -------------- Total operating expenses.............. 14,723 798 161 15,682 Income (loss) before minority interest............................ (3,379) 856 (778) (3,301) Minority interest in income (loss)......... -- -- (1,182)(iii) (1,182)(iii) ---------- ------------ ----------- -------------- Income (loss) before uncombined entity and extraordinary items...................... (3,379) 856 404 (2,119) Equity income of management company........ -- -- 179 179 ---------- ------------ ----------- -------------- Income (loss) before extraordinary items... $ (3,379) $ 856 $ 583 $ (1,940) ======= ========= ========= ===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
TOTAL ADJUSTED SSI/TNC SSI/TNC PROPERTIES AND PROPERTIES LIBERTYVIEW LIBERTYVIEW HISTORICAL PROPERTY BUILDING COMBINED HISTORICAL PRO FORMA COMBINED THRU 8/22/96 THRU 7/19/96 ADJUSTMENTS HISTORICAL ------------ ------------ ----------- -------------- Revenue: Base rents............................. $ 5,059 $ 655 $ -- $ 5,714 Tenant reimbursements.................. 2,250 261 -- 2,511 Management fees........................ 778 -- (778)(iv) -- Other.................................. 100 -- -- 100 ------------ ------ ----------- -------------- Total revenue....................... 8,187 916 (778) 8,325 ------------ ------ ----------- -------------- Operating expenses: Interest............................... 3,322 -- 461(i) 3,783 Depreciation and amortization.......... 2,717 -- 102(ii) 2,819 Property expenses...................... 2,831 -- -- 2,831 General and administrative............. 599 399 (283)(iv) 715 ------------ ------ ----------- -------------- Total operating expenses............ 9,469 399 280 10,148 Income (loss) before minority interest.......................... (1,282) 517 (1,058) (1,823) Minority interest in income (loss)....... -- -- (513)(iii) (513) ------------ ------ ----------- -------------- Income (loss) before uncombined entity and extraordinary items................ (1,282) 517 (545) (1,310) Equity income of management company...... -- -- 75(iv) 75 ------------ ------ ----------- -------------- Income (loss) before extraordinary items.................................. $ (1,282) $ 517 $ (470) $ (1,235) ========= ========= ========= ==========
F-10 179
FOR THE PERIOD FROM JANUARY 1, 1996 TO THE FOR THE RESPECTIVE YEAR ENDED ACQUISITION DECEMBER 31, 1995 DATE ----------------- --------------- (i) Reflects the increase in interest expense resulting from: - the Note payable to SSI (which bears interest at prime) assuming a prime rate of 8.25%................. $ 33 $ 21 - the Mortgage and notes payable of the LibertyView Building, with effective rates of 8% per annum........ 750 406 - the Note payable to the RMO fund (which bears interest at prime) assuming a prime rate of 8.25%.............. 62 34 ------- ------ $ 845 $ 461 ============= =========== (ii) Reflects the (decrease) increase in depreciation and amortization as follows: - Depreciation of capitalized costs from the SSI/TNC Transaction included in real estate investments....... $ 33 $ 24 - Depreciation of buildings acquired over a 25-year useful life and tenant improvements and other furniture, fixtures and equipment (FF&E) over five years in general...................................... (563) (76) - Depreciation of the LibertyView Building over a 35-year useful life................................... 244 132 - Amortization of deferred financing costs related to the LibertyView Building.............................. 40 22 ------- ------ $(246) $ 102 ============= ===========
(iii) Minority interest in income (loss) has been reflected in accordance with the terms of the Operating Partnership Agreement. As of September 30, 1996, the Company owns 59% of the Operating Partnership. The remaining 41% of the Operating Partnership is owned by TNC, SSI and the other owners whose interests are reflected as minority interest. The adjustments to record the income effect of minority interest share of loss for the periods ended December 31, 1995, and September 30, 1996, in the pro forma statements of operations were computed as follows:
FOR THE FOR THE YEAR ENDED NINE-MONTHS DECEMBER 31, ENDED 1995 SEPTEMBER 30, 1996 ------------ ------------------ SSI/TNC Properties loss before Minority Interest............................... $ (3,379) $ (1,282) Impact of pro forma adjustments.......... 497 31 ------- ------- Total loss..................... $ (2,882) $ (1,251) ======= ======= Pro forma minority interest in loss (41%).................................. $ (1,182) $ (513) ======= =======
(iv) Reflects the results of operations of the Management Company from third party management services as accounted for using the equity method. Acquisition Properties (C) Reflects the combined pro forma statements of operations of the Acquisition Properties for the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively. F-11 180 FOR THE YEAR ENDED DECEMBER 31, 1995
DELAWARE 700/800 SERS CORPORATE BUSINESS 8000 LINCOLN PRO FORMA COMBINED PROPERTIES(I) CENTER I(I) CENTER DRIVE(I) DRIVE(I) ADJUSTMENTS(II) TOTAL ------------- ----------- ---------------- ------------ --------------- -------- Revenue: Base rents................ $ 4,366 $ 410 $567 $1,005 $ -- $6,348 Tenant reimbursements..... 238 -- 188 24 -- 450 ------ ----- ---- ---- -------- ------ 4,604 410 755 1,029 -- 6,798 ------ ----- ---- ---- -------- ------ Operating expenses: Interest.................. -- -- -- -- 258(ii) 258 Depreciation and amortization............ -- -- -- -- 1,687(iii) 1,687 Property expenses......... 2,236 502 305 365 -- 3,408 ------ ----- ---- ---- -------- ------ Total operating expenses.............. 2,236 502 305 365 1,945 5,353 ------ ----- ---- ---- -------- ------ Income (loss) before minority interest..... $ 2,368 $ (92) $450 $ 664 $(1,945) $1,445 ====== ===== ==== ==== ======== ======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
DELAWARE 700/800 SERS CORPORATE BUSINESS 8000 LINCOLN PRO FORMA COMBINED PROPERTIES(I) CENTER I(I) CENTER DRIVE(I) DRIVE(I) ADJUSTMENTS(II) TOTAL ------------- ----------- ---------------- ------------ --------------- -------- Revenue: Base rents................ $ 3,435 $ 1,666 $533 $194 $ -- $5,828 Tenant reimbursements..... 213 -- 62 2 -- 277 ------ ----- ---- ---- -------- ------ 3,648 1,666 595 196 -- 6,105 ------ ----- ---- ---- -------- ------ Operating expenses: Interest.................. -- -- -- -- 194(ii) 194 Depreciation and amortization............ -- -- -- -- 1,265(iii) 1,265 Property expenses......... 1,862 452 221 189 -- 2,724 ------ ----- ---- ---- -------- ------ Total operating expenses.............. 1,862 452 221 189 1,459 4,183 ------ ----- ---- ---- -------- ------ Income (loss) before minority interest..... $ 1,786 $ 1,214 $374 $ 7 $(1,459) $1,922 ====== ===== ==== ==== ======== ======
- --------------- (i) Reflects the historical operations of the Acquisition Properties, excluding certain expenses such as interest, depreciation and amortization, professional costs, and other costs not directly related to the future operations of the Acquisition Properties. (ii) Reflects the interest on the note payable to the Seller of the SERS Properties using an effective rate of 8%. (iii) Reflects the depreciation of the Acquisition Properties using a 25-year useful life. F-12 181
FOR THE YEAR ENDED FOR THE DECEMBER NINE-MONTHS 31, ENDED 1995 SEPTEMBER 30, 1996 ----------- ------------------ Offering (D) Reflects the net reduction of interest expense associated with the mortgages and notes payable assumed to be repaid using net proceeds from the Offering. ....................................... $(4,355) $ (2,746) ----------- ---------- (E) Reflects the net increase in amortization of deferred financing costs related to the mortgage notes paid off and the new Credit Facility. ..... $ 277 $ 208 ----------- ---------- (F) Reflects adjustment for minority interest in the Operating Partnership of 7%. .................... $ 1,339 $ 775 ----------- ---------- (G) To record management fees charged by the Management Company. ............................. $ 891 $ 605 ----------- ---------- (H) To transfer general and administrative expenses to the Management Company. ...................... $ (562) $ (567) ----------- ---------- (I) To record share of income (loss) from the Management Company............................... $ (107) $ 115 ----------- ---------- (J) To record dividends on 481,818 Preferred Shares at an annual rate of $4.67. ..................... $ 2,248 $ 1,686 ----------- ---------- (K) Reflects the weighted average number of Common Shares outstanding including share equivalents. If all Units (509,856) were converted as of January 1, 1995, the weighted average number of shares outstanding would have been 6,517,433 and 6,517,433, respectively. ........................
F-13 182 After giving effect to the reverse share split discussed in Note 16, we would be in a position to render the following audit report. ARTHUR ANDERSEN LLP Philadelphia, PA, March 4, 1996 (except with respect to the matters discussed in Note 16, as to which the date is October 7, 1996) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Beneficiaries of Brandywine Realty Trust: We have audited the consolidated balance sheets of Brandywine Realty Trust (a Maryland corporation) as of December 31, 1994 and 1995, and the related consolidated statements of operations, beneficiaries' equity and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Brandywine Realty Trust as of December 31, 1994 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule III is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. F-14 183 BRANDYWINE REALTY TRUST CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
AS OF DECEMBER 31, AS OF ------------------- SEPTEMBER 30, 1994 1995 1996 ------- ------- ------------- (UNAUDITED) ASSETS REAL ESTATE INVESTMENTS Operating properties, at adjusted cost................... $21,335 $21,823 $ 106,744 Accumulated depreciation................................. (7,387) (8,114) (7,926) ------- ------- -------- 13,948 13,709 98,818 CASH AND CASH EQUIVALENTS.................................. 1,766 840 1,859 ESCROWED CASH.............................................. 1,114 1,155 966 DEFERRED COSTS net of accumulated amortization of $519 in 1994 and $507 in 1995 and $588 at September 30, 1996 (unaudited).............................................. 813 1,027 2,290 DUE FROM AFFILIATE......................................... -- -- 222 ACCOUNTS RECEIVABLE........................................ 207 261 1,102 INVESTMENT IN AFFILIATE.................................... -- -- 117 OTHER ASSETS............................................... 25 113 809 ------- ------- -------- Total assets..................................... $17,873 $17,105 $ 106,183 ======= ======= ======== LIABILITIES AND BENEFICIARIES' EQUITY MORTGAGE NOTES PAYABLE..................................... $ 6,899 $ 8,931 $ 81,482 NOTES PAYABLE TO SHAREHOLDERS.............................. -- -- 1,538 ACCRUED MORTGAGE INTEREST.................................. 57 33 529 TENANT SECURITY DEPOSITS AND DEFERRED RENTS................ 207 250 715 ACCOUNTS PAYABLE AND ACCRUED EXPENSES...................... 222 454 1,852 DISTRIBUTIONS PAYABLE...................................... 1,299 93 -- ------- ------- -------- Total liabilities................................ 8,684 9,761 86,116 ------- ------- -------- MINORITY INTEREST.......................................... -- -- 8,758 COMMITMENTS AND CONTINGENCIES BENEFICIARIES' EQUITY Shares of beneficial interest, $0.01 par value, 5,000,000 preferred shares, authorized, none outstanding; 25,000,000 common shares authorized, 618,733 shares issued and outstanding at December 31, 1994 and 1995 and 911,184 at September 30, 1996, respectively....... 6 6 9 Additional paid-in capital............................... 16,785 16,785 20,443 Stock warrants........................................... -- -- 658 Cumulative deficit....................................... (2,262) (3,086) (3,214) Cumulative distributions................................. (5,340) (6,361) (6,587) ------- ------- -------- Total beneficiaries' equity...................... 9,189 7,344 11,309 ------- ------- -------- Total liabilities and beneficiaries' equity...... $17,873 $17,105 $ 106,183 ======= ======= ========
The accompanying notes are an integral part of these statements. F-15 184 BRANDYWINE REALTY TRUST STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
FOR THE YEAR ENDED DECEMBER 31, FOR THE NINE-MONTH PERIOD --------------------------------------------------------- HISTORICAL PRO FORMA CONSOLIDATED CONSOLIDATED ENDED SEPTEMBER 30, 1993 CONSOLIDATED 1994 1995 ------------------------- ------------ 1993 ------------ ------------ 1995 1996 ------------ ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) REVENUE: Rents and tenant reimbursements... $ -- $ 5,451 $ 4,159 $ 3,583 $ 2,637 $ 4,530 Income from acquisition of limited partner interests in Brandywine Specified Property Investors Limited Partnership............. 2,469 2,469 -- -- -- -- Allocated income from Brandywine Realty Partners................. 568 -- -- -- -- -- Other income...................... 25 106 33 83 54 69 ---------- ---------- ---------- ---------- ---------- ---------- Total revenue............... 3,062 8,026 4,192 3,666 2,691 4,599 ---------- ---------- ---------- ---------- ---------- ---------- EXPENSES: Interest.......................... -- 2,400 1,962 793 572 1,342 Depreciation and amortization..... 1 1,949 1,370 1,402 1,084 1,173 Utilities......................... -- 762 607 531 397 491 Real estate taxes................. -- 721 498 391 297 432 Maintenance....................... -- 910 783 586 407 776 Management fee.................... -- 264 144 47 44 108 Other operating expenses.......... -- 223 70 53 43 60 Administrative expenses........... 593 1,053 834 682 439 439 Provision for loss on real estate investments..................... -- -- 5,400 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total expenses.............. 594 8,282 11,668 4,485 3,283 4,821 ---------- ---------- ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE GAIN ON SALES OF REAL ESTATE INVESTMENTS, MINORITY INTEREST AND EXTRAORDINARY ITEM................ 2468 (256) (7,476) (819) (592) (222) GAIN ON SALES OF REAL ESTATE INVESTMENTS....................... -- -- 1,410 -- -- -- MINORITY INTEREST IN INCOME (LOSS) OF AFFILIATES..................... -- (2,724) (5,635) 5 -- (40) EQUITY IN NET INCOME OF MANAGEMENT COMPANY........................... -- -- -- -- -- 54 ---------- ---------- ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE EXTRAORDINARY ITEM.............................. 2,468 2,468 (431) (824) (592) (128) EXTRAORDINARY ITEM: GAIN ON EXTINGUISHMENT OF DEBT (NET OF $20,109 ALLOCATED TO MINORITY INTEREST)......................... -- -- 7,998 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS)................... $ 2,468 $ 2,468 $ 7,567 $ (824) $ (592) $ (128) ========== ========== ========== ========== ========== ========== PER SHARE DATA: Earnings per share of beneficial interest Primary (Loss) income before extraordinary item............ $ 3.99 $ 3.99 $ (.64) $ (1.32) $ (.95) $ (.19) Extraordinary item.............. 0.00 0.00 11.86 0.00 0.00 0.00 ---------- ---------- ---------- ---------- ---------- ---------- Net income...................... $ 3.99 $ 3.99 $ 11.22 $ (1.32) $ (.95) $ (.19) ========== ========== ========== ========== ========== ========== Weighted average number of shares outstanding including share equivalents..................... 618,733 618,733 674,327 624,791 624,953 676,801 ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. F-16 185 BRANDYWINE REALTY TRUST CONSOLIDATED STATEMENTS OF BENEFICIARIES' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
COMMON SHARES OF CAPITAL BENEFICIAL PAR IN EXCESS STOCK CUMULATIVE CUMULATIVE INTEREST VALUE OF PAR VALUE WARRANTS DEFICIT DISTRIBUTIONS -------- ----- ------------ -------- ---------- ------------- BALANCE, January 1, 1993............. 618,733 $ 6 $ 16,785 $ -- $(12,297) $(2,426) Net income......................... -- -- -- -- 2,468 -- -------- - -- - ------- --- ------- ------- BALANCE, December 31, 1993........... 618,733 6 16,785 -- (9,829) (2,426) Net income......................... -- -- -- -- 7,567 -- Distributions ($4.71 per share).... -- -- -- -- -- (2,914) -------- - -- - ------- --- ------- ------- BALANCE, December 31, 1994........... 618,733 6 16,785 -- (2,262) (5,340) Net loss........................... -- -- -- -- (824) -- Distributions ($1.65 per share).... -- -- -- -- -- (1,021) -------- - -- - ------- --- ------- ------- BALANCE, December 31, 1995........... 618,733 6 16,785 -- (3,086) (6,361) Net loss........................... -- -- -- -- (128) -- Contributions...................... 292,451 3 3,658 658 -- -- Distributions ($0.36 per share).... -- -- -- -- -- (226) -------- - -- - ------- --- ------- ------- BALANCE, September 30, 1996 (Unaudited)........................ 911,184 $ 9 $ 20,443 $658 $ (3,214) $(6,587) ========= === ======= === ======= =======
The accompanying notes are an integral part of these statements. F-17 186 BRANDYWINE REALTY TRUST STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------- FOR THE NINE MONTH PERIOD PRO FORMA HISTORICAL CONSOLIDATED CONSOLIDATED CONSOLIDATED ENDED SEPTEMBER 30, 1993 1993 1994 1995 ------------------------- ---------- ------------ ------------ ------------ 1995 1996 ----------- ----------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: NET (LOSS) INCOME.......................... $ 2,468 $ 2,468 $ 7,567 $ (824) $ (592) $ (128) ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Extraordinary gain on extinguishment of debt (net of $20,109 allocated to minority interest).................... -- -- (7,998) -- -- -- Gain on sales of real estate investments........................... -- -- (1,410) -- -- -- Minority interest in income (loss) of affiliates............................ -- (2,724) (5,635) 5 -- (40) Income from acquisitions of limited partner interests in Brandywine Specified Property Investors Limited Partnership........................... (2,469) (2,469) -- -- -- -- Depreciation and amortization........... 1 1,949 1,370 1,402 1,084 1,173 Equity in net income of management company............................... -- -- -- -- -- (54) Provision for loss on real estate investments........................... -- -- 5,400 -- -- -- Changes in assets and liabilities (Increase) decrease in accounts receivable.......................... -- (140) 483 (54) (25) (452) Decrease (increase) in other assets... (13) 166 (194) 13 (124) 77 (Decrease) increase in other liabilities......................... 13 81 (211) (45) 20 311 ------ ------ ------ ------ ---- ---- Net cash provided by (used in) operating activities.............. -- (669) (628) 497 363 887 ------ ------ ------ ------ ---- ---- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of SSI/TNC Properties, net of cash acquired........................... -- -- -- -- -- 287 Acquisitions of LibertyView Building...... -- -- -- -- -- (9,809) Cash from Brandywine Realty Partners...... -- 2,110 -- -- -- Capital expenditures and leasing commissions paid........................ -- (620) (493) (660) (371) (715) Decrease (increase) in escrowed cash...... -- -- (1,114) (41) (572) 323 Net proceeds from real estate and other assets sold............................. -- -- 9,223 -- -- -- Cash received from acquisitions of limited partner interests in Brandywine Specified Property Investors Limited Partnership................... 2,469 2,469 -- -- -- -- Sales commission paid to related party.... -- -- (167) -- -- -- ------ ------ ------ ------ ---- ---- Net cash (used in) provided by investing activities............................ 2,469 1,849 9,559 (701) (943) (9,914) ------ ------ ------ ------ ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock and warrants................................ -- -- -- -- -- 1,003 Distributions paid to shareholders........ -- -- (1,615) (2,227) (2,134) (319) Minority Partner contributions............ -- 51 49 -- -- -- Minority Partner distributions............ -- (34) (7) (5) -- (7) Proceeds from note payable to shareholder............................. -- -- -- -- -- 1,392 Proceeds from mortgage notes payable...... -- -- 10,000 9,000 9,000 8,574 Repayment of mortgage notes payable....... -- -- (16,301) (6,968) (6,942) (350) Costs associated with refinancing transactions............................ -- -- (1,604) (250) (250) (128) Costs associated with new ventures and financing commitments................... -- -- (100) (221) -- (198) Refundable deposit associated potential financing commitments................... -- -- -- (95) -- -- Tenant security deposits and other financing activities.................... -- 175 (57) 44 -- 79 ------ ------ ------ ------ ---- ---- Net cash (used in) provided by financing activities............................ -- 192 (9,635) (722) (326) 10,046 ------ ------ ------ ------ ---- ---- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......................... 2,469 1,372 (704) (926) (906) 1,019 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 1 3,208 2,470 1,766 1,766 840 ------ ------ ------ ------ ---- ---- CASH AND CASH EQUIVALENTS AT END OF YEAR.... $ 2,470 $ 4,580 $ 1,766 $ 840 $ 860 $ 1,859 ====== ====== ====== ====== ==== ====
The accompanying notes are an integral part of these statements. F-18 187 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. ORGANIZATION AND NATURE OF OPERATIONS: Brandywine Realty Trust (the "Company") was formed on February 26, 1986 as a Maryland real estate investment trust. On July 31, 1986, the Company sold through an initial public offering 618,733 shares of beneficial interest, the net proceeds of which were $17,168,000. On July 31, 1986, the Company acquired a 68% general partner interest in Brandywine Realty Partners ("Brandywine"), at a total cost of $16,787,000. As of December 31, 1995, the partners of Brandywine and their percentage ownership were as follows:
% OWNERSHIP ----------- Brandywine Realty Trust, a Maryland real estate investment trust.......................................................... 70% Brandywine Specified Property Investors Limited Partnership ("BSPI"), a Pennsylvania limited partnership................... 30% --- 100% ===
At December 31, 1995, the Company's portfolio was comprised of four commercial real estate projects (the "Specified Projects"). The Specified Projects are leased for office purposes. As of December 31, 1995, the overall occupancy rate of the Specified Projects was 97% as compared to 86% one year earlier. As of December 31, 1995, existing leases totaling 95,000 square feet or 37% of the total square feet, were scheduled to expire during 1996. However, subsequent to year end, three different leases were renewed for 17,000, 8,000 and 5,000 square feet, respectively, for terms of ten, five and three years, respectively. As of June 30, 1996, the overall occupancy rate of the Specified Projects was 96%. The Specified Projects held on December 31, 1995 are located in the greater Philadelphia, Pennsylvania and Raleigh, North Carolina metropolitan areas. Each of these markets is competitive, with the principal methods of competition consisting in each case of rental rates (including rental concessions such as initial periods of free occupancy), location, level of leasehold improvements and building amenities. The Specified Projects compete for tenants with other properties which may have competitive advantages. On July 19, 1996, the Trust acquired a 122,000 square foot office building (the "LibertyView Building") in Cherry Hill, New Jersey. On August 22, 1996, the Company closed on the acquisition of 19 additional properties (the "SSI/TNC Properties") and in the transaction (the "SSI/TNC Transaction") the Company became the sole general partner of and obtained a 59% interest in Brandywine Operating Partnership, L.P. (the "Operating Partnership") (see Note 5). The financial statements as of September 30, 1996 and for the nine months ended September 30, 1995 and 1996, are unaudited and have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, all adjustments (consisting of normal recurring adjustments except for the adjustments to record the effects of the acquisitions by the Company of the LibertyView Building and the SSI/TNC Properties) necessary to present fairly the financial position of the Company as of September 30, 1996, and the results of its operations for the nine months ended September 30, 1995 and 1996 and its cash flows for the nine months ended September 30, 1995 and 1996 have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. F-19 188 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION Since the Company gained control of Brandywine during 1994, the Company consolidates the accounts of Brandywine with the Company and reflects the BSPI investment as minority interest. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company consolidates the accounts of Brandywine and the Operating Partnership and reflects the remaining interests in Brandywine and the Operating Partnership as Minority Interest. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CAPITALIZATION OF COSTS The Company has capitalized as deferred costs certain expenditures related to the financing and leasing of the Specified Projects. Capitalized loan fees are being amortized over the six-year term of the loan and leasing commissions are being amortized over the term of the related leases. As of December 31, 1995, the Company had incurred $357,000 in costs associated with its pursuit of potential acquisitions of additional real estate and third party equity and debt investments. Such costs are included in deferred costs on the Company's balance sheet as of December 31, 1995. Further, in connection with the Company's pursuit of potential acquisitions of additional real estate and third party debt investments, as of December 31, 1995 and September 30, 1996, the Company had deposited $95,000 and $225,000, respectively, with several unrelated parties. Such deposits are included in prepaid expenses and other assets on the balance sheets as of December 31, 1995 and September 30, 1996. DEPRECIATION AND AMORTIZATION Depreciation is computed using the straight-line method. Estimated useful lives are 30 years for buildings and improvements and five years for personal property. Amortization of tenant improvements is provided over the shorter of the lease term or the life of the assets. INVESTMENT IN BRANDYWINE Until January 1994, the Company had a 68% partnership interest in Brandywine which was previously accounted for using the equity method. Summarized financial information for this investment for the year ended December 31, 1993 is as follows (in thousands):
DECEMBER 31, 1993 ----------------- Total assets................................................. $39,994 Total revenue................................................ $ 5,532 Net loss..................................................... $(2,156) Allocated income from Brandywine............................. $ 568
F-20 189 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) INVESTMENT IN MANAGEMENT COMPANY Investment in Brandywine Realty Services Corporation (the "Management Company") in which the Operating Partnership owns all of the nonvoting Preferred Stock and 5% of the Common Stock is accounted for by the equity method. FEDERAL INCOME TAXES The Company has elected to qualify as a real estate investment trust under Sections 856-860 of the Internal Revenue Code and intends to remain so qualified. Accordingly, no provision is made for Federal income taxes on any real estate investment trust taxable income which has been or will be distributed to shareholders within the prescribed time limits. Taxable income (loss) for the years ended December 31, 1993, 1994 and 1995, totaled ($926,000), $0 and ($652,000), respectively. In 1994 and 1995 the differences between taxable income (loss) and net income (loss) as reported in the financial statements were primarily due to differences between the allocation of Brandywine's net income and loss for financial reporting purposes and for tax reporting purposes. In 1993, the difference was primarily due to the temporary difference related to the recognition of income from the settlements with two limited partners of BSPI (see Note 8). For financial reporting purposes, this item was recorded as income in 1993, while for tax reporting purposes, it was deferred to 1994. Under current law, the Company is subject to a 4% Federal excise tax if it does not distribute a sufficient amount of its taxable income within the prescribed time limits. The excise tax equals 4% of the amount, if any, by which the sum of (a) 85% of the Company's ordinary income and (b) 95% of the Company's capital gain net income (which was zero in each year since the Company's inception) for the year exceeds cash distributions during the year and certain taxes paid by the Company, if any. No excise tax was incurred in 1993, 1994 or 1995. Total assets of the Company for tax purposes amounted to $15,348,000 and $12,497,000, respectively as of December 31, 1994 and 1995 as compared to total assets for financial reporting purposes which amounted to $17,873,000 and $17,105,000, respectively. REVENUE RECOGNITION Rental income from tenants is recognized on a straight-line basis regardless of when payments are due. Accrued rental income included in the balance sheets with accounts receivable reflects such rental income due as follows: 1996.............................................................. $ 32,000 1997.............................................................. 36,000 1998.............................................................. 29,000 1999.............................................................. 35,000 2000.............................................................. 36,000 2001 and thereafter............................................... 2,000 -------- Total............................................................. $170,000 ========
During 1995, Parker, McCay & Criscuolo represented 10% of the Company's total rental revenue and American Executive Center represented 10% of the Company's total rental revenue. No tenant represented 10% or more of the Company's rental revenue in 1993 and 1994. RECLASSIFICATIONS Certain 1993 and 1994 amounts have been reclassified to conform to the current year presentation. F-21 190 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NET INCOME (LOSS) PER SHARE Net income (loss) per share is calculated based upon the weighted average shares outstanding which were 618,733 in 1993, 674,327 in 1994 and 624,791 in 1995 and 624,953 and 676,801 for the nine months ended September 30, 1995 and 1996, respectively. Earnings per share for 1994, 1995 and 1996 have been computed by considering any share equivalents applying the "treasury stock" method and assuming that all options were exercised on date of issue. The proceeds obtained from the exercise of any options would be utilized to purchase outstanding shares at the average market price for the primary earnings per share calculation and at the higher of the average market price or the closing market price as of December 31, 1994 and December 31, 1995, respectively, for the fully diluted earnings per share calculation for the years ended December 31, 1994 and 1995 and as of September 30, 1995 and 1996, respectively, for the nine months ended September 30, 1995 and 1996. No such options have been exercised as of December 31, 1995 and as of September 30, 1996. If these options had been exercised, the per share results would not be materially different from the primary earnings per share presented. STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash on hand and short-term investments with original maturities of 90 days or less. At December 31, 1994 and 1995 and September 30, 1996, cash and cash equivalents totaling $1,766,000, $840,000 and $1,859,000, respectively, included tenant escrow deposits of $155,000, $198,000 and $616,000, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents reported in the consolidated balance sheets approximate the fair value of those assets. The fair values for mortgage notes payable also approximate the carrying costs of those liabilities. 3. REAL ESTATE INVESTMENTS: Real estate investments are carried at the lower of adjusted cost or estimated net realizable value. On January 31, 1994, the outstanding mortgage indebtedness totaling approximately $43 million was extinguished in exchange for the payment of $14 million resulting, after costs, in an extraordinary gain of approximately $28 million in the first quarter of 1994. Of the total extraordinary gain, $20,109,000 was allocable to the Minority Interest partner. The closing of this transaction resulted in management's determination that the aggregate carrying value of the then owned seven Specified Projects exceeded the estimated net realizable value of approximately $22 million. Management based its estimate primarily upon third-party appraisals (reviewing each appraisal in relation to the current real estate market) and a $10 million nonrecourse mortgage. In the first quarter of 1994, a writedown of $5.4 million was recorded to adjust the carrying value of the Specified Projects to the estimated net realizable value. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of." This statement requires that long-lived assets to be held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss should be recognized. Measurement of an impairment loss for these assets should be based on the fair market value of the asset. On January 1, 1996, the Company adopted this statement. There was no effect from adopting this statement on the Company's financial position or results of operations. F-22 191 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. SALES OF REAL ESTATE INVESTMENTS: On February 28, 1994, the Lincoln Centre project was sold for a net sales price equal to its adjusted carrying value of approximately $2,300,000. Of the total net proceeds, $1,500,000 was deposited with the mortgage lender as escrowed cash reserves available for capital improvements, tenant improvements and leasing commissions associated with the remaining Specified Projects and the balance of net proceeds was maintained for general liquidity needs. On August 8, 1994, the Academy Downs project was sold for a net sales price of approximately $4,500,000. As a result, a net gain on the sale of $1,116,000 was recorded during the third quarter of 1994. Of the total net proceeds, Brandywine paid the mortgage lender $2,497,000 as principal and $366,000 as Additional Interest. After the required payments to the lender, eighty-five percent of the balance of net proceeds or $1,355,000 was distributed to the Company's shareholders as distributions totaling $2.19 per share. On December 15, 1994, the Iron Run project was sold for a net sales price of approximately $2,400,000. As a result, a net gain on the sale of $294,000 was recorded during the fourth quarter of 1994. Of the total net proceeds, Brandywine paid the mortgage lender $604,000 as principal and $436,000 as Additional Interest. After the required payments to the lender, the Company, on December 22, 1994, declared eighty-five percent of the balance of net proceeds or approximately $1,207,000 as a distribution payable on February 2, 1995 to the Company's shareholders of record as of January 24, 1995. Such distribution totaled $1.95 per share. The following unaudited pro forma financial information for the year ended December 31, 1994 of Brandywine Realty Trust gives effect to the above sales of the three Specified Projects as if the events had occurred on January 1, 1994. The pro forma financial information is unaudited and is not necessarily indicative of the results which actually would have occurred if the transactions had been consummated at the beginning of the period presented, nor does it purport to represent the results of operations for future periods.
YEAR ENDED DECEMBER 31, 1994 (UNAUDITED IN THOUSANDS) ------------------------------------------------------------------- Pro forma total revenue............................................ $ 3,479 Pro forma total expenses........................................... 10,763 ------- Pro forma loss before minority interest, gain on sales of real estate investments and extraordinary item........................ (7,284) Pro forma minority interest in loss of Brandywine Realty Partners......................................................... (5,635) Pro forma extraordinary item: gain on extinguishment of debt (net of $20,109 allocated to minority interest)....................... 7,998 ------- Pro forma net income............................................... $ 6,349 ======= Pro forma earnings per share: Pro forma loss before extraordinary item......................... $ (2.43) Pro forma extraordinary item..................................... 11.85 ------- Pro forma net income per share................................... $ 9.42 =======
5. ACQUISITIONS (UNAUDITED): On July 19, 1996, the Trust acquired the LibertyView Building, for $10.7 million, of which $9.8 million was paid at the closing and the remainder is due to the seller between July 1997 and December 1997. The effect of the acquisition was to increase real estate investments by $10.7 million, including costs associated with the acquisition and to increase mortgage indebtedness by $9.5 million. On August 22, 1996, the Company closed on the acquisition of substantially all of the real estate holdings of Safeguard Scientifics, Inc. ("SSI") and SSI's real estate affiliate, The Nichols Company ("TNC"), a F-23 192 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) private real estate development and management services company. In the SSI/TNC Transaction, the Company acquired 19 properties at a purchase price of $75.5 million subject to related mortgage debt of $63.6 million. Upon the August 22, 1996 closing (the "Closing") of the SSI/TNC Transaction, the Company became the sole general partner of and holds a 59% interest in the Operating Partnership. The following is a summary of the Operating Partnership units issued SSI/TNC Transaction:
TRUST TNC SSI TOTAL --------- --------- ------- --------- General Partner interest.............. 61(1) -- -- 61 Limited Partner interests: Class A units....................... -- 405,553(2) 134,606(2) 540,159 Class B units....................... 238,606(1) -- -- 238,606 Class C units....................... 533,333(3)(4) -- -- 533,333 --------- --------- ------- --------- 772,000 405,553 134,606 1,312,159 --------- --------- ------- --------- Ownership interest.................... 59%(4) 31% 10% 100% --------- --------- ------- ---------
- --------------- (1) The Company issued 258,333 common shares of beneficial interest of the Company, par value $0.01 per share ("Common Shares") and Warrants for an additional 258,333 Common Shares to SSI in exchange for SSI's ownership interest in the certain of the SSI/TNC Properties and $426,250 in cash. The Company contributed this investment (other than the cash) to the Operating Partnership and obtained the general partnership interest and all of the Class B limited partnership interest (238,606 Units) in the Operating Partnership. The Company issued 233,096 Common Shares and Warrants in exchange for the SSI Ownership Interest at a value of $3,937,000. The $16.89 per Common Share and Warrant value is based on the range of trading prices of the Common Shares at the time the SSI/TNC Transaction was announced ($4 7/8 and $4 7/16 being the high and low sales prices on March 27, 1996, the last full trading day prior to the public announcement) and based on a $2.10 per warrant value (based on a modified Black Scholes calculation). The Company issued 25,237 Common Shares and Warrants at the same $16.89 per unit in exchange for $426,250 in cash. (2) Units issued to TNC, other owners and SSI resulting from the sale to the Operating Partnership by TNC, SSI and other owners of substantially all of their ownership interest in the SSI/TNC Properties. The 540,159 Class A Units include 44,322 Units to be issued by September 1999 in exchange for residual interests in the SSI/TNC Properties (of which 41,076 will be issued to TNC and other Owners and 3,247 will be issued to SSI). SSI owns 40% of the capital stock of TNC. (3) Units issued to the Company at Closing in exchange for the contribution to the Operating Partnership of a majority of the Company's general partnership interest in Brandywine. (4) On August 23, 1997, it is expected that the Company will contribute its remaining general partnership interest in Brandywine in exchange for an additional 85,400 Class C Units. The costs associated with the acquisition and the issuance of Common Shares and other equity interests totaled $1,700,000. The costs associated with the acquisition totaled $935,000 and have been capitalized to real estate investments. The remaining costs attributed to issuing Common Shares to SSI and other equity interests of the Company have been recorded as a $620,000 reduction of additional paid-in capital and a $145,000 reduction of minority interest. The acquisition of the SSI/TNC Properties by the Company in exchange for 540,159 Class A Units at $16.50 per unit ($8,913,000) and 238,606 Class B Units at $16.50 per unit ($3,937,000) for a total consideration value at $12,850,000 was recorded by the Company based upon fair F-24 193 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) value of the real estate assets and other assets received net of total liabilities encumbering the SSI/TNC Properties as of August 22, 1996 as follows (in thousands): Real estate investments acquired at fair value................... $74,903 Other assets acquired............................................ 2,723 Mortgage notes................................................... (63,576) Other liabilities................................................ (1,200) ------- (64,776) -------- Total equity consideration............................. $12,850 ========
The SSI/TNC Transaction included the consolidation of the managements of the Company and TNC and the expansion of the Company's Board of Trustees to include designees of SSI and TNC. The new management company responsible for the managing, leasing and developing of the Company's Properties is owned by the Operating Partnership and a partnership comprised of four officers of the Company. In addition, employment agreements were executed with four key executives and provide for compensation aggregating $513,000 annually through August 22, 1998 and the issuance of six-year warrants for an aggregate of 220,000 Common Shares at a per share price of $19.50. 6. INVESTMENT IN MANAGEMENT COMPANY The investment in management company was acquired by the Operating Partnership through an initial contribution totalling $25,000 on August 22, 1996 and consists of a 100% ownership interest in the preferred stock and a 5% ownership interest in the common stock of Brandywine Realty Services Company (the "Management Company"). The Management Company is responsible for the managing, leasing and developing of the Company's Properties. Total management fees paid by the Company's Properties to the Management Company are included in management fee expense in the accompanying statements of operations and amounted to $76,000 for the period August 22, 1996 (inception) to September 30, 1996. The Management Company also receives reimbursements of certain direct costs attributable to the operation of the Properties. Such reimbursements are included in maintenance expense in the accompanying statements of operations and amounted to $36,000 for the period August 22, 1996 (inception) to September 30, 1996. Summary unaudited financial information for the Management Company as of September 30, 1996 and for the period from August 22, 1996 (inception) through September 30, 1996 is as follows:
SEPTEMBER 30, 1996 ------------------ Total assets................................................ $266,000 Total revenue............................................... $164,000 Net income.................................................. $ 97,000 Allocated net income from Management Company, net of $38,000 allocated to minority interest................. $ 54,000
7. MORTGAGE NOTES PAYABLE: On April 21, 1995, the Company refinanced its then existing mortgage loan with proceeds of mortgage loans totaling $6,250,000 and $2,750,000, respectively, and providing for a fixed rate of interest. The mortgage loans are cross-collateralized by the Specified Projects. The mortgage loans are due on April 15, 2001, and the lender has the right to call the loans at par on April 15, 1998. Monthly payments of interest and principal are due based on a 25 year amortization schedule for the period April 21, 1995 through April 15, 1998. After April 15, 1998, monthly payments of interest and principal are due based on a 22 year amortization schedule. The interest rate will be set at 8.75% through April 15, 1996, 9.0% for the period from April 16, 1996 through October 15, 1996 and 9.31% for the period from October 16, 1996 through April 15, 1998. After April 15, 1998 F-25 194 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the loan rate is reset based upon the mortgage lender's evaluation, at that time, of, among other factors, the financial performance and projected risk of the Specified Projects, the financial status of the Company and the then outstanding balance of the loans. For the year ended December 31, 1995, the difference between the interest calculated at a weighted average rate of 9.19% and the rate at which the interest was paid has been accrued as deferred interest. Deferred interest at December 31, 1995 totaled $27,000 and is included in accrued expenses. The mortgage loans provide for prepayment upon certain conditions, including, among others, the payment of a Make Whole Premium, defined as the greater of 1% of the principal amount to be prepaid or the positive difference between the present value of the mortgage (or part of the mortgage being prepaid) discounted at 9% through May 15, 1998 and U.S. Treasury yields, thereafter, netted against the amount of prepaid proceeds. At December 31, 1995, principal repayments on the outstanding mortgage loans are as follows: 1996............................................................. $ 107,000 1997............................................................. 111,000 1998............................................................. 122,000 1999............................................................. 134,000 2000............................................................. 147,000 2001............................................................. 8,310,000 ---------- $8,931,000 ==========
The loan is generally nonrecourse to the Company as to interest and principal, except in the event of a sale or encumbrance of the mortgaged premises, or in the event of fraud or willful misrepresentation in connection with the loan. In addition, the Company has agreed to be responsible to the lender for certain other liabilities, including (i) environmental liabilities, (ii) waste relating to the mortgaged premises, (iii) misapplication or misappropriation of certain reserves and other amounts held in connection with the operation of the mortgaged premises, (iv) failure to pay certain expenses relating to the mortgage premises, including utilities, operating and maintenance, taxes, assessments, and insurance, but only to the extent that the Company received rents or other proceeds from the mortgaged premises during the eighteen month period prior to an event of default under the loan documents, or after the occurrence thereof, and (v) certain other enumerated liabilities. The lender is entitled to hold escrow cash reserves for real estate taxes and capital requirements in two interest-bearing accounts. On April 21, 1995, an initial deposit of $1,559,000 was made into this account. Deposits to the real estate tax escrow account are required to be made on a monthly basis. Ongoing deposits to the capital escrow account are required of $10,000 per month during the first year of the loans and $25,000 per month over the remainder of the term of the loans. Amounts held in the capital escrow account may be advanced, from time to time and subject to certain conditions, to pay for capital improvements, tenant improvements and leasing commissions associated with the Projects and distributions to Shareholders of the Company. The capital escrow account held by the lender does not constitute additional collateral for the mortgage loans. At December 31, 1995 and September 30, 1996, the principal balance of the loans totaled $8,931,000 and $81,482,000, respectively, and the capital and real estate tax escrow accounts totaled $1,155,000 and $905,000, respectively. At December 31, 1994, the mortgage note payable totaled $6,899,000, was non-recourse and was secured by first mortgages on the Specified Projects. The mortgage loan was scheduled to mature on January 31, 1999 upon which date the full outstanding principal balance would have been due. Minimum interest was payable monthly at a floating rate equal to 4.25% per annum in excess of the composite rate on the lender's United States commercial paper, adjusted monthly. At December 31, 1994, the rate of minimum interest was set at 9.59%. During the year ended December 31, 1994, the weighted average interest rate of minimum interest and F-26 195 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Additional Interest on the loan was 10.8% exclusive of the payment, discussed below, of $1,114,000 made from escrowed cash to the mortgage lender on December 28, 1994. The Company was also required to escrow cash reserves as additional security for the repayment of the mortgage loan in non-interest bearing accounts held by the lender. The lender held $125,000 as a deposit, escrowed real estate tax payments with respect to the Specified Projects and escrowed cash reserves to pay for capital improvements, tenant improvements and leasing commissions associated with the Specified Projects. At December 31, 1994, total escrow cash reserves held by the lender amounted to $1,114,000. In connection with the refinancing, discussed above, these cash reserves were released to the Company. During 1994, in connection with the sales of Academy Downs and Iron Run, the Company repaid $3,101,000 of the mortgage loan balance as required under the loan documents, representing 115% of the allocable share of the original loan balance attributable to Academy Downs and Iron Run. Further, the lender was entitled to receive as additional interest ("Additional Interest") (i) a 25% participation in the net cash flow of the Specified Projects (other than the Lincoln Centre property) (the "Additional Interest Projects") to be paid monthly; (ii) a 25% participation in the net proceeds of any sale of an Additional Interest Project in excess of the allocable basis of the Additional Interest Project; (iii) a 25% participation in any proceeds of a refinancing relating to an Additional Interest Project in excess of the allocable basis of the Additional Interest Project; and (iv) a 25% participation at maturity, in the balance of the escrow account described above in excess of $2,040,000 less funds deposited into the escrow account by Brandywine pursuant to any sale or refinancing of an Additional Interest Project. The sale and refinancing participations described in (ii) and (iii) above were subject to a $1 million aggregate minimum payment. During 1994 in connection with sales of Academy Downs and Iron Run, the Company paid the mortgage lender $802,000, representing Additional Interest which Additional Interest was applied against the $1 million aggregate minimum payment amount. On December 28, 1994, the Company paid the mortgage lender $1,114,000 from escrowed cash reserves. In return for receiving this payment, the mortgage lender agreed to waive any future rights to receive Additional Interest from the Specified Projects and to open the mortgages to prepayment without penalty or premium. As a result of the lender receiving prepayment of Additional Interest, the option agreement granted to the lender, described below, was terminated. Further, the lender agreed to extend the commitment date on the Company's $26 million secured credit facility, described below, and to reduce that facility's pay rate by 125 basis points. On January 31, 1994, the Company granted the mortgage lender an option, exercisable for the greater of 375,000 Common Shares or 15% of the outstanding shares, which amount was subject to reduction to the extent of certain Additional Interest paid to the lender in connection with a sale or refinancing of a Specified Project. As a result of the sales of Academy Downs and Iron Run and the related payments of principal and Additional Interest to the lender, the number of Shares underlying the option was reduced from 375,000 to 274,000. The option, priced at $1.875 per Share, was exercisable only upon the new lender's release of its right to receive Additional Interest, from and after the date of such exercise. As a result of the mortgage lender receiving $1,114,000 as prepayment of Additional Interest on December 28, 1994, this option was terminated. During 1994, the Company obtained a $26 million commitment from the mortgage lender to provide nonrecourse financing for the acquisition of additional real estate properties. At December 31, 1994, no amounts were borrowed against the commitment. At December 31, 1995, such commitment had been terminated and $100,000 of associated deferred costs have been expensed. During the years ended December 31, 1994 and 1995, mortgage interest paid totaled $3,056,000 and $784,000 respectively. On a pro forma consolidated basis (unaudited), mortgage interest paid for the year ended December 31, 1993 totaled $2,230,000. At December 31, 1995, the Company's mortgage loans totaled $8.9 million and were cross collateralized by the Company's Properties. The mortgage loans were obtained through a refinancing on April 21, 1995. F-27 196 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Such loans are due on April 15, 2001 and provide for a fixed rate of interest which, as of December 31, 1995 and September 30, 1996, was set at 8.75% and 9.00%, respectively. As of September 30, 1996, such mortgage loans total $8.9 million. In connection with the Company's acquisition of the LibertyView Building on July 19, 1996, the Company obtained two mortgage loans which at September 30, 1996 aggregate $9.4 million. Of these mortgage loans, $8.4 million bears interest at a fixed rate of 8% per annum and matures on January 1, 1999. The second mortgage loan totaling $1.0 million was provided by the seller with no interest payable and principal payments due between July 1997 and December 1997. The Company recorded a $104,000 adjustment to the purchase price to reflect the fair value of the note payable to the seller. Both mortgage loans are secured by the LibertyView Building. In connection with the SSI/TNC Transaction, the Company acquired 19 properties encumbered by mortgage debt totaling $63.6 million. As of September 30, 1996, such mortgage loans aggregate $63.3 million and are due between July 1997 and June 2004. The mortgage notes are collateralized by the SSI/TNC Properties and the assignment of rents and generally require monthly principal and interest payments. Of these mortgage notes payable, mortgage notes aggregating $30.5 million at September 30, 1996, bear fixed annual interest ranging from 7% to 9.25%. One mortgage note payable encumbering one of the SSI/TNC Properties totals $1.6 million at September 30, 1996 and bears interest at a variable rate of interest based upon prime plus 1%. Further one mortgage note payable encumbering certain of the SSI/TNC Properties totals $31.2 million and bears interest at a variable rate of interest based upon the lender's commercial paper rate plus 2.75%. Interest payments are due monthly through maturity, November 30, 2000, and minimum monthly principal payments are equal to 1/12 of 0.5% of the principal balance outstanding on the first day of each loan year beginning December 1, 1996. Additional principal payments are due monthly based on 100% of net cash flow from the Properties, as defined, including, among other items, the deduction of $354,000 as a preference to the Company. No principal payments were made from these participating interest in cash flows during the nine months ended September 30, 1996. The loans are cross-collateralized and cross-defaulted. The loan is further secured by a $1.5 million letter of credit provided by SSI, which security is scheduled to expire in November 1996. The loans are subject to certain prepayment penalties, as defined. As additional consideration, the lender may receive additional contingent interest, as defined, at scheduled maturity or upon early loan repayment. The percentage used to compute the additional contingent interest may vary based upon the level of any additional drawdowns under the loan and was 25% at September 30, 1996. No additional contingent interest was paid during the nine months ended September 30, 1996. Guarantees by SSI, TNC and certain other Class A Unit holders against certain mortgage debt totaled $10,527,000 as of September 30, 1996. Further, at September 30, 1996, two mortgage notes totaling $13,426,000 and $3,218,000, are entitled to receive additional interest in the form of 50% and 80%, respectively, of the cash flows, as defined. During the nine months ended September 30, 1996, no additional interest expense was incurred. The weighted average interest rate on the Company's mortgage loans for the nine months ended September 30, 1996 and September 30, 1995, was 8.2% and 9.4% respectively. 8. ISSUANCE OF STOCK AND WARRANTS AND NOTE PAYABLE TO SHAREHOLDER: On June 21, 1996, an entity (the "RMO Fund") controlled by Richard M. Osborne, a shareholder and Trustee of the Company, made an investment in the Company in the aggregate amount of $1,330,000 (the "Aggregate Investment"). The Company issued 19,983 Paired Units (each consisting of one Common Share and one six-year warrant to purchase an additional Common Share at an exercise price of $19.50 per share) in exchange for $338,000 of the Aggregate Investment. Of the $338,000 total equity investment, the stock warrants totaled $42,000 and were recorded based on a $2.10 per warrant value (based on a modified Black Scholes calculation). Of the Aggregate Investment, the balance of $992,000 was made in the form of a loan F-28 197 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (the "Loan") that will be subject to prepayment, under certain circumstances, through the issuance by the Company of additional Paired Units. Proceeds of the investment were used by the Company in its acquisition of the LibertyView Building on July 19, 1996. (See Note 5.) The Loan is unsecured and under its terms, the principal sum outstanding from time to time will bear interest at an annual rate equal to the prime rate of interest, and interest will be payable quarterly in arrears, provided that the Company will have the right to have such accrued interest added to the principal balance of the Loan. Principal and accrued interest will be payable in full on the third anniversary of the date of the Loan. Under certain circumstances, the Company will be required to repay principal plus accrued interest on the Loan by delivering to the RMO Fund additional Paired Units at $16.89 per unit. In connection with the SSI/TNC Transaction, the Company was required to pay down principal on the Loan totaling $239,000 through the issuance of 14,135 units (each consisting of one Common Share and one warrant exercisable for six years for an additional Common Share at an initial exercise price of $19.50). Of the $239,000 equity issuance, the stock warrants totaled $73,000 and were recorded based on $5.19 per warrant value (based on a modified Black Scholes calculation). As of September 30, 1996, the remaining Loan totaled $774,000, including accrued interest of $20,000. In connection with the SSI/TNC Transaction, SSI advanced to the Operating Partnership $400,000 to pay for a portion of the expenses incurred by the Operating Partnership in connection with the SSI/TNC Transaction. As of September 30, 1996, $400,000 was outstanding on such loan. Further in connection with the SSI/TNC Transaction, SSI committed to loan the Operating Partnership $700,000 to fund working capital requirements of the Operating Partnership, subject to certain limitations. SSI's commitment will remain in effect until the earlier of: (1) January 31, 1998; (ii) a qualified offering by the Company; (iii) a refinancing by the Operating Partnership of indebtedness secured by one or more of the SSI/TNC Properties which results in net proceeds sufficient to repay amounts loaned to the Operating Partnership by SSI; or (iv) a liquidation of the Operating Partnership. As of September 30, 1996, no amount was outstanding on such loan. Each of the above loans bear interest at prime with payments of interest only due quarterly. Further, the loans mature on the earliest to occur of (i) the completion of a secondary stock offering by the Company; (ii) a refinancing by the Operating Partnership of indebtedness secured by one or more of the SSI/TNC Properties which results in net proceeds sufficient to repay amounts loaned to the Operating Partnership by SSI; or (iii) a liquidation of the Operating Partnership; (iv) July 31, 1999, if the Operating Partnership has sufficient funds for repayment; or (v) December 31, 2001. Certain tenant improvements and leasing costs associated with one of the SSI/TNC Properties have been financed by a loan from SSI which is secured by a second mortgage on the property. The loan provides for an aggregate balance of $460,000 of which $364,000 was outstanding as of September 30, 1996. The loan requires interest payable monthly at the prime rate and matures on the earlier of: (i) the completion of a secondary stock offering by the Company; (ii) a sale or refinance of the property providing sufficient funds to satisfy all other priority debts of the property; or (iii) July 31, 1999. 9. MINORITY INTEREST AND BENEFICIARIES' EQUITY: MINORITY INTEREST Under the terms of the Brandywine Partnership Agreement, contributions and distributions and allocations of income (loss) were as follows: Cash Contributions/Deficit Restoration Obligations At December 31, 1993 BSPI, through its limited partners, had an obligation to restore deficits in its capital account upon liquidation of Brandywine to a maximum of $12,961,000 in accordance with the F-29 198 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Brandywine Partnership Agreement. This maximum obligation in the event of liquidation would have been primarily available for distribution to the Company. In connection with the January 1994 refinancing of the Specified Projects in order to obtain the requisite approvals for the refinancing, the Company and Brandywine achieved a settlement (the "BSPI Settlement") of the deficit restoration obligations contingently owed by BSPI to Brandywine, which settlement was approved by holders of 93% of BSPI's limited partner units. Under the terms of the BSPI Settlement, effective January 1, 1994, the Company and Brandywine released BSPI and its limited partners from any current or future obligation to restore deficit balances in BSPI's capital account in Brandywine. In exchange, among other things, the Company's participation in Brandywine's operating cash flow was increased to 98% and BSPI waived certain voting rights in Brandywine. In connection with the BSPI Settlement, Brandywine National transferred its interest in Brandywine to the Company and the Company was designated as Brandywine's new administrative partner. Further, the Company's 25.83% interest in BSPI was transferred to a subsidiary of BSPI's general partner and retired. During the first quarter of 1994, in order to provide the cash necessary to complete the January 1994 refinancing of the Specified Projects, the Company contributed cash of $2,466,000 to Brandywine. This contribution increased the Company's Unrecovered Capital, originally defined in accordance with the Brandywine Partnership Agreement as an amount equal to $18,562,000 to $21,028,000. Such Unrecovered Capital represents the amount due to the Company as a first preference upon capital events related to the Specified Projects. At December 31, 1994 and 1995, the Company's Unrecovered Capital totaled $18,467,000 and $17,817,000, respectively, in accordance with the Brandywine Partnership Agreement. Cash Distributions Effective January 1, 1994, distributions of cash flow from operations are due first to the Company and BSPI, for reimbursement of administrative expenses; and second to the Company, 98% of remaining cash flow; and to BSPI, 2% of remaining cash flow. Distributions from capital events are due first to the Company, up to its Unrecovered Capital as defined in the Brandywine Partnership Agreement. Brandywine made cash distributions in 1993, first to the Company, in an amount equal to the Company's administrative expenses, and second to BSPI, in an amount equal to BSPI's administrative expenses. During 1993 no other cash distributions were made. Allocation of Net Income (Losses) from Operations During 1994 and 1995, for financial reporting purposes, income is first allocated to the Company and BSPI in an amount equal to cash distributions made to each partner. Thereafter, net losses are allocated to BSPI to the extent of its positive capital account balance and its share of Brandywine's "minimum gain" (as defined in the applicable United States Treasury Department regulations). Remaining net income and net losses are allocated to the Company. During 1993, in accordance with the Brandywine Partnership Agreement, net income (losses) from operations were allocated as follows: - First, income to the Company and BSPI in an amount equal to cash distributions made to such partner; - Second, losses to Brandywine National in an amount equal to 1% of Brandywine's gross rental income; - Third, Net losses to BSPI to the extent of its positive capital account balance, capital account deficit restoration obligation, and its share of Brandywine's "minimum gain" (as defined in the applicable United States Treasury Department regulations). F-30 199 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) CASH DISTRIBUTIONS For the years ended December 31, 1994 and 1995, the Company declared distributions totaling $4.71 and $1.65 per share, respectively. The Company determined that 100% of 1995 distributions or $1.65 per share represented a return of capital to the recipient. Further, the Company determined that 45% of 1994 distributions or $2.10 per share paid in 1995 represented a return of capital while the remaining 55% of 1994 distributions or $2.61 per share paid in 1994 represented ordinary income to the recipient. No distributions were declared by the Company during 1993. For the nine months ended September 30, 1996, the Company declared distributions totaling $0.36 per share. On November 1, 1996, the Company declared a distribution of $0.21 per share payable on November 22, 1996 to shareholders of record as of November 11, 1996. 10. STOCK OPTIONS: In 1994, the Board of Trustees adopted a stock option compensatory plan benefiting an executive officer of the Company covering 46,667 Common Shares. The plan includes options to purchase 33,333 shares at an exercise price of $19.50 per share. Of the remaining 13,333 shares subject to options, options covering 6,667 shares vested on August 8, 1995 and options covering 6,667 shares vest on August 8, 1996. The exercise price of the 13,333 options was set at $11.40. The per share exercise price of the options covering all 46,667 shares is subject to reduction as proceeds from the sale of, or refinancing of debt secured by, any Specified Projects are distributed by the Company to shareholders by an amount equal to the amount so distributed, from time to time, on account of each share. Accordingly, the per share exercise prices of the options have been reduced to $14.31 and $6.21, respectively, as a result of distributions to shareholders from proceeds of the Academy Downs and Iron Run sales and the April 21, 1995 mortgage refinancing. During the nine months ended September 30, 1996, the Company issued six-year warrants to the RMO Fund exercisable for an aggregate of 34,118 Common Shares (see Note 8). In connection with the SSI/TNC Transaction, the Company issued a six-year warrant to SSI exercisable for an aggregate of 258,333 Common Shares at a per share exercisable price of $19.50. Further, in connection with the employment agreements entered into upon the SSI/TNC Transaction, six-year warrants were granted to four executive officers exercisable for an aggregate of 220,000 Common Shares at a per share exercise price of $19.50 and additional six-year warrants for an aggregate of 23,333 Common Shares at a per share exercise price of $19.50 were granted to employees of the Company's affiliated management company (see Note 5). During 1994 and 1995 and the nine months ended September 30, 1996, there were no options exercised, canceled or expired. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", which establishes financial accounting and reporting standards for stock-based employee compensation plans. The statement encourages all entities to adopt a new method of accounting to measure compensation cost of all employee stock compensation plans based on the estimated fair value of the award at the date it is granted. Companies are, however, allowed to continue to measure compensation cost for those plans using the intrinsic value based method of accounting, which only requires footnote disclosures concerning this new accounting pronouncement. Management of the Company has adopted the pro forma method of disclosure as described above. 11. INCOME FROM ACQUISITION OF LIMITED PARTNER INTERESTS IN BSPI: During 1993, the Company obtained settlements with two limited partners of BSPI prior to the occurrence of any event that would have required the settling limited partners to restore their negative capital F-31 200 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) accounts in BSPI. In the settlements, the Company received $2,469,000 in cash and the settling limited partners' 25.83% limited partner interests in BSPI. As the successor to the settling limited partners, the Company assumed all rights and obligations of the settling limited partners to BSPI, including the settling limited partners' deficit restoration obligations totaling approximately $3,086,000. The Company also received from BSPI the right to setoff any future claims (direct or indirect) between the Company and BSPI, including the Company's deficit restoration obligations. The amount of cash received in conjunction with these settlements has been recorded as income in the accompanying financial statements due to the Company having received the right of setoff. Effective January 1, 1994, the Company and Brandywine released BSPI and its limited partners from any current or future obligation to restore deficit balances in BSPI's capital account in Brandywine and the Company's 25.83% interest in BSPI was transferred to a subsidiary of BSPI's general partner and retired. 12. RELATED-PARTY TRANSACTIONS: Through January 31, 1994, upon the sale of a Specified Project, certain related parties were entitled to a commission equal to 1.5% of the sales price of the Specified Project. During 1994 an amount of $167,000 was paid from a prior sale. Effective February 1, 1995, the Company assumed management of three of the four Specified Projects and entered into a management agreement with an unrelated party for the management of the fourth Specified Project. During the years 1993 and 1994 and the period January 1, 1995 through January 31, 1995, all of the Specified Projects, except Academy Downs, were managed by related parties. For their services, these property managers received an amount equal to 5% of rental income (excluding tenant reimbursements), which amount totaled $219,000, $187,000 and $10,000 in 1993, 1994 and 1995, respectively, and is included in management fees in the accompanying statements of operations. During 1993, the property managers also received reimbursements of certain direct costs attributable to the operation of the Specified Projects. Such reimbursements amounted to $154,000. Further, for the period February 1, 1994 through January 31, 1995, for the Specified Projects operated under a management agreement with related parties, one affiliate absorbed an amount equal to 2% of gross rents representing administrative costs, which costs would otherwise be borne by the Company. In 1994 and 1995, these amounts totaled $70,000 and $4,000, respectively. For the years 1993 and 1994 and through the period January 1, 1995 through January 31, 1995, certain related parties or employees thereof were paid leasing commissions with respect to leases obtained through them. Leasing commissions paid to such related parties in 1993, 1994 and 1995 amounted to $28,000, $56,000, and $47,000, respectively. Further, for the period February 1, 1994 through January 31, 1995, one affiliate absorbed an amount equal to 40% of the defined commission structure representing administrative costs, which costs would otherwise be borne by the Company. In 1994 and 1995, these amounts totaled $22,000 and $19,000, respectively. During 1993 and 1994 certain administrative and management functions for the Company were performed by a related party. During 1993 and continuing through August 8, 1994, the Company reimbursed the related party up to $100,000 per year for certain administrative expenses directly attributable to the Company. Such reimbursements amounted to $100,000 in 1993 and $75,000 in 1994. 13. OPERATING LEASES: The Company leases its properties to tenants under operating leases with various expiration dates extending to the year 2006. At December 31, 1995, leases covering 95,000 square feet or approximately 37% of the net leasable space were scheduled to expire during 1996. Subsequent to year end, three leases were F-32 201 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) renewed which total 30,000 square feet or 12% of the net leasable space. Gross minimum future rentals on noncancelable leases at December 31, 1995 were:
YEAR AMOUNT ---------------------------------------------------- ---------- 1996................................................ $3,223,000 1997................................................ 2,400,000 1998................................................ 1,660,000 1999................................................ 1,522,000 2000................................................ 1,371,000 2001 and thereafter................................. 4,231,000
The total minimum future rentals presented above do not include amounts that may be received as tenant reimbursements for charges to cover increases in certain operating costs. Excluding projects sold in each year, these tenant reimbursements amounted to $148,000, $47,000 and $66,000 in 1993, 1994, and 1995, respectively. 14. SUBSEQUENT EVENTS (UNAUDITED): The Company has filed a Form S-11 Registration Statement with the Securities and Exchange Commission to register the offer and sale of Common Shares (the "Offering"). The Company anticipates contributing the net proceeds to the Operating Partnership, to repay debt and provide funds for acquisitions and retain any excess for working capital needs. Costs associated with the proposed Offering are included in deferred costs and other liabilities on the Company's balance sheet as of September 30, 1996. Subsequent to September 30, 1996, the Company entered into agreements to purchase 13 properties "Acquisition Properties" which contain an aggregate of approximately 700,000 net rentable square feet located in the suburban Philadelphia markets. Nine of the properties will be acquired from an unrelated party for an aggregate purchase price of $30.5 million, consisting of: (i) 1,606,060 Series A preferred shares of beneficial interest, par value $.01 per share, of the Company ("Preferred Shares") that are convertible into Common Shares, or a one-for-one basis, under certain circumstances; (ii) two-year warrants to purchase 133,333 Common Shares at an exercise price of $25.50 per share; and (iii) deferred payments aggregating $3.8 million. The purchase prices for the other four properties aggregates $22.8 million and will be paid in cash to unrelated parties. In connection with the Company's pursuit of these acquisitions, as of September 30, 1996, the Company had deposited $190,000 with the parties. Such deposits are included in prepaid and other assets on the Company's balance sheet as of September 30, 1996. F-33 202 BRANDYWINE REALTY TRUST NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 15. SUMMARY OF INTERIM RESULTS (UNAUDITED): The following is a summary of unaudited interim financial information for the Company for the years ended December 31, 1994 and 1995.
THREE MONTHS ENDED (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) -------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- 1994 - ----- Operating revenue..................... $1,279 $ 1,092 $1,026 $ 795 Provision for loss on real estate investments......................... $5,400(a) -- -- -- Gain on sales of real estate investments......................... --(b) -- $1,116(d) $ 294(f) Extraordinary gain on extinguishment of debt............................. $7,998(c) -- -- -- Net income (loss)..................... $7,998(c) $ (188) $ 839(d) $(1,082)(e)(f) Net income (loss) per share........... $11.85(c) $ (0.27) $ 1.23(d) $1.59(e)(f) 1995 - ----- Operating revenue..................... $ 927 $ 879 $ 885 $ 975 Net loss.............................. $ (70) $ (370)(g) $ (152) $ (232)(h) Net loss per share.................... $(0.04) $ (0.20)(g) $(0.08) $ (0.12)(h)
- --------------- (a) During the first quarter of 1994, the Company recorded a write-down of $5,400,000 to adjust the carrying value of the Specified Projects to estimated net realizable value (see Note 3). (b) During the first quarter of 1994, the Company sold the Lincoln Centre project for a net sales price equal to its adjusted carrying value (see Note 4). (c) During the first quarter of 1994, the Company extinguished mortgage indebtedness totaling approximately $43 million resulting, after costs and allocation to Minority Interest, in extraordinary gain to the Company of $7,998,000 or $11.85 per share (see Note 3). Such extraordinary gain is included in the Company's net income for the first quarter of 1994. (d) During the third quarter of 1994, the Company sold the Academy Downs project resulting in a net gain of $1,116,000 or $1.65 per share (see Note 4). Such gain is included in the Company's net income for the third quarter of 1994. (e) During the fourth quarter of 1994, the Company paid its then mortgage lender $1,114,000 or $1.65 per share, which amount represented the prepayment of Additional Interest and is included in the Company's net loss for the fourth quarter of 1994 (see Note 5). (f) During the fourth quarter of 1994, the Company sold the Iron Run project resulting in a net gain of $294,000 or $0.45 per share (see Note 4). Such gain is included in the Company's net loss for the fourth quarter of 1994. (g) During the second quarter of 1995, the Company's net loss includes the write-off of deferred loan fees totaling $254,000 or $0.42 per share as a result of the Company's April 21, 1995 refinancing (see Note 5). (h) During the fourth quarter of 1995, the Company's net loss includes the write-off of deferred costs totaling $100,000 or $0.15 per share as a result of the termination of the Company's $26 million commitment (see Note 5). 16. REVERSE SHARE SPLIT: Immediately prior to this Offering, the Company effected a one- for -three reverse share split of its Common Shares. All share and per share amounts have been retroactively restated for all years presented. F-34 203 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners and Owners of the SSI/TNC Properties: We have audited the accompanying combined balance sheets of the SSI/TNC Properties, a nonlegal entity more fully described in Note 1, as of December 31, 1994 and 1995, and the related combined statements of operations, owners' deficit, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the SSI/TNC Properties' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the SSI/TNC Properties as of December 31, 1994 and 1995 and the combined results of their operations and their combined cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Philadelphia, PA, April 12, 1996 F-35 204 SSI/TNC PROPERTIES COMBINED BALANCE SHEETS (NOTE 1) (IN THOUSANDS)
AS OF DECEMBER 31 --------------------- 1994 1995 -------- -------- AS OF JUNE 30, 1996 ----------- (UNAUDITED) ASSETS Real estate investments (Note 2) -- Operating properties, at cost...................... $ 75,577 $ 78,190 $ 79,563 Less- Accumulated depreciation..................... (17,858) (21,669) (23,571) ------- ------- ------- 57,719 56,521 55,992 Cash (Note 2)......................................... 438 773 655 Escrowed cash (Note 2)................................ 504 519 513 Accounts receivable................................... 386 253 651 Accrued rental income (Notes 2 and 6)................. 1,313 902 785 Deferred costs, net (Note 2).......................... 1,526 1,884 2,145 Prepaid expenses and other assets..................... 393 400 140 ------- ------- ------- $ 62,279 $ 61,252 $ 60,881 ======= ======= ======= LIABILITIES AND OWNERS' DEFICIT Mortgage notes payable (Note 3)....................... $ 70,515 $ 63,259 $ 63,322 Note payable (Note 7)................................. -- -- 364 Accrued interest payable.............................. 1,124 599 444 Tenant security deposits and other liabilities (Note 2)................................................. 729 947 1,320 ------- ------- ------- 72,368 64,805 65,450 COMMITMENTS AND CONTINGENCIES (Note 6) OWNERS' DEFICIT......................................... (10,089) (3,553) (4,569) ------- ------- ------- $ 62,279 $ 61,252 $ 60,881 ======= ======= =======
The accompanying notes are an integral part of these statements. F-36 205 SSI/TNC PROPERTIES COMBINED STATEMENTS OF OPERATIONS (NOTE 1) (IN THOUSANDS)
FOR THE SIX-MONTH FOR THE YEAR ENDED PERIOD ENDED DECEMBER 31 JUNE 30 --------------------------- ----------------- 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- (UNAUDITED) REVENUE (Note 4): Base rents (Notes 2 and 6)................... $ 7,955 $ 8,050 $ 7,829 $ 3,960 $ 3,888 Tenant reimbursements........................ 2,754 3,130 2,895 1,381 1,870 Management operations (Note 2)............... 976 946 617 319 277 Other income................................. 2 46 3 -- 100 ------- ------- ------- ------- ------- Total revenue........................ 11,687 12,172 11,344 5,660 6,135 ------- ------- ------- ------- ------- OPERATING EXPENSES: Interest (Note 3)............................ 5,807 5,915 5,855 3,051 2,581 Depreciation and amortization (Note 2)....... 3,568 3,618 4,336 1,923 2,103 Real estate taxes............................ 1,107 1,076 968 497 511 Building operating costs..................... 2,073 2,719 2,456 1,121 1,790 Selling, general and administrative (Note 5)........................................ 1,328 1,220 906 478 456 Provision for loss on real estate investments (Note 2).................................. -- -- 202 -- -- ------- ------- ------- ------- ------- Total operating expenses............. 13,883 14,548 14,723 7,070 7,441 ------- ------- ------- ------- ------- LOSS BEFORE EXTRAORDINARY ITEMS................ (2,196) (2,376) (3,379) (1,410) (1,306) EXTRAORDINARY ITEMS -- GAIN ON RESTRUCTURING OF DEBT (Note 3)................................ -- 614 5,559 -- -- ------- ------- ------- ------- ------- NET INCOME (LOSS).............................. $(2,196) $(1,762) $ 2,180 $(1,410) $(1,306) ======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements. F-37 206 SSI/TNC PROPERTIES COMBINED STATEMENTS OF OWNERS' DEFICIT (NOTE 1) FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995, AND THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) (IN THOUSANDS) BALANCE AT JANUARY 1, 1993....................................................... $(6,181) Contributions.................................................................. 752 Net loss....................................................................... (2,196) ------- BALANCE AT DECEMBER 31, 1993..................................................... (7,625) Contributions.................................................................. 64 Distributions.................................................................. (766) Net loss....................................................................... (1,762) ------- BALANCE AT DECEMBER 31, 1994..................................................... (10,089) Contributions.................................................................. 4,356 Net income..................................................................... 2,180 ------- BALANCE AT DECEMBER 31, 1995..................................................... (3,553) Contributions (Unaudited)...................................................... 323 Distributions (Unaudited)...................................................... (33) Net loss (Unaudited)........................................................... (1,306) ------- BALANCE AT JUNE 30, 1996 (Unaudited)............................................. $(4,569) =======
The accompanying notes are an integral part of these statements. F-38 207 SSI/TNC PROPERTIES COMBINED STATEMENTS OF CASH FLOWS (NOTE 1) (IN THOUSANDS)
FOR THE SIX-MONTH FOR THE YEAR ENDED PERIOD ENDED JUNE DECEMBER 31 30 ------------------------------- ------------------- 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................... $(2,196) $(1,762) $ 2,180 $(1,410) $(1,306) Adjustments to reconcile net income (loss) to net cash provided by operating activities -- Extraordinary gain on extinguishment of debt................................. -- (614) (5,559) -- -- Depreciation and amortization.......... 3,568 3,618 4,336 1,923 2,103 Provision for loss on real estate investments.......................... -- -- 202 -- -- Changes in assets and liabilities(Increase) decrease in -- Accounts receivable.................. (248) (14) 133 (64) (397) Accrued rental income................ (72) 458 411 230 117 Prepaid expenses and other assets.... (52) 427 (7) 273 260 Increase (decrease) in -- Accrued interest payable............. 422 253 (525) 179 (155) Tenant security deposits and other liabilities.......................... 22 (204) 218 112 373 ------- ------- ------- ------- ------- Net cash provided by operating activities...................... 1,444 2,162 1,389 1,243 995 ------- ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures and leasing commissions paid....................... (908) (1,802) (2,774) (375) (1,783) (Increase) decrease in escrowed cash...... (575) 87 (15) 82 6 ------- ------- ------- ------- ------- Net cash used in investing activities........................... (1,483) (1,715) (2,789) (293) (1,777) ------- ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Contributions............................. $ 752 $ 64 $ 4,356 $ 287 $ 323 Distributions............................. -- (766) -- -- (33) Repayments on mortgage notes payable...... (1,038) (874) (1,899) (531) (279) Borrowings on mortgage notes payable...... 414 1,200 -- -- 342 Proceeds from note payable................ -- -- -- -- 364 Costs associated with financing........... 17 (160) (722) (33) (53) ------- ------- ------- ------- ------- Net cash provided by (used in) financing activities............ 145 (536) 1,735 (277) 664 ------- ------- ------- ------- ------- NET INCREASE (DECREASE) IN CASH............. 106 (89) 335 673 (118) CASH, BEGINNING OF PERIOD................... 421 527 438 438 773 ------- ------- ------- ------- ------- CASH, END OF PERIOD......................... $ 527 $ 438 $ 773 $ 1,111 $ 655 ------- ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURE: Interest paid............................. $ 5,411 $ 5,763 $ 6,254 $ 2,744 $ 2,736 ======= ======= ======= ======= =======
The accompanying notes are an integral part of these statements. F-39 208 SSI/TNC PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1994 AND 1995 1. ORGANIZATION AND BASIS OF COMBINATION: The accompanying combined financial statements consist of the accounts of the following properties and business operations: The Property Management, Leasing, and Development Operations of The Nichols Realty Services Company (the "Company") The Nichols Company ("Nichols") Properties:
PROPERTY SQUARE FOOTAGE --------------------------------------------------------------- -------------- 456 Creamery Way, Exton, PA.................................... 47,600* 468 Creamery Way, Exton, PA.................................... 28,900 486 Thomas Jones Way, Exton, PA................................ 51,500 7248 Tilghman Street, Allentown, PA............................ 42,900 6575 Snowdrift Road, Allentown, PA............................. 46,250 1510 Gehman Road, Lansdale, PA................................. 152,600* 16 Campus Blvd., Newtown Square, PA............................ 67,700* 18 Campus Blvd., Newtown Square, PA............................ 37,700* One Progress Avenue, Horsham, PA............................... 79,200* 1155 Business Center Drive, Horsham, PA........................ 51,400* 500 Enterprise Avenue, Horsham, PA............................. 67,800* 168 Franklin Corner Road, Lawrenceville, NJ.................... 32,000*
- --------------- * Included in the "Witmer Partnership". Safeguard Scientifics, Inc. ("Safeguard") Properties:
PROPERTY SQUARE FOOTAGE --------------------------------------------------------------- -------------- 650 Dresher Road, Horsham, PA.................................. 30,100 7310 Tilghman Street, Allentown, PA............................ 40,000 2240-50 Butler Pike, Plymouth Meeting, PA...................... 52,200 2260 Butler Pike, Plymouth Meeting, PA......................... 31,900 120 Germantown Pike, Plymouth Meeting, PA...................... 30,500 140 Germantown Pike, Plymouth Meeting, PA...................... 25,900 110 Summit Drive, Exton, PA.................................... 43,700
The SSI/TNC Properties listed above have common management and were developed by an affiliated ownership group referred to collectively as "Nichols Safeguard." Nichols Safeguard is engaged in the development and ownership of commercial and industrial real estate in the Philadelphia/Delaware Valley Area and provides management, leasing, and development services on a contractual basis to the above properties and third parties. The SSI/TNC Properties are intended to be acquired in a transaction with Brandywine Realty Trust (the "Trust"), which intends to remain qualified as a real estate investment trust under the Internal Revenue Code. These financial statements have been prepared on a combined basis to present the financial position and results of operations of the 19 properties and the related management business of Nichols Safeguard as if the operations were managed as a single predecessor business under common control. Accordingly, all inter-entity accounts have been eliminated to reflect the combined results. F-40 209 SSI/TNC PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 The combined financial statements as of June 30, 1996, and for the six months ended June 30, 1995 and 1996, are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the combined financial statements for the interim periods have been included. The results for the interim periods are not necessarily indicative of the results for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments A summary of real estate investments, less accumulated depreciation and amortization at December 31, 1994 and 1995, and June 30, 1996, follows (in thousands):
DECEMBER 31, JUNE 30, -------------------- -------- 1994 1995 1996 -------- -------- -------- Land......................................... $ 8,975 $ 9,275 $ 9,275 Buildings.................................... 52,263 53,761 53,821 Tenant improvements.......................... 14,299 15,107 16,420 Furniture, fixtures and equipment............ 40 47 47 -------- -------- -------- 75,577 78,190 79,563 Accumulated depreciation..................... (17,858) (21,669) (23,571) -------- -------- -------- $ 57,719 $ 56,521 $ 55,992 ======== ======== ========
Costs associated with the acquisition, development and construction of these properties are capitalized. Properties are carried at the lower of depreciated cost or net realizable value. For financial reporting purposes, depreciation is computed on a straight-line basis over the estimated useful lives of the assets, as follows: Buildings 31.5 years Tenant improvements 5 to 10 years, which reflect the expected terms of the lease Furniture, fixtures and equipment 3 to 5 years
Management reviews the net realizable value of the properties periodically to determine whether an allowance for possible losses is necessary. The carrying value of the properties is evaluated on an individual basis, and to the extent management's estimate of the net realizable value of each investment is less than its carrying value, a provision for loss on real estate investments is recorded. During 1995, a $202,000 provision for loss on real estate investments was recorded. For federal income tax purposes, the Company utilizes straight-line and accelerated methods of depreciation. As a result, accumulated depreciation for tax purposes differs from accumulated depreciation for financial statement purposes by approximately $1,072,000 and $(408,000) at December 31, 1994 and 1995, respectively. F-41 210 SSI/TNC PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets to be held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, management estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss should be recognized. Measurement of an impairment loss for these assets should be based on the fair market value of the asset. On January 1, 1996, the Company adopted this statement. The effect of adopting this statement was not material to the SSI/TNC Properties' financial position or results of operations. Escrowed Cash In accordance with the mortgage agreements of several properties, the owners were required to place funds on deposit in interest-bearing accounts to secure the payments of real estate taxes, debt service and other anticipated capital expenditures. Deferred Costs Fees and costs associated with lease origination and costs incurred to obtain long-term financing have been capitalized and are being amortized on a straight-line basis, which approximates the interest method, over the terms of the respective leases or debt. At December 31, 1994 and 1995, and June 30, 1996, deferred costs include the following (in thousands):
DECEMBER 31, JUNE 30, ----------------- -------- 1994 1995 1996 ------ ------ -------- Deferred financing costs......................... $ 349 $1,009 $1,061 Deferred leasing costs........................... 2,957 2,770 3,190 ------ ------ ------ 3,306 3,779 4,251 Less -- Accumulated amortization................. 1,780 1,895 2,106 ------ ------ ------ $1,526 $1,884 $2,145 ====== ====== ======
Revenue Recognition Rental income from tenants is recognized on a straight-line basis regardless of when payments are due. Accrued rental income represents rental income recognized in excess of payments currently due (see Note 6). The Company provides management, leasing and development services. Fees for such services are based on contracted rates, which are consistent with the general marketplace. Management fees, leasing commissions, and developer fees are recognized as income in the period earned. Income Taxes No federal or state income taxes are payable by Nichols Safeguard, and none have been provided in the accompanying financial statements. The partners are required to include their respective shares of partnership profits and losses in their individual tax returns. F-42 211 SSI/TNC PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 Tenant Security Deposits Cash consists of demand accounts and money market accounts. At December 31, 1994 and 1995, and June 30, 1996, cash includes unrestricted tenant security deposits of $270,000, $350,000, and $353,000, respectively. 3. MORTGAGE NOTES PAYABLE: Mortgage notes payable are collateralized by the properties and the assignment of rents and generally require monthly principal and interest payments. Mortgage notes payable totaling $31,092,000 at December 31, 1995, bear fixed annual interest ranging from 7% to 9.25%. Nichols Safeguard also has two mortgage notes payable totaling $30,523,000 and $1,644,000 at December 31, 1995, which have variable rates of interest based on the lender's commercial paper plus 2.75% and prime plus 1%, respectively. At December 31, 1995, these interest rates were 8.6% and 9.5%, respectively. The weighted average interest rates on the mortgage notes for the years ended December 31, 1993, 1994 and 1995, were 8.2%, 8.0%, and 8.6% respectively. Weighted average interest rates for the six months ended June 30, 1995 and 1996, were 8.3% and 8.2%, respectively. In November 1995, Nichols Safeguard refinanced certain mortgage notes on the Witmer properties totaling $37,354,000 with proceeds of mortgage loans totaling up to $32,211,600, including tenant improvement holdbacks of $1,688,000, plus cash of $4,052,000 contributed by Safeguard. At June 30, 1996, $342,000 of the tenant improvement holdbacks had been advanced to Nichols Safeguard and is included in mortgage notes payable. In connection with the refinancing, Nichols Safeguard acquired the Lawrenceville, New Jersey property with outstanding debt of $3,200,000 from the lender. As a result of the debt refinancing, Nichols Safeguard recorded an extraordinary gain of $5,559,000 in 1995. Commencing January 1, 1996, through maturity, November 30, 2000, Nichols Safeguard will make monthly principal and interest payments with interest based on the lender's composite commercial paper plus 2.75% per annum. Minimum monthly principal payments are equal to 1/12 of .5% of the principal balance outstanding on the first day of each loan year beginning December 1. Additional principal payments will be made monthly on the $30,523,000 principal outstanding as of December 31, 1995, based on 100% of the net cash flow from the properties, as defined. No principal payments were made from these participating interests in cash flows during 1995 or the six months ended June 30, 1996. The loans are cross-collateralized and cross-defaulted. The loan is further secured by a $1,500,000 letter of credit provided by Safeguard. The loans are subject to certain prepayment penalties as defined. As additional consideration, the lender may receive additional contingent interest, as defined, at scheduled maturity or upon early loan repayment. The percentage used to compute the additional contingent interest may vary based upon the level of any additional drawdowns under the loan and was 25% at December 31, 1995. No additional contingent interest was paid in 1995 or during the six months ended June 30, 1996. In July 1994, Nichols Safeguard negotiated with a lender to restructure a mortgage note totaling $4,718,000. The principal amount of the loan was reset at $4,100,000. Interest was reset from prime plus 1% to prime plus .5% retroactive to January 1, 1994, and the maturity was extended to March 31, 1996. As a result of the debt restructuring, Nichols Safeguard recorded an extraordinary gain of $614,000 during 1994. This mortgage note was included in the November 1995 refinancing. Mortgage notes are due between December 1996 and June 2004. At December 31, 1995, the carrying value of the mortgage notes payable approximates the fair value as the debt bears interest at rates that F-43 212 SSI/TNC PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 approximate current market rates. The annual maturities of the mortgage notes payable as of December 31, 1995, are as follows (in thousands):
RECOURSE NONRECOURSE TOTAL -------- ----------- ------- 1996........................................ $ 233 $ 3,222 $ 3,455 1997........................................ 1,746 354 2,100 1998........................................ 8,548 368 8,916 1999........................................ -- 378 378 2000........................................ -- 45,192 45,192 Thereafter.................................. -- 3,218 3,218 ------- ------- ------- $ 10,527 $52,732 $63,259 ======= ======= =======
At December 31, 1995, mortgage notes payable of $30,523,000 and $13,548,000 are also collateralized by outstanding letters of credit totaling $1,500,000 and $500,000 which expire in November 1996 and July 1996, respectively. Guarantees by the Company and certain other limited partners totaled $10,527,000. Two mortgage notes totaling $13,548,000 and $3,219,000 at December 31, 1995, are entitled to receive additional interest in the form of 50% and 80%, respectively, of the cash flows, as defined. During 1993, 1994 and 1995, additional interest expense recorded as a result of cash flow participation by lenders totaled $0, $201,000 and $61,000, respectively. For the six months ended June 30, 1995 and 1996, additional interest expense totaled $114,000 and $0, respectively. 4. RELATED-PARTY TRANSACTIONS: The Company provides management, leasing and development services for certain affiliated partnerships. Management and leasing fees earned by the Company related to these partnerships totaled $359,000, $420,000 and $171,000, respectively, for the years ended December 31, 1993, 1994 and 1995, and are included in management operations. Nichols Safeguard occupied approximately 28,000 square feet of the properties during 1993, 1994 and 1995. In addition, 4,600 square feet was occupied by a Nichols Safeguard affiliate during 1994 and part of 1993. Base rents from these affiliates for the years ended December 31, 1993, 1994 and 1995, were $230,000, $260,000 and $246,000, respectively. Base rents from these affiliated partnerships for the six months ended June 30, 1995 and 1996, were $126,000 and $117,000, respectively. 5. EMPLOYEE BENEFIT PLAN: Employees of the Company participate in a profit sharing plan covering substantially all employees. Annual contributions are determined at the discretion of the employer. No contributions were made in 1993, 1994 and 1995, respectively. 6. OPERATING LEASES: Nichols Safeguard leases its properties to tenants under operating leases with various expiration dates extending to the year 2006. During 1996, leases covering 99,000 square feet or approximately 11% of the net leasable space are scheduled to expire. F-44 213 SSI/TNC PROPERTIES NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 Future minimum rentals on non-cancelable tenant leases at December 31, 1995, excluding tenant reimbursements for increases in operating expenses are as follows (in thousands):
RENTAL DECREASE PAYMENTS IN ACCRUED MINIMUM DUE RENTAL INCOME RENTAL INCOME ----------- ------------- ------------- 1996.............................. $ 7,122 $ 163 $ 6,959 1997.............................. 5,209 227 4,982 1998.............................. 4,498 147 4,351 1999.............................. 3,358 138 3,220 2000.............................. 2,262 135 2,127 Thereafter........................ 2,187 92 2,095 ------- ---- ------- $24,636 $ 902 $23,734 ======= ==== =======
During 1993, 1994 and 1995, no tenants individually accounted for more than 10% of rental revenue. 7. SUBSEQUENT EVENTS (UNAUDITED): On August 22, 1996, the Trust consummated its transaction with Nichols and Safeguard. Upon Closing, the Trust obtained controlling ownership interests of the SSI/TNC Properties and received $426,250 in cash. In the SSI/TNC Transaction, the Trust issued 258,333 common shares of beneficial interest ("Common Shares") and a six-year warrant exercisable for an additional 258,333 common shares of beneficial interest at a per share exercise price of $19.50. The balance of the consideration was in the form of limited partnership units issued or issuable, and convertible under certain circumstances, up to 540,159 Common Shares, subject to certain potential adjustments. In July 1996, Nichols Safeguard refinanced $2,894,000 of mortgage notes that were due in December 1996. The notes were satisfied by the payment of $2,400,000, which represents the partial proceeds of a new mortgage loan of $2,500,000 which bears interest at Libor plus 250 basis points and provides for principal amortization of $4,000 per month during the period September 1, 1997 through July 1, 1998 and a final balance due August 1, 1998. As a result of the refinancing, Nichols Safeguard recorded an extraordinary gain of $494,000. Certain tenant improvements and leasing commissions associated with the same property, in the aggregate amount of $460,000 ($364,000 outstanding as of June 30, 1996) have been financed by a loan from Safeguard and is secured by a second mortgage on the property. The loan requires interest payable monthly at the prime rate and matures on the earlier of: (a) the completion of a secondary stock offering by the Trust (b) a sale or refinance of the property providing sufficient funds to satisfy all other priority debts of the property or (c) July 31, 1999. F-45 214 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Brandywine Realty Trust: We have audited the statement of revenue and certain expenses of the LibertyView Building described in Note 1 for the year ended December 31, 1995. This financial statement is the responsibility of the LibertyView Building's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and is not intended to be a complete presentation of the LibertyView Building's revenue and expenses. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the LibertyView Building for the year ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Philadelphia, PA, June 14, 1996 F-46 215 LIBERTYVIEW BUILDING STATEMENTS OF REVENUE AND CERTAIN EXPENSES (NOTES 1 AND 2)
FOR THE FOR THE SIX-MONTH YEAR ENDED PERIOD ENDED DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------ REVENUE: Base rents (Note 2).............................................. $1,119,000 $605,000 Tenant reimbursements............................................ 535,000 241,000 ---------- -------- Total revenue............................................ 1,654,000 846,000 ---------- -------- CERTAIN EXPENSES: Maintenance...................................................... 277,000 104,000 Utilities........................................................ 215,000 114,000 Real estate taxes................................................ 274,000 134,000 Other operating expenses......................................... 32,000 16,000 ---------- -------- Total certain expenses................................... 798,000 368,000 ---------- -------- REVENUE IN EXCESS OF CERTAIN EXPENSES.............................. $ 856,000 $478,000 ========== ========
The accompanying notes are an integral part of these financial statements. F-47 216 LIBERTYVIEW BUILDING NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES DECEMBER 31, 1995 1. BASIS OF PRESENTATION: The statements of revenue and certain expenses reflect the operations of the LibertyView Office Building (the "LibertyView Building") located in New Jersey, which will be acquired by Brandywine Realty Trust (the "Trust") from an unaffiliated party by July 19, 1996. The LibertyView Building has an aggregate net leasable area of approximately 121,700 square feet and is 63% leased as of December 31, 1995. The accounting records of the LibertyView Building are maintained on a modified cash basis. Adjusting entries have been made to present the accompanying financial statements in accordance with generally accepted accounting principles. The accompanying financial statements exclude certain expenses such as interest, depreciation and amortization, professional fees, and other costs not directly related to the future operations of the LibertyView Building or that may not be comparable to the expenses expected to be incurred by the Trust. The combined statements of revenue and certain expense s for the six months ended June 30, 1996, are unaudited. In the opinion of management, all adjustments consisting solely of normal recurring adjustments necessary for a fair presentation of the financial statements for the interim period have been included. The results for the interim period are not necessarily indicative of the results for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. 2. OPERATING LEASES: Base rents presented for the year ended December 31, 1995, and the six-month period ended June 30, 1996, include straight-line adjustments for rental revenue increases in accordance with generally accepted accounting principles. The aggregate rental revenue increase resulting from the straight-line adjustments for the year ended December 31, 1995, and the six-month period ended June 30, 1996, was $127,000 and $12,000, respectively. Tenants whose minimum rental payments equaled 10% or more of the total base rents in 1995 were: HIP Health Plan of NJ............................. $462,000 Shapiro and Kreisman.............................. 185,000
In September 1995, the LibertyView Building entered into a 60-month lease agreement with Sleepcare, a related party to the seller, of which $18,000 and $27,000 of base rents for the year ended December 31, 1995, and the six-month period ended June 30, 1996, respectively, is included in the statements of revenue and certain expenses. F-48 217 LIBERTYVIEW BUILDING NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES (CONTINUED) The LibertyView Building is leased to tenants under operating leases with expiration dates extending to the year 2007. Future minimum rentals under noncancelable operating leases, excluding tenant reimbursements of operating expenses as of December 31, 1995, are as follows: 1996..................................................... $1,205,000 1997..................................................... 1,177,000 1998..................................................... 1,118,000 1999..................................................... 1,118,000 2000..................................................... 950,000 Thereafter............................................... 4,440,000
Certain leases also include provisions requiring tenants to reimburse management costs and other overhead up to stipulated amounts. F-49 218 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Brandywine Realty Trust: We have audited the combined statement of revenue and certain expenses of the Commonwealth of Pennsylvania State Employes' Retirement System (SERS) Acquisition Properties (the "SERS Properties") described in Note 1 for the year ended December 31, 1995. This financial statement is the responsibility of management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The combined statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the registration statement on Form S-11 of Brandywine Realty Trust as described in Note 1 and is not intended to be a complete presentation of the SERS Properties' revenue and expenses. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the SERS Properties for the year ended December 31, 1995, in conformity with generally accepted accounting principles. Philadelphia, Pa., October 31, 1996 F-50 219 SERS PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTES 1 AND 2)
FOR THE FOR THE NINE-MONTH PERIODS ENDED YEAR ENDED ------------------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1996 ------------ ------------- ------------- (UNAUDITED) REVENUE: Base rents (Note 2)................................ $4,366,000 $ 3,180,000 $ 3,435,000 Tenant reimbursements.............................. 238,000 221,000 213,000 ---------- ---------- ---------- Total revenue.............................. 4,604,000 3,401,000 3,648,000 ---------- ---------- ---------- CERTAIN EXPENSES: Maintenance and other operating expenses........... 1,101,000 841,000 939,000 Utilities.......................................... 630,000 467,000 520,000 Real estate taxes.................................. 505,000 377,000 403,000 ---------- ---------- ---------- Total certain expenses..................... 2,236,000 1,685,000 1,862,000 ---------- ---------- ---------- REVENUE IN EXCESS OF CERTAIN EXPENSES................ $2,368,000 $ 1,716,000 $ 1,786,000 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-51 220 SERS PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES DECEMBER 31, 1995 1. BASIS OF PRESENTATION: The combined statement of revenue and certain expenses reflects the operations of the Commonwealth of Pennsylvania State Employes' Retirement System ("SERS") Acquisition Properties (the "SERS Property") located in surburban Philadelphia, Pennsylvania. These properties are expected to be acquired by Brandywine Realty Trust (the "Company") from SERS in November 1996. The SERS Properties have aggregate net rentable area of approximately 418,000 square feet and were 83% leased as of December 31, 1995. This combined statement of revenue and certain expenses is to be included in the Company's registration statement on Form S-11 as the acquisition has been deemed significant pursuant to the rules and regulations of the Securities and Exchange Commission. The accounting records of the SERS Properties are maintained on a modified cash basis. Adjusting entries have been made to present the accompanying financial statements in accordance with generally accepted accounting principles. The accompanying financial statements exclude certain expenses such as interest, depreciation and amortization, professional fees, and other costs not directly related to the future operations of the SERS Properties. The combined statements of revenue and certain expenses for the nine months ended September 30, 1996 and 1995, are unaudited. In the opinion of management, all adjustments consisting solely of normal recurring adjustments necessary for a fair presentation of the financial statements for the interim period have been included. The results for the interim period are not necessarily indicative of the results for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. The ultimate results could differ from those estimates. 2. OPERATING LEASES: Base rents presented for the year ended December 31, 1995, and the nine months ended September 30, 1996 and 1995, include straight-line adjustments for rental revenue increases in accordance with generally accepted accounting principles. The aggregate rental revenue increase resulting from the straight-line adjustments for the year ended December 31, 1995, and the nine months ended September 30, 1996 and 1995, were $48,000, $7,000 (unaudited) and $46,000 (unaudited), respectively. Waste Management, Inc.'s minimum rental payments were $438,000 and were greater than 10% of the total base rents in 1995. The PASERS Acquisition Properties are leased to tenants under operating leases with expiration dates extending to the year 2001. Future minimum rentals under noncancelable operating leases, excluding tenant reimbursements of operating expenses as of December 31, 1995, were as follows: 1996............................................................. $3,886,000 1997............................................................. 2,499,000 1998............................................................. 1,563,000 1999............................................................. 920,000 2000............................................................. 345,000 Thereafter....................................................... 147,000
Certain leases also include provisions requiring tenants to reimburse the Company for management costs and other operating expenses up to stipulated amounts. F-52 221 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Brandywine Realty Trust: We have audited the combined statement of revenue and certain expenses of the Delaware Corporate Center Acquisition Property (the "Delaware Corporate Center") described in Note 1 for the year ended December 31, 1995. This financial statement is the responsibility of management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The combined statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the registration statement on Form S-11 of Brandywine Realty Trust as described in Note 1 and is not intended to be a complete presentation of the Delaware Corporate Center's revenue and expenses. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the Delaware Corporate Center for the year ended December 31, 1995, in conformity with generally accepted accounting principles. Philadelphia, Pa., October 31, 1996 F-53 222 DELAWARE CORPORATE CENTER COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTES 1 AND 2)
FOR THE FOR THE NINE-MONTH PERIODS ENDED YEAR ENDED --------------------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1996 ------------ ------------- ------------- UNAUDITED REVENUE: Base rents (Note 2).............................. $410,000 $ 378,000 $ 1,666,000 ------- ---------- ------- Total revenue............................ 410,000 378,000 1,666,000 ------- ---------- ------- CERTAIN EXPENSES: Maintenance and other operating expenses......... 122,000 72,000 146,000 Utilities........................................ 145,000 111,000 137,000 Real estate taxes................................ 126,000 91,000 87,000 Ground rent...................................... 109,000 82,000 82,000 ------- ---------- ------- Total certain expenses................... 502,000 356,000 452,000 ------- ---------- ------- REVENUE IN EXCESS OF CERTAIN EXPENSES.............. $(92,000) $ 22,000 $ 1,214,000 ======= ========== =======
The accompanying notes are an integral part of these financial statements. F-54 223 DELAWARE CORPORATE CENTER NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES DECEMBER 31, 1995 1. BASIS OF PRESENTATION: The combined statement of revenue and certain expenses reflects the operations of the Delaware Corporate Center (the "Delaware Corporate Center") located in New Castle County, Delaware. This property is expected to be acquired by Brandywine Realty Trust (the "Company") from Koll Investment Management, Inc. in November, 1996. The Delaware Corporate Center has aggregate net rentable area of approximately 105,000 square feet and was 11% leased as of December 31, 1995. This combined statement of revenue and certain expenses is to be included in the Trust's registration statement on Form S-11 as the acquisition has been deemed significant pursuant to the rules and regulations of the Securities and Exchange Commission. The accounting records of the Delaware Corporate Center are maintained on an accrual basis. The accompanying financial statement excludes certain expenses such as interest, depreciation and amortization, professional fees, and other costs not directly related to the future operations of the Delaware Corporate Center. The combined statement of revenue and certain expenses for the nine months ended September 30, 1996 and 1995, are unaudited. In the opinion of management, all adjustments consisting solely of normal recurring adjustments necessary for a fair presentation of the financial statements for the interim period have been included. The results for the interim period are not necessarily indicative of the results for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. 2. OPERATING LEASES: Base rents presented for the nine-month period ended September 30, 1996, include straight-line adjustments for rental revenue increases in accordance with generally accepted accounting principles. The aggregate rental revenue increase resulting from the straight-line adjustment for the nine-month period ended September 30, 1996, was $302,000 (unaudited). Existing tenants whose minimum rental payments equaled 10% or more of the total base rents in 1995 were: Great Western Mortgage Corporation................................. $63,000 Federal Deposit Insurance Corporation.............................. 46,000 The Lubrizol Corporation........................................... 42,000
The Delaware Corporate Center is leased to tenants under operating leases with expiration dates extending to the year 1999. Future minimum rentals under noncancelable operating leases excluding tenant reimbursements of operating expenses as of December 31, 1995 were as follows: 1996.............................................................. $209,000 1997.............................................................. 159,000 1998.............................................................. 142,000 1999.............................................................. 58,000
Certain leases also include provisions requiring tenants to reimburse the Company for management costs and other operating expenses up to stipulated amounts. F-55 224 DELAWARE CORPORATE CENTER NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (CONTINUED) DECEMBER 31, 1995 Subsequent to December 31, 1995, a significant tenant (Kimberly Clark) entered into an operating lease to occupy 93,000 square feet of the Delaware Acquisition Property. This lease extends to the year 2005, and the Delaware Corporate Center is 100% occupied as a result of this lease. 3. LAND LEASE: The Delaware Corporate Center is the leasee under a land lease extending to the year 2048. Annual ground rent payments under this lease are presently $109,000. Payments under the lease will be adjusted in 1998 and at each five year period thereafter, based on increases on the consumer price index. F-56 225 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Brandywine Realty Trust: We have audited the combined statement of revenue and certain expenses of the Equivest Management, Inc. Acquisition Properties ("700/800 Business Center Drive") described in Note 1 for the year ended December 31, 1995. This financial statement is the responsibility of management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The combined statement of revenue and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the registration statement on Form S-11 of Brandywine Realty Trust as described in Note 1 and is not intended to be a complete presentation of 700/800 Business Center Drive's revenue and expenses. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenue and certain expenses of the 700/800 Business Center Drive for the year ended December 31, 1995, in conformity with generally accepted accounting principles. Philadelphia, Pa., October 31, 1996 F-57 226 700/800 BUSINESS CENTER DRIVE COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTES 1 AND 2)
FOR THE FOR THE NINE-MONTH PERIODS ENDED YEAR ENDED ------------------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1996 ------------ ------------- ------------- UNAUDITED REVENUE: Base rents (Note 2)................................ $567,000 $ 416,000 $ 533,000 Tenant reimbursements.............................. 188,000 144,000 62,000 -------- -------- -------- Total revenue.............................. 755,000 560,000 595,000 -------- -------- -------- CERTAIN EXPENSES: Maintenance and other operating expenses........... 154,000 108,000 118,000 Utilities.......................................... 40,000 26,000 20,000 Real estate taxes.................................. 111,000 83,000 83,000 -------- -------- -------- Total certain expenses..................... 305,000 217,000 221,000 -------- -------- -------- REVENUE IN EXCESS OF CERTAIN EXPENSES................ $450,000 $ 343,000 $ 374,000 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-58 227 700/800 BUSINESS CENTER DRIVE NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES DECEMBER 31, 1995 1. BASIS OF PRESENTATION: The combined statement of revenue and certain expenses reflect the operations of the Equivest Management, Inc. Acquisition Properties ("700/800 Business Center Drive") located in Horsham, Pennsylvania, which are expected to be acquired by Brandywine Realty Trust (the "Company") from Equivest Management, Inc. in November, 1996. The Acquisition Properties have aggregate net rentable area of approximately 82,000 square feet and were 62% leased as of December 31, 1995. This combined statement of revenue and certain expenses is to be included in the Company's registration statement on Form S-11 as the acquisition has been deemed significant pursuant to the rules and regulations of the Securities and Exchange Commission. The accounting records of 700/800 Business Center Drive are maintained on a modified cash basis. Adjusting entries have been made to present the accompanying financial statements in accordance with generally accepted accounting principles. The accompanying financial statements exclude certain expenses such as interest, depreciation and amortization, professional fees, and other costs not directly related to the future operations of 700/800 Business Center Drive. The combined statements of revenue and certain expenses for the nine months ended September 30, 1996 and 1995, are unaudited. In the opinion of management, all adjustments consisting solely of normal recurring adjustments necessary for a fair presentation of the financial statements for the interim period have been included. The results for the interim period are not necessarily indicative of the results for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. The ultimate results could differ from those estimates. 2. OPERATING LEASES: Base rents presented for the year ended December 31, 1995, and the nine months ended September 30, 1996 and 1995, include straight-line adjustments for rental revenue increases in accordance with generally accepted accounting principles. The aggregate rental revenue increase resulting from the straight-line adjustments for the year ended December 31, 1995, and the nine months ended September 30, 1996 and 1995, were $68,000, $76,000 (unaudited) and $45,000 (unaudited), respectively. Tenants whose minimum rentals were equal to 10% or more of total base rents in 1995 are as follows: Metpath, Inc...................................................... $310,000 Macro Corporation................................................. 201,000
700/800 Business Center Drive are leased to tenants under operating leases with expiration dates extending to the year 2012. Future minimum rentals under noncancelable operating leases, excluding tenant reimbursements of operating expenses as of December 31, 1995, were as follows: 1996............................................................. $ 414,000 1997............................................................. 381,000 1998............................................................. 508,000 1999............................................................. 529,000 2000............................................................. 474,000 Thereafter....................................................... 7,056,000
Certain leases also include provisions requiring tenants to reimburse the Company for management costs and other operating expenses up to stipulated amounts. F-59 228 SCHEDULE III BRANDYWINE REALTY TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- DECEMBER 31, 1995 (IN THOUSANDS)
GROSS AMOUNT AT WHICH CARRIED INITIAL COST --------------------- NET IMPROVEMENTS DECEMBER 31, 1995 ACCUMULATED BUILDINGS (RETIREMENTS) ------------------------------------ DEPRECIATION ENCUMBRANCES AND SINCE BUILDINGS AT DECEMBER PROPERTY AT DECEMBER IMPROVEMENTS ACQUISITION AND TOTAL (4)(5) 31, 1995 DESCRIPTION 31, 1995 LAND (2) (3) LAND IMPROVEMENTS & (6) (7) - -------------- ------------ ------ ------------ ---------------- ------ ------------ ------------ ----------- Twin Forks $2,729(1) $2,442 $ 3,950 $ (532) $2,194 $ 3,666 $ 5,860 $ 1,736 Office Raleigh, NC One Greentree 6,202(1) 710 5,515 (1,562) 345 4,318 4,663 1,848 Office Marlton, NJ Two Greentree (1) 694 5,686 (1,496) 264 4,620 4,884 1,886 Office Marlton, NJ Three (1) 858 7,573 (2,015) 323 6,093 6,416 2,644 Greentree Office Marlton, NJ ------ ------ ------- ------- ------ ------- ------- ------ $8,391(1) $4,704 $ 22,724 $ (5,605) $3,126 $ 18,697 $ 21,823 $ 8,114 ====== ====== ======= ======= ====== ======= ======= ====== PROPERTY DATE OF DATE DEPRECIATION DESCRIPTION CONSTRUCTION ACQUIRED LIFE - -------------- ------------ -------- ------------ Twin Forks 1982 1986 30 years Office Raleigh, NC One Greentree 1982 1986 30 years Office Marlton, NJ Two Greentree 1983 1986 30 years Office Marlton, NJ Three 1984 1986 30 years Greentree Office Marlton, NJ
- --------------- (1) At December 31, 1995, there are two mortgage loans which total $8,391,000. The loans are cross-collateralized and are secured by first mortgages on each of these Properties. (2) Amounts exclude equipment, furniture and fixtures and related accumulated depreciation. (3) Amounts include provisions for losses on real estate investments totaling $7,891,000 recorded subsequent to acquisition. (4) Acquisitions: All real estate investments were acquired in 1986 for cash, subject to certain encumbrances which encumbrances were retired on January 31, 1994. (5) The aggregate basis for Federal income tax purposes is $33,415,000 as of December 31, 1995. (6) Reconciliation of Real Estate: The following table reconciles the real estate investments from January 1, 1995 to December 31, 1995 (in thousands):
REAL ESTATE INVESTMENTS ----------- Balance at beginning of year $21,335 Additions during period: Capital expenditures 630 Deletions during period: Sales -- Retirements (142) ----------- Balance at end of year $21,823 ==========
(7) Reconciliation of Accumulated Depreciation: The following table reconciles the accumulated depreciation from January 1, 1995 to December 31, 1995 (in thousands):
REAL ESTATE INVESTMENTS ----------- Balance at beginning of year $ 7,387 Additions during period: Capital expenditures 869 Deletions during period: Sales -- Retirements (142) ----------- Balance at end of year $ 8,114 ==========
F-60 229 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFEROR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 1 Risk Factors.......................... 20 The Company........................... 33 Business and Growth Strategies........ 39 Use of Proceeds....................... 42 Distribution Policy................... 43 Price Range of Common Shares and Distribution History................ 43 Capitalization........................ 44 Dilution.............................. 45 Selected Financial Data............... 46 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 51 Suburban Philadelphia Economy and Office Markets...................... 58 Business and Properties............... 64 Structure of the Company.............. 107 Policies With Respect to Certain Activities.......................... 109 Management............................ 113 Certain Relationships and Related Transactions........................ 118 Principal Shareholders................ 122 Description of Shares of Beneficial Interest............................ 124 Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws.................... 129 Federal Income Tax Considerations..... 133 Operating Partnership Agreement....... 144 BRP General Partnership Agreement..... 149 ERISA Considerations.................. 149 Shares Available for Future Sale...... 152 Underwriting.......................... 154 Experts............................... 155 Legal Matters......................... 155 Tax Matters........................... 155 Available Information................. 155 Glossary.............................. 157 Index to Financial Statements......... F-1 - -------------------------------------------- - --------------------------------------------
- ------------------------------------------------------ - ------------------------------------------------------ 3,700,000 COMMON SHARES OF BENEFICIAL INTEREST OF BRANDYWINE REALTY TRUST ------------ PROSPECTUS , 1996 ------------ SMITH BARNEY INC. LEGG MASON WOOD WALKER INCORPORATED - ------------------------------------------------------ - ------------------------------------------------------ 230 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table itemizes the expenses incurred by the Company in connection with the Offering of the Common Shares being registered. All the amounts shown are estimates except the Securities and Exchange Commission (the "SEC") registration fee, the National Association of Securities Dealers, Inc. (the "NASD") filing fee and the American Stock Exchange listing fee. SEC registration fee..................................................... $ 20,455 --------- NASD filing fee.......................................................... 8,263 --------- American Stock Exchange listing fee...................................... 17,500 Transfer agent's and registrar's fee..................................... 4,932 Printing and engraving fee............................................... 325,000 Legal fees and expenses (other than Blue Sky)............................ 575,000 Financial advisory fee................................................... 1,037,850 Accounting fees and expenses............................................. 515,000 Blue Sky fees and expenses (including fees of counsel)................... 500,000 Miscellaneous expenses................................................... 446,000 --------- Total.......................................................... $3,000,000 ==========
- --------------- * To be furnished by amendment. ITEM 31. SALES TO SPECIAL PARTIES. See Item 32 below. ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES. The information presented below gives effect to the one-for-three reverse share split to be effected by the Company immediately prior to the closing of the Offering of Common Shares registered hereby. On August 8, 1994, the Company awarded its President and Chief Executive Officer, Gerard H. Sweeney, options to purchase 46,666 Common Shares. No monetary consideration was paid to the Company for the options. All of such options are currently exercisable. None of such options has been exercised as of the date hereof. On June 21, 1996, the Company sold 19,983 Common Shares and warrants exercisable for an additional 19,983 Common Shares to Turkey Vulture Fund XIII, Ltd. (the "RMO Fund"). The purchase price totalled $337,513 and was paid in cash. The warrants are currently exercisable in full at a per share exercise price of $19.50. The RMO Fund is controlled by Richard M. Osborne, a Trustee of the Company. On August 22, 1996, the Company sold 258,333 Common Shares and warrants exercisable for an additional 258,333 Common Shares to Safeguard Scientifics, Inc. ("SSI") in exchange for SSI's ownership interest in a limited partnership owning real estate and $426,250 in cash. The warrants are currently exercisable in full at a per share exercise price of $19.50. On August 22, 1996, the Company awarded employees warrants exercisable for an aggregate of 256,666 Common Shares, including warrants exercisable for 100,000 Common Shares awarded to the Company's President and Chief Executive Officer and warrants exercisable for an aggregate of 130,000 Common Shares awarded to three other executive officers of the Company. No monetary consideration was paid to the Company for the warrants. The warrants are currently exercisable in full at a per share exercise price of $19.50. II-1 231 On August 22, 1996, the Operating Partnership issued and committed to issue an aggregate of 540,159 Units which are exchangeable for an equal number of Common Shares. The Operating Partnership issued the Units in exchange for the contribution to it of direct and indirect interests in 19 properties by SSI, TNC and six other persons. On August 23, 1996, the Company issued to the RMO Fund 14,135 units (each of which consists of one Common Share and one warrant exercisable for an additional Common Share). Each unit so issued effected a $16.89 prepayment of a loan (the "Osborne Loan") made by the RMO Fund to the Company on June 21, 1996 in the original principal amount of $992,293. On November 6, 1996 the Company entered into an agreement with the SERS Voting Trust providing for an investment by the SERS Voting Trust of $10.5 million in exchange for Common Shares at a price equal to the price to the public shown on the cover page of the Prospectus included within this Registration Statement. On November , 1996 the Company entered into an agreement with the Morgan Stanley Funds providing for an investment by the Morgan Stanley Funds of $11.7 million in exchange for Common Shares at a price of $16.50 per share. On November , 1996, the Company issued to the SERS Voting Trust 481,818 Series A Preferred Shares and warrants exercisable for 133,333 Common Shares. The warrants are currently exercisable in full at a per share exercise price of $25.50. On November , 1996, the Company issued to the RMO Fund units (each of which consists of one Common Share and one warrant exercisable for an additional Common Share). Each Unit so issued effected a $16.89 prepayment of the Osborne Loan. No underwriter was involved in connection with any of the foregoing securities issuances. Each of the above transactions is exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, as transactions not involving public offerings. ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS. The Maryland REIT Law permits a Maryland real estate investment trust to include in its Declaration of Trust a provision limiting the liability of its trustees and officers to the trust and its shareholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. The Declaration of Trust of the Company contains such a provision which eliminates such liability to the maximum extent permitted by the Maryland law. The Company's Bylaws require it to indemnify (a) any present or former Trustee or officer who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of such status, against reasonable expenses incurred by him in connection with the proceeding and (b) any present or former Trustee or officer against any claim or liability to which he may become subject by reason of his status as such unless it is established that (i) his act or omission was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful. In addition, the Company's Bylaws require it to pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a present or former Trustee or officer made a party to a proceeding by reason of his status as a Trustee or officer provided that the Company shall have received (i) a written affirmation by the Trustee or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Company as authorized by the Bylaws and (ii) a written undertaking by or on his behalf to repay the amount paid or reimbursed by the Company if it shall ultimately be determined that the standard of conduct was not met. The Company's Bylaws also (i) permit the Company, with the approval of its Trustees, to provide indemnification and payment or reimbursement of expenses to a present or former Trustee or officer who served a predecessor of the Company in such capacity, and to any employee or agent of the Company or a predecessor of the Company, (ii) provide that any indemnification or payment or reimbursement of the expenses permitted by the Bylaws shall be furnished in accordance with the procedures provided for indemnification and payment or reimbursement of expenses under Section 2-418 of the Maryland General Corporation Law ("MGCL") for directors of II-2 232 Maryland corporations, and (iii) permit the Company to provide such other and further indemnification or payment or reimbursement of expenses as may be permitted by the MGCL for directors of Maryland corporations. The Partnership Agreement of the Operating Partnership also provides for indemnification by the Operating Partnership of the Company, as general partner, and its trustees and officers for any costs, expenses or liabilities incurred by them by reason of any act performed by them for or on behalf of the Operating Partnership or the Company; provided that such person's conduct was taken in good faith and in the belief that such conduct was in the best interests of the Operating Partnership and that such person was not guilty of fraud, willful misconduct or gross negligence. The form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement will provide for the reciprocal indemnification by the Underwriters of the Company, and its trustees, officers and controlling persons, and by the Company of the Underwriters, and their respective directors, officers and controlling persons, against certain liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Trustees and officers of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that, although the validity and scope of the governing statute has not been tested in court, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In addition, indemnification may be limited by state securities laws. ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED. The consideration to be received by the registrant for the Common Shares registered will be credited to the appropriate capital share account. ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS. I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - Pro Forma Condensed Consolidating Balance Sheet as of June 30, F-5 1996............................................................. - Pro Forma Condensed Consolidating Statements of Operations for F-6 the Year Ended December 31, 1995, and the Six-Month Ended June 30, 1996............................................................. - Notes and Management's Assumptions to Unaudited Pro Forma F-8 Condensed Consolidating Financial Statements....................... II. BRANDYWINE REALTY TRUST - Report of Independent Public Accountants......................... F-14 - Consolidated Balance Sheets as of December 31, 1994 and 1995 F-15 (audited) and June 30, 1996 (Unaudited)............................ - Consolidated Statements of Operations for the Years Ended F-16 December 31, 1993, 1994 and 1995 (audited) and for the Six-Months Ended June 30, 1996 (Unaudited).................................. - Consolidated Statements of Beneficiaries' Equity for the Years F-17 Ended December 31, 1993, 1994 and 1995 (audited), and for the Six Months Ended June 30, 1996 and 1995 (Unaudited).................. - Consolidated Statements of Cash Flows for the Years Ended F-18 December 31, 1993, 1994 and 1995 (audited), and for the Six Months Ended June 30, 1996 (Unaudited).................................. - Notes to Consolidated Financial Statements....................... F-19 III. SSI/TNC PROPERTIES - Report of Independent Public Accountants......................... F-35 - Combined Balance Sheets as of December 31, 1994 and 1995 F-36 (audited) and June 30, 1995 and 1996 (Unaudited)...................
II-3 233 - Combined Statements of Operations for the Years Ended December F-37 31, 1993, 1994 and 1995 (audited), and for the Six Months Ended June 30, 1995 and 1996 (Unaudited)............................... - Combined Statements of Owners' Deficit for the Years Ended F-38 December 31, 1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30, 1995 and 1996 (Unaudited).............. - Combined Statements of Cash Flows for the Years Ended December F-39 31, 1993, 1994 and 1995 (audited), and for the Six-Months Ended June 30, 1995 and 1996 (Unaudited)............................... - Notes to Combined Financial Statements........................... F-40 IV. LIBERTYVIEW BUILDING - Report of Independent Public Accountants......................... F-46 - Statements of Revenue and Certain Expenses for the Year Ended F-47 December 31, 1995, and Six Months Ended June 30, 1996 (Unaudited)...................................................... - Notes to Financial Statements.................................... F-48 V. SERS PROPERTIES - Report of Independent Public Accountants......................... F-50 - Statements of Revenue and Certain Expenses for the Year Ended F-51 December 31, 1995, and Nine-Months Ended September 30, 1995 and 1996 (Unaudited)................................................. - Notes to Financial Statements.................................... F-52 VI. DELAWARE CORPORATE CENTER I - Report of Independent Public Accountants......................... F-53 - Statements of Revenue and Certain Expenses for the Year Ended F-54 December 31, 1995, and Nine-Months Ended September 30, 1995 and 1996 (Unaudited)................................................. - Notes to Financial Statements.................................... F-55 VII. 700/800 BUSINESS CENTER DRIVE - Report of Independent Public Accountants......................... F-57 - Statements of Revenue and Certain Expenses for the Year Ended F-58 December 31, 1995, and Nine-Months Ended September 30, 1995 and 1996 (Unaudited)................................................. - Notes to Financial Statements.................................... F-59 VIII. FINANCIAL STATEMENT SCHEDULE - Schedule III -- Real Estate and Accumulated F-60 Depreciation -- December 31, 1995..................................
(B) EXHIBITS. 1.1 Form of Underwriting Agreement between the Company and the Representatives. **3.1 Amended and Restated Declaration of Trust of the Company. 3.2 Form of Articles Supplementary to Declaration of Trust of the Company. 3.3 Amended and Restated Bylaws of the Company. ***4.1 Form of Common Share Certificate. 5.01 Opinion of Pepper, Hamilton & Scheetz regarding the validity of the securities being registered. 5.02 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of the securities being registered. *8.1 Opinion of Arthur Andersen LLP regarding tax matters. ****10.01 Brandywine Realty Partners General Partnership Agreement. &10.02 Settlement Agreement with Mutual Release (among the Company, Brandywine, BSPI, Brandywine National, Brandywine Enterprises and the BSPI limited partners). &10.03 Amendment to Brandywine Realty Partners General Partnership Agreement.
II-4 234 +10.04 Mutual Settlement and Release (among the Company, Brandywine, BSPI, Brandywine National and Brandywine Enterprises). +10.05 Purchase and Sale Agreement and Certain Related Documents (relating to sale of Company's interest in BSPI). ***10.06 Purchase and Sale Agreement (relating to sale of Iron Run). &&&10.07 Secured Promissory Notes, Security Agreements and Assignments of Leases and Rents -- April 1995 refinancing. &&&10.8 Indemnity Agreement -- April 1995 refinancing. &&&10.9 Escrow Agreement -- April 1995 refinancing. &&&&10.10 Agreement among the Company, Richard M. Osborne and the Richard M. Osborne Trust. +10.11 Loan and Securities Purchase Agreement, dated June 21, 1996, between Turkey Vulture Fund XIII, Ltd. (the "RMO Fund") and the Company. +10.12 Promissory Note, dated June 21, 1996, in the original principal amount of $992,293 issued by the Company to the RMO Fund. +10.13 Warrant to purchase Common Shares, dated June 21, 1996, issued by the Company to the RMO Fund. ++10.14 Purchase and Sale Agreement between UM Real Estate Investment Company, LLC ("UM") and the Company. ++10.15 First Amendment to Purchase and Sale Agreement between UM and the Company. ++10.16 Second Amendment to Purchase and Sale Agreement between UM and the Company. ++10.17 Third Amendment to Purchase and Sale Agreement between UM and the Company. ++10.18 Promissory Note in the principal amount of $1,000,000 from the Company to UM. ++10.19 Subordinated Mortgage from the Company to UM. ++10.20 Amended and Restated Loan Agreement between the Company and Summit Bank ("SB"). ++10.21 Amended and Restated Promissory Note from the Company to SB. ++10.22 Amended and Restated Mortgage from the Company to SB. +++10.23 Contribution Agreement among the Company, Safeguard Scientifics, Inc. ("SSI") and The Nichols Company ("TNC"). +++10.24 Share and Warrant Purchase Agreement between the Company and SSI. +++10.25 Employment Agreement between the Company and Anthony A. Nichols, Sr.++ +++10.26 Employment Agreement between the Company and Gerard H. Sweeney.++ +++10.27 Employment Agreement between the Company and Brian F. Belcher.++ +++10.28 Employment Agreement between the Company and John P. Gallagher.++ **10.29 Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. (the "Operating Partnership"). 10.30 Amendment No. 1 to Agreement of Limited Partnership of Operating Partnership. **10.31 Distribution Support and Loan Agreement between the Operating Partnership and SSI. **10.32 Agreement among the Company, SSI and Safeguard Scientifics (Delaware), Inc. **10.33 Registration Rights Agreement among the Company, SSI, TNC, the RMO Fund and certain other persons. **10.34 Warrant to purchase Common Shares issued by the Company to SSI. **10.35 Third Amendment to Brandywine Realty Partners General Partnership Agreement. **10.36 Form of Warrant issued to Executive Officers.++ **10.37 Environmental Indemnity Agreement between the Company and SSI. **10.38 Option Agreement between the Operating Partnership and C/N Horsham Towne Limited Partnership the "Option Agreement"). 10.39 Amendment No. 1 to the Option Agreement. **10.40 Articles of Incorporation of Brandywine Realty Services Corporation, as amended.
II-5 235 10.41 Contribution Agreement among the Company, Greenwood Square Corporation, BCBC Holding Company, 500 North Gulph Road and RAI Real Estate Advisers, Inc. ("RAI"), as voting trustee. 10.42 Securities Purchase Agreement between the Company and RAI, as voting trustee. 10.43 Form of Warrant to purchase Common Shares in favor of RAI, as voting trustee. 10.44 Form of Standstill Agreement between the Company and RAI, as voting trustee. 10.45 Form of Registration Rights Agreement between the Company and RAI, as voting trustee. 10.46 Form of Pledge Agreement between the Company and RAI, as voting trustee. 10.47 Form of Voting Agreement between the Company, RAI as voting trustee, and certain other parties. 10.48 Purchase Agreement between the Company and K/B Fund II, ("K/B"). 10.49 Reinstatement and First Amendment to Purchase Agreement between the Company and K/B. 10.50 Real Estate Sale and Purchase Contract between the Company and Monumental Life Insurance Company ("Monumental"). 10.51 First Amendment to Real Estate Sale and Purchase Contract between the Company and Monumental. 10.52 Second Amendment to Real Estate Sale and Purchase Contract between the Company and Monumental. 10.53 Agreement for Purchase and Sale of Real Estate and Related Property between the Company and Horsham Office Center Associates Limited Partnership ("Horsham"). 10.54 Amendment to Agreement for Purchase and Sale of Real Estate and Related Property between the Company and Horsham. 10.55 Securities Purchase Agreement between the Company and Morgan Stanley Funds. 10.56 Form of Registration Rights Agreement between the Company and Morgan Stanley Funds. 10.57 Letter from Safeguard Scientifics, Inc. and subsidiary to the Company. 10.58 Letter from Richard M. Osborne and affiliates to the Company. 21.1 List of Subsidiaries of the Company. 23.1 Consents of Arthur Andersen LLP. 23.2 Consent of Cushman & Wakefield of Pennsylvania, Inc. 23.3 Consent of Pepper, Hamilton & Scheetz (contained in Exhibit 5.1). *23.4 Consent of Arthur Andersen LLP regarding opinion of the tax matters (continued in exhibit 8.1). ++++24.1 Powers of Attorney. ++++27.1 Financial Data Schedule.
- --------------- * To be filed by amendment. ** Previously filed as an exhibit to the Company's Form 8-K dated August 22, 1996 and incorporated by reference as an exhibit to this registration statement. *** Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference as an exhibit to this registration statement. **** Previously filed as an exhibit to the Company's Registration statement of Form S-11 (File No. 33-4175) and incorporated by reference as an exhibit to this registration statement. & Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1993 and incorporated by reference as an exhibit to this registration statement. && Compensatory Arrangement. &&& Previously filed as an exhibit to the Company's Form 8-K dated April 21, 1995 and incorporated by reference as an exhibit to this registration statement. &&&& Previously filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1995 and incorporated by reference as an exhibit to this registration statement. + Previously filed as an exhibit to the Company's Form 8-K dated June 21, 1996 and incorporated by reference as an exhibit to this registration statement.
II-6 236 ++ Previously filed as an exhibit to the Company's Form 8-K dated July 19, 1996 and incorporated by reference as an exhibit to this registration statement. +++ Previously filed as an exhibit to the Company's Form 10-Q for the quarter ended June 30, 1996 and incorporated by reference as an exhibit to this registration statement. ++++ Previously filed as an exhibit to this registration statement. ITEM 36. UNDERTAKINGS. The Company undertakes to provide to the Underwriters at the Closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the provisions described under Item 33 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Registrant further undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-7 237 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on November 7, 1996. BRANDYWINE REALTY TRUST By: /s/ GERARD H. SWEENEY ------------------------------------ Gerard H. Sweeney President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated and on November 7, 1996.
SIGNATURE TITLE - ---------------------------------------- ---------------------------------- /s/ ANTHONY A. NICHOLS, SR. Chairman of the Board of Trustees - ---------------------------------------- Anthony A. Nichols, Sr. /s/ GERARD H. SWEENEY President, Chief Executive Officer - ---------------------------------------- and Trustee (Principal Executive Gerard H. Sweeney Officer) /s/ JOHN P. GALLAGHER Executive Vice - ---------------------------------------- President -- Finance (Principal John P. Gallagher Financial and Accounting Officer) * Trustee - ---------------------------------------- Joseph L. Carboni * Trustee - ---------------------------------------- Richard M. Osborne * Trustee - ---------------------------------------- Warren V. Musser * Trustee - ---------------------------------------- Walter D'Alessio * Trustee - ---------------------------------------- Charles P. Pizzi *By: /s/ GERARD H. SWEENEY - ---------------------------------------- Gerard H. Sweeney Attorney-in-Fact
II-8 EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 3,700,000 Shares BRANDYWINE REALTY TRUST Common Shares of Beneficial Interest UNDERWRITING AGREEMENT , 1996 SMITH BARNEY INC. LEGG MASON WOOD WALKER, INCORPORATED As Representatives of the Several Underwriters c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: Brandywine Realty Trust, a Maryland real estate investment trust (the "Company"), proposes to issue and sell an aggregate of 3,700,000 shares (the "Firm Shares") of its common shares, $0.01 par value per share (the "Common Shares"), to you and to the other several Underwriters named in Schedule I hereto (collectively, the "Underwriters") for whom you are acting as representatives (the "Representatives"). The Company also proposes to sell to the Underwriters, upon the terms and conditions set forth in Section 3 hereof, up to an additional 555,000 Common Shares (the "Additional Shares"). The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The Company and Brandywine Operating Partnership, L.P., a Delaware limited partnership of which the Company is the sole General Partner (the "Operating Partnership"), wish to confirm as follows their agreement with you and the other several Underwriters on whose behalf you are acting, in connection with the several purchases of the Shares by the Underwriters. 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-11 (No. 333-13969) under the Act (the "Initial Registration Statement"), including a prospectus subject to completion relating to the Shares. 2 The term "Registration Statement" as used in this Agreement means the Initial Registration Statement (including all financial schedules and exhibits), as amended at the time it becomes effective, and any registration statement filed with the Commission pursuant to Rule 462(b) under the Act (the "Rule 462(b) Registration Statement") or, if the Initial Registration Statement became effective prior to the execution of this Agreement, as supplemented or amended prior to the execution of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the Initial Registration Statement or Rule 462(b) Registration Statement will be filed and must be declared effective before the offering of the Shares may commence, the term "Registration Statement" as used in this Agreement means the Initial Registration Statement or Rule 462(b) Registration Statement as amended by said post-effective amendment. The term "Prospectus" as used in this Agreement means (X) if the Company relies on Rule 434 under the Act, the Term Sheet (as defined below) relating to the Shares that is first filed pursuant to Rule 424(b)(7) under the Act together with the Prepricing Prospectus (as defined below) identified therein that such term sheet supplements, or (Y) if the Company does not rely on Rule 434 under the Act, the prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means the prospectus subject to completion in the form included in the Initial Registration Statement at the time of the initial filing of such registration statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. The term "Term Sheet" means any term sheet that satisfies the requirements of Rules 434 and 424(b) under the Act. Any reference to the "date" of a Prospectus that includes a Term Sheet means the date of such Term Sheet. Capitalized terms used, but not defined, herein shall have the respective meanings ascribed thereto in the Prospectus. 2. Property Acquisitions. (a) Prior to the offering and sale of the Firm Shares to the Underwriters, the Company, the Operating Partnership, Safeguard Scientifics, Inc. ("SSI"), The Nichols Company ("TNC"), certain entities and persons affiliated with SSI and/or TNC, and certain unaffiliated entities and persons entered into and consummated a series of transactions collectively described in the Prospectus, and referred to herein, as the "SSI/TNC Transaction." The documents executed and delivered in connection with the consummation of the SSI/TNC Transaction, including, without limitation, the documents listed on Schedule 2(a) attached hereto, are hereinafter referred to as the "SSI/TNC Documents." (b) Following consummation of the SSI/TNC Transaction, the Company owned interests in 23 suburban office buildings and one industrial facility (which are collectively referred to in the Prospectus as the "Initial Properties") as follows: (i) the Company owned one office property, (ii) the Operating Partnership owned six office properties, (iii) Brandywine Realty Partners, a Pennsylvania general partnership and a Subsidiary (as defined in Section 2(h) below), owned 3 office properties and one industrial facility, and (iv) [12] Subsidiary limited partnerships in which the Company and/or the Operating Partnership own a controlling interest owned 13 office properties (collectively, the "Initial Properties"). -2- 3 (c) In addition to the SSI/TNC Transaction, [prior] to the offering and sale of the Firm Shares to the Underwriters, the Company, RAI Real Estate Advisors Inc. ("RAI"), as voting trustee of a voting trust dated ________, 1996 (the "SERS Voting Trust") executed by the Commonwealth of Pennsylvania State Employees' Retirement System ("SERS") as shareholder and by RAI as voting trustee, and certain affiliates of SERS, entered into and consummated a series of transactions collectively described in the Prospectus, and referred to herein, as the "SERS Transaction." In addition, pursuant to a Securities Purchase Agreement, dated November__, 1996 between the Company and RAI, as voting trustee, the SERS Voting Trust agreed to purchase, on the Closing Date, Common Shares directly from the Company in a private placement at a price per share equal to the Price to Public set forth on the cover page of the Prospectus for an aggregate purchase price of $10,500,000. Such transaction is described in the Prospectus, and is referred to herein, as the "SERS Private Placement." The documents executed and delivered in connection with the consummation of the SERS Transaction, including, without limitation, the documents listed on Schedule 2(c)(1) attached hereto, are hereinafter referred to as the "SERS Transaction Documents," and the documents executed and delivered, and to be executed and delivered, in connection with the consummation of the SERS Private Placement, including, without limitation, the documents listed on Schedule 2(c)(2) attached hereto, are hereinafter referred to as the "SERS Investment Documents," and together with the SERS Transaction Documents, the "SERS Documents." (d) Following consummation of the SERS Transaction, the Company owned eight office properties and one industrial property (collectively, the "SERS Properties") in addition to the Initial Properties. (e) Pursuant to a [purchase agreement], dated November__, 1996 between the Company and [the Morgan Stanley Funds] (together, the "Morgan Stanley Funds"), the Morgan Stanley Funds agreed to purchase, on the Closing Date, Common Shares directly from the Company in a private placement at a price per share equal to $5.50 per share for an aggregate purchase price of $15,000,000. Such a transaction is described in the Prospectus, and is referred to herein, as the "Morgan Stanley Private Placement." The documents executed and delivered, and to be executed and delivered, in connection with the consummation of the Morgan Stanley Private Placement, including, without limitation, the documents listed on Schedule 2(e) attached hereto, are hereinafter referred to as the "Morgan Stanley Investment Documents." (f) In addition to the SSI/TNC Transaction and the SERS Transaction, the Company and [certain unaffiliated third parties] have entered into purchase agreements with respect to certain proposed transactions collectively described in the Prospectus under the caption "The Company-Other Pending Acquisitions", and referred to herein as the "Other Acquisition Transactions," and together with the SSI/TNC Transaction, the SERS Transaction, the SERS Private Placement, and the Morgan Stanley Private Placement, the "Transactions." The documents executed and delivered in connection with the consummation of the Other Acquisition Transactions, including, without limitation, the documents listed on Schedule 2(f) attached hereto, are hereinafter referred to as the "Other Acquisition Documents," and, together with the SSI/TNC Documents, the SERS Documents, and the Morgan Stanley Investment Documents, the "Transaction Documents." -3- 4 (g) Following consummation of the Other Acquisitions, the Company will own four office properties (the "Other Acquisition Properties") in addition to the Initial Properties and the SERS Properties. The Initial Properties, the SERS Properties, and the Other Properties are herein collectively referred to as the "Properties." (h) For purposes of this Agreement, each of the Operating Partnership and the corporations, partnerships and limited partnerships listed on Schedule 2(h) attached hereto is deemed to be a "Subsidiary" of the Company. 3. Agreements to Sell and Purchase. The Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company and the Operating Partnership herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $_.__ per Share (the "purchase price per share"), the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares increased as set forth in Section 11 hereof). The Company also agrees, subject to all the terms and conditions set forth herein, to sell to the Underwriters, and, upon the basis of the representations, warranties and agreements of the Company and the Operating Partnership herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Company, at the purchase price per share, pursuant to an option (the "over-allotment option") which may be exercised at any time and from time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the American Stock Exchange is open for trading), up to an aggregate of 555,000 Additional Shares. Additional Shares may be purchased only for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. Upon any exercise of the over-allotment option, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments as you may determine in order to avoid fractional shares) which bears the same proportion to the number of Additional Shares to be purchased by the Underwriters as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares increased as set forth in Section 11 hereof) bears to the aggregate number of Firm Shares. 4. Terms of Public Offering. The Company has been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. 5. Delivery of the Shares and Payment Therefor. Delivery to the Underwriters of and payment for the Firm Shares shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on , 1996 (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement between you and the Company. -4- 5 Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the aforementioned office of Smith Barney Inc. at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than two nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Company of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. The place of closing for any Additional Shares and the Option Closing Date for such Shares may be varied by agreement between you and the Company. Certificates for the Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and in such denominations as you shall request prior to 9:30 A.M., New York City time, on the second business day preceding the Closing Date or any Option Closing Date, as the case may be. Such certificates shall be made available to you in New York City for inspection and packaging not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, against payment of the purchase price therefor by wire transfer of immediately available funds to the Company. 6. Agreements of the Company and the Operating Partnership. The Company and the Operating Partnership jointly and severally agree with the several Underwriters as follows: (a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the Company will endeavor to cause the Registration Statement or such post-effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when the Registration Statement or such post-effective amendment has become effective. (b) The Company will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request by the Commission for amendment of or a supplement to the Initial Registration Statement, any Rule 462(b) Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Initial Registration Statement or any Rule 462(b) Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) within the period of time referred to in paragraph (h) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required by the Act or the regulations thereunder to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other -5- 6 law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (c) The Company will furnish to you, without charge, three signed copies of the Initial Registration Statement and of each amendment thereto, including financial statements and all exhibits thereto, and any Rule 462(b) Registration Statement and will also furnish to you, without charge, such number of conformed copies of the Initial Registration Statement and of each amendment thereto, but without exhibits, and any Rule 462(b) Registration Statement as you may request. (d) The Company will not (i) file any amendment to the Initial Registration Statement or any Rule 462(b) Registration Statement or make any amendment or supplement to the Prospectus or the Term Sheet of which you shall not previously have been advised or to which you shall object after being so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a prospectus is required to be delivered in connection with sales by any Underwriter or dealer, file any information, documents or reports pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), without delivering a copy of such information, documents or reports to you, as Representatives of the Underwriters, prior to or concurrently with such filing. (e) Prior to the execution and delivery of this Agreement, the Company has delivered to you, without charge, in such quantities as you have requested, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky or real estate syndication laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer, the Company will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky or real estate syndication laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with the Act or any other law, the Company will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate supplement or amendment thereto, and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. -6- 7 In the event that the Company and you, as Representatives of the several Underwriters, agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. (g) The Company will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky or real estate syndication laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Shares, in any jurisdiction where it is not now so subject. (h) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a twelve-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act. (i) During the period of five years hereafter, the Company will furnish to you (i) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as you may reasonably request. (j) If this Agreement shall terminate or shall be terminated after execution pursuant to any provisions hereof (otherwise than pursuant to the second paragraph of Section 11 hereof or by notice given by you terminating this Agreement pursuant to Section 11 or Section 11 hereof) or if this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of the Company to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Representatives for all out-of-pocket expenses (including fees and expenses of counsel for the Underwriters) incurred by you in connection herewith. (k) The Company will apply the net proceeds from the sale of the Shares in accordance with the description set forth in the Prospectus. (l) If Rule 430A of the Act is employed, the Company will timely file with the Commission the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. (m) If Rule 434 of the Act is employed, the Company will timely file with the Commission a Term Sheet relating to the Shares, which shall identify the Prepricing Prospectus that -7- 8 it supplements, containing such information as is required or permitted by Rules 434, 430A and 424(b) under the Act. (n) If Rule 462(b) of the Act is employed, the Company shall both file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) and pay the applicable fees in accordance with Rule 111 promulgated under the Act by the earlier of (i) 10:00 p.m. New York city time on the date of this Agreement and (ii) the time confirmations are sent or given, as specified by Rule 462(b)(2). (o) Except as provided in this Agreement, neither the Company nor the Operating Partnership will sell, offer to sell, solicit an offer to buy, contract to sell or otherwise transfer or dispose of any Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares (whether through the issuance or granting of any options, warrants, commitments, subscriptions, rights to purchase or otherwise) for a period of 180 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc.; provided, however, that the foregoing shall not prohibit (i) the Company or the Operating Partnership from issuing Common Shares, limited partner interests in the Operating Partnership ("Units"), or other securities exchangeable for Common Shares that are issued in connection with the acquisition of any office or industrial property, or (ii) the Company from issuing Common Shares upon the redemption of any Units issued in connection with SSI/TNC Transaction as described in the Prospectus. (p) The Company has furnished or will furnish to you "lock-up" letters, in form and substance satisfactory to you, signed by each of its current officers and trustees, five percent or greater shareholders, certain of their respective affiliates, and certain other shareholders designated by you, each of whom is identified on Schedule 6(p) hereto. (q) Except as stated in this Agreement and in the Prepricing Prospectus and Prospectus, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Shares to facilitate the sale or resale of the Shares. (r) The Company will use its best efforts to have the Shares listed, subject to notice of issuance, on the American Stock Exchange concurrently with the effectiveness of the Registration Statement. (s) The Company and the Operating Partnership in good faith will enforce the terms of each of the Transaction Documents. 7. Representations and Warranties of the Company. The Company and the Operating Partnership, jointly and severally, represent and warrant to each Underwriter that: (a) Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the provisions of the Act. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus. -8- 9 No stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued and no proceeding for that purpose has been instituted or threatened by the Commission or the securities authority of any state or other jurisdiction. (b) The Registration Statement in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective, complied or will comply in all material respects with the provisions of the Act and did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus or any Term Sheet that is a part thereof and any supplement or amendment thereto when filed with the Commission under Rule 424(b) or Rule 434 under the Act, complied or will comply in all material respects with the provisions of the Act and did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements in or omissions from the registration statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein, which information is described in its entirety in Section 13 below. (c) The Company is duly formed and validly existing as a real estate investment trust in good standing under the laws of the State of Maryland, with full trust power and authority to own, lease, and operate its properties, and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification. (d) Each of the Subsidiaries is a corporation, limited partnership, or general partnership duly incorporated or formed, as the case may be, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation. Each such entity has full corporate or partnership power and authority, to own, lease, and operate its properties, and to conduct its business as described in the Registration Statement and the Prospectus. Each such Subsidiary is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification. (e) All the outstanding Common Shares of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights that entitle or will entitle any person or entity to acquire any Shares upon the issuance thereof by the Company, and the capital stock of the Company conforms to the description thereof in the Registration Statement and the Prospectus. Except as disclosed in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, or any commitment, plan or arrangement to issue, any capital -9- 10 stock of the Company or any security convertible into or exchangeable for capital stock of the Company. As of the Closing Date, the Company will have reserved a sufficient number of Common Shares for issuance upon (i) exercise of the redemption of _____ outstanding Units held by certain investors who acquired (or, as disclosed in the Prospectus, will acquire on or prior to _____________, 1997) outstanding Units in connection with the SSI/TNC Transaction, (ii) the exercise of options for up to __________ Common Shares issued under the Company's stock option plan, (iii) the exercise of warrants for up to __________ Common Shares and (iv) the conversion of Preferred Shares into up to 1,606,060 Common Shares. (f) All of the outstanding Units of the Operating Partnership, and shares of capital stock or partnership interests in each of the Subsidiaries have been duly authorized and validly issued or created under the agreements forming such entity, are fully paid and, in the case of Subsidiaries that are corporations, nonassessable, and will be owned or be held by the persons and entities in the percentage amounts set forth and in the manner described in the Prospectus. Except as described in the Prospectus, all such Units, partnership interests and shares of capital stock are owned by the Company directly, or indirectly through the Operating Partnership or one of the other Subsidiaries, free and clear of any lien, adverse claim, security interest, equity, or other encumbrance, and the Company's percentage interest and ownership in the Operating Partnership, and the Company's and the Operating Partnership's percentage interest and ownership in each of the Subsidiaries, is as set forth on Schedule 7(f) attached hereto. Except as described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), there are no outstanding options, warrants or other rights calling for the issuance of, or any commitment, plan or arrangement to issue, any equity interests in any Subsidiary, or any security convertible into, or exchangeable or exercisable or, any such interests in any such Subsidiary. The terms of the Units conform in all material to statements and descriptions thereof contained in the Prospectus. The Company is the sole general partner of the Operating Partnership. (g) The Company has no direct or indirect subsidiaries other than the Subsidiaries. Other than the Subsidiaries, neither the Company nor the Operating Partnership owns, directly or indirectly, securities of any corporation, partnership, joint venture, limited liability company, association or other business association. (h) There are no actions, suits, proceedings pending or, to the knowledge of the Company or the Operating Partnership, threatened against or affecting the Company or any of the Subsidiaries, or any of their respective partners, directors, trustees or officers in their capacity as such, or to which the Company or any of the Subsidiaries or any of their respective partners, directors, trustees or officers in their capacity as such, or to which any of their respective properties is subject, that are required to be described in the Registration Statement or the Prospectus but are not described as required, and there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the Act. (i) Neither the Company nor any of the Subsidiaries is in violation of its Declaration of Trust, certificate or articles of incorporation or by-laws, partnership agreement or -10- 11 other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries, or in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound. (j) Neither the issuance and offer, and sale or delivery of the Shares, the execution, delivery or performance of this Agreement or the Transaction Documents, nor the consummation of the transactions contemplated hereby or thereby by the Company or any Subsidiary, as applicable, (A) required or requires any consent, approval, authorization or other order of or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required for the registration of the Shares under the Act and compliance with the securities or Blue Sky laws of various jurisdictions, all of which have been or will be effected in accordance with this Agreement), (ii) conflicted with, conflicts or will conflict with or constituted, constitutes or will constitute a breach of, or a default under, the Declaration of Trust, certificate or articles of incorporation or bylaws, partnership agreement or other organizational documents, of the Company or any of the Subsidiaries or under, any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound, (iii) violated, violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Company or any of the Subsidiaries or any of their respective properties, or (iv) resulted or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of the property or assets of any of them is subject. (k) All offers and sales of Units or other partnership interests in the Operating Partnership, and the offer, sale or issuance by the Company of Common Shares prior to the date hereof have been duly registered under the Act, or were exempt from the registration requirements of the Act and state securities and Blue Sky laws. The offer, sale and issuance by the Company of Common Shares pursuant to each of the Morgan Stanley Private Placement and the SERS Private Placement, and the offer, sale and issuance by the Company of Preferred Shares in and pursuant to the SERS Private Placement, in each case, were exempt from the registration requirements of the Act and state securities and Blue Sky laws. (l) The accountants, Arthur Andersen LLP, who have audited the financial statements included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), are independent public accountants as required by the Act. (m) The financial statements, together with related schedules and notes, included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in cash flows of the respective entity, entities, property, or properties, as applicable, at the respective dates or for the -11- 12 respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, and comply with the applicable accounting requirements of the Act (including, without limitation, Rule 3-14 of Regulation S-X promulgated by the Commission). The other financial and statistical information and data included in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the relevant entity, entities, property or properties, as applicable; the pro forma financial statements of the Company included in the Registration Statement and the Prospectus comply in all material respects with the applicable requirements of Rule 11-02 of Regulation S-X of the Commission, and the pro forma adjustments have been made upon management's reasonable good faith estimates of the pro forma adjustments and have been properly applied to the historical amounts in the compilation of such statements. (n) The Company has all trust power and authority, and the Operating Partnership has all partnership power and authority, to enter into this Agreement and each Transaction Document to which it is a party, and, in the case of the Company, to issue, sell and deliver the Shares to the Underwriters as provided in the Underwriting Agreement, and each of the Underwriting Agreement and each Transaction Document has been duly and validly authorized, executed and delivered by the Company and the Operating Partnership, as applicable, and, to the knowledge of the Company, each of the other parties thereto, and is a valid, legal and binding agreement of each of the Company and the Operating Partnership, as applicable, enforceable against each of the Company and the Operating Partnership in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of the Company's obligations hereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles. (o) Each Subsidiary has all corporate or partnership power and authority, as the case may be, to enter into each Transaction Document to which it is a party, and each Transaction Document has been duly and validly authorized, executed and delivered by each Subsidiary party thereto and is a valid, legal and binding agreement of each such Subsidiary, enforceable against such Subsidiary in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of each such Subsidiary's obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles. (p) The relevant purchase agreements included in the [SERS Transaction Documents] and the Other Acquisition Documents (the "Purchase Agreements") give the Company (directly or as assignee) the right (subject only to customary closing deliveries and other immaterial closing conditions), upon payment of the amounts provided in such Purchase Agreements, to acquire the SERS Properties and the Other Acquisition Properties, respectively. The Purchase Agreements and all deeds, assignments, and other documents delivered or to be delivered in connection therewith -12- 13 are legally sufficient to effect the sale to the Company of all right, title and interest in and to the SERS Properties and the Other Acquisition Properties upon payment of the amounts provided for in the Purchase Agreements. Upon the consummation of the SERS Transaction and the Other Acquisition Transactions, the Company (either directly or through a Subsidiary) will have, good and marketable title in fee simple to each of the SERS Properties and the Other Acquisition Properties, in each case, free and clear of all liens, charges, encumbrances, claims, security interests, defects, and restrictions, other than those described in the Registration Statement and the Prospectus and those which do not and will not have a material adverse effect on the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole. (q) Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), neither the Company nor any of the Subsidiaries has incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company and the Subsidiaries taken as a whole, and there has not been any change in the capital stock, or material increase in the short-term debt or long-term debt, of the Company or any of the Subsidiaries, or any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole. (r) Each of the Company or the Operating Partnership (either directly or through a Subsidiary) has, and after giving effect to the SERS Transaction and the Other Acquisition Transactions will have, good and marketable title to all property (real and personal) described in the Prospectus as being or to be owned by it, free and clear of all liens, claims, security interests or other encumbrances except such as are described in the Registration Statement and the Prospectus or in a document filed as an exhibit to the Registration Statement and all the property described in the Prospectus as being held under lease by each of the Company and the Subsidiaries is held by it under valid, subsisting and enforceable leases. (s) The Company has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Shares, will not distribute any offering material in connection with the offering and sale of the Shares other than the Registration Statement, the Prepricing Prospectus, the Prospectus or other materials, if any, permitted by the Act. (t) Each of the Company and each of the Subsidiaries has, and after giving effect to the SERS Transaction and the Other Acquisition Transaction will have, such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its respective properties and to conduct its business in the manner described in the Prospectus; each of the Company and each of the Subsidiaries has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification -13- 14 as may be set forth in the Prospectus; and, except as described in the Prospectus, none of such permits contains any restriction that is materially burdensome to the Company or any of the Subsidiaries. (u) The Company together with the Subsidiaries maintains and will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (v) Neither the Company nor any of its Subsidiaries nor any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus. (w) The Company and each of the Subsidiaries have filed all tax returns required to be filed, which returns are complete and correct, and neither the Company nor any Subsidiary is in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto. (x) Except as described in the Prospectus, there is no holder of any security of the Company, or the Operating Partnership or any other person who has the right, contractual or otherwise, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Shares or the right to have any Common Shares or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the registration statement or sale of the Shares as contemplated by this Agreement, to require registration under the Act of any Common Shares or other securities of the Company. (y) The Company and the Subsidiaries own or possess all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and neither the Company nor the Operating Partnership is aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiaries with respect to the foregoing. (z) None of the Company or any Subsidiary is now, and after sale of the Shares to be sold by it hereunder and application of the net proceeds from such sale as described in the Prospectus under the caption "Use of Proceeds" will be, an "investment company," or entity "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. -14- 15 (aa) The Company has filed in a timely manner each document or report required to be filed by it pursuant to the Exchange Act and the rules and regulations thereunder; each such document or report at the time it was filed conformed to the requirements of the Exchange Act and the rules and regulations thereunder; and none or such documents or reports contained an untrue statement of any material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (bb) The Company and its Subsidiaries are organized and operate in the manner described in the Registration Statement so that the Company meets the requirements for qualification as a real estate investment trust under Sections 856 through 860 of the Code and the rules and regulations thereunder as currently in effect. Each Subsidiary that is a partnership will be treated as a partnership, and not as an association taxable as a corporation or a publicly traded partnership, for federal income tax purposes. (cc) The Shares are duly authorized for listing, subject to official notice of issuance, on the American Stock Exchange. (dd) Neither the Company nor any of its trustees, officers or controlling persons has taken, directly or indirectly, any action intended, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (ee) Except as described in the Prospectus, the mortgages and deeds of trust encumbering the Properties will not be cross-defaulted or cross-collateralized with any other property not owned directly or indirectly by the Company or any of the Subsidiaries. (ff) (1) Each of the Properties, the Company, and each of the Subsidiaries (i) is, and as of the Closing Date will be, in compliance in all material respects with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received, or will have received, as of the Closing Date and upon consummation of the SERS Transaction and the Other Acquisition Transactions, as the case may be, all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective business, and (iii) is, and will be as of the Closing Date in material compliance with all terms and conditions of any such permit, license or approval. (2) Except as may be specifically disclosed in the Phase I Environmental Site Assessment reports referred to in the Prospectus (the "Environmental Reports"), the Company and the Subsidiaries have not at any time, and, to the knowledge of the Company, no other party has at any time, handled, buried, stored, retained, refined, transported, processed, manufactured, generated, produced, spilled, allowed to seep, leak, escape or leach, or be pumped, poured, emitted, emptied, discharged, injected, dumped, transferred or otherwise disposed of or dealt with, Hazardous Materials (as hereinafter defined) on, to or from the Properties. The Company and the Subsidiaries do not intend to use the Properties or any subsequently acquired properties for the purpose of handling, burying, storing, retaining, refining, transporting, processing, manufacturing, generating, -15- 16 producing, spilling, seeping, leaking, escaping, leaching, pumping, pouring, emitting, emptying, discharging, injecting, dumping, transferring or otherwise disposing of or dealing with Hazardous Materials. (3) Except as disclosed in the Environmental Reports, to the knowledge of the Company, there has been no seepage, leaking, escape, leaching, discharge, injection, release, emission, spill, pumping, pouring, emptying or dumping of Hazardous Materials into waters on or adjacent to the Properties or onto lands from which such hazardous or toxic waste or substances might seep, flow or drain into such waters. (4) Except as disclosed in the Environmental Reports, neither the Company nor any Subsidiary has received notice of any occurrence or circumstance which, with notice or passage of time or both, would give rise to, any claim under or pursuant to any Environmental Law pertaining to hazardous or toxic waste or substances on or originating from the Properties or arising out of the conduct of any such party, including, without limitation, pursuant to and Environmental Law. (5) No environmental engineering firm which prepared the Environmental Reports (or amendments thereto) or physical condition (engineering) reports with respect to the Properties was employed for such purpose on a contingent basis or has any substantial interest in the Company or any Subsidiary. As used herein, "Hazardous Material" shall include, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials, asbestos or any material as defined by any Federal, state or local environmental law, ordinance, rule, or regulation including, without limitation. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.) ("CERCLA"), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 9601, et seq.) The New Jersey Industrial Site Recovery Act, N.J.S.A.Section 13:1K-6, et seq. or and in the regulations adopted and publications promulgated pursuant to each of the foregoing or by any Federal, state or local Governmental authority having or claiming jurisdiction over the Properties as described in the Prospectus (collectively, "Environmental Laws"). (gg) To the knowledge of the Company, all physical condition (engineering) reports obtained for the Properties are materially true and correct. Neither the Company nor any of the Subsidiaries is aware of any material capital expenditures (other than expenditures for maintenance in the ordinary course of business) which will be required in connection with any of the Properties prior to the fifth anniversary of this Agreement. (hh) As of the Closing Date and after giving effect to the SERS Transaction and the Other Acquisition Transactions, the Company or the Operating Partnership, as applicable, will have obtained ALTA Extended Coverage Owner's Policies of Title Insurance from title insurers of recognized financial responsibility on each of the SERS Properties and the Other Acquisition -16- 17 Properties in amounts at least equal to the acquisition price of each such property (and improvements located on such property), and such insurance shall be in full force and effect. (ii) The assets of the Company and the Subsidiaries do not, and as of the Closing Date and after giving effect to the any of the Transactions do not and will not constitute, "plan assets" under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (jj) The transfer of interests in the SERS Properties by SERS and RAI to the Company in exchange for, among other things, Preferred Stock and warrants to purchase Common Shares under the SERS Investment Documents relating to such exchange does not constitute a prohibited transaction within the meaning of section 406 of ERISA for which an exemption is not available. 8. Indemnification and Contribution. (a) The Company and the Operating Partnership, jointly and severally, agree to indemnify and hold harmless each of you and each other Underwriter, the directors, officers, employees and agents of each Underwriter, and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus or in the Registration Statement or the Prospectus or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter through you expressly for use in connection therewith (which information is described in its entirety in Section 13 below); provided, however, that the indemnification contained in this paragraph (a) with respect to any Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the Act and the regulations thereunder, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus was corrected in the Prospectus, provided that the Company has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending within the time required by the Act. The foregoing indemnity agreement shall be in addition to any liability which the Company may otherwise have. (b) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company or the Operating Partnership, such Underwriter or such controlling person shall promptly notify the Company or the Operating Partnership, and the Company or the Operating Partnership shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate -17- 18 counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the Company and the Operating Partnership have agreed in writing to pay such fees and expenses, (ii) the Company and the Operating Partnership have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the Company or the Operating Partnership and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and the Company or the Operating Partnership by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the Company and the Operating Partnership shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the Company shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Smith Barney Inc., and that all such fees and expenses shall be reimbursed as they are incurred. The Company and the Operating Partnership shall not be liable for any settlement of any such action, suit or proceeding effected without its written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Company and the Operating Partnership agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its trustees and officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company and the Operating Partnership to each Underwriter, but only with respect to losses, claims, damages, liabilities and expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact set forth in the information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors or officers, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the rights and duties given to the Company and the Operating Partnership by paragraph (b) above (except that if the Company or the Operating Partnership shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors and officers, and any such controlling person shall have the rights and duties given to the -18- 19 Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which the Underwriters may otherwise have. (d) If the indemnification provided for in this Section 8 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Operating Partnership on the one hand and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Operating Partnership on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Operating Partnership on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Operating Partnership bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Operating Partnership and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 8 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule I hereto (or such numbers of Firm Shares increased as set forth in Section 11 hereof) and not joint. -19- 20 (f) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. (g) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company and the Operating Partnership set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company and its trustees or officers, the Operating Partnership and its officers, or any person controlling the Company or the Operating Partnership, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company and its trustees or officers, the Operating Partnership and its officers, or any person controlling the Company or the Operating Partnership, shall be entitled to the benefits of the indemnity, contribution, and reimbursement agreements contained in this Section 8. 9. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) If, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, the registration statement or such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings, if any, required by Rules 424 and 430A under the Act shall have been timely made; no stop order suspending the effectiveness of the registration statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the registration statement or the prospectus or otherwise) shall have been complied with to your satisfaction. (b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, prospects, properties, net worth, or results of operations of the Company or the Subsidiaries not contemplated by the Prospectus, which in your opinion, as Representatives of the several Underwriters, would materially, adversely affect the market for the Shares, or (ii) any event or development relating to or involving the Company or any officer or director of the Company or the Operating Partnership which makes any statement made in the Prospectus untrue or which, in the opinion of the Company and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a -20- 21 material fact required by the Act or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion, as Representatives of the several Underwriters, materially, adversely affect the market for the Shares. (c) You shall have received on the Closing Date, opinions of Pepper, Hamilton & Scheetz counsel for the Company, the Operating Partnership and the other Subsidiaries, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, in the form set forth on Exhibit 9(c) attached hereto. In rendering their opinions as aforesaid, counsel may rely upon an opinion or opinions, each dated the Closing Date, of other counsel retained by them or the Company as to laws of any jurisdiction other than the United States, the State of [New York], the Commonwealth of Pennsylvania and the State of Delaware, provided that (1) each such local counsel is acceptable to the Representatives, (2) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to the Representatives and is, in form and substance, satisfactory to them and their counsel, and (3) counsel shall state in their opinion that they believe that they and the Underwriters are justified in relying thereon. (d) You shall have received on the Closing Date an opinion of Arthur Andersen LLP, special tax advisor to the Company, satisfactory in form and substance to you, to the effect that (i) the descriptions of the Federal income tax conclusions contained in the Prospectus under the caption "Federal Income Tax Considerations" are correct in all material respects, and a discussion contained therein fairly summarizes the Federal income tax considerations that may be material to a holder of the common Shares; (ii) assuming the Company is operated in accordance with the assumptions and representations of management regarding its activities and intended activities, the Company will continue to qualify as a REIT under the Code; and (iii) the Operating Partnership and the Title Holding Partnerships will be treated for Federal income tax purposes as partnerships and not as associations taxable as corporations or as publicly-traded partnerships. (e) You shall have received on the Closing Date, an opinion of Arthur Andersen LLP, special tax advisor to the Company, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, satisfactory in form and substance to you, to the effect that the Company will not be considered to own more than ten percent of the outstanding voting securities of Brandywine Realty Services Corp. at the close of the quarter ending September 30, 1996. (f) You shall have received on the Closing Date an opinion of Battle Fowler LLP, counsel for the Underwriters, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, with respect to the Registration Statement, the Prospectus and this Agreement and such other related matters as you may request. (g) You shall have received comfort letters, including, but not limited to, certain agreed upon procedures, addressed to you, as Representatives of the several Underwriters, and dated the date hereof and the Closing Date from Arthur Andersen LLP, independent public accountants, substantially in the forms heretofore approved by you. (h) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company or the Underwriters, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or Supplement thereto); (iii) there shall not have been, since -21- 22 the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Properties or the Company and the Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company and the Subsidiaries, taken as a whole, other than those reflected in the Registration Statement or the Prospectus (or any amendment or supplement thereto); and (v) all the representations and warranties of the Company and the Operating Partnership contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you), to the effect set forth in this Section 9(g) and in Section 9(i) hereof. (i) On or prior to the Closing Date, the Representatives shall have received the executed "lock-up" agreements referred to in Section 6(p). (j) The Company shall not have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (k) The Shares shall have been listed or approved for listing upon notice of issuance on the American Stock Exchange. (l) All of the Transaction Documents shall have been executed and, if applicable, delivered contemporaneously with or prior to the sale of the Firm Shares. (m) Each of the SERS Transaction, the Other Acquisitions, the Morgan Stanley Private Placement, and the SERS Private Placement shall have been consummated contemporaneously with or prior to the sale of the Firm Shares hereunder. (n) The Company shall have delivered to the Underwriters satisfactory evidence of the following with respect to each SERS Property and Other Acquisition Property: (i) a copy of an executed and recordable valid deed therefor, naming the Company or the Operating Partnership, as applicable, as the grantee thereunder; (ii) an ALTA Extended Coverage Owner's Policy of Title Insurance (or a commitment to issue such a policy) naming the Company or the Operating Partnership, as applicable, as name insured and insuring (or committing to insure) that the Company or a Subsidiary owns fee title to the real property in an amount at least equal to the acquisition price of each such property (and improvements located on such property), which policy (or commitment) shall be issued by a title insurance company reasonably acceptable to the Underwriters (any such person or persons, the "Title Company"), and contain as exceptions to title only the exceptions described in -22- 23 the Transaction Documents relating to the transfer of such Property in connection with the applicable Transaction or which counsel for the Underwriters shall have approved (the "Permitted Exceptions") and any such endorsements to such policy as the Underwriters may reasonably require; (iii) a survey of the Property in form satisfactory to the Underwriters and the Title Company in connection with the issuance of an ALTA Extended Coverage Owner's Policy of Title Insurance; (iv) policies or certificates of insurance relating to such Property evidencing coverages and in amounts customarily obtained by owners of similar properties; (v) copies of such affidavits, certificates and instruments of indemnification as shall reasonably be required to induce the Title Company to issue the policy (or commitment) contemplated in subparagraph (ii) above; (vi) a schedule or other written evidence of checks payable to the appropriate public officials in payment of all recording costs and transfer taxes (or checks or wire transfers to the Title Company in respect of such amounts) due in respect of any recording of instruments in connection with the applicable Transactions, together with a check or wire transfer for the Title Company in payment of the Title Company's premium, search and examination charges, survey costs and any other amounts due in connection with the issuance of its policy; (vii) if such Property is to remain subject after the applicable Transaction to an existing indenture, mortgage, deed of trust, loan agreement, bond debenture, note agreement or other evidence of indebtedness ("Existing Indebtedness"), an agreement dated not earlier than 30 days prior to the Closing Date from the holder of such Existing Indebtedness together with any other necessary party indicating such holder's consent to those Transactions requiring its consent and effecting any required modifications to the documents evidencing such Existing Indebtedness; (viii) an engineering (structural) report from an engineer or engineers and in a form reasonably satisfactory to you; and (ix) such other agreements, documents, instruments, reports, articles or evidences of payments properly executed, where applicable, as may be required pursuant to the Transaction Documents to effect the transfer of such Property in connection with the Transactions. (o) All actions necessary to permit the Company to make borrowings under the Credit Facility, as defined and described in the Prospectus, shall have been taken. (p) The Company shall have furnished or caused to be furnished to you such further certificates and documents as you shall have requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel. -23- 24 Any certificate or document signed by any officer of the Company and delivered to you, as Representatives of the Underwriters, or to counsel for the Underwriters, shall be deemed a representation and warranty by the Company to each Underwriter as to the statements made therein. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 9, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (g) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c), (d), (e) and (f) shall be revised to reflect the sale of Additional Shares. 10. Expenses. The Company agrees to pay the following costs and expenses and all other costs and expenses incident to the performance by it of its obligations hereunder: (i) the preparation, printing or reproduction, and filing with the Commission of the registration statement (including financial statements and exhibits thereto), any Rule 462(b) Registration Statements, each Prepricing Prospectus, the Prospectus, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the registration statement, each Prepricing Prospectus, the Prospectus, and all amendments or supplements to any of them as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the original issuance and sale of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the registration of the Common Shares under the Exchange Act and the listing of the Shares on the American Stock Exchange; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 6(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification); (vii) the filing fees and the fees and expenses of counsel for the Underwriters in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (viii) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Shares; (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company. 11. Effective Date of Agreement. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Shares may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been released by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying you, or by you, as Representatives of the several Underwriters, by notifying the Company. -24- 25 If any one or more of the Underwriters shall fail or refuse to purchase Firm Shares which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one-tenth of the aggregate number of Firm Shares which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Firm Shares which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase Firm Shares which it or they are obligated to purchase on the Closing Date and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Company for the purchase of such Firm Shares by one or more non-defaulting Underwriters or other party or parties approved by you and the Company are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule I hereto who, with your approval and the approval of the Company, purchases Shares which a defaulting Underwriter is obligated, but fails or refuses, to purchase. Any notice under this Section 11 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 12. Termination of Agreement. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company, by notice to the Company, if prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in the Common Shares shall have been suspended by the Commission or the American Stock Exchange, (ii) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (iii) a general moratorium on commercial banking activities in New York or Pennsylvania shall have been declared by either federal or state authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Shares at the offering price to the public set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Shares by the Underwriters. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. -25- 26 13. Information Furnished by the Underwriters. The Company and the Operating Partnership acknowledge and agree that the statements set forth in the last paragraph on the cover page, the stabilization legend on the inside cover page, the list of Underwriters and their respective allotments appearing under the caption "Underwriting" in the Prospectus and the statements in the first and third paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you as such information is referred to in Sections 7(b) and 8 hereof. 14. Miscellaneous. Except as otherwise provided in Sections 6, 11 and 12 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company or the Operating Partnership, at the office of the Company at 16 Campus Boulevard, Newtown Square, Pennsylvania 19073, Attention: Gerard H. Sweeney, President and Chief Executive Officer; or (ii) if to you, as Representatives of the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its trustees and officers, the Operating Partnership and the other controlling persons referred to in Section 8 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Shares in his status as such purchaser. 15. Applicable Law; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. -26- 27 Please confirm that the foregoing correctly sets forth the agreement between the Company, the Operating Partnership and the several Underwriters. Very truly yours, BRANDYWINE REALTY TRUST By --------------------------------------- Gerard H. Sweeney President and Chief Executive Officer BRANDYWINE OPERATING PARTNERSHIP, L.P. By Brandywine Realty Trust, its general partner By ----------------------------- Gerard H. Sweeney President and Chief Executive Officer Confirmed as of the date first above mentioned on behalf of themselves and the other several Underwriters named in Schedule I hereto. SMITH BARNEY INC. LEGG MASON WOOD WALKER, INCORPORATED As Representatives of the Several Underwriters By SMITH BARNEY INC. By ------------------------------- Managing Director -27- 28 SCHEDULE I BRANDYWINE REALTY TRUST
Number of Underwriter Firm Shares ----------- ----------- Smith Barney Inc............................................. Legg Mason Wood Walker, Incorporated......................... Total............ 3,700,000
29 SCHEDULE 2(a) SSI/TNC Documents 30 SCHEDULE 2(c)(1) SERS Transaction Documents 31 SCHEDULE 2(c)(2) SERS Investment Documents 32 SCHEDULE 2(e) Morgan Stanley Investment Documents 33 SCHEDULE 2(f) Other Acquisition Documents 34 SCHEDULE 2(h) Subsidiaries of the Company 35 SCHEDULE 6(p) Persons and Entities to Deliver Lock-up Letters 36 SCHEDULE 7(f) Ownership Interests in Subsidiaries 37 Exhibit 9(c) Form of Company Counsel Legal Opinion 1. The Company is duly formed and validly existing as a real estate investment trust in good standing under and by virtue of the laws of the State of Maryland, with full trust power and authority to own, lease, and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business as described in the Registration Statement and the Prospectus requires such registration or qualification; except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, business, properties, net worth or results of operations of the Company. 2. Each of the Subsidiaries is a corporation, limited partnership or general partnership duly incorporated or formed, as the case may be, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation, with full corporate or partnership power and authority, as the case may be, to own, lease, and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business as described in the Registration Statement and the Prospectus requires such registration or qualification; except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, business, properties, net worth or results of operations of such Subsidiary. 3. The authorized and outstanding capital stock of the Company is as set forth under the caption "Capitalization" in the Prospectus; and the authorized capital stock (including, but not limited to, any options, warrants or other securities convertible into or exchangeable for capital stock of the Company) conforms in all material respects to the description thereof in the Registration Statement and the Prospectus. All the shares of capital stock of the Company outstanding prior to the issuance of the Shares have been duly authorized and validly issued, are fully-paid and nonassessable, and are free of any preemptive or similar rights under Maryland law. 4. The Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms of the Underwriting Agreement, will be validly issued, fully-paid and nonassessable and free of any preemptive or, to the best of our knowledge after reasonable inquiry, similar rights that entitle or will entitle any person or entity to acquire any Shares upon the issuance thereof by the Company. 5. Except as described in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and, to the best of our knowledge, there is no commitment, plan or arrangement to issue, any shares of capital stock of the Company or any security convertible into or exchangeable or exercisable for capital stock of the Company. Except as described in the Prospectus, there is no holder of any security of the Company or any other person who has the right, contractual or otherwise, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Shares or the right to have any Common Shares or other securities of the Company included in the registration statement or the right, as a result of the filing of the registration statement or sale of the Shares as contemplated by the Underwriting Agreement, to require registration under the Act of any Common Shares or other securities of the Company. 38 6. All of the outstanding units of limited and general partnership interests (the "Units") of the Operating Partnership, and the partnership interests in each of the other Subsidiaries that are partnerships, have been duly authorized and validly created and issued under the agreements forming the Operating Partnership and such other Subsidiaries, as the case may be, and are fully-paid, and all of the issued and outstanding shares of capital stock of each of the Subsidiaries that are corporations have been duly authorized and validly issued, and are fully-paid and non-assessable. Except as described in the Registration Statement and the Prospectus, all such Units, partnership interests and shares of capital stock and are owned by the Company directly, or indirectly through one of the Subsidiaries, free and clear of any security interest, lien, adverse claim, equity or other encumbrance, and the Company's percentage ownership in the Operating Partnership, and the Company's and the Operating Partnership's respective percentage interest and ownership in each of the Subsidiaries is as set forth on Schedule I attached hereto and made part hereof. Except as described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), there are no outstanding options, warrants or other rights calling for the issuance of, or any commitment, plan or arrangement to issue, any equity interests in any Subsidiary, or any security convertible into, or exchangeable or exercisable or, any such interests in any such Subsidiary. The terms of the Units conform in all material to statements and descriptions thereof contained in the Prospectus. The Company is the sole general partner of the Operating Partnership. 7. All offers and sales of Units by the Operating Partnership, and the offers and sales by the Company of Common Shares prior to the Effective Date as described in the Registration Statement and the Prospectus have been duly registered under the Act, or were issued in transactions exempt from the registration requirements of the Act and state securities and Blue Sky laws. The offer, sale and issuance by the Company of Common Shares pursuant to each of the Morgan Stanley Private Placement and the SERS Private Placement, and the offer, sale and issuance by the Company of Preferred Shares in and pursuant to the SERS Private Placement, in each case, were exempt from the registration requirements of the Act and state securities and Blue Sky laws, and neither such transaction required or requires the approval or consent of the Company's shareholders under the Company's Declaration of Trust or Bylaws, the rules, regulations and requirements of the American Stock Exchange, or Maryland law. 8. The Company has all trust power and authority, and the Operating Partnership has all partnership power and authority, to enter into the Underwriting Agreement and each Transaction Document, and, in the case of the Company, to issue, sell and deliver the Shares to the Underwriters as provided in the Underwriting Agreement, and each of the Underwriting Agreement and each Transaction Document has been duly and validly authorized, executed and delivered by the Company and the Operating Partnership and is a valid, legal and binding agreement of each of the parties thereto, enforceable against each of the parties thereto in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of the Company's obligations hereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles. 9. Each Subsidiary has all corporate or partnership power and authority, as the case may be, to enter into each Transaction Document to which it is a party, and each Transaction Document has been duly and validly authorized, executed and delivered by each Subsidiary party thereto and is a valid, legal and binding agreement of such Subsidiary, enforceable against such Subsidiary in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of each such Subsidiary's obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles. 2 39 10. Each of the Company and each of the Subsidiaries has all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies (except where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the condition, financial or otherwise, business, properties, net worth or results of operations of the Company or such Subsidiary, respectively) to own their respective properties and to conduct their respective businesses as now being conducted and proposed to be conducted following the Additional Acquisitions, as described in the Prospectus. 11. The Company and the Subsidiaries own all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and other rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and, to the best of our knowledge, no claim to the contrary or any challenge by any other person to the rights of the Company or the Subsidiaries with respect to the foregoing has been asserted or threatened. 12. The form of certificate representing the Common Shares is in due and proper form and complies with all applicable statutory requirements. 13. Neither the Company nor any of the Subsidiaries is in violation of its respective Declaration of Trust, certificate or articles of incorporation or bylaws, partnership agreement or other organizational documents, or, to the best of our knowledge after reasonable inquiry, is in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness. 14. With respect to the Company and the Subsidiaries, neither the issuance and offer, sale or delivery of the Shares, the execution, delivery or performance of the Underwriting Agreement and the Transaction Documents nor the consummation of the transactions contemplated thereby by the Company or the Subsidiaries, as applicable, (i) required or requires any consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official, or the American Stock Exchange (except such as has been obtained for the registration of the Shares under the Act, and state securities or Blue Sky laws of various jurisdictions) (ii) conflicted with, conflicts or will conflict with or constituted, constitutes or will constitute a breach of, or a default under the Declaration of Trust, certificate or articles of incorporation or bylaws, partnership agreement or other organizational documents, of any of such entities, or under any agreement, indenture, lease or other instrument to which any of such entities is a party or by which any of them or any of their respective properties may be bound, which in each case has been filed as an exhibit to the Registration Statement or is known to us after reasonable inquiry, (iii) violated, violates or will violate any statute, law, regulation, ruling, judgment, injunction, order or decree applicable to any of such entities or any of their respective properties, or (iv) resulted or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of any of such entities pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of the property or assets of any of them is subject. 15. Neither the Company nor any of the Subsidiaries is required to be registered under the Investment Company Act of 1940, as amended. 16. To the best of our knowledge after reasonable inquiry, (A) other than as described in the Prospectus (or any supplement thereto), there are no proceedings pending or threatened against the Company or any of the Subsidiaries or any of their respective trustees, directors or officers in their capacity 3 40 as such, or to which the Company or any of the Subsidiaries or any of their respective trustees, directors or officers in their capacity as such, or any of their respective property, is subject, that are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto) and (B) there are no agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the Act. 17. To the best of our knowledge after reasonable inquiry, neither the Company nor any Subsidiary is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries; 18. None of the Subsidiaries is currently contractually prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary's capital stock or other equity interests, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary's property or assets to the Company or any of the other Subsidiaries, except as described in or contemplated by the Prospectus. 19. The statements set forth under the heading "Description of Shares of Beneficial Interest" in the Prospectus, insofar as such statements purport to summarize certain provisions of the Common Shares and Preferred Shares, are accurate and present fairly in all material respects the information required to be disclosed therein; and the statements set forth under the headings "Risk Factors," "Structure of the Company," "Management," "Certain Relationships and Transactions," "Certain Provisions of Maryland Law and of the Company's Declaration of Trust and Bylaws," "Federal Income Tax Considerations," "Operating Partnership Agreement," "BRP General Partnership Agreement," "ERISA Considerations," Shares Available for Future Sale," "Underwriting," "Tax Matters," and "Available Information" in the Prospectus, insofar as such statements are descriptions or summaries of contracts, agreements or other legal documents, or refer to or constitute statements or matters of law, descriptions of statutes, rules of regulations, or legal conclusions, are accurate and present fairly in all material respects the information required to be shown. 20. The Initial Registration Statement, any Rule 462(b) Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial, accounting and statistical data included therein or excluded therefrom, as to which we do not express any opinion) comply as to form in all material respects with the requirements of the Act. 21. The Registration Statement and all post-effective amendments, if any, have become effective under the Act as of ______, 1996 and, to the best of our knowledge after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or contemplated by the Commission, and any required filing of the Prospectus or Term Sheet that constitutes a part thereof pursuant to Rules 424(b) and 434 has been made in accordance with Rules 424(b) and 434. 22. If the Company elects to rely on Rule 434, the Prospectus is not "materially different," as such term is used in Rule 434, from the Prospectus included in the Registration Statement at the time of its effectiveness or an effective post-effective amendment thereto (including such information that is permitted to be omitted pursuant to Rule 430A). 4 41 We have been advised by the American Stock Exchange, Inc. that the Shares are duly authorized for listing, subject to official notice of issuance. In addition, we have participated in conferences with officers and other representatives of the Company, the Operating Partnership and the other Subsidiaries, and representatives of the Company's independent public accountants in connection with the preparation of the Registration Statement at which the contents of the Registration Statement, and the Prospectus therein, and related matters were reviewed and discussed and, although we have not verified independently and, therefore, do not assume any responsi bility, explicitly or implicitly, for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (except as provided in paragraph 19 above), on the basis of the foregoing, nothing has come to our attention that has caused us to believe that the Registration Statement, at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that Prospectus or any amendment or supplement thereto, as of their respective dates, and as of the date hereof, as the case may be, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that no opinion shall be expressed with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data included in the Registration Statement or the Prospectus). 5 42 Exhibit 9(e) Tax Opinion of Arthur Andersen LLP EX-3.2 3 FORM OF ARTICLES SUPP TO DECLARATION OF TRUST 1 EXHIBIT 3.2 BRANDYWINE REALTY TRUST ARTICLES SUPPLEMENTARY Brandywine Realty Trust, a Maryland real estate investment trust (the "Trust"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Under a power contained in Section 6.3 of the Amended and Restated Declaration of Trust of the Trust (the "Declaration"), the Board of Trustees of the Trust (the "Board of Trustees"), by [resolution duly adopted at a meeting duly called and held on] [unanimous consent dated] __________ __, 1996, classified and designated a series of the Trust's preferred shares of beneficial interest, $.01 par value per share, as the Series A Convertible Preferred Shares (the "Convertible Preferred Shares"), with the following designation, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption, which, upon any restatement of the Declaration, shall be deemed to be part of Article 6 of the Declaration: SERIES A CONVERTIBLE PREFERRED SHARES 1. Number of Authorized Convertible Preferred Shares. The number of authorized Convertible Preferred Shares shall be _________. 2. Voting Rights. Except as otherwise provided by law and as provided in Section 4(b)(i) hereof, the holders of Convertible Preferred Shares shall be entitled to vote on all matters as to which holders of common shares of beneficial interest of the Trust (the "Common Shares") shall be entitled to vote, together with the holders of Common Shares as a single class, and shall be entitled to cast the number of votes equal to the number of Common Shares then issuable upon conversion of the Convertible Preferred Shares owned by such holder, in accordance with the provisions hereof. 3. Dividends. (a) The holders of the Convertible Preferred Shares shall not be entitled to receive any preferences as to dividends or other distributions except as set forth in Section 6 hereof. (b) In the event that the Trust pays a dividend with respect to or makes a distribution on the Common Shares (whether in cash, securities issued by the Trust or another entity or other property), then the holders of the Convertible Preferred Shares shall be entitled to -1- 2 participate with the holders of the Common Shares in any such dividends or distributions, such that the holders of the Convertible Preferred Shares shall receive, with respect to each Convertible Preferred Share held, an amount equal to the product of (i) the dividend or distribution payable with respect to each Common Share (except that, if a Conversion Event has not occurred by June 30, 1997, the amount under this clause (i) shall be one hundred twenty percent (120%) of any such dividend or distribution that is paid (A) on or after July 1, 1997 and prior to a Conversion Event or (B) to holders of record of Common Shares during such period) multiplied by (ii) the number of Common Shares into which such Convertible Preferred Share is convertible as of the record date for such dividend or distribution (or if there is no record date, as of the payment date). (c) The provisions of this Section 3 shall not apply to any dividend or distribution that would result in an adjustment of the Conversion Number (as hereinafter defined) pursuant to Section 4(c)(ii). 4. Conversion Rights of Convertible Preferred Shares. (a) Conversion at the Option of the Holder or the Trust. A holder of record of any Convertible Preferred Shares shall have the right, at any time, at such holder's option, to convert, without the payment of any additional consideration, each Convertible Preferred Share held by such holder into that number of fully paid and non-assessable Common Shares equal to the Conversion Number (as defined below); provided that, prior to a Conversion Event (as defined below), any such conversion shall not result in the number of Common Shares issued upon such conversion plus the number of Common Shares issued pursuant to prior transactions (including but not limited to, prior conversions of Convertible Preferred Shares) contemplated by the Contribution Agreement dated __________ __, 1996 by and among, inter alia, the Trust and RAI Real Estate Advisors, Inc. as voting trustee of a voting trust dated as of __________ __, 1996 (the "Voting Trust") or the Securities Purchase Agreement dated __________ __, 1996 by and between the Trust and Voting Trust (collectively, the "RAI Agreements") exceeding, in the aggregate, nineteen and nine-tenths percent (19.9%) of the outstanding Common Shares as of October 31, 1996. After the occurrence of a Conversion Event, the Trust may, by written notice to each holder, require the conversion of all, but not less than all, of the Convertible Preferred Shares. (b) Conversion Event. The term "Conversion Event" shall mean the approval by a majority of the votes actually cast by the holders of Common Shares, at a duly convened meeting of the shareholders of the Trust in which vote the holders of the Convertible Preferred Shares shall have no right to vote such shares, of the unlimited conversion of the Convertible Preferred Shares into Common Shares. (c) Conversion Number. The initial Conversion Number shall be ten (10), subject to adjustment in accordance with the provisions in this Section 4(c). Such respective conversion numbers in effect from time to time, as adjusted pursuant to this Section -2- 3 4(c), are referred to herein as the "Conversion Number." All of the remaining provisions of this Section 4(c) shall apply separately to the respective Conversion Numbers in effect from time to time. (i) Each adjustment to the Conversion Number shall be calculated to the nearest four decimal places. (ii) If at any time the Trust: (A) pays a dividend or makes a distribution on any of its shares of beneficial interest in Common Shares; (B) subdivides its outstanding Common Shares into a greater number of shares; (C) combines its outstanding Common Shares into a smaller number of shares; or (D) issues Common Shares by reclassification of any of its shares of beneficial interest then the Conversion Number in effect immediately prior to such action shall be adjusted so that the holder of Convertible Preferred Shares may receive upon conversion, the number of Common Shares which the holder would have owned immediately following such action if the holder had converted the Convertible Preferred Shares immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution, and immediately after the effective date in the case of a subdivision, combination or reclassification. (d) Mechanics of Conversion. If a holder of Convertible Preferred Shares desires to exercise the optional conversion right pursuant to Section 4(a) above, such holder shall give written notice to the Trust of such holder's election to convert a stated number of Convertible Preferred Shares into Common Shares, based upon the Conversion Number then in effect, which notice shall be accompanied by the certificate or certificates representing such Convertible Preferred Shares which shall be converted into Common Shares. The notice shall also contain a statement of the name or names in which the certificate or certificates for Common Shares shall be issued. The date when such notice is received by the Trust, together with the certificate or certificates evidencing the Convertible Preferred Shares being surrendered for conversion, shall be the "Conversion Date." Within two (2) trading days after the Conversion Date, the Trust shall issue and deliver to such holder of Convertible Preferred Shares or to such holder's nominee or nominees, a certificate or certificates evidencing the number of -3- 4 Common Shares issuable upon conversion of such Convertible Preferred Shares, and the certificates evidencing Convertible Preferred Shares surrendered for conversion shall be canceled by the Trust. If the number of shares evidenced by the certificate or certificates surrendered for conversion shall exceed the number of shares to be converted, the Trust shall issue and deliver to the person entitled thereto a certificate evidencing the balance of any unconverted shares. (e) No Fractional Shares. Notwithstanding anything herein to the contrary, no fractional shares shall be issued to any holder of Convertible Preferred Shares on conversion of such holder's Convertible Preferred Shares. Instead of any fractional Common Shares that would otherwise be issuable upon conversion of such holder's Convertible Preferred Shares, the Trust shall pay to such holder a cash adjustment in respect of such fractional shares in an amount equal to the same fraction of the Current Market Price (determined in a manner consistent with that provided in Section 5(c) below) of a Common Share at the close of business on the Conversion Date. (f) Reservation of Common Shares. The Trust shall at all times reserve and keep available out of its authorized but unissued Common Shares, solely for issuance upon conversion of Convertible Preferred Shares as herein provided, such number of Common Shares as shall be issuable from time to time upon the conversion of all of the Convertible Preferred Shares at the time issued and outstanding. If the Common Shares are listed on any national securities exchange or The Nasdaq Stock Market, the Trust shall also list the Common Shares issuable upon conversion of the Convertible Preferred Shares on such exchange, subject to notice of issuance, or include the shares issuable upon conversion in the listing of its Common Shares on The Nasdaq Stock Market, as the case may be. 5. Redemption. (a) Optional Redemption. At any time after July 1, 1998, if a Conversion Event has not occurred, a holder of record of any Convertible Preferred Shares shall have the right, at such holder's option, to require the Trust to redeem from time to time all or any portion of the Convertible Preferred Shares held by such holder. (b) Redemption Price. The price at which each Convertible Preferred Share shall be redeemed (the "Redemption Price") shall be equal to the greater of: (i) The product of (A) $5.50 plus an amount (the "Return Amount") equal to 8% of $5.50 per annum, on the basis of a 360-day year, from the date of issuance of the Convertible Preferred Share to the Redemption Date (as hereinafter defined) less any cash distributions and the fair market value of non-cash distributions (to the extent such distributions are less than or equal to the Return Amount) actually received by the holder on account of each Convertible Preferred Share and (B) the number of Common Shares issuable -4- 5 upon the conversion of each Convertible Preferred Share if such conversion occurred on the Redemption Date. (ii) The product of (A) the Current Market Price (determined as provided below) of a Common Share and (B) the number of Common Shares issuable upon the conversion of each Convertible Preferred Share if such conversion occurred on the Redemption Date. (c) Current Market Price. The "Current Market Price" of a Common Share shall be determined as follows: (i) If the Common Shares are listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on The Nasdaq Stock Market, the Current Market Price shall be the last reported sale price of the Common Shares on such exchange or system on the last business day prior to the Redemption Date, or if no such sale is made on such day, the average of the closing bid and asked prices of the Common Shares for such day on such exchange or system; or (ii) If the Common Shares are not so listed or admitted to unlisted trading privileges, the Current Market Price shall be the average of the last reported bid and asked prices reported by the National Quotation Bureau, Inc., on the last business day prior to the Redemption Date; or (iii) If the Common Shares are not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the Current Market Price per Share shall be an amount, not less than 90% of the book value per Common Share as at the end of the most recent fiscal year of the Trust ending prior to the Redemption Date, determined in such reasonable manner as may be prescribed in good faith by the Board of Trustees of the Trust. (d) Exercise of Option to Redeem. If a holder of record of any Convertible Preferred Shares desires to exercise the option to redeem some or all of such holder's Convertible Preferred Shares pursuant to this Section 5, such holder shall give written notice to the Trust specifying the number of shares to be redeemed (a "Redemption Notice"), which notice shall be accompanied by the certificate or certificates (duly endorsed for transfer) evidencing the Convertible Preferred Shares to be redeemed. Redemptions shall be made as of the date that the Redemption Notice is received (or if such date is not a trading date, as of the first trading day thereafter). Each such date of redemption shall be a "Redemption Date." The Trust shall, within two (2) trading days after the Redemption Date, pay the Redemption Price, without interest, to, or to the order of, the person whose name appears on such certificate or certificates as the owner thereof. If the number of shares evidenced by the certificate or certificates surrendered shall exceed the number of shares to be redeemed, the Trust shall issue and deliver to the person entitled thereto, a certificate evidencing the balance of any unredeemed -5- 6 shares. Any Convertible Preferred Shares that are redeemed by a holder thereof shall be retired and shall not be reissued. 6. Rights upon Liquidation, Merger or Consolidation. (a) In the event of any liquidation, dissolution or winding up, whether voluntary or involuntary, of the Trust (a "Liquidation") prior to a Conversion Event, the holders of the issued and outstanding Convertible Preferred Shares shall be entitled to receive for each Convertible Preferred Share, before any distribution or payments are made upon any Common Shares or any other security subordinate as to liquidation to the Convertible Preferred Shares, and after payment by the Company of all sums due all creditors, an amount equal to the greater of (A) such pro rata amount as would have been payable with respect to the Common Shares into which such Convertible Preferred Share was convertible immediately prior to the Liquidation if all outstanding Convertible Preferred Shares had been so converted (the "Pro Rata Amount") or (B) the product of $5.50 multiplied by the number of Common Shares issuable upon the conversion of such Convertible Preferred Share if such conversion occurred immediately prior to the Liquidation, plus all declared but unpaid dividends. If, upon a Liquidation prior to a Conversion Event, the assets available for distribution to the holders of Convertible Preferred Shares shall be insufficient to pay such holders their liquidation preference in full, then such holders shall share ratably in the distribution of such assets in proportion to the respective sums which would otherwise be payable upon such distribution if all sums so payable to the holders of Convertible Preferred Shares were paid in full. In the event of any Liquidation after a Conversion Event, the holders of the Convertible Preferred Shares shall be entitled to the Pro Rata Amount. In no event shall holders of Convertible Preferred Shares be entitled to distributions upon Liquidation in excess of the foregoing. (b) Upon a merger, consolidation or similar transaction involving the Trust, the holders of the issued and outstanding Convertible Preferred Shares shall be entitled to receive for each Convertible Preferred Share such payment and/or distribution as would have been paid or distributed with respect to the Common Shares into which such Convertible Preferred Share was convertible immediately prior to the merger, consolidation or similar transaction if all outstanding Convertible Preferred Shares had been so converted. (c) Without the written consent of the holders of a majority of the Convertible Preferred Shares then outstanding, prior to a Conversion Event, no series of shares of beneficial interest in the Trust shall be authorized or issued with rights upon a Liquidation senior to or pari passu with the Convertible Preferred Shares. (d) In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares or otherwise, is permitted under applicable law, amounts that would be needed, if the Trust were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of Convertible Preferred Shares whose preferential rights upon dissolution are superior to those receiving the distribution shall not be added to the Trust's total liabilities. -6- 7 SECOND: The Convertible Preferred Shares have been classified and designated by the Board of Trustees under the authority contained in the Declaration. THIRD: These Articles Supplementary have been approved by the Board of Trustees in the manner and by the vote required by law. FOURTH: The undersigned President of the Trust acknowledges these Articles Supplementary to be the trust act of the Trust and, as to all matters or facts required to be verified under oath, the undersigned President acknowledges that to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be executed under seal in its name and on its behalf by its President and attested to by its Secretary on this _____ of _________, 1996. ATTEST: BRANDYWINE REALTY TRUST ________________________________ By:________________________________(SEAL) _______________________, Secretary Gerard H. Sweeney, President -7- EX-3.3 4 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.3 BRANDYWINE REALTY TRUST BYLAWS ARTICLE I. OFFICES Section 1. Principal Office. The principal office of Brandywine Realty Trust (the "Trust") shall be located at such place or places as the Trustees may designate. Section 2. Additional Offices. The Trust may have additional offices at such places as the Trustees may from time to time determine or the business of the Trust may require. ARTICLE II. MEETINGS OF SHAREHOLDERS Section 1. Place. All meetings of shareholders shall be held at the principal place of the Trust or at such other place within the United States as shall be stated in the notice of the meeting. Section 2. Annual Meeting. An annual meeting of the shareholders for the election of Trustees and the transaction of any business within the powers of the Trust shall be held annually and at the time set by the Trustees. Section 3. Special Meetings. Subject to the rights of the holders of any series of Preferred Shares of Beneficial Interest (as defined in the Declaration of Trust) to elect additional Trustees under specified circumstances, special meetings of the shareholders may be called by the chairman or by a resolution adopted by one-half or more of the total number of Trustees which the Trust would have if there were no vacancies (the "Whole Board"). Special meetings of shareholders may also be called upon the written request of shareholders to the extent permitted in Article 7 of the Declaration of Trust. Section 4. Notice. Not less than ten nor more than 90 days before each meeting of shareholders, the secretary shall give to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by statute, the purpose for which the meeting is called, either by mail or by presenting it to such shareholder personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the 2 shareholder at his post office address as it appears on the records of the Trust, with postage thereon prepaid. Section 5. Scope of Notice. Any business of the Trust may be transacted at an annual meeting of shareholders without being specifically designated in the notice, except such business as is required by statute to be stated in such notice. No business shall be transacted at a special meeting of shareholders except as specifically designated in the notice. Section 6. Quorum. At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this section shall not affect any requirement under any statute or the Declaration of Trust for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the shareholders, the shareholders entitled to vote at such meeting, present in person or by proxy, shall have power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. Voting. A plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to elect a Trustee. Shareholders shall not be entitled to cumulate their votes in the election of Trustees. A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the Declaration of Trust. Unless otherwise provided in the Declaration, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Section 8. Proxies. A shareholder may vote the shares owned of record by him, either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the Trust before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 9. Voting of Shares by Certain Holders. Shares registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the chief executive officer or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other -2- 3 person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the board of directors of such corporation or other entity presents a certified copy of such bylaw or resolution, in which case such person may vote such shares. Any trustee or other fiduciary may vote shares registered in his name as such fiduciary, either in person or by proxy. Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time. The Trustees may adopt by resolution a procedure by which a shareholder may certify in writing to the Trust that any shares registered in the name of the shareholder are held for the account of a specified person other than the shareholder. The resolution shall set forth the class of shareholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the share transfer books, the time after the record date or closing of the share transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Trustees consider necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the shareholder of record of the specified shares in place of the shareholder who makes the certification. Section 10. Inspectors. At any meeting of shareholders, the chairman of the meeting may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meetings. Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. -3- 4 Section 11. Reports to Shareholders. Not later than 90 days after the close of each fiscal year of the Trust, the Trustees shall deliver or cause to be delivered a report of the business and operations of the Trust during such fiscal year to the shareholders, containing a balance sheet and a statement of income and surplus of the Trust, accompanied by the certification of an independent certified public accountant, and such further information as the Trustees may determine is required pursuant to any law or regulation to which the Trust is subject. A signed copy of the annual report and the accountant's certificate shall be filed by the Trustees with the State Department of Assessments and Taxation of Maryland, and with such other governmental agencies as may be required by law and as the Trustees may deem appropriate. Section 12. Voting by Ballot. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. Section 13. No Shareholder Action by Written Consent. Subject to the rights of the holders of any series Preferred Shares to elect additional Trustees under specific circumstances, any action required or permitted to be taken by the shareholders of the Trust must be effected at an annual or special meeting of shareholders and may not be effected by any consent in writing by such shareholders. Section 14. Exemption of Certain Shares. All of the acquisitions of: (i) the common shares of beneficial interest ("Common Shares") of the Trust now or hereafter owned by Safeguard Scientifics, Inc., The Nichols Company and any of their current or future affiliates or associates (collectively, the "SSI/TNC Affiliates"); (ii) the Common Shares and Preferred Shares now or hereafter owned by Commonwealth of Pennsylvania State Employes' Retirement System, RAI Real Estate Advisers, Inc. and any of their current or future affiliates or associates (collectively, the "SERS Affiliates"); and (iii) the Common Shares now or hereafter owned by Morgan Stanley Asset Management, Inc., Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio and Morgan Stanley, Sicav Subsidiary, SA and any of their current or future affiliates or associates (collectively, the "Morgan Affiliates") are hereby exempted from Subtitle 7 of Title 3 of the Maryland General Corporation Law, and the Trust shall have no right to exercise the redemption right with respect to such Common Shares arising under said Subtitle 7. In no event will any Shareholder of the Trust have any rights under Section 3-708 of said Subtitle 7 as a result of the ownership by the SSI/TNC Affiliates of Common Shares or by the SERS Affiliates of Common Shares or Preferred Shares or by the Morgan Affiliates of Common Shares as aforesaid. As used herein, the terms "affiliates" and "associates" have the respective meanings -4- 5 assigned to them in Subtitles 6 and 7, respectively, of said Title 3. ARTICLE III. TRUSTEES Section 1. General Powers: Qualifications. The business and affairs of the Trust shall be managed under the direction of its Board of Trustees. A Trustee shall be an individual at least 21 years of age who is not under legal disability. Section 2. Annual and Regular Meetings. An annual meeting of the Trustees shall be held immediately after and at the same place as the annual meeting of shareholders, no notice other than this Bylaw being necessary. The Trustees may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Trustees without other notice than such resolution. Section 3. Special Meetings. Special meetings of the Trustees may be called by or at the request of the chairman or chief executive officer or by one-half or more of the Trustees then in office. The person or persons authorized to call special meetings of the Trustees may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Trustees called by them. Section 4. Notice. Notice of any special meeting shall be given by written notice delivered personally, transmitted by facsimile, telegraphed or mailed to each Trustee at his business or residence address. Personally delivered, facsimile transmitted or telegraphed notices shall be given at least two days prior to the meeting. Notice by mail shall be given at least five days prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. If given by telegram, such notice shall be deemed to be given when the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Trustees need be stated in the notice, unless specifically required by statute or these Bylaws. Section 5. Quorum. A whole number of Trustees equal to at least a majority of the Whole Board Trustees shall constitute a quorum for transaction of business at any meeting of the Trustees, provided that, if less than a quorum are present at said meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and provided -5- 6 further that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group. The Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum. Section 6. Voting. The action of the majority of the Trustees present at a meeting at which a quorum is present shall be the action of the Trustees, unless the concurrence of a greater proportion is required for such action by applicable statute. Section 7. Telephone Meetings. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 8. Informal Action by Trustees. Any action required or permitted to be taken at any meeting of the Trustees may be taken without a meeting, if a consent in writing to such action is signed by each Trustee and such written consent is filed with the minutes of proceedings of the Trustees. Section 9. Vacancies. If for any reason any or all the Trustees cease to be Trustees, such event shall not terminate the Trust or affect these Bylaws or the powers of the remaining Trustees hereunder (even if fewer than three Trustees remain). Any vacancy (including a vacancy created by an increase in the number of Trustees) shall be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the Trustees (although less than a quorum). Any individual so elected as Trustee shall hold office until the next annual meeting of shareholders and until his successor has been duly elected and qualified. Section 10. Compensation. Trustees shall not receive any stated salary for their services as Trustees but, by resolution of the trustees, fixed sums per year and/or per meeting. Expenses of attendance, if any, may be allowed to trustees for attendance at each annual, regular or special meeting of the Trustees or of any committee thereof; but nothing herein contained shall be construed to preclude any Trustees from serving the Trust in any other capacity and receiving compensation therefor. -6- 7 Section 11. Removal of Trustees. The shareholders may, at any time, remove any Trustee in the manner provided in the Declaration of Trust. Section 12. Loss of Deposits. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or shares have been deposited. Section 13. Surety Bonds. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his duties. Section 14. Reliance. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel or upon reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee. Section 15. Certain Rights of Trustees, Officers, Employees and Agents. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee or officer, employee or agent of the Trust, in his personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to those of or relating to the Trust. ARTICLE IV. COMMITTEES Section 1. Number, Tenure and Qualifications. The Trustees may, by resolution or resolutions passed by a majority of the whole Board, appoint from among its members an Executive Committee, an Audit Committee and other committees, composed of two or more Trustees. Section 2. Powers. The Trustees may delegate to committees appointed under Section 1 of this Article any of the powers of the Board of Trustees, provided, however that the Trustees may not delegate to a committee the power to declare dividends or other distributions, elect Trustees, issue Shares of Beneficial Interest in the Trust other than as provided in the next sentence, recommend to the shareholders any action which requires shareholder approval, amend the Bylaws, or approve any -7- 8 merger or share exchange which does not require shareholder approval. If the Board of Trustees has given general authorization for the issuance of Shares of Beneficial Interest in the Trust, a committee of the board, in accordance with a general formula or method specified by the Board by resolution or by adoption of an option or other plan, may fix the terms of the Shares of Beneficial Interest subject to classification or reclassification and the terms on which the shares may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Trustees. Section 3. Committee Procedures. Each Committee may fix rules of procedure for its business. A majority of the members of a committee shall constitute a quorum for the transaction of business and the action of a majority of those present at a meeting at which a quorum is present shall be action of the committee. In the absence of any member of any committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Trustee to act in the place of such absent member. Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting, if a unanimous written consent which sets forth the action is signed by each member of the committee and filed with the minutes of the proceedings of such committee. The members of a committee may conduct any meeting thereof by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by such means shall constitute presence in person at the meeting. Section 4. Emergency. In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Trust by its Trustees and officers as contemplated by the Declaration of Trust and these Bylaws, any two or more available members of the then incumbent Executive Committee, if any, shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Trust in accordance with the provisions of this Article. In the event of the unavailability, at such time, of a minimum of two members of the then incumbent Executive Committee, the available Trustees shall elect an Executive Committee composed of any two members of the Board of Trustees, whether or not they be officers of the Trust, which two members shall constitute the Executive Committee for the full conduct and management of the affairs of the Trust in accordance with the foregoing provisions of this Section . This Section shall be subject to implementation by resolution of the Board of Trustees passed form time to time for that purpose, and any provisions of the Bylaws (other than this Section ) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementing resolutions shall be suspended until it shall be determined by any interim -8- 9 Executive Committee acting under this Section that it shall be to the advantage of the Trust to resume the conduct and management of its affairs and business under all the other provisions of these Bylaws. ARTICLE V. OFFICERS Section 1. General Provisions. The officers of the Trust may consist of a chairman of the board, a chief executive officer, one or more vice presidents, a chief financial officer, a secretary, and one or more assistant secretaries. In addition, the Trustees may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Trust shall be elected annually by the Trustees at the first meeting of the Trustees held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his successor is elected and qualifies or until his death, resignation or removal in the manner hereinafter provided. Any two or more offices may be held by the same person. In their discretion, the Trustees may leave unfilled any office. Election of an officer or agent shall not of itself create contract rights between the Trust and such officer or agent. Section 2. Removal and Resignation. Any officer or agent of the Trust may be removed by a majority of the members of the Whole Board if in their judgment the best interests of the Trust would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Trust may resign at any time by giving written notice of his resignation to the Trustees, the chairman of the board, the chief executive officer or the secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Section 3. Vacancies. A vacancy in any office may be filled by the Trustees for the balance of the term. Section 4. Chairman of the Board. The chairman of the board shall preside over the meetings of the Trustees and of the shareholders at which he shall be present. The chairman of the board shall perform such other duties as may be assigned to him by the Trustees. Except where by law the signature of the chief executive officer is required, the chairman of the board shall -9- 10 possess the same power as the chief executive officer to sign deeds, mortgages, bonds, contracts or other instruments. Section 5. Chief Executive Officer. The Trustees may designate a chief executive officer from among the elected officers. In the absence of such designation, the chairman of the board shall be the chief executive officer of the Trust. The chief executive officer shall have general responsibility for implementation of the policies of the Trust, as determined by the Trustees, and for the management of the business affairs of the Trust. The chief executive officer shall in general supervise and control all of the business and affairs of the Trust. He may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Trustees from time to time. Section 6. Vice Presidents. In the absence of the chief executive officer or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election ) shall perform the duties of the chief executive officer and when so acting shall have all the powers of and be subject to all the restrictions upon the chief executive officer; and shall perform such other duties as form time to time may be assigned to him by the chief executive officer or by the Trustees. The Trustees may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility. Section 7. Secretary. The secretary shall (a) keep the minutes of the proceedings of the shareholders, the Trustees and committees of the Trustees in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the trust records and of the seal of the Trust; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) have general charge of the share transfer books of the Trust; and (f) in general perform such other duties as from time to time may be assigned to him by the chief executive officer or by the Trustees. Section 8. Chief Financial Officer. The chief financial officer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name -10- 11 and to the credit of the Trust in such depositories as may be designated by the Trustees. The chief financial officer shall disburse the funds of the Trust as may be ordered by the Trustees, taking proper vouchers for such disbursements, and shall render to the chief executive officer and Trustees, at the regular meetings of the Trustees or whenever they may require it, an account of all his transactions as chief financial officer and of the financial condition of the Trust. If required by the Trustees, he shall give the Trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Trustees for the faithful performance of the duties of his office and for the restoration of the Trust, in case of his death, resignation, retirement or removal from office, all books, papers, vouchers, moneys and other property of whatever kind in his possession or under his control belonging to the Trust. Section 9. Assistant Secretaries. The assistant secretaries, in general, shall perform such duties as shall be assigned to them by the secretary, or by the chief executive officer or the Trustees. Section 10. Salaries. The salaries of the officers shall be fixed from time to time by the Trustees and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Trustee. ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contracts. The Trustees may authorize any officer or agent to enter into any contract or to 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. Any agreement, deed, mortgage, lease or other document executed by one or more of the Trustees or by an authorized person shall be deemed valid and binding upon the Trustees and upon the Trust when so authorized or ratified by action of the Trustees. Section 2. Checks and Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or officers, agent or agents of the Trust and in such manner as shall from time to time be determined by the Trustees. -11- 12 Section 3. Deposits. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Trustees may designate. ARTICLE VII. SHARES Section 1. Certificates. Each shareholder shall be entitled to a certificate or certificates which shall represent and certify the number of shares of each class of beneficial interests held by him in the Trust. Each certificate shall be signed by the chief executive officer or a vice president and countersigned by the secretary or an assistant secretary or the chief financial officer or an assistant treasurer and may be sealed with the seal, if any, of the Trust. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes of shares, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. In lieu of such statement or summary, the Trust may set forth upon the face or back of the certificate a statement that the Trust will furnish to any shareholder, upon request and without charge, a full statement of such information. Section 2. Transfers. Certificates shall be treated as negotiable and title thereto and to the shares they represent shall be transferred by delivery thereof to the same extent as those of a Maryland stock corporation. Upon surrender to the Trust or the transfer agent of the Trust of a share certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Trust shall be entitled to treat 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 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 Maryland. -12- 13 Section 3. Lost Certificate. The Trustees may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the Trustees may, in their discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or his legal representative to advertise the same in such manner as they shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate. Section 4. Closing of Transfer Books or Fixing of Record Date. The Trustees may set, in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of shareholders not less than ten days, before the date on which the meeting or particular action requiring such determination of shareholders is to be held or taken. In lieu of fixing a record date, the Trustees may provide that the share transfer books shall be closed for a stated period but not longer than 20 days. If the share transfer books are 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 lest ten days before the date of such meeting. If no record date is fixed and the share transfer books are not closed for the determination of shareholders, (a) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of shareholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Trustees, declaring the dividend or allotment of rights, is adopted. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except where the determination has been made through the -13- 14 closing of the transfer books and the stated period of closing has expired. Section 5. Share Ledger. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each shareholder and the number of shareholders of each class held by such shareholder. Section 6. Fractional Shares; Issuance of Units. Trustees may issue fractional shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration or these Bylaws, the Trustees may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Trustees may provide that for a specified period securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit. ARTICLE VIII. ACCOUNTING YEAR The Trustees shall have the power, from time to time, to fix the fiscal year of the Trust by a duly adopted resolution. ARTICLE IX. DIVIDENDS Section 1. Declaration. Dividends upon the shares of the Trust may be declared by the Trustees, subject to the provisions of law and the Declaration of Trust. Dividends may be paid in cash, property or shares of the Trust, subject to the provisions of law and the Declaration. Section 2. Contingencies. Before payment of any dividends, there may be set aside out of any funds of the Trust available for dividends such sum or sums as the Trustees may from time to time, in their absolute discretion, think proper as the reserve fund for contingencies, for equalizing dividends, for repairing or maintaining any property of the Trust or for such other purpose as the Trustees shall determine to be in the best interest of the Trust, and the Trustees may modify or abolish any such reserve in the manner in which it was created. -14- 15 ARTICLE X. INVESTMENT POLICY Subject to the provisions of the Declaration of Trust, the Trustees may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Trust as they shall deem appropriate in their sole discretion. ARTICLE XI. SEAL Section 1. Seal. The Trustees may authorize the adoption of a seal by the Trust. The seal shall have inscribed thereon the name of the Trust and the year of its organization. The Trustees may authorize one or more duplicate seals and provide for the custody thereof. Section 2. Affixing Seal. Whenever the Trust is required to place its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust. ARTICLE XII. INDEMNIFICATION To the maximum extent permitted by Maryland law in effect from time to time, the Trust, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall indemnify (a) any Trustee, officer or shareholder or any former Trustee, officer or shareholder (including among the foregoing, for all purposes of this Article XII and without limitation, any individual who, while a Trustee and at the request of the Trust, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan or other enterprise), who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of such status, against reasonable expenses incurred by him in connection with the proceeding, (b) any Trustee or officer or any former Trustee or officer against any claim or liability to which he may become subject by reason of such status unless it is established that -15- 16 (i) his act or omission was committed in bad faith or was the result of active and deliberate dishonesty, (ii) he actually received an improper personal benefit in money, property or services, or (iii) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful and (c) each shareholder or former shareholder against any claim or liability to which he may be subject by reason of his status as a shareholder or former shareholder. In addition, the Trust shall pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or former Trustee, officer or shareholder made a party to a proceeding by reason of his status as a Trustee, officer or shareholder provided that, in the case of a Trustee or officer, the Trust shall have received (i) a written affirmation by the Trustee or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Trust as authorized by these Bylaws and (ii) a written undertaking by or on his behalf to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that the applicable standard of conduct was not met. The Trust may, with the approval of its Trustees, provide such indemnification and payment or reimbursement of expenses to any Trustee, officer or shareholder or any former Trustee, officer or shareholder who served a predecessor of the Trust and to any employee or agent of the Trust or a predecessor of the Trust. Neither the amendment nor repeal of this Section , nor the adoption or amendment of any other provision of the Declaration of Trust or these Bylaws inconsistent with this Section , shall apply to or affect in any respect the applicability of this paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. Any indemnification or payment or reimbursement of the expenses permitted by these Bylaws shall be furnished in accordance with the procedures provided for indemnification and payment or reimbursement of expenses under Section 2-418 of the Maryland General Corporation Law (the "MGCL") for directors of Maryland corporations. The Trust may provide to Trustees, officers and shareholders such other and further indemnification or payment or reimbursement of expenses as may be permitted by the MGCL, as in effect from time to time, for directors of Maryland corporations. ARTICLE XIII. WAIVER OF NOTICE Whenever any notice is required to be given pursuant to the Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons -16- 17 entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a 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. ARTICLE XIV. AMENDMENT OF BYLAWS The Trustees shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws. The foregoing are certified as the Bylaws of the Trust adopted by the Trustees as of August 22, 1996. --------------------------------- Secretary -17- EX-5.01 5 OPINION OF PEPPER, HAMILTON & SCHEETZ 1 EXHIBIT 5.01 November 7, 1996 Brandywine Realty Trust 16 Campus Boulevard Newtown Square, Pennsylvania 19073 Gentleman: We have acted as counsel to Brandywine Realty Trust, a Maryland real estate investment trust (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") of a registration statement (the "Registration Statement") of the Company on Form S-11 (No. 333-13969) under the Securities Act of 1933, as amended (the "Act"). The Registration Statement relates to the proposed issuance and sale by the Company to the public of up to 3,700,000 common shares of beneficial interest, par value $.01 per share ("Common Shares"), of the Company (the "Firm Shares"), as well as the issuance and sale by the Company of up to an additional 555,000 Common Shares (the "Option Shares") to cover over-allotments. In connection with this opinion, we have examined the originals or copies, certified or otherwise identified to our satisfaction, of the Declaration of Trust and the By-Laws of the Company, as amended to date, resolutions of the Company's Board of Trustees and such other documents and trust records relating to the Company, and the proposed issuance and sale of the Firm Shares and Option Shares, as we have deemed appropriate. Insofar as this opinion relates to matters of Maryland law, we have relied exclusively upon the opinion of Ballard Spahr Andrews & Ingersoll addressed to us, dated November 6, 1996. On the basis of the foregoing, we are of the opinion that the Firm Shares and the Option Shares, when sold in 2 Brandywine Realty Trust Page 2 November 7, 1996 accordance with the Underwriting Agreement attached as an exhibit to the Registration Statement, will be legally issued, fully paid and non-assessable. We hereby consent to the reference to our firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement and to the filing of this opinion as an exhibit to the Registration Statement. Such consent does not constitute a consent under Section 7 of the Act, since we have not certified any part of such Registration Statement and we do not otherwise come within the categories of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, PEPPER, HAMILTON & SCHEETZ By: /s/ Michael H. Friedman ----------------------- A Partner EX-5.02 6 OPINION OF BALLARD SPAHR ANDREWS & INGERSOLL 1 EXHIBIT 5.02 November 6, 1996 Brandywine Realty Trust 16 Campus Boulevard Newton Square, Pennsylvania 19073 Re: Registration Statement on Form S-11 Registration No. 333-13969 Ladies and Gentlemen: We have served as Maryland counsel to Brandywine Realty Trust, a Maryland real estate investment trust (the "Company"), in connection with certain matters of Maryland law arising out of the registration of up to 4,255,000 common shares of beneficial interest, $.01 par value per share, of the Company (the "Shares") (including up to 555,000 shares pursuant to an over-allotment option granted to the underwriters), covered by the above-referenced Registration Statement, and all amendments thereto (the "Registration Statement"), under the Securities Act of 1933, as amended (the "1933 Act"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Registration Statement. In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (hereinafter collectively referred to as the "Documents"): 1. The Registration Statement and the related form of final prospectus included therein in the form in which it was transmitted to the Securities and Exchange Commission under the 1933 Act; 2. The Amended and Restated Declaration of Trust of the Company, certified as of a recent date by the State Department of Assessments and Taxation of Maryland (the "SDAT"); 2 Brandywine Realty Trust November 6, 1996 Page 2 3. The Bylaws of the Company, certified as of a recent date by its Secretary; 4. Resolutions adopted by the Board of Trustees and shareholders of the Company relating to the sale, issuance and registration of the Shares, certified as of a recent date by the Secretary of the Company; 5. The form of certificate representing common shares of beneficial interest, $.01 par value per share, of the Company ("Common Shares"), certified as of a recent date by its Secretary; 6. A certificate of the SDAT as to the good standing of the Company, dated November 6, 1996; 7. A certificate executed by Francine M. Haulenbeek, Vice President, Secretary and Treasurer of the Company, dated November 6, 1996; and 8. Such other documents and matters as we have deemed necessary or appropriate to express the opinion set forth in this letter, subject to the assumptions, limitations and qualifications stated herein. In expressing the opinion set forth below, we have assumed, and so far as is known to us there are no facts inconsistent with, the following: 1. Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so. 2. Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so. 3. Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party's obligations set forth therein are legal, valid and binding. 4. All Documents submitted to us as originals are authentic. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all such Documents are genuine. All public records 3 Brandywine Realty Trust November 6, 1996 Page 3 reviewed or relied upon by us or on our behalf are true and complete. All statements and information contained in the Documents are true and complete. There are no oral or written modifications or amendments to the Documents, by action or conduct of the parties or otherwise. The phrase "known to us" is limited to the actual knowledge, without independent inquiry, of the lawyers at our firm who have performed legal services in connection with the issuance of this opinion. Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that: 1. The Company is a real estate investment trust duly formed and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT. 2. Assuming that the sum of (a) all Common Shares issued as of the date hereof, (b) any Common Shares issued between the date hereof and the date on which any of the Shares are actually issued (not including any of the Shares), and (c) the Shares will not exceed the total number of Common Shares that the Company is authorized to issue, the Shares are duly authorized and, when and if delivered against payment therefor in accordance with the resolutions of the Board of Trustees of the Company authorizing their issuance, will be validly issued, fully paid and nonassessable. The foregoing opinion is limited to the laws of the State of Maryland and we do not express any opinion herein concerning any other law. We express no opinion as to compliance with the securities (or "blue sky") laws or the real estate syndication laws of the State of Maryland. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof. This opinion is being furnished to you solely for submission to the Securities and Exchange Commission as an exhibit to the Registration Statement and, accordingly, may not be relied upon by, quoted in any manner to, or delivered to any other person or entity (other than Pepper, Hamilton & Scheetz, 4 Brandywine Realty Trust November 6, 1996 Page 4 counsel to the Company) without, in each instance, our prior written consent. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act. Very truly yours, BALLARD SPAHR ANDREWS & INGERSOLL EX-10.30 7 AMEND #1 TO AGREEMENT OF LIMITED PARTNERSHIP 1 EXHIBIT 10.30 AMENDMENT NO. 1 TO AGREEMENT OF LIMITED PARTNERSHIP OF BRANDYWINE OPERATING PARTNERSHIP, L.P. This Amendment No. 1 dated November 6, 1996 to Agreement of Limited Partnership dated August 22, 1996 by and among BRANDYWINE REALTY TRUST, a Maryland real estate investment trust as general partner (the "General Partner"), and the PERSONS NAMED IN EXHIBIT "A" attached hereto, as limited partners (the "Limited Partners"). The General Partner and the Limited Partners are sometimes referred to individually as a "Partner" and collectively as the "Partners". BACKGROUND A. The General Partner and the Limited Partners have entered into an Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. dated August 22, 1996 (the "Partnership Agreement"). Capitalized terms not defined herein shall have the meanings given to such terms in the Partnership Agreement. B. The General Partner and the Limited Partners desire to amend the Partnership Agreement as provided in this Amendment No. 1 to the Partnership Agreement. Accordingly, intending to be legally bound, the parties hereto agree as follows: 1. Occurrence of Qualified Offering. (a) The completion of the offering to the public by the General Partner of the common shares of beneficial interest of the General Partner to be registered with the Securities and Exchange Commission ("SEC") on the General Partner's registration statement No. 333-13969 on Form S-11 filed with the SEC on October 11, 1996, as such registration statement may be amended from time to time (the "Registration Statement") which public offering shall be underwritten on a firm commitment basis by a syndicate of underwriters for whom Smith Barney Inc. and Legg Mason Wood Walker Incorporated shall serve as their representatives ("Representatives"), shall constitute the completion of a "Qualified Offering" (without regard to the amount of proceeds therefrom) as that term is defined and used in the Partnership Agreement and the Distribution Support and Loan Agreement dated August 22, 1996 between Safeguard Scientifics (Delaware), Inc. and the Partnership. Such public offering is hereinafter called the "Public Offering." (b) The completion by the General Partner of the proposed transactions (the "SERS Transaction") with a voting 2 trust (the "SERS Voting Trust") established for the benefit of the Commonwealth of Pennsylvania State Employes' Retirement System ("SERS"), as advised by Radnor Real Estate Advisers, Inc. ("RAI") (A) pursuant to which the General Partner will purchase eleven office buildings and two industrial facilities owned by SERS for (i) Series A Preferred Shares of the General Partner convertible, under certain circumstances, into 1,606,060 common shares of the General Partner, after giving effect to the 1-for-3 reverse share split contemplated by the Registration Statement; (ii) deferred payments aggregating $3.8 million, and (iii) two-year warrants to purchase 133,333 common shares of the General Partner at an exercise price of $25.50 per share, after giving effect to the 1-for-3 reverse share split contemplated by the Registration Statement; and (B) pursuant to which the General Partner will issue to the SERS Voting Trust, in exchange for $10.5 million, a number of common shares (or Preferred Shares if no Public Offering shall occur), equal to $10.5 million divided by the public offering price of the common shares to be sold in the Public Offering, shall not constitute the completion of a Qualified Offering, as that term is defined and used in the Partnership Agreement. If a capital contribution to the Partnership is made by the General Partner from the proceeds realized from the sale of preferred shares of beneficial interest ("Preferred Shares") in the SERS Transaction, the Partnership shall issue to the General Partner in exchange therefor that number of GP Units equal to the number of shares of BRT Common Stock into which the Preferred Shares so issued may be converted (without regard to limitations on conversion) to the extent that the net proceeds of such issuance of Preferred Shares are contributed to the Partnership. 2. Unit Reclassification and Related Adjustments to Reflect Share Combination. Effective as of the effective time of the reverse share split as such term is defined in the Registration Statement: (i) each Class A Unit, Class B Unit, Class C Unit and GP Unit which is outstanding on the date hereof (including those held in escrow under Section 4.6 hereof), or which has been committed to be issued by the Partnership under Sections 4.3 and 4.4 of the Partnership Agreement, shall automatically be converted into and become one-third of such Unit at such time and no adjustment under Section 15.4 in the number of common shares issuable in exchange for a Class A Unit shall otherwise be made as a result of the Share Combination; and (ii) the aggregate number of Class A Units, Class B Units and Class C Units authorized for issuance under Section 3.2 of the Partnership Agreement shall be automatically reduced to 495,837 Class A Units, 238,606 Class B Units, and 618,734 Class C Units, respectively. (a) The Partners agree that, after giving effect to the reverse share split described in the Registration Statement and reclassification of the Partnership's Units pursuant to the -2- 3 preceding paragraph, the number of outstanding Units held by each Partner of the Partnership shall be as set forth on Schedule 1 hereto and Exhibits F, H, and I to the Partnership Agreement is hereby amended and restated in its entirety to read as attached. (b) Effective as of the effective time of the reverse share split described in the Registration Statement, the $5.50 amount appearing at various places in the Partnership Agreement, including in Sections 4.5(b), 4.6(b), 4.7(a)(ii), 4.8(a)(ii), and 4.8(b) and in the definition of "Qualified Offering", is hereby adjusted to $16.50 in order to properly reflect the reverse share split. 3. Termination of SSI's Right of First Refusal. SSI's right of first refusal set forth in Section 4.11 of the Partnership Agreement is hereby terminated, and the provisions of Section 4.11 are deleted from the Partnership Agreement. 4. Amendment of Section 4.4. The second sentence of Section 4.4(d) of the Partnership Agreement is amended by adding the following words to the end of such second sentence: "less any amounts distributed to such person after August 22, 1996 and prior to the date of such acquisition of the Retained Interests and Class A Units of Witmer Partnership from such person in respect of such person's Retained Interests and Class A Units of Witmer Partnership." 5. Deletion of Certain Anti-dilution Adjustments. (a) The provisions of Sections 15.4(c) and 15.4(d) are hereby terminated and of no further force or effect and these provisions are hereby deleted from the Partnership Agreement. (b) Nothing in this Amendment shall waive any anti-dilution adjustment in the number of common shares issuable in exchange for the Class A Units that would occur under the remaining provisions of Section 15.4. 6. Amendment of Section 6.3. Section 6.3(a) of the Partnership Agreement is amended by inserting the following words after the phrase "distribute to the Partners,": "in the proportions described in Section 6.1(d) (if prior to the completion of a Qualified Offering) or Section 6.2 (if after the completion of a Qualified Offering),". 7. Amendment to Definition of Specified Redemption Date. The definition of "Specified Redemption Date" appearing in the definitions section of the Partnership Agreement is hereby amended to read in its entirety as follows: -3- 4 "'Specified Redemption Date' shall mean the tenth (10th) Business Day after receipt by the General Partner of a Notice of Redemption delivered to the Partnership at any time (i) after the completion of a Qualified Offering, or (ii) after the completion of the SERS Transaction, or (iii) if neither a Qualified Offering or the SERS Transaction has then occurred, within five days of the end of any period of 20 consecutive business days occurring after the second anniversary of the date of this Agreement during which such 20 business day period the market price of a share of BRT Common Stock averaged not less than $5.50 per share ($16.50 upon the effectiveness of the reverse share split described in the Registration Statement), as adjusted in accordance with customary practice for stock splits, stock combinations and stock dividends occurring after the date hereof." 8. No Other Amendments. This Amendment does not amend the Partnership Agreement in any respect except as expressly provided herein, and the Partnership Agreement, as amended by this Amendment No. 1, shall continue in full force and effect after the date hereof in accordance with its terms. 9. Effective Time of Amendment. This Amendment No. 1 shall become effective upon the execution and delivery of this Amendment No. 1 by the General Partner, the holder of all of the outstanding Class B Units, the holder of all of the outstanding Class C Units, and the holders of 75% or more of the outstanding Class A Units (as of the date of this Amendment). IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the date and year first above written. GENERAL PARTNER: BRANDYWINE REALTY TRUST By: /S/ ------------------------- Name: Gerard H. Sweeney, President -4- 5 CLASS A LIMITED PARTNERS: Safeguard Scientifics (Delaware), Inc. By: /S/ -------------------------------- Name: Gerald M. Wilk Title: Vice President THE NICHOLS COMPANY By: /S/ -------------------------------- Anthony A. Nichols, President By: /S/ -------------------------------- Brian F. Belcher CLASS B LIMITED PARTNER: BRANDYWINE REALTY TRUST By: /S/ -------------------------------- Gerard H. Sweeney, President CLASS C LIMITED PARTNER: BRANDYWINE REALTY TRUST By: /S/ -------------------------------- Gerard H. Sweeney, President Safeguard Scientifics (Delaware), Inc. hereby confirms that the completion of the SERS Transaction shall not constitute a Qualified Offering for purposes of the Distribution Support and Loan Agreement, and that the completion of the Public Offering shall constitute a Qualified Offering. -5- 6 SAFEGUARD SCIENTIFICS (DELAWARE), INC. /S/ -------------------------------- By: Gerald M. Wilk Authorized Officer -6- 7 EXHIBIT A LIST OF CLASS A LIMITED PARTNERS
ADDRESS OF RESIDENCE --------------------- (IF AN INDIVIDUAL) OR --------------------- EXECUTIVE OFFICES SOCIAL SECURITY OR NUMBER OF CLASS A --------------------- ------------------ ----------------- NAME (IF AN ENTITY) TAX ID NUMBER UNITS OWNED ---- --------------------- ------------------ ----------------- Safeguard Scientifics 800 The Safeguard Building 51-0291171 (Delaware), Inc. 435 Devon Park Drive Wayne, PA 19087 The Nichols Company 16 Campus Boulevard 23-2415327 Suite 150 Newtown Square, PA 19073 ###-##-#### Brian F. Belcher 829 Juniper Drive Lafayette Hill, PA 19444 Jack R. Loew 1090 New Street ###-##-#### West Chester, PA 19382 Craig C. Hough 1740 Hunter Circle ###-##-#### West Chester, PA 19380 RDC Institute, Inc. 602 Upland Avenue 22-2629435 Upland, PA 19104 Gary C. Bender 46 Heron Hill ###-##-#### Downingtown, PA 19335 Lotz Designers Engineers and 601 Dresher Road 23-1325780 Constructors, Inc. Horsham, PA 19044 Werner A. Fricker 708 McKean Road ###-##-#### Ambler, PA 19002 Brandywine Realty Trust Two Greentree Centre 23-2413352 Suite 100 Marlton, NJ 08053 C/N Oaklands III, Inc. 16 Campus Boulevard 23-2400860 Suite 150 Newtown Square, PA 19073 Iron Run V, Inc. 16 Campus Boulevard 23-2513078 Suite 150 Newtown Square, PA 19073
8 C/N Iron Run III, Inc. 16 Campus Boulevard 23-2400862 Suite 150 Newtown Square, PA 19073 C/N Leedom II, Inc. 800 The Safeguard Building 23-2292137 435 Devon Park Drive Wayne, PA 19087
LIST OF OTHER PARTNERS
ADDRESS OF RESIDENCE --------------------- (IF AN INDIVIDUAL) OR --------------------- EXECUTIVE OFFICES SOCIAL SECURITY OR NUMBER AND TYPE OF --------------------- ------------------- ------------------ NAME (IF AN ENTITY) TAX ID NUMBER UNITS OWNED ---- --------------------- ------------------- ------------------ Brandywine Realty Trust Brandywine Realty Trust Brandywine Realty Trust
EX-10.39 8 AMEND #1 TO THE OPTION AGREEMENT 1 EXHIBIT 10.39 FIRST AMENDMENT TO OPTION AGREEMENT THIS FIRST AMENDMENT TO OPTION AGREEMENT ("FIRST AMENDMENT") is made as of the ___ day of November, 1996, by and between C/N Horsham Towne Limited Partnership, a Pennsylvania limited partnership, having an address c/o The Nichols Company, 16 Campus Boulevard, Newtown Square, Pennsylvania 19073 (hereinafter called "OPTIONOR"), and Brandywine Operating Partnership, L.P., a Delaware limited partnership, having an address c/o Brandywine Realty Trust, 16 Campus Boulevard, Suite 150, Newtown Square, Pennsylvania 19073 (hereinafter called "OPTIONEE"). BACKGROUND A. Optionor and Optionee are parties to a certain Option Agreement dated the 22nd day of August, 1996 (the "AGREEMENT") pursuant to which Optionor granted to Optionee the right and option (the "OPTION") to acquire certain tracts or parcels of ground, and all improvements thereon, located at 255, 355, 455 and 555 Business Center Drive, Horsham, Pennsylvania, 19044, all as more fully described in Exhibit "A" to the Agreement, and therein and herein referred to as the "Property". B. Optionor and Optionee desire to amend the Agreement to redefine the Exchange Price (as such term is defined in the Agreement) and for certain other purposes, all as more fully set forth herein. AGREEMENT The parties hereto, in consideration of the sum of Ten ($10.00) Dollars, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, agree as follows: 1. Paragraph 1 of the Agreement is hereby amended and restated in its entirety as follows: Optionor does hereby grant to Optionee the right and option (the "OPTION") to acquire the Property for the Exchange Price (as defined below), and otherwise upon the terms and conditions set forth herein. The Optionee may exercise the Option by delivering written notice to the Optionor and New England Mutual Life Insurance Company (the "LENDER") in accordance with Section 16 of this Agreement at any time during the Option Period (as defined below), or during any extension thereof. 1 2 2. Paragraph 4 of the Agreement is hereby amended and restated in its entirety as follows: The Exchange Price for the Property (the "EXCHANGE PRICE") shall be equal to Ten ($10.00) Dollars, plus Optionee's assumption of all sums due and owing under the note, mortgage and any other loan document evidencing or securing the mortgage loan encumbering the Property at the time the Option is exercised. 3. Paragraph 6 of the Agreement is hereby amended by the addition of the following sentence: Consent of the holder of the mortgage on the Property for conveyance of the Property under and subject to the mortgage shall include a statement by the holder as to the status of outstanding defaults thereunder (declared or otherwise), and a confirmation of all sums due and owing under the mortgage obligation as of the date of such statement. 4. Paragraph 16 of the Agreement is hereby amended by changing the notice address for Optionee to the following address: Gerard H. Sweeney, President & CEO Brandywine Realty Trust 16 Campus Boulevard Suite 150 Newtown Square, PA 19073 5. Paragraph 17 of the Agreement is hereby amended and restated in its entirety as follows: During the term of this Agreement, Optionor shall have the right to fund the costs incurred by Optionor with respect to new leases for space in the Property (including, but not limited to, costs of tenant improvements, brokerage commissions and legal fees) through capital loans made by Optionor or an affiliate for such purpose ("CAPITAL IMPROVEMENT LOANS"). All such Capital Improvement Loans shall bear interest at the prime rate and shall be payable out of cash flow from the Property remaining after payments of third party debt. Upon exercise by Optionee of the Option, Optionor shall advise Optionee if any Improvement Loan 2 3 will remain outstanding at Closing hereunder. Optionee shall assume all obligations under any such Capital Improvement Loans outstanding at Closing, and shall indemnify and hold Optionor harmless from any obligations accruing under any such Loan after the date of Closing. Anything herein contained to the contrary notwithstanding, from and after this date, Optionor shall not assume or incur additional indebtedness for capital improvements to the Property without the prior written consent of Optionee, which consent shall not be unreasonably withheld, conditioned or delayed. 6. Except to the extent expressly modified hereby, all of the terms, conditions, covenants and agreements contained in the Agreement shall remain in full force and effect and unmodified hereby, and as such, the Agreement is hereby ratified and affirmed by Optionor and Optionee. IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered this Agreement the day and year first above written. OPTIONOR: C/N HORSHAM TOWNE LIMITED PARTNERSHIP, A PENNSYLVANIA LIMITED PARTNERSHIP BY:______________________________________/S/ OPTIONEE: BRANDYWINE OPERATING PARTNERSHIP, L.P. BY: BRANDYWINE REALTY TRUST, ITS GENERAL PARTNER BY:______________________________________/S/ GERARD H. SWEENEY, PRESIDENT & CEO [Continued on the next page] 3 4 The address of the above-named Optionee is: c/o Brandywine Realty Trust 16 Campus Boulevard Suite 150 Newtown Square, PA 19073 By:________________________________________ Name:_________________________________ Title:________________________________, On behalf of Optionee 4 EX-10.41 9 CONTRIBUTION AGREEMENT 1 EXHIBIT 10.41 CONTRIBUTION AGREEMENT 2 TABLE OF CONTENTS PAGE Section 1. Sale and Purchase of Properties................................-2- 1.1 Sale and Purchase of Properties................................-2- 1.2 Consideration..................................................-2- 1.3 Capital Escrow.......................................................-3- 1.4 Deposit........................................................-3- 1.5 Included Assets................................................-4- 1.6 Assumption of Liabilities......................................-5- Section 2. Additional Investment; Warrant.................................-5- 2.1 Additional Investment..........................................-5- 2.2 Warrant........................................................-5- Section 3. Representations and Warranties.................................-5- 3.1 By BRT.........................................................-6- 3.2 By Sellers....................................................-12- 3.3 By The Voting Trust...........................................-17- 3.4 Survival of Representations and Warranties....................-18- Section 4. Conditions....................................................-18- 4.1 Conditions Precedent to BRT Obligations on the Closing Date...-18- 4.2 Conditions Precedent To Sellers and the Voting Trust Obligations on the Closing Date...............................-19- 4.3 Mutual Conditions Precedent of the Parties on the Closing Date..........................................................-20- -i- 3 Section 5. Operations Prior to Transfer..................................-21- 5.1 Property Operations...........................................-21- 5.2 Casualty or Condemnation......................................-21- Section 6. Closing; Closing Deliveries; Adjustments; Expenses............-22- 6.1 Closing.......................................................-22- 6.2 Closing Documents.............................................-22- 6.3 Adjustments...................................................-24- 6.4 Expenses......................................................-25- 6.5 Indemnification for Seller's Tax Obligations..................-26- Section 7. Covenants......................................................-26- 7.1 BRT Covenants.................................................-26- 7.2 Mutual Covenant - Best Efforts To Close.......................-26- 7.3 Morgan Stanley Transactions...................................-26- Section 8. Matters to be Completed........................................-26- 8.1. Matters to be Completed.......................................-26- Section 9. Sellers' Or Voting Trust's Default.............................-27- 9.1 Sellers' or Voting Trust's Default............................-26- Section 10. General Provisions...........................................-27- 10.1 Notices.......................................................-27- 10.2 Confidentiality...............................................-28- 10.3 Entire Agreement..............................................-28- 10.4 Counterparts..................................................-28- -ii- 4 10.5 Governing Law.................................................-28- 10.6 Section Headings, Captions and Defined Terms..................-28- 10.7 Amendments. Modifications and Waiver..........................-29- 10.8 Severability..................................................-29- 10.9 Liability of Trustees, etc....................................-29- 10.10 Non-Recourse..................................................-29- 10.11 Exhibits Incorporated.........................................-29- -iii- 5 CONTRIBUTION AGREEMENT THIS AGREEMENT is made as of the 6th day of November, 1996 by and among BRANDYWINE REALTY TRUST, a Maryland real estate investment trust ("BRT"), GREENWOOD SQUARE CORPORATION, a Delaware corporation ("Greenwood"), BCBC HOLDING COMPANY, a Delaware corporation ("BCBC"), 500 NORTH GULPH ROAD HOLDINGS, INC., a Pennsylvania corporation ("North Gulph") (Greenwood, BCBC and North Gulph are herein sometimes collectively called "Sellers" and individually, a "Seller") and, RAI REAL ESTATE ADVISERS, INC., ("RAI") as the voting trustee of a voting trust dated as of November 6, 1996 executed by the Commonwealth of Pennsylvania State Employes' Retirement System ("SERS") as shareholder and by RAI as voting trustee (the "Voting Trust") RECITALS A. Greenwood is the owner of the fee estate in property known as Greenwood Square, located in Bensalem Township, Bucks County, Pennsylvania, more fully described in EXHIBIT "A" attached hereto (the "Greenwood Property"). B. BCBC is the owner of the fee estate in property known as Bucks County Business Park, located partly in Middletown Township and partly in Falls Township, Bucks County, Pennsylvania, more fully described in "EXHIBIT "B" attached hereto (the "BCBC Property"). C. North Gulph is the owner of the fee estate in property known as 500 North Gulph Road, located in Upper Merion Township, Montgomery County, Pennsylvania, more fully described in EXHIBIT "C" attached hereto (the "North Gulph Property"). The Greenwood Property, the BCBC Property and the North Gulph Property are herein collectively called the "Properties" and individually a "Property." D. SERS is directly or indirectly the beneficial owner of all of the capital stock of Sellers and has the sole economic interest in the Voting Trust. E. BRT is a real estate investment trust and general partner of Brandywine Operating Partnership, L.P., a Delaware limited partnership ("BRT OP"), which owns certain office and other properties. F. The parties wish to enter into this Agreement to provide for the sale by Sellers for the account of the Voting Trust of the Properties, the purchase of the Properties 6 by BRT or its designated affiliate, the investment of funds by Voting Trust in BRT and certain other matters as herein set forth. TERMS AND CONDITIONS NOW THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. SALE AND PURCHASE OF PROPERTIES 1.1 Sale and Purchase of Properties. On the Closing Date, each Seller will sell and convey to BRT OP (or any subsidiary of BRT OP) the Property of such Seller and BRT will purchase the Properties from Sellers, for the consideration, on the terms and subject to the conditions of this Agreement. 1.2 Consideration. The purchase price ("Purchase Price") for the Properties shall be THIRTY MILLION THREE HUNDRED THOUSAND DOLLARS ($30,300,000), payable as follows: (a) At Closing, BRT shall pay to Sellers $26,500,000 by issuing to Voting Trust (or to its designee) preferred shares with the terms set forth in the Articles Supplementary attached hereto as EXHIBIT "D-1" ( the "Property Shares") that are convertible into 4,818,182 common shares of beneficial interest (par value $.01) of BRT, as adjusted for any share splits, reverse share splits, share dividends or similar transactions (the "Common Shares"). The Property Shares shall be subject to a Standstill Agreement in the form attached as EXHIBIT "D-2". References in this Agreement to designees of the Voting Trust or Sellers shall be limited to designees that are not prohibited by the Standstill Agreement. (b) On June 30, 1998, BRT will pay to Sellers (or to their designee) $2,500,000. (c) On December 31, 1999, BRT will pay to Sellers (or to their designee) $1,300,000. The sums payable pursuant to this clause (c) and the preceding clause (b) in the total amount of $3,800,000 are herein jointly called the "Deferred Purchase Price." Each installment of the Deferred Purchase Price shall be paid by BRT in cash, or, at the option of BRT, by BRT issuing to the Voting Trust (or to its designee) either Common Shares (if a Secondary Offering as defined in Section 1.2 of the Securities Purchase Agreement (defined below) shall have occurred) or Property Shares that are convertible into -2- 7 a number of Common Shares, equal to the applicable portion of the Deferred Purchase Price divided by the greater of the Market Value or Book Value Per Share. The term "Book Value Per Share" as used herein means, as of any date, (i) the total beneficiaries' equity as shown on BRT's consolidated balance sheets as of the fiscal quarter end immediately prior to the applicable date (with appropriate adjustment for any material events subsequent thereto) prepared in accordance with the published rules and regulations of the Securities and Exchange Commission (the "SEC") and generally accepted accounting principles applied on a consistent basis (as adjusted to reflect the consideration received by BRT upon the Exercise (defined below) of any Convertible Securities (defined below) which are included in the computation in (ii) below), divided by (ii) the sum of the number of Common Shares outstanding on such date plus the number of Common Shares issuable upon the exercise, conversion or exchange (collectively, "Exercise") of outstanding options, warrants, preferred shares and other convertible securities or similar rights (collectively, "Convertible Securities") to the extent that the consideration payable upon the exercise of such Convertible Securities is less than the Market Value of the Common Shares issuable upon such Exercise. The term "Market Value" as used herein means, as of any date, (the "Valuation Date") the average of the closing per share sale price(s) of the Common Shares for the period of twenty consecutive trading days ending on the trading day immediately preceding the Valuation Date as such prices are reported by the principal United States securities exchange on which the Common Shares are then traded or, if the Common Shares are not then traded on any such exchange, the closing per share sale price (or the average of the quoted per share closing bid and asked prices if no sale is reported) as reported by the National Association of Securities Dealers, Inc. ("NASD") Automated Quotation System ("NASDAQ") or any comparable system or, if the Common Shares are not then quoted on NASDAQ or any comparable system, the average of the closing per share bid and asked prices as furnished by any member of the NASD selected by the Board of Trustees of BRT. 1.3 Capital Escrow. At Closing, North Gulph will deposit into escrow the sum of $315,000 (the "North Gulph Capital Escrow"), BCBC will deposit into escrow the sum of $90,000 (the "BCBC Capital Escrow") and Greenwood will deposit into escrow the sum of $950,000 (the "Greenwood Capital Escrow"), each on the terms and conditions of the Capital Escrow Agreement attached hereto as EXHIBIT "E". 1.4 Deposit. Upon the execution of this Agreement, BRT will deposit in escrow with Commonwealth Land Title Insurance Company ("Deposit Escrowee")the sum of $100,000,(such sum and all earnings thereon are herein called the "Deposit"). The Deposit will be held by Deposit Escrowee in an interest bearing account of a bank, savings bank or savings and loan association the accounts of which are insured by an agency of the United States government, pursuant to an Escrow Agreement in the form attached as EXHIBIT "T" (the "Deposit Escrow Agreement"). If BRT shall fail to consummate Closing in accordance with this Agreement or shall fail to observe or perform its covenants or obligations hereunder -3- 8 to be observed or performed at or prior to Closing, the Deposit will be paid to Sellers and Voting Trust on account of the purchase price or as liquidated damages for such failure at the option of Sellers, provided, however, that unless such failure to consummate Closing constitutes a breach of BRT's covenant under subsection 7.2 hereof, Sellers and the Voting Trust will retain the Deposit as Sellers' and the Voting Trust's sole and exclusive remedy hereunder. If Closing occurs, the Deposit will be returned to BRT. If Closing does not occur by reason of the failure of one or more conditions to Closing (which failure does not result from the default of BRT hereunder) or if either party is permitted to and shall terminate this Agreement as provided in Section 8, then the Deposit will be returned to BRT. 1.5 Included Assets. References in this Agreement to a Property shall include: (a) Real Property. Fee simple interest in such Property, and all of the easements, licenses, rights of way, (including, without limitation, easements, licenses and rights of way for signage), privileges, hereditaments, appurtenances, and rights to any land lying in the beds of any street, road or avenue, open or proposed, adjoining there to, and inuring to the benefit of said land (hereinafter collectively referred to as the "Premises"); and (b) Personal Property. All equipment, fixtures, machinery and personalty of every description attached to or used in connection with the Premises, including, without limitation, furniture, fixtures, fittings, supplies, apparatus, equipment, machinery, and all other items of tangible and intangible personal property and replacements thereof, if any, affixed or attached to or located on or about the Premises (including, without limitation, all heating, lighting, plumbing, water, sewer, ventilating, exhaust, electrical, gas, refrigeration, air-conditioning, communication, fire protection, security, disability and life/safety fixtures, equipment and systems; all hot water heaters, furnaces, heating controls, motors and boiler pressure systems and equipment; all incinerating, disposal, cleaning, maintenance, janitorial, snow removal and landscaping equipment; all fuels; all appliances; (limited, in the case of personal property to the right, title and interest of Seller's therein, and excluding property of tenants of the Properties but including all right, title and interest of Sellers in such property of tenants); and all assignable intangible personal property owned by Sellers and used in connection with the ownership, operation and maintenance of the Premises, including without limitation, all contract rights, guaranties and warranties of any nature, architects, engineers, surveyors' or other real estate professionals' plans, specifications, certifications, contracts, reports, data or other technical descriptions, reports or audits, and all marketing materials ("Contract Documents"), all governmental permits, licenses, certificates, and approvals in connection with the ownership of the Premises ("Licenses"), all escrow accounts, deposits, instruments, documents of title, general intangibles, and business records pertaining to the Premises, and all of Seller's rights, claims, and causes of action if any, to the extent they are assignable, under any warranties and/or guarantees of manufacturers, contractors or installers, rights against others relating to the Premises or the operation or maintenance thereof, including to the extent applicable, any warranties from any previous owners of the Premises (hereinafter collectively referred to as "Personal Property"); and -4- 9 (c) Leases. All leases, licenses (to the extent transferable) and other occupancy agreements for any part of the Premises, if any, and all prepaid rent and unapplied security deposits (the "Leases"): (d) Right to Names. Any right, title and interest of Seller in and to the trade names printing styles, trademarks and logos ("Names"). 1.6 Assumption of Liabilities. (a) At the Closing, BRT shall assume and agree to pay, perform and discharge, when due, each of the following obligations and liabilities of Sellers and/or their affiliates relating to the Properties (the "Assumed Liabilities"): (i) the liabilities and obligations of Sellers to be performed or discharged after the Closing pursuant to the Leases; (ii) payment of real estate taxes and utility bills accruing prior to Closing with respect to the Properties as to which BRT receives a credit at Closing, to the extent of such credit. (b) Excluded Liabilities. Except as expressly provided in this Agreement, BRT shall not assume or be responsible for any liabilities or obligations of Sellers or their respective affiliates of any nature whatsoever, whether or not relating to the Properties. Sellers and their respective affiliates, as applicable, shall remain responsible for such excluded liabilities and obligations. SECTION 2. ADDITIONAL INVESTMENT; WARRANT 2.1 Additional Investment. The Voting Trust and BRT are contemporaneously herewith entering into a Securities Purchase Agreement (the "Securities Purchase Agreement") providing for the investment by Voting Trust of $10.5 million in shares of BRT, at the times and on the terms and conditions set forth in the Securities Purchase Agreement. 2.2 Warrant. At Closing as additional consideration for the Properties, BRT will issue to the Voting Trust a warrant for the purchase of 400,000 Common Shares, as adjusted for any share splits, reverse share splits, share dividends or similar transactions (the "Warrant"), on the terms and subject to the conditions of the form of Warrant attached hereto as EXHIBIT "F". The value of the Warrant is $56,000.00. -5- 10 SECTION 3. REPRESENTATIONS AND WARRANTIES 3.1 By BRT. BRT hereby represents and warrants that, except as disclosed in the Disclosure Letter (as defined in the Securities Purchase Agreement) or the Company SEC Reports (defined below) or in any exhibit or schedule hereto: (a) Organization: Authority. BRT is a real estate investment trust duly formed, validly existing and in good standing under the laws of the state of Maryland with all the necessary trust power and authority to own, lease or operate its properties and assets and to carry on its business as now conducted, BRT is duly qualified to do business and is in good standing as a foreign business trust or partnership in each jurisdiction where the character of its properties or assets and the nature of its business requires it to be so qualified. BRT has the requisite trust authority to enter into and perform this Agreement and all other documents and agreements to be executed by it in connection with the transactions contemplated by this Agreement. (b) Due Authorization; Binding Agreement. The execution, delivery and performance of this Agreement and all other documents and agreements to be executed by BRT in connection with the transactions contemplated by this Agreement have been duly and validly authorized by all necessary action of BRT. This Agreement and all other documents and agreements to be executed by BRT in connection with the transactions contemplated by this Agreement have been and will be duly executed and delivered by BRT and constitute the legal, valid and binding obligations of BRT enforceable against BRT in accordance with their respective terms , except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditor's rights generally, and except that the availability of specific performance, injunctive relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought. (c) Consents and Approvals. No consent, waiver, approval, license or authorization of, or filing, registration or qualification with, or notice to, any governmental unit or any other person is required to be made, obtained or given by BRT in connection with the execution, delivery and performance of this Agreement or any other documents and agreements to be executed by BRT in connection with the transactions contemplated by this Agreement that has not been heretofore obtained, other than the filing with and approval of the American Stock Exchange of a listing application with respect to the Common Shares and the filing of the Articles Supplementary with the State Department of Assessments and Taxation of Maryland. (d) No Violation. None of the execution, delivery or performance of this Agreement or any other document or agreement to be executed by BRT in connection with the transactions contemplated by this Agreement does or will, with or without the giving of notice, lapse of time or both, violate, conflict with or constitute a default under any term or provision of the organizational documents of BRT or any other agreement to which BRT is a party or by which it is bound or any term or provision of any judgment, decree, order, statute, injunction, rule or regulation of a governmental unit applicable to BRT, or by which it or its -6- 11 assets or properties are bound or result in the creation of any lien or other encumbrance upon the assets or properties of BRT. (e) Compliance with Laws and Recorded Declarations. To the best of BRT's knowledge, BRT and each of its subsidiaries has complied with all laws (including, without limitation, the Americans with Disabilities Act of 1990) and requirements of insurance bodies applicable to the ownership, leasing, use and operation of its or their real properties (collectively, the "BRT Properties"), including, without limitation, parking and building setback requirements, and has performed all work and secured all required material consents and approvals and obtained and fully paid for all material licenses, permits, certificates, entitlements, grants of right and any other items and documents required by applicable law, by contract, or as a condition of any approval granted by the applicable municipal authority, required of BRT or its subsidiaries for the completion, ownership, leasing, use and occupancy of its or their properties, including but not limited to final certificates of occupancy for each of the current tenancies at such properties (other than where construction of tenant improvements for new tenancies is not yet completed or applications remain pending), except where the failure to so comply or obtain would not have a material adverse effect on BRT and its subsidiaries taken as a whole. Such licenses, permits, certificates, entitlement, grants of right and other items and documents are in full force and effect. Neither BRT or any of its subsidiaries have taken any action that would (or failed to take any action, the omission of which would) result in the revocation or suspension of such licenses, permits, certificates, entitlements, grants of right and other items and documents, and neither BRT nor any of its subsidiaries have received any notice of any violation from any federal, state or municipal entity or notice of an intention by any such governmental entity to revoke any certificate of occupancy or other certificate, license, permit, entitlement or grant of right issued by it in connection with the ownership, use and occupancy of any of its or their properties that in each case has not been cured or otherwise resolved to the satisfaction of such governmental entity. To the best of BRT's knowledge, (i) any and all charges (including condominium fees, to the extent applicable) and other assessments under declarations and like agreements to which any of the BRT Properties are subject have been paid and no special assessments thereunder against any of the BRT Properties are pending, and (ii) all consents and approvals required to be obtained under such declarations and like agreements with respect to the BRT Properties have been obtained. (f) Litigation. The SEC Reports(defined below), the Registration Statements (defined below) and/or the Disclosure Letter (as defined in the Securities Purchase Agreement) list all material pending or, to BRT's knowledge, threatened litigation involving BRT and its subsidiaries. Except as so disclosed, there is no pending or, to the knowledge of BRT, threatened suit, action or litigation, or administrative, arbitration or other proceeding or governmental inquiry or investigation questioning the validity of this Agreement or the transactions contemplated hereby, or affecting in any material adverse respect BRT or any subsidiary or the business, properties, assets, operations, prospects or condition (financial or otherwise) of BRT and its subsidiaries taken as a whole, nor is there, to the knowledge of BRT, any basis for any such suit, action, litigation, proceeding, inquiry or investigation. -7- 12 (g) Brokers. No brokers or finders have been employed or engaged by BRT or any of its subsidiaries with respect to the transactions contemplated by this Agreement or any other document or agreement to be executed in connection with the transactions contemplated by this Agreement. (h) SEC Reports. Since January 1, 1995, BRT and its subsidiaries have timely filed all forms, reports, schedules, statements and other documents required to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the Securities Act of 1933, as amended (the "1933 Act"), including without limitation (i) all Annual Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all reports on Form 8-K and (iv) all proxy statements relating to meetings of stockholders (whether annual or special) and (v) all information incorporated by reference into any of the foregoing (collectively, as amended to date, together with the Registration Statements (defined below) referred to herein as the "Company SEC Reports"). The Company SEC Reports were prepared in all material respects in accordance with and complied in all material respects with the requirements of applicable law, including the Exchange Act and the 1933 Act and the applicable rules and regulations of the SEC thereunder, and the Company SEC Reports did not at the time they were filed and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. BRT has not filed any registration statements with the SEC at any time within the last three years other than (i) Registration Statement on Form S-8 dated October 16, 1996 and (ii) Registration Statement on Form S-11 dated October 11, 1996 (collectively the "Registration Statements"). BRT has delivered to Voting Trust prior to the date hereof true and correct copies of all Company SEC Reports and any other reports and documents filed with the SEC since January 1, 1995. (i) Financial Statements. Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports (i) have been prepared in all material respects in accordance with the published rules and regulations of the SEC and generally accepted accounting principles applied on a consistent basis throughout the periods involved (except in the case of the unaudited financial statements, as permitted by Form 10-Q of the SEC), (ii) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and (iii) fairly present in all material respects the consolidated financial position of BRT and its subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated (subject, in the case of unaudited consolidated financial statements for interim periods, to year-end adjustments (consisting only of normal recurring accruals)), except that any pro forma financial statements contained in such consolidated financial statements are not necessarily indicative of the consolidated financial position of BRT and its subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated. Since December 31, 1995, the -8- 13 Company has not made any material change in the accounting practices or policies applied in the preparation of its financial statements. (j) Environmental Matters. Neither BRT nor its subsidiaries have (a) caused any substance or waste that is listed or defined as hazardous or toxic under applicable environmental laws or petroleum products (collectively, "Hazardous Materials") to be improperly maintained or disposed of on, under or at any of its or their properties, or any part thereof in a manner which violates, or could give rise to liability under, applicable environmental laws, or (b) failed to remediate, alter, mitigate or abate any condition required to be remediated, altered, mitigated or abated under such environmental laws, to the extent BRT or its subsidiaries have been notified of the existence of a condition required to be remediated, altered, mitigated or abated. Except as set forth in the environmental site assessments provided by BRT to Sellers or disclosed in the Company SEC Reports: (1) to the best of BRT's knowledge, each of its properties, and the properties of its subsidiaries, is in compliance, and has heretofore complied, with all environmental laws in all material respects, (2) to the best of BRT's knowledge, there has been no discharge of Hazardous Materials by any tenant of any property of BRT or its subsidiaries, or by any other person or property in, to or under any property of BRT or its subsidiaries, in either case in quantities requiring response, remediation or removal, and (3) BRT has not received any written notice from any governmental unit or other person that it or its subsidiaries, or any of its or their properties or operations conducted thereon, are not or have not been in compliance with the environmental laws. (k) Absence of Undisclosed Liabilities and Contractual Obligations. Except for (i) liabilities disclosed in the financial statements referred to in subsection 3.1 (i) or in the SEC Reports, (ii) liabilities arising in the ordinary course of business which, if material (individually or in the aggregate), are disclosed in EXHIBIT "G" attached hereto (the "BRT Disclosure Schedule"), (iii) liabilities at the date hereof which are specifically disclosed or otherwise reflected in the Exhibits attached to this Agreement and (iv) current liabilities incurred in the ordinary course of business after the date hereof, no BRT Property is subject to liabilities of any nature, whether matured or unmatured, fixed or contingent, which could reasonably be expected to have, individually or in the aggregate, a material adverse effect upon such property. There are no Significant Agreements relating to the BRT Properties, or their operations other than as set forth in the BRT Disclosure Schedule. No indebtedness secured by a lien upon any of the BRT Properties is cross-defaulted and/or cross-collateralized with any other properties other than among the BRT Properties. For purposes hereof, "Significant Agreement" means and includes any of the following by which any of the BRT Properties may otherwise be subject or bound, in each such case as amended and currently in effect, inclusive of any waivers relating thereto: (A) all agreements, instruments and documents (excluding tenant leases referred to in subsection 3.1(l) of this Agreement and easements and documents providing for the assessment of common charges or related fees that are included in the Permitted Exceptions) evidencing, securing or pertaining to contractual obligations that relate to the ownership or operation of any of the BRT Properties; and -9- 14 (B) all mortgages. (l) Tenant Leases. The rent rolls attached hereto as EXHIBIT "H" (the "BRT Rent Rolls") list each of the leases currently in effect with respect to the BRT Properties as the same have been amended or modified (the "BRT Leases"); there are no leases, licenses or other rights of occupancy affecting any of the BRT Properties except for the BRT Leases. BRT has made available to the Voting Trust complete copies of all of the documents that constitute the BRT Leases. The BRT Leases are in full force and effect and, except as set forth on the applicable BRT Rent Roll, (A) to the best of BRT's knowledge, no uncured Event of Default (as defined in such Leases), has occurred and is continuing under any such Lease, no tenant has asserted a defense to, offset or claim against its rent or the performance of its obligations under its Lease and no tenant has asserted a default on the part of the landlord which would give it the right to terminate its Lease or set off against rent, (B) there are no rights of first refusal on, or options to purchase, any of the BRT Properties, or any right to a participation interest (whether of profits, sale or refinancing proceeds, or calculated based on fair market value) with respect to any such property, in favor of any tenant, (C) no proposed modifications to any BRT Lease that would reduce (i) the space leased to any tenant, (ii) the amount of any tenant's rent or (iii) the term of any lease, (D) no free rent or other rent concession is due any tenant under the BRT Leases for periods after the Closing Date, (E) no landlord under a BRT Lease is required to provide tenant improvements or refurbishments with respect thereto after the Closing Date (other than any tenant improvements that the landlord may be required to construct if an expansion option provided in a BRT Lease is exercised), and (F) no tenant under a BRT Lease has the option to terminate its lease prior to the stated expiration date. Except for (i) security deposits or (ii) the first full month's rent, whether or not the term of a Lease has commenced, no prepayments of rent more than thirty (30) days in advance have been made under the BRT Leases. All decorating, repairs, alterations or other work performed by the landlord under each of the BRT Leases prior to the date hereof, or the cost of any such work performed by the tenant and to be reimbursed by the landlord prior to the date hereof, has been performed or reimbursed, as applicable. No rent or security deposits under the BRT Leases have been assigned or encumbered, except as security for the mortgages noted in the BRT Disclosure Schedule, and there are no agreements or understandings, written or oral, with any of the tenants other than as set forth in the BRT Leases or otherwise set forth on the BRT Rent Rolls. All brokerage commissions and other compensation and fees payable by reason of the BRT Leases have been paid in full, except as set forth in the BRT Disclosure Schedule. (m) Reassessments. Each of the BRT Properties has been fully assessed and is not subject to abatement. To the best of BRT's knowledge, there are no proposed reassessments of any of the BRT Properties by any taxing authority and there are no threatened or pending special assessments or other actions or proceedings (other than county-wide reassessments and/or the usual increases in millage rates that may be under consideration by the taxing authorities in the jurisdictions where the BRT Properties are located) that could reasonably be expected to give rise to an increase in real property taxes or assessments against any of the BRT Properties. -10- 15 (n) Property Improvements. To the best of BRT's knowledge, except as disclosed in any engineering studies or reports obtained by or delivered to Sellers in connection with this transaction prior to the date hereof, the improvements at the BRT Properties are in good condition and repair, ordinary wear and tear excepted, and have not suffered any casualty or other material damage which has not been repaired in all material respects. To the best of BRT's knowledge, there is no material latent or patent structural, mechanical or other significant defect, soil condition or deficiency in the improvements included in the BRT Properties, or any other defects, soil conditions or deficiencies which, in the aggregate, would materially adversely affect the value of such properties taken as a whole. (o) Condemnation or Governmental Proceedings. No eminent domain, condemnation, incorporation, annexation or moratorium or similar proceeding has been commenced or, to the best of BRT's knowledge, threatened by an authority having the power of eminent domain to condemn any part of the BRT Properties. To the best of BRT's knowledge, there are no pending or threatened governmental rules, regulations, plans, studies or efforts, or court orders or decisions, which do or could adversely effect the use or value of the BRT Properties for their present use. (p) Insurance. EXHIBIT "I" attached hereto lists the insurance policies relating to the BRT Properties or any part thereof carried by BRT; all such policies are in full force and effect, and will be continued or renewed with the existing coverages and policy limits until the Closing Date, and all premiums thereunder have been paid to the extent due, and will be paid until the Closing Date; and no notice of cancellation has been received with respect thereto and, to the best knowledge of BRT, no cancellation is threatened. (q) FIRPTA. BRT is neither a "foreign person" within the meaning of Section 1445(f) of the Code nor a "foreign partner" within the meaning of Section 1446 of the Code. (r) Taxes. BRT (i) has filed or has had filed on its behalf all Tax Returns (as defined below) on a timely basis which are required to be filed as of the date hereof, and such Tax Returns are correct and complete, (ii) has paid or has had paid on its behalf on a timely basis all Taxes (as defined below) shown to be due on such Tax Returns and (iii) with respect to any period for which Tax Returns have not yet been filed, or for which Taxes are not yet due or owing, has made due and sufficient current accruals for such Taxes in its books and records in accordance with generally accepted accounting principles. For purposes of this subsection, "Tax" shall mean any Federal, state or local tax of any kind whatsoever, including any interest or penalty, and "Tax Return" shall mean any return, declaration, report, claim for refund, information return, statement or other similar document relating to Taxes. (s) No Defaults. All payments of principal and interest on all mortgage indebtedness respecting the BRT Properties are current as of the date hereof. Neither BRT nor BRT OP is in default of any loan secured by any of the BRT Properties or any other Significant Agreement and, to the best of BRT's knowledge, no event has occurred which with -11- 16 the giving of notice or passage of time would become a default under any such loan or under any such Significant Agreement. (t) Ownership of BRT Properties. The properties constituting the BRT Properties are listed on EXHIBIT "J" attached hereto. BRT and BRT OP each owns the interest in each of the BRT Properties indicated on EXHIBIT "J". 3.2 By Sellers. Sellers hereby represent and warrant that, except as disclosed in any exhibit or schedule to this Agreement: (a) Organization: Authority. Each of the Sellers is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to own, lease and operate its properties and to carry on its business as presently conducted. Each of the Sellers is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties or assets and the nature of its business requires it to be so qualified. Each Seller has the requisite authority to enter into and perform this Agreement. (b) Due Authorization; Binding Agreement. The execution, delivery and performance of this Agreement and all other documents and agreements to be executed by Sellers in connection with the transactions contemplated by this Agreement have been duly and validly authorized by all necessary action of each Seller. This Agreement and all other documents and agreements to be executed by Sellers in connection with the transactions contemplated by this Agreement have been and will be duly executed and delivered by Sellers and constitute the legal, valid and binding obligations of Sellers enforceable against Sellers in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditor's rights generally, and except that the availability of specific performance, injunctive relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought. (c) Consents and Approvals. Except for the consent of CoreStates Bank N.A. with respect to the sale of the North Gulph Property (which consent Sellers shall obtain, by a pay down of related debt, if required), no consent, waiver, approval, license or authorization of, or filing, registration or qualification with, or notice to, any governmental unit or any other person is required to be made, obtained or given by any Seller in connection with the execution, delivery and performance of this Agreement or any other documents and agreements to be executed by Sellers in connection with the transactions contemplated by this Agreement that has not been heretofore obtained. (d) No Violation. None of the execution, delivery or performance of this Agreement or any other document or agreement to be executed by any Seller in connection with the transactions contemplated by this Agreement does or will, with or without the giving of notice, lapse of time or both, (i) violate, conflict with or constitute a default under any term or -12- 17 provision of (a) the organizational documents of any Seller or any other agreement to which any Seller is a party or by which it is bound or (b) any term or provision of any judgment, decree, order, statute, injunction, rule or regulation of a governmental unit applicable to any Seller, or by which it or they or its or their assets or properties are bound or (ii) result in the creation of any lien or other encumbrance upon the assets or properties of any Seller, other than in favor of BRT. (e) Ownership of the Properties. The Properties are owned by their respective Seller in fee simple and, to the best of Sellers' knowledge, title thereto is subject only to the Permitted Exceptions (defined below). (f) Compliance with Laws and Recorded Declarations. To the best of Sellers' knowledge, each of the Sellers has complied with all laws (including, without limitation, the Americans with Disabilities Act of 1990) and requirements of insurance bodies applicable to the ownership, leasing, use and operation of the Properties, including, without limitation, parking and building setback requirements, and has performed all work and secured all required consents and approvals and obtained and fully paid for all material licenses, permits certificates, entitlements, grants of right and any other items and documents required by applicable law, by contract, or as a condition of any approval granted by the applicable municipal authority, required of any of the Sellers for the completion, ownership, leasing, use and occupancy of the Properties, including but not limited to final certificates of occupancy for each of the current tenancies at such Properties (other than where construction of tenant improvements for new tenancies is not yet completed or applications remain pending), except where the failure to so comply or obtain would not have a material adverse effect on the applicable Property. Such licenses, permits, certificates, entitlement, grants of right and other items and documents are in full force and effect. The Sellers have not taken any action that would (or failed to take any action, the omission of which would) result in the revocation or suspension of such licenses, permits, certificates, entitlements, grants of right and other items and documents, and none of the Sellers, the Voting Trust or SERS have received any notice of any violation from any federal, state or municipal entity or notice of an intention by any such governmental entity to revoke any certificate of occupancy or other certificate, license, permit, entitlement or grant of right issued by it in connection with the ownership, use and occupancy of any of the Sellers Properties that in each case has not been cured or otherwise resolved to the satisfaction of such governmental entity. To the best of Sellers' knowledge, (i) any and all charges (including condominium fees, to the extent applicable) and other assessments under declarations and like agreements to which any of the Properties are subject have been paid and no special assessments thereunder against any of the Properties are pending, and (ii) all consents and approvals required to be obtained under such declarations and like agreements with respect to the Properties have been obtained. (g) Environmental Matters. None of the Sellers have (a) caused any Hazardous Materials to be improperly maintained or disposed of on, under or at the Properties or any part thereof in a manner which violates, or could give rise to liability under, applicable environmental laws, or (b) failed to remediate, alter, mitigate or abate any condition required to be remediated, altered, mitigated or abated under such environmental laws, to the extent Sellers -13- 18 has been notified of existence of a condition required to be remediated, altered, mitigated or abated. Except as set forth in the environmental site assessments provided by Sellers to BRT pursuant to their due diligence investigation (including, without limitation, those described in EXHIBIT "K-1" attached hereto or as described in EXHIBIT "K-2" attached hereto (the "Sellers' Disclosure Schedule"): (1) to the best of Sellers' knowledge, each Property is in compliance, and has heretofore complied, with all environmental laws in all material respects, (2) to the best of Sellers' knowledge, there has been no discharge of Hazardous Materials by any tenant of the Properties or by any other person in, to or under any of the Properties, in either case in quantities requiring response, remediation or removal, and (3) No Seller has received any written notice from any governmental unit or other person that it or any of the Properties or operations conducted thereon are not or have not been in compliance with the environmental laws. (h) Tenant Leases. The rent rolls attached hereto as EXHIBIT "L" (the "Sellers' Rent Rolls") list each of the leases currently in effect with respect to the Properties as the same have been amended or modified (the "Leases"); there are no leases, licenses or other rights of occupancy affecting any of the Properties except for the Leases. Sellers have made available to BRT complete copies of all of the documents that constitute the Leases. The Leases are in full force and effect and, except as set forth on the applicable Sellers' Rent Roll, (A) to the best of Sellers' knowledge, no material uncured Event of Default (as defined in such Leases), has occurred and is continuing under any such Lease, no tenant has asserted a defense to, offset or claim against its rent or the performance of its obligations under its Lease and no tenant has asserted a default on the part of the landlord which would give it the right to terminate its Lease or set off against rent, (B) there are no rights of first refusal on, or options to purchase, any of the Properties or any right to a participation interest (whether of profits, sale or refinancing proceeds, or calculated based on fair market value) with respect to any such Property, in favor of any tenant, (C) there are no proposed modifications to any Lease that would reduce (i) the space leased to any tenant, (ii) the amount of any tenant's rent or (iii) the term of any lease, (D) no free rent or other rent concession is due any tenant under the Leases for periods after the Closing Date, (E) no landlord under a Lease is required to provide tenant improvements or refurbishments with respect thereto after the Closing Date (other than any tenant improvements that the landlord may be required to construct if an expansion option provided in a Lease is exercised), and (F) no tenant under a Lease has the option to terminate its lease prior to the stated expiration date. Except for (i) security deposits or (ii) the first full month's rent, whether or not the term of a Lease has commenced, no prepayments of rent more than thirty (30) days in advance have been made under the Leases. All decorating, repairs, alterations or other work required to be performed by the landlord under each of the Leases prior to the date hereof, or the cost of any such work performed by the tenant and to be reimbursed by the landlord prior to the date hereof, has been performed or reimbursed, as applicable. No rent or security deposits under the Leases have been assigned or encumbered, and there are no agreements or understandings, written or oral, with any of the tenants other than as set forth in the Leases or otherwise set forth on the Sellers' Rent Roll. All brokerage commissions and other compensation and fees payable by season of the Leases have been paid in full, except as set forth in the Sellers' Disclosure Schedule (and other than any commissions that may be due if a tenant takes expansion space or renews its lease). -14- 19 (i) Litigation. There are no claims, actions, suits, proceedings or investigations pending or, to the best of Sellers' knowledge, threatened before any court, governmental unit or any mediator or arbitrator with respect to the Properties, except for litigation listed on EXHIBIT "M" hereto, which litigation and any projected liability resulting therefrom is covered by insurance. (j) Reassessments. Each of the Properties has been fully assessed and is not subject to abatement. To the best of Sellers' knowledge, there are no proposed reassessments of any of the Properties by any taxing authority and there are no threatened or pending special assessments or other actions or proceedings (other than county-wide reassessments and/or the usual increases in millage rates that may be under consideration by the taxing authorities in the jurisdictions where the Properties are located) that could reasonably be expected to give rise to an increase in real property taxes or assessments against any of the Properties. (k) Sellers' Employees. There are no employees of any Seller. (l) Property Improvements. To the best of Sellers' knowledge, except as disclosed in any engineering studies or reports obtained by or delivered to BRT in connection with this transaction prior to the date hereof (including, without limitation, those described on Exhibit "K-3" attached hereto), the improvements at the Properties are in good condition and repair, ordinary wear and tear excepted, and have not suffered any casualty or other material damage which has not been repaired in all material respects. To the best of Sellers' knowledge, there is no material latent or patent structural, mechanical or other significant defect, soil condition or deficiency in the improvements included in the Properties, or any other defects, soil conditions or deficiencies which, in the aggregate, would materially adversely affect the value of such Properties taken as a whole. (m) Condemnation or Governmental Proceedings. No eminent domain, condemnation, incorporation, annexation or moratorium or similar proceeding has been commenced or, to the best of Sellers' knowledge, threatened by an authority having the power of eminent domain to condemn any part of the Properties. To the best of Sellers' knowledge, there are no pending or threatened governmental rules, regulations, plans, studies or efforts, or court orders or decisions, which do or could adversely affect the use or value of the Properties for their present use. (n) Insurance. EXHIBIT "N" attached hereto lists the insurance policies relating to the Properties or any part thereof carried by Sellers. All such policies are in full force and effect, and will be continued or renewed with the existing coverages and policy limits until the Closing Date, and all premiums thereunder have been paid to the extent due, and will be paid until the Closing Date; and no notice of cancellation has been received with respect thereto and, to the best knowledge of Sellers, no cancellation is threatened. -15- 20 (o) FIRPTA. No Seller is a "foreign person" within the meaning of Section 1445(f) of the Code or a "foreign partner" within the meaning of Section 1446 of the Code. (p) Brokers. No brokers or finders have been employed or engaged by Sellers with respect to the transactions contemplated by this Agreement or any other document or agreement to be executed in connection with the transactions contemplated by this Agreement. (q) Taxes. Each of the Sellers (i) has filed or has had filed on its behalf all Tax Returns (as defined below) on a timely basis which are required to be filed as of the date hereof, and such Tax Returns are correct and complete, (ii) has paid or has had paid on its behalf on a timely basis all Taxes (as defined below) shown to be due on such Tax Returns and (iii) with respect to any period for which Tax Returns have not yet been filed, or for which Taxes are not yet due or owing, has made due and sufficient current accruals for such Taxes in its books and records in accordance with generally accepted accounting principles. For purposes of this subsection, "Tax" shall mean any Federal, state or local tax of any kind whatsoever, including any interest or penalty, and "Tax Return" shall mean any return, declaration, report, claim for refund, information return, statement or other similar document relating to Taxes. (r) Business of Seller. None of the Sellers has engaged in any business other than owning the properties that are being transferred hereunder. (s) Service Contracts. EXHIBIT "S" attached hereto is a complete list of all existing service, equipment, supply and maintenance contracts with respect to or affecting the Properties (the "Service Contracts"), and each of such Service Contracts is terminable at will without penalty or cancellation fee upon no more than thirty (30) days notice. Unless otherwise directed by BRT, none of the Service Contracts shall be terminated by Sellers as of Closing, except such of the Service Contracts as constitute management agreements for a Property or Properties, which shall be terminated by Sellers as of Closing. Except as set forth on EXHIBIT "S", no written notice of default or breach by Sellers in the terms of any of such Service Contracts have been received by Sellers. Sellers have performed, and at Closing shall have performed, all obligations which it or they have under said Service Contracts. (t) No Tax Assessments. There are no public improvements in the nature of off-site improvements, or otherwise, which have been ordered to be made and/or which have not heretofore been assessed, and, to Seller's knowledge, there are no general or special assessments currently affecting or pending against the Properties. (u) Utilities. All utilities required for the operation of the Properties either enter each of the Properties through adjoining public streets, or, if they pass through adjoining private lands, do so in accordance with valid public easements or private easements which will inure to the benefit of BRT as assignee or nominee at no cost to the owner of the Properties. -16- 21 (v) Zoning Classification. The zoning classification of: (i) the Greenwood Property is PCD Planned Commerce Park District; (ii) the BCBL Property is M-1 as to Middletown Township and PIP Planned Industrial Park District as to Falls Township; and (iii) the North Gulph Property is SM Suburban Metropolitan. 3.3 By The Voting Trust. The Voting Trust hereby represents and warrants that, except as disclosed in any exhibit to this Agreement: (a) Organization: Authority. The Voting Trust is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation and has full power and authority to own, lease and operate its properties and to carry on its business as presently conducted. The Voting Trust is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties or assets and the nature of its business requires it to be so qualified. The Voting Trust has the requisite authority to enter into and perform this Agreement. (b) Due Authorization; Binding Agreement. The execution, delivery and performance of this Agreement and all other documents and agreements to be executed by the Voting Trust in connection with the transactions contemplated by this Agreement have been duly and validly authorized by all necessary action of the Voting Trust. This Agreement and all other documents and agreements to be executed by the Voting Trust in connection with the transactions contemplated by this Agreement have been and will be duly executed and delivered by the Voting Trust and constitute the legal, valid and binding obligations of the Voting Trust enforceable against the Voting Trust in accordance with their respective terms , except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditor's rights generally, and except that the availability of specific performance, injunctive relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought. (c) Consents and Approvals. No consent, waiver, approval, license or authorization of, or filing, registration or qualification with, or notice to, any governmental unit or any other person is required to be made, obtained or given by the Voting Trust in connection with the execution, delivery and performance of this Agreement or any other documents and agreements to be executed by the Voting Trust in connection with the transactions contemplated by this Agreement that has not been heretofore obtained. (d) No Violation. None of the execution, delivery or performance of this Agreement or any other document or agreement to be executed by the Voting Trust in connection with the transactions contemplated by this Agreement does or will, with or without the giving of notice, lapse of time or both, (i) violate, conflict with or constitute a default under any term or provision of (a) the organizational documents of the Voting Trust or any other agreement to which the Voting Trust is a party or by which it is bound or (b) any term or provision of any judgment, decree, order, statute, injunction, rule or regulation of a governmental unit applicable to the Voting Trust, or by which it or they or its or their assets or properties are -17- 22 bound or (ii) result in the creation of any lien or other encumbrance upon the assets or properties of the Voting Trust, other than in favor of BRT. (e) Status of SERS. No individual has an actuarial interest of more than 9.8% in SERS. 3.4 Survival of Representations and Warranties. All representations and warranties made by the parties in this Agreement shall survive Closing for a period of two years; provided that no party shall be liable for the breach of any representation or warranty hereunder unless the total amount recoverable from such breaching party with respect to all breaches of representations and warranties hereunder exceeds, an aggregate of $225,000. Any and all liability of Sellers and the Voting Trust hereunder after Closing shall be limited to and enforceable only against the Collateral (as defined in the Pledge Agreement), and by offset against the Deferred Purchase Price, and the Collateral shall be pledged to BRT to secure the payment of any such liability, pursuant to a Pledge Agreement in the form attached hereto as EXHIBIT "V". SECTION 4. CONDITIONS 4.1 Conditions Precedent to BRT Obligations on the Closing Date. The obligations of BRT to effect the transactions contemplated under this Agreement at the Closing are subject to the fulfillment on or prior to the Closing of the following conditions, any one or more of which may be waived in whole or in part by BRT in writing: (a) Title Insurance. Title to the Properties shall be good and marketable and insurable as such by Commonwealth Land Title Insurance Company free and clear of all liens, restrictions, easements, encroachments, exceptions and other encumbrances other than Permitted Exceptions at regular rates under an ALTA 1970 Form B (revised 10/17/70 and 10/17/84) title insurance policy, with such title endorsements as BRT shall reasonably specify. For purposes of this Agreement "Permitted Exceptions" means (i) for each of the Properties, the existing leases with respect thereto as listed on EXHIBIT "L" and the mortgages, liens, restrictions, easements, encroachments, exceptions and other encumbrances listed on EXHIBIT "O" hereto with respect to such Property, and (ii) for each Property, the lien of taxes not yet due and payable and applicable laws and ordinances. (b) No Material Adverse Change. There shall not have occurred any material adverse change to the Properties, taken as a whole. (c) Tenant Estoppels. Estoppel Certificates with respect to the Properties in form and substance satisfactory to BRT shall have been executed by the tenants of the Properties listed on EXHIBIT "P" hereto. -18- 23 (d) Securities Purchase Agreement. The representations and warranties of the Voting Trust under the Securities Purchase Agreement shall be true and correct as of Closing. (e) No SEC Integration Challenge. The SEC shall not have asserted that the issuance of Shares pursuant to (and as defined in) the Securities Purchase Agreement must be integrated with the sale of Common Shares (as defined in the Securities Purchase Agreement) pursuant to the Registration Statements, which assertion, if made, has not been resolved to the reasonable satisfaction of the Company after the Company has used its best efforts to accomplish such resolution. 4.2 Conditions Precedent To Sellers and the Voting Trust Obligations on the Closing Date. The obligations of Sellers and the Voting Trust to effect the transactions contemplated under this Agreement at the Closing are subject to the fulfillment on or prior to the Closing Date of the following conditions, which may be waived by Sellers and the Voting Trust in writing: (a) No Material Adverse Change. There shall not have occurred any material adverse change to BRT or the properties owned by BRT and its subsidiaries, taken as a whole. (b) Exemption From Ownership Requirements. BRT, by action of its Board of Trustees, shall have confirmed the Voting Trust is exempt from the ownership requirements of BRT's Declaration of Trust pursuant to Section 6.6(k) thereof, in the form attached hereto as EXHIBIT "P". (c) Securities Purchase Agreement. The representations and warranties of BRT under the Securities Purchase Agreement shall be true and correct as of Closing. The conditions set forth in Section 4.11 of the Securities Purchase Agreement shall have been satisfied as of Closing. (d) Amendment to Partnership Agreement. The Partnership Agreement of BRT OP shall have been amended in accordance with the form of amendment attached as EXHIBIT "X". (e) Certain Shareholders Approve Conversion. Safeguard Scientifics, Inc. and Richard M. Osborne, Sr., and all entities holding shares of BRT beneficially owned by Richard M. Osborne, Sr. shall have entered into an agreement with the Voting Trust in the form of EXHIBIT "U". (f) Blue Sky Compliance. BRT shall have complied with all applicable requirements of federal and state securities or "blue sky" laws with respect to the issuance of the Property Shares at the Closing. -19- 24 (g) Registration Rights. The Registration Rights Agreement in the form of EXHIBIT "W" attached hereto shall have been executed and delivered by all the parties thereto and shall be in full force and effect. (h) Opinions. Counsel for BRT shall have delivered to the Voting Trust, as appropriate, written opinions, dated the Closing Date, in form and substance satisfactory to the Voting Trust and its counsel, as appropriate, substantially in the form attached hereto as EXHIBIT "Q". 4.3 Mutual Conditions Precedent of the Parties on the Closing Date. The obligations of BRT, Sellers and the Voting Trust to effect the transactions contemplated under this Agreement at the Closing are subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived in whole or in part by BRT, Sellers and the Voting Trust in writing: (a) Concurrent Closings and Deliveries. All of the closing documents to be delivered at the Closing shall have been executed and be available for concurrent delivery. (b) Representations and Warranties True as of Closing Date. The representations and warranties of each of the parties contained in this Agreement shall be true at and as of the Closing Date in all material respects, with the same effect as though such representations and warranties were made as of such date, provided that the representations and warranties of each of the parties shall be modified at Closing as provided in their respective Closing Certificates to reflect, as necessary, the operation of the Properties from the date hereof through the Closing Date in accordance with Section 5 hereof. (c) Closing Certificates. Each party to this Agreement shall have executed and delivered a certificate dated as of the Closing Date (the "Closing Certificate"), and signed by the President or other authorized officer, as the case may be, certifying that its representations and warranties set forth in this Agreement (and, as to BRT and the Voting Trust in the Securities Purchase Agreement) remain true and correct in all material respects, as may be modified by information relating to events after the date hereof set forth in the Closing Certificate. The ability of the parties to modify their representations and warranties in a Closing Certificate to reflect events occurring after the date hereof shall not affect the other conditions set forth in this Section 4. (d) Confirmations. BRT shall have received confirmation that the transactions contemplated hereby will not require approval of BRT's shareholders under the rules of the American Stock Exchange. (e) American Stock Exchange Listing. On or prior to the Closing Date, the Common Shares into which the Property Shares are convertible and the Common Shares for which the Warrant is exercisable or exchangeable shall have been approved for listing on the American Stock Exchange. -20- 25 SECTION 5. OPERATIONS PRIOR TO TRANSFER 5.1 Property Operations. (a) Except as otherwise expressly provided herein, between the date hereof and the Closing Date, Sellers shall operate their respective Properties in the ordinary course in a manner consistent with past practice, maintaining the Properties in the same state of repair, order and condition as they are on the date hereof, reasonable wear and tear, damage by fire or other casualty excepted. Without limiting the foregoing, the applicable owner shall not defer any required maintenance or repair unless such maintenance or repair would otherwise be deferred in the ordinary course of business. Sellers shall maintain or have maintained, their books and records in accordance with past practice and use diligent efforts to maintain in full force and effect all authorizations and all insurance policies with respect to their respective Properties. (b) Without in each case obtaining the prior written consent of BRT, which shall not be unreasonably withheld, no Seller shall enter into new Leases or modify, cancel, waive any material default under, accept any rental more than thirty (30) days in advance of its accrual date or accept early surrender of any of the Leases; provided that Sellers may enter into Leases for 5,000 square feet of space or less provided that such Leases are on terms and conditions consistent with the leasing pro forma provided by Sellers for the applicable Property. (c) Sellers shall notify BRT of any material change in any of the information set forth in Section 3 hereof or any of the Exhibits attached hereto with respect to their respective Properties, promptly after such party has knowledge of such material change. Sellers shall promptly deliver to BRT copies of all default notices and other material written communications sent or received by them with respect to their respective Properties. 5.2 Casualty or Condemnation. (a) If prior to the Closing Date there shall be any damage or destruction to a Property by fire or other casualty, Sellers shall give prompt notice thereof to BRT. Unless such damage or destruction results in a material adverse change to the Properties taken as a whole, such damage or destruction shall in no way void or impair this Agreement or reduce the number of Property Shares to be issued with respect to such Property. In such event, subject to BRT's right to participate in the adjustment of the loss with the applicable insurance companies involved and approve the manner of repair and restoration, Sellers shall settle with the insurance companies and apply the insurance proceeds to promptly and diligently repair and restore, or commence to repair and restore, the affected Property to its condition and character immediately prior to the damage or destruction. If such repair and restoration is not completed by the Closing Date, then on the Closing Date the owner of the affected Property shall pay over to BRT the amount of the insurance proceeds collected to the extent such proceeds have not yet been applied to the repair and restoration of the affected Property, (and if any such proceeds -21- 26 have not been collected, the owner of the affected Property shall assign to BRT all its right, title and interest in and to the same). (b) If prior to the Closing Date condemnation or eminent domain proceedings are commenced against any Property, the Seller in question shall give prompt notice thereof to BRT. Unless the taking contemplated by such condemnation or eminent domain proceeding would result in a material adverse change to the Properties taken as a whole, no such condemnation or eminent domain proceeding shall void or impair this Agreement, or reduce the number of Property Shares to be issued with respect to such Property, provided that the owner of the affected Property shall be relieved from any obligation hereunder to convey title to the portion of any such Property so taken. BRT shall have the right to participate in the negotiation of the award to be made for such taking, and the owner of the affected Property shall not agree to any proposed award or execute a deed in lieu of foreclosure without BRT's prior written consent. Any condemnation award payable with respect to the taking of a Property shall be assigned to BRT. SECTION 6. CLOSING; CLOSING DELIVERIES; ADJUSTMENTS; EXPENSES 6.1 Closing. The closing for the transfer of all of the Properties (the "Closing"), shall take place at the offices of Wolf, Block, Schorr and Solis-Cohen, 12th Floor Packard Building, 15th & Chestnut Streets, Philadelphia, PA at 10:00 a.m., on November 14, 1996, or on such other date or at such other time or place as may be agreed upon in writing by the parties hereto (the "Closing Date"). 6.2 Closing Documents. In addition to the opinions, certificates and other documents and instruments referred to in Section 4 of this Agreement, at the Closing, the parties shall also execute and deliver, or cause to be executed and delivered, the following documents: (a) Deeds and Assignments. Deeds and Assignment Agreements in respect of each of the Properties in substantially the forms attached hereto as EXHIBITS "R-1" and "R-2". (b) Mechanics' Liens. Sellers will furnish such affidavits, indemnities and collateral as Commonwealth Land Title Insurance Company may require to insure title to the Properties in BRT OP (or its subsidiaries) free and clear of the possibility of mechanic's liens. (c) Bill of Sale. A bill of sale prepared by BRT's counsel in form acceptable to Sellers, assigning, conveying and transferring to Buyer, all of the Personal Property and the Names. (d) Original Leases. All Leases, tenant files, tenant correspondence and repair records. -22- 27 (e) Original Licenses, Service Contracts. All licenses with respect to the Properties, and such of the Service Contracts as BRT shall request. (f) Assignment of Leases. An assignment agreement prepared by BRT's counsel in form acceptable to Sellers (the "Assignment"), duly exercised by Sellers and BRT, assigning, conveying and transferring to BRT the Leases, and BRT shall assume the obligations and liabilities of Seller arising after the Closing Date under them. (g) FIRPTA Certificates. All certificate(s) required under Section 1445 of the Code. (h) Tenant Letter. Letters to each tenant advising of the change in ownership and directing payment of rent to such party as the BRT shall designate, said letter to be in form acceptable to BRT. (i) Corporate Clearance. Such evidence, indemnification and other undertaking as Commonwealth Land Title Insurance Company may require to insure title in BRT OP (or its subsidiary) free and clear of any liability for taxes owing by any Seller to the Commonwealth of Pennsylvania. (j) Title Insurance Certificates. Such reasonable and customary affidavits of title or other certifications as shall be required by Commonwealth Land Title Insurance Company to insure BRT's title to the Properties as set forth in Section 4.1(a), and to provide affirmative endorsements for (a) no violation of existing covenants, conditions and restrictions, and future violation not to result in forfeiture of title, (b) removal of any exceptions for matters which an accurate survey would disclose, (c) "Fairways" endorsements, and such other endorsements as BRT shall reasonably request. (k) Updated Rent Roll. An updated schedule of Leases, containing all information required to be set forth in EXHIBIT "L which schedule is correct and complete as of the date of closing. (l) Organization Certifications. Confirmation of the good standing and existence of each Seller and the due authority of those executing for them, including, without limitation, the following documents issued no earlier than 30 days prior to Closing: (a) good standing certificate in state or organization and in the State in which the Properties are located, (b) articles of incorporation, certified by the secretary of state of the state of incorporation, (c) a certificate from the secretary of the corporation confirming the incumbency of the signatories and the current force and effect of the resolution authorizing their execution of the documents required under this Agreement. (m) Keys. All keys and combinations to all locks to the Properties. -23- 28 (n) Tax Bills. Current tax bills and, if available, tax bills for each of the years of Sellers' ownership of the Properties. (o) Tax Reduction Rights. An instrument assigning to BRT any claims for the reduction of real or personal property taxes assessed against any portion of the Property for the fiscal year in which the Closing takes place; any refund for such year shall be prorated when received. (p) Contract Documents. All Contract Documents in possession of Sellers. 6.3 Adjustments. The following terms shall be prorated on a per diem basis at Closing, as of the close of business of the day immediately preceding Closing except as otherwise set forth below: (a) Rent Under Leases. Delinquent rents under Leases will not be prorated, but after Closing, BRT will pay promptly to the Seller in question (i) the first money collected from any tenant which as of Closing was delinquent only for the month in which Closing occurred, up to the amount of such delinquency and (ii) sums collected within ninety (90) days following Closing in excess of all sums owing after Closing, from any tenant which, as of Closing, was delinquent for more than the month in which Closing occurred, up to the amount of such delinquency. Except as herein expressly provided, BRT shall be under no obligation to collect rents in arrears for the benefit of Sellers. Except for the adjustment of escalation payments as provided below, Sellers shall have no claim to any rent collected more than ninety (90) days following the Closing Date. (b) All security deposits under Leases and all interest required to be paid thereon pursuant to the terms of such Leases shall be paid over to BRT on the Closing Date; and (c) Sellers shall have paid prior to Closing all taxes and assessments and water and sewer charges, including assessments payable in installments, which are to become due and payable and/or a lien against any Property, provided the first installment of such assessment has become due and payable as of Closing. Real estate taxes, assessments and municipal water and sewer charges for the current tax years will be prorated. (d) Sellers will use reasonable efforts to cause all utility meters to be read as of the end of the day preceding Closing, or as close thereto (whether before or after) as practicable, and the parties will adjust utility charges on the basis of such readings and reasonable estimates to approximate the result that Sellers shall bear all utility charges through the day preceding Closing and BRT shall bear utility charges thereafter. Utility deposits, if any, will be assigned to BRT and reimbursed to Sellers. -24- 29 (e) If BRT shall elect to take assignment of any insurance policy or contract, the premiums or sums payable (or receivable) thereunder will be prorated on a per diem basis such that Sellers will bear all expenses through the day preceding the Closing and BRT will bear all expenses thereafter. (f) Amounts paid or payable in respect of any Service Contracts assigned and assumed by BRT in accordance herewith. (g) At least five (5) days prior to Closing, Sellers shall deliver to BRT a reasonably detailed statement setting forth, as of the date of Closing (a) the sums collected from tenants under Leases on account of or in reimbursement of landlord's operating expenses and/or any other payments made by tenant to landlord on account of sums which are attributable to expenses paid or incurred by the landlord ("escalation payments") for the current fiscal year under each such Lease (whether a lease year or calendar or other year); and (b) the amounts paid or incurred by Sellers during the appropriate fiscal year as aforesaid which Sellers expects will be paid or reimbursed by escalation payments made by tenants. If Sellers shall have collected escalation payments for period prior to Closing in excess of the amount to which Sellers are entitled, whether pursuant to estimates which were in excess of the amounts actually required to be paid, or otherwise, there shall be an adjustment and payment to BRT at Closing for such excess. If the charges were not billed or have not been collected as of the date of Closing, then, when the amount of such escalation payments is determined and collected by BRT from tenants, BRT will, upon collection, remit to Sellers the portion thereof to which Sellers is entitled to the date of Closing. BRT shall have the right, in good faith, to settle or adjust any amount of such escalation payments due from any tenant without Sellers' prior consent, provided that such settlement or adjustment applies ratably to all amounts of escalation payments due from such tenant. Escalation payments will ultimately be prorated between the parties on the basis of the proportions in which each party bore the expense in question. (h) The parties shall endeavor to jointly prepare a schedule of prorations for the Properties no less than five (5) days prior to closing. As to any matter to be prorated hereunder which cannot be determined with certainty as of Closing, the parties will estimate such matter as of Closing and will thereafter adjust such estimated proration promptly after such matter can be determined with certainty. The parties shall correct any errors in prorations as soon after the Closing as amounts are finally determined. 6.4 Expenses. Transfer taxes payable with respect to the conveyance of the Properties shall be divided equally between the Sellers and BRT; provided, however, that if Closing shall occur under the Securities Purchase Agreement, and if in connection with such Closing thereunder Common Shares are issued, then at such Closing BRT will pay to the Voting Trust the sum of Two Hundred Ten Thousand Dollars ($210,000) in partial reimbursement of the realty transfer taxes paid by Sellers at Closing hereunder. BRT shall pay the cost of title insurance and recording costs of the deeds. BRT will pay its own due diligence expenses. Other closing expenses will be allocated to the party who would customarily pay such expense under local practice. Each party will pay the fees and expenses of its own counsel, except that if Closing occurs, BRT will reimburse the Voting Trust at Closing for the reasonable costs incurred -25- 30 by Sellers and Voting Trust for the fees and expenses of counsel in connection with the transactions described hereby. Otherwise each party shall be responsible for all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby, including without limitation the fees and expenses of such party's accountants, attorneys and other advisors; provided, however, that if Closing occurs, BRT will reimburse the Voting Trust the sum of $242,500 paid or payable by SERS to consultants. 6.5 Indemnification for Seller's Tax Obligations. Sellers shall indemnify, defend and save and hold harmless BRT from any loss, cost, liability or expense (including, without limitation, reasonable counsel fees and court costs) incurred, paid or suffered by BRT arising out of or by reason of any claim made by the Pennsylvania Department of Revenue or by any other state taxing or employment authorities asserting or indicating any claims or possible claims for unpaid taxes, penalties, interest or court costs related thereto of Sellers, the Voting Trust, SERS or any related party, due the Commonwealth of Pennsylvania or its political subdivisions. The provisions of this Section 6.5 shall specifically survive Closing hereunder. SECTION 7. COVENANTS 7.1 BRT Covenants. BRT hereby makes the following covenant to Sellers and the Voting Trust: during the Due Diligence Period, BRT will diligently endeavor to obtain the confirmation from the American Stock Exchange described in subsection 4.3(e) hereof. 7.2 Mutual Covenant - Best Efforts To Close. Each party to this Agreement hereby covenants to use its best efforts (i) to cause to be fulfilled any condition to Closing which is under the control or influence of such party and (ii) to consummate Closing hereunder so long as the conditions to such party's obligation are fulfilled. 7.3 Morgan Stanley Transactions. RAI specifically acknowledges and agrees that the Voting Trust and RAI as voting trustee of the Voting Trust are aware of and have no right to consent to or otherwise approve the investment transactions with the Morgan Stanley Funds referred to in the Registration Statements. SECTION 8. MATTERS TO BE COMPLETED 8.1. Matters to be Completed. Prior to Closing, BRT will review the documents and materials described on EXHIBIT "Z" hereto and will promptly notify Sellers' if any information contained in any such documents materially adversely affects the value of the Properties (other than any impairment of future development potential). Sellers may, but need not, remedy the matter in question or compensate BRT therefor, and if Sellers shall not so remedy or so compensate BRT in a manner reasonably satisfactory to BRT, then BRT may terminate this Agreement by notice to Sellers and thereupon the Deposit shall be returned to BRT. -26- 31 SECTION 9. SELLERS' OR VOTING TRUST'S DEFAULT 9.1 Sellers' or Voting Trust's Default. If Sellers or the Voting Trust shall fail to consummate Closing in accordance with this Agreement or shall fail to observe or perform any of their covenants or obligations under this Agreement to be observed or performed at or prior to Closing, BRT as its sole and exclusive remedies may (i) seek specific performance of this Agreement, or (ii) enforce any other remedy available at law or in equity, provided, however, that unless such failure to consummate Closing constitutes a breach of Sellers' or the Voting Trust's covenant under subsection 7.2 hereof, the remedies of BRT under this clause (ii) will be limited to the return of the Deposit to BRT and payment to BRT of the additional sum of $100,000 as liquidated damages for such default. SECTION 10. GENERAL PROVISIONS 10.1 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally, sent by reputable next business day delivery service or by telegram or by registered or certified mail, postage prepaid, as follows: If to BRT, to: Brandywine Realty Trust 16 Campus Boulevard Suite 150 Newtown Square, PA 19073 Attn: Gerard H. Sweeney, President and Chief Executive Officer With a required copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square 18th & Arch Streets Philadelphia, PA 19103-2799 Attn: Michael H. Friedman, Esq. If to the Sellers or Voting Trust, to: RAI Real Estate Advisers, Inc. 259 Radnor-Chester Road Suite 200 Radnor, PA 19087 Attn: Richard K. Layman -27- 32 With a required copy to: Wolf, Block, Schorr, and Solis-Cohen 12th Floor Packard Building S.E. Corner 15th and Chestnut Streets Philadelphia, PA 19102 Attn: Jason M. Shargel, Esq. 10.2 Confidentiality. The parties to this Agreement acknowledge that certain of the information that may be made available to them in connection with their due diligence investigation or otherwise is proprietary and includes confidential information. The parties shall hold all such information in confidence and shall not disclose it to any person before the Closing without the approval of the other parties, as applicable; provided, however, that the foregoing restriction shall not apply to (i) any information that is or becomes publicly known or that is lawfully obtained from a third party, (ii) to any disclosure required by law or in connection with the enforcement of any party's rights under this Agreement or (iii) any information required, in the reasonable judgment of BRT's counsel, to be included in the Registration Statement on Form S-11, as amended or in any Preliminary or Final Prospectus pertaining thereto. Prior to the Closing, none of the parties (or any of their respective affiliates) shall make any public announcement or disclosure relating to the transactions contemplated herein without the prior agreement of each other party hereto, except as required by law, provided that each other party shall use its best efforts to consult with the other in advance of any disclosure required by law. 10.3 Entire Agreement. This Agreement, together with the Exhibits and certificates referred to herein or delivered pursuant hereto, constitute the entire agreement between the parties hereto with respect to its subject matter and supersede all prior and contemporaneous agreements and understandings with respect to the subject matter thereof. 10.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement, and all of which, when taken together, shall be deemed to constitute but one and the same Agreement. 10.5 Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania (and United States federal law, to the extent applicable), irrespective of the principal place of business, residence or domicile of the parties hereto, and without giving effect to otherwise applicable principles of conflicts of laws. Nothing contained herein or in any other document contemplated hereunder shall prevent or delay any party from seeking, in any court of competent jurisdiction, specific performance or other equitable remedies in the event of any breach or intended breach by any party of any of their respective obligations hereunder. 10.6 Section Headings, Captions and Defined Terms. The section headings and captions contained herein are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement. The terms defined herein and in any agreement executed in connection herewith include the plural as well as the singular and the use of masculine pronouns include the feminine and neuter. Except as otherwise indicated, all -28- 33 agreements defined herein refer to the same as from time to time amended or supplemented or the terms thereof waived or modified in accordance herewith and therewith. 10.7 Amendments. Modifications and Waiver. The parties may amend or modify this Agreement in any respect. No such amendment or modification shall be effective unless in writing and signed by the party against which such amendment or modification is to be enforced. The waiver by any party of any provision of this Agreement shall not constitute or operate as a waiver of any other provision hereof, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision. 10.8 Severability. The invalidity or unenforceability of any particular provision, or part of any provision, of this Agreement shall not affect the other provisions or parts hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions or parts were omitted. 10.9 Liability of Trustees, etc. No recourse shall be had for any obligation of BRT hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future trustee, shareholder, officer or employee of BRT, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being expressly waived and released by each other party hereto. 10.10 Non-Recourse. No recourse shall be had for any obligation of the Sellers or the Voting Trust hereunder, or for any claim based thereon or in respect thereof, against RAI, SERS, or any past, present or future trustee, stockholder, officer or employee of either or against any other person or entity, except for the payment by Sellers or the Voting Trust of any amounts due under clause (ii) of Section 9.1 hereof or as provided in the following sentence, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. After Closing, recourse for any obligation or liability of the Sellers or the Voting Trust hereunder shall be enforceable only against the collateral (as defined in the Pledge Agreement), and by offset against the Deferred Purchase Price. 10.11 Exhibits Incorporated. All exhibits attached hereto are hereby incorporated into and made a part of this Agreement. -29- 34 IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, all as of the date first written above. BRANDYWINE REALTY TRUST By: /s/ Gerard H. Sweeney ----------------------------------------- Title: President/CEO -------------------------------------- GREENWOOD SQUARE CORPORATION By: /s/ Kathleen M. Hands ----------------------------------------- Title: Vice President -------------------------------------- BCBC HOLDING COMPANY By: /s/ Kathleen M. Hands ----------------------------------------- Title: Vice President -------------------------------------- 500 NORTH GULPH ROAD HOLDINGS, INC. By: /s/ Kathleen M. Hands ----------------------------------------- Title: Vice President -------------------------------------- RAI REAL ESTATE ADVISERS, INC. By: /s/ Richard K. Layman ----------------------------------------- Title: President -------------------------------------- -30- 35 EXHIBIT LIST Exhibit A: Legal Description - Greenwood Property Exhibit B: Legal Description - BCBC Property Exhibit C: Legal Description - North Gulph Property Exhibit D-1: Articles Supplementary (Property Shares) Exhibit D-2: Standstill Agreement Exhibit E: Form of Capital Escrow Agreement Exhibit F: Form of Warrant Exhibit G: BRT Disclosure Schedule Exhibit H: BRT Rent Rolls Exhibit I: Insurance Policies Relating to BRT Properties Exhibit J: BRT Properties Exhibit K-1: List of Environmental Site Assessments of the Properties Exhibit K-2: Sellers' Disclosure Schedule Exhibit K-3: List of Engineering Studies and Reports of the Properties Exhibit L: Sellers' Rent Rolls Exhibit M: Sellers' Litigation Exhibit N: Insurance Policies Relating to Properties Exhibit O: Permitted Exceptions on Properties Exhibit P: Required Tenant Estoppels Exhibit Q: Form of Opinion Exhibit R-1: Form of Deed Exhibit R-2: Form of Assignment and Assumption Agreement Exhibit S: Sellers' Service Contracts -31- 36 Exhibit T: Deposit Escrow Agreement Exhibit U: Form of Agreement of Safeguard Scientifics, Inc. and Richard M. Osborne Exhibit V: Form of Pledge Agreement Exhibit W: Form of Registration Rights Agreement Exhibit X: Form of Amendment to Partnership Agreement of BRT OP Exhibit Y: Form of Confirmation of Voting Trust Exemption from Ownership Requirements Exhibit Z: Remaining Due Diligence Items -32- EX-10.42 10 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 10.42 BRANDYWINE REALTY TRUST SECURITIES PURCHASE AGREEMENT 2 TABLE OF CONTENTS SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING........................................................-1- 1.1 Authorization of Securities.................................................................-1- 1.2 Sale and Purchase...........................................................................-1- 1.3 Closing.....................................................................................-2- SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................-2- 2.1 Organization and Good Standing..............................................................-2- 2.2 Authorization...............................................................................-3- 2.3 No Conflict with Law or Documents...........................................................-3- 2.4 Beneficial Interest of Company..............................................................-3- 2.5 Reservation of Shares.......................................................................-4- 2.6 Consents and Approvals......................................................................-4- 2.7 Private Offering............................................................................-4- 2.8 Declaration of Trust and Bylaws.............................................................-5- 2.9 Subsidiaries................................................................................-5- 2.10 SEC Reports.................................................................................-5- 2.11 Litigation..................................................................................-5- 2.12 Compliance with Laws........................................................................-6- 2.13 Financial Statements........................................................................-6- 2.14 Real Property...............................................................................-7- 2.15 Tenant Leases...............................................................................-9- 2.16 Dividends and Other Distributions...........................................................-9- 2.17 Tax Matters.................................................................................-9- 2.18 Agreements Affecting the Company's Securities..............................................-10- 2.19 Insurance..................................................................................-10- 2.20 Employee Benefit Plans.....................................................................-10- 2.21 Contracts and Agreements...................................................................-12- 2.22 Absence of Certain Developments............................................................-12- 2.23 Contracts with Insiders....................................................................-13- 2.24 Use of Proceeds............................................................................-13- 2.25 Environmental Matters......................................................................-13- 2.26 Certain Agreements.........................................................................-13- 2.27 Books and Records..........................................................................-14- 2.28 Certain Payments...........................................................................-14- 2.29 Labor Agreements and Actions...............................................................-14- 2.30 Entire Business; Etc.......................................................................-15- 2.31 Registration Statement.....................................................................-15- 2.32 Information................................................................................-15- 2.33 Standstill Agreements......................................................................-15- 2.34 Matters Relating to Partnership Agreement and Warrants.....................................-16- 2.35 Investment Company.........................................................................-16- 2.36 Commodity Exchange Act.....................................................................-16-
-i- 3 SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES.................................................-16- 3.1 Pre-Existing Entity........................................................................-16- 3.2 Beneficial Ownership.......................................................................-16- 3.3 Principal Place of Business................................................................-17- 3.4 Purchase Without View to Distribution......................................................-17- 3.5 Restrictions on Transfer...................................................................-17- 3.6 Access to Information......................................................................-17- 3.7 Additional Representations of the Purchaser................................................-17- 3.8 Legends....................................................................................-18- 3.9 Due Authorization, etc.....................................................................-18- SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS................................................................................-18- 4.1 Representations and Warranties.............................................................-18- 4.2 Performance................................................................................-19- 4.3 Opinion of Counsel to the Company..........................................................-19- 4.4 Proceedings; Certified Copies..............................................................-19- 4.5 No Proceeding or Litigation................................................................-19- 4.6 No Material Adverse Change.................................................................-19- 4.7 ASE Listing................................................................................-19- 4.8 Blue Sky Compliance........................................................................-19- 4.9 Registration Rights........................................................................-19- 4.10 Contribution Closing; Transaction Documents................................................-19- 4.11 Maryland Anti-Takeover Statutes............................................................-19- 4.12 Environmental Representation Letter........................................................-20- 4.13 Tax Opinion................................................................................-20- SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS................................................................................-20- 5.1 Representations and Warranties.............................................................-20- 5.2 Performance................................................................................-20- 5.3 No Proceeding or Litigation................................................................-20- 5.4 ASE Listing................................................................................-20- 5.5 Contribution Closing.......................................................................-20- 5.6 Additional Documents.......................................................................-21- 5.7 Proceedings; Certified Copies..............................................................-21- 5.8 No SEC Integration Challenge...............................................................-21- SECTION 6. COVENANTS OF THE COMPANY AND THE PURCHASER PRIOR TO CLOSING...........................................................................-21- 6.1 Payment of Expenses........................................................................-21- 6.2 Operation of Business in Ordinary Course...................................................-21- 6.3 Access to Information......................................................................-21- 6.4 Notification of Certain Matters............................................................-22- 6.5 Conditions Precedent.......................................................................-23-
-ii- 4 SECTION 7. COVENANTS OF THE COMPANY AND THE PURCHASER AFTER CLOSING....................................................................................-23- 7.1 Rule 144...................................................................................-23- 7.2 Delivery of Financial Statements...........................................................-23- 7.3 Reservation of Shares......................................................................-23- 7.4 Compliance with Laws.......................................................................-23- 7.5 Waivers, Consents, Etc.....................................................................-24- 7.6 Press Releases.............................................................................-24- 7.7 Shareholders' Meeting......................................................................-24- 7.8 Purchaser's Covenant.......................................................................-24- 7.9 REIT Status................................................................................-25- SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY OF SHARES, PROPERTY SHARES WARRANT AND CONVERSION ....................................................................-25- 8.1 Compliance with 1933 Act...................................................................-25- 8.2 Restrictive Legend.........................................................................-25- 8.3 Restrictions on Transferability............................................................-25- 8.4 Termination of Restrictions on Transferability.............................................-26- SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.................................................................................-26- SECTION 10. MISCELLANEOUS..............................................................................-26- 10.1 Owner of Shares, Property Shares, Warrant and Conversion Shares............................-26- 10.2 Successors.................................................................................-26- 10.3 Broker or Finder...........................................................................-27- 10.4 Governing Law..............................................................................-27- 10.5 Notice.....................................................................................-27- 10.6 Full Agreement.............................................................................-28- 10.7 Headings...................................................................................-28- 10.8 Amendment..................................................................................-28- 10.9 Survival of Representations and Warranties.................................................-28- 10.10 Settlement of Disputes.....................................................................-28- 10.11 Counterparts...............................................................................-29- 10.12 Termination................................................................................-29- 10.13 Effect of Termination......................................................................-30- 10.14 Non-Recourse...............................................................................-30-
-iii- 5 SCHEDULE OF EXHIBITS Exhibit A -- Form of Amendment No. 1 to Registration Statement Exhibit B -- Amendments or Waivers of Warrant Holders Exhibit C -- Form of Opinion of Counsel to the Company Exhibit D -- Form of Opinion of Special Maryland Counsel to the Company -iv- 6 EXHIBIT 10.42 SECURITIES PURCHASE AGREEMENT (this "Agreement") made as of the 6th day of November, 1996 between BRANDYWINE REALTY TRUST, a Maryland real estate investment trust (the "Company"), and RAI REAL ESTATE ADVISERS, INC. ("RAI") as the voting trustee of a voting trust dated as of November 6, 1996 executed by the Commonwealth of Pennsylvania State Employes' Retirement System ("SERS") as shareholder and by RAI as voting trustee (the "Purchaser"). BACKGROUND The Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase Common Shares (as defined in Section 1.1), or, if so provided in Section 1.2, Series A Preferred Shares (as defined in Section 1.1), for an aggregate purchase price of $10,500,000 (the "Purchase Price") on the terms and conditions set forth herein. Intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING 1.1 AUTHORIZATION OF SECURITIES. The Board of Trustees of the Company has authorized the issuance of a number of its authorized but unissued common shares of beneficial interest (the "Common Shares") as provided in Section 1.2. The term "Shares" as used herein means the number of Common Shares issuable to the Purchaser hereunder or, if shares of the Company's Series A Convertible Preferred Shares (the "Series A Preferred Shares") are to be issued as provided in Section 1.2, the number of Series A Preferred Shares issuable to Purchaser hereunder. The term "Securities" as used herein means the Shares, the Conversion Shares, the Series A Preferred Shares (the "Property Shares") issuable pursuant to the Contribution Agreement of even date herewith among, inter alia, the Company and the Purchaser (the "Contribution Agreement"), and the Warrant to Purchase Common Shares (the "Warrant") issuable pursuant to the Contribution Agreement. The term "Conversion Shares" as used herein means the Common Shares issuable upon conversion of the Series A Preferred Shares and Property Shares and upon exercise or exchange of the Warrant. 1.2 SALE AND PURCHASE. Subject to the terms and conditions herein set forth, on the Closing Date (as defined in Section 1.3), the Company shall sell, issue and deliver Shares to the Purchaser as follows: If the Secondary Offering occurs on or prior to December 27, 1996, the Company shall issue to the Purchaser a number of Common Shares equal to the Purchase Price divided by a number equal to the price to the public in the Secondary Offering. If the Secondary Offering is not consummated on or before December 27, 1996, the Company shall issue to the Purchaser Preferred Shares convertible into a number of Common Shares equal to the Purchase Price divided by $5.50. The term "Secondary Offering" as used herein means an underwritten primary public offering of Common Shares pursuant to a Registration Statement on Form S-11 declared effective by the 7 SEC (as defined in Section 2.10) which results in gross proceeds to the Company (prior to reduction for the underwriters' discount) of at least $50,000,000. All share amounts and prices shall be appropriately adjusted for any share splits, reverse share splits, share dividends or similar transactions. 1.3 CLOSING. (a) The closing of the issuance and sale of the Shares to the Purchaser hereunder shall take place on the earlier of (i) as promptly as practicable after the closing of the Secondary Offering, or (ii) December 30, 1996, subject to the satisfaction or, if permissible, waiver of the conditions set forth in Sections 4 and 5, at 10:00 A.M. at the offices of Wolf, Block, Schorr and Solis-Cohen, Packard Building, 15th and Chestnut Streets, Philadelphia, PA 19102, unless another date, time or place is agreed to in writing by the parties hereto. As used herein "Closing" shall mean the closing of the issuance and sale of the Shares to the Purchaser hereunder and the "Closing Date" shall mean the date on which such Closing takes place. (b) Subject to the terms and conditions herein set forth, at the Closing, the Company shall deliver to the Purchaser certificates for the Shares duly executed by the Company and registered in the Purchaser's name or the name of its nominee and, in exchange for the delivery of the Shares, the Purchaser shall deliver to the Company the Purchase Price by wire transfer of immediately available funds to an account designated by the Company at least two business days prior to the Closing Date. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Other than as set forth on the disclosure letter previously provided to the Purchaser by the Company (the "Disclosure Letter") or as described in the Registration Statement (as defined in Section 2.31) or in the SEC Reports (as defined in Section 2.10), the Company represents and warrants to the Purchaser as follows: 2.1 ORGANIZATION AND GOOD STANDING. The Company is a real estate investment trust duly formed and existing under and by virtue of the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation of Maryland and has all requisite power and trust authority, and all necessary licenses and permits, to own and lease its properties and assets and to conduct its business as now conducted. Each Subsidiary (as defined in Section 2.9) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority, and all necessary licenses and permits, to own and lease its properties and assets and to conduct its business as now conducted. The Company and its Subsidiaries are each qualified to do business and are in good standing in all states where the conduct of their respective businesses or their ownership or leasing of property requires such qualification. -2- 8 2.2 AUTHORIZATION. The Company has all requisite power and trust authority to execute and deliver this Agreement and each Transaction Document (as defined in Section 4.10) required to be executed and delivered by it prior to or at the Closing and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and each Transaction Document to which it is a party have been duly authorized by all requisite corporate action. This Agreement has been duly executed and delivered by the Company and constitutes (and, when executed and delivered as contemplated herein each such Transaction Document will constitute) the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors' rights generally, and except that the availability of specific performance, injunctive relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought. 2.3 NO CONFLICT WITH LAW OR DOCUMENTS. The execution, delivery and performance by the Company of this Agreement and each Transaction Document to which it is a party will not violate any provision of law, any rule or regulation of any governmental authority, or any judgment, decree or order of any court binding on the Company, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties, assets or outstanding shares of the Company under its the Declaration of Trust of the Company as amended to the date of this Agreement (the "Declaration of Trust") or the Bylaws of the Company as amended to the date of this Agreement (the "Bylaws"), or any indenture, mortgage, lease, agreement or other instrument to which the Company is a party or by which it or any of its properties is bound. 2.4 BENEFICIAL INTEREST OF COMPANY. The authorized beneficial interest of the Company consists of: (a) 75,000,000 Common Shares, 2,733,554 shares of which are presently issued and outstanding, and (b) 5,000,000 undesignated preferred shares, par value $.01 per share, none of which is presently issued and outstanding. All issued and outstanding Common Shares have been duly and validly issued and are fully paid and nonassessable. There are no outstanding subscriptions, warrants, options or other rights or commitments of any character to subscribe for or purchase from the Company, or obligating the Company to issue, any shares of beneficial interest of the Company or any securities convertible into or exchangeable for such shares, and there are no Common Shares reserved for issuance. The number of Common Shares issuable upon the exercise, conversion or exchange of any outstanding securities of the Company is not subject to adjustment by reason of the issuance and sale of the Securities. There are no (i) preemptive, first refusal or similar rights to purchase or otherwise acquire securities of the Company or any Subsidiary pursuant to any provision of law, the Declaration of Trust, the Bylaws, the Partnership Agreement (as defined in Section 2.21), other agreement or otherwise; or (ii) rights to adjust the number, type or pricing of securities issuable upon conversion, exercise or exchange of other securities or rights issued by the Company. -3- 9 2.5 RESERVATION OF SHARES. The requisite number of duly authorized and unissued Common Shares of the Company have been duly authorized and reserved for issuance upon conversion of the Preferred Shares and Property Shares and exercise of the Warrant and no further trust action is required for the valid issuance of Common Shares upon conversion of the Preferred Shares and Property Shares and exercise of the Warrant. The Conversion Shares will, at the time of the Closing and thereafter, not be subject to preemptive or similar rights of any person or entity, and when issued against payment therefor in accordance with the terms of the Preferred Shares, Property Shares and Warrant, as applicable, will be duly and validly issued, fully paid and nonassessable. 2.6 CONSENTS AND APPROVALS. No permit, consent, approval or authorization of, or declaration to or filing with, any federal, state, local or foreign governmental or regulatory authority or other person or entity, not made or obtained, is required in connection with the execution or delivery of this Agreement or any Transaction Document by the Company, the offer, issuance, sale or delivery of the Securities, or the carrying out by the Company of the other transactions contemplated hereby, other than (a) the filing with, and approval of, the American Stock Exchange, Inc. ("ASE") with respect to the listing of the Shares (to the extent they are Common Shares) and the Conversion Shares, (b) any filings required under federal and applicable state securities laws and (c) the filing of Articles Supplementary in the form of Exhibit D-1 to the Contribution Agreement with the State Department of Assessments and Taxation of Maryland. The issuance and sale by the Company of the Securities as contemplated hereby or by the Contribution Agreement will not require compliance with the notification or other requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. Prior to the closing under the Contribution Agreement (the "Contribution Closing"), the Board of Trustees of the Company shall have taken all action necessary so that the transactions contemplated by the Contribution Agreement and this Agreement including, without limitation, the issuance of the Securities, shall be irrevocably exempt from the operation of Section 3-601 et seq. (the "business combination" statute) and Section 3-701 et seq. (the "control share acquisition" statute) of the Maryland General Corporation Law (collectively, the "Maryland Anti-Takeover Statutes") and from any provisions of the Declaration of Trust and Bylaws that may have the effect of limiting the acquisition of securities of the Company, including without limitation Sections 6.6 and 11.5 of the Declaration of Trust. 2.7 PRIVATE OFFERING. Assuming the accuracy of the Purchaser's representations and warranties contained in Section 3, the offer, issuance and delivery to the Purchaser pursuant to the terms of this Agreement and the Contribution Agreement of the Shares, Property Shares and Warrant and, assuming compliance by the Purchaser with the terms of the Series A Preferred Shares, the Warrant and applicable law, the Conversion Shares, are exempt from registration under the Securities Act of 1933, as amended (the "1933 Act"). Based on the representations of the Purchaser contained in Section 3, it is not necessary, under the circumstances contemplated by this Agreement and the Contribution Agreement, to register issuance of the Securities under the 1933 Act or the Pennsylvania Securities Act of 1972. -4- 10 2.8 DECLARATION OF TRUST AND BYLAWS. The Company has filed as exhibits to the SEC Reports the Declaration of Trust and Bylaws, true and correct copies of which have been delivered to the Purchaser. 2.9 SUBSIDIARIES. The SEC Reports or the Disclosure Letter disclose the name of each entity in which the Company owns any equity interest, other than such entities that neither own any assets nor have ever conducted any business (collectively, the "Subsidiaries," which term includes without limitation Brandywine Operating Partnership, L.P., a Delaware limited partnership). The SEC Reports or the Disclosure Letter accurately describe (a) each Subsidiary's jurisdiction of organization and the percentage of its equity interests owned by the Company and (b) the name of each of the Company's corporate or joint venture affiliates (other than Subsidiaries) and the nature of the affiliation. Except as described in the SEC Reports or the Disclosure Letter, the Company has good and marketable title to all of the equity interests it purports to own of each Subsidiary, free and clear in each case of any mortgage, lien, security interest, charge or other encumbrance, and all such interests have been duly issued and are fully paid and nonassessable. There are no outstanding warrants, options or other rights or commitments of any character to subscribe for or purchase from the Company or a Subsidiary, or obligating such Subsidiary to issue, any additional equity interests or any securities convertible into or exchangeable for such equity interests. 2.10 SEC REPORTS. Since January 1, 1995, the Company and its Subsidiaries have timely filed all forms, reports, schedules, statements and other documents required to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the 1933 Act, including without limitation, (a) all Annual Reports on Form 10-K, (b) all Quarterly Reports on Form 10-Q, (c) all reports on Form 8-K, (d) all proxy statements relating to meetings of stockholders (whether annual or special) and (e) all information incorporated by reference into any of the foregoing. As used herein the term "SEC Reports" means any of the foregoing, as amended to the date of this Agreement, filed on or after January 1, 1995. The SEC Reports were prepared in all material respects in accordance with and complied in all material respects with the requirements of applicable law, including the Exchange Act and the 1933 Act and the applicable rules and regulations of the SEC thereunder, and the SEC Reports did not at the time they were filed and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except for the Registration Statement and the Registration Statement on Form S-8 filed on October 16, 1996, the Company has not filed any registration statements with the SEC at any time within the last three years. The Company has delivered to the Purchaser prior to the date hereof true and correct copies of all SEC Reports and any other reports and documents filed with the SEC since January 1, 1995. 2.11 LITIGATION. The SEC Reports, the Registration Statement and/or the Disclosure Letter list all material pending or, to the Company's knowledge, threatened -5- 11 litigation involving the Company and its Subsidiaries. Except as so disclosed, there is no pending or, to the knowledge of the Company, threatened suit, action or litigation, or administrative, arbitration or other proceeding or governmental inquiry or investigation questioning the validity of this Agreement or the transactions contemplated hereby, or affecting in any material adverse respect the Company or any Subsidiary or the business, properties, assets, operations, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, nor is there, to the knowledge of the Company, any basis for any such suit, action, litigation, proceeding, inquiry or investigation. 2.12 COMPLIANCE WITH LAWS. The Company and each Subsidiary is in compliance in all material respects with all laws, ordinances, rules and regulations of governmental authorities (including, without limitation, the Americans with Disabilities Act of 1990) and requirements of insurance bodies applicable to ownership, leasing, use and operation of its or their properties and has obtained and fully paid for all material licenses, permits, certificates, entitlements, grants of right and any other items and documents required by applicable law to be obtained by the Company or its Subsidiaries for the completion, ownership, leasing, use and occupancy of its or their properties, except where the failure to so comply or obtain would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. Such licenses, permits, certificates, entitlements, grants of right and other items and documents are in full force and effect. Neither the Company nor any of its Subsidiaries have taken any action that would (or failed to take any action, the omission of which would) result in the revocation or suspension of such licenses, permits, certificates, entitlements, grants of right and other items and documents, and neither the Company nor any of its Subsidiaries have received any notice of any material violation from any federal, state or municipal entity or notice of an intent by any such governmental entity to revoke any material certificate of occupancy or other certificate, license, permit, entitlement or grant of right issued by it in connection with the ownership, use and occupancy of any of its or their properties, that in each case has not been cured or otherwise resolved to the satisfaction of such governmental entity. 2.13 FINANCIAL STATEMENTS. (a) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the SEC Reports and the Registration Statement (i) have been prepared in all material respects in accordance with the published rules and regulations of the SEC and generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except in the case of the unaudited financial statements, as permitted by Form 10-Q of the SEC), (ii) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and (iii) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated (subject, in the case of unaudited consolidated financial statements for interim periods, to year-end adjustments consisting only of normal recurring accruals), except that any pro forma -6- 12 financial statements contained in such consolidated financial statements are not necessarily indicative of the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated. Since December 31, 1995, the Company has not made any material change in the accounting practices or policies applied in the preparation of its financial statements. (b) Since June 30, 1996 (the "Balance Sheet Date") there has been no material adverse change in the business, properties, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. (c) The consolidated balance sheet of the Company and its Subsidiaries at the Balance Sheet Date (the "Balance Sheet") reflects all liabilities and obligations of the Company and of each Subsidiary, whether accrued, contingent or otherwise as of the date thereof, that are of a nature required to be set forth as a liability on a consolidated balance sheet under GAAP. Neither the Company nor any of its Subsidiaries have any liabilities or obligations of any nature (whether or not of the nature required to be reflected on the balance sheet prepared in accordance with GAAP) that are not reflected on the Balance Sheet, except for current liabilities (within the meaning of GAAP) which (i) have been incurred in the ordinary course of business consistent in nature and amount with past practice, and (ii) are neither material to the Company and its Subsidiaries taken as a whole nor inconsistent with any of the representations and warranties contained herein. The Balance Sheet reflects reserves or other appropriate provisions at least equal to reasonably anticipated liabilities, losses and expenses of the Company and its Subsidiaries as of the date thereof which are required to be disclosed by GAAP. (d) At the respective times of the issuance and sale of the Shares, Property Shares and Warrant to the Purchaser, neither the Company nor any of its Subsidiaries will have any liabilities or obligations, whether absolute, accrued, contingent, or otherwise, other than (i) current liabilities reflected on the Balance Sheet not paid since the Balance Sheet Date, (ii) current liabilities incurred in the ordinary course of business or in connection with the transactions contemplated hereby or by the Contribution Agreement or the Disclosure Letter and (iii) the other indebtedness and liabilities of the Company or of its Subsidiaries described in the Disclosure Letter, the Registration Statement or SEC Reports. 2.14 REAL PROPERTY. (a) The SEC Reports or the Registration Statement describe all real properties owned by the Company and each Subsidiary. To the Company's knowledge, the Company and each Subsidiary has good, valid and marketable title to all such real and personal properties and assets reflected therein as being owned by the Company or such Subsidiary, except for properties and assets sold or otherwise disposed of in the ordinary course of business since the Balance Sheet Date or that are not material to its business taken as a whole, subject to no liens, mortgages, security interests, pledges, encumbrances, or -7- 13 charges of any kind except: (i) liens for taxes or assessments or other government charges or levies not yet due and payable, (ii) liens imposed by law, such as mechanic's, materialmen's, warehousemen's and carrier's liens, and other similar liens, securing obligations incurred in the ordinary course of business which are not past due for more than 30 days, (iii) liens under workmen's compensation, unemployment insurance, social security or similar legislation securing obligations which are not past due and (iv) the liens securing other indebtedness not past due of the Company or its Subsidiaries described in the SEC Reports, the Registration Statement or the Disclosure Letter (the "Permitted Liens"). (b) No eminent domain, condemnation, incorporation, annexation or moratorium or similar proceeding has been commenced or, to the best of the Company's knowledge, threatened by an authority having the power of eminent domain to condemn any part of the properties owned by the Company and its Subsidiaries. To the best of the Company's knowledge, there are no pending or threatened governmental rules, regulations, plans, studies or efforts, or court orders or decisions, which do or could adversely affect the use or value of such properties for their present use. (c) The improvements at all properties owned by the Company and its Subsidiaries are in good condition and repair, ordinary wear and tear excepted, and have not suffered any casualty or other material damage which has not been repaired in all material respects. To the best of the Company's knowledge, there is no material latent or patent structural, mechanical or other significant defect, soil condition or deficiency in the improvements included in such properties. (d) Each of the properties owned by the Company and its Subsidiaries has been fully assessed and is not subject to abatement. To the best of the Company's knowledge, there are no proposed reassessments of any of such properties by any taxing authority and there are no threatened or pending special assessments or other actions or proceedings (other than county-wide reassessments and/or the usual increases in millage rates that may be under consideration by the taxing authorities in the jurisdictions where such properties are located) that could give rise to an increase in real property taxes or assessments against any of such properties. (e) There are no "Significant Agreements" relating to the properties owned by the Company and its Subsidiaries, or their operations, other than as set forth in the Disclosure Letter, the Registration Statement or the SEC Reports. For purposes hereof, "Significant Agreement" means and includes any of the following by which any of such properties may otherwise be subject or bound, in each such case as amended and currently in effect, inclusive of any waivers relating thereto: (i) all agreements, instruments and documents (excluding tenant leases referred to in Section 2.15 and easements included in the Permitted Liens) evidencing, securing or pertaining to contractual obligations that (A) are not cancelable upon 60 days -8- 14 notice or less and (B) have payments or receipts, as applicable, in excess of $15,000 per year or $25,000 over its life; and (ii) all mortgages and ground leases. 2.15 TENANT LEASES. (a) The Disclosure Letter lists each of the leases currently in effect with respect to the properties owned by the Company and its Subsidiaries as the same have been amended or modified to date (the "Leases"). The Leases are in full force and effect and, except as set forth in the Disclosure Letter, (a) no material uncured Event of Default (as defined in any such Lease), has occurred and is continuing under any such Lease, no tenant has asserted a defense to, offset or claim against its rent or the performance of its obligations under its Lease and no tenant has asserted a default on the part of the landlord which would give it the right to terminate its Lease and (b) there are no rights of first refusal on, or options to purchase, any of such leased properties in favor of any tenant, and no proposed modifications to any Lease that would reduce (A) the space leased to any tenant, (B) the amount of any tenant's rent or (C) the term of any Lease. (b) Except for (i) security deposits or (ii) the first full month's rent, whether or not the term of a Lease has commenced, no prepayments of rent more than thirty (30) days in advance have been made under the Leases. No rent or security deposits under the Leases have been assigned or encumbered, except as security for the mortgages noted in the Disclosure Letter or the SEC Reports, and there are no agreements or understandings, written or oral, with any of the tenants other than as set forth in the Leases. All brokerage commissions and other compensation and fees payable by reason of the Leases have been paid in full. 2.16 DIVIDENDS AND OTHER DISTRIBUTIONS. Since the Balance Sheet Date, except for the Company's regular quarterly cash dividend (not in excess of $.07 per share per quarter between the Balance Sheet Date and the Closing Date) neither the Company nor any Subsidiary has declared, set aside, or made any payment of a dividend or made any other distribution in respect of the Company's beneficial interest, repurchased or redeemed any of the Company's beneficial interest, or made any other payments to any holder of 5% or more of the Company's outstanding Common Stock other than salary paid to such stockholder for bona fide services to the Company or a Subsidiary as an officer or employee or reimbursement of reasonable expenses incurred in the ordinary course of business. 2.17 TAX MATTERS. Beginning with the first taxable year of the Company, its taxable year ended December 31, 1986, the Company properly elected to be taxed as a real estate investment trust within the meaning of Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and has satisfied, and continues to satisfy, all of the requirements set forth in those provisions and the regulations thereunder to be taxed as a real estate investment trust within the meaning of those provisions. Without limiting the -9- 15 generality of the foregoing, the Company, for each taxable year of the Company beginning with the first taxable year for which it made an election to be classified as a real estate investment trust: (i) has timely made all of the distributions required under Section 857(a)(1) of the Code; (ii) has timely demanded the statements from its shareholders required under Section 1.857-8(d) of the Treasury Regulations promulgated under the Code and maintained the records required under Treasury Regulations Section 1.857-8(e); (iii) has not sought to apply the provisions of Section 856(c)(7) of the Code in any taxable year of the Company; and (iv) has not revoked its election to be taxed as a real estate investment trust for federal income tax purposes nor has it received any notice that its classification as a real estate investment trust has been challenged by any taxing authority. The Company and each Subsidiary has filed all U.S. Federal, state, local, foreign and other tax returns which were required to be filed on or before the date hereof and has paid all taxes which have become due and payable. All such reports and returns were materially accurate and complete when filed and reflect all taxes required to be paid by the Company and its Subsidiaries for the periods reported therein. The provision for taxes made in the Balance Sheet at the Balance Sheet Date was sufficient for the payment of all accrued and unpaid taxes of the Company and its Subsidiaries with respect to the periods then ended. No additional material assessments, deficiencies or penalties in respect of taxes have been made or claimed against the Company or any Subsidiary which remain unpaid. No tax returns or reports of the Company or any Subsidiary are or ever have been under audit. 2.18 AGREEMENTS AFFECTING THE COMPANY'S SECURITIES. There are no agreements, written or oral, between the Company and any holder of its securities or, to the knowledge of the Company, among any holders of its securities, relating to the acquisition, disposition or voting of the securities of the Company. Except for the provisions of the Registration Rights Agreement attached as Exhibit W to the Contribution Agreement (the "Registration Rights Agreement"), there are no agreements, either written or oral, which obligate the Company to effect the registration of any of its securities under the 1933 Act. 2.19 INSURANCE. The Disclosure Letter lists all insurance policies carried by the Company or any Subsidiary relating to its or their real property and assets. All such policies are in full force and effect and all premiums thereunder have been paid to the extent due, and no notice of cancellation has been received with respect thereto and, to the best knowledge of Company, no cancellation is threatened. 2.20 EMPLOYEE BENEFIT PLANS. Schedule 2.20 to the Disclosure Letter lists all deferred compensation, pension, profit sharing, stock option, stock purchase, savings, group insurance and retirement plans, and all vacation pay, severance pay, incentive compensation, consulting, bonus and other material employee benefit or fringe benefit plans or arrangements maintained by the Company and its Subsidiaries with respect to which contributions are made by the Company (including health, life insurance and other benefit plans or arrangements maintained for the retirees which are specifically identified as such on Schedule 2.20). Such plans, including but not limited to all plans or programs that constitute "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income -10- 16 Security Act of 1974, as amended ("ERISA"), are sometimes collectively referred to in this section as "Benefit Plans." Neither the Company nor any ERISA Affiliate (as hereinafter defined) maintains, contributes or sponsors, and have not maintained, contributed to or sponsored any "employee benefit plan" (as defined in section 3(3) of ERISA) that is subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended ("Code") or any "Multiemployer Plan" (as defined in Section 4001(a)(3) of ERISA). ERISA Affiliate means all persons which are treated as being under common control or as a single employer with the Company or any of its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code. Each Benefit Plan is and has been maintained in compliance in all material respects with applicable law, including but not limited to ERISA, the Code and with any applicable collective bargaining agreements or other contractual obligations. Each Benefit Plan that provides medical benefits has been operated in compliance with all applicable requirements of Sections 601 through 608 of ERISA and either (i) Section 162(i)(2) and (k) of the Code and regulations thereunder (prior to 1989) or (ii) Section 4980B of the Code and regulations thereunder (after 1988), relating to the continuation of coverage under certain circumstances in which coverage would otherwise cease. Company is not required to make any payment to any current or former employee of the Company in the form of wages or other consideration pursuant to any employment agreement or Benefit Plan that will constitute in the aggregate an "excess parachute payment" (within the meaning of Section 280G(b) of the Code as a consequence in whole or in part of the transactions contemplated by this Agreement. There have been no written statements or communications made or materials provided to any employee or former employee of the Company or its Subsidiaries by any person which provide for or could reasonably be construed as a contract or promise by the Company or any subsidiary to provide for any pension, welfare, or other insurance-type benefits to any such employee or former employee, whether before or after retirement, other than benefits specifically identified on Schedule 2.20 or under the form of employment contracts. All of the Benefit Plans which are pension benefit plans are the subject of favorable determination or opinion letters from the IRS such that the employers maintaining such Benefit Plans, are entitled to rely on the compliance of such Benefit Plans as to the form of the Plan with the applicable requirements of Sections 401(a) and 501(a) of the Code; and no determination letter with respect to any Benefit Plan has been revoked nor, to the best knowledge of the Company, has revocation been threatened, nor has any Benefit Plan been amended since the date of its most recent determination letter or application therefore in any request which would adversely affect its qualification or materially increase its cost. Neither the Company nor any ERISA Affiliate maintains or sponsors any nonqualified deferred compensation plan or arrangements. There are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, other than routine claims for benefits in the ordinary course, asserted or instituted against (i) any Benefit Plan or its assets, (ii) any ERISA Affiliate with respect to any Benefit Plan, or (iii) any fiduciary with respect to any Benefit Plan for which the Company, or its Subsidiaries may be directly or indirectly liable, through indemnification obligations or otherwise. Neither the Company, nor any of its Subsidiaries -11- 17 has engaged, directly or indirectly, in a non-exempt prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Benefit Plan. As of the date of this Agreement, none of the assets of the Company or its Subsidiaries are required to be treated as "plan assets," within the meaning of Title I of ERISA ("Plan Assets"). 2.21 CONTRACTS AND AGREEMENTS. (a) The Company has filed as exhibits to its SEC Reports and the Registration Statement all of the contracts and agreements required to be so filed by the 1933 Act, the Exchange Act and the rules and regulations of the SEC. True and correct copies of all such agreements have been provided to the Purchaser prior to the date hereof. Neither the Company nor any Subsidiary is a party to any contract or agreement which is material to the business, properties, assets, prospects, operations or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole which have not been filed as an exhibit to, or otherwise described in, the Registration Statement or the SEC Reports. (b) Neither the Company nor any Subsidiary is (i) in default under any agreement, contract or instrument to which it is a party or by which it is bound, which default is reasonably likely to have a material adverse effect on the business, properties, assets, prospects, operations or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, (ii) in violation of the Declaration of Trust, Bylaws or the Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. (the "Partnership Agreement") dated August 22, 1996, as amended, by the amendment attached as Exhibit X to the Contribution Agreement (or other organizational documents), or (iii) in default with respect to any order, writ, injunction or decree of any court or governmental agency binding on it, and no event has occurred which with notice or lapse of time, or both, would create any default or violation described in clauses (i) through (iii). 2.22 ABSENCE OF CERTAIN DEVELOPMENTS. Since the Balance Sheet Date, neither the Company nor any Subsidiary has (a) mortgaged, pledged or subjected to lien, charge or any other encumbrance any of its assets, tangible or intangible, except Permitted Liens, (b) sold, assigned or transferred any of its tangible assets or canceled any debts or obligations except in the ordinary course of business, (c) suffered any extraordinary losses, or waived any rights of substantial value (whether or not in the ordinary course of business), (d) made any changes in officer compensation, (e) entered into any material transaction other than in the ordinary course of business, (f) made any change in any of its material contracts, the Declaration of Trust, Bylaws or Partnership Agreement (or other organizational documents), or in any arrangements or agreements of any nature relating to its officers and directors, (g) sold any equity interests or (h) established any record dates for dividends or other distributions on other than customary quarterly record dates in accordance with past practice. -12- 18 2.23 CONTRACTS WITH INSIDERS. Excluding any agreements or transactions that would not be required to be disclosed pursuant to Items 402 or 404 of Regulation S-K, no officer or trustee of the Company, or, to the Company's knowledge, holder of more than 5% of the Company's outstanding Common Shares, is a party to any contract, agreement, or arrangement providing for the Company's or a Subsidiary's employment of, furnishing of services to the Company or a Subsidiary by, the rental of real or personal property by the Company or a Subsidiary from, or otherwise requiring payments by the Company or a Subsidiary to, any such person or entity, or, to the Company's knowledge, any member of such person's family, or any corporation, partnership or other entity in which such person or entity, or, to the Company's knowledge, any member of such person's family, has an interest or of which such person, or, to the Company's knowledge, any member of such person's family, is an officer, director, trustee, or beneficiary. 2.24 USE OF PROCEEDS. The Company shall use the Purchase Price solely to pay fees and expenses relating to the transactions contemplated by the Transaction Documents and to repay mortgage indebtedness to one or more entities that are not affiliated with the Company or with any entity that owns or has the right to obtain more than five percent of the outstanding Common Shares as of the date of this Agreement in substantially the amounts and to the lenders identified in the Disclosure Letter. 2.25 ENVIRONMENTAL MATTERS. Neither the Company nor its Subsidiaries have (a) caused any substance or waste that is listed or defined as hazardous or toxic under applicable environmental laws or petroleum products (collectively "Hazardous Materials") to be improperly maintained or disposed of on, under or at any of its or their properties, or any part thereof, in a manner which violates, or could give rise to liability under, applicable environmental laws, or (b) failed to remediate, alter, mitigate or abate any condition required to be remediated, altered, mitigated or abated under such environmental laws, to the extent the Company and its Subsidiaries have been notified of the existence of a condition required to be remediated, altered, mitigated or abated. Except as set forth in the environmental site assessments provided by the Company to the Purchaser, (i) to the Company's knowledge, each of its properties, and the properties of its Subsidiaries, is in compliance, and has heretofore complied, with all environmental laws in all material respects, (ii) to the Company's knowledge, there has been no discharge of Hazardous Materials by any tenant of any property of the Company or its subsidiaries in quantities requiring response, remediation or removal, and (iii) the Company has not received any written notice from any governmental unit or other person or entity that it or its Subsidiaries, or any of its or their properties or operations conducted thereon, are not or have not been in compliance with all environmental laws. 2.26 CERTAIN AGREEMENTS. The SEC Reports, the Registration Statement or the Disclosure Letter list all employment and severance agreements that the Company and each Subsidiary has entered into with its officers and employees. The issuance and sale of the Shares to the Purchaser hereunder, the issuance of the Property Shares and Warrant pursuant to the Contribution Agreement, the issuance of the Conversion Shares and the -13- 19 completion of the other transactions provided for herein or in the other Transaction Documents will not give any employee the right to terminate his or her employment and receive severance or other payments from the Company or any Subsidiary, or result in the acceleration of vesting of any outstanding option issued by the Company. 2.27 BOOKS AND RECORDS. The books and records of the Company and its Subsidiaries accurately and fairly reflect their respective income, expenses, assets and liabilities, and the Company and its Subsidiaries maintain internal accounting controls which provide reasonable assurance that: (a) transactions are executed in accordance with management's authorization; (b) transactions are recorded as necessary to permit preparation of reliable financial statements and to maintain accountability for earnings and assets; (c) access to assets is permitted only in accordance with management's authorization; (d) the recorded accountability of all assets is compared with existing assets at reasonable intervals; and (e) all intercompany transactions, charges and expenses among or between the Company, any Subsidiary, or any other affiliate of the Company are accurately reflected in all financial statements. 2.28 CERTAIN PAYMENTS. Neither the Company nor any of its Subsidiaries, nor, to the Company's knowledge, any trustee, officer, agent or employee of any such entity, or any other person or entity associated with or acting for or on behalf of the Company or any of its Subsidiaries has directly or indirectly (a) made any unlawful contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, private or public, regardless of form, whether in money, property or services, (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, or (iii) to obtain special concessions or special concessions already obtained, for or in respect of the Company or any of its Subsidiaries, or (b) established or maintained any fund or asset that has not been recorded in the books and records of the Company and its Subsidiaries, or (c) taken any other action in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended. 2.29 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any Subsidiary is bound by or subject to, any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company or any Subsidiary. There is no strike or other labor dispute involving the Company or any Subsidiary pending, or to the knowledge of the Company threatened, nor is the Company aware of any labor organization activity involving any of the employees of the Company or any Subsidiary. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate his, her or their employment with the Company or any Subsidiary, nor does the Company or any Subsidiary have a present intention to terminate the employment of any of the foregoing. The employment of each employee of the Company or any Subsidiary is terminable at the will of the applicable employer without further liability of such employer to such employee -14- 20 except for the payment of such employee's normal salary accrued but not paid through the date of such termination. 2.30 ENTIRE BUSINESS; ETC. All of the assets (including the Company's and its Subsidiaries' interests under franchises, licenses, leases and permits) necessary for the conduct of the business of the Company and its Subsidiaries as presently conducted are held exclusively by the Company or a Subsidiary. 2.31 REGISTRATION STATEMENT. The Registration Statement on Form S-11 (SEC File No. 333-13969) initially filed by the Company with the SEC on October 11, 1996 (the "Registration Statement"), as it shall be amended from time to time, will comply at all times in all material respects with the provisions of the 1933 Act and the rules and regulations thereunder, as applicable, except that no representation is made by the Company with respect to information supplied in writing by the Purchaser specifically for inclusion in the Registration Statement ("Purchaser Information") and, at the date hereof, at the date of the Contribution Closing, at the Closing Date, at the date that the Registration Statement is declared effective by the SEC and at each date that sales of Common Shares are made pursuant to the Registration Statement, except for Purchaser Information, the Registration Statement, as it shall be amended from time to time, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Unless the otherwise specifically provided, references to the Registration Statement are to the Registration Statement as originally filed, as modified by the form of Amendment No. 1 thereto attached hereto as Exhibit A. 2.32 INFORMATION. Neither this Agreement nor any document delivered to the Purchaser pursuant hereto, including the SEC Reports (except to the extent modified by the Disclosure Letter) and the Registration Statement, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. There is no fact, development or threatened development known to the Company which could reasonably be expected to materially adversely effect the business, assets, properties, operations, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole which has not been set forth in this Agreement, the Disclosure Letter, the SEC Reports or the Registration Statement. 2.33 STANDSTILL AGREEMENTS. The Agreement, dated March 20, 1996, by and among the Company, the Richard M. Osborne Trust (the "RMO Trust") and Richard M. Osborne, and the Agreement dated August 22, 1996, by and among the Company, Safeguard Scientifics, Inc. and Safeguard Scientifics (Delaware), Inc., copies of which have been delivered to the Purchaser, have been executed and delivered by all the parties thereto and are in full force and effect as of the date hereof. -15- 21 2.34 MATTERS RELATING TO PARTNERSHIP AGREEMENT AND WARRANTS. The Company has caused the Partnership Agreement to be amended in the form of Exhibit X to the Contribution Agreement and the terms of all outstanding options and warrants (the "Outstanding Warrants") to be amended or waived in the form of Exhibit B hereto, to the effect that: (a) All rights of first refusal relating to the securities of the Company have been eliminated. (b) No adjustments in the number of shares to be received upon redemption or exchange of the Units (as defined in the Partnership Agreement) or upon exercise or exchange of the Outstanding Warrants shall be made as a result of any issuance of securities by the Company other than as a result of the transactions described in Section 15.4(a) of the Partnership Agreement. 2.35 INVESTMENT COMPANY. Each of the Company and its Subsidiaries is not, and upon the issuance and sale of the Common Shares as herein contemplated and the application of the net proceeds therefrom, will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 2.36 COMMODITY EXCHANGE ACT. The Common Shares, upon issuance, will be excluded or exempted under, or beyond the purview of, the Commodity Exchange Act, as amended (the "Commodity Exchange Act"), and the rules and regulations of the Commodity Futures Trading Commission under the Commodity Exchange Act. SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES The Purchaser understands that the Shares, Property Shares, Warrant and Conversion Shares will not be registered under the 1933 Act, on the grounds that the sales provided for in this Agreement and the Contribution Agreement are exempt pursuant to Section 4(2) of the 1933 Act and/or Regulation D promulgated under Section 4(2) of the 1933 Act, and that the reliance of the Company on such exemptions is predicated in part on the Purchaser's representations, warranties, covenants and acknowledgments set forth in this Section 3. 3.1 PRE-EXISTING ENTITY. The Purchaser represents and warrants to the Company that SERS is the sole owner of the economic interest in the Securities to be issued to the Purchaser pursuant to the Transaction Documents and that SERS was not organized for the specific purpose of purchasing the Securities to be purchased by it hereunder and pursuant to the Contribution Agreement. 3.2 BENEFICIAL OWNERSHIP. The Purchaser represents and warrants to the Company that, as of the date hereof and prior to the purchase of the Shares, Property Shares and Warrant, (a) it is not the "beneficial owner" of any securities of the Company, as such -16- 22 term is defined in Rule 13d-3 promulgated under the Exchange Act, except for ten Common Shares acquired immediately prior to the execution of this Agreement and the Contribution Agreement, and (b) it is not a member of a group which has acquired beneficial ownership of securities of the Company for purposes of Sections 13(d) and 13(g) of the Exchange Act. 3.3 PRINCIPAL PLACE OF BUSINESS. The Purchaser represents and warrants to the Company that the address of its principal place of business or residence is as set forth in Section 10.5 herein. 3.4 PURCHASE WITHOUT VIEW TO DISTRIBUTION. The Purchaser represents and warrants to the Company that the Shares, Property Shares and Warrant to be purchased by it are being, and any Conversion Shares acquired by it will be, acquired by the Purchaser for its own account for investment purposes, not as a nominee or agent, and not with a view to resale or distribution within the meaning of the 1933 Act, and the rules and regulations thereunder, and the Purchaser will not distribute the Shares, Property Shares, Warrant or Conversion Shares in violation of the 1933 Act or in a way that will cause the Company to lose its exemption from the registration requirements under the 1933 Act with respect to the offer and sale of any of the Securities. 3.5 RESTRICTIONS ON TRANSFER. The Purchaser (a) acknowledges that the Securities are not registered under the 1933 Act or under any state securities laws and that the Securities to be acquired by it must be held indefinitely by it unless they are subsequently registered under the 1933 Act and under any applicable state securities laws or an exemption from registration is available, (b) is aware that any routine sales pursuant to Rule 144 promulgated under the 1933 Act of the Securities may be made only in limited amounts and in accordance with the terms and conditions of that Rule and that in such cases where the Rule is not applicable, compliance with some other registration exemption will be required, (c) is aware that Rule 144 is not presently available for use by the Purchaser for resale of the Securities and (d) is aware that, except as provided in the Registration Rights Agreement, the Company is not obligated to register under the 1933 Act any sale, transfer or other disposition of the Securities. 3.6 ACCESS TO INFORMATION. The Purchaser confirms that the Company has made available to it the opportunity to ask questions of and receive answers from the Company's officers and trustees concerning the terms and conditions of this transaction and the business and financial condition of the Company and its Subsidiaries, and to acquire, and the Purchaser has received to its satisfaction, such additional information, in addition to that set forth herein, about the business and financial condition of the Company and its Subsidiaries and the terms and conditions of this transaction as it has requested. 3.7 ADDITIONAL REPRESENTATIONS OF THE PURCHASER. The Purchaser, on behalf of itself and SERS, represents that (a) it is an "accredited investor" as such term is defined in Rule 501 promulgated under the 1933 Act, and an "institutional investor" within the meaning of Section 203(c) of the Pennsylvania Securities Act of 1972 and the regulations -17- 23 promulgated thereunder, (b) its financial situation is such that it can afford to bear the economic risk of holding the Securities for an indefinite period of time and suffer complete loss of its investment in the Securities (c) its knowledge and experience in financial and business matters are such that it is capable of evaluating the merits and risks of its purchase of the Securities as contemplated by this Agreement and (d) the purchase of the Shares, Property Shares and Warrant by it has been duly and properly authorized and this Agreement has been duly executed by it or on its behalf. 3.8 LEGENDS. The Purchaser understands that the certificates evidencing the Securities shall bear the legend set forth in Section 8.2 herein. 3.9 DUE AUTHORIZATION, ETC. The Purchaser represents that it has all requisite power and authority to execute and deliver this Agreement and each Transaction Document required to be excuted and delivered by it prior to or at the Closing and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by the Purchaser of this Agreement and each Transaction Document to which is a party have been duly authorized. This Agreement has been duly executed and delivered by the Purchaser and constitutes (and, when executed and delivered as contemplated herein, each Transaction Document will constitute) the valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors' rights generally, except that the availability of specific performance, injunctive relief or other equitable relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought. The execution, delivery and performance by the Purchaser of this Agreement and each Transaction Document to which it is a party will not violate any provision of law, or any rule or regulation of any governmental authority, or any judgment, decree or order of any court binding on the Purchaser, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the assets of the Purchaser, any Agreement or other instrument to which it is a party or by which it or any of its assets is bound. SERS is the sole owner of the economic interest in the Purchaser. No individual has an actuarial interest of more than 9.8% in SERS. SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS The Purchaser's obligation to purchase and make payment for the Shares subscribed for hereunder by it on the Closing Date is subject, at its option, to the satisfaction of each of the following conditions: 4.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the representations and warranties contained in Section 2 shall be true and correct in all material -18- 24 respects with the same effect as though made on and as of the Closing Date, and the Company shall have so certified to the Purchaser in writing. 4.2 PERFORMANCE. All the covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects, and the Company shall have so certified to the Purchaser in writing. 4.3 OPINION OF COUNSEL TO THE COMPANY. On the Closing Date, the Purchaser shall have received an opinion from counsel for the Company and special Maryland Counsel to the Company, each dated the Closing Date, addressed to the Purchaser in the forms of Exhibits C and D hereto, respectively. 4.4 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken in connection with the transactions contemplated by this Agreement to be consummated on or prior to the Closing Date, and all documents incident thereto, shall be satisfactory in form and substance to the Purchaser. The Purchaser shall have received such certified copies or other copies of such documents as it may reasonably request. 4.5 NO PROCEEDING OR LITIGATION. No suit, action, or other proceeding seeking to restrain, prevent or change the transactions contemplated hereby or otherwise questioning the validity or legality of such transactions shall have been instituted and be pending. 4.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change since the Balance Sheet Date in the business, properties, assets, operations, or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. 4.7 ASE LISTING. On or prior to the Closing Date, the Shares (to the extent that they are Common Shares) and the Conversion Shares shall have been approved for listing on the ASE. 4.8 BLUE SKY COMPLIANCE. The Company shall have complied with all applicable requirements of federal and state securities or "blue sky" laws with respect to the issuance of the Shares sold at the Closing. 4.9 REGISTRATION RIGHTS. The Registration Rights Agreement shall have been executed and delivered by all the parties thereto and shall be in full force and effect. 4.10 CONTRIBUTION CLOSING; TRANSACTION DOCUMENTS. The Contribution Closing shall have occurred. This Agreement, the Warrant, Registration Rights Agreement, Standstill Agreement (as defined in Section 5.4), Contribution Agreement, and each document or agreement required to be delivered at the closing hereunder and at the Contribution Closing shall be referred to herein collectively as the "Transaction Documents." -19- 25 4.11 MARYLAND ANTI-TAKEOVER STATUTES, ETC. The Company and its counsel shall have confirmed to the Purchaser's satisfaction that (a) this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby are exempt from the operation of the Maryland Anti-Takeover Statutes and Section 11.5 of the Declaration of Trust; and (b) the Purchaser is not subject to the restrictions set forth in Section 6.6 of the Declaration of Trust, including without limitation from the Ownership Limit and the Permissible Ownership Threshold. 4.12 ENVIRONMENTAL REPRESENTATION LETTER. The Company shall have delivered to Purchaser a representation letter dated the Closing Date concerning environmental matters in form and substance similar to that which is contained in the underwriting agreement for the Secondary Offering. 4.13 TAX OPINION. On the Closing Date the Company shall have received from Arthur Andersen LLP an opinion with respect to certain tax matters in form and substance reasonably satisfactory to Purchaser. SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS The Company's obligation to sell the Shares subscribed for by the Purchaser on the Closing Date is subject, at the Company's option, to the satisfaction of each of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the representations and warranties contained in Section 3 shall be true and correct in all material respects with the same effect as though made on and as of the Closing Date and the Purchaser shall have so certified to the Company in writing. 5.2 PERFORMANCE. All the covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Purchaser on or prior to the Closing Date shall have been performed or complied with in all material respects, and the Purchaser shall have so certified to the Company in writing. 5.3 NO PROCEEDING OR LITIGATION. No suit, action, or other proceeding seeking to restrain, prevent or change the transactions contemplated hereby or otherwise questioning the validity or legality of such transactions shall have been instituted and be pending. 5.4 ASE LISTING. On or prior to the Closing Date, the Shares (to the extent that they are Common Shares) and the Conversion Shares shall have been approved for listing on the ASE. 5.5 CONTRIBUTION CLOSING. The Contribution Closing shall have occurred. -20- 26 5.6 ADDITIONAL DOCUMENTS. The Purchaser shall have delivered such other documents necessary to effect the transactions contemplated hereby as the Company may reasonably request. 5.7 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken in connection with the transactions contemplated by this Agreement to be consummated on or prior to the Closing Date, and all documents incident thereto, shall be satisfactory in form and substance to the Company. The Company shall have received such certified copies or other copies of such documents as it may reasonably request. 5.8 NO SEC INTEGRATION CHALLENGE. The SEC shall not have commented that the issuance of Shares pursuant to this Agreement should or may be required to be integrated with the sale of Common Shares pursuant to the Registration Statement, which comment, if made, has not been resolved to the reasonable satisfaction of the Company after the Company has used its best efforts to accomplish such resolution. SECTION 6. COVENANTS OF THE COMPANY AND THE PURCHASER PRIOR TO CLOSING 6.1 PAYMENT OF EXPENSES. (a) If the Closing occurs hereunder, each party shall bear its own expenses, except that the Company shall pay all reasonable legal fees and expenses incurred by the Purchaser in connection with this Agreement and the transactions contemplated hereby. (b) If the Closing hereunder does not occur, each party shall bear its own expenses. 6.2 OPERATION OF BUSINESS IN ORDINARY COURSE. Prior to the Closing, the Company and each Subsidiary will operate its business and the business of each of its Subsidiaries only in the usual and normal course, and will not, except as contemplated by the Registration Statement, as amended through the date of this Agreement, including Amendment No. 1, without the consent of the Purchaser, engage in any of the transactions described in paragraphs (a), (b), (d), (e), (f), (except for the amendment in the form of Exhibit C hereto), (g) or (h) of Section 2.22 hereof. 6.3 ACCESS TO INFORMATION. (a) Between the date hereof and the Closing Date, the Company will give the Purchaser and its authorized representatives reasonable access to all officers, employees, agents, properties, offices and other facilities and to all books and records of the Company and its Subsidiaries, and will permit the Purchaser to make such inspections as the Purchaser may reasonably request and will cause the Company's officers and those of its -21- 27 Subsidiaries to furnish the Purchaser promptly (i) a copy of each report, schedule, registration statement and other document filed by it pursuant to the requirements of federal securities laws and (ii) all other financial and operating data and other information with respect to the business and properties of the Company and any of its Subsidiaries as the Purchaser may from time to time reasonably request. (b) The Purchaser will hold and will cause its authorized representatives, consultants and advisors to hold in confidence, unless compelled to disclose by judicial or administrative process or, in the written opinion of its legal counsel, by other requirements of law, all documents and information concerning the Company and its Subsidiaries furnished to the Purchaser in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by the Purchaser from sources other than the Company, its trustees, officers, representatives or affiliates, (ii) in the public domain through no fault of the Purchaser or (iii) later lawfully acquired by the Purchaser on a non-confidential basis from other sources who are not known by the Purchaser to be bound by a confidentiality agreement or otherwise prohibited from transmitting the information to the Purchaser by a contractual, legal or fiduciary obligation) and will not release or disclose such information to any other person or entity, except its auditors, attorneys, financial advisors and other consultants, agents and representatives in connection with this Agreement who need to know such information. If the transactions contemplated by this Agreement are not consummated, such confidence shall be maintained and, if requested by or on behalf of the Company, the Purchaser will, and will use all reasonable efforts to cause its auditors, attorneys, financial advisors and other consultants, agents and representatives to, return to the Company or destroy all copies of written information furnished by the Company to the Purchaser or its agents, representatives or advisors. It is understood that the Purchaser shall be deemed to have satisfied its obligation to hold such information confidential if it exercises the same care as it takes to preserve confidentiality for its own similar information. (c) No inquiry or investigation pursuant to Section 3.6 or this Section 6.3 shall affect any representation or warranty in this Agreement or any other Transaction Document made by the Company or its Subsidiaries or any condition to the Purchaser's obligations set forth herein or in any other Transaction Document. 6.4 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to the Purchaser, and the Purchaser shall give prompt notice to the Company, of (a) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be likely to cause (i) any representation or warranty contained in this Agreement to be untrue or inaccurate or (ii) any covenant, condition or agreement contained in this Agreement not to be complied with or satisfied and (b) any failure of the Company or the Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.4 shall not cure such breach or noncompliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice. -22- 28 6.5 CONDITIONS PRECEDENT. The Company and the Purchaser shall use their reasonable best efforts to cause the conditions specified in Sections 4 and 5 to be satisfied by the Closing Date. SECTION 7. COVENANTS OF THE COMPANY AND THE PURCHASER AFTER CLOSING 7.1 RULE 144. (a) The Company covenants that (i) the Company will use its best efforts to comply with the current public information requirements of Rule 144(c)(1) under the 1933 Act; and (ii) at all such times as Rule 144 is available for use by the holders of the Securities, the Company will furnish each such holder upon request with all information within the possession of the Company required for the preparation and filing of Form 144. (b) At all times during which the Company is neither subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, it will provide as promptly as practicable (in any event not later than 15 days after initial request) in written form, upon the written request of the Purchaser or any prospective buyer of the Shares or Conversion Shares from the Purchaser, all information required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the Commission under the Securities Act ("Rule 144A Information"). The Company's obligations under this Section 7.1 shall at all times be contingent upon such seller's obtaining from a prospective buyer an agreement to take all reasonable precautions to safeguard any non-public Rule 144A Information from disclosure to anyone other than a person or entity who will assist such buyer in evaluating the purchase of the Conversion Shares. 7.2 DELIVERY OF FINANCIAL STATEMENTS. From and after the Contribution Closing, the Company shall deliver to the Purchaser, until such time as the Purchaser no longer owns any Securities, a copy of each and every report on Form 10-K, Form 8-K, Form 10-Q and all other reports and proxy statements filed by the Company or any Subsidiary with the SEC within 15 days of such filing. 7.3 RESERVATION OF SHARES. From and after the Closing, the Company shall at all times reserve and keep available, free from pre-emptive rights, out of its authorized but unissued shares of beneficial interest, a sufficient number of of Common Shares for issuance upon the exercise of the Warrant and conversion of the Shares (if applicable) and Property Shares. 7.4 COMPLIANCE WITH LAWS. The Company will, and will cause each Subsidiary to, comply in all material respects with all laws and regulations applicable to the conduct of its business, including without limitation ERISA, environmental laws, and -23- 29 employee safety laws. The Company shall use its best efforts to insure that none of the assets of the Company or its Subsidiaries are required to be treated as Plan Assets (as defined in Section 2.20) by any "benefit plan investor" (as defined in Title I of ERISA). The Company shall take such actions as are necessary, on an ongoing basis, to determine whether assets of the Company or its Subsidiaries are required to be treated by a Benefit Plan Investor as including Plan Assets and shall promptly notify the Purchaser in writing if, at any time, it has reason to believe that any Benefit Plan Investor is likely to be required to treat the assets of the Company or its Subsidiaries as Plan Assets. 7.5 WAIVERS, CONSENTS, ETC. Compliance with any of the covenants in this Section 7 may be waived, either generally or in the particular instance, and any consent required thereunder may be given, by the Purchaser in writing. 7.6 PRESS RELEASES. The Purchaser shall have the right reasonably to approve any press release with respect to the transactions contemplated by this Agreement and the Contribution Agreement. In addition, at no time may the Company use or otherwise refer to the name of the Purchaser or any of its affiliates in any press release, publication or other report without the prior consent of the Purchaser not to be unreasonably withheld or delayed. 7.7 SHAREHOLDERS' MEETING. The Company shall duly call and hold an annual meeting of its shareholders as soon as practicable after the end of its curent fiscal year, but in no event later than June 30, 1997, for the purpose of voting upon the approval of the Stockholder Approval Matter; and, if approval of the Stockholder Approval Matter is not obtained at such meeting, the Company shall duly call and hold another meeting of its shareholders by June 30, 1998 for such purpose. In this regard, the Company will (i) subject to the fiduciary duties of the Board of Trustees, include in the proxy statement (the "Proxy Statement") relating to the annual meeting (and, if necessary, such other meeting) the unanimous recommendation of the Board that shareholders of the Company vote in favor of the Stockholder Approval Matter, and (ii) use its best efforts (A) to obtain and furnish the information required to be included by it in the Proxy Statement in compliance with the Exchange Act and, after consultation with the Purchaser, respond promptly to any comments made by the SEC with respect to the Proxy Statement and cause the Proxy Statement to be mailed to its shareholders in a timely fashion and (B) to obtain the necessary approvals by its shareholders of the Stockholder Approval Matter subject to its Board's fiduciary duties. The term "Stockholder Approval Matter" as used herein means any and all matters that must be approved by shareholders in order to permit the unlimited conversion and exchange of all the Conversion Shares by the Purchaser in compliance with all ASE rules, regulations and requirements. 7.8 PURCHASER'S COVENANT. To the extent permitted by applicable law Purchaser hereby (i) waives any right of rescission it might have arising out of the integration of the offer and sale of the Securities made hereby or in the Contribution -24- 30 Agreement with the public offering under the Registration Statement and (ii) covenants that it will not make any rescission claim on that basis. 7.9 REIT STATUS. The Company will continue to elect to be taxed as a real estate investment trust within the meaning of Sections 856-860 of the Code, and will continue to satisfy all of the requirements set forth in those provisions and the regulations thereunder to be taxed as a real estate investment trust within the meaning of those provisions and the regulations thereunder. SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY OF SHARES, PROPERTY SHARES WARRANT AND CONVERSION SHARES 8.1 COMPLIANCE WITH 1933 ACT. The Shares, Property Shares, Warrant, Property Shares and Conversion Shares shall not be transferable, except upon the conditions specified in this Section 8, which conditions are intended to insure compliance with the provisions of the 1933 Act and applicable state securities laws in respect of any such transfer. 8.2 RESTRICTIVE LEGEND. The Warrant, and each certificate evidencing the Shares and Conversion Shares and any Common Shares or other securities issued in respect of such Shares and Conversion Shares upon any share split, share dividend, recapitalization, merger, consolidation, similar event, shall (unless otherwise permitted by the provisions of Section 8.4) be stamped or otherwise imprinted with the following legend: "[THIS WARRANT HAS] OR [THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE] NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND THE TRANSFERABILITY [T]HEREOF IS SUBJECT TO THE PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN BRANDYWINE REALTY TRUST AND THE ORIGINAL HOLDER OF THE SECURITIES EVIDENCED HEREBY." 8.3 RESTRICTIONS ON TRANSFERABILITY. The Company shall not be required to register the transfer of the Shares, Property Shares or Warrant or any Conversion Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel reasonably satisfactory to it prior to such transfer to the effect that registration under the 1933 Act or any applicable state securities law is not required in connection with the transaction resulting in such transfer; provided, however, that no such opinion of counsel shall be necessary in order to effectuate a transfer in accordance with the provisions of Rule 144(k) or Rule 144A promulgated under the 1933 Act. Each Warrant or certificate for Shares, Property Shares or Conversion Shares issued upon any transfer as above provided shall bear the restrictive legend set forth in Section 8.2 above, except that such restrictive legend shall not be required if the opinion of counsel reasonably satisfactory to the Company referred to above is to the further effect that such legend is not required in order to establish -25- 31 compliance with the provisions of the 1933 Act and any applicable state securities law, or if the transfer is made in accordance with the provisions of Rule 144(k) under the 1933 Act. Nothing herein shall restrict a transfer of any or all of the Securities to a Permitted Transferee (as defined in Section 10.2). 8.4 TERMINATION OF RESTRICTIONS ON TRANSFERABILITY. The conditions precedent imposed by this Section 8 upon the transferability of the Shares, Property Shares, Warrant and Conversion Shares shall cease and terminate as to any of the Shares, Property Shares, Warrant or Conversion Shares when (i) such securities shall have been registered under the 1933 Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement covering such securities, (ii) at such time as an opinion of counsel satisfactory to the Company shall have been rendered as required pursuant to the second sentence of Section 8.3 to the effect that the restrictive legend on such securities is no longer required, or (iii) when such securities are transferable in accordance with the provisions of Rule 144(k) promulgated under the 1933 Act. Whenever the conditions imposed by this Section 8 shall terminate as hereinabove provided with respect to any of the Shares, Property Shares, Warrant or Conversion Shares, the holder of any such securities bearing the legend set forth in this Section 8 as to which such conditions shall have terminated shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer tax) and as expeditiously as possible, a new Warrant or new shares certificates not bearing such legend. SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS All covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the execution and delivery of this Agreement and the issuance and sale of the Shares hereunder in accordance with Section 10.9. SECTION 10. MISCELLANEOUS 10.1 OWNER OF SHARES, PROPERTY SHARES, WARRANT AND CONVERSION SHARES. The Company may deem and treat the person or entity in whose name the Shares, Property Shares, Warrant and Conversion Shares, as the case may be, are registered as the absolute owner thereof for all purposes whatsoever, and the Company shall not be affected by any notice to the contrary. 10.2 SUCCESSORS. This Agreement shall be binding upon and except as provided herein, shall inure to the benefit of the respective successors and permitted assigns of each of the parties hereto. The rights and obligations of either party hereunder shall not be assignable without the prior written consent of the other party, except that, subject to -26- 32 compliance with applicable state and federal securities laws, the Purchaser shall be entitled to assign its rights and obligations in whole or in part to one or more entities in which the majority of the economic interests are held by SERS ("Permitted Transferees") to the extent that any of the Securities are transferred to any such entity and any such entity agrees to be bound by the restrictions set forth in this Agreement. 10.3 BROKER OR FINDER. Each party to this Agreement represents and warrants that, to the best of its knowledge, no broker or finder has acted for such party in connection with this Agreement or the transactions contemplated by this Agreement and that no broker or finder is entitled to any broker's or finder's fee or other commission in respect thereof based in any way on agreements, arrangements or understandings made by such party. The Company shall indemnify the Purchaser against, and hold it harmless from, any liability, cost or expense (including reasonable attorneys' fees and expenses) resulting from any agreement, arrangement, or understanding made by the Company, and the Purchaser shall indemnify the Company against, and hold the Company harmless from, any liability, cost or expense (including reasonable attorneys' fees and expenses) resulting from any agreement, arrangement, or understanding made by the Purchaser with any third party, for brokerage or finder's fees or other commissions in connection with this Agreement or any of the transactions contemplated hereby. 10.4 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. 10.5 NOTICE. Any notice or other communication required or permitted hereunder shall be deemed given when delivered personally, or upon receipt by the party entitled to receive the notice when sent by registered or certified mail, postage prepaid, addressed as follows or to such other address or addresses as may hereafter be furnished in writing by notice similarly given by one party to the other: To the Company: Brandywine Realty Trust 16 Campus Boulevard Suite 150 Newtown Square, PA 19073 Attention: Gerard H. Sweeney, President With a copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square 18th and Arch Streets Philadelphia, Pennsylvania 19103-2799 Attention: Michael H. Friedman, Esq. -27- 33 To the Purchaser: RAI Real Estate Advisers, Inc. 259 Radnor-Chester Road Suite 200 Radnor, Pennsylvania 19087 Attention: Richard K. Layman, President With a copy to: Wolf, Block, Schorr and Solis-Cohen Packard Building, 15th and Chestnut Streets Philadelphia, Pennsylvania 19102 Attention: Jason M. Shargel, Esq. Notice to any holder of Shares, Property Shares, Warrant, or Conversion Shares other than the Purchaser shall be given in a like manner to such holder at the address reflected in the Company's records. 10.6 FULL AGREEMENT. This Agreement, together with all Exhibits attached hereto or delivered herewith, the other Transaction Documents and any other documents delivered herewith, sets forth the entire understanding of the parties with respect to the transactions contemplated hereby. 10.7 HEADINGS. The headings of the sections of this Agreement are inserted for convenience of reference only and shall not be considered a part hereof. 10.8 AMENDMENT. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 10.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by the parties in this Agreement shall survive the execution of this Agreement for a period of two years after the Closing Date. 10.10 SETTLEMENT OF DISPUTES. The parties will attempt in good faith to resolve any and all controversies of every kind and nature between the parties to this Agreement and the other Transaction Documents arising out of or in connection with the existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance or termination of this Agreement or the other Transaction Documents (each, a "Dispute") promptly by negotiations between senior executives of the parties who have authority to settle the Dispute (and who do not have direct responsibility for administration of this Agreement or the other Transaction Documents). The disputing party shall give the other party written notice of the Dispute. Within 20 days after receipt of said notice, the receiving party shall submit to the other a written response. The notice and response shall include (a) a statement of each party's position and a summary of the evidence and arguments supporting its position, and (b) the name and title of the executive who will represent that party. The executives shall meet at a -28- 34 mutually acceptable time and place within 30 days of the date of the disputing party's notice and thereafter as often as they reasonably deem necessary to exchange relevant information and to attempt to resolve the Dispute. If the matter has not been resolved within 60 days of the disputing party's notice, or if the party receiving said notice will not meet within 30 days, either party may initiate mediation of the controversy or claim in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes. If the Dispute has not been resolved pursuant to the aforesaid mediation procedure within 60 days of the initiation of such procedure, or if either party will not participate in a mediation, the Dispute shall be submitted to arbitration in accordance with the rules of the American Arbitration Association. The parties further agree that all matters shall be governed by the laws of the Commonwealth of Pennsylvania. The parties further agree that any arbitration conducted pursuant to this Section 10.10 shall be held in Philadelphia, Pennsylvania before a panel of three arbitrators, one selected by the Purchaser and one selected by the Company and the third selected by the arbitrators selected by the parties. All deadlines specified in this Section 10.10 may be extended by mutual agreement. The prevailing party in any Dispute shall be entitled to reimbursement for its costs, including without limitation attorneys' fees and expenses. 10.11 COUNTERPARTS. This Agreement may be executed in two or more counterparts each of which shall be deemed an original, and all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 10.12 TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual written consent of the Purchaser and the Company; (b) by either the Purchaser or the Company if the Closing shall not have been consummated before January 31, 1997 (unless the failure to so close by such date shall be due to the action or failure to act of the party seeking to terminate this Agreement); (c) by either the Purchaser or the Company if any court of competent jurisdiction or other governmental entity shall have issued a final permanent order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action is or shall have become nonappealable; (d) by the Purchaser if (i) there shall have been a material breach on the part of the Company or any of its Subsidiaries of any representation or warranty of the Company or its Subsidiaries set forth herein, (ii) there shall have been any -29- 35 failure of the Company or any of its Subsidiaries to perform or comply with its covenants or agreements hereunder and, in either case, the aggregate effect of all such breaches or failures, as the case may be, would be material to the Company and the Subsidiaries taken as a whole, or (iii) any person (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) acquires beneficial ownership of at least 20% of the outstanding Common Shares; or (e) by the Company if (i) there shall have been a material breach of any representation or warranty on the part of the Purchaser or (ii) there shall have been a failure of the Purchaser to perform or comply with its covenants or agreements hereunder which failure has not been cured within ten days after written notice thereof from the Company to the Purchaser and, in either case, the aggregate effect of all such breaches and failures, as the case may be, would be material. 10.13 EFFECT OF TERMINATION. In the event of the termination and abandonment of this Agreement pursuant to Section 10.12, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its affiliates, trustees, directors, officers or stockholders; provided, however, that nothing contained in this Section 10.13 shall relieve any party from liability for any breach of this Agreement; provided further that Sections 6.1(b), 6.3(b), 7 (if the Contribution Closing occurs), 8 and 10 shall survive any such termination. 10.14 NON-RECOURSE. No recourse shall be had for any obligation of the Company hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future trustee, stockholder, officer or employee of the Company, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. No recourse shall be had for any obligation of the Purchaser hereunder, or for any claim based thereon or in respect thereof, against RAI Real Estate Advisers, Inc., SERS, or any past, present or future trustee, stockholder, officer or employee of either or against any other person or entity, except as provided in the following sentence, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. Recourse for any obligation or liability of the Purchaser hereunder shall be limited to the Collateral (as defined in the Pledge Agreement attached as Exhibit V to the Contribution Agreement) on the terms set forth in such Pledge Agreement. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] -30- 36 IN WITNESS WHEREOF, each of the parties hereto has fully executed this Agreement as of the date first set forth above. BRANDYWINE REALTY TRUST By: /s/ Gerard H. Sweeney ---------------------------------------- Gerard H. Sweeney, President RAI REAL ESTATE ADVISERS, INC., as voting trustee of a voting trust dated November 6, 1996 By: /s/ Richard K. Layman ---------------------------------------- Richard K. Layman, President -31- EX-10.43 11 WARRANT TO PURCHASE COMMON SHARES 1 EXHIBIT 10.43 THE SECURITIES REPRESENTED HEREBY AND ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. ALL SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF SUCH SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. Void after 5:00 p.m. New York Time, on __________, 1998. BRANDYWINE REALTY TRUST Warrant Agreement for the Purchase of Shares of Common Stock No. 1 400,000 Shares FOR VALUE RECEIVED, BRANDYWINE REALTY TRUST, a Maryland real estate investment trust (the "Company"), with its principal office at 16 Campus Boulevard, Suite 150, Newtown Square, Pennsylvania 19073, hereby certifies that RAI Real Estate Advisers, Inc. as voting trustee of a voting trust dated as of November 6 ,1996 or its assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time before 5:00 p.m. (Eastern Time) on ____________ __, 1998 (the "Expiration Date"), the number of fully paid and nonassessable common shares of beneficial interest of the Company (the "Common Stock") set forth above, subject to adjustment as hereinafter provided. The Holder may purchase such number of shares of Common Stock at a purchase price per share (as appropriately adjusted pursuant to Section 6, Section 8 or Section 9 hereof) of Eight Dollars and 50/100 Cents ($8.50) (the "Exercise Price"). As provided in Section 6(j), the term "Common Stock" shall mean the aforementioned Common Stock of the Company, together with any other equity securities that may be issued by the Company in addition thereto or in substitution therefor as provided herein. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock are subject to adjustment from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such -1- 2 exercise, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares." Section 1. Exercise of Warrant. (a) This Warrant may be exercised in whole or in part on any business day (the "Exercise Date") occurring from and after the date hereof and on or before the Expiration Date by presentation and surrender hereof to the Company at its principal office at the address set forth in the initial paragraph hereof or at the office of its stock transfer or warrant agent, if any, (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the Exercise Price in lawful money of the United States of America in the form of a check, subject to collection, for the number of Warrant Shares specified in the Purchase Form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with proper payment of the Exercise Price, at such office, the Holder shall be deemed to be the holder of record of such Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder, which certificates shall be delivered to the Holder within two (2) business days following the Company's receipt of the Warrant together with the aforesaid Purchase Form and payment. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. (b) In addition to and without limiting the rights of the Holder under any other terms set forth herein, the Holder shall have, upon written request by the Holder delivered or transmitted to the Company together with this Warrant, the right (the "Conversion Right") to require the Company to convert this Warrant into shares of Common Stock as follows: upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any Exercise Price) that number of shares of Common Stock that is equal to the quotient obtained by dividing (x) the value of this Warrant at the time the Conversion Right is exercised (determined by subtracting the aggregate Exercise Price in effect immediately prior to the exercise of the Conversion Right from the aggregate current market price (determined as provided in Section 11 below) of the shares of Common Stock issuable upon exercise of this Warrant immediately prior to the exercise of the Conversion Right) by (y) the current market price of one share of Common Stock (determined as provided in Section 11 below) immediately prior to the exercise of the Conversion Right. The Conversion Right referred to above may be exercised by the Holder by surrender of this Warrant at the principal office of the Company or at the offices of its stock transfer or warrant agent, if any, together with a written statement specifying that the Holder thereby intends to exercise the Conversion Right. Certificates representing shares of Common Stock issuable upon exercise of the Conversion Right shall be delivered to the Holder within two (2) business days following the Company's receipt of this Warrant together with the aforesaid written statement. -2- 3 Section 2. Reservation of Shares. The Company shall reserve at all times for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of beneficial interest of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon the exercise of the Warrant in accordance with the terms hereof, shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, security interests, charges and other encumbrances or restrictions (other than restrictions pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights. If the Common Stock is listed on any national securities exchange or The Nasdaq Stock Market, the Company shall also list the shares issuable upon exercise of the Warrant on such exchange, subject to notice of issuance, or include the shares issuable upon exercise of this Warrant in the listing of its Common Stock on The Nasdaq Stock Market, as the case may be. Section 3. Fractional Interest. The Company will not issue a fractional share of Common Stock or scrip upon any exercise or conversion of this Warrant. Instead, the Company shall issue the next highest number of whole shares of Common Stock. Section 4. Exchange, Transfer, Assignment or Loss of Warrant. (a) The Holder of this Warrant may not transfer or assign its interest in this Warrant, or any of the Warrant Shares, in whole or in part, unless, prior to any such transfer, the transferee agrees in writing, in form and substance satisfactory to the Company, to be bound by the terms of this Agreement and provides the Company with an opinion of counsel in such form reasonably acceptable to the Company, that such transfer would not be in violation of the Act or any applicable state securities laws. (b) Subject to the provisions of subsection (a) above and Section 10, upon surrender of this Warrant to the Company or its stock transfer agent or warrant agent, accompanied by the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such instrument of assignment and, if the Holder's entire interest is not being assigned, in the name of the Holder, and this Warrant shall promptly be canceled. (c) This Warrant may be divided by or combined with other Warrants which carry the same rights upon presentation hereof at the principal office of the Company or at the office of its stock transfer or warrant agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants into which this Warrant may be divided or exchanged. (d) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnification reasonably satisfactory to the Company, and upon surrender and cancellation of -3- 4 this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date registered in the Holder's name representing the number of shares purchasable under the original Warrant. Any such new Warrant executed and delivered shall constitute an additional contractual obligation of the Company, whether or not the original Warrant shall be at any time enforceable by anyone. Section 5. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those set forth in this Warrant. Section 6. Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Adjustment for Change in Beneficial Interest. If at any time after November 6, 1996, the Company: (i) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (ii) subdivides its outstanding shares of Common Stock into a greater number of shares; (iii) combines its outstanding shares of Common Stock into a smaller number of shares; (iv) makes a distribution on its Common Stock in shares of its beneficial interest other than Common Stock; or (v) issues by reclassification of its Common Stock any shares of its beneficial interest; then the Exercise Price in effect (and the number of Warrant Shares and other securities, if any, issuable upon exercise of this Warrant) immediately prior to such action shall be adjusted so that the Holder may receive upon exercise of the Warrant, and payment of the same aggregate consideration, the number of shares of beneficial interest of the Company which the Holder would have owned immediately following such action if the Holder had exercised the Warrants immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of such a dividend or distribution, and immediately after the effective date in the case of a subdivision, combination or reclassification. -4- 5 (b) Adjustment for Other Distributions. If at any time after November 6, 1996, the Company distributes to all holders of its Common Stock any of its assets or debt securities, the Exercise Price following the record date for such distribution shall be adjusted in accordance with the following formula: M-F E' = E x ----- M where: E' = the adjusted Exercise Price. E = the then current Exercise Price immediately prior to the adjustment. M = the current market price (determined as provided in Section 11 below) per share of Common Stock on the record date of the distribution. F = the aggregate fair market value (determined in such reasonable manner as may be prescribed in good faith by the Board of Trustees of the Company) on the record date of the distribution of the assets or debt securities divided by the number of outstanding shares of Common Stock. The adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive the distribution or the effective date of such issuance, as applicable. Notwithstanding the formula above, in no event shall the adjusted Exercise Price be less than zero. In the event that such distribution or issuance is not actually made, the Exercise Price shall again be adjusted to the Exercise Price as determined without giving effect to the calculation provided hereby. This subsection does not apply to ordinary quarterly cash dividends or cash distributions paid out of consolidated current or retained earnings as shown on the books of the Company and paid in the ordinary course of business. (c) Deferral of Issuance or Payment. In any case in which an event covered by this Section 6 shall require that an adjustment in the Exercise Price be made effective as of a record date, the Company may elect to defer until the occurrence of such event (i) issuing to the Holder, if this Warrant is exercised after such record date, the shares of Common Stock and other beneficial interest of the Company, if any, issuable upon such exercise over and above the shares of Common Stock or other beneficial interest of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment, and (ii) paying to the Holder by check any amount in lieu of the issuance of fractional shares pursuant to Section 11. -5- 6 (d) When No Adjustment Required. No adjustment need be made for a change in the par value of the Common Stock. (e) Notice of Certain Actions. In the event that: (i) the Company shall authorize the issuance to all holders of its Common Stock of rights, warrants, options or convertible securities to subscribe for or purchase shares of its Common Stock, or of any other subscription rights, warrants, options or convertible securities; or (ii) the Company shall authorize the distribution to all holders of its Common Stock of evidences of its indebtedness or assets (other than dividends paid in or distributions of the Company's beneficial interest for which the Exercise Price shall have been adjusted pursuant to subsection (a) of this Section 6) or cash dividends or cash distributions payable out of consolidated current or retained earnings as shown on the books of the Company and paid in the ordinary course of business); or (iii) the Company shall authorize any capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in par value of the Common Stock) or any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or change of the Common Stock outstanding), or the conveyance or transfer of the properties and assets of the Company as an entirety or substantially as an entirety; or (iv) the Company is the subject of a voluntary or involuntary dissolution, liquidation or winding-up procedure; or (v) the Company proposes to take any action (other than actions of the character described in subsection (a) of this Section 6) that would require an adjustment of the Exercise Price pursuant to this Section 6; then the Company shall cause to be mailed by first-class mail to the Holder, at least ten (10) days prior to the applicable record or effective date, a notice stating (x) the date as of which the holders of Common Stock of record to be entitled to receive any such rights, warrants or distributions are to be determined, or (y) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up. -6- 7 (f) No Adjustment Upon Exercise of Warrants. No adjustments shall be made under any Section herein in connection with the issuance of Warrant Shares upon exercise of the Warrants. (g) Common Stock Defined. The term "Common Stock" shall include any equity securities of any class of the Company hereinafter authorized which shall not be limited to a fixed sum or percentage in respect of the right of the holders thereof to participate in dividends, or to participate in distributions of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company. However, subject to the provisions of Section 8 hereof, shares issuable upon exercise hereof shall include only shares of the class designated as Common Stock of the Company as of the date hereof or shares of any class or classes resulting from any reclassification or reclassifications thereof or as a result of any corporate reorganization as provided for in Section 8 hereof. (h) Warrants Issued After Adjustments. Irrespective of any adjustments in the Exercise Price or the number or kind of Warrant Shares purchasable upon exercise of this Warrant, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar warrants initially issuable pursuant to this Agreement. Section 7. Officers' Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 6, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office an officers' certificate showing the adjusted Exercise Price determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officers' certificate shall be signed by the Chairman, President or Chief Financial Officer of the Company and by the Secretary or any Assistant Secretary of the Company. A copy of each such officers' certificate shall be promptly mailed, by certified mail, to each holder of a Warrant and the original shall be made available at all reasonable times for inspection by any other holder of a Warrant executed and delivered pursuant to Section 4 hereof. Section 8. Reclassification, Reorganization, Consolidation or Merger. In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock) or in the event of any consolidation or merger of the Company with or into another person or entity (other than a merger in which the Company is the continuing person or entity and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another person or entity of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of beneficial interest and other securities and property (including cash) receivable upon such reclassification, -7- 8 capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale or conveyance. Any such provision shall include provisions for adjustments in respect of such shares of beneficial interest and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization, or classification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 6 hereof. Section 9. Duty to Make Fair Adjustments in Certain Cases. If any event occurs as to which, in the reasonable opinion of either the Board of Trustees of the Company or a majority of the holders of the warrants then outstanding under this Warrant, the Warrants issued to the Turkey Vulture Fund XIII, Ltd. on June 21, 1996, the Warrants issued to Safeguard on August 22, 1996 and any warrants issued upon repayment of unsecured debt issued to or held by Osborne (collectively, the "Other Warrants"), the provisions of Section 6 and Section 8 hereof are not strictly applicable or, if strictly applicable, would not fairly protect the purchase rights of the holders of such warrants in accordance with the essential intent and principles of such provisions, then the Board of Trustees of the Company and a majority of the holders of the warrants then outstanding under this Warrant and the Other Warrants shall mutually agree upon an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. Section 10. Transfer to Comply with the Securities Act of 1933; Registration Rights. (a) No sale, transfer, assignment, hypothecation or other disposition of this Warrant or of the Warrant Shares shall be made if such sale, transfer, assignment, hypothecation or other disposition would result in a violation of the Act, or any state securities laws. Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form reasonably satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder's own account, and not as a nominee thereof, for investment, and not with a view toward distribution or resale, except as permitted by the Act, and shall provide such other information to the Company as the Company may reasonably request. Any Warrant and any Warrants issued upon substitution for, or upon assignment or transfer of this Warrant, as the case may be, and all shares of Common Stock issued upon exercise hereof or conversion thereof shall bear a legend (in addition to any legend required by state securities laws) in substantially the form set forth on the first page of this Warrant, unless and until such securities have been transferred pursuant to an effective registration statement -8- 9 under the Act or may be freely sold to the public pursuant to Rule 144 (or any successor rule thereto) or otherwise. (b) The Holder and any transferee of the Warrant or the Warrant Shares issuable hereunder shall have the right to require the Company to register the Warrant Shares with the Securities and Exchange Commission for resale as provided in the Registration Rights Agreement of even date herewith by and between the Holder and the Company. Section 11. Current Market Price. The "current market price" of a share of Common Stock for purposes of this Agreement shall be determined as follows: (a) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on The Nasdaq Stock Market, the current market price shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant, or if no such sale is made on such day, the average of the closing bid and asked prices of the Common Stock for such day on such exchange or system; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market price shall be the average of the last reported bid and asked prices reported by the National Quotation Bureau, Inc., on the last business day prior to the date of exercise of this Warrant; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market price per share shall be an amount, not less than 90% of the book value per share of the Common Stock as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of this Warrant, determined in such reasonable manner as may be prescribed in good faith by the Board of Trustees of the Company. Section 12. Modification and Waiver. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated other than by an instrument in writing signed by the Company and by the Holder. Section 13. Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder or the Company shall be delivered or shall be sent by certified mail, postage prepaid, or by overnight courier to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. Section 14. Descriptive Headings and Governing Law. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in -9- 10 accordance with, and the rights of the parties shall be governed by, the laws of the State of Maryland. Section 15. No Impairment. The Company will not knowingly avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by it, but will at all times in good faith assist in the carrying out of all of the provisions of this Warrant. Section 16. Non-Recourse. No recourse shall be had for any obligation of the Company hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future trustee, shareholder, officer or employee of the Company, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by its duly authorized officer and to be dated as of ______________ __, 1996. BRANDYWINE REALTY TRUST By: ----------------------------------- Gerard H. Sweeney, President -10- 11 PURCHASE FORM Dated: ____________________ The undersigned hereby irrevocably elects to exercise the within Warrant to purchase _____________ shares of Common Stock and hereby makes payment of ___________________________ in payment of the exercise price thereof. Signature________________________ -11- 12 ASSIGNMENT FORM Dated: ____________________ FOR VALUE RECEIVED,__________________ hereby sells, assigns and transfers unto _______________________ (the "Assignee"), (please type or print in block letters) ________________________________________________________________________________ (insert address) its right to purchase up to _______________ shares of Common Stock represented by this Warrant and does hereby irrevocably constitute and appoint _______________________________ Attorney, to transfer the same on the books of the Company, with full power of substitution in the premises. Signature________________________ -12- EX-10.44 12 STANDSTILL AGREEMENT 1 EXHIBIT 10.44 STANDSTILL AGREEMENT THIS AGREEMENT is made as of the ____ day of ___________, 1996 by and between Brandywine Realty Trust, a Maryland real estate investment trust (the "Trust") and RAI Real Estate Advisers, Inc. ("RAI"), as the voting trustee of a voting trust dated as of November 6, 1996 between the Commonwealth of Pennsylvania State Employes' Retirement System ("SERS") as shareholder and RAI as voting trustee (the "Holder"). WHEREAS, as of the date hereof, pursuant to a Contribution Agreement dated November 6, 1996 among, inter alia, the Trust and the Holder (the "Contribution Agreement"), Holder is acquiring __________ Series A Convertible Preferred Shares, par value $.01 per share (the "Convertible Preferred Shares") and a warrant to purchase 400,000 common shares of beneficial interest, par value $.01 per share (the "Common Shares"). The Convertible Preferred Shares and the Common Shares issuable upon conversion thereof are collectively referred to herein as the "Shares;" WHEREAS, pursuant to the Contribution Agreement and a Securities Purchase Agreement dated November 6, 1996 between the Trust and the Holder (the "Securities Purchase Agreement"), the Holder is expected to acquire additional Shares; and WHEREAS, the Trust desires to obtain from the Holder, and the Holder desires to obtain from the Trust, certain agreements, as set forth herein. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows: 1. Proxy Solicitations. During the term hereof, without the consent of a majority of the independent members of the Board of Trustees of the Trust (the "Board of Trustees"), Holder agrees that it will not: (i) make or participate in, directly or indirectly, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A promulgated pursuant to the Exchange Act) or become a "participant" in any "election contest" (as such terms are used in Regulation 14A) with respect to the Trust, (ii) seek to encourage any third person to vote Common Shares in opposition to the recommendation of a majority of the Board of Trustees, (iii) propose any amendment to the Declaration of Trust of the Trust (the "Declaration of Trust") or (iv) assist any attempt by any other person or entity to do any of the foregoing. 2. Voting of Common Shares; Submission of Matters to Vote of Shareholders; Conversion. During the term hereof, the Holder agrees to vote all Shares beneficially owned by it in accordance with the recommendations of a majority of the Board of Trustees on any matter submitted to a vote of shareholders other than on any of the following matters: (i) a merger, consolidation or liquidation of the Trust or a sale by the Trust of all or substantially all of its assets; (ii) any amendment to the Declaration of Trust or to the Partnership Agreement (as defined in Section 4(a) below); (iii) the nomination of a new member to the Board of Trustees; (iv) the Trust's incurring debt as a result of which the aggregate principal amount of its debt at the time of incurrence would exceed the Trust's Equity Market -1- 2 Capitalization (as defined in Section 8 below); and (v) any Related Party Transaction (as defined in Section 8 below). Without the prior written approval of the Holder during the term hereof (and, as to clause (iv) above, until the Deferred Purchase Price (as defined in the Contribution Agreement) has been paid in full), the Trust shall not effect any of the preceding matters without first obtaining approval thereof by shareholders in accordance with the Declaration of Trust and applicable law. Upon the written request of the Trust delivered to the Holder at least ten (10) days prior to the record date for the applicable meeting, the Holder shall convert into Common Shares prior to such record date the number of Convertible Preferred Shares specified by the Trust in such request as being permissible to be so converted and shall vote such Common Shares in favor of the right of the Holder to convert the Convertible Preferred Shares on an unlimited basis. 3. Restrictions on Dispositions. During the term hereof, the Holder shall not, directly or indirectly, sell, assign, transfer or otherwise dispose of any Shares, except: (i) in transactions under Rule 144 promulgated under the Securities Act of 1933, as amended; (ii) in a private transaction to any person who is not then a business competitor of the Trust and who, immediately following the transaction, would own less than five percent (5%) of the outstanding Common Shares (assuming the conversion of all outstanding Convertible Preferred Shares and the conversion of all of the Class A Units of the Partnership (as defined in Section 4(a) below)); (iii) in response to a bona fide tender or exchange offer by a third party for at least 80% of the outstanding Common Shares and supported by a majority of the Board of Trustees; (iv) in a merger or statutory share exchange pursuant to which ownership of the Trust is acquired by a third party; or (v) pursuant to incidental registration rights of the Holder pursuant to a Registration Rights Agreement of even date herewith between the Trust and the Holder. During the term hereof, the Holder agrees to enter into a customary "lock-up" letter upon the request of the underwriters in connection with any public equity offering by the Trust, provided that (i) the duration thereof does not extend for more than 180 days following the effective date of the applicable registration statement and (ii) all other holders of in excess of ten percent (10%) of the outstanding Common Shares and all Trustees and executive officers of the Trust execute a substantially similar letter. Notwithstanding anything to the contrary herein, the Holder may pledge any and all of its Shares to secure up to $15 million in borrowings. 4. Business Operations. (a) Prior to the consummation by the Trust of a Secondary Offering, without the prior written approval of the Holder, the Trust may not materially deviate from the description of its business plans set forth under the caption "Prospectus Summary" in the draft of Amendment No. 1 ("Amendment No. 1") to the Trust's Registration Statement on Form S-11 attached as Exhibit A to the Securities Purchase Agreement and may not do any of the following: (i) engage in speculative development; (ii) acquire any individual property with a purchase price in excess of $25 million; (iii) acquire or dispose of any portfolio of properties with an aggregate purchase price which exceeds 25% of the amount equal to the Trust's Equity Market Capitalization plus the principal amount of all outstanding debt secured by mortgages on the Trust's properties; (iv) acquire any properties outside the Trust's Primary Market Area (as defined in Section 8 below); (v) acquire any properties other than office, warehouse, flex or industrial properties; (vi) incur additional indebtedness in any one transaction or in any series of -2- 3 related transactions in excess of $25 million; (vii) except as provided in Section 4(b) below, issue any additional shares of beneficial interest (other than issuances of Common Shares to funds managed by Morgan Stanley Asset Management, Inc., as more fully described in Amendment No. 1) the Registration Statement) or permit Brandywine Operating Partnership, L.P., a Delaware limited partnership (the "Partnership"), to issue Partnership Interests (as defined in the Partnership's Agreement of Limited Partnership dated August 22, 1996 (the "Partnership Agreement")); (viii) amend in any material manner the Partnership Agreement; (ix) acquire any property other than through the Partnership, unless acquired by the Trust and contributed to the Partnership; or (x) make any material change to the employment agreements between Brandywine Realty Services Company, Inc. ("Brandywine") and Anthony A. Nichols, Sr. and Gerald H. Sweeney (other than to permit such agreements to be assigned to the Trust). (b) Section 4(a)(vii) shall not apply to (A) Common Shares issued pursuant to options and warrants outstanding on the date of this Agreement, (B) Common Shares issued to officers, trustees, directors or employees of, or consultants to, the Trust and its affiliates upon the exercise of warrants, rights or options which (x) are issued pursuant to employee benefit plans, employment agreements or consulting agreements, in each case approved by the Board of Trustees or an appropriate committee of the Trust's Board of Trustees, and (y) have an exercise price not less than 85% of the current market price of the Common Shares at the time of issuance of such warrant, right or option, (C) Common Shares issued on redemption of Class A units of limited partnership interest in the Partnership issued or issuable to Safeguard Scientifics (Delaware), Inc. ("Safeguard") and The Nichols Company ("TNC") and certain other persons, or their respective affiliates, in connection with the transactions contemplated by the Contribution Agreement dated July 31, 1996, by and among the Trust, Safeguard and TNC, (D) Common Shares issuable to (i) Messrs. Belcher, Gallagher, Nichols and Sweeney upon exercise of warrants issued to them on or as of August 22, 1996 pursuant to their employment agreements with Brandywine and (ii) certain other employees of the Trust or Brandywine upon exercise of warrants issued to them on or as of August 22, 1996 for the purchase of an aggregate of 40,000 Common Shares, (E) up to 236,200 Common Shares reserved for issuance to Richard M. Osborne, Sr. or to an entity controlled by him ("Osborne") upon the repayment of unsecured debt issued to or held by Osborne and up to 236,200 Common Shares issuable to Osborne upon exercise of a warrant previously issued to him or issuable upon repayment of unsecured debt issued to or held by Osborne, (F) Common Shares issued upon conversion of the Convertible Preferred Shares, (G) Common Shares or Convertible Preferred Shares issued to the Holder or to or for the benefit of SERS, (H) Common Shares issued in a Secondary Offering, or (I) Partnership Interests issued (i) to acquire Residual Interests pursuant to Section 4.4 of the Partnership Agreement, (ii) upon the achievement of debt discounts pursuant to Section 4.5 of the Partnership Agreement; or (iii) to the Trust on account of capital contributions to the Partnership in accordance with the terms of the Partnership Agreement. 5. REIT Status. During the term hereof, the Holder agrees not to pursue any action which may disqualify the Trust's status as a real estate investment trust under the Internal Revenue Code of 1986. -3- 4 6. Legend. During the term hereof, the Trust may cause any certificates evidencing Shares beneficially owned by the Holder to bear a legend indicating the existence of this Agreement. 7. Term. (a) Unless terminated earlier pursuant to Section 7(b) below and as otherwise provided with respect to Section 2(iv) above, the term of this Agreement shall be for a period ending on the earlier of the (i) second anniversary of the date of this Agreement or (ii) the date on which the Holder owns less than twenty percent (20%) of the Common Shares assuming the conversion of all outstanding Convertible Preferred Shares. (b) The Holder shall have the right, upon written notice to the Trust, to terminate this Agreement (except as to Section 2(iv) as provided above) at any time after one year from the date of this Agreement if: (i) for two successive calendar quarters commencing with the quarter ending December 31, 1996, the total debt of the Trust as of the end of such quarters exceeds the Trust's Equity Market Capitalization; (ii) for two successive calendar quarters commencing with the quarter ending December 31, 1996, the Holder did not receive a cash distribution at least equal to $.11 per Common Share into which the Convertible Preferred Shares are convertible (subject to appropriate adjustment for share splits, share dividends and similar transactions subsequent to November 6, 1996), which distribution shall not exceed 90% of Funds From Operations (as defined in Section 8 below) for such quarter; (iii) the Equity Market Capitalization of the Trust is less than $100 million at any time on or after one year from the date of this Agreement; or (iv) the Trust acquires any property other than through the Partnership, unless acquired by the Trust and contributed to the Partnership. (c) Upon expiration or termination of the term, all rights and obligations of the parties hereto shall terminate, except as provided with respect to Section 2(iv) above and except for any rights arising out of the breach by a party hereto of its obligations hereunder. 8. Definitions. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 8 and shall be equally applicable to both singular and plural forms. "Current Market Price" of a Common Share shall be determined as follows: (i) If the Common Shares are listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on The Nasdaq Stock Market, the Current Market Price shall be the last reported sale price of the Common Shares on such exchange or system on the last business day prior to the valuation date, or if no such sale is made on such day, the average closing bid and asked prices of the Common Shares for such day on such exchange or system; or -4- 5 (ii) If the Common Shares are not so listed or admitted to unlisted trading privileges, the Current Market Price shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc., on the last business day prior to the valuation date; or (iii) If the Common Shares are not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the Current Market Price per Common Share shall be an amount, not less than 90% of the book value per Common Share as at the end of the most recent fiscal year of the Trust ending prior to the valuation date, determined in such reasonable manner as may be prescribed in good faith by the Board of Trustees. "Equity Market Capitalization" means the product of (A) the Current Market Price of a Common Share and (B) the number of outstanding Common Shares assuming the conversion of all outstanding Convertible Preferred Shares and all Class A Units of the Partnership. "Funds From Operations" means net income (loss), excluding extraordinary items, gains and losses from sales of property, plus depreciation and amortization and other non-cash charges and similar adjustments for unconsolidated subsidiaries, all as calculated in accordance with generally accepted accounting principles applied on a consistent basis with past periods. "Primary Market Area" means Bucks, Chester, Delaware and Montgomery counties in Pennsylvania; Burlington, Camden, Gloucester, Mercer and Salem counties in New Jersey; and New Castle county in Delaware. "Related Party Transaction" means any transaction involving the Trust or the Partnership and any of their officers, trustees, partners or holders of more than five percent of beneficial interests or partnership interests, as the case may be, which would be required to be disclosed under Items 402 or 404 of Regulation S-K. "Secondary Offering" means an underwritten primary public offering of Common Shares pursuant to a registration statement on Form S-11 declared effective by the Securities and Exchange Commission which results in gross proceeds to the Trust (prior to reduction for the underwriters' discount) of at least $50 million. 9. Specific Performance and Remedies. The parties to this Agreement acknowledge and agree that irreparable damage would occur to the aggrieved party in the event that any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached, and acknowledge and agree that termination of this Agreement and monetary damages would not provide adequate remedies. It is accordingly agreed that each of the parties shall be entitled to injunctive relief to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States in addition to any other remedy to which it may be entitled at law or in equity, including, without limitation, monetary damages. -5- 6 10. Expenses. All fees and expenses incurred by any party hereto shall be borne by the party incurring them; provided that the Trust shall reimburse the Holder for the legal fees and expenses incurred by it in connection with the preparation and negotiation of this Agreement; and provided further that, if any party incurs expenses in an effort to enforce compliance by another party of its obligations hereunder and prevails in such effort, the prevailing party shall be entitled to recover such expenses from such other party. 11. Entire Agreement. This Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, whether oral or written, among the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but may be amended only by an instrument in writing signed by each of the parties hereto. 12. Counterparts. For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties hereto. Each such executed counterpart shall be, and shall be deemed, an original instrument, and all such executed counterparts shall be deemed to be one and the same instrument. 13. Notices. All notices given hereunder shall be in writing and delivered personally, or sent by telex, telecopier or registered mail, postage prepaid, or by overnight delivery service, addressed as follows: If to The Trust: Brandywine Realty Trust 16 Campus Boulevard Suite 150 Newtown Square, PA 19073 Attention: Gerald A. Sweeney, President Telecopier No. (610) 325-5622 With a copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103 Attention: Michael H. Friedman, Esquire Telecopier No. (215) 981-4750 -6- 7 If to The Holder: RAI Real Estate Advisers, Inc. 259 Radnor-Chester Road Suite 200 Radnor, PA 19087 Attention: Richard K. Layman, President Telecopier No. (610) 964-0830 With a copy to: Wolf, Block, Schorr and Solis-Cohen Twelfth Floor Packard Building S.E. Corner 15th and Chestnut Streets Philadelphia, PA 19102 Attention: Jason M. Shargel, Esquire Telecopier No. (215) 977-2346 or to such other address, or such telex or telecopier number, as any party may, from time to time, designate in a written notice given in like manner. Notice given by overnight delivery service shall be deemed delivered on the day following the date the same is accepted for next day delivery by said service. Notice delivery by telecopier shall be deemed to be delivered when transmitted. Notice delivered personally shall be deemed to be delivered when delivered to the addressee. 14. Choice of Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without reference to the conflict of laws principles thereof. 15. Headings. The headings in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. 16. No Waiver. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 17. Severability. If any clause, provision or section of this Agreement is held illegal or invalid by any court, the illegality or invalidity of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid clause, provision or section had not been contained herein. In case any agreement or obligation contained in this Agreement is held to be in violation of law, then such agreement or obligation shall be deemed -7- 8 to be the agreement or obligation of the applicable party hereto only to the full extent permitted by law. 18. Non-Recourse. No recourse shall be had for any obligation of the Trust hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future trustee, shareholder, officer or employee of the Trust, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BRANDYWINE REALTY TRUST By:__________________________ Gerard H. Sweeney, President RAI REAL ESTATE ADVISERS, INC. as voting trustee of a voting trust dated November 6, 1996 By:__________________________ -8- EX-10.45 13 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.45 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and entered into as of this __ day of __________ ___, 1996 by and among BRANDYWINE REALTY TRUST, a Maryland real estate investment trust (the "Company"), RAI REAL ESTATE ADVISERS, INC. ("RAI"), as the voting trustee of a voting trust executed by the Commonwealth of Pennsylvania State Employes' Retirement System as shareholder and RAI as voting trustee dated as of November 6, 1996 (the "Voting Trust"). BACKGROUND Pursuant to a Contribution Agreement, dated November 6, 1996, by and among, inter alia, the Company and the Voting Trust (the "Contribution Agreement"), the Company has issued to the Voting Trust (a) ________ shares of the Company's Series A Convertible Preferred Shares (the "Preferred Shares"), par value $.01 per share, and may issue additional Preferred Shares on June 10, 1998, and December 31, 1999 (such issued and issuable Preferred Shares are collectively referred to as the "Property Shares") and (b) a warrant (the "Warrant") to purchase 400,000 shares of the Company's common shares of beneficial interest par value $.01 per share (the "Common Stock"). Pursuant to a Securities Purchase Agreement dated as of November 6, 1996 by and between the Company and the Voting Trust (the "Securities Purchase Agreement"), the Company is obligated to issue to the Voting Trust additional Common Stock or Preferred Shares (the "Additional Shares"). To induce the Voting Trust to enter into the foregoing transactions, the Company has agreed to provide it with the registration rights set forth in this Agreement. 1. CERTAIN DEFINITIONS. In addition to the other terms defined in this Agreement, the following terms shall be defined as follows: "Additional Holders" means the Persons who have registration rights with respect to certain securities of the Company pursuant to either of the Additional Registration Rights Agreements. "Additional Registration Rights Agreements" means that certain Registration Rights Agreement dated August 22, 1996 to which the Company is a party and the Registration Rights Agreement which the Company will enter into with Morgan Stanley Institutional Fund, Inc. - U.S. Real Estate Portfolio and Morgan Stanley SICAV Subsidiary, SA. 2 "Additional Securities" means those securities of the Company which are or become subject to the registration provisions of either of the Additional Registration Rights Agreements. "Brokers Transactions" has the meaning ascribed to such term pursuant to Rule 144 under the Securities Act. "Business Day" means any day on which the American Stock Exchange is open for trading. "Closing Date" means the date of closing under the Contribution Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. "Fair Market Value" means: (a) If the Registrable Security is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on The NASDAQ Stock Market, the fair market value shall be the last reported sale price of the Registrable Security on such exchange or system on the last business day prior to the date the determination of fair market value is made, or if no such sale is made on such day, the average closing bid and asked prices of the Registrable Security for such day on such exchange or system; or (b) If the Registrable Security is not so listed or admitted to unlisted trading privileges, the fair market value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc., on the last business day prior to the date the determination of fair market value is made; or (c) If the Registrable Security is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the fair market value per share shall be an amount, not less than 90% of the book value per share of the Registrable Security as at the end of the most recent fiscal year of the Company ending prior to the date the determination of fair market value is made, determined in such reasonable manner as may be prescribed in good faith by the Board of Trustees of the Company. "Holders" means the Voting Trust for so long as (and to the extent that) it owns any Registrable Securities, and its successors, assigns, and direct and indirect transferees who become registered owners of Registrable Securities or securities exercisable, exchangeable or convertible into Registrable Securities. "Outstanding" means with respect to any securities as of any date, all such securities theretofore issued, except any such securities theretofore converted, exercised or -2- 3 canceled or held by the issuer or any successor thereto (whether in its treasury or not) or any affiliate of the issuer or any successor thereto. "Person" means an individual, a partnership (general or limited), corporation, limited liability company, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. "Registrable Security(ies)" means (i) all or any portion of the Additional Shares (to the extent they are shares of Common Stock), (ii) all or any portion of any shares of Common Stock that may be issued upon conversion of, or in exchange for, the Property Shares or the Additional Shares (to the extent they are Preferred Shares), (iii) all or any portion of any shares of Common Stock that may be issued upon the exercise of, or in exchange for, the Warrant, (iv) any additional shares of Common Stock or other equity securities of the Company issued or issuable after the Closing Date in respect of any such securities (or other equity securities issued in respect thereof) by way of a stock dividend or stock split, in connection with a combination, exchange, reorganization, recapitalization or reclassification of Company securities, or pursuant to a merger, division, consolidation or other similar business transaction or combination involving the Company, and (v) any other shares of Common Stock obtained in open market transactions or otherwise; provided that in the case of equity securities other than Common Stock such securities are registered under Section 12(b) or Section 12(g) of the Exchange Act; and further provided that: as to any particular Registrable Securities, such securities shall cease to constitute Registrable Securities (i) when a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of thereunder; or (ii) when such securities shall have ceased to be issued and outstanding. Any time this Agreement requires the vote or consent of the Holder of a "majority" or other stated percentage of the Registrable Securities, the term Registrable Securities shall, solely for purposes of calculating such vote, be deemed to include the Registrable Securities that could be issued under the Preferred Shares and the Warrant and any other securities exercisable or exchangeable for, or convertible into, Registrable Securities. The term Registrable Securities shall not include the Preferred Shares or the Warrant. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with the registration requirements set forth in this Agreement including, without limitation, the following: (i) the fees, disbursements and expenses of the Company's counsel(s), accountants, and experts in connection with the registration under the Securities Act of Registrable Securities; (ii) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto, and the mailing and delivering of copies thereof to the underwriters and dealers, if any; (iii) the cost of printing or producing any agreement(s) among underwriters, underwriting agreement(s) and blue sky or legal investment memoranda, any selling agreements, and any other documents in connection -3- 4 with the offering, sale or delivery of Registrable Securities to be disposed of; (iv) any other expenses in connection with the qualification of Registrable Securities for offer and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of Registrable Securities to be disposed of and any blue sky registration or filing fees, and (vi) the fees and expenses incurred in connection with the listing of Registrable Securities on each securities exchange (or The NASDAQ Stock Market) on which Company securities of the same class are then listed; provided, however, that Registration Expenses with respect to any registration pursuant to this Agreement shall not include (x) expenses incurred by any Holder in connection with any offering, including the fees and expenses of counsel, accountants, and experts retained by such Holder (other than the fees and expenses of one counsel for the Holders as and to the extent provided in Article 10), (y) any underwriting discounts or commissions attributable to Registrable Securities, or (z) any transfer taxes applicable to Registrable Securities. "SEC" means the United States Securities and Exchange Commission, or such other federal agency at the time having the principal responsibility for administering the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. "Shelf Registration Statement" means a Shelf Registration Statement of the Company pursuant to the provisions of Section 2(b) of this Agreement which covers Common Stock on an appropriate form then permitted by the SEC to be used for such registration and the sales contemplated to be made thereby, under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such Registration Statement, including pre- and post-effective amendments thereto, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Shelf Registration" means a registration of Common Stock effected pursuant to Section 2(b) hereof. "Trading Day" means a day on which the principal securities exchange or stock market on which the applicable security is traded is open for the transaction of business. 2. DEMAND REGISTRATION; SHELF REGISTRATION. (a) (i) A Holder or Holders may request at any time (by written notice delivered to the Company) that the Company register under the Securities Act all or any portion of the Registrable Securities held by (or then issuable to) such Holder or Holders (the "Requesting Holders"), representing in the aggregate not less than twenty percent of the Registrable -4- 5 Securities, for sale in the manner specified in such notice (including, but not limited to, an underwritten public offering); provided, however, that no such request may be made when the Voting Trust would be prohibited from selling Registrable Securities pursuant to an effective registration statement under the Securities Act by the terms of the Standstill Agreement, dated the Closing Date, between the Company and the Voting Trust; provided further, however, that no such request shall be made prior to one hundred twenty (120) days after the date that the Company's Registration Statement on Form S-11 (File No. 333-13969)(the "1996 Registration Statement") has been declared effective by the SEC. In each such case, such notice shall specify the number of Registrable Securities for which registration is requested, the proposed manner of disposition of such securities, and the minimum price per share at which the Requesting Holders would be willing to sell such securities in an underwritten offering. The Company shall, within five (5) Business Days after its receipt of any Requesting Holders' notice under this Section 2(a)(i), give written notice of such request to all other Holders and all Additional Holders and afford them the opportunity of including in the requested registration statement such of their Registrable Securities or Additional Securities, as the case may be, as they shall specify in a written notice given to the Company within twenty (20) days after their receipt of the Company's notice. Within ten (10) Business Days after the expiration of such twenty (20) day period, the Company shall notify all Holders and all Additional Holders requesting registration of (A) the aggregate number of Registrable Securities or Additional Securities, as the case may be, proposed to be registered by all Holders and all Additional Holders, (B) the proposed filing date of the registration statement, and (C) such other information concerning the offering as any Holder or Additional Holder may have reasonably requested. If the Holders of a majority in aggregate amount of the Registrable Securities to be included in such offering shall have requested that such offering be underwritten, the managing underwriter for such offering shall be chosen by the Holders of a majority in aggregate amount of the Registrable Securities being registered, with the consent of the Company, which consent shall not be unreasonably withheld, not less than thirty (30) days prior to the proposed filing date stated in the Company's notice, and the Company shall thereupon promptly notify such Holders, and any Additional Holders to be included in such offering, as to the identity of the managing underwriter, if any, for the offering. On or before the 30th day prior to such anticipated filing date, any Holder or Additional Holder may give written notice to the Company and the managing underwriter specifying either that (A) Registrable Securities or Additional Securities, as the case may be, of such Holder or Additional Holder are to be included in the underwriting, on the same terms and conditions as the securities otherwise being sold through the underwriters under such registration or (B) such Registrable Securities or Additional Securities, as the case may be, are to be registered pursuant to such registration statement and sold in the open market without any underwriting, on terms and conditions comparable to those normally applicable to offerings in reasonably similar circumstances, regardless of the method of disposition originally specified in Holder's or Additional Holder's request for registration. To the extent that any or all of the Registrable Securities to be included in any registration pursuant to this Section 2(a)(i) or any other provision of this Agreement are to be issued upon conversion, exercise or exchange of other securities, there shall be no obligation for any Holder to effect any such conversion, exercise or exchange until immediately prior to the closing of the sale of such Registrable Securities. -5- 6 (ii) The Company shall use its commercially reasonable best efforts to file with the SEC within eighty (80) days (thirty (30) days if the Company may use a Registration Statement on Form S-3 to register such Registrable Securities) after the Company's receipt of the initial Requesting Holders' written notice pursuant to Section 2(a)(i), a registration statement for the public offering and sale, in accordance with the method of disposition specified by such Holders, of the number of Registrable Securities specified in such notice, and thereafter use its commercially reasonable best efforts to cause such registration statement to become effective within sixty (60) days after its filing. Such registration statement may be on Form S-1 or Form S-11 or another appropriate form (including Form S-3) that the Company is eligible to use and that is reasonably acceptable to the managing underwriter; provided, however, that if any Form other than Form S-1 or Form S-11 is used in an underwritten offering, upon the request of the managing underwriter, or the selling shareholders, the prospectus included in the registration statement shall be amplified to include such additional information as such persons may reasonably request regarding the Company, its business and management (including, without limitation, the information called for by Items 101, 102, 103, 201, 202, 301 and 303 of Regulation S-K under the Securities Act). (iii) The Company shall not have any obligation hereunder (A) to permit or participate in more than two offerings pursuant to this Section 2(a), or (B) to register any Registrable Securities under this Section 2(a) unless it shall have received requests from Holders to register at least 20% of the aggregate Registrable Securities issued at the date hereof. (iv) If the Company is required to use commercially reasonable best efforts to register Registrable Securities and Additional Securities in a registration initiated upon the demand of any Holder pursuant to Section 2(a) of this Agreement and the managing underwriters for such offering advise that the inclusion of all securities sought to be registered by the Holders and Additional Holders may interfere with an orderly sale and distribution of or may materially adversely affect the price of such offering, then, unless all such Holders and Additional Holders otherwise notify the Company in writing, the aggregate number of Registrable Securities and Additional Securities included by the Holders and Additional Holders in such offering shall be reduced to a number which the managing underwriters advise will not likely have such effect and the maximum number of Registrable Securities and Additional Securities able to be included in such offering by each Holder and Additional Holder shall be reduced giving first preference to all Registrable Securities before any Additional Securities are included and thereafter pro rata (in accordance with such Holder's or Additional Holder's, as the case may be, proportionate share of all Registrable Securities and Additional Securities duly requested to be included in such registration). (b) At any time during the 60-day period following the end of any fiscal year of the Company, other than the fiscal year in which a registration statement is to be filed pursuant to Section 2(a) (except that the registration pursuant to a Deemed Additional Share Request shall not be subject to such limitation), any Holder or Holders may request in writing that the Company register under the Securities Act all or any portion of the Registrable Securities held by (or then issuable to) such Requesting Holders for sale pursuant to a Shelf Registration Statement; provided that any distribution or sale pursuant to any such Shelf Registration shall be limited to Brokers' Transactions or other transactions that do not involve -6- 7 an underwritten public offering. By closing under the Securities Purchase Agreement, the Voting Trust shall be deemed to have made (as of the date of such closing) a request under Section 2(b) (the "Deemed Additional Share Request") that the Company register for sale pursuant to a Shelf Registration Statement all Additional Shares (or, if applicable, all shares of Common Stock issuable upon conversion of the Additional Shares). The Company shall, within five (5) Business Days after its receipt of any Requesting Holders' notice under this Section 2(b), give written notice of such request to all other Holders and all Additional Holders and afford them the opportunity of including in the requested Shelf Registration Statement such of their Registrable Securities or Additional Securities, as the case may be, as they shall specify in a written notice given to the Company within twenty (20) days after their receipt of the Company's notice. The Company shall thereupon use its commercially reasonable best efforts to file the Shelf Registration Statement with the SEC within sixty (60) days after its receipt of the initial Requesting Holders' notice and to cause such registration statement to be declared effective within sixty (60) days after its filing (or in the case of the Deemed Additional Share Request, the earlier of 60 days after filing or March 31, 1997); provided, however, that the Company shall not be required (A) to effect more than one registration pursuant to this Section 2(b) in any fiscal year for Holders, or (B) to effect any registration pursuant to this Section 2(b) during the fiscal year during which Registrable Securities are registered pursuant to Section 2(a) of this Agreement, or (C) to register any Registrable Securities under this Section 2(b) (other than pursuant to the Deemed Additional Share Request) unless it shall receive requests from Holders to register at least 10% of the aggregate Registrable Securities issued at the date hereof. The Company shall use its commercially reasonable best efforts to keep such Shelf Registration Statement (or, if required hereunder, a successor Shelf Registration Statement filed pursuant to Section 2(d) below) continuously effective in order to permit the prospectus forming a part thereof to be usable by Holders and Additional Holders until all securities included in such Shelf Registration Statement have ceased to be Registrable Securities or Additional Securities, as the case may be, (the "Lapse Date"). (c) Notwithstanding any other provision of this Agreement, the Company shall have the right to defer the filing or effectiveness of a registration statement relating to any registration requested under Section 2(a) for a reasonable period of time not to exceed 180 days if (x) the Company is, at such time, working on an underwritten, primary public offering of its securities and is advised by its managing underwriter(s) that such offering would in its or their opinion be materially adversely affected by such filing; or (y) a prior registration statement of the Company for an underwritten, primary public offering by the Company of its securities was declared effective by the SEC less than 120 days prior to the anticipated effective date of the requested registration. (d) If the Company is precluded by Rule 415 or any other applicable rule under the Securities Act from including all Registrable Securities and Additional Securities in any Shelf Registration or from keeping any Shelf Registration Statement continuously effective from the filing date thereof through the Lapse Date, the Company shall file such additional or further Shelf Registration Statements, as may be required, so that, subject to the other provisions of this Agreement, all Registrable Securities and Additional Securities requested to be included are included on a continuously effective Shelf Registration Statement for substantially all of the period from the filing date of the first Shelf Registration Statement through the Lapse Date. -7- 8 (e) Neither the Company nor any Person other than a Holder or an Additional Holder shall be entitled to include any securities held by it or him in any underwritten offering pursuant to Section 2(a) of this Agreement. (f) No registration of Registrable Securities under this Article 2 shall relieve the Company of its obligation (if any) to effect registrations of Registrable Securities pursuant to Article 3. 3. INCIDENTAL REGISTRATION. (a) Until all securities subject to this Agreement have ceased to be Registrable Securities, if the Company proposes, other than pursuant to Article 2 hereof and other than pursuant to the 1996 Registration Statement, to register any of its Common Stock or other securities issued by it having terms substantially similar to Registrable Securities or any successor securities (collectively, "Other Securities") for public sale under the Securities Act (whether proposed to be offered for sale by the Company or by any other Person) on a form and in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will give prompt written notice (which notice shall specify the intended method or methods of disposition) to the Holders and the Additional Holders of its intention to do so, and upon the written request of any Holder or Additional Holder delivered to the Company within fifteen (15) Business Days after the giving of any such notice (which request shall specify the number of Registrable Securities or Additional Securities, as the case may be, intended to be disposed of by such Holder or Additional Holder), the Company will use its commercially reasonable best efforts to effect, in connection with the registration of the Other Securities, the registration under the Securities Act of all Registrable Securities and Additional Securities which the Company has been so requested to register by Holders and Additional Holders; provided, however, that: (i) if, at any time after giving such written notice of its intention to register Other Securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such Other Securities, the Company may, at its election, give written notice of such determination to the Holders and Additional Holders requesting registration and thereupon the Company shall be relieved of its obligation to register such Registrable Securities and Additional Securities in connection with the registration of such Other Securities (but not from its obligation to pay Registration Expenses to the extent incurred in connection therewith as provided in Article 11), without prejudice, however, to the rights (if any) of the Holders to request that such registration be effected as a registration under Article 2; and (ii) the Company will not be required to effect any registration of Registrable Securities or Additional Securities pursuant to this Article 3 in connection with a primary offering of securities by it if the Company shall have been advised in writing (with a copy to the Holders requesting registration) by a nationally recognized investment banking firm (which may be the managing underwriter for the offering) selected by the Company that, in such firm's opinion, a registration of Registrable Securities and Additional Securities at that time may interfere with an orderly sale and distribution of the securities being sold by the Company in such offering or materially and adversely affect the price of such securities; provided, however, -8- 9 that if an offering of some but not all of the Registrable Securities and Additional Securities requested to be registered by the Holders and Additional Holders would not adversely affect the distribution or price of the securities to be sold by the Company in the offering in the opinion of such firm or are included in such offering notwithstanding any such opinion, the Company shall only include such lesser amount of Registerable Securities and Additional Securities and the aggregate number of Registerable Securities and Additional Securities to be included in such offering by each Holder and Additional Holder shall be allocated pro rata among the Holders and Additional Holders requesting such registration on the basis of the percentage of the securities held by such Holders and Additional Holders which have requested that such securities be included; provided further, however, that a registration under this Article 3 pursuant to demand registration rights of any Additional Holders shall be treated as a primary offering for purposes of this clause (ii) with the result that the applicable Additional Holders shall be entitled to the same priority with respect to the Holders to which the Company is entitled as provided above; and (iii) The Company shall not be required to give notice of, or effect any registration of Registrable Securities under this Article 3 incidental to, the registration of any of its securities in connection with mergers, consolidations, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock options or other employee benefit or compensation plans. (b) No registration of Registrable Securities effected under this Article 3 shall relieve the Company of its obligations (if any) to effect registrations of Registrable Securities pursuant to Article 2. 4. HOLDBACKS AND OTHER RESTRICTIONS. (a) Each Holder hereby covenants and agrees with the Company that: (i) such Holder shall not, if requested by the managing underwriters in an underwritten offering that includes such Holder's Registrable Securities, effect any public sale or distribution of securities of the Company of the same class as the securities included in such registration statement (or convertible into such class), including a sale pursuant to Rule 144(k) under the Securities Act (except as part of such underwritten registration): (A) during the ninety (90)-day period (or such longer period of not more than one hundred eighty (180) days if such longer period is also required by the managing underwriters of the Company and all other Persons having securities included in such registration) beginning on the effective date of such registration statement, to the extent timely notified in writing by the Company or the managing underwriters; and (B) in the event of a primary offering by the Company, to the extent such Holder does not elect to sell such securities in connection with such offering, during the period of distribution of the Company's securities in such offering and during the period in which the underwriting syndicate, if any, participates in the aftermarket. In any such case the Company shall require the underwriters to notify the Company and the Company, in turn, shall notify all Holders of Registrable Securities included in the offering promptly after such participation ceases; -9- 10 (ii) such Holder shall not, during any period in which any of his or its Registrable Securities are included in any effective registration statement: (A) effect any stabilization transactions or engage in any stabilization activity in connection with the Common Stock or other equity securities of the Company in contravention of Rule 10b-7 under the Exchange Act; (B) permit any Affiliated Purchaser (as that term is defined in Rule 10b-6 under the Exchange Act) to bid for or purchase for any account in which such Holder has a beneficial interest, or attempt to induce any other person to purchase, any shares of Common Stock or Registrable Securities in contravention of Rule 10b-6 under the Exchange Act; or (C) offer or agree to pay, directly or indirectly, to anyone any compensation for soliciting another to purchase, or for purchasing (other than for such Holder's own account), any securities of the Company on a national securities exchange in contravention of Rule 10b-2 under the Exchange Act; and (iii) such Holder shall, in the case of a registration including Registrable Securities to be offered by it for sale through Brokers Transactions, furnish each broker through whom such Holder offers Registrable Securities such number of copies of the prospectus as the broker may require and otherwise comply with the prospectus delivery requirements under the Securities Act. (b) The Company covenants and agrees with the Holders not to effect any public or private sale or distribution (other than distributions pursuant to employee benefit plans) of its securities, including a sale pursuant to Regulation D under the Securities Act (or Section 4(2) thereof), during the ten (10) day period prior to, and during the ninety (90) day period beginning with, the effectiveness of a Registration Statement filed under Section 2(a) hereof, to the extent timely requested in writing by the managing underwriters, if any, or, if there be none, by the Holders of a majority in aggregate amount of the Registrable Securities included on such registration statement for such registration, except pursuant to registrations on Form S-4, Form S-8 or any successor form. 5. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of this Agreement to use commercially reasonable best efforts to effect or cause a registration as provided in this Agreement, the Company will: (a) Use its commercially reasonable best efforts to prepare and file with the SEC, a registration statement within the time periods specified herein, and use its commercially reasonable best efforts to cause such registration statement to become effective as promptly as practicable and to remain effective under the Securities Act until (i) the Lapse Date with respect to registrations pursuant to Section 2(b) and (ii) until the earlier of such time as all securities covered thereby are no longer Registrable Securities or one hundred and eighty (180) days after such registration statement becomes effective with respect to registrations pursuant to Section 2(a), in every case as any such period may be extended pursuant to Section 5(h) hereto. (b) Prepare and file (and, if applicable, cause to become effective) with the SEC, as promptly as practicable, such amendments, post-effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be -10- 11 necessary to keep such registration statement effective for such period of time required by Section 5(a) above, as such period may be extended pursuant to Section 5(h) hereto. (c) Comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during the period during which any such registration statement is required to be effective. (d) Furnish to any Holder and any underwriter of Registrable Securities, (i) such number of copies (including manually executed and conformed copies) of such registration statement and of each amendment thereof and supplement thereto (including all annexes, appendices, schedules and exhibits), (ii) such number of copies of the prospectus used in connection with such registration statement (including each preliminary prospectus, any summary prospectus and the final prospectus), and (iii) such number of copies of other documents, in each case as such Holder or such underwriter may reasonably request. (e) Use its commercially reasonable best efforts to register or qualify all Registrable Securities covered by such registration statement under the securities or "blue sky" laws of states of the United States as any Holder or any underwriter shall reasonably request, and do any and all other acts and things which may be reasonably requested by such Holder or such underwriter to consummate the offering and disposition of Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally to do business as a foreign corporation or as a dealer in securities, subject itself to taxation, or consent to general service of process in any jurisdiction wherein it is not then so qualified or subject. (f) Use, as soon as practicable after the effectiveness of the registration statement, commercially reasonable best efforts to cause the Registrable Securities covered by such registration statement to be registered with, or approved by, such other United States public, governmental or regulatory authorities, if any, as may be required in connection with the disposition of such Registrable Securities. (g) Use its commercially reasonable best efforts to list the Common Stock covered by such registration statement on any securities exchange (or if applicable, The NASDAQ Stock Market) on which any securities of the Company are then listed, if the listing of such Registrable Securities in then permitted under the applicable rules of such exchange (or if applicable, The NASDAQ Stock Market). (h) Notify each Holder as promptly as practicable and, if requested by any Holder, confirm such notification in writing, (i) when a prospectus or any prospectus supplement has been filed with the SEC, and, with respect to a registration statement or any post-effective amendment thereto, when the same has been declared effective by the SEC, (ii) of the issuance by the SEC of any stop order or the coming to the Company's attention of the initiation of any proceedings for such or a similar purpose, (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (iv) of the occurrence of any event which requires the making of any changes to a registration statement or related prospectus so that such documents will not contain any untrue statement of a material -11- 12 fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to each Holder a reasonable number of copies of a supplemented or amended prospectus such that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading), and (v) of the Company's determination that the filing of a post-effective amendment to the Registration Statement shall be necessary or appropriate. Upon the receipt of any notice from the Company of the occurrence of any event of the kind described in clause (iv) or (v) of this Section 5(h), the Holders shall forthwith discontinue any offer and disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until all Holders shall have received copies of a supplemented or amended prospectus which is no longer defective and, if so directed by the Company, shall deliver to the Company, at the Company's expense, all copies (other than permanent file copies) of the defective prospectus covering such Registrable Securities which are then in the Holders' possession. If the Company shall provide any notice of the type referred to in the preceding sentence, the period during which the registration statements are required to be effective as set forth under Section 5(a) shall be extended by the number of days from and including the date such notice is provided, to and including the date when Holders shall have received copies of the corrected prospectus. (i) Enter into such agreements and take such other appropriate actions as are customary and reasonably necessary to expedite or facilitate the disposition of such Registrable Securities, and in that regard, deliver to the Holders such documents and certificates as may be reasonably requested by any Holder of the Registrable Securities being sold or, as applicable, the managing underwriters, to evidence the Company's compliance with this Agreement including, without limitation, using commercially reasonable best efforts to cause its independent accountants to deliver to the Company's Board of Trustees (and to the Holders of Registrable Securities being sold in any registration) an accountants' comfort letter substantially similar to that in scope delivered in an underwritten public offering and covering audited and interim financial statements included in the registration statement or, if such letter cannot be obtained through the exercise of commercially reasonable best efforts, cause its independent accountants to deliver to the Company's Board of Trustees (and to the Holders of Registrable Securities being sold in any registration) a comfort letter based on negotiated procedures providing comfort with respect to the Company's financial statements included or incorporated by reference in the registration statement at the highest level permitted to be given by such accountants under the then applicable standards of the Association of Independent Certified Accountants with respect to such registration statement. In addition, the Company shall furnish to the Holders of Registrable Securities being included in any registration hereunder an opinion of counsel substantially identical in substance and scope to that customarily delivered to underwriters in public offerings. -12- 13 6. UNDERWRITING. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration hereunder, the Company will enter into and perform its obligations under an underwriting agreement with the underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, customary provisions relating to indemnities and contribution and the provision of opinions of counsel and accountants' letters. (b) If any registration pursuant to Article 3 hereof shall involve, in whole or in part, an underwritten offering, the Company may require Registrable Securities requested to be registered pursuant to Article 3 to be included in such underwriting on the same terms and conditions as shall be applicable to the securities being sold through underwriters under such registration. In such case, each Holder requesting registration shall be a party to any such underwriting agreement. Such agreement shall contain such representations and warranties by the Holders requesting registration and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, provisions relating to indemnities and contribution. (c) In any offering of Registrable Securities pursuant to a registration hereunder, each Holder requesting registration shall also enter into such additional or other agreements as may be customary in such transactions, which agreements may contain, among other provisions, such representations and warranties as the Company or the underwriters of such offering may reasonably request (including, without limitation, those concerning such Holder, its Registrable Securities, such Holder's intended plan of distribution and any other information supplied by it to the Company for use in such registration statement), and customary provisions relating to indemnities and contribution. 7. RULE 144. The Company shall use commercially reasonable best efforts to take all actions necessary to comply with the filing requirements described in Rule 144(c)(1) or any successor thereto so as to enable the Holders to sell Registrable Securities without registration under the Securities Act. Upon the written request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with the filing requirements under Rule 144(c)(1) or any successor thereto. 8. PREPARATION; REASONABLE INVESTIGATION; INFORMATION. In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, (a) the Company will give the Holders and the underwriters, if any, and their respective counsel and accountants, drafts of such registration statement for their review and comment prior to filing and (during normal business hours and subject to such reasonable limitations as the Company may impose to prevent disruption of its business) such reasonable and customary access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent -13- 14 public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of the Holders of a majority in aggregate amount of the Registrable Securities being registered and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act and (b) as a condition precedent to including any Registrable Securities of any Holder in any such registration, the Company may require such Holder to furnish the Company such information regarding such Holder and the distribution of such securities as the Company may from time to time reasonably request in writing or as shall be required by law or the SEC in connection with any registration; provided, however, that, upon the reasonable request of the supplier of any such information, the recipient thereof shall enter into a confidentiality agreement respecting such information in customary form for an underwritten public offering. 9. INDEMNIFICATION AND CONTRIBUTION. (a) In the case of each offering of Registrable Securities made pursuant to this Agreement, the Company shall indemnify and hold harmless each Holder, its officers, directors and trustees, each underwriter of Registrable Securities so offered and each Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act ("Holder Indemnitees"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any violation or alleged violation by the Company of the Securities Act, or relating to action taken or action or inaction required of the Company in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) relating to the offering and sale of such Registrable Securities, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that the Company shall not be liable to any Holder Indemnitee in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement, or any omission, if such statement or omission shall have been made in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of such Holder specifically for use in the preparation of the registration statement (or in any preliminary or final prospectus included therein), or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Holder Indemnitee. (b) In the case of each offering of Registrable Securities made pursuant to this Agreement, each Holder, severally and not jointly, shall indemnify and hold harmless the Company, its officers and trustees, and each Person, if any, who controls any of the foregoing within the meaning of the Securities Act and (if requested by the underwriters) each underwriter -14- 15 who participates in the offering and each Person, if any, who controls any such underwriter within the meaning of the Securities Act (the "Company Indemnitees"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any violation or alleged violation by such Holder of the Securities Act, any blue sky laws, securities laws or other applicable laws of any state or country in which the Registrable Securities are offered and relating to action taken or action or inaction required of such Holder in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) relating to the offering and sale of such Registrable Securities or any amendment thereof or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement is contained in, or such fact is omitted from, information furnished in writing to the Company by or on behalf of such Holder specifically for use in the preparation of such registration statement (or in any preliminary or final prospectus included therein). The liability of each Holder under such indemnity provision (and under Section 9(d) below) shall be limited to an amount equal to the total net proceeds received by such Holder from such offering. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company and shall survive the transfer of such securities. The foregoing indemnity is in addition to any liability which Holder may otherwise have to any Company Indemnitee. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article 9, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 9(a) or (b) shall be available to any person who shall fail to give notice as provided in this Section 9(c) if the indemnifying party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 9(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and -15- 16 representation of both parties by the same counsel, in the written opinion of such counsel, would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by the Holders of a majority in aggregate Fair Market Value of the then Outstanding Registrable Securities in the case of parties indemnified pursuant to Section 9(a) and by the Company in the case of parties indemnified pursuant to Section 9(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgement for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Article 9 is unavailable to or insufficient to hold harmless an indemnified party under Section 9(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, or if the indemnified party failed to give the notice required under Section 9(c) above, then each indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in proportion as is appropriate to reflect not only both the relative benefits received by such party (as compared to the benefits received by all other parties) from the offering in respect of which indemnity is sought, but also the relative fault of all parties in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by a party shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by it bear to the total amounts (including, in the case of any underwriter, underwriting commission and discounts) received by each other party. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contributions pursuant to this Section 9(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. -16- 17 10. EXPENSES. In connection with any registration under this Agreement, the Company shall pay all Registration Expenses. In addition, in connection with each registration, the Company shall pay the reasonable fees and expenses of one counsel to represent the interests of the Holders selling Registrable Securities in such registration. Notwithstanding the foregoing, in the event that any Holder or Holders require the Company to conduct an underwritten public offering of Registrable Securities pursuant to Section 2(a) prior to 12 months after the date hereof, each such Holder or Holders shall pay its pro rata share of all Registration Expenses. 11. NOTICES. Except as otherwise provided below, whenever it is provided in this Agreement that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties hereto, or whenever any of the parties hereto, desires to provide to or serve upon the other party any other communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be delivered in person, mailed by registered or certified mail (return receipt requested) or sent by overnight courier service or via facsimile transmission (which is confirmed), as follows: (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Article 11, which address initially is, with respect to the Voting Trust, the address set forth in the Securities Purchase Agreement; and (b) if to the Company, initially at the address set forth in the Securities Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Article 11. The furnishing of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly furnished or served on the party to which it is addressed, in the case of delivery in person or by facsimile, on the date when sent (with receipt personally acknowledged in the case of telecopied notice), in the case of overnight mail, on the day after it is sent and in all other cases, five business days after it is sent. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 12. ENTIRE AGREEMENT. This Agreement represents the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes any and all prior oral and written agreements, arrangements and understandings among the parties hereto with respect to such subject matter; and this Agreement can be amended, supplemented or changed, and any provision hereof can be waived or a departure from any provision hereof can be consented to, only by a written instrument making specific reference to this Agreement signed by the Company and the Holders of at least 80% of the Registrable Securities then outstanding; provided that any amendment that adversely affects the rights of any Holder must be signed by the adversely -17- 18 affected Holder; provided further that any waiver must be signed by the party entitled to the benefit of the term or matter being waived. 13. ARTICLE HEADINGS. The article headings contained in this Agreement are for general reference purposes only and shall not affect in any manner the meaning, interpretation or construction of the terms or other provisions of this Agreement. 14. APPLICABLE LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts to be made, executed, delivered and performed wholly within such state and, in any case, without regard to the conflicts of law principles of such state. 15. SEVERABILITY. If at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. 16. EQUITABLE REMEDIES. The parties hereto agree that irreparable harm would occur in the event that any of the agreements and provisions of this Agreement were not performed fully by the parties hereto in accordance with their specific terms or conditions or were otherwise breached, and that money damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto in the event that this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. It is accordingly hereby agreed that the parties hereto shall be entitled to an injunction or injunctions to restrain, enjoin and prevent breaches of this Agreement by the other parties and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity. 17. NO WAIVER. The failure of any party at any time or times to require performance of any provision hereof shall not affect the right at a later time to enforce the same. No waiver by any party of any condition, and no breach of any provision, term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation or warranty of this Agreement. -18- 19 18. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same original instrument. 19. THIRD PARTY BENEFICIARIES; SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties hereto; and; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Securities Purchase Agreement, the Warrant, the Standstill Agreement of even date herewith between the Company and the Voting Trust, the Contribution Agreement or applicable law. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registerable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 21. NON-RECOURSE. No recourse shall be had for any obligation of the Company hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future trustee, shareholder, officer or employee of the Company, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. 22. OTHER REGISTRATION RIGHTS AGREEMENTS. The Company represents and warrants to the Holder that it (i) has not granted any registration rights to any Person other than to the Additional Holders pursuant to the Additional Registration Rights Agreements, and (ii) has caused to be amended all agreements relating to registration rights to which it is a party so that such agreements do not conflict with this Agreement, including without limitation Sections 2(a)(iv) and 3(a)(ii) hereof. The Company covenants and agrees that it will not grant any Person any registration rights that are in conflict with this Agreement. IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first above written. BRANDYWINE REALTY TRUST By:________________________________ Gerard H. Sweeney, President -19- 20 RAI REAL ESTATE ADVISERS, INC., as voting trustee of a voting trust dated November 6, 1996. By:___________________________________ Title: -20- EX-10.46 14 PLEDGE AGREEMENT 1 EXHIBIT 10.46 PLEDGE AGREEMENT PLEDGE AGREEMENT (the "Agreement") made as of this ___ day of __________, 1996 by and among RAI Real Estate Advisers, Inc. ("RAI"), as the voting trustee of a voting trust dated as of November 6, 1996 between the Commonwealth of Pennsylvania State Employes' Retirement System as shareholder and RAI as voting trustee ("Pledgor"), Brandywine Realty Trust, a Maryland real estate investment trust ("Pledgee") and ___________ ("Escrow Agent"). WITNESSETH: WHEREAS, as of the date hereof, pursuant to a Contribution Agreement dated November 6, 1996 by and among, inter alia, the Pledgor and Pledgee (the "Contribution Agreement"), the Pledgee has issued to the Pledgor shares of the Pledgee's Series A Convertible Preferred Shares (the "Preferred Shares"), par value $.01 per share; WHEREAS, pursuant to Sections 3.3 and 10.10 of the Contribution Agreement, any and all liability of Sellers (as defined in the Contribution Agreement) and the Pledgor under the Contribution Agreement, after the closing under the Contribution Agreement, is limited to and enforceable only against the Collateral (as defined below) on the terms set forth in this Agreement; and WHEREAS, pursuant to Section 10.14 of the Securities Purchase Agreement dated as of November 6, 1996 by and between the Pledgor and the Pledgee (the "Securities Purchase Agreement"), recourse for any liability or obligation of Pledgor thereunder is limited to the Collateral on the terms set forth in this Agreement. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agrees as follows: 1. Defined Terms. For purposes of this Agreement, the following terms shall have the meanings specified below and shall be equally applicable to both singular and plural forms. "Collateral" means, subject to Section 12 below, the Pledged Shares and, in the event the Pledged Shares are sold, transferred, assigned, exchanged or otherwise disposed of pursuant to Section 8 below, all proceeds from the sale, transfer, assignment, exchange or other disposition of the Pledged Shares or other replacement collateral which is reasonably satisfactory to Pledgee. "Event of Default" means either (i) a court of competent jurisdiction having entered a final judgment or (ii) a final resolution being reached by mediation or 2 arbitration pursuant to the dispute resolution provision in the Securities Purchase Agreement, against Pledgor in favor of Pledgee for an obligation or liability arising under the Contribution Agreement or the Securities Purchase Agreement. "Pledged Shares" means the ______Preferred Shares [$5,000,000 of Preferred Shares, based on $5.50 per Common Share into which the Preferred Shares are convertible] being delivered to the Escrow Agent pursuant to Section 4 below and the shares of the Pledgee's common shares of beneficial interest, par value $.01 per share, issued upon any conversion of such Preferred Shares. "Uniform Commercial Code" means the Uniform Commercial Code from time to time in effect in the Commonwealth of Pennsylvania and the Uniform Commercial Code of any other state which shall be applicable to the pledge of shares hereunder. 2. Pledge; Grant of Security Interest. The Pledgor hereby grants and confirms to Pledgee a first pledge and security interest in the Collateral, as collateral security for any and all liability of Sellers or Pledgor to Pledgee arising out of the Contribution Agreement or the Securities Purchase Agreement. 3. Appointment of Escrow Agent. Pledgor and Pledgee hereby appoint Escrow Agent as the escrow agent under this Agreement and Escrow Agent accepts such appointment in accordance with the provisions of this Agreement. 4. Share Transfer Powers. Pledgor hereby delivers to Escrow Agent, and Escrow Agent acknowledges receipt of, all certificates representing the Pledged Shares, with undated share transfer powers covering such certificates, duly executed in blank by the Pledgor. Such certificates, share transfer powers and any other Collateral subsequently delivered to Escrow Agent pursuant to this Agreement shall be held in escrow by Escrow Agent pursuant to the terms hereof. 5. Representations and Warranties. Pledgor represents and warrants that; (a) Pledgor has the power and authority and the legal right to grant the lien on the Collateral pursuant to this Agreement; (b) Pledgor is the record owner of, and has good and marketable title to, the Pledged Shares, free of any and all liens or options in favor of any other person, except the lien granted by this Agreement; (c) the lien granted and confirmed pursuant to this Agreement constitutes a valid, perfected priority lien on the Collateral, enforceable as such against all creditors of the Pledgor and any persons purporting to purchase any Collateral from the Pledgor; and (d) this Agreement constitutes the valid and binding obligations of Pledgor, enforceable against Pledgor in accordance with its terms, and the execution, delivery and performance of this Agreement does not violate any agreement or understanding to which Pledgor is a party or by which Pledgor is bound, or any applicable law, rule or regulation. 6. Covenants. Pledgor covenants and agrees with Pledgee that from and after the date of this Agreement and until the second anniversary of the date of the Securities -2- 3 Purchase Agreement (or, if on such second anniversary, a claim has been made by Pledgee pursuant to Section 16 (f) below, which, if resolved in Pledgee's favor, would result in an Event of Default, until such later date that such claim has been resolved) (the "Termination Date"): (a) If Pledgor shall, as a result of its ownership of the Pledged Shares, become entitled to receive or shall receive any share certificate as a result of a share dividend, share split or similar distribution on, or as a conversion of or in exchange for any of the Pledged Shares then constituting all or a portion of the Collateral, Pledgor shall immediately deliver the same to Escrow Agent in the exact form received, duly endorsed by the Pledgor to Pledgee, if required, together with an undated share transfer power covering such certificate duly executed in blank by the Pledgor to be held as part of the Collateral. (b) Without the prior written consent of Pledgee, the Pledgor will not create, incur or permit to exist any lien or option in favor of, or any claim of any person with respect to, the Collateral, or any interest therein, except for the lien provided for by this Agreement. The Pledgor will defend the right, title and interest of Pledgee in and to the Collateral against the claim and demands of all persons whom so ever. (c) At any time and from time to time upon the written request of, and at the expense of, Pledgee, the Pledgor will promptly and duly execute and delivery such further documents and take such further actions as Pledgee may reasonably request for the purposes of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall be immediately delivered to Pledgee, duly endorsed in a manner satisfactory to Pledgee, to be held as Collateral pursuant to this Agreement. (d) Pledgor agrees to pay, and to save Pledgee and Escrow Agent harmless from, any and all liability with respect to or resulting from any delay in paying, any and all stamp, exercise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. 7. Cash Dividends; Other Distributions; Voting Rights. Unless an Event of Default shall have occurred and Pledgee shall have given notice to Pledgor of Pledgee's intent to exercise one or more of its rights pursuant to Sections 9 and 10 below, Pledgor shall be permitted to receive all cash dividends and other distributions, if any, paid in respect of the Pledged Shares (except as provided in Section 6(a) above) and to exercise all voting and other rights with respect to the Pledged Shares. 8. Sale of Pledged Shares. Unless an Event of Default shall have occurred and Pledgee shall have given notice to Pledgor of Pledgee's intent to exercise one or more of its rights pursuant to Sections 9 and 10 below, Pledgor shall have the right to sell, transfer, assign, exchange or otherwise dispose of, or grant an option with respect to, any or all of the Pledged -3- 4 Shares provided Pledgee receives a security interest in the proceeds of the Pledged Shares or such other collateral as is satisfactory to Pledgee in its reasonable discretion. Pledgor, Pledgee and Escrow Agent shall cooperate with each other in order to accomplish any such transaction. 9. Rights of Pledgee. If an Event of Default shall occur: (i) Pledgee shall have the right to receive any and all cash dividends paid in respect of the Pledged Shares, and (ii) at Pledgee's option, all the Collateral shall be transferred into the name of Pledgee or its nominee, and Pledgee or its nominee may, at its option, thereafter exercise (A) all voting and other rights pertaining to the Collateral and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to the Collateral as if it were the absolute owner thereof, all without liability except to account for property actually received by it, but Pledgee shall have no duty to the Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. 10. Remedies. If an Event of Default shall have occurred which is then continuing, the Pledgee shall thereafter have all of the rights and remedies set forth in this Agreement and in the Contribution Agreement and of a Pledgee after default under the Uniform Commercial Code or other applicable law with respect to the Collateral and shall have the right, at any time or times thereafter to sell, resell, assign and deliver all or any part of the Collateral in one or more parcels at public or private sale. The Pledgee shall give Pledgee at least ten (10) days' prior written notice of the time and place of any public sale of any Collateral or of the time after which any private sale or any other intended disposition thereof is to be made. Any such notice shall be deemed to meet all requirements hereof and of any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition. All such sales shall be at such commercially reasonable price or prices as the Pledgee shall deem best and either for cash or on credit or for future delivery (without the Pledgee assuming any responsibility for credit risk). At any such sale or sales the Pledgee may purchase any or all of the Collateral to be sold thereat upon such terms as the Pledgee may deem best. The Pledgor shall not remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay the judgment causing the Event of Default and the reasonable fees and disbursements of any attorneys employed by Pledgee to collect such judgment. 11. Private Sales. The Pledgor recognizes that Pledgee may be unable to effect a public sale of any or all the Pledged Shares, by reason of certain prohibitions contained in the Securities Act of 1933 (the "Securities Act") and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Pledgee shall be under no obligation to delay a sale of any of -4- 5 the Pledged Shares for the period of time necessary to permit the Pledged Shares to be registered for public sale under the Securities Act, or under applicable state securities laws. 12. Return of Collateral. On the Termination Date (as defined in Section 6 above), the Escrow Agent shall return to Pledgor any remaining Collateral and this Agreement shall terminate. 13. Further Assurances. Pledgor agrees to cooperate with Pledgee and to execute and deliver, or cause to be executed and delivered, all such other instruments and to take all such actions as Pledgee may reasonably request from time to time which shall be appropriate or necessary in Pledgee's judgment in order to carry out the provisions and purposes of this Agreement. 14. Escrow Agent (a) Designation. Escrow Agent is designated by Pledgee to hold the Collateral and holds the Collateral on behalf of Pledgee for purposes of Articles 8 and 9 of the Uniform Commercial Code. (b) Limitation on Duties and Liability. Escrow Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9207 of the Uniform Commercial Code or otherwise, shall be to take reasonable steps to carry out the terms of this Agreement and to assure safekeeping of the Collateral while in Escrow Agent's possession. In no event, however, shall Escrow Agent have any duty to preserve rights in the Collateral against other parties and Escrow Agent shall not be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so. Escrow Agent shall not be liable for any actions undertaken in good faith or in reliance upon documents which it believes to be genuine. (c) Indemnification. Pledgor and Pledgee each agrees to indemnify and hold Escrow Agent harmless against any loss or liability (including reasonable attorneys' fees) incurred by Escrow Agent as a result of any dispute regarding the Collateral or in any way arising from the performance of its obligations under this Agreement, except for any loss or liability resulting from Escrow Agent's negligence or willful misconduct. (d) Resignation; Successor. Escrow Agent may resign from its obligations hereunder by written notice to Pledgor and Pledgee, such resignation to become effective upon the appointment of a successor escrow holder and the delivery to such successor escrow holder of the Collateral. Within 10 days following notice of Escrow Agent's intent to resign, the Pledgor and Pledgee shall jointly designate in writing a successor escrow holder. In the absence of such a designation by Pledgor and Pledgee, Escrow Agent may designate a successor escrow holder. The resigning Escrow Agent shall have no responsibility for the performance of failure of performance of any successor escrow holder hereunder, whether designated by Pledgor and Pledgee or by the resigning Escrow Agent. When the resignation of a -5- 6 resigning Escrow Agent shall become affective hereunder, such Escrow Agent shall be absolutely released and relieved from any and all liability arising thereafter under this Agreement. 15. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. 16. Miscellaneous. (a) Indulgences, Etc. Neither the failure nor any delay on the part of any party hereto to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and signed by the party asserted to have granted such waiver. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) Notices. All notices required or permitted hereunder shall be deemed given when delivered (personally or by recognized courier service such as Federal Express), or upon receipt by the party entitled to receive the notice two days after sent by registered or certified mail, postage prepaid, addressed as follows or to such other address or addresses as may hereafter be furnished in writing by notice similarly given by one party to the other: (i) If to Pledgor: RAI Real Estate Advisers, Inc. 259 Radnor-Chester Road Suite 200 Radnor, PA 19087 Attention: President -6- 7 With a copy to: Wolf, Block, Schorr and Solis-Cohen Twelfth Floor Packard Building S.E. Corner 15th and Chestnut Streets Philadelphia, PA 19102-2678 Attention: Jason M. Shargel, Esquire (ii) If to Pledgee: Brandywine Realty Trust 16 Campus Boulevard Suite 150 Newtown Square, PA 19073 Attention: President With a copy to: Pepper Hamilton & Scheetz 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103 Attention: Michael H. Friedman, Esquire (iii) If to Escrow Agent: ____________________________________ ____________________________________ ____________________________________ ____________________________________ Attention:__________________________ (d) Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither Pledgor nor Pledgee may assign or transfer any of their obligations under this Agreement without the consent of the other. (e) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. -7- 8 (f) Settlement of Disputes. Any and all controversies of every kind and nature between the parties hereto shall be resolved in accordance with the provisions set forth in Section 10.10 of the Securities Purchase Agreement. (g) Fees and Expenses of Escrow Agent. Pledgee shall pay all fees and expenses of the Escrow Agent hereunder. (h) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (i) Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course or performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by agreement in writing. (j) Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed and delivered as of the date first above written. BRANDYWINE REALTY TRUST By:___________________________________ Gerard H. Sweeney, President RAI REAL ESTATE ADVISERS, INC., as voting trustee of a voting trust dated November 6, 1996. By:___________________________________ -8- 9 [ESCROW AGENT] By:__________________________________ -9- EX-10.47 15 VOTING AGREEMENT 1 EXHIBIT 10.47 VOTING AGREEMENT VOTING AGREEMENT (the "Agreement") made as of this ___ day of _______________, 1996 by and among RAI Real Estate Advisers, Inc. ("RAI") as the voting trustee of a voting trust dated as of November 6, 1996 executed by the Commonwealth of Pennsylvania State Employes' Retirement System as shareholder and by RAI as voting trustee (the "Purchaser"), Safeguard Scientifics, Inc., a Pennsylvania corporation ("Safeguard"), Safeguard Scientifics (Delaware), Inc., a Delaware corporation ("SSD"), The Nichols Company, a Pennsylvania corporation ("TNC"), Anthony A. Nichols, Sr. ("Nichols"), The Richard M. Osborne Trust (the "RMO Trust") and Turkey Vulture Fund XIII, Ltd. (the "RMO Fund"). Safeguard, SSD, TNC, Nichols, the RMO Trust and the RMO Fund are sometimes referred to herein individually as a "Holder" and collectively as the "Holders." WHEREAS, the Holders own common shares of beneficial interest, par value $.01 per share (the "Shares") of the Brandywine Realty Trust, a Maryland real estate investment trust (the "Trust") and warrants (the "Warrants") exercisable for Shares; WHEREAS, the Trust has entered into (i) a Contribution Agreement (the "Contribution Agreement") dated November 6, 1996 by and among inter alia, the Trust and the Purchaser, and (ii) a Securities Purchase Agreement (the "Securities Purchase Agreement") dated November 6, 1996 between the Trust and the Purchaser. The Contribution Agreement and the Securities Purchase Agreement are together referred to herein as the "Transaction Agreements;" and WHEREAS, the Holders desire to enter into an agreement to be specifically enforceable against each of them, as an inducement to the Purchaser to consummate the transactions contemplated by the Transaction Agreements, pursuant to which the Holders, subject to the terms hereof, agree to vote the Shares in accordance with the terms of the Transaction Agreements; NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows: 1. Voting of Shares. Each of the Holders shall vote all of the Shares now or hereafter registered in such Holder's name, including, but not limited to Shares acquired upon exercise of Warrants, in all matters submitted to the shareholders of the Trust for approval in accordance with Section 7.7 of the Securities Purchase Agreement. 2. Representations of Holders. Each of the Holders hereby represents and warrants to each of the other Holders and to the Purchaser that such Holder: (a) owns and has the right to vote the number of Shares set forth on Schedule A attached hereto, (b) has full power to enter into this Agreement and has not, prior to the date of this Agreement, executed or delivered any proxy or entered into any other voting agreement or similar arrangement which has not -1- 2 expired prior to the date hereof, and (c) will not take any action inconsistent with the purposes and provisions of this Agreement. 3. Binding Agreement; Changes in Shares. Each Holder expressly agrees that this Agreement shall be specifically enforceable in any court of competent jurisdiction in accordance with its terms against each of the parties hereto. In the event that at any time after the date hereof, any Shares or other shares of beneficial interest of the Trust are issued on, or in exchange of any of the Shares by reason of any dividend, split, reclassification or consolidation, such Shares or other beneficial interests shall be subject to the terms of this Agreement. 4. Voting by the Purchaser. Purchaser shall vote all securities of the Trust held by it at any duly called meeting of the Trust's shareholders in favor of restoring voting rights of the RMO Trust and the RMO Fund. 5. Miscellaneous. (a) Indulgences, Etc. Neither the failure nor any delay on the part of any party hereto to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and signed by the party asserted to have granted such waiver. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the state of Maryland, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) Schedules. All schedules attached hereto are hereby incorporated by reference into, and made a part of, this Agreement. (d) Binding Nature of Agreement; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no party may assign or transfer any of their obligations under this Agreement without the consent of the other parties. (e) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, -2- 3 individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. (f) Settlement of Disputes. Any and all controversies of every kind and nature among the parties hereto shall be resolved in accordance with the provisions set forth in Section 10.10 of the Securities Purchase Agreement. (g) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (h) Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course or performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by agreement in writing. (i) Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date first above written. RAI REAL ESTATE ADVISERS, INC., as voting trustee of a voting trust dated November 6, 1996 By:______________________________________ SAFEGUARD SCIENTIFICS, INC. By:______________________________________ SAFEGUARD SCIENTIFICS (DELAWARE), INC. By:______________________________________ -3- 4 THE NICHOLS COMPANY By:______________________________________ _________________________________________ ANTHONY A. NICHOLS, SR. THE RICHARD M. OSBORNE TRUST By:______________________________________ TURKEY VULTURE FUND XIII, LTD. By:______________________________________ -4- EX-10.48 16 PURCHASE AGREEMENT 1 EXHIBIT 10.48 PURCHASE AGREEMENT FOR REAL PROPERTY AND ESCROW INSTRUCTIONS BETWEEN K/B FUND II, a Delaware general partnership AS SELLER AND BRANDYWINE REALTY TRUST, a Maryland business trust AS BUYER (DELAWARE CORPORATE CENTER I NEW CASTLE COUNTY, DELAWARE) August 12, 1996 2 TABLE OF CONTENTS PAGE 1. PURCHASE OF PROPERTY.......................................... -1- 2. BASIC TERMS AND DEFINITIONS................................... -1- 2.1 PROPERTY............................................. -1- 2.2 PURCHASE PRICE....................................... -1- 2.3 TERMS OF PURCHASE.................................... -1- 2.4 EFFECTIVE DATE....................................... -2- 2.5 OUTSIDE DATE......................................... -2- 2.6 TITLE APPROVAL PERIOD................................ -3- 2.7 FEASIBILITY PERIOD................................... -3- 2.8 ESCROW HOLDER........................................ -3- 2.9 TITLE COMPANY........................................ -3- 3. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE................... -3- 3.1 TITLE CONDITION...................................... -3- 3.2 FEASIBILITY CONDITION................................ -4- 3.3 REPRESENTATIONS AND WARRANTIES....................... -5- 3.4 DELIVERY OF DOCUMENTS................................ -5- 3.5 TENANT ESTOPPEL CERTIFICATE.......................... -5- 3.6 GROUND LESSOR ESTOPPEL CERTIFICATE................... -5- 4. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE.................. -5- 4.1 PERFORMANCE OF COVENANTS............................. -5- 4.2 REPRESENTATIONS AND WARRANTIES....................... -5- 4.3 DELIVERY OF DOCUMENTS................................ -5- 4.4 OPENING OF ESCROW.................................... -5- 4.5 CONSENTS AND APPROVALS............................... -6- 4.6 LEASEHOLD RELEASES................................... -6- 5. CLOSING....................................................... -6- 5.1 THE CLOSING.......................................... -6- 5.2 SELLER'S CLOSING OBLIGATIONS......................... -6- 5.3 BUYER'S CLOSING OBLIGATIONS.......................... -7- 6. TERMINATION OF THIS AGREEMENT................................. -7- 6.1 FAILURE TO CLOSE BY OUTSIDE DATE..................... -7- 6.2 FAILURE OF A CONDITION............................... -7- (i) 3 TABLE OF CONTENTS PAGE 6.3 CONSEQUENCES......................................... -7- 6.4 ESCROW CANCELLATION CHARGES.......................... -8- 6.5 LIQUIDATED DAMAGES................................... -8- 7. GENERAL ESCROW PROVISIONS...................................... -8- 7.1 ESCROW INSTRUCTIONS................................... -8- 7.2 OPENING OF ESCROW..................................... -8- 7.3 GENERAL PROVISIONS.................................... -9- 7.4 PRORATIONS............................................ -9- 7.5 PAYMENT OF COSTS...................................... -11- 7.6 ESCROW HOLDER AUTHORIZED TO COMPLETE BLANKS........... -11- 7.7 RECORDATION AND DELIVERY OF FUNDS AND DOCUMENTS....... -11- 8. NO BROKERAGE COMMISSIONS....................................... -12- 9. REPRESENTATIONS AND WARRANTIES................................. -12- 9.1 SELLER'S REPRESENTATIONS AND WARRANTIES............... -12- 9.2 BUYER'S REPRESENTATIONS AND WARRANTIES................ -14- 10. CONDUCT DURING ESCROW.......................................... -17- 10.1 ENTRY ON PROPERTY..................................... -17- 10.2 SELLER'S OPERATIONS AND NEGOTIATIONS.................. -18- 11. CONDEMNATION OR CASUALTY....................................... -19- 11.1 CONDEMNATION.......................................... -19- 11.2 CASUALTY.............................................. -20- 12. REMEDIES AGAINST SELLER........................................ -20- 13. GENERAL PROVISIONS............................................. -20- 13.1 ASSIGNMENT............................................ -20- 13.2 ATTORNEYS' FEES AND/OR COSTS.......................... -21- 13.3 NOTICES AND APPROVALS................................. -21- 13.4 CONTROLLING LAW....................................... -22- 13.5 TITLES AND CAPTION.................................... -22- 13.6 INTERPRETATION........................................ -22- 13.7 NO WAIVER............................................. -22- (ii) 4 TABLE OF CONTENTS PAGE 13.8 MODIFICATIONS......................................... -22- 13.9 SEVERABILITY.......................................... -22- 13.10 INTEGRATION OF PRIOR AGREEMENTS AND UNDERSTANDINGS.... -22- 13.11 NOT AN OFFER.......................................... -23- 13.12 TIME OF ESSENCE....................................... -23- 13.13 POSSESSION OF PROPERTY................................ -23- 13.14 COUNTERPARTS.......................................... -23- 13.15 EXHIBITS INCORPORATED BY REFERENCE.................... -23- 13.16 [OMITTED]. ........................................... -23- 13.17 COMPUTATION OF TIME................................... -23- 13.18 JOINT AND SEVERAL LIABILITY........................... -23- 13.19 BUYER'S WORK PRODUCT CONCERNING THE PROPERTY.......... -23- 13.20 NO OBLIGATIONS TO THIRD PARTIES....................... -23- 13.21 SURVIVAL OF COVENANTS................................. -24- EXHIBITS "A" LEGAL DESCRIPTION OF LAND "B" DESCRIPTION OF TENANTS "C" ESTOPPEL CERTIFICATE "D" ASSIGNMENT AND ASSUMPTION OF GROUND LEASE "E" ASSIGNMENT AND ASSUMPTION OF COMMERCIAL LEASES, CONTRACTS AND LICENSES, TRADE NAME, WARRANTIES AND GUARANTIES "F" ASSIGNMENT AND ASSUMPTION OF GROUND LESSOR CONSENT AGREEMENT "G" SELLER'S CERTIFICATE OF NON-FOREIGN STATUS "H" GROUND LESSOR ESTOPPEL CERTIFICATE "I" BUYER'S DUE DILIGENCE BUDGET (iii) 5 PURCHASE AGREEMENT FOR REAL PROPERTY AND ESCROW INSTRUCTIONS This Purchase Agreement for Real Property and Escrow Instructions ("Agreement") is between K/B FUND II, a Delaware general partnership ("Seller"), and BRANDYWINE REALTY TRUST, a Maryland business trust ("Buyer"). 1. PURCHASE OF PROPERTY. Seller agrees to sell to Buyer and Buyer agrees to purchase from Seller, the Property (as described in Paragraph 2.1), in consideration for the payment of the Purchase Price (as described in Paragraph 2.2), together with the respective promises of the parties set forth in this Agreement. 2. BASIC TERMS AND DEFINITIONS. 2.1 PROPERTY. The term "Property" shall mean: (i) all of Seller's leasehold estate, right, title, and interest in and to that certain tract of land in New Castle County, Delaware, (commonly referred to as Delaware Corporate Center I) as more particularly described on the attached Exhibit "A" ("Land") together with all of Seller's right, title and interest in all improvements located on the Land, including the building (collectively, the "Building") and pursuant to that Ground Lease dated as of May 31, 1988 originally between Woodlawn Trustees, as ground lessor, and Donohoe Wilmington Associates One Limited Partnership (a predecessor of Seller), as ground lessee, and recorded in the land records of New Castle County, Delaware at Deed Book 711, Page 34 ("Ground Lease"), (ii) Seller's leasehold rights in the leases with the tenants described on the attached Exhibit "B" ("Leases"), (iii) whatever rights Seller has in any easements, rights of way, and real property rights appurtenant to the Land, to the extent they are assignable (collectively, "Real Property Rights"), and (iv) whatever rights Seller has in Contracts, Licenses, the Trade Name, and Warranties (as defined in the attached Assignment and Assumption Of Commercial Leases, Contracts and Licenses, Trade Name, and Warranties and Guaranties; Exhibit "E"). Notwithstanding anything to the contrary contained in this Agreement, Seller is not transferring any rights in the name "Koll" or "K/B" nor shall Buyer have any rights to use the name "Koll" or "K/B" with regard to the Property or otherwise. 2.2 PURCHASE PRICE. Twelve Million, Seven Hundred Thousand Dollars ($12,700,000) ("Purchase Price"). 2.3 TERMS OF PURCHASE. (a) The Deposits. -1- 6 (i) Initial Deposit. Upon Buyer's execution of this Agreement, a cashier's or certified check in the amount of One Hundred Thousand Dollars ($100,000) (the "Initial Deposit") shall be delivered to Escrow Holder by Buyer as a condition to the "Opening of Escrow" as provided in Paragraph 7.2. (ii) Additional Deposit. Unless this Agreement has been previously terminated pursuant to Paragraph 3.1 or 3.2, an additional deposit in the amount of Two Hundred Thousand Dollars ($200,000) ("Additional Deposit") shall be delivered to Escrow Holder by Buyer by no later than expiration of the Feasibility Period by cashier's or certified check. (iii) Handling and Nonrefundability of Deposits. For purposes of this Agreement, the term "Deposit" shall mean the Initial Deposit until such time as the Escrow Holder has received the Additional Deposit after which the term "Deposit" shall collectively mean both the Initial Deposit and the Additional Deposit (i.e. $300,000). Escrow Holder shall place the Initial Deposit and Additional Deposit in an interest bearing account and all earned interest shall accrue to Buyer's benefit, unless Seller is entitled to the Deposit as liquidated damages under Paragraph 6.5, in which event, interest shall accrue to Seller's benefit. For purposes of this Agreement, any accrued interest shall be deemed part of the "Deposit". Unless this Agreement has previously been terminated pursuant to Paragraph 3.1 or 3.2, upon expiration of the Feasibility Period, the entire Deposit shall become nonrefundable except where expressly provided otherwise under this Agreement. (b) Buyer's Cash at Closing. The balance of the Purchase Price less the amount of the Deposit and Costs Payment (as defined below), plus any other amounts to be paid by Buyer under this Agreement, shall be delivered to Escrow Holder by Buyer as provided in Paragraph 5.3. (c) Costs Payment. Also upon Buyer's execution of this Agreement, a cashier's check or certified in the amount of Fifteen Thousand Dollars ($15,000) (the "Costs Payment") shall be delivered directly to Seller by Buyer as a condition to the "Opening of Escrow" as provided in Paragraph 7.2. The Costs Payment shall serve as payment to Seller for its costs, expenses and resources expended in pursuing the transaction which is the subject of this Agreement. The Costs Payment shall be nonrefundable to Buyer under all circumstances, including, without limitation, circumstances which result in the return of the Deposit to Buyer, except for Seller's breach of this Agreement or exercise of Seller's Kimberly-Clark Termination Rights (as defined in Paragraph 10.2(b)). However, if the Closing occurs pursuant to the terms of this Agreement, the Costs Payment shall be credited to the Purchase Price at Closing. 2.4 EFFECTIVE DATE. The effective date of this Agreement is August 12, 1996 ("Effective Date"). -2- 7 2.5 OUTSIDE DATE. The last day that Closing may occur shall be the earlier to occur of 5:00 p.m. on: (i) the tenth (10th) business day following Buyer's Unconditional Commitment To Close, as defined in Paragraph 10.2(b), or (ii) September 19, 1996 ("Outside Date"). However, Seller shall have the right to extend the Outside Date one or more times up to and including October 22, 1996 by delivery of written notice to Buyer and Escrow Holder of the intended extended Outside Date on or before 12:00 noon of the business day immediately preceding the existing scheduled Outside Date. 2.6 TITLE APPROVAL PERIOD. The "Title Approval Period" shall end on September 6, 1996 at 5:00 p.m. 2.7 FEASIBILITY PERIOD. The "Feasibility Period" shall end on September 6, 1996 at 5:00 p.m. 2.8 ESCROW HOLDER. The escrow holder is Chicago Title Company ("Escrow Holder"), whose address is 16969 Von Karman, Irvine, California 92714, Escrow Officer: Joy Eaton; Telephone: (714) 263-0134; Telecopier: (714) 263-0356. 2.9 TITLE COMPANY. The title company is Chicago Title Company ("Title Company") whose address is 169169 Von Karman, Irvine, California 92714, Title Coordinator: John Premac; Telephone: (714) 263-0156; Telecopier: (714) 263-0356. 3. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE. Buyer's obligation to purchase the Property is subject to the satisfaction or waiver of all the conditions set forth below (which are for Buyer's benefit) within the time periods specified and if no time period is specified by the Outside Date. 3.1 TITLE CONDITION. 3.1.1 Buyer has received from the Title Company a current standard owner's (or leaseholder's) preliminary report for the Property (the "Preliminary Report"), together with copies of all documents available to the Title Company referenced as recorded exceptions in the Preliminary Report. 3.1.2 Buyer shall have until the last day of the Title Approval Period to secure from the Title Company a commitment for title insurance coverage in a form and with exceptions and endorsements acceptable to Buyer in its sole and absolute discretion (the "Title Policy"). By the end of the Title Approval Period, Buyer shall provide written notice to Seller and Escrow Holder as to whether Buyer has received from the Title Company a commitment for the Title Policy acceptable to Buyer in its sole and absolute discretion (either "Title Approval Notice" or "Title Rejection Notice"). If Seller and Escrow Holder receive a Title Approval Notice from Buyer by the end of the Title Approval Period, this title condition shall be conclusively deemed satisfied in all respects. If Seller and Escrow Holder do not receive either -3- 8 form of written notice, or receive the Title Rejection Notice by the end of the Title Approval Period, Escrow and this Agreement shall terminate and the Deposit shall be returned to Buyer, as provided in Paragraph 6.3. 3.1.3 Nothing in this Paragraph 3.1 shall obligate Buyer or Seller to expend any funds to cure any title defects unless the parties have expressly committed to do so in writing. To the extent Seller indicates that it will use its reasonable efforts to correct any title matter, "reasonable efforts" shall not include any obligation of Seller to incur any expense whatsoever in connection with correcting a title matter. -4- 9 3.2 FEASIBILITY CONDITION. 3.2.1 Buyer shall have until 5:00 p.m. on the last day of the Feasibility Period to confirm (in Buyer's sole and absolute discretion), at Buyer's sole expense, whether Buyer may feasibly acquire and use the Property for Buyer's intended purpose. During the Feasibility Period, Buyer shall, in addition to all other matters regarding the Property, have reviewed (or shall have assumed the risk of not reviewing) all of the following: (a) the physical condition of the Property; (b) the terms of the Ground Lease; (c) the availability of all necessary utilities and gravity sewers and storm drains for the Property; (d) rental agreements, Leases, subleases, service contracts, tax bills and other written agreements or notices which affect the Property to the extent available; (e) income and expense statements to the extent available; (f) rent roll(s); (g) whether Buyer's intended use of the Property is permitted by all applicable local, state and federal zoning ordinances, land use controls and regulations, and other rules, regulations and laws; (h) the existing soil and environmental condition, both with regard to improvements, the Building, surface and subsurface, including the existence of toxic waste and hazardous substances; (i) the economic feasibility of Buyer's intended use of the Property; (j) the ability of Buyer to secure funds sufficient to purchase the Property; (k) the type and nature of the tenants; (l) any existing, pending or threatened proceedings for condemnation (if any); (m) property tax bills for the Property; and -5- 10 (n) any other matters which are or may be relevant to Buyer's decision whether or not to purchase the Property. 3.2.2 By the end of the Feasibility Period, Buyer shall provide written notice to Seller and Escrow Holder as to whether Buyer approves the feasibility of acquiring the Property (either "Feasibility Notice" or "Non-Feasibility Notice") . If Seller and Escrow Holder receive a Feasibility Notice from Buyer by the end of the Feasibility Period, this feasibility condition shall be conclusively deemed satisfied in all respects including Buyer's approval of each of the items set out in Paragraph 3.2.1, upon which Buyer shall deliver the Additional Deposit to Escrow Holder. If Seller and Escrow Holder do not receive either form of written notice, or receive the Non-Feasibility Notice, by the end of the Feasibility Period, Escrow and this Agreement shall terminate, and the Deposit shall be returned to Buyer, as provided in Paragraph 6.3. 3.3 REPRESENTATIONS AND WARRANTIES. All of Seller's Representations and Warranties shall be true as of Closing or qualified as provided in Paragraph 9.1 3.4 DELIVERY OF DOCUMENTS. Seller shall have signed, acknowledged and timely delivered all documents and instruments to Escrow Holder as required by Paragraph 5.2 below. 3.5 TENANT ESTOPPEL CERTIFICATE. Buyer shall have received a signed tenant estoppel certificate in the form attached as Exhibit "C" ("Tenant Estoppel Certificate") from the existing tenant under the Scott Lease (as defined in Paragraph 4.6 below). 3.6 GROUND LESSOR ESTOPPEL CERTIFICATE. Buyer shall have received a signed Ground Lessor Estoppel Certificate in the form attached as Exhibit "H" ("Ground Lessor Estoppel Certificate") from the Ground Lessor under the Ground Lease (as defined in Paragraph 2.1). 4. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. Seller's obligation to sell the Property is subject to the satisfaction (or waiver) of all conditions set forth below (which are for Seller's benefit) within the time periods specified and if no time period is specified by the Outside Date. 4.1 PERFORMANCE OF COVENANTS. Buyer shall have timely performed all of its covenants and terms under this Agreement. 4.2 REPRESENTATIONS AND WARRANTIES. All of Buyer's Representations and Warranties provided in Paragraph 9.2 of this Agreement shall be true as of Closing. -6- 11 4.3 DELIVERY OF DOCUMENTS. Buyer shall have signed, acknowledged and timely delivered all documents, monies, and instruments to Escrow Holder (and the Costs Payment to Seller) as required by Paragraphs 2.3 and 5.3. 4.4 OPENING OF ESCROW. Escrow shall have opened (as provided in Paragraph 7.2) by no later than August 16, 1996. 4.5 CONSENTS AND APPROVALS. Seller shall have received all consents to assignments and approvals from all parties from whom such consents to assignments or approvals are needed under any and all leases, subleases, contracts, covenants and other agreements pertaining to the Property. 4.6 LEASEHOLD RELEASES. Seller shall have received full general releases in forms and pursuant to terms acceptable to Seller in its sole and absolute discretion, releasing Seller from all costs, obligations, liabilities, and claims under (i) the Ground Lease, and (ii) the Lease dated June 20, 1995 between K/B Fund II, as Landlord, and Scott Paper Company (predecessor to Kimberly-Clark Tissue Company), for Delaware Corporate Center, 1 Righter Parkway, Wilmington, Delaware ("Scott Lease"). 5. CLOSING. 5.1 THE CLOSING. (a) The Closing shall occur by no later than 5:00 p.m. on the Outside Date or such earlier time as mutually agreed upon by the parties. (b) The terms "Close of Escrow" and/or "Closing" are used in this Agreement to mean the time the Ground Lease Assignment (as defined in Paragraph 5.2(a)) is filed of record by the Escrow Holder in the office of the county recorder of New Castle County. The term "Closing Date" is used in this Agreement to mean the day the Ground Lease Assignment is so filed of record. (c) The occurrence of the Closing shall constitute Buyer's agreement that all of its conditions precedent to its obligation to perform have been satisfied. 5.2 SELLER'S CLOSING OBLIGATIONS. On or before 12:00 noon on the last business day immediately before the Outside Date, Seller shall deliver to Escrow Holder: (a) An Assignment and Assumption of Ground Lease in the form attached as Exhibit "D" ("Ground Lease Assignment"), signed by Seller and notarized; -7- 12 (b) An Assignment and Assumption of Commercial Leases, Contracts and Licenses, Trade Name, Warranties and Guaranties in the form attached as Exhibit "E" ("Assignment of Commercial Leases, Contracts and Other Rights") signed by Seller; (c) An Assignment and Assumption of Ground Lessor Consent Agreement in the form attached as Exhibit "F" ("Ground Lease Consent Assignment") signed by Seller and notarized; (d) A certificate of non-foreign status in the form attached as Exhibit "G" ("Seller's Certificate"), signed by Seller; and (e) Any additional instruments (signed by Seller and acknowledged, if appropriate) as may be necessary to comply with this Agreement. 5.3 BUYER'S CLOSING OBLIGATIONS. On or before 12:00 noon on the last business day immediately before the Outside Date, Buyer shall deliver to Escrow Holder: (a) Cash equal to that amount provided for in Paragraph 2.3(b). The cash must be by direct deposit or by wire transfer of funds actually made in Escrow Holder's depository bank account by 12:00 noon on the last business day immediately before the Outside Date; (b) The Ground Lease Assignment, signed by Buyer, and notarized; (c) The Assignment of Commercial Leases, Contracts and Other Rights, signed by Buyer; (d) The Ground Lease Consent Assignment, signed by Buyer and notarized; (e) Any additional funds and/or instruments (signed by Buyer and notarized, if appropriate) as may be necessary to comply with this Agreement. 6. TERMINATION OF THIS AGREEMENT. 6.1 FAILURE TO CLOSE BY OUTSIDE DATE. If the Closing does not occur on or before 5:00 p.m. on the Outside Date, this Agreement and Escrow shall automatically terminate and cancel without further action by Escrow Holder or any party and notwithstanding any provision contained in Escrow Holder's general provisions. 6.2 FAILURE OF A CONDITION. Except in those instances where Escrow automatically terminates under the terms of this Agreement, if any condition is not satisfied or waived within the time period and in the manner set forth in this Agreement, then the party for -8- 13 whose benefit the condition exists (as provided in Paragraphs 3 and 4 of this Agreement) may terminate this Agreement by delivering written notice to the other party and to Escrow Holder after the end of the applicable time period. 6.3 CONSEQUENCES. If this Agreement terminates (or is properly terminated by either party) as specifically provided by its terms, then each of the following shall occur: (i) Escrow shall be deemed automatically canceled regardless of whether cancellation instructions are signed; (ii) neither party shall have any further obligation to the other under this Agreement (except: (1) for breach of this Agreement as those remedies may be limited hereunder, (2) as provided under Paragraphs 10.1 and 13.2 which shall survive termination of this Agreement), and (3) Seller's Termination Reimbursement (as defined in Paragraph 10.2(b)) if Seller exercised Seller's Kimberly-Clark Termination Rights (as defined in Paragraph 10.2(b)); (iii) all rights granted to Buyer under this Agreement and in the Property shall terminate; and, (iv) except as provided to the contrary in Paragraph 6.5 (concerning Seller's right to retain the Deposit as liquidated damages), Escrow Holder shall return all funds and documents then held in Escrow to the party depositing the same. However, under no circumstances other than Seller's breach of this Agreement and Seller's exercise of Seller's Kimberly-Clark Termination Rights (as defined in Paragraph 10.2(b)), shall Seller be required to return or reimburse the Costs Payment to Buyer. 6.4 ESCROW CANCELLATION CHARGES. If the Closing does not occur because of either party's default, the defaulting party shall be liable for all Escrow cancellation and Title Company charges. If the Closing does not occur for any other reason, Buyer and Seller shall each pay one-half of any Escrow cancellation and Title Company charges. 6.5 LIQUIDATED DAMAGES. IF THE CLOSING DOES NOT OCCUR DUE TO BUYER'S BREACH OF THIS AGREEMENT, SELLER SHALL BE RELEASED FROM ALL OF ITS OBLIGATIONS UNDER THIS AGREEMENT, AND ESCROW HOLDER SHALL IMMEDIATELY DELIVER, DESPITE ANY INSTRUCTIONS TO THE CONTRARY, THE DEPOSIT TO SELLER, AND SELLER SHALL BE ENTITLED TO RETAIN THE DEPOSIT AS ITS SOLE AND LIQUIDATED DAMAGES. SELLER AND BUYER SHALL INDEMNIFY ESCROW HOLDER FOR ANY LIABILITY, COSTS AND EXPENSES BY REASON OF ESCROW HOLDER'S GOOD FAITH COMPLIANCE WITH THIS PARAGRAPH. THE PARTIES EXPRESSLY AGREE THAT THE AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE EXTENT TO WHICH SELLER WOULD BE DAMAGED BY BUYER'S BREACH OF THIS AGREEMENT, IN LIGHT OF THE DIFFICULTY THE PARTIES WOULD HAVE IN DETERMINING SELLER'S ACTUAL DAMAGES AS A RESULT OF SUCH BREACH BY BUYER. SELLER'S RETENTION OF THE DEPOSIT AS LIQUIDATED DAMAGES SHALL BE SELLER'S EXCLUSIVE REMEDY FOR DAMAGES BY REASON OF BUYER'S BREACH OF THIS AGREEMENT. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS PARAGRAPH 6.5, THE DEPOSIT AND THE PROVISIONS OF THIS PARAGRAPH 6.5 SHALL NOT LIMIT SELLER'S RIGHTS TO RECOVERY UNDER PARAGRAPHS 10.1 -9- 14 AND 13.2 OR SELLER'S RIGHT TO RETAIN THE COSTS PAYMENT UNDER ALL CIRCUMSTANCES OTHER THAN SELLER'S BREACH OF THIS AGREEMENT AND SELLER'S EXERCISE OF SELLER'S KIMBERLY-CLARK TERMINATION RIGHTS. _________________ ________________ SELLER'S INITIALS BUYER'S INITIALS 7. GENERAL ESCROW PROVISIONS. 7.1 ESCROW INSTRUCTIONS. This Agreement when signed by Buyer and Seller shall also constitute escrow instructions to Escrow Holder. 7.2 OPENING OF ESCROW. When both (i) this Agreement, fully signed or in signed counterparts, and Buyer's Deposit are delivered to Escrow Holder and (ii) the Costs Payment has been delivered to Seller, Escrow shall be deemed open ("Opening of Escrow"), and Escrow Holder shall immediately notify Buyer and Seller by telephone and in writing of the date of Opening of Escrow. 7.3 GENERAL PROVISIONS. Notwithstanding anything to the contrary in this Agreement, the General Provisions of Escrow Holder, if any, which are later signed by the parties, are incorporated by reference to the extent they are not inconsistent with the provisions of this Agreement. If there is any inconsistency between the provisions of those General Provisions and any of the provisions of this Agreement, the provisions of this Agreement shall control. If any requirements relating to the duties or obligations of the Escrow Holder are unacceptable to the Escrow Holder, or if the Escrow Holder requires additional instructions, the parties agree to make any deletions, substitutions and additions as counsel for Buyer and Seller shall mutually approve and which do not materially alter the terms of this Agreement. Any supplemental instructions shall be signed only as an accommodation to Escrow Holder and shall not be deemed to modify or amend the rights of Buyer and Seller, as between Buyer and Seller, unless the supplemental instructions expressly so provide. 7.4 PRORATIONS. The following prorations and adjustments shall be made between Seller and Buyer at the Close of Escrow. Any prorations shall be based on the actual number of days in the month in which the Closing occurs and a three hundred sixty-five (365) day year. (a) Property Expenses. Ground Lease rent, taxes, real property taxes, special taxes, utility fees, management fees and costs, common area maintenance expenses, Property operating expenses, personal property taxes, assessments, sewer charges, and other costs and expenses attributable to the Property shall be prorated as of the Close of Escrow. To the extent any expenses or charges for the Property are paid by tenants to the landlord under the Leases on an estimated basis, for which a future reconciliation of actual to estimates is to be -10- 15 performed, Seller and Buyer shall make an adjustment at Closing for the applicable reconciliation period in which the Closing occurs based on a comparison of the actual Property expenses paid by Seller as of the Closing Date to the estimated Property expenses paid by tenants to Seller. The adjustment for such reconciliation period shall be calculated as follows: To the extent the estimated payments made by tenants to Seller as of the Closing Date exceed the actual Property expenses paid by Seller as of the Closing Date, Buyer shall receive a credit at Closing for the excess tenant payments. To the extent actual Property expenses paid by Seller as of the Closing Date exceed the estimated payments made by tenant as of the Closing Date, Seller shall receive a credit at Closing. Buyer shall then assume all rights and obligations to collect from or pay to Lease tenants any such reconciliation amounts. (b) Property Rent. All rents, additional rent, income, and other amounts payable to the owner or landlord of the Property (collectively, "Property Rent") shall also be prorated as of Close of Escrow. In addition to all other amounts owing under this Agreement, Buyer shall pay Seller at Closing, an amount equal to all accrued but unpaid Property Rent existing as of the Closing. All rights to collection and retention of such Property Rent shall then belong to Buyer upon Closing. (c) Security Deposits. Security deposits in Seller's possession shall be transferred or credited to Buyer at Closing. (d) Tenant Improvement Leasing Costs. Any tenant-improvement or leasing commission cost and/or referral fees (collectively, "Leasing Costs") paid or incurred by Seller after the Effective Date with respect to leases or other rental agreements for which Buyer will receive rent after the Closing shall be paid by Buyer to Seller at Closing. However, Buyer shall not be responsible for any Leasing Costs for any new leases or new rental agreements signed with new tenants executed after expiration of the Feasibility Period unless Buyer has consented to such new lease agreements or new rental agreements (which consent shall not be unreasonably withheld). Seller shall provide Buyer with written notice prior to the expiration of the Feasibility Period of the Leasing Costs for which Buyer will be seeking payment at the Closing incurred as of the date of such notice. (e) Capital Improvement Costs. All capital improvement costs incurred by Seller after the Effective Date for capital improvements made to the Property ("Capital Improvement Costs") shall be paid by Buyer to Seller at Closing. However, Buyer shall not be responsible for the payment of any Capital Improvement Costs incurred for capital improvement agreements executed after the expiration Feasibility Period unless either of the following are true: (i) the capital improvement contract was approved by Buyer (which consent shall not be unreasonably withheld) or (ii) the capital improvement was necessary in order for Seller to comply with the terms of any Lease or to satisfy any requirements of any law, ordinance, rules, covenant, condition or restriction imposed on the Property. Seller shall provide Buyer with written notice prior to the expiration of the Feasibility Period of the Capital -11- 16 Improvement Costs for which Buyer will be seeking payment at the Closing incurred as of the date of such notice. (f) Seller Deposits. Seller shall receive a credit at Closing for all bonds, deposits, letters of credit, set aside letters or other similar items, if any, outstanding with respect to the Property, that have been provided by Seller, or any of its affiliates, to any governmental agency, public utility, or similar entity (collectively, "Seller Deposits") to the extent assignable to Buyer. Otherwise, Buyer shall replace all Seller Deposits and obtain the release of Seller (or its affiliates) from any obligations under the Seller Deposits. To the extent that any funds are released as a result of the termination of Seller Deposits for which Seller did not get a credit, such funds shall be delivered to Seller immediately upon their receipt. (g) Tax Protests. If Seller has engaged consultants for the purpose of protesting the amount of taxes or the assessed valuation for certain tax periods for the Property ("Protest Proceedings") any refunds or proceeds will be apportioned as described below. Any refunds or proceeds (including interest thereon) on account of a favorable determination, after deduction of costs and expenses incurred for such Protest Proceedings and payment of any reimbursements owing to tenants, shall be: (i) the property of Seller to the extent such refunds or proceeds were for taxes paid for a period prior to the Closing Date, (ii) prorated between Buyer and Seller for taxes paid for a period during which the Closing Date occurred, and (iii) the Property of Buyer for taxes paid for a period after the Closing Date. Seller shall have the obligation to refund to any tenants in good standing as of the date of such refund, any portion of such refund paid to it which may be owing to such tenants, which payment shall be paid to Buyer within fifteen (15) days of delivery to Seller by Buyer of written confirmation of such tenants' entitlement to such refunds. Buyer shall have the obligation to refund to tenants in good standing as of the date of such refund, any portion of such refund paid to it which may be owing to such tenants. Seller and Buyer agree to notify the other in writing of any receipt of a tax refund within ten (10) business days of receipt of such refund. To the extent either party obtains a refund, a portion of which is owed to the other party, the receiving party shall deliver the refund to the other party within fifteen (15) days of its receipt. (h) Post-Closing Access. After the Closing, Seller, or any representative of Seller, shall for a period of one (1) year after the Closing have the right to inspect the books and records of the Property to verify that Buyer is remitting to Seller all amounts to be remitted to Seller according to the terms of this Agreement and for any other purpose related to Seller's prior ownership of the Property, provided that such inspection is done in a manner that does not unreasonably interfere with Buyer's operation of the Property. (i) Adjustments. If any errors or omissions are made regarding adjustments and prorations, the parties shall make the appropriate corrections promptly upon the discovery thereof. If any estimations are made at the Close of Escrow regarding adjustments or prorations, the parties shall make the appropriate correction promptly when accurate information becomes available. Any corrected adjustment or proration shall be paid promptly in cash to the -12- 17 party entitled to the adjustment. Notwithstanding anything to the contrary above, the above right to adjustment shall terminate one (1) year after Close of Escrow, subject to Seller's continuing right even after the expiration of such one (1) year period to receive (i) the deficiency in estimated tenant payments under Paragraph 7.4(a), and (ii) refunds or proceeds from Protest Proceedings under Paragraph 7.4(g). 7.5 PAYMENT OF COSTS. Buyer will be responsible for all of its own costs incurred with regard to this transaction including performing its due diligence and obtaining its due diligence information, including, without limitation, any new or updated surveys, environmental reports, engineering reports, or other studies or investigations. Each party will be responsible for satisfying its own legal costs incurred on the transaction. All closing costs will be shared equally, including, without limitation, title insurance fees, escrow fees, and recording fees. The parties believe that this transaction is exempt from the provisions of 30 Del. C. Chapter 54. In the event this transaction is found to be taxable pursuant to 30 Del. C. Chapter 54, Buyer and Seller shall each pay one-half (1/2) of the Real Estate Transfer Tax. 7.6 ESCROW HOLDER AUTHORIZED TO COMPLETE BLANKS. If necessary, Escrow Holder is authorized to insert in all blanks in the Closing documents the date of recordation of the Ground Lease Assignment. 7.7 RECORDATION AND DELIVERY OF FUNDS AND DOCUMENTS. When Buyer and Seller have satisfied their respective Closing obligations under Paragraphs 5.2 and 5.3 and each of the conditions under Paragraphs 3 and 4 have either been satisfied or waived, Escrow Holder shall promptly undertake all of the following in the manner indicated: (a) Prorations. Prorate and allocate all matters as described in Paragraphs 7.4 and 7.5. (b) Funds. Disburse funds deposited by Buyer with Escrow Holder towards payment of all items chargeable to the account of Buyer pursuant hereto in payment of such costs including, without limitation, the payment of the Purchase Price to Seller. (c) Recording. Upon confirmation of disbursement of the Purchase Price to Seller, cause the Ground Lease Assignment, and any other documents which the parties hereto may mutually direct, to be recorded in the official records of New Castle County, Delaware in the order instructed by the parties. (d) Document Delivery. Deliver originals and conformed copies of all documents to Seller and Buyer, as appropriate. (e) Title Policy. Direct the Title Company to issue the Title Policy to Buyer. -13- 18 8. NO BROKERAGE COMMISSIONS. Buyer is represented by Bob Yoshimura of The Flynn Company ("Broker"). Upon Close of Escrow pursuant to the terms of this Agreement, Seller shall pay Broker a commission mutually agreed upon between Seller and Broker, not to exceed one and one-half percent (1 1/2%) of the Purchase Price pursuant to a mutually acceptable separate written commission agreement with Broker. Except with regard to Broker, neither Seller nor Buyer has engaged a broker or finder in connection with this transaction. Each party shall indemnify, defend and hold the other harmless from and against all claims, liabilities, costs, damages and expenses (including, without limitation, attorneys' fees and costs) resulting from or arising out of any claims for finders' fees or commissions arising out of any contract or commitments made by or through the indemnifying party by any broker or finder other than the Broker. Notwithstanding the terms of this provision, Broker is not a third party beneficiary of the terms of this Paragraph 8 or any terms of this Agreement. 9. REPRESENTATIONS AND WARRANTIES. 9.1 SELLER'S REPRESENTATIONS AND WARRANTIES. In consideration of Buyer entering into this Agreement and as an inducement to Buyer to buy the Property from Seller, Seller makes the following representations and warranties, each of which is material and is being relied upon by Buyer (the continued truth and accuracy of which shall constitute a condition precedent to Buyer's obligations hereunder): (a) Authority. Seller is validly existing under the laws of the State of Delaware, with full power and authority to enter into and comply with the terms of this Agreement. Seller has the legal right, power and authority to enter into this Agreement, and the execution, delivery and performance of this Agreement have been duly authorized and no other action by Seller is requisite to the valid and binding execution, delivery and performance of this Agreement. (b) Documents. To Seller's actual knowledge, prior to the expiration of the Feasibility Period, Seller shall have delivered to Buyer or made available to Buyer for Buyer's review (at Seller's or the property manager's office) all non-proprietary and non-confidential documents in the actual possession of Seller (i) setting forth information directly about the physical condition of the Property (including structural, engineering, and environmental written reports and written analysis), (ii) memorializing the terms of the Leases, or (iii) constituting written communications with any tenants under current Leases that were sent or received by seller on or before the Effective Date. Buyer acknowledges and agrees that notwithstanding the proceeding provision, Seller is not obligated to provide any documents which relate to (i) the terms of Seller's acquisition of the Property, including, without limitation, any documents that set forth the price at which the Property was purchased by Seller, (ii) documents that pertain to valuations of the Property, (iii) internal memoranda and correspondence of Seller with regard to the Property, (iv) any documents reflecting marketing plans or strategies for the Property, and (v) any reports generated by Seller for its investors. -14- 19 (c) Litigation. To Seller's actual knowledge, Seller has not received any written notice of pending litigation which would materially and adversely affect title to the Property. (d) Condemnation. To Seller's actual knowledge, Seller has not received any written notice of any pending proceedings for condemnation or eminent domain pertaining to the taking of any portion of the Property. (e) Violations of Law. To Seller's actual knowledge, Seller has not received any written notice from any governmental agency having jurisdiction of the Property notifying Seller that the existing condition of the Property violates any laws governing the Property. For purposes of this Paragraph 9.1, the term "To Seller's Actual Knowledge" shall mean the actual (and not implied, imputed, or constructive) knowledge of Paula Gault and Tara Weekes, without any inquiry or investigation, and without any attribution of facts and matters otherwise within the personal knowledge of any other parties, including, without limitation, tenants and property managers of the Property. The representations and warranties made by Seller in this Agreement shall survive the recordation of the Ground Lease Assignment for a period of one (1) year and any action for a breach of Seller's representations or warranties must be made and filed within said one (1) year period. If, after the Effective Date, but before the Close of Escrow, Seller becomes aware of any facts or changes in circumstances that would cause any of its representations and warranties in this Agreement to be untrue at Close of Escrow, Seller shall promptly notify Buyer in writing of such fact. In such case, or in the event Buyer obtains information which would cause any of Seller's representations and warranties to be untrue at Close of Escrow, Buyer, as its sole and exclusive remedy, shall have the right to either (i) terminate this Agreement, in which case the Deposit shall be immediately returned to Buyer and neither party shall have any rights or obligations under this Agreement (except for Paragraphs 10.1 and 13.2 which survive termination of this Agreement); or (ii) accept a qualification to Seller's representations and warranties as of the Close of Escrow and complete the purchase and sale of the Property without any rights to recovery for breach of the unqualified representation and warranty. Other than as set forth in the immediately preceding sentence, Buyer shall be deemed to have expressly waived any and all remedies for the breach of any representation or warranty discovered by Buyer prior to the Close of Escrow. 9.2 BUYER'S REPRESENTATIONS AND WARRANTIES. In consideration of Seller entering into this Agreement and as an inducement to Seller to sell the Property to Buyer, Buyer makes the following representations and warranties, each of which shall be true and accurate as of the Effective Date and Close of Escrow (and shall survive the Close of Escrow), and each of which is material and is being relied upon by Seller (the continued -15- 20 truth and accuracy of which shall constitute a condition precedent to Seller's obligations hereunder): (a) Authority. Buyer is validly existing under the laws of the State of Maryland, with the full power and authority to enter into and comply with the terms of this Agreement and is qualified to do business in the State of Delaware. Buyer has the legal right, power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, and the execution, delivery and performance of this Agreement have been duly authorized and no other action by Buyer is requisite to the valid and binding execution, delivery and performance of this Agreement. (b) "AS IS". BUYER ACKNOWLEDGES AND AGREES THAT BUYER IS EXPERIENCED IN THE OWNERSHIP AND OPERATION OF PROPERTIES SIMILAR TO THE PROPERTY AND THAT BUYER PRIOR TO THE CLOSING DATE WILL HAVE INSPECTED THE PROPERTY TO ITS SATISFACTION AND IS QUALIFIED TO MAKE SUCH INSPECTION. BUYER ACKNOWLEDGES THAT IT IS FULLY RELYING ON BUYER'S (OR BUYER'S REPRESENTATIVES') INSPECTIONS OF THE PROPERTY AND NOT UPON ANY STATEMENTS (ORAL OR WRITTEN) WHICH MAY HAVE BEEN MADE OR MAY BE MADE (OR PURPORTEDLY MADE) BY SELLER OR ANY OF ITS REPRESENTATIVES. BUYER ACKNOWLEDGES THAT BUYER HAS (OR BUYER'S REPRESENTATIVES HAVE), OR PRIOR TO THE CLOSING DATE WILL HAVE, THOROUGHLY INSPECTED AND EXAMINED THE PROPERTY TO THE EXTENT DEEMED NECESSARY BY BUYER IN ORDER TO ENABLE BUYER TO EVALUATE THE CONDITION OF THE PROPERTY AND ALL OTHER ASPECTS OF THE PROPERTY (INCLUDING, BUT NOT LIMITED TO, THE ENVIRONMENTAL CONDITION OF THE PROPERTY), AND BUYER ACKNOWLEDGES THAT BUYER IS RELYING SOLELY UPON ITS OWN (OR ITS REPRESENTATIVES') INSPECTION, EXAMINATION AND EVALUATION OF THE PROPERTY. AS A MATERIAL PART OF THE CONSIDERATION FOR THIS CONTRACT AND THE PURCHASE, BUYER HEREBY AGREES TO ACCEPT THE PROPERTY ON THE CLOSING DATE IN ITS "AS IS", "WHERE IS" CONDITION AND WITH ALL FAULTS, AND WITHOUT ANY REPRESENTATIONS AND WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, EXCEPT AS SET FORTH IN PARAGRAPH 9.1. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IN CONNECTION WITH THE SALE OF THE PROPERTY TO BUYER, SELLER AND SELLER'S OFFICERS, AGENTS, DIRECTORS, PARTNERS, ASSET MANAGERS, PROPERTY MANAGERS, REPRESENTATIVES, EMPLOYEES, ATTORNEYS, CONTRACTORS AND AFFILIATES ("SELLER'S RELATED PARTIES") HAVE MADE NO, AND SPECIFICALLY DISCLAIM, AND BUYER ACCEPTS THAT SELLER AND SELLER'S RELATED PARTIES HAVE DISCLAIMED, ANY AND ALL REPRESENTATIONS, GUARANTIES OR WARRANTIES, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW (EXCEPT AS SET FORTH IN PARAGRAPH 9.1), OF OR RELATING TO (I) THE USE, INCOME POTENTIAL, EXPENSES, OPERATION, VALUATION (FOR TAX PURPOSES OR -16- 21 OTHERWISE), CHARACTERISTICS OR CONDITION OF THE PROPERTY OR ANY PORTION THEREOF, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF SUITABILITY, HABITABILITY, MERCHANTABILITY, TENANTABILITY, DESIGN OR FITNESS FOR ANY SPECIFIC OR A PARTICULAR PURPOSE, OR GOOD AND WORKMANLIKE CONSTRUCTION, (II) THE NATURE, MANNER, CONSTRUCTION, CONDITION, STATE OF REPAIR OR LACK OF REPAIR OF ANY IMPROVEMENTS LOCATED ON THE PROPERTY, ON THE SURFACE OR SUBSURFACE THEREOF, WHETHER OR NOT OBVIOUS, VISIBLE OR APPARENT, (III) THE NATURE OR QUALITY OF CONSTRUCTION, STRUCTURAL DESIGN OR ENGINEERING OF THE PROPERTY, (IV) THE ENVIRONMENTAL CONDITION OF THE PROPERTY AND THE PRESENCE OR ABSENCE OF OR CONTAMINATION BY HAZARDOUS MATERIALS, OR THE COMPLIANCE OF THE PROPERTY WITH REGULATIONS OR LAWS PERTAINING TO HEALTH OR THE ENVIRONMENT, THE SOIL CONDITIONS, DRAINAGE, FLOODING CHARACTERISTICS, UTILITIES OR OTHER CONDITIONS EXISTING IN, ON, OR UNDER THE PROPERTY, AND (VI) THE COSTS, FEES, EXPENSES, ASSESSMENTS, OR OTHER CHARGES RELATING TO THE USE OR OPERATION OF THE PROPERTY. BUYER ACKNOWLEDGES AND AGREES THAT ALL DOCUMENTS, RECORDS, AGREEMENTS, WRITINGS, STATISTICAL AND FINANCIAL INFORMATION AND ALL OTHER INFORMATION (COLLECTIVELY, "DOCUMENTS") WHICH HAVE BEEN GIVEN TO BUYER BY SELLER, OR SELLER'S RELATED PARTIES, HAVE BEEN DELIVERED AS AN ACCOMMODATION TO BUYER AND WITHOUT ANY REPRESENTATION OR WARRANTY AS TO THE SUFFICIENCY, ACCURACY, COMPLETENESS, VALIDITY, TRUTHFULNESS, ENFORCEABILITY OR ASSIGNABILITY OF ANY OF THE DOCUMENTS (INCLUDING, WITHOUT LIMITATION, THE ENFORCEABILITY, EFFECT, OR ASSIGNABILITY OF THE GROUND LEASE), ALL OF WHICH BUYER RELIES ON AT ITS OWN RISK. BUYER ACKNOWLEDGES THAT ANY INFORMATION, ORAL OR WRITTEN, PROVIDED TO BUYER BY ANY PROPERTY MANAGERS OR ASSET MANAGERS IS ALSO MERELY AS AN ACCOMMODATION TO BUYER. NONE OF THE INFORMATION PROVIDED TO BUYER BY ANY PROPERTY MANAGERS OR ASSET MANAGERS MAY BE ATTRIBUTED TO SELLER AND SELLER SHALL HAVE NO LIABILITY WHATSOEVER TO BUYER IN THE EVENT THAT ANY DOCUMENTS OR INFORMATION PROVIDED TO BUYER ARE INACCURATE. BUYER HEREBY EXPRESSLY ASSUMES ALL RISKS, LIABILITIES, CLAIMS, DAMAGES, AND COSTS (AND AGREES THAT SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, DIRECT, INDIRECT, CONSEQUENTIAL, OR OTHER DAMAGES) ON AND AFTER THE CLOSING DATE RESULTING OR ARISING FROM OR RELATED TO THE OWNERSHIP, USE, CONDITION, LOCATION, MAINTENANCE, REPAIR OR OPERATION OF THE PROPERTY. BUYER ACKNOWLEDGES THAT ANY CONDITION OF THE PROPERTY WHICH BUYER DISCOVERS OR DESIRES TO CORRECT OR IMPROVE PRIOR TO OR AFTER THE CLOSING DATE SHALL BE AT BUYER'S SOLE EXPENSE. BUYER EXPRESSLY WAIVES (TO THE EXTENT ALLOWED BY APPLICABLE LAW) ANY AND ALL CLAIMS UNDER FEDERAL LAW, STATE OR OTHER LAW THAT BUYER MIGHT -17- 22 OTHERWISE HAVE AGAINST SELLER AND SELLER'S RELATED PARTIES RELATING TO THE USE, CHARACTERISTICS OR CONDITION OF THE PROPERTY. THE PROVISIONS OF THIS PARAGRAPH 9.2(b) SHALL SURVIVE THE CLOSING. (c) Seller's Responsibility. Seller shall not have any liability, obligation or responsibility of any kind with respect to the following: (i) The content or accuracy of any report, opinion or conclusion of any soils or environmental experts (including, without limitation, those contained in the Environmental Reports) or other engineer or other person or entity who has examined the Property; (ii) The content or accuracy of any information released to Buyer by an engineer or planner in connection with the development of the Property; (iii) Any of the items delivered to Buyer in connection with Buyer's review of the condition of the Property; and (iv) The content or accuracy of any other cost, projection, financial or other analysis or other information given to Buyer by Seller or Seller's Related Parties or reviewed by Buyer with respect to the Property. (d) Buyer's Experience and Opportunity to Investigate. Buyer is knowledgeable and experienced in the purchase, operation, ownership, refurbishing and sale of commercial real estate, and is fully able to evaluate the merits and risks of this transaction. Paragraph 3 of this Agreement gives Buyer the right to (i) inspect, examine and investigate the Property, and (ii) terminate this Agreement if Buyer determines that the Property is unacceptable to Buyer. If Buyer elects to consummate the purchase of the Property after making such inspections, examinations and investigations, Buyer agrees that it is relying SOLELY on its own inspections, examinations and investigations in making the decision to purchase the Property. (e) Buyer's Nonreliance. Buyer has not relied, and is not relying, upon any information, document, sales brochures or other literature, maps or sketches, projection, proforma, statement, representation, guarantee or warranty (whether express or implied, oral or written, material or immaterial) that may have been given or made by, or on behalf of Seller except as set forth in Paragraph 9.1. (f) Truth of Representations. The representations and warranties of Buyer set forth in this Agreement shall be true on and as of the Close of Escrow as if those representations and warranties were made on and as of such time. The representations, warranties and terms of this Paragraph 9.2 shall survive the Close of Escrow. 10. CONDUCT DURING ESCROW. -18- 23 10.1 ENTRY ON PROPERTY. (a) License To Enter For Investigation. Until Escrow closes or this Agreement is terminated, Buyer and Buyer's employees and agents shall have a limited license to enter upon the Property, during usual business hours, after receipt by Seller of two (2) business days advance written notice of its intention to enter the Property (the "License") so long as the activities do not damage the Property and subject to any rights of tenants under the Leases. Buyer shall not contact or communicate with any tenant of the Property. However, prior to the expiration of the Feasibility Period (and provided that three (3) business days prior written notice has been provided to Seller) Buyer shall be permitted the opportunity to conduct one interview for a reasonable period of time with the tenant under the Scott Lease ("Tenant") and with each of the other tenants under the Leases, including, without limitation, any subtenant under the Scott Lease (collectively, "Other Tenants") subject to the following: (i) all of Buyer's questions are limited to the status of the Tenant's and Other Tenants' businesses, the Tenant's and Other Tenants' satisfaction with their premises, and the Tenant's and Other Tenants' intentions with regard to the future use of their premises (no questions pertaining to the terms of the Tenant's and Other Tenants' lease or renegotiation or buy-out of such terms will be permitted), (ii) a representative of Seller is in attendance at the interviews, and (iii) the Tenant and Other Tenants do not have any objection to their respective interviews (which shall terminate at any time the Tenant and Other Tenants' desire). Before beginning any tests or investigations which contemplate the drilling or disturbance of the surface of the Property, Buyer shall submit to Seller for its approval in its sole and absolute discretion, Buyer's operational plan for conducting the tests or investigations. Seller may have a representative present during any tests or investigations and Buyer shall provide Seller with prior notice of any tests or investigations. After any entry, Buyer shall immediately restore the Property to the Property's condition before Buyer entered on the Property. Buyer shall not allow any dangerous or hazardous condition to be created on or arise from Buyer's entry on the Property. Buyer shall comply with all applicable laws and governmental regulations applicable to its entry to the Property. Buyer shall keep the Property free and clear of all mechanics' liens and materialmen's liens arising out of any of Buyer's activities. The License shall be deemed revoked upon termination of this Agreement. (b) Indemnification on Entries. Buyer shall indemnify, defend (with counsel selected by Seller), and hold harmless Seller and Seller's officers, directors, partners, shareholders, employees, agents, managers, property managers (including, without limitation, Koll Management Services, Inc.), asset managers (including, without limitation, Koll Investment Management, Inc.), attorneys, representatives, subsidiary and parent corporations, affiliated entities, and the above parties' predecessors, successors and assigns, and the Property, (all of the above parties and the Property collectively referred to as "Indemnified Parties and Property") from and against all claims, losses, liens, liabilities, damages, expenses and costs (including, without limitation, attorneys' fees and costs) arising from or relating to the entry of Buyer and its representatives, agents and contractors on the Property. Buyer's obligations under this -19- 24 paragraph shall survive the Close of Escrow and the termination of this Agreement and shall not be limited by any insurance required under Paragraph 10.1(c). (c) Insurance on Entries. Buyer shall maintain or cause to be maintained either Comprehensive General Liability insurance or Commercial General Liability insurance to cover Buyer's activities on the Property. At least five (5) days before entering on the Property, Buyer shall deliver to Seller a Certificate of Insurance evidencing compliance with the terms of this paragraph. The liability insurance policy shall have a combined single limit per occurrence liability limit of at least $2,000,000.00 for premises liability, bodily injury, personal injury and property damage, shall be primary and noncontributing with any insurance which may be carried by Seller, and shall name the Indemnified Parties as additional insureds, and shall be written by companies rated A+XII or better in "Best's Insurance Guide" and authorized to do business in Delaware. The insurance policy shall be maintained and kept in effect by Buyer (or Buyer's agent), at Buyer's (or Buyer's agent's) sole expense, at all times during the term of this Agreement. The insurance policy shall provide that it may not be canceled or modified without at least thirty (30) days prior written notice to Seller, or until this license is terminated. 10.2 SELLER'S OPERATIONS AND NEGOTIATIONS. (a) Operations of the Property. Until expiration of the Feasibility Period, Seller shall be permitted to proceed with its operations at the Property in any manner that it desires in its sole and absolute discretion, including, without limitation, proceeding with any of its leasing efforts, capital improvement work, and other operations and commitments that Seller desires. Prior to the expiration of the Feasibility Period, Seller shall inform Buyer of all new leases executed after the Effective Date ("New Leases"), new contracts ("New Contracts"), and new capital improvement work performed after the Effective Date ("New Capital Improvement Work") and the obligations arising from such New Leases, New Contracts, and New Capital Improvement Work. If Buyer does not terminate this Agreement pursuant to Paragraph 3.1 or 3.2 and proceeds with the Closing of this transaction, Buyer shall assume all obligations arising from the New Leases, New Contracts, and New Capital Improvement Work (and the conveyancing documents shall be modified to reflect such assumption) and Seller shall be paid at Closing for all costs and expenses incurred by Seller in connection with the New Leases, New Contracts and New Capital Improvement Work. However, Seller shall not execute any New Leases, New Contracts, or agreements for New Capital Improvement Work after expiration of the Feasibility Period without Buyer's consent not to be unreasonably withheld. (b) Kimberly-Clark Negotiations. Notwithstanding any provisions to the contrary in this Agreement (including, without limitation, Paragraph 10.2(a)), Buyer acknowledges that Seller is currently in the process of negotiating ("Kimberly-Clark Negotiations") a potential buy-out or termination of the Scott Lease with representatives of Kimberly-Clark Corporation or its parent, subsidiary or affiliated entities (collectively, "Kimberly-Clark"). Seller shall be permitted to proceed in any manner it desires with the Kimberly-Clark Negotiations for the buy-out, termination and/or modification of the Scott Lease -20- 25 pursuant to any terms which Seller desires in its sole and absolute discretion ("Scott Buy-Out Arrangement"). However, after Buyer's Unconditional Commitment To Close (as defined below), Seller shall not execute any written Scott Buy-Out Arrangement documentation that would be legally binding on Buyer after the Closing, without Buyer's consent. At anytime prior to Buyer's Unconditional Commitment To Close, Seller shall have the right to terminate this Agreement by providing Buyer with written notice that Seller has or believes (in its sole and absolute discretion) that it will reach agreement with Kimberly-Clark on a Scott Buy-Out Arrangement and is terminating the Agreement ("Seller Termination Notice"), which termination shall be effective ("Termination Date") upon delivery of the Seller Termination Notice to Buyer ("Seller's Kimberly-Clark Termination Rights"). If Seller exercises Seller's Kimberly-Clark Termination Rights, this Agreement and Escrow shall terminate pursuant to Paragraph 6.3 and Seller shall pay Buyer the Seller's Termination Reimbursement (as defined below) within ten (10) business days of Seller's receipt from Buyer of reasonable proof of Buyer's payment of the items requested as part of Seller's Termination Reimbursement. For purposes of this Paragraph, Buyer's Unconditional Commitment To Close shall mean the time at which Buyer shall have delivered in writing to Seller and Escrow Holder written notice that, except for Seller's satisfaction of its Paragraph 5.2 Closing obligations, all of Buyer's Conditions Precedent To Buyer's Performance and any other conditions to its Closing (including, without limitation, Paragraphs 3.1, 3.2, and 3.3) have conclusively been satisfied or waived by Buyer and Buyer is prepared and shall satisfy its Closing obligations and proceed with Close of Escrow within ten (10) business days thereafter. "Seller's Termination Reimbursement" shall solely consist of the following amounts: (i) the amount of the Deposit actually delivered to Escrow Holder by Buyer (including interest earned thereon), (ii) the Costs Payment, and (iii) those out-of-pocket expenses paid for due diligence review of the Property conducted on Buyer's behalf after the Effective Date of the Agreement but prior to the Termination Date and only to the extent the amounts sought do not exceed the amounts set forth in Buyer's due diligence budget attached as Exhibit "I". (c) Subleases. Buyer acknowledges that Tenant has the right to sublease any portion of the premises under the Scott Lease and has sublet at least a portion of those premises to DuPont Capital Management Corporation. Buyer acknowledges and agrees that Seller shall be permitted to allow and/or not interfere with any subleases of the premises under the Scott Lease or any other Leases pursuant to which Seller allows any subleasing (in its sole and absolute discretion). 11. CONDEMNATION OR CASUALTY. 11.1 CONDEMNATION. If, before the Closing, all or enough of the Property is taken by eminent domain or condemnation proceedings so that the balance of the Property (assuming necessary repairs) is not sufficient for Buyer's intended use for the Property (collectively, a "Taking"), Seller shall notify Buyer of the event after actual knowledge of the Taking and, in that event, Buyer shall have the option to either (i) terminate this Agreement as of the date of the Taking, or (ii) continue with this transaction in accordance with the terms of this -21- 26 Agreement and without any adjustment in the Purchase Price (but with the right to receive an assignment at Closing of all of Seller's condemnation proceeds for such Taking), by delivery of written notice of Buyer's election to Seller within ten (10) days after receipt of Seller's notice. If Seller and Escrow Holder receive Buyer's election to terminate this transaction or have not received any notice from Buyer within the 10-day period, then this transaction shall terminate, and the Deposit shall be returned to Buyer, as provided in Paragraph 6.3. If Buyer elects to continue with this transaction, as provided above, then such condemnation proceeds shall become the property of Buyer after Close of Escrow. 11.2 CASUALTY. If, before the Closing, all or any portion of the Property is damaged by a casualty so that the Property (assuming necessary repairs) is not sufficient for Buyer's intended use for the Property (a "Casualty"), Seller shall notify Buyer of this event after actual knowledge of the Casualty, and, in this event, Buyer shall have the option to either (i) terminate this Agreement as of the date of the Casualty, or (ii) continue with this transaction in accordance with the terms of this Agreement and without any adjustment in the Purchase Price (but with the right to receive an assignment at Closing of all of Seller's insurance proceeds for such Casualty), by delivery of written notice of Buyer's election to Seller and Escrow Holder within ten (10) days after receipt of Seller's notice. If Seller and Escrow Holder receive Buyer's election to terminate this transaction or have not received any notice from Buyer within the 10-day period, then this transaction shall terminate, and the Deposit shall be returned to Buyer, as provided in Paragraph 6.3. If Buyer elects to continue with this transaction, as provided above, then such Casualty proceeds shall become the property of Buyer after Close of Escrow. 12. REMEDIES AGAINST SELLER. IF CLOSE OF ESCROW AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT DO NOT OCCUR BY REASON OF ANY DEFAULT OR BREACH BY SELLER IN ITS OBLIGATION TO TRANSFER THE PROPERTY TO BUYER, BUYER SHALL BE ENTITLED, AS ITS SOLE AND EXCLUSIVE REMEDY, TO EITHER: (I) SEEK SELLER'S SPECIFIC PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT (WITHOUT MONETARY DAMAGES) OR (II) SEEK RECOVERY OF "BUYER'S ACTUAL DAMAGES" AS DEFINED BELOW. BUYER'S SELECTED REMEDY SHALL BE BUYER'S SOLE AND EXCLUSIVE REMEDY FOR SUCH BREACH OR DEFAULT BY SELLER, AND BUYER SHALL NOT BE ENTITLED OR HAVE ANY RIGHT TO RECEIVE ANY OTHER RELIEF, LEGAL OR EQUITABLE. FOR PURPOSES OF THIS PARAGRAPH "BUYER'S ACTUAL DAMAGES" SHALL MEAN THE TOTAL OF THE FOLLOWING: (I) THE AMOUNT OF THE DEPOSIT ACTUALLY DELIVERED TO ESCROW HOLDER BY BUYER, INCLUDING ANY INTEREST EARNED THEREON, (II) THE COSTS PAYMENT, (III) AND THOSE OUT-OF-POCKET EXPENSES PAID FOR DUE DILIGENCE REVIEW OF THE PROPERTY CONDUCTED ON BUYER'S BEHALF AFTER THE EFFECTIVE DATE OF THIS AGREEMENT BUT PRIOR TO THE DATE OF BREACH, AND ONLY TO THE EXTENT THE AMOUNTS SOUGHT DO NOT EXCEED THE AMOUNTS SET FORTH IN BUYER'S DUE DILIGENCE BUDGET ATTACHED AS EXHIBIT "I". -22- 27 _________________ ________________ SELLER'S INITIALS BUYER'S INITIALS 13. GENERAL PROVISIONS. 13.1 ASSIGNMENT. (a) This Agreement shall be binding upon and shall inure to the benefit of Buyer and Seller and their respective successors and permitted assigns. (b) Buyer may only assign this Agreement and any interest or right under this Agreement or under the Escrow after obtaining Seller's prior written consent, in Seller's sole and absolute discretion. Any assignment shall not relieve Buyer of its obligations under this Agreement. 13.2 ATTORNEYS' FEES AND/OR COSTS. In any action or proceeding between the parties to enforce or interpret any of the terms or provisions of this Agreement, the prevailing party in the action or proceeding shall be entitled to recover from the non-prevailing party, in addition to damages, injunctive relief or other relief, its reasonable costs and expenses, including, without limitation, costs and reasonable attorneys' fees, both at trial and on appeal. 13.3 NOTICES AND APPROVALS. All notices, approvals or other communications (collectively, "Notices") required or permitted under this Agreement shall be in writing, and shall be sent by one or more of the following: (i) personally delivered, (ii) sent by overnight mail (Federal Express or the like), (iii) sent by registered or certified mail, postage prepaid, return receipt requested, or (iv) sent by facsimile (provided that a follow-up hard copy of the facsimile is sent the same day by one of the other above methods). Notices shall be deemed received upon the earlier of (i) if personally delivered, the day of delivery, to the address of the person to receive such Notice, (ii) if sent by overnight mail, the first business day following its deposit in such overnight facility, (iii) if mailed, two (2) business days after the date of posting by the United State Post Office, or (iv) if by facsimile, the date of transmission. If multiple methods of providing notice have been used, the earlier date of deemed notice shall govern. In order to be effective, all Notices must be directed to the appropriate parties as follows. To Seller: K/B Fund II c/o Koll Investment Management, Inc. 4343 Von Karman Avenue Newport Beach, California 92660 Attention: Paula Gault, Senior Vice President Telephone: (714) 852-5252, ext. 571 Facsimile: (714) 250-6055 -23- 28 With a copy to: James Chiboucas, Esq. 4343 Von Karman Avenue Newport Beach, California 92660 Telephone: (714) 833-3030, ext. 398 Facsimile: (714) 852-9472 To Buyer: Brandywine Realty Trust Two Greentree Centre, Suite 100 Marlton, New Jersey 08053 Attention: Gerard H. Sweeney, President and CEO Telephone: (609) 797-0200 Facsimile: (609) 797-0425 or (609) 797-0240 -24- 29 With a copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, Pennsylvania 19103-2799 Attention: Brad Molotsky, Esq. Telephone: (215) 981-4262 Facsimile: (215) 981-4930 To Escrow Holder: Chicago Title Company 16969 Von Karman Avenue Irvine, California 92715 Attention: Joy Eaton Telephone: (714) 263-0134 Facsimile: (714) 263-0356 13.4 CONTROLLING LAW. This Agreement shall be construed under the laws of the State of Delaware in effect at the time of the signing of this Agreement. 13.5 TITLES AND CAPTION. Titles and captions are for convenience only and shall not constitute a portion of this Agreement. References to paragraph numbers are to paragraphs in this Agreement, unless expressly stated otherwise. 13.6 INTERPRETATION. As used in this Agreement, masculine, feminine or neuter gender and the singular or plural number shall each be deemed to include the others where and when the context so dictates. The word "including" shall be construed as if followed by the words "without limitation." If a dispute arises over the interpretation or construction of any provision, term or word contained in this Agreement, this document shall be interpreted and construed neutrally, and not against either Buyer or Seller. 13.7 NO WAIVER. A waiver by either party of a breach of any of the covenants, conditions or obligations under this Agreement to be performed by the other party shall not be construed as a waiver of any succeeding breach of the same or other covenants, conditions or obligations of this Agreement. 13.8 MODIFICATIONS. Any alteration, change or modification of or to this Agreement, in order to become effective, shall be made in writing and in each instance signed on behalf of each party. 13.9 SEVERABILITY. If any term or provision of this Agreement, or its application to any party or set of circumstances, shall be held, to any extent, invalid or unenforceable, the remainder of this Agreement, or the application of the term or provision to persons or circumstances other than those as to whom or which it is held invalid or -25- 30 unenforceable, shall not be affected, and each shall be valid and enforceable to the fullest extent permitted by law. 13.10 INTEGRATION OF PRIOR AGREEMENTS AND UNDERSTANDINGS. This Agreement contains the entire understanding between the parties relating to the transaction contemplated by this Agreement. All prior or contemporaneous agreements, understandings, representations, warranties and statements, whether oral or written, expressed or implied, are superseded in their entirety by this Agreement, and are of no force or effect, in whole or in part. 13.11 NOT AN OFFER. Seller's delivery of unsigned copies of this Agreement is solely for the purposes of review by Buyer, and neither the delivery nor any prior communications between Buyer and Seller, whether oral or written, shall in any way be construed as an offer by Seller, nor in any way imply that Seller is under any obligation to enter the transaction which is the subject of this Agreement. The signing of this Agreement by Buyer constitutes an offer which shall not be deemed accepted by Seller unless and until Seller has signed this Agreement and delivered a duplicate original to Buyer. If Seller has not deposited a fully executed original or facsimile (or combination of facsimile and original execution pages) of this Agreement with Escrow Holder by August 16, 1996, any offer effectuated by Buyer's signing of this Agreement shall be deemed revoked. 13.12 TIME OF ESSENCE. Time is expressly made of the essence as to the performance of each and every obligation and condition of this Agreement. 13.13 POSSESSION OF PROPERTY. Buyer shall be entitled to possession of the Property only after the Closing and not before. 13.14 COUNTERPARTS. This Agreement may be signed in multiple counterparts which shall, when signed by all parties constitute a binding agreement. 13.15 EXHIBITS INCORPORATED BY REFERENCE. All exhibits attached to this Agreement are incorporated into this Agreement by this reference. 13.16 [OMITTED]. 13.17 COMPUTATION OF TIME. The time in which any act is to be done under this Agreement is computed by excluding the first day (such as the Effective Date), and including the last day, unless the last day is a holiday or Saturday or Sunday, and then that day is also excluded. All references to time shall be deemed to refer to Eastern Standard time. 13.18 JOINT AND SEVERAL LIABILITY. If Buyer is composed of more than one individual or entity, all obligations and liabilities of Buyer under this Agreement shall be joint and several as to each of those individuals or entities who compose Buyer. -26- 31 13.19 BUYER'S WORK PRODUCT CONCERNING THE PROPERTY. If for any reason Buyer fails to purchase the Property, and as a condition to the return of the Deposit to Buyer (if Buyer is so entitled), Buyer shall immediately deliver to Seller, at no cost or expense to Seller, all test results, studies, plans, reports or other materials or work product prepared by Buyer, or its agents, employees or contractors, related to the Property ("work product"). Following delivery, Seller may use this work product for any purpose. 13.20 NO OBLIGATIONS TO THIRD PARTIES. The execution and delivery of this Agreement shall not be deemed to confer any rights upon, nor obligate any of the parties to this Agreement to, any person or entity other than Seller and Buyer. There are not any third party beneficiaries to this Agreement, including, without limitation, Broker. 13.21 SURVIVAL OF COVENANTS. The covenants, agreements, indemnitees, representations and warranties of Buyer shall survive the Close of Escrow and termination of this Agreement. "SELLER" "BUYER" K/B Fund II, a Delaware general Brandywine Realty Trust, a partnership Maryland business trust /s/ Gerard H. Sweeney By: K/B Opportunity Fund II, L.P., a By: _____________________ Delaware limited partnership, Gerard H. Sweeney, managing general partner President and CEO By: KB Opportunity Investors, a Attest/Witness California general partnership, sole general partner _____________________ By: Koll Investment Management, Inc., _____________________ a California corporation, (Print Name) general partner /s/ Charles J. Schreiber, Jr. Attest/Witness By: _____________________________ Charles J. Schreiber, Jr. ____________________ Executive Vice President ____________________ (Print Name) -27- EX-10.49 17 REINSTATEMENT AND FIRST AMEND TO PURCHASE CONTRACT 1 EXHIBIT 10.49 REINSTATEMENT AND FIRST AMENDMENT TO PURCHASE AGREEMENT FOR REAL PROPERTY AND ESCROW INSTRUCTIONS This Reinstatement and First Amendment to Purchase Agreement For Real Property And Escrow Instructions ("First Amendment") is entered into as of October 17, 1996 ("Effective Date") between K/B FUND II, a Delaware general partnership ("Seller") and BRANDYWINE REALTY TRUST, a Maryland business trust ("Buyer"). Any terms not defined in this First Amendment shall have the same meanings as in the Purchase Agreement defined below. All paragraph references are to paragraphs in the Purchase Agreement. RECITALS A. Buyer and Seller entered into that certain Purchase Agreement For Real Property And Escrow Instructions dated as of August 12, 1996 (the "Purchase Agreement"), for certain real property commonly referred to as Delaware Corporate Center I, New Castle County, Delaware. B. On or about September 6, 1996, Buyer terminated the Purchase Agreement. C. By this First Amendment, Seller and Buyer desire to reinstate and amend the Purchase Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth below and for valuable consideration which is acknowledged, the parties agree as follows: 1. Reinstatement. The Purchase Agreement, subject to the modifications and terms provided below, is hereby reinstated and in full force and effect. 2. Deposit. Concurrent with or prior to the delivery of this First Amendment, Buyer shall deliver to Escrow Holder the One Hundred Thousand Dollars ($100,000) "Initial Deposit" provided for under Paragraph 2.3(a)(i) of the Purchase Agreement. Except in the event of Seller's breach of this Agreement and except as expressly provided otherwise in the Agreement, the Initial Deposit shall be immediately non-refundable. Paragraphs 2.3(a)(ii) and 2.3(a)(iii) are hereby deleted and replaced with the following Paragraph 2.3(a)(ii): "(ii) Handling and Non-Refundablity of Deposit. For purposes of this Agreement, the term "Deposit" shall mean the Initial Deposit, if and until such time as the Escrow Holder has received the Additional Deposit (as defined in Paragraph 2.5(c)), after which the term "Deposit" shall collectively mean both the Initial Deposit and Additional Deposit (i.e. $400,000). Escrow Holder shall place the Deposit in an interest bearing account and all earned interest shall accrue to -1- 2 Buyer's benefit, unless Seller is entitled to the Deposit as liquidated damages under Paragraph 6.5, in which event, interest shall accrue to Seller's benefit. For purposes of this Agreement, any accrued interest shall be deemed part of the "Deposit"." The phrase "upon which Buyer shall deliver the Additional Deposit to Escrow Holder" in Paragraph 3.2.2 is also hereby deleted. 3. Outside Date. Paragraph 2.5 is deleted and replaced with the following: "2.5 OUTSIDE DATE. (a) Outside Date. The last day that Closing may occur shall be 5:00 p.m. on November 15, 1996 ("Outside Date"). (b) Seller's Right to Extend. Seller shall have the right to extend the Outside Date up to and including December 16, 1996 by delivery of written notice to Buyer and Escrow Holder of the intended extended Outside Date by no later than 5:00 p.m. on November 7, 1996. (c) Buyer's Right to Extend. Buyer shall have the right to extend the Outside Date to December 16, 1996 by satisfying both of the following: (i) delivery to Seller and Escrow Holder by no later than 5:00 p.m. on November 7, 1996 of written notice of the extension of the Outside Date to December 16, 1996 and (ii) delivery to Escrow Holder of an additional deposit of Three Hundred Thousand Dollars ($300,000) ("Additional Deposit"). Except in the event of Seller's breach of this Agreement and except as expressly provided otherwise under this Agreement, the Additional Deposit shall also become immediately non-refundable." 4. Feasibility Period. Paragraph 2.7 is amended to provide that the "Feasibility Period" ended on October 17, 1996 at 5:00 p.m. 5. Satisfaction Or Waiver Of Conditions. Buyer acknowledges and agrees that the Paragraph 3.1 (Title Condition), Paragraph 3.2 (Feasibility Condition), Paragraph 3.5 (Tenant Estoppel Certificate) and Paragraph 3.6 (Ground Lessor Estoppel Certificate) conditions precedent to Buyer's performance have been conclusively satisfied or are hereby waived by Buyer. 6. Scott Lease Representation and Warranty. The following Paragraph 9.1(f) is added to the Purchase Agreement: -2- 3 "(f) Seller has not entered into any valid and binding written agreement with the existing tenant under the Scott Lease requiring Seller to accept such tenant's buy-out or termination of the Scott Lease (except where such termination is specifically permitted under the terms of the Scott Lease (i.e. condemnation, etc.)). 7. Kimberly-Clark Negotiations. Notwithstanding the terms of Paragraph 10.2(b), effective as of the date of this First Amendment: (i) Seller shall not execute any written Scott Buy-Out Arrangement (as defined in Paragraph 10.2(b)) documentation that would be legally binding on Buyer after the Closing, without Buyer's consent, and (ii) Seller's Kimberly-Clark Termination Rights (as defined in Paragraph 10.2(b)) shall terminate and be of no further force or effect. 8. Buyer's Work Product. Paragraph 13.19 is deleted and replaced with the following: "13.19 BUYER'S WORK PRODUCT CONCERNING THE PROPERTY. If for any reason Buyer fails to purchase the Property, and as a condition to the return of the Deposit to Buyer (if Buyer is so entitled), Buyer shall immediately deliver to Seller (to the extent it has not already done so), at no cost or expense to Seller, all of the following (collectively, "Buyer's Work Product"): A. The Phase I Environmental Assessment as set forth on the Proposal, Phase I Environmental Assessments, McLaren/Hart No.: PH96-0170, September 4, 1996, Prepared for Brandywine Realty Trust, Prepared by McLaren/Hart Environmental Engineering Corporation (already delivered to Seller). B. The Property Condition Report as set forth in the September 6, 1996, Proposal for Property Condition Report Services, Delaware Corporate Center One, Newcastle County, Delaware, Comm. No. 96-214-005, prepared for Brandywine Realty Trust, prepared by Eckland Consultants, Inc (already delivered to Seller). C. An update by Tetra-Tech of its June, 1995 survey for the Property. D. All other test results, studies, plans, reports or other materials and work product prepared by Buyer, or its agents, employees or contractors related to the Property . Following delivery, Seller may use the Buyer's Work Product for any purpose. Buyer shall not enter into any terms, covenants, or agreements with any preparers of any of Buyer's Work Product that prohibits delivery or disclosure of Buyer's Work Product to Seller." -3- 4 9. Exhibits. The parties acknowledge and agree that the Exhibit "B" attached to this First Amendment shall constitute the Exhibit "B" to the Purchase Agreement. The parties also acknowledge and agree that the Exhibit "E" attached to this First Amendment shall be deemed the Exhibit "E" to the Purchase Agreement. 10. Entire Agreement. This First Amendment contains the entire understanding between the parties relating to its subject matter. 11. No Further Modification. Except as specifically set forth in this First Amendment, the Purchase Agreement is not modified in any way and shall remain in full force and effect. 12. Facsimile and Counterparts. This First Amendment shall be effective even if signed by facsimile and/or in counterparts. SELLER: BUYER: K/B FUND II, a Delaware general BRANDYWINE REALTY TRUST, partnership a Maryland business trust By: K/B Opportunity Fund II, L.P., a Delaware limited partnership, managing general partner By: /s/ Gerard H. Sweeney ______________________ Gerard H. Sweeney, By: KB Opportunity Investors, President and CEO a California general partnership, sole general Attest/Witness partner ______________________ By: Koll Investment Management, Inc., a California corporation, ______________________ general partner (Print Name) By: /s/ Charles J. Schreiber, Jr. _____________________________ Charles J. Schreiber, Jr. Executive Vice President Attest/Witness ____________________ ____________________ (Print Name) -4- EX-10.50 18 REAL ESTATE SALE AND PURCHASE CONTRACT 1 EXHIBIT 10.50 REAL ESTATE SALE AND PURCHASE CONTRACT THIS CONTRACT ("Contract") is made and entered into as of the ____ day of August, 1996 (hereinafter referred to as "the date hereof"), by and between MONUMENTAL LIFE INSURANCE COMPANY, a Maryland corporation, (hereinafter referred to as "Seller"), and BRANDYWINE REALTY TRUST, a Maryland real estate investment trust (hereinafter referred to as "Purchaser"). WHEREAS, Seller owns the office building, real property and related improvements located at 8000 Lincoln Drive, Marlton, Evesham Township, Burlington County, New Jersey commonly known as and hereinafter referred to as "8000 Lincoln Drive", which office building Seller has agreed to sell to Purchaser upon certain terms and conditions; and WHEREAS, the parties intending to be legally bound desire to set forth in writing the terms and conditions of their agreements, NOW THEREFORE, WITNESSETH: That in consideration of the promises and covenants hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto mutually agree as follows: l. AGREEMENT TO PURCHASE AND SELL. A. Seller agrees to sell to Purchaser and Purchaser agrees to purchase from Seller, subject to the terms and conditions of this Contract, 8000 Lincoln Drive, which property consists of the following (all of which shall hereinafter be collectively referred to as the "Property"): (i) That certain tract or tracts of land (the "Land") being more particularly described on Exhibit "A" attached hereto, together with all appurtenances to the Land including, without limitation, all easements, rights, serviant estates and rights of way appurtenant thereto; (ii) All buildings, improvements, structures and fixtures, placed, constructed, installed, or located on the Land, together with the parking facilities related thereto, and all other improvements situated on, over and under the Land ("Improvements"); (iii) All of the furniture, furnishings, fixtures, fittings, appliances, apparatus, systems, equipment, tools, supplies and machinery owned by Seller and located on the Property (the "Personal Property"); (iv) All leases and rental agreements with tenants now or hereafter occupying space in the Improvements or otherwise having rights with respect to the use of the Land or the Improvements (the "Tenant Leases") and the Seller's interest in all security, advance rental, or other deposits made under the Tenant Leases; and (v) All rights of Seller, if any, to the name the "8000 Lincoln Drive", including, if and only to the extent owned by Seller, the exclusive right to use the name. 2. PURCHASE PRICE AND METHOD OF PAYMENT. 2 A. The total purchase price for the Property to be paid by Purchaser is Three Million One Hundred Thousand Dollars ($3,100,000.00), payable in cash by Purchaser at Closing. B. Within three (3) business days after the date hereof, Purchaser shall deliver to Commonwealth Land Title Insurance Company, whose address is 1700 Market Street, Philadelphia, PA, 19103 Attention: Karen Mark (hereinafter referred to as the "Title Company") an initial earnest money payment (the "Deposit") in the amount of Fifty Thousand Dollars ($50,000.00). C. Purchaser shall deliver to the Title Company an additional earnest money payment in the amount of One Hundred Thousand Dollars ($100,000.00), upon: (i) Seller's finalization of leases with Computer Sciences Corporation and with Blue Cross Blue Shield, and Purchaser's approval of those leases; or (ii) expiration of the Inspection Period, whichever first occurs. That additional earnest money payment shall become part of the Deposit which shall be refundable until the expiration of the Inspection Period. D. The Deposit shall be placed by the Title Company in an interest bearing account with all interest earned thereon to be for the benefit of the Purchaser, except as provided below. The interest accruing on the Deposit and any additional earnest money amounts paid in conjunction with this Contract shall also become part of the Deposit. If the Purchaser shall default and the Deposit is paid to Seller, the Seller shall also become entitled to all earned and accrued interest on the Deposit. The Deposit shall be held during the pendency of this Contract and disbursed in accordance with the terms hereof. In the event the transactions covered hereby shall close, at Closing the Deposit shall, at Seller's option, be credited towards the Purchase Price or returned to Purchaser. 3. PERMITTED TITLE EXCEPTIONS. The Property is being sold in fee simple title, subject to the following exceptions: A. Zoning and building laws or ordinances; B. Parties in possession on the date of Closing, as tenants only pursuant to the Tenant Leases; C. The liens of real estate taxes which are not yet due and payable; D. Title exceptions as to the Property as set forth on Exhibit "B" attached hereto; E. Matters shown on the survey of the Property prepared by John T. Butler, dated March 19, 1990 and revised through April 11, 1990. (A through E above are hereinafter collectively referred to as "Permitted Exceptions"). 4. CLOSING. Consummation of the transactions contemplated by this Contract (the "Closing") will be held at or closed in escrow through the offices of the Title Company on a day and at a time mutually agreeable to the parties on or before October 23, 1996. In the absence of a different specified date in accordance with this paragraph, the Closing shall take place at 9:00 A.M., on the above stated date, (hereinafter referred to as the "Closing Date"). 5. INSPECTION PERIOD. -2- 3 Purchaser shall have until September 30, 1996 (hereinafter referred to as the "Inspection Period"), to inspect the Property and Seller's records relating thereto, to determine in Purchaser's sole discretion whether the Property is suitable for its investment. Seller shall make the Property and every part thereof available for Purchaser's inspection. Any destructive testing by Purchaser or their agents shall be done only with the prior written consent of Seller, which shall not be unreasonably withheld. Purchaser agrees to promptly repair any damage occasioned by Purchaser's tests and/or inspections. Purchaser agrees to indemnify and hold Seller harmless from any expense of Purchaser's inspections performed by third parties, including reasonable attorney's fees and any other costs incurred by Seller to remove any liens therefor, and from liability for any personal injury or property damage arising from Purchaser's, its employees' and agents' presence on the Property prior to Closing. Notwithstanding anything to the contrary contained herein, Purchaser's agreements in this paragraph to repair and indemnify shall survive the Closing and/or termination of this Contract. If Purchaser is not satisfied with the Property for any reason, Purchaser may terminate this Contract by giving written notice to Seller on or before September 30, 1996. If no such notice is received by Seller on or prior to such date, Purchaser's option to so terminate shall expire and be of any further force and effect. If Purchaser elects to terminate as provided herein, upon Purchaser's compliance with Paragraph 7 (C) hereof, Purchaser's Deposit shall be refunded, this Contract shall be terminated and neither party shall have any further rights or obligations hereunder. 6. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants that: A. Attached hereto as Exhibit "C" is a true and complete rent roll of the Property as of the date set forth thereon. Except as disclosed on Exhibit "C," to Seller's actual knowledge, (i) no tenant is in default under its lease, and (ii) Seller has not received notice that it is in default as landlord under any Tenant Lease. B. Seller has no actual knowledge, without having performed any investigation or inquiry, other than: (i) the Environmental Assessment report prepared by Synertech Incorporated, dated March 28, 1990; (ii) the Underground Storage Tank Closure Activities report prepared by The Needleman Group, dated July 31, 1990; (iii) the letter of Stephen M. Trautman dated August 15, 1990; (iv) the Phase I Environmental Site Assessment and Environmental Sampling report prepared by Furgo Environmental, Inc., dated May 3, 1995; and (v) the Environmental Radius Map Report of Dunn & Bradstreet, dated January 11, 1996, (hereinafter collectively referred to as the "Reports") of the presence on or contamination of the Property or any part thereof by any toxic or hazardous substances, or underground storage tanks except as may be set forth in the Reports. Seller does not warrant the accuracy or completeness of the Reports. Purchaser may conduct such investigations of the Property in this regard as it may deem advisable to assure Purchaser that the Property is not contaminated. As per the last unnumbered paragraph of Paragraph No. 5 above, Purchaser may on or before September 30, 1996, terminate this Contract for any reason by written notice to Seller. If any investigations of the Property by Seller disclose any contamination other than as indicated in the Reports, Purchaser shall provide Seller with a copy of the results of the investigation showing contamination. Upon such termination, this Contract shall be null and void, and upon return -3- 4 to Seller of all materials concerning the Property furnished by Seller and any copies made of those materials, Purchaser's Deposit shall be promptly refunded and neither party shall have any further obligations hereunder. C. There is no pending, or to Seller's actual knowledge, any threatened litigation which will affect the Property or Purchaser's ownership thereof after Closing, or the performance of Seller hereunder. D. Seller has received no notice of (i) any planned condemnation proceeding which would affect the Property or any part thereof, (ii) any pending special assessments against the Property, or (iii) any increase in the taxable value of the Property, other than normal, periodic evaluations. E. There are no contracts or agreements (other than the Tenant Leases, contemplated tenant leases as per Paragraph 2 (c), contemplated construction contracts as per Paragraph 7 (D) and Permitted Exceptions) which will affect the Property or Purchaser's operation thereof after Closing. F. Seller has received no notice and has no actual knowledge (without having performed any investigation or inquiry) that the Property or the use thereof is in violation of any governmental law, rule or ordinance applicable thereto, including zoning laws or ordinances. Notwithstanding the foregoing, Seller makes no representation as to the compliance of the Property or Improvements with the American With Disabilities Act and Purchaser acknowledges that it is purchasing the Property on an "AS IS" basis in regard to such compliance. G. Seller is a corporation, duly organized, in good standing and has been duly authorized to enter into and perform its agreements under this Contract. H. As of the Closing Date, no persons shall be employed in connection with the management, operation, or maintenance of the Property for whom Purchaser shall have any liability whatsoever after the Closing. I. To the best of Seller's actual knowledge, there are no pending or threatened assessments or charges that would affect the Property, or that would increase the assessed value of any portion of the Land or the Property. J. That Seller has not granted, nor to the best of Seller's actual knowledge are there outstanding, any options, rights of first refusal, conditional sales agreements or other arrangements other than Tenant Leases, whether oral or written, which affect any portion of the Property. K. Other than the Assumed Expenses, all debts, liabilities and obligations incurred by Seller arising out of the construction, ownership and operation of the Property including, but not limited to, construction costs, salaries, taxes, accounts payable, and the like will be brought current by Seller through the date of Closing. L. Seller has not conducted or to its knowledge, permitted any activity on the Property, or used or permitted the use of the Property, in any manner involving hazardous materials (as defined under applicable federal or state statues, rules or regulations). M. To the best of Seller's actual knowledge there are no outstanding notices of uncorrected violations of the building, safety, plumbing, electrical, health, zoning or fire ordinances of the city, county, state or municipality in which the Property is located. -4- 5 N. Except for the Assumed Contracts, as of the Closing Date there will be no management, service, supply, security, maintenance, or similar contracts with respect to or affecting the Property. 7. COVENANTS AND AGREEMENTS. A. Between the date hereof and the Closing, Seller shall not enter into any new agreements or contracts affecting the Property, nor shall Seller enter into any new lease or modify or terminate any existing Tenant Lease without the prior written consent of Purchaser, which consent Purchaser agrees shall not be unreasonably withheld. Notwithstanding the above provisions to the contrary, Seller shall be permitted to enter into the tenant leases as set forth in section (D) below and also into the Contracts defined in that section without any further consent of Purchaser. B. Seller agrees to give Purchaser prompt written notice of any matter coming to the knowledge of Seller which would render any of the representations and warranties of Seller contained herein untrue in any material respect. In the event such change or disclosure shall have a material detrimental effect upon the Property or the value thereof, Purchaser, as its sole remedies, shall have the right to either: (i) terminate this Contract by written notice to Seller such that Seller receives the notice no later than the fifth (5th) day after Purchaser's receipt of Seller's notice as to such change or disclosure; or (ii) waive such condition(s) and close. Upon termination, Purchaser's Deposit shall be promptly returned and neither party shall have any further rights or obligations hereunder. Absent such timely written notice of termination, Purchaser shall be deemed to have waived the matters so disclosed. C. Purchaser acknowledges and agrees that all information and materials provided to Purchaser by Seller in conjunction with this transaction are for Purchaser's sole use and benefit as a prospective purchaser on a strictly confidential basis. All information provided is to be treated as proprietary and confidential and is not to be disclosed or disseminated to third parties, except appropriate information may be provided to potential investors, advisors and lenders who have agreed to abide by these terms of confidentiality. Purchaser's obligations as to confidentiality are ongoing and shall continue until such time as the purchase of the Property has been finalized. In the event the Purchaser's purchase of the Property is not consummated for whatever reason, Purchaser's obligations as to confidentiality shall continue and all materials concerning the Property furnished by Seller and any copies made of those materials are to be promptly returned to Seller at Purchaser's expense. D. Purchaser agrees to assume in full all tenant improvement costs and leasing commission expenses for which the Seller as landlord is responsible pursuant to the Computer Sciences Corporation and Blue Cross Blue Shield leases. Purchaser acknowledges that the amounts so assumed are currently estimated to be approximately $700,000.00 as to the Computer Sciences Corporation lease and approximately $570,000.00 as to the Blue Cross Blue Shield lease. In addition, Purchaser shall be responsible for all other building and capital improvement expenses incurred by Seller associated with or resulting from the above two leases, which additional expenses are currently estimated at $200,000.00. All such amounts shall herein be referred to collectively as "Assumed Expenses". Purchaser shall reimburse Seller at Closing for that portion of the Assumed Expenses actually paid by Seller, if any. In the event, however, either of the above tenants has commenced paying monthly rental prior to the -5- 6 Closing, the tenant improvement expenses and leasing commissions shall be prorated over the term of the lease with Purchaser being responsible for only the prorata share allocable to the portion of the lease term from and after the date of Closing. At Closing, as provided in attached Exhibit "D", Purchaser shall assume all of Seller's obligations, responsibilities and liabilities under the construction contracts for the above projects (herein referred to as the "Contracts") , which Contracts including Addendum and General Conditions of the Contract for Construction shall be in the general form of Exhibit "G" attached hereto. 8. TITLE AND SURVEY. A. Within its Inspection Period, Purchaser shall procure at Purchaser's expense, and deliver or cause to be delivered to Seller a copy of a commitment covering the Property issued by the Title Company, binding the Title Company to issue its standard form owner's policy of title insurance to Purchaser in the amount of the purchase price, together with certified copies of all exceptions to title coverage listed therein. Purchaser shall have until the expiration of its Inspection Period to notify Seller in writing of any defects in or encumbrances upon Seller's title to the Property (other than the Permitted Exceptions). Any matters not so timely objected to shall become Permitted Exceptions. Seller shall have until five (5) days prior to Closing to cure the objections (or to make arrangements to so cure at Closing), including any survey objections made pursuant to Paragraph 8(B) below, but shall have no obligation to do so. Unless the parties agree in writing to extend the Closing date, if any objections are not cured by the scheduled date of Closing, Purchaser may, as its sole and exclusive remedies, either (i) terminate this Contract and receive a refund of the Deposit, whereupon neither party shall have any further obligation hereunder, or (ii) waive such defects and take the title as it then is upon giving to Seller written notice of such election no later than three (3) days prior to Closing and tendering performance on its part. In the absence of such notice, Purchaser shall be deemed to have elected to terminate this Contract. B. Prior to the expiration of its Inspection Period, if required by Purchaser, Purchaser may obtain at Purchaser's expense and deliver a copy to Seller forthwith upon Purchaser's receipt an updated survey of the Property certified to Seller, Purchaser and the Title Company and object, in writing, to any new matter shown thereon. Purchaser shall have ten (10) days following Purchaser's receipt of the survey within which to object to Seller, in writing, to any new matter shown thereon. Purchaser shall be conclusively deemed to have accepted all matters that would be disclosed by an accurate survey unless such written objections are timely delivered to Seller. Seller shall have ten (10) days following receipt of Purchaser's written objections in which to either (i) remove any survey objections to Purchaser's reasonable satisfaction; or (ii) notify Purchaser of Seller's intention to do so prior to Closing. If Seller does not remove the survey objections or notify Purchaser of Seller's intention to do so, this Contract shall be deemed terminated unless within five (5) days of the expiration of the above ten (10) day period Purchaser notifies Seller in writing of Purchaser's election to waive those objections and proceed to close. In the event of termination of this Contract, Purchaser's Deposit shall be refunded upon Purchaser's compliance with Paragraph 7 (C) hereof. 9. ITEMS TO BE DELIVERED AT THE CLOSING. -6- 7 A. At Closing, Seller shall deliver the following: (1) Special Warranty Deed for the Property in the form attached hereto as Exhibit "E" (modified as necessary to comply with state law or local law requirements), conveying to Purchaser fee simple title to the Property, subject only to the Permitted Exceptions. (2) A blanket conveyance, bill of sale and assignment (the "Bill of Sale"), conveying and assigning title with covenants of special warranty to Purchaser, free and clear of all liens and encumbrances (other than the Permitted Exceptions), the Personal Property, the Tenant Leases, the Contracts, and rights, if any, to the name of the Property; such instrument to be in form attached hereto as Exhibit "D". (3) A rent roll (the "Rent Roll") for the Property, certified by Seller to be true, complete and correct as of the Closing Date and reflecting the status of tenant delinquencies, if any, existing as of the Closing Date. (4) All keys in Seller's possession or control to all locks on the Property and to the extent they are in Seller's possession, executed originals or counterparts of all Tenant leases. (5) A certificate in the form of attached Exhibit "F" from Seller, certifying that Seller is a non-foreign entity. (6) Possession of the Property. (7) Affidavits required by the Title Company regarding matters of mechanic liens or claims against title not of record, provided that any such affidavit or indemnity shall be limited to matters or claims by, through, or under Seller but not further or otherwise, and further provided the same are reasonable, appropriate and acceptable in form and substance to Seller. (8) Seller shall use its best efforts (without incurring additional expense and without being obligated to institute litigation) to obtain an executed tenant estoppel letter in the form of Exhibit "H" from Computer Sciences Corporation and Blue Cross Blue Shield. In the event Sellers cannot for any reason obtain a tenant estoppel letter from either of said tenants, Purchaser agrees to rely on the Seller's (Landlord) estoppel letter, covering only the period of Sellers' actual ownership of the Property, in the form of Exhibit "I". B. Action at the Closing by Purchaser. On the date of Closing, Purchaser shall deliver to the Seller by wire transfer the amount required by Paragraph 2 hereof, subject to prorations and credits as contemplated herein. Purchaser shall execute and deliver to Seller at Closing a copy of the Bill of Sale evidencing Purchaser's assumption of the Tenant Leases and Contracts. The parties shall execute "Notices to Tenants" advising tenants of the sale and Purchaser agrees to deliver, or cause to be delivered, such notices to each tenant after Closing. 10. CLOSING PRORATIONS. Purchaser shall obtain its own insurance coverage for the Property at Closing. Property expenses, including water, sewer and services, collected rents and ad valorem taxes on the Property for the current year shall -7- 8 be prorated at the Closing, effective as of the Closing Date, based on the Property's 1997 assessed value of $3,000,000.00, with the prorations to be adjusted in cash between the parties based on actual taxes at the time actual taxes are determined. Purchaser acknowledges that a result of Seller's assessment appeal as to the Property, the 1997 assessed value has been set at $3,000,000.00, which value is binding upon both parties. Tenant security deposits in the possession of Seller and prepaid rents shall be credited to Purchaser. Purchaser will purchase from Seller, at face value, all account receivables of tenants whose entire account is less than thirty (30) days delinquent. Purchaser shall remit as collected Seller's pro-rata share of any annual tenant reimbursements. Seller agrees to promptly deliver to Purchaser, Purchaser's prorata share of any rents collected by Seller from the Property after Closing. Rents collected after Closing shall be allocated first to rents THEN DUE Purchaser, if any, and then to delinquent rents due Seller. After Closing, Purchaser agrees to use reasonable efforts to collect delinquent rentals due Seller, but Purchaser shall not be required to institute legal action therefor. Any delinquent rents and/or tenant reimbursements which remain the property of Seller and are collected by Purchaser after Closing shall be delivered promptly to Seller by Purchaser. Seller may, upon notice to Purchaser, collect directly any of its account receivables from the Property which remain unpaid sixty (60) days after Closing. Upon request, either party shall give the other an accounting of amounts collected from such Tenants after Closing. Seller shall cause all utility meters to be read on the Closing Date and Purchaser shall be responsible for having utilities connected on such date in its own name. Pursuant to Paragraph 7 (D) above, certain lease related costs and expenses may be reimbursed to Seller at Closing. 11. CLOSING COSTS. Purchaser shall pay the cost of the owner's standard title insurance policy and any additional endorsements and coverages ordered by Purchaser, the costs of an updated survey if required, and recording fees for the deed. Seller shall pay the cost of the real estate transfer tax. The parties shall each pay one-half of the Title Company escrow fees, if any. Each party shall bear its own attorney's fees. 12. REMEDIES UPON DEFAULT. IF PURCHASER SHALL DEFAULT IN ITS PERFORMANCE OF THIS CONTRACT, PURCHASER AND SELLER AGREE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE DAMAGES WHICH SELLER MAY SUFFER. THEREFORE, PURCHASER AND SELLER HEREBY AGREE A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT SELLER WOULD SUFFER IN THE EVENT PURCHASER DEFAULTS AND FAILS TO COMPLETE THE PURCHASE OF THE PROPERTY IS AND SHALL BE, AS SELLER'S SOLE AND EXCLUSIVE REMEDY (WHETHER AT LAW OR IN EQUITY), AN AMOUNT EQUAL TO THE DEPOSIT. SAID AMOUNT SHALL BE THE FULL, AGREED AND LIQUIDATED DAMAGES FOR THE BREACH OF THIS CONTRACT BY PURCHASER, ALL OTHER CLAIMS TO DAMAGES OR REMEDIES BEING HEREIN EXPRESSLY WAIVED BY SELLER. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER. UPON SUCH DEFAULT BY PURCHASER, THIS AGREEMENT SHALL BE TERMINATED AND NEITHER PARTY -8- 9 SHALL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS HEREUNDER, EACH TO THE OTHER EXCEPT FOR THE RIGHT OF SELLER TO RECEIVE SUCH LIQUIDATED DAMAGES FROM THE TITLE COMPANY. NOTWITHSTANDING THE FOREGOING, SELLER SHALL BE ENTITLED TO RECEIPT OF ATTORNEY'S FEES, SHOULD PURCHASER REFUSE TO DIRECT THE TITLE COMPANY TO DELIVER THE DEPOSIT TO SELLER AND SELLER PREVAILS IN OBTAINING THE DEPOSIT BY SUIT OR OTHER COLLECTION EFFORTS. If Seller shall default in its performance of this Contract, the Purchaser may, as its sole and exclusive remedies elect to (i) terminate this Contract and receive a refund of the Deposit, (ii) enforce specific performance of this Contract or (iii) sue Seller for damages, which damages the parties agree shall be limited to an amount not to exceed the initial Deposit. Except for failure to close on the specified Closing Date, for which default no notice or cure period is required, prior to a declaration of default, the declaring party shall give the defaulting party written notice specifying the default. The defaulting party shall have five (5) business days from receipt of such notice to cure the default. If the cure period extends beyond the scheduled date of Closing, the Closing Date shall be postponed to the last day of the cure period. In the event either party hereto employs an attorney and commences legal action because of the other party's default, then the non-prevailing party shall pay to the prevailing party reasonable attorney's fees incurred in the enforcement of this Contract. If the sale contemplated herein does not close for any reason, Purchaser shall promptly return to Seller all materials concerning the Property furnished by Seller and any copies made of those materials. If Purchaser is entitled to a return of its Deposit, such Deposit shall not be released until all such materials concerning the Property are returned to Seller at Purchaser's expense. 13. RISK OF LOSS. A. Until Closing, all risk of loss of the Property is on the Seller and if, prior to Closing, the Property shall become damaged by fire or other casualty or become the object of any condemnation proceedings, Purchaser may, as its sole and exclusive remedies, elect to either (i) terminate this Contract and receive a refund of its Deposit, or (ii) proceed with the Closing and receive an assignment in form acceptable to Purchaser of all insurance proceeds or awards for such taking. If the Property is damaged prior to Closing, the cost of repair of which is in excess of One Million Five Hundred Thousand Dollars ($1,500,000.00), Seller may elect to terminate this Contract by written notice to Purchaser. Any election allowed hereunder shall be made in writing no later than the earlier of (i) the scheduled date of Closing, or (ii) ten (10) days after a party's receipt of notice of such damage or proceeding. B. Except for injury or damages caused by the deliberate act or omission of Seller, its employees, agents or contractors, Purchaser assumes all liability for personal injury or property damage occurring on the Property on and after the Closing Date and agrees to indemnify and hold Seller harmless from any claim, loss or cause of action arising therefrom. Except for injury or damages caused by the deliberate act or omission of -9- 10 Purchaser, its employees, agents or contractors, Seller agrees to indemnify and hold Purchaser harmless from any claim, loss or cause of action for personal injury or property damage occurring prior to the Closing Date. This indemnity is in addition to and not in substitution for any other indemnity given by either party in this Contract or in the documents delivered at Closing pursuant hereto. 14. NOTICES. All notices and demands herein required shall be in writing. Whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be hand-delivered personally or by express mail, courier service (both with delivery receipt), or electronically verifiable facsimile transmission or sent by United States Mail (registered or certified) postage prepaid, to the addresses set forth below. As to Seller: Monumental Life Insurance Company c/o AEGON USA Realty Advisors, Inc. 4333 Edgewood Road N.E. Cedar Rapids, IA 52499 Attention: Bill Sindlinger Fax Number: (319) 369-2188 Telephone Number: (319) 369-2552 As to Purchaser: Brandywine Realty Trust Attn: Gerard H. Sweeney, President Newtown Square Corporate Campus 16 Campus Blvd., Suite 150 Newtown Square, PA 19073 Fax Number: (610) 325-5622 Telephone Number: (610) 325-5600 With a copy to: Brad Molotsky Pepper, Hamilton & Scheetz 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, PA 19103 - 2799 Fax Number: (215) 981-4930 Telephone Number: (215) 981-4262 Any notice, demand or request which shall be given in the manner aforesaid shall be deemed sufficiently given for all purposes hereunder (1) at the time such notices, demands or requests are hand-delivered (which shall be deemed to include delivery by express mail or courier service or transmission by telefax facsimile) or (2) the day such notices, demands or requests are posted, postage prepaid, in the United States Mail in accordance with the preceding portion of this paragraph, provided however, time for response to any such notice shall commence upon receipt at the address specified. Notice by telefax transmission shall be given on a non-banking holiday weekday between the hours of 9:00 a.m. to 5:00 p.m. (at the destination) or shall be deemed received on the next such day and time. 15. TIME OF ESSENCE. Time is of the essence of this Contract. 16. REAL ESTATE BROKERS. Purchaser and Seller covenant and represent to each other that, to their knowledge, there is no party entitled to a real estate commission, finder's fee, cooperation fee, or other brokerage-type fee or similar compensation in connection with the Contract and the transactions contemplated hereby except for The Rubin Organization, Inc., -10- 11 whose fee shall be due and payable if and only if the transaction contemplated herein actually closes and shall be paid by Seller at Closing, pursuant to a separate agreement. Each party agrees to hold the other harmless from and against any claim for a commission or fee from any other broker or agent claiming by or though the indemnifying party. 17. ENTIRE AGREEMENT. This Contract contains all of the agreements, representations and warranties of the parties hereto and supersedes all other discussions, understandings or agreements in respect to the subject matter hereof. All prior discussions, understandings and agreements are merged into this Contract, which alone fully and completely expresses the agreements and understandings of the parties hereto. This Contract may be amended, superseded, extended or modified only by an instrument in writing referring hereto signed by both parties. 18. EXHIBITS AND SCHEDULES A PART OF THIS CONTRACT. All Exhibits and Schedules referred to in this Contract and attached hereto are incorporated into this Contract by reference and are hereby made a part hereof. 19. NO BENEFIT TO OTHER PARTIES. Except as otherwise provided herein, none of the provisions hereof shall inure to the benefit of any party other than the parties hereto and their respective successors and permitted assigns, or be deemed to create any rights, benefits or privileges in favor of any other party except the parties hereto. 20. NO AGENCY, PARTNERSHIP OR JOINT VENTURE. Nothing herein shall be construed to establish an agency relationship, a partnership or a joint venture between Seller and Purchaser for any purpose. 21. CAPTIONS. The captions and headings contained in this Contract are for reference purposes only and shall not in any way affect the meaning or interpretation hereof. 22. GOVERNING LAW. This Contract shall be governed, construed and enforced in accordance with the laws of the State of New Jersey. 23. NO WAIVER. The waiver by one party of the performance of any covenant or condition herein shall not invalidate this Contract, nor shall it be considered to be a waiver by such party of any other covenant or condition herein. The waiver by either or both parties of the time for performing any act shall not constitute a waiver of the time for performing any other act or an identical act required to be performed at a later time. Except as otherwise specifically restricted herein, the exercise of any remedy provided by law and the provisions of this Contract shall not exclude other available remedies. 24. AS-IS CONDITION. Purchaser acknowledges that it is purchasing the Property, the Improvements and fixtures therein and the Personal Property, in an AS-IS condition based upon its own inspections thereof and without benefit of any -11- 12 representation or warranty from Seller, either express or implied or in the nature of fitness for any particular purpose, except as specifically set forth herein. Seller agrees to maintain the Property in its current physical condition to the Closing Date, normal wear and tear excepted. 25. SELLER INDEMNIFICATION AND SURVIVAL OF REPRESENTATIONS. From and after the Closing Date Seller shall indemnify and hold harmless Purchaser, and its respective principals, agents, indemnitees, servants, permitted assignees and employees, from and against any and all losses which Purchaser may suffer or incur, resulting from, relating to, or arising out of: (i) any misrepresentation or breach of a warranty by Seller contained in this Contract; or (ii) any failure to fulfill any covenant or agreement of Seller contained in this Contract. The above indemnification and all representations, warranties, covenants and agreements made by Seller in this Contract, shall, however, shall survive the Closing and the delivery of the deed for a period of twelve (12) months only. Any claim based upon Seller's indemnification of Purchaser, or a representation, warranty, covenant or agreement of Seller must be made in writing and delivered to Seller on or before the twelfth month anniversary of the Closing Date or any such claim shall be expired and of no further force or effect. 26. ASSIGNMENT. This Contract may not be assigned by either party without the prior written consent of the other party. In the event the Purchaser desires to assign its interests in this Contract, prior written approval of such an assignment shall be obtained by Purchaser from each of the contractors with whom Seller has entered into construction contracts as to the Property. Seller's prior written consent shall also be obtained, which consent shall not be unreasonably withheld upon Purchaser's obtaining the required consents from the contractors. An assignment shall contain an express assumption by the assignee of all obligations of the assignor hereunder, and shall not terminate any liability hereunder unless so released by Seller in writing. 27. BUSINESS DAYS. In the event that any time period under this Contract expires on a day that is not a business day, such time period shall be deemed extended to the first business day following such date. "Business day" as used herein shall mean any day other than Saturday, Sunday or a legal holiday on which business is transacted by federally insured national banking institutions in Trenton, New Jersey. 28. COUNTERPARTS. This Contract may be signed in counterparts, each of which is deemed an original. 29. OFFER OF LIMITED DURATION. The offer to Sell the Property as evidenced by this Contract duly executed by Seller shall expire unless a fully executed copy of this Contract duly executed by Purchaser is delivered to Seller on or prior to August 19, 1996. Purchaser acknowledges that until Seller has delivered to Purchaser a copy of this Contract duly signed by Seller, Seller is not legally bound or obligated to Purchaser as to the sale of the Property. If Seller is not in receipt -12- 13 of a fully executed copy of this Contract duly executed by Purchaser on or before August 19, 1996, this offer shall lapse and expire, and this Contract shall be of no further force or effect. WHEREFORE, the parties have hereunto affixed their hands and seals as of the date set hereof. SELLER: PURCHASER: Monumental Life Insurance Company Brandywine Realty Trust By: /s/ Lindsay Schumacher By: /s/ Gerard H. Sweeney ---------------------------------- -------------------------------- Is: Vice President, Lindsay Schumacher Its: _______________________________ -13- EX-10.51 19 1ST AMEND TO REAL ESTATE SALE & PURCHASE CONTRACT 1 EXHIBIT 10.51 FIRST AMENDMENT To REAL ESTATE SALE and PURCHASE CONTRACT THIS AGREEMENT is made and entered into this 30th day of September, 1996, by and between Monumental Life Insurance Company, hereinafter referred to as "Seller", located at 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499, and Brandywine Realty Trust, hereinafter referred to as "Purchaser". WHEREAS, the parties have entered into a Real Estate Sale and Purchase Contract dated August 16, 1996, (hereinafter referred to as "Contract") for certain premises known as 8000 Lincoln Drive, located at 8000 Lincoln Drive, Marlton, Evesham Township, Burlington County, New Jersey, which Contract is incorporated herein by reference; WHEREAS, the parties have agreed to extend the Inspection Period and delay the Closing Date, which agreements the parties desire to set forth in writing. NOW, THEREFORE, WITNESSETH: That in consideration of the promises and covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties mutually agree that the Contract shall be amended as follows: 1. As to Paragraphs Nos. 2 and 4: The parties agree that the Closing Date shall be rescheduled to a time and date to be agreed upon by the parties, which Closing Date shall in no event be later than 9:00 A.M. on the fourth Wednesday following expiration of the Inspection Period as extended below. Notwithstanding the above, however, the Closing date shall under no circumstances be later than December 30, 1996, unless expressly agreed to in writing by the parties. In the event the sale contemplated by this Contract is not finalized by December 30, 1996 due to Seller's failure to provide the Computer Sciences Corporation and Blue Cross Blue Shield leases or due to Seller's failure to otherwise perform, upon Purchaser's compliance with Paragraph 7 (C) of the Contract, the Deposit shall be refunded, this Contract shall be terminated and neither party shall have any further rights or obligations hereunder. In the event the sale contemplated by this Contract is not finalized by December 30, 1996 due to Purchaser's inability, unwillingness or failure to perform, provided the Inspection Period has expired, the Deposit shall be forfeited to and become the property of Seller, this Contract shall be terminated and neither party shall have any further rights or obligations hereunder. 2. As to Paragraph No. 5: The Inspection Period is hereby extended until seven calendar days following Purchaser's receipt of executed copies of the Computer Sciences Corporation and Blue Cross Blue Shield leases. If Seller has not received written notice of Purchaser's election to termination prior to the expiration of that seven day period, Purchaser's option to terminate shall expire and be of no further force or effect. 3. Except as above amended, the Contract and all of its terms and conditions are hereby ratified and confirmed in their entirety. WHEREFORE, the parties have hereunto affixed their signatures as of the above stated date. SELLER: Monumental Life Insurance Company By: /s/ Lindsay Schumacher ------------------------------------ Its: Vice President, Lindsay Schumacher PURCHASER: Brandywine Realty Trust By: /s/ Gerard H. Sweeney ------------------------------------ Its: President, Gerard H. Sweeney EX-10.52 20 2ND AMEND TO REAL ESATATE SALE & PURCHASE CONTRACT 1 EXHIBIT 10.52 SECOND AMENDMENT To REAL ESTATE SALE and PURCHASE CONTRACT THIS AGREEMENT is made and entered into this 22nd day of October, 1996, by and between Monumental Life Insurance Company, hereinafter referred to as "Seller", located at 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499, and Brandywine Realty Trust, hereinafter referred to as "Purchaser". WHEREAS, the parties have entered into a Real Estate Sale and Purchase Contract dated August 16, 1996, which was amended by a First Amendment to Real Estate Sale and Purchase Contract dated September 30, 1996 (hereinafter referred to as "Contract") for certain premises known as 8000 Lincoln Drive, located at 8000 Lincoln Drive, Marlton, Evesham Township, Burlington County, New Jersey, which Contract is incorporated herein by reference; WHEREAS, the parties have agreed to a reduction in the Purchase Price in order to address certain matters identified in Purchaser's due diligence review and to finalize the Closing Date, which agreements the parties desire to set forth in writing. NOW, THEREFORE, WITNESSETH: That in consideration of the promises and covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties mutually agree that the Contract shall be amended as follows: 1. As to Paragraph No. 2 (A):The parties agree that the Purchase Price shall be reduced by One Hundred Thousand Dollars ($100,000.00), such amount being the agreed upon sum needed to address Purchaser's due diligence concerns with the parking lot and roof and that the reduced Purchase Price for the Property shall be Three Million Dollars ($3,000,000.00). 2. As to Paragraph No. 2 (C): The Purchaser acknowledges having received, reviewed and approved the executed leases with Computer Sciences Corporation and Blue Cross Blue Shield. The Purchaser further acknowledges that the additional earnest money payment to be held as Deposit in the amount of One Hundred Thousand Dollars ($100,000.00) to be paid upon approval of those lease or expiration of the Inspection Period, is now due and owing. The Purchaser also acknowledges and agrees that in the event the sale contemplated by this Contract is not finalized by the Closing Date of November 20, 1996 (or December 18, 1996 if Purchaser has duly elected to extend the Closing Date and has paid the additional One Hundred Thousand Dollar ($100,000.00) earnest money payment as set forth below in Paragraph No. 4 immediately below) due to Purchaser's inability, unwillingness or failure to perform, the entire Deposit shall be forfeited to and become the property of Seller, this Contract shall be terminated and neither party shall have any further rights or obligations hereunder. 3. As to Paragraph 2 (D): The Seller acknowledges that the entire Deposit shall be credited on a dollar-for-dollar basis towards the Purchase Price if Purchaser purchases the Property in accordance with the terms of this Contract. 4. As to Paragraph No. 4: The parties agree that the Closing Date shall be Wednesday, November 20, 1996. Purchaser shall, however, have the right to extend the Closing Date until December 18, 1996 upon: (i) providing of Seller with written notice of Purchaser's election to so extend the Closing Date on or before 5:00 P.M. E.S.T. on Thursday, November 14, 1996; and (ii) providing the Title Company with an additional earnest money payment to be held as part of the Deposit of One Hundred Thousand Dollars ($100,000.00) no later than Monday, November 18, 1996, which additional Deposit shall be subject to forfeiture to Seller set forth in Paragraph 2 immediately above in the event Purchaser is unable, unwilling or fails to perform and finalize the sale contemplated by this Contract by the Closing Date. 4. As to Paragraph No. 5: The Purchaser acknowledge and agree that the Inspection Period as extended has expired as of the date hereof and the Purchaser's right to terminate the Contract based upon such inspection has expired and is of no further force and effect. 5. Except as above amended, the Contract and all of its terms and conditions are hereby ratified and confirmed in their entirety. WHEREFORE, the parties have hereunto affixed their signatures as of the above stated date. PURCHASER: SELLER: Brandywine Realty Trust Monumental Life Insurance Company By: /s/ Gerard H. Sweeney By: /s/ Lindsay Schumacher ______________________________ ___________________________________ Its: President, Gerard H. Sweeney Its: Vice President, Lindsay Schumacher EX-10.53 21 AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE 1 EXHIBIT 10.53 AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE AND RELATED PROPERTY THIS AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE AND RELATED PROPERTY ("Agreement") is made and entered into as of the ____ day of August, 1996, by and between HORSHAM OFFICE CENTER ASSOCIATES LIMITED PARTNERSHIP, a Pennsylvania limited partnership ("Seller"), and BRANDYWINE REALTY TRUST, or its permitted nominee or assignee ("Purchaser"). RECITALS A. Seller is the fee simple owner of two (2) office buildings and the related improvements and rights located at 700 and 800 Business Center Drive, Horsham, Pennsylvania. B. Seller desires to sell, and Purchaser desires to acquire, the aforedescribed office buildings and certain related property on an "AS IS, WHERE IS" basis, without any conditions, representations or warranties of any kind, except as specifically and expressly set forth in this Agreement. NOW, THEREFORE, in consideration of and in reliance upon the above Recitals (which are incorporated in and made a part of this Agreement), and the mutual covenants, promises and undertakings set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows: AGREEMENTS 1. PURCHASE AND SALE OF PROPERTY. A. Seller agrees to sell and convey and Purchaser agrees to purchase and accept all of Seller's right, title and interest in and to the following described property (all of which is hereinafter collectively referred to as the "Property"): 1. Certain real property ("Land") located in Horsham, Pennsylvania, and more specifically described in Exhibit A attached hereto and made a part hereof, together with all easements, tenements, hereditaments and appurtenances pertaining thereto. 2. The buildings, improvements and fixtures now situated on the Land (collectively, the "Improvements"). 2 3. All personal property, machinery, apparatus, and equipment situated on the Land or the Improvements ("Personal Property"). The Personal Property specifically excludes any and all of the items identified on Exhibit "A" attached hereto and any and all personal property owned by any property manager on the Property and any personal property owned by tenants under the Leases (as hereinafter defined). The Personal Property to be conveyed is subject to depletions, replacements and additions in the ordinary course of the operation, repair and maintenance of the Land and Improvements. 4. Current occupancy leases affecting the Improvements or any part thereof and the security deposits and guaranties related thereto, if any ("Leases"), all service contracts currently in effect and assumed by Purchaser hereunder (the "Service Contracts"), copies of any plans and specifications, maintenance logs and records, if any, for the Improvements in the possession of Seller (the "Plans"), copies of any warranties and permits currently in effect and in possession of Seller (the "Permits and Warranties") and copies of any existing books, records, documents and intangible property (other than accounts, accounts receivable and proprietary computer software) pertaining to the operation, maintenance, repair and leasing of the Property in the possession of Seller and located at the Premises. The Land and Improvements are sometimes together referred to herein as the "Premises." B. Except for the express representations and warranties of Seller set forth in this Agreement, the Property is being sold in an "AS IS WHERE IS" condition and with "ALL FAULTS" as of the date of this Agreement. Except as specifically and expressly set forth in this Agreement, no promises, representations or warranties have been made or are made and no responsibility has been or is assumed by Seller or by any officer, director, shareholder, beneficiary, affiliate, person, firm, agent or representative acting or purporting to act on behalf of Seller as to (i) the condition or state of repair or utility of the Property, (ii) the value, expense of operation or income potential thereof, or (iii) any other fact or condition which has or could affect the Property or the condition, repair, value, expense of operation or income potential of the Property or any portion thereof, including, without limitation, with respect to any environmental matters which could affect the Property. Purchaser waives any rights to contribution for environmental matters he may now or hereafter have, whether under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), or otherwise. The parties acknowledge and agree that the intent of this Agreement is that Purchaser shall have an agreed upon time period within which to investigate and determine all matters pertaining to the Property to its own satisfaction, including, without limitation, its satisfaction with the environmental condition of the Property, and compliance with the Americans with Disabilities Act. The parties acknowledge and agree that all understandings and agreements heretofore made between them or their respective agents or representatives regarding the purchase and sale of the Property are merged into this Agreement and the Exhibits made a part hereof, which alone fully and 3 completely express their agreement and that neither party is relying upon any statement, promise or representation by the other unless such statement, promise or representation is specifically and expressly set forth in this Agreement or the Exhibits made a part hereof. 2. PURCHASE PRICE. The purchase price ("Purchase Price") which Seller agrees to accept and Purchaser agrees to pay for the Property is SEVEN MILLION ONE HUNDRED THOUSAND DOLLARS ($7,100,000) U.S., payment of which is to be made as follows: A. (I) Upon execution of this Agreement by Purchaser, Purchaser shall make an earnest money deposit of TWENTY-FIVE THOUSAND DOLLARS ($25,000) U.S. ("Initial Deposit"). (ii) Within one (1) Business Day (as hereinafter defined) after the expiration of the Inspection Period, unless this Agreement shall have been terminated by Purchaser on or prior to the expiration of the Inspection Period, Purchaser shall make an additional earnest money deposit of FIFTY THOUSAND DOLLARS ($50,000) U.S. ("Additional Deposit"). The Initial Deposit and the Additional Deposit (collectively the "Deposit") shall be held in escrow by Commonwealth Land Title Insurance Company ("Deposit Escrowee") in an interest bearing account pursuant to the terms of a joint order escrow agreement in the form of Exhibit B attached hereto and made a part hereof ("Deposit Escrow Agreement"). Any interest earned on the Deposit shall be considered part of the Deposit. 4 B. At 9:00 A.M. Eastern Time on the date of Closing, provided that all applicable documents required by Section 10.A hereof have been deposited previously into escrow with Purchaser's designated title insurance company ("Title Company"), Purchaser shall pay to Title Company an amount equal to the Purchase Price (less the Deposit), plus or minus prorations as provided herein, via wire transfer in immediately available U.S. funds to a bank account designated by Title Company ("Cash Balance"). Provided that the transaction contemplated hereby closes, Seller shall thereafter direct Deposit Escrowee to return the Deposit or apply the Deposit to the Purchase Price, together with interest thereon, to Purchaser. 3. PRIOR TO CLOSING. During the period from the date of Seller's execution of this Agreement until Closing or the earlier termination of this Agreement, Seller shall: A. Except as otherwise provided in this Agreement, operate the Property through its property manager ("Property Manager"), in the normal course of business and, through the Property Manager, keep the Property in its existing condition and state of repair, ordinary wear and tear and loss due to fire or other casualty excepted, subject to Section 11 below. 5 B. (i) Neither enter nor permit the Property Manager to enter into any new Lease (or extensions or expansions of existing Leases) without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, denied or delayed. In the event Seller desires to enter into a new lease (or extensions or expansions of existing Leases) of any portion of the Premises prior to Closing, Seller shall submit to Purchaser a lease proposal package describing the economic terms of the proposed new lease (or extensions or expansions of existing Leases) ("Lease Proposal"). The Lease Proposal shall consist of financial information, if any, relating to the proposed tenant, and a written summary of the material lease terms including, without limitation, the following information (if applicable): (a) rent (including a description of rent inducements, if any), (b) lease term, (c) security deposit, (d) leasing commissions, (e) moving allowance, and (f) tenant improvement allowance. Purchaser shall have two (2) Business Days after its receipt of the Lease Proposal to consent to the terms of the Lease Proposal; provided, however, that unless a reasonable basis for refusing to give such consent is communicated to Seller in writing within such two Business Day period, Purchaser shall be deemed to have consented to the terms of the Lease Proposal ("Approved Lease Proposal"). Prior to executing any tenant lease (or extensions or expansions of existing Leases) prepared in accordance with the terms and conditions described in an Approved Lease Proposal, Seller shall submit a draft of such proposed new lease to Purchaser for Purchaser's approval ("Lease Draft Proposal"). Purchaser shall have three (3) Business Days after its receipt of the Lease Draft Proposal to consent to the terms of the Lease Draft Proposal; provided, however, that unless a reasonable basis for refusing to give such consent is communicated to Seller in writing within such two (2) Business Day period, Purchaser shall be deemed to have consented to the form of the Lease Draft Proposal and Seller may enter into a lease (or extensions or expansions of existing Leases) with such proposed tenant in accordance with the Lease Proposal and the Lease Draft Proposal. Purchaser shall bear all costs in connection with new Leases (or extensions or expansions of existing Leases) entered into pursuant to this Section 3.B(i), including leasing commissions, tenant improvement costs, moving costs, engineering fees and other tenant incentives permitted pursuant to this Section 3.B(i) (collectively called the "Leasing Costs"), provided that the transaction contemplated hereby is consummated. (ii) Notwithstanding anything contained in Section 3.B(i) to the contrary, Seller may elect to enter into a new Lease (or extensions or expansions of existing Leases) notwithstanding Purchaser's rejection of the Lease Proposal or Lease Draft Proposal as set forth in Section 3.B(i); provided, however, Seller shall bear all Leasing Costs in connection with any such new Leases (or extensions or expansions of existing Leases) entered into pursuant to this Section 3.B(ii). C. Neither enter nor permit the Property Manager to enter into any new Service contract or extend, renew or materially modify or amend any existing Service Contract, except those that are cancelable on not more than thirty (30) days' written notice. 6 D. Keep the Improvements insured against fire or other hazards covered by extended coverage endorsement and comprehensive public liability insurance against claims for bodily injury, death and property damage occurring in, on or about the Premises, on terms no less favorable than currently existing and as set forth in Seller's certificate of insurance, a true and correct copy of which is attached hereto as Exhibit C . E. Not sell, transfer or dispose of all or any part of the Property, except that Seller may enter into new Leases (or extensions or expansions of existing Leases) pursuant to Section 3.B above, and except for depletions and replacements of Personal Property in the ordinary course of the operation, repair and maintenance of the Land and Improvements and except as a result of the exercise of a condemnation (but subject to Section 11 hereof). F. Promptly give written notice to Purchaser upon obtaining knowledge of the occurrence of any event which affects the truth or accuracy of any representations or warranties made by Seller in this Agreement. 4. INSPECTION OF THE PROPERTY. During the period commencing on the date this Agreement is fully executed by both the Purchaser and the Seller and terminating forty-five (45) days thereafter ("Inspection Period") , Purchaser and its agents and representatives may inspect the Property (including the Leases and the books, records and documents of the Property maintained by either Seller or the Property Manager, together with any title reports, surveys, or mechanical, structural or environmental reports) and conduct such mechanical and engineering inspection and such sampling or non-destructive testing as Purchaser shall reasonably deem necessary during normal business hours, subject to the following terms and conditions. In addition, Seller and the Property Manager shall make available to Purchaser during the Inspection Period all other documentation concerning the Property in the possession of Seller and/or the Property Manager including, without limitation, all Leases, Permits and Warranties, and Service Contracts, also subject to the following terms and conditions. A. Purchaser shall give Seller (in care of Richard Heany (610) 962-5105) at least two (2) Business Days telephonic notice of its intention to inspect the Property or conduct any sampling or testing. In addition, Purchaser shall give at least two (2) Business Days telephonic notice to Andrew Wolfington ((610)-962-5104) before any environmental sampling or testing is done at the Premises. B. If Purchaser desires to obtain a Phase I environmental report of the Property, Purchaser shall deliver a copy of such report to Seller within five (5) days after its receipt thereof. Purchaser hereby represents and warrants that such report will be used solely for the purpose of evaluating the Property for purposes of consummating the transactions contemplated by this Agreement and that such report and the contents thereof will be kept confidential by Purchaser and its advisors, it being understood that Purchaser 7 shall inform the environmental contractor selected by Purchaser to prepare such report of the confidential nature of such report and the contents thereof and shall direct said environmental contractor to treat such report and the contents thereof confidentially. If Purchaser desires to conduct any environmental sampling or testing at the Premises, Purchaser shall first provide Seller with the proposed study plan therefor ("Plan"). The Plan is subject to the approval of Seller and no environmental sampling or testing shall be performed until the Plan therefor has been approved by Seller. Purchaser agrees that Seller, at Seller's sole cost and expense, may have a representative present at any inspection, sampling or testing, including, but not limited to, an environmental engineer or consultant designated by Seller (in connection with any environmental sampling or testing conducted by Purchaser in accordance with this Section 4). At Seller's request, and after contribution for the additional cost of same, if any, any sampling or testing by Purchaser's environmental consultant shall be conducted in a manner so as to provide "split" samples or data to Seller's environmental consultant. C. Purchaser shall maintain adequate liability insurance coverage for its employees, agents and representatives inspecting the Property or conducting sampling or testing and, at Seller's request, will provide Seller with written evidence of same. D. Any such inspections, sampling and testing shall be at Purchaser's sole cost and expense and Purchaser agrees to keep the Property free and clear of any liens which may arise as a result of such inspections, sampling and testing. E. Purchaser shall restore promptly any physical damage caused by the inspection, sampling or testing of the Property. F. Purchaser shall, upon the request of Seller, provide Seller with copies of written sampling test results and reports prepared by third parties, but otherwise Purchaser and its employees, agents and representatives shall keep all such information, sampling and test results and reports obtained or developed during or as a result of such inspection strictly confidential, except as provided in Section 13.F below. G. Purchaser hereby indemnifies and agrees to defend, and hold Seller and its partners and each of their officers, directors, shareholders, advisors, beneficiaries, agents, employees, representatives, tenants and affiliates harmless from and against all loss, cost, liability, lien, damage or expense, including reasonable attorneys' fees and costs made, sustained, suffered or incurred against or by Seller and its partners and each of their officers, directors, shareholders, advisors, beneficiaries, agents, employees, representatives, tenants and affiliates and attributable to or arising out of a breach of the foregoing agreements (or the agreements contained in Section 13.F below) by Purchaser in connection with any such inspection, sampling or testing. 5. TERMINATION OF AGREEMENT. 8 A. If based on the inspection rights granted to Purchaser in Section 4 above, Purchaser determines that it has an objection for any reason whatsoever, then Purchaser may elect to terminate this Agreement by giving Seller notice, in writing, by United States first class mail, postage prepaid, hand delivery or telecopy, that it elects to terminate this Agreement, which notice must be received by Seller (and the other parties described in Section 14 hereof that are entitled to receive notices sent to Seller) not later than 5:00 P.M. Eastern Time on the last day of the Inspection Period. In such event, and provided that Purchaser has complied with its obligations contained in Section 4 above, Seller shall direct Deposit Escrowee to return the Initial Deposit to Purchaser and thereupon, neither party shall have any liability to the other, except for the obligations of Purchaser set forth in Section 4.G above and Section 13.F below and the obligations of both parties set forth in Section 8.D below, which shall survive the termination of this Agreement. If Purchaser fails to give timely notice of its election to terminate this Agreement as aforesaid, it shall be conclusively presumed that Purchaser has satisfied or waived the foregoing contingency. B. In the event that Purchaser has not served written notice of its election to terminate this Agreement within the Inspection Period, Purchaser shall make the Additional Deposit as provided in Section 2.A above. The failure to make the Additional Deposit shall not affect the satisfaction or waiver of the contingency set forth in Section 5.A, or the obligation of Purchaser to consummate its purchase of the Property in accordance with the terms hereof. 6. CONDITIONS OF TITLE. A. Title to the Premises shall be good and marketable, fee simple, absolute and free and clear of all liens, restrictions, easements, encumbrances, leases, tenancies and other title objections, except for the Permitted Encumbrances (as hereinafter defined), and shall be insurable as such and as provided in this Agreement at ordinary rates by any reputable title insurance company selected by Purchaser (the "Title Company") pursuant to an ALTA Owner's Policy of Title Insurance, 1992 Form B, amended October 17, 1992 (the "Owner's Policy of Title Insurance"). The term "Permitted Encumbrances" shall mean: (i) the lien of non-delinquent real estate taxes and assessments; (ii) the rights of tenants under the Leases, other than the rights of such tenants to purchase the Premises or any portion thereof, excluding, however, the rights described on Schedule 6.A. attached hereto; (iii) acts and deeds of Purchaser; and (iv) the matters approved or deemed approved by Purchaser pursuant to Section 6.B below. The premium for the Owner's Policy of Title Insurance and any endorsements thereto will be paid by Purchaser. B. Purchaser hereby acknowledges and agrees that Purchaser will order a commitment to insure with respect to the Premises from the Title Company, such commitment to certify that fee simple title to the Premises is vested in Seller, and to commit to insure title to the Purchaser as required by Section 6.A hereof. If the commitment to 9 insure discloses that title to the Premises is subject to any defect, encumbrance or other title objection other than the Permitted Encumbrances, or if Purchaser is unable to obtain such commitment to insure, Purchaser shall have the right to give to Seller written notice specifying such defect, encumbrance or other title objection, or inability to obtain such commitment to insure, and Seller shall have (at Seller's election) thirty (30) days after receipt of such written notice ("Title Cure Period") to have the Title Company waive such matters or commit to insure for the full amount of the policy against loss or damage that may be occasioned by such matters. If Seller (in its sole discretion) does not have such matters removed or committed to be insured over within the Title Cure Period, Purchaser may, within two (2) Business Days after the earlier to occur of (x) receipt of notice from Seller that Seller does not elect to cure or have insured over the matter objected to by Purchaser, or (y) expiration of the Title Cure Period, (i) terminate this Agreement upon written notice given to Seller, or (ii) elect, upon written notice given to Seller, to take title as it then is with an abatement of the Purchase Price in the amount of any fixed monetary liens on the Premises, except for any lien arising as with respect to the rights described on Schedule 6.A. attached hereto. In the event Purchaser elects to take title to the Premises in accordance with subsection 6.B.ii above, Seller may, at its option, secure a bond for any and all liens upon the Premises, without regard to the amount of any such liens, individually or in the aggregate, whereupon Purchaser shall take title to the Premises subject to such liens and without abatement of the Purchaser Price with respect thereto. If this Agreement is so terminated, Seller shall direct the Deposit Escrowee to return the Deposit to Purchaser and shall reimburse Purchaser for all out of pocket costs and expenses incurred by Purchaser in connection with the transactions contemplated by this Agreement in an amount not to exceed Fifteen Thousand Dollars ($15,000.00), and neither party shall have any liability to the other, except for the obligations of the parties set forth in Section 4.G above and Section 13.F below and the obligations of the parties set forth in Section 8. below, which shall survive the termination of this Agreement. If Seller does not receive written notice of Purchaser's election to terminate this Agreement within the (2) two Business Day period specified above, Purchaser shall be conclusively presumed to have elected to take title as it then is as aforesaid. C. Title to the Personal Property shall be good and marketable and free and clear of all liens, security interests and other encumbrances. Seller shall pay at or before Closing all sums required to free the Personal Property of any interest of any party not otherwise permitted under this Agreement and shall cause to be filed at or before Closing any termination statement, release, discharge or other document required to remove of record any encumbrance upon the Personal Property held by any party. 7. CLOSING. Payment of the Purchase Price and the consummation of the transaction contemplated by this Agreement ("Closing") shall take place pursuant to an escrow closing which provides that the Purchase Price shall be paid to Seller substantially simultaneously with the agreement of the Title Company to issue the Title Policy to Purchaser. The Closing shall occur at 9:00 A.M. Eastern Time on a date being thirty (30) 10 days after the expiration of the Inspection Period (or if such 30th day is not a Business Day, then on the next Business Day) at the offices of the Title Company in Philadelphia, Pennsylvania or at such earlier date or other place as may be mutually agreed upon in writing by both Seller and Purchaser; provided, however, that Seller, at Seller's sole discretion, may elect to extend the Closing as necessary (but in no event more than thirty (30) additional days) in order to satisfy the requirements of Section 10.D(ii) below. The date of the Closing may be extended by Seller beyond such 30th day after the date of the expiration of the Inspection Period by the number of days needed to cure title defects or adverse matters pursuant to Section 6 above, but in no event shall the date of the Closing be after October 16, 1996. Seller and Purchaser shall meet at the office of Purchaser's attorney and commence preparations for Closing on the day immediately prior to the date of Closing ("Proration Date"), so that all Closing documents required hereunder are signed and deposited into escrow with the Title Company (and all Closing prorations required hereunder are finalized) before the close of business on the Proration Date. 8. REPRESENTATIONS AND WARRANTIES. A. Seller represents and warrants to Purchaser that: 1. Horsham Office Center Associates Limited Partnership, a Pennsylvania limited Partnership, is duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, has duly authorized the execution and performance of this Agreement and such execution and performance will not violate any contract or agreement by which Seller is bound. 2. This Agreement is valid and enforceable against Seller in accordance with its terms and each instrument to be executed by Seller pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. 3. To Seller's knowledge, (a) neither Seller nor the Property Manager has received written notice prior to the date hereof from any governmental authority of any violation of any environmental, zoning, building, fire or health code or law applicable to the Property or any portion thereof, that has not heretofore been corrected; (b) neither Seller nor the Property Manager has received written notice prior to the date hereof of any matters disclosed in any existing environmental report provided by Seller to Purchaser or in any environmental report or study obtained by Purchaser pursuant to Section 4 hereof; and (c) any hazardous material that may be located on the Property in the ordinary course of any tenant's business is in compliance with applicable law. However, no warranty is made with respect to the Americans With Disabilities Act, 42 U.S.C. Section 12101 et seq., and the regulations promulgated thereunder, or Seller's compliance therewith. 4. There are no delinquencies with respect to real estate taxes affecting the Premises. 11 5. Seller does not have any employees in connection with the Property. 6. Except with respect to the Service Contracts, as of the Closing Date, there shall be no management, service, supply, security, maintenance or similar contracts with respect to or affecting the property which shall survive the Closing; Schedule 8.A.6 attached hereto contains a list of all such management, service, supply, security, maintenance or similar contracts with respect to or affecting the Property as of the date hereof. 7. As of the Closing Date, no persons shall be employed in connection with the management, operation or maintenance of the Property for whom Purchaser shall have any liability whatsoever after the Closing. 8. To the best of Seller's knowledge, there are no options, rights of first refusal, leases (other than the Leases), conditional sales agreements or other arrangements, whether oral or written, which affect the Property or any portion thereof, except as disclosed in Schedule 6.A. 9. All debts, liabilities and obligations of Seller arising out of the construction, ownership and operation of the Property including, without limitation, construction costs, salaries, taxes, accounts payable and the like have been paid and shall continue to be so paid from the date hereof until the date of the Closing. 10. There is no current, pending or, to the best of Seller's knowledge, threatened litigation against Seller involving the Property or any portion thereof nor any pending or, to the best of Seller's knowledge, threatened litigation involving any suppliers or materialmen. 11. (a) Seller has not caused or permitted any "Hazardous Material" to be placed, stored, held, located or disposed of on, under or at the Property; (b) Seller has received no notice, and has no information which would lead it reasonably to believe that the Property has ever been used as a dump site or storage site (whether permanent or temporary) for any Hazardous Material; (c) Seller has not conducted or permitted any activity on the Property, or used or permitted the use of the Property, in any manner involving Hazardous Material; (d) there is no asbestos containing material contained in or forming a part of any building, building component, structure or office space located on or in the Property. for purposes of this Agreement, "Hazardous Material" means any material resulting in (x) the Property becoming a hazardous waste treatment, storage or disposal facility within the meaning of, or otherwise bringing the Property within the ambit of RCRA (as the same may be amended, supplemented or 12 replaced) or any similar federal, state or local law or regulation; (y) a release or threatened release of a hazardous substance on or from the Property within the meaning of, or otherwise bringing the Property within the ambit of CERCLA (as the same may be amended, supplemented or replaced) or any similar federal, state or local law or regulation; or (z) the discharge of pollutants or effluents into any water source or system, or the discharge into the air of any emissions which would require a permit under the Federal Water Pollution Control Act, the Clean Air Act (as the same may be amended, supplemented or replaced), the Clean Water Act (as the same may be amended, supplemented or replaced) or any similar federal, state or local law or regulation. 12. (a) No notice from any insurance company which has issued a policy to Seller with respect to any portion of the Property or from any board of fire underwriters (or other body exercising similar functions) has been received requesting the performance of any repairs, alterations or other work. If such notice is received prior to the Closing, Seller shall disclose such notice to Purchaser; and (b) to the best of Seller's knowledge, Seller has received all permanent certificates of occupancy, licenses, permits, authorizations and approvals required by all governmental authorities having jurisdiction over the Property and as of the Closing Date all such certificates of occupancy, licenses, permits, authorizations and approvals shall be in full force and effect. 13. All public utilities including connection and permanent right to discharge sanitary waste into the collector system of the appropriate sewer authority are installed and operating, and, to the best of Seller's knowledge, all installation and connection charges have been paid in full. 14. Attached hereto as Schedule 8.A.14 is a true and correct listing of all current policies of fire, liability and other forms of insurance pursuant to which the Property is insured (whether or not held by Seller) or with respect to which Seller directly or indirectly pays all or part of the premium (the "Policies"). Seller shall ratify and confirm the content of Schedule 8.A.14 on and as of the date of the Closing. The Property is, and between the date hereof and the date of the Closing the Property shall be, insured against fire and casualty on a replacement cost basis under the Policies and in the amounts and types of coverage set forth in Schedule 8.A.14, and Purchase shall be named as an additional insured under all such Policies (except products liability insurance). All of the Policies are, and between the date hereof and the date of the Closing shall be, outstanding and duly in force and the premiums thereon fully paid when and as the same are due and payable. B. Purchaser represents and warrants to Seller that: 1. The execution and performance of this Agreement will not violate any contract or agreement by which Purchaser is bound. 2. This Agreement is valid and enforceable against Purchaser in accordance with its terms and each instrument to be executed by Purchaser pursuant to this Agreement will, when executed and delivered, be enforceable in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting creditors' rights generally. 13 C. As used in Section 8.A. (or in any other Sections of this Agreement), Seller's "knowledge" shall mean and be limited to the actual knowledge (as distinguished from implied, imputed or constructive knowledge) of Richard Heany, J. Brian O'Neill and Andrew Wolfington. D. Seller and Purchaser mutually represent and warrant to each other that each has had no dealings, negotiations, or consultations with any broker or other intermediary in connection with this Agreement or the sale of the Property, except for Cushman & Wakefield, Inc. ("CW") and the Flynn Company. Provided the transaction contemplated hereby is consummated, Seller shall pay a brokerage commission to CW in an amount previously agreed to by Seller and CW. Seller and Purchaser agree that each will indemnify, defend and hold the other free and harmless from the claims (including attorneys' fees) of any other broker or other intermediary claiming to have dealt with Seller or Purchaser, respectively, in connection with this Agreement or the sale of the Property. E. It shall be a condition to each party's obligation to close that the representations and warranties of the other party are true and correct in all material respects as of Closing, and each party shall deliver a certificate of its president and secretary to the other, dated as of the date of the Closing, certifying as to same, in such detail as the other may reasonably request, F. If prior to Closing Purchaser becomes aware that any of Seller's representations and warranties are not true and correct, Purchaser shall promptly notify Seller of same. Seller shall have (at Seller's election) a period of thirty (30) days ("Warranty Cure Period") in which to attempt to cure any breach of warranty alleged by Purchaser or any breach of warranty otherwise discovered by Seller (and the date of Closing shall be extended accordingly); provided, however, that Seller, at its sole option, may elect not to cure (or attempt to cure) the alleged breach. If Seller does not cure such breach of warranty within the Warranty Cure Period, Purchaser may within two (2) Business Days after the earlier to occur of (x) receipt of notice from Seller that Seller does not elect to cure the alleged breach of warranty, or (y) expiration of the Warranty Cure Period, (i) terminate this Agreement upon written notice given to Seller, or (ii) elect, upon written notice given to Seller, to close without any set-off or deduction of any kind against the Purchase Price or otherwise. If this Agreement is so terminated, Seller shall direct the Deposit Escrowee to return promptly the Deposit to the Purchaser and reimburse Purchaser for all out of pocket costs and expenses incurred by Purchaser in connection with the transactions contemplated by this Agreement in an amount not to exceed Fifteen Thousand Dollars ($15,000.00) and neither party shall have any liability to the other, except for the obligations of Purchaser set forth in Section 4.G above and Section 13.F below and the obligations of the parties set forth in Section 8.D above, which shall survive the termination of this Agreement. If Seller does not receive written notice of Purchaser's election to terminate this Agreement within the two (2) Business 14 Day period specified above, Purchaser shall be conclusively presumed to have elected to close notwithstanding the alleged breach of warranty. G. The representations and warranties set forth in Section 8.D shall survive the Closing for the full period of the applicable statute of limitations. All of the other representations, warranties, certifications and indemnifications of the parties set forth in Sections 8.A and 8.B above, in the documents delivered pursuant to Sections 10.A.1, 10.A.3 and 10.A.4 below (collectively called the "Conveyance Documents"), and in Seller's Estoppel Certificates (as hereinafter defined), if any, shall survive closing, provided written notice of any claim arising from a breach of such representations, warranties, certifications and indemnifications must be specified and received by the other party not later than six (6) months after the date of Closing and prosecuted by the filing of a lawsuit in a court of proper jurisdiction within nine (9) months after the date of Closing. All other claims for breach of such representations, warranties, certifications and indemnifications shall be barred and neither party shall have any liability with respect thereto. Notwithstanding anything contained herein to the contrary, Purchaser shall have no right to recover damages against Seller for the breach of any representation, warranty, certification or indemnification of Seller contained herein or in the Conveyance Documents or Seller's Estoppel Certificates as to which was within the knowledge of Jerry Sweeney or John Adderly or Tony Nichols prior to Closing, but as to which Purchaser did not give Seller the notification required in Section 8.F above. 9. CLOSING COSTS AND PRORATIONS. A. Seller and Purchaser shall share equally the cost of the escrow closing arrangements. Any state, local or county real or personal property transfer taxes relating to the transfer of real or personal property to Purchaser shall be shared equally by Seller and Purchaser. Except as otherwise specifically provided in this Agreement, each party shall bear its own costs in performing its obligations under this Agreement including, without limitation, its own attorneys' fees and, in the case of Purchaser, all costs and expenses in connection with its inspection of the Property as provided in Section 4 above and all costs and expenses in connection with the Owner's Policy of Title Insurance as provided in Section 6 above. B. The following items are to be prorated or adjusted as of the Proration Date: 1. Rents and other amounts owed under the Leases actually received by Seller, payments under Service Contracts assigned to Purchaser, personal property taxes, installment payments of special assessment liens (and Purchaser shall be responsible to pay all installments of special assessments which are due after the Proration Date), sewer charges and operating or utility charges actually collected, billed or paid as of the date of Closing shall be prorated as of the Proration Date and be adjusted against the Cash Balance due at Closing, provided that within ninety (90) days after Closing, Purchaser and Seller will make a further adjustment for such rents, payments, 15 taxes or charges which may have been incurred for the period of time before Closing, but not billed or paid at that time. In addition, Seller may require a further adjustment of such rents, payments, taxes or charges following the end of calendar year 1996 after the actual amount of the applicable items becomes known and available. Rents and other amounts collected by Purchaser or its agent under any Lease after Closing attributable to the time period before Closing shall be paid to Seller. 2. Non-delinquent real and/or personal property taxes will be prorated as of the Proration Date using the most recent ascertainable tax bill therefor. Such taxes will be reprorated within ninety (90) days after the issuance of the actual tax bill, it being the intent of the parties that Seller be responsible for real estate (and personal property, if applicable) taxes for the Premises attributable to the period before Closing and Purchaser be responsible for the real estate (and personal property, if applicable) taxes for the Premises attributable to the period after Closing. Any refund of real estate or personal property taxes for the Premises attributable to the fiscal year in which the Closing takes place (or any fiscal year prior to such year) shall be prorated between the parties within thirty (30) days after such refund has been received by Seller or Purchaser, as the case may be. Seller shall be entitled to receive the portion of such refund that pertains to the period of time prior to the date of Closing and Purchaser shall be entitled to receive the portion of such refund that pertains to the period of time after the date of Closing. 3. The full amount of security deposits paid under the Leases, which have not been applied by Seller shall be credited to Purchaser by application against the Cash Balance due at Closing. 4. Seller shall pay for the Leasing Costs currently due and owing in connection with all Leases entered into prior to the date of this Agreement ("Current Leases"). Purchaser shall pay (a) all Leasing Costs arising out of the exercise by a tenant after the date of this Agreement and prior to the date of Closing of an extension or expansion option (or the failure of a tenant to exercise a cancellation option) contained in a Current Lease, (b) all Leasing Costs in connection with any Leases entered into after the date hereof in accordance with Section 3.B hereof ("New Leases"), and (c) all Leasing Costs in connection with the exercise by a tenant on or after the date of Closing of an extension or expansion option (or the failure of a tenant to exercise a cancellation option) contained in a Current Lease or a New Lease. Purchaser shall have five (5) business days following written notice from Seller to approve or disapprove, in writing, any proposed exercise of any extension or expansion option under any Current Lease after the date of this Agreement and prior to the date of Closing. In the event Purchaser fails to approve or disapprove, in writing, any such extension or expansion within said five (5) day period, Purchaser shall be deemed to have approved such extension or expansion. In the event Purchaser disapproves such extension or expansion within said five (5) day period, Seller shall have the option to permit such tenant to exercise such extension or expansion option; however, Purchaser shall have no obligation to pay any Leasing Costs in connection therewith. 16 C. Notwithstanding the foregoing, at Seller's election, no prorations shall be made for any expense item that is required to be paid (or reimbursed to Seller) pursuant to the terms of the Leases. All prorations and Closing adjustments shall be made on the basis of a 366 day calendar year. All such prorations and adjustments shall be subject to post-Closing adjustments as necessary to reflect later relevant information not available at Closing and to correct any errors made at Closing with respect to such apportionments and the party receiving more than it was entitled to hereunder shall reimburse the other party hereto in the amount of such overpayment within thirty (30) days after receiving written demand therefor. Notwithstanding the foregoing, such apportionments shall be deemed final and not subject to further post-Closing adjustment, except for reproration of real estate (and personal property, if applicable) taxes or tax refunds as provided above, if no such adjustments have been requested within ninety (90) days after the end of calendar year 1996. Seller shall obtain utility prorations as close to the date of Closing as practical. 10. CLOSING DOCUMENTS AND MATTERS. A. On the Proration Date, Seller shall deliver the following original documents into escrow, each acknowledged and executed (as appropriate): 1. A Deed to the Premises containing Seller's special warranty, substantially in the form of Exhibit D attached hereto and made a part hereof, subject to the matters Purchaser has agreed to accept under the terms of this Agreement. 2. Applicable real estate transfer tax declarations, if any. 3. A Bill of Sale with respect to the Personal Property containing Seller's special warranty, substantially in the form of Exhibit E attached hereto and made a part hereof. 4. An Assignment and Assumption of Trade Name to Premises, Leases, Service Contracts, Permits and Warranties, Plans and any other so-called intangible property constituting the Property substantially in the form of Exhibit F attached hereto and made a part hereof. 5. A letter, substantially in the form attached hereto as Exhibit G, advising the tenants under the Leases of the change in ownership and management of the Premises, that Purchaser has assumed the Leases and Seller has transferred any security deposits under the Leases to Purchaser, and directing such tenants to pay rent to Purchaser or as Purchaser may direct. 6. All Leases and assigned Service Contracts which Purchaser has agreed to assume pursuant to this Agreement, all Permits and Warranties, Plans and copies of the intangible property described in Section l.A.4 above, all of which shall be delivered to Purchaser or its agent at the Premises. 17 7. An Affidavit pursuant to the Foreign Investment in Real Property Tax Act. 8. Any evidence of the authority of Seller to consummate the transaction contemplated hereby that is reasonably requested by the Title Company. 9. A Subordination, Non-Disturbance and Attornment Agreement in favor of the lender engaged by Purchaser to finance Purchaser's acquisition of the Property, if applicable. 10. A certificate of the President and the Secretary of Seller, in form and substance satisfactory to Purchaser, dated as of the date of the Closing, certifying, the fulfillment of the covenants of Seller set forth in this Agreement and certifying that all representations and warranties by Seller contained in this Agreement or in any written document executed and delivered by Seller pursuant to this Agreement or in connection herewith were true and correct in all material respects when made and on and as of the date of the Closing, unless when made such representation or warranty was specifically stated to relate only to such date. 11. A resolution of the general partner of Seller and consent of the general partner of Seller, certified by the Secretary or the Assistant Secretary of the general partner of Seller, authorizing the execution, delivery and performance by Seller of this agreement, all agreements and instruments to be executed and delivered by Seller pursuant to this Agreement or in connection herewith and the consummation of the transactions contemplated hereby. B. On the Proration Date, Purchaser shall deliver or cause to be delivered the following original documents into escrow, each acknowledged and executed (as appropriate): 1. The Assignment and Assumption in the form of Exhibit F hereto, which includes an assumption of Seller's obligations to the tenants under the Leases and the security deposits paid thereunder. 2. Applicable real estate transfer tax declarations, if any. 3. An ALTA Loan and Extended Coverage Statement or the equivalent thereof reasonably required by the Title Company in connection with the issuance of the Title Policy. 4. The tenant notification letters described in Section 10.A.5 above. 18 5. Any evidence of the authority of any permitted assignee of Purchaser to consummate the transaction contemplated hereby that is reasonably requested by the Title Company. C. At Closing, Purchaser shall cause to be paid to Seller the Cash Balance as required pursuant to Section 2 above, plus or minus prorations as determined pursuant hereto. Closing shall be deemed to have occurred (e.g., for purposes of possession and prorations) at such time as the Cash Balance has been received by Seller in sufficient time for Seller to invest such sum (and receive interest thereon), in no event later than 3:00 p.m. Eastern Time. Amounts not received by such time shall, for purposes hereof, be deemed to have been received the next Business Day. D. In addition to the other conditions to Closing expressly set forth in this Agreement, it shall be a condition to Purchaser's obligation to close the transaction contemplated hereby that Purchaser receives at Closing: 1. The Title Policy or the written obligation of the Title Company to issue the Title Policy. 2. Estoppel certificates, substantially in the form of Exhibit H attached hereto and made a part hereof, from the tenants under Leases which demise not less than eighty five percent (85%) of the rentable area of the Improvements which is occupied by tenants under Leases in effect as of the end of the Inspection Period ("Required Number of Estoppel Certificates"). Seller shall use reasonable efforts to obtain estoppel certificates from all tenants leasing space in the Improvements, but if the Required Number of Estoppel Certificates are not delivered at or prior to Closing (an estoppel certificate shall be deemed to satisfy the requirements of this Section 10.D(ii) even though it may not be in the form or substance of Exhibit H, provided that the certificate contains the specific information (as opposed to a general or "catch-all" requirement), if any, required by the applicable Lease or that the departures therefrom reflect facts or circumstances that were known to Purchaser through its inspection of the Property), Purchaser may elect to terminate this Agreement unless Seller elects (in its sole discretion) to certify to Purchaser or otherwise correct the matters which should have been certified to in the missing (or altered, as the case may be) estoppel certificates. Such certifications ("Seller's Estoppel Certificates"), which Seller may elect to give in order to deliver the Required Number of Estoppel Certificates, shall (x) be limited to matters within the knowledge of Seller (as knowledge is defined in Section 8.C hereof), (y) be subject to the limitations on liability set forth in Section 8.G hereof, and (z) be in the form of the certificate attached hereto as Exhibit I. If this Agreement is terminated pursuant to this Section , Seller shall direct the Deposit Escrowee to refund the Deposit to Purchaser, and shall reimburse Purchaser for all out of pocket cost and expenses incurred by Purchaser in connection with the transactions contemplated by this Agreement in an amount not to exceed Fifteen Thousand Dollars ($15,000.00), and the parties shall not have any further obligations hereunder, except pursuant to Sections 4.G, 8.D and 13.F hereof, which shall survive such termination. 19 E. Seller shall terminate the existing management agreement with the Property Manager effective as of the date of Closing. F. Purchaser shall be entitled to possession of the Property at the conclusion of Closing subject only to the matters expressly permitted by or pursuant to this Agreement. G. Effective upon Closing, Seller may notify all contractors and utility companies serving the Property of the sale of the Property and to (i) return any deposit or deposits posted by Seller, (ii) terminate Seller's account effective on noon on the date of Closing, and (iii) direct to Purchaser all bills for services provided to the Property on and after the date of Closing. 11. CASUALTY AND CONDEMNATION. A. If, prior to Closing, either (i) the Premises are destroyed or materially damaged by fire or other casualty or (ii) the Premises or a material part thereof is condemned, then either party may elect to terminate this Agreement. The party electing to terminate shall give written notice of its election to the other party within ten (10) days after receiving notice or knowledge of damage or condemnation. In such event, Seller shall direct the Deposit Escrowee to return the Deposit to Purchaser and thereupon this Agreement shall be null and void and neither party shall have any further obligations under this Agreement, except under Sections 4.G, 8.D and 13.F, which survive such termination. If neither Seller nor Purchaser gives such written notice within such ten (10) day period, the transaction contemplated by this Agreement shall be consummated as otherwise provided herein. In such event, Seller will assign to Purchaser at Closing the physical damage proceeds of any insurance policy payable to Seller or Seller's portion of the condemnation award (less any costs or expenses paid by Seller in connection therewith), in either case, not to exceed the Purchase Price. B. As used in Section 11.A(i) above, material damage shall be deemed to have occurred if the cost of repairing such damage (as estimated by the applicable insurance carrier for Seller) is in excess of Two Hundred Fifty Thousand Dollars ($250,000). As used in Section 11.A (ii) above, a condemnation of a material part of the Premises shall be deemed to have occurred if the portion taken adversely affects the normal use or income of the Premises. C. If prior to Closing less than a material portion of the Premises is damaged by fire or other casualty or less than a material part thereof is condemned, then the transaction contemplated by this Agreement shall be consummated as otherwise provided herein. In the event of such casualty or condemnation, Seller shall assign to Purchaser at Closing the physical damage proceeds of any insurance policy payable to Seller or Seller's portion of the condemnation award (less any costs or expenses paid by Seller in connection therewith), in either case, not to exceed the Purchase Price. 20 12. DEFAULT. A. If Purchaser shall default under this Agreement prior to Closing, the Deposit shall be paid by the Deposit Escrowee to Seller as Seller's sole and liquidated damages, and both parties shall be relieved of and released from any further liability hereunder except for the obligations of Purchaser set forth in Section 4.G. above and Section 13.F below and the obligations of the parties set forth in Section 8.D above. Seller and Purchaser agree that the Deposit is a fair and reasonable amount to be retained by Seller as agreed and liquidated damages in light of Seller's removal of the Property from the market and the costs incurred by Seller and shall not constitute a penalty or a forfeiture. B. If Seller shall default under this Agreement prior to Closing or refuse or fail to convey the Property as herein provided, Purchaser's sole remedy therefor shall be either (1) to terminate this Agreement, whereupon Seller shall direct the Deposit Escrowee to refund the Deposit to Purchaser and shall reimburse Purchaser for all out of pocket cost and expenses incurred by Purchaser in connection with the transactions contemplated by this Agreement in an amount not to exceed Fifteen Thousand Dollars ($15,000.00), or (2) to enforce Seller's obligations to convey the Property, provided that no such action in specific performance shall seek to require Seller to (a) change the condition of the Property or restore the Property or any part thereof following any fire, other casualty or condemnation, provided the proceeds of any applicable replacement value insurance policy (or the right of Seller to any such proceeds) have been assigned by Seller to Purchaser; (b) expend money or post a bond to remove a title defect, except for any title defect arising with respect to the rights described on Schedule 6.A. attached hereto; or (c) secure any permit, approval or consent with respect to the Property or Seller's conveyance of the Property. 13. MISCELLANEOUS. A. No alteration, modification or interpretation of this Agreement or the Exhibits shall be binding unless in writing and signed by both parties. B. If any provision of this Agreement or any application to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law, except that, if as a result thereof, the consideration to be paid to Seller under this Agreement is diminished in any material respect Seller shall have the option, upon written notice to Purchaser, to terminate this Agreement. 21 C. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. D. Purchaser may not assign this Agreement without first obtaining Seller's written consent, which consent may be withheld in Seller's sole discretion; provided, however, that Seller shall not withhold its consent to an assignment of this Agreement to an entity controlled by Purchaser so long as the requirements of Section 13.P below are satisfied with respect to such assignment. Any assignment in contravention of this provision shall be void. No assignment (including an assignment to an entity controlled by Purchaser) shall release the Purchaser herein named from any obligation or liability under this Agreement. If Purchaser requests Seller's written consent to any assignment, Purchaser shall (i) notify Seller in writing of the proposed assignment; (ii) provide Seller with the name and address of the proposed assignee; (iii) provide Seller with financial information including financial statements of the proposed assignee (except for an entity controlled by Purchaser); and (iv) provide Seller with a copy of the proposed assignment. E. This Agreement shall be binding and inure to the benefit of Purchaser and Seller and their successors and permitted assigns. F. Neither Purchaser nor Seller shall make any public disclosure of the terms of this transaction prior to the completion of the Closing without the prior written consent of the other, except as may be required by law or applicable governmental regulation. Neither Purchaser nor Seller shall (without first obtaining the other's written consent, which shall not be unreasonably withheld or delayed) disclose to any third party any information or data with respect to the Property, except such disclosure as may be expressly contemplated or permitted by this Agreement. G. The captions in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement or the scope or content of any of its provisions. H. In the event of any litigation arising out of this Agreement, in addition to any other rights or remedies specified herein, the prevailing party (which term shall mean the party which obtains substantially all of the relief sought by such party) shall be entitled to its reasonable attorneys' fees and costs. I. When used in this Agreement, the term "Business Day" shall mean any day when national banks located in Philadelphia, Pennsylvania are open for business. J. Nothing contained in this Agreement shall be construed to create a partnership or joint venture between the parties or their successors in interest or any other relationship other than seller and purchaser. K. Time is of the essence of this Agreement. 22 L. This Agreement may be executed and delivered in any number of counterparts, each of which so executed and delivered shall be deemed to be an original and all of which shall constitute one and the same instrument. M. Purchaser and Seller agree not to record this Agreement or any memorandum thereof. N. No failure or delay by a party to exercise any right it may have by reason of the default of the other party shall operate as a waiver of default or as a modification of this Agreement or shall prevent the exercise of any right by the first party while the other party continues to be so in default. O. For the purpose of complying with Internal Revenue Service reporting requirements for this transaction, the Title Company shall be obligated to prepare and file the 1099-S form (and any necessary supporting documentation) and Seller and Purchaser shall cooperate with any requests from the Title Company in connection therewith. P. Purchaser certifies and warrants to Seller that the purchase of the Property will not result in a prohibited transaction under Section 406 of the Employee Retirement Income Security Act of 1974, Section 4975 of the Internal Revenue Code of 1986 or any similar state law applicable to governmental plans. Purchaser shall indemnify and hold Seller harmless from all loss (including reasonable attorneys' fees and costs) arising out of a breach of the foregoing certification and warranty. Q. The submission by Seller to Purchaser of this Agreement in unsigned form shall be deemed to be a submission solely for Purchaser's consideration and not for acceptance and execution. Such submission shall have no binding force and effect, shall not constitute an option, and shall not confer any rights or impose any obligations upon Purchaser, irrespective of any reliance thereon, change of position or partial performance. The submission by Seller of this Agreement for execution by Purchaser and the actual execution and delivery thereof by Purchaser to Seller shall similarly have no binding force and effect on Seller unless and until Seller shall have executed this Agreement and a counterpart thereof shall have been delivered to Purchaser, together with the Deposit, within five (5) Business Days after submission thereof by Seller to Purchaser. 14. NOTICES. Any notices or requests required or permitted to be given hereunder shall be (i) hand delivered, or (ii) sent by Federal Express or similar overnight service for next business day delivery, or (iii) sent by U.S. certified mail, return receipt requested, in all cases addressed to the parties at their respective addresses as follows: If to Seller: Horsham Office Center Associates Limited Partnership c/o O'Neill Properties Group 23 443 S. Gulph Road King of Prussia, PA 19406 Attn: Richard Heany With a copy to: Kevin W. Walsh, Esq. Adelman, Lavine Gold and Levin Suite 1900 Two Penn Center Plaza Philadelphia, Pennsylvania 19102 If to Purchaser: Brandywine Realty Trust Two Greentree Center, Suite 100 Marlton, New Jersey 08053 Attention: Jerry Sweeny With a copy to: Pepper Hamilton & Scheetz Two Logan Square, 32nd Floor Philadelphia, Pennsylvania 19103 Attn: Brad Molotsky, Esquire or in each case to such other address as either party may from time to time designate by giving notice in writing to the other party. 15. INDEMNIFICATION. A. From and after the date of the Closing, Seller shall indemnify and hold harmless Purchaser, and its principals, agents, indemnitees, servants, assignees and employees from and against any and all losses which Purchaser may suffer or incur resulting from, relating to, or arising out of (1) any misrepresentation or breach of a warranty by Seller contained in this Agreement; (2) the failure to comply with any applicable bulk sales laws; (3) any failure to fulfill any covenant or agreement of Seller contained in this Agreement; or (4) any and all actions, suits, investigations, proceedings, demands, assessments, audits, judgments and/or claims arising out of or relating to any of the foregoing. B. From and after the date of the Closing, Purchaser shall indemnify and hold harmless Seller, and its principals, agents, indemnitees, servants, assignees and employees from and against any and all losses which Seller may suffer or incur resulting from, relating to, or arising out of (1) any misrepresentation or breach of a warranty by Purchaser contained in this Agreement; (2) any failure to fulfill any covenant or agreement of Purchaser contained in this Agreement; or (3) any and all actions, suits, investigations, proceedings, demands, assessments, audits, judgments and/or claims arising out of or relating to any of the foregoing. 24 IN WITNESS WHEREOF, Seller and Purchaser have executed and delivered this Agreement as of the date first written above, being the date inserted by Seller as the date of its execution and delivery hereof to Purchaser. SELLER: PURCHASER: HORSHAM OFFICE CENTER BRANDYWINE REALTY TRUST ASSOCIATES LIMITED PARTNERSHIP, a Pennsylvania limited partnership By: HORSHAM OFFICE CENTER By: /s/ GERARD H. SWEENEY ASSOCIATES ACQUISITION --------------------------- CORPORATION, a Pennsylvania Name: __________________________ corporation, its general partner Title: _________________________ By: /s/ J. BRIAN O'NEILL ______________________________ J. BRIAN O'NEILL, President EX-10.54 22 AMEND TO AGREE FOR PURCHASE & SALE OF REAL ESTATE 1 EXHIBIT 10.54 AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE AND RELATED PROPERTY THIS AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL ESTATE AND RELATED PROPERTY ("Amendment") is made this _____ day of September, 1996, by and between HORSHAM OFFICE CENTER ASSOCIATES LIMITED PARTNERSHIP, a Pennsylvania limited partnership (the "Seller") and BRANDYWINE REALTY TRUST, or its permitted nominee or assignee (the "Purchaser"). B A C K G R O U N D A. Seller and Purchaser are parties to a certain Agreement for Purchase and Sale of Real Estate and Related Property dated August 14, 1996 ("Agreement of Sale"). B. Seller and Purchase have agreed to extend the Inspection Period for certain specified purposes and to provide for an extension of the date of Closing upon the terms and conditions set forth in this Amendment. C. All capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Agreement of Sale. AGREEMENTS NOW, THEREFORE, in consideration of the foregoing Background and of the mutual promises of the parties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Seller and Purchaser, intending to be legally bound, hereby agree as follows: 1. Seller and Purchaser agree that the Inspection Period as set forth in Section 4 of the Agreement of Sale and the corresponding right of Purchaser to terminate the Agreement of Sale pursuant to Section 5 of the Agreement of Sale shall be extended to 5:00 p.m., Eastern Standard Time on October 7, 1996 for the sole and limited purposes of allowing Purchaser to (i) conduct a tenant interview with representatives of MetPath, Inc. at a meeting to be attended with representatives of Seller for the sole purpose of permitting Purchaser to determine MetPath's future business plans to Purchaser's satisfaction; and (ii) procure an environmental report on the Property acceptable to Purchaser. Purchaser hereby waives its right to terminate the Agreement of Sale or seek the return of the Deposit for any reason relating to the inspection rights of Purchaser pursuant to Section 4 of the Agreement of Sale except for the reasons specified in (i) and (ii) above. 2. Seller and Purchaser hereby agree that the Additional Deposit specified in Section 2(A)(ii) of the Agreement of Sale shall be Seventy Five Thousand Dollars ($75,000.00). Purchaser hereby agrees to wire transfer to the Deposit Escrowee the 2 Additional Deposit specified in Section 2(A)(ii) of the Agreement of Sale as amended hereby for receipt by Deposit Escrowee on or before 3:00 p.m. Eastern Standard Time on October 2, 1996. The Deposit Escrowee shall hold the Initial Deposit and the Additional Deposit pursuant to the Agreement of Sale as amended herein. In the event that Purchaser does not terminate the Agreement of Sale before the expiration of the Inspection Period as provided in Section 1 of this Amendment, Purchaser agrees that the Deposit , together with interest accrued thereon has been fully earned by Seller, and the Deposit Escrowee shall not be obligated to return the Deposit to Purchaser unless Seller defaults in its obligation under the Agreement of Sale to close on the sale of the Property on or before the date of Closing as specified herein. 3. Section 7 of the Agreement of Sale is hereby amended to read in its entirety as follows: Payment of the Purchase Price and the consummation of the transaction contemplated by this Agreement ("Closing") shall take place pursuant to an escrow closing which provides that the Purchase Price shall be paid to Seller substantially simultaneously with the agreement of the Title Company to issue the Title Policy to Purchaser. The Closing shall occur at 9:00 A.M. Eastern Time on November 15, 1996 at the offices of the Title Company in Philadelphia, Pennsylvania or at such earlier date or other place as may be mutually agreed upon in writing by both Seller and Purchaser; provided, however, that (i) Purchaser may elect to extend the date of Closing to December 15, 1996 by transmitting notice to the Seller on or before November 14, 1996 provided that such notice is accompanied by payment to the Deposit Escrowee of an additional Fifty Thousand Dollars ($50,000.00) which amount shall be applied by Seller on account of the Purchase Price payable under Section 2 of the Agreement of Sale; or (ii) Seller, at Seller's sole discretion, may elect to extend the Closing as necessary (but in no event more than thirty (30) additional days) in order to satisfy the requirements of Section 10.D(ii) below. The date of the Closing may be extended by Seller beyond such 30th day after the date of the expiration of the Inspection Period by the number of days needed to cure title defects or adverse matters pursuant to Section 6 above, but in no event shall the date of the Closing be after January 16, 1997. Seller and Purchaser shall meet at the office of Purchaser's attorney and commence preparations for Closing on the day immediately prior to the date of Closing ("Proration Date"), so that all Closing documents required hereunder are signed and deposited into escrow with the Title Company (and all Closing prorations required hereunder are finalized) before the close of business on the Proration Date. 4. Except as specifically provided in this Agreement, all other terms and conditions of the Agreement of Sale shall remain in full force and effect. 5. This Agreement shall inure to the benefit of, and be binding upon, the heirs, executors, administrators, successors and assigns of the respective parties hereto. 3 6. This Agreement may be executed in one (1) or more counterparts and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one (1) and the same agreement. IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Amendment to Agreement of Sale to be executed as of the date and year first above written. SELLER: HORSHAM OFFICE CENTER ASSOCIATES LIMITED PARTNERSHIP By: Horsham Office Center Associates Acquisition Corporation By: /s/ HORSHAM OFFICE CENTER ASSOCIATES ACQUISITION CORPORATION -------------------------------- Name: Title: PURCHASER: BRANDYWINE REALTY TRUST By: /s/ GERARD H. SWEENEY _________________________________ Name: Title: EX-10.55 23 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 10.55 SECURITIES PURCHASE AGREEMENT BETWEEN BRANDYWINE REALTY TRUST MORGAN STANLEY INSTITUTIONAL FUND, INC. - U.S. REAL ESTATE PORTFOLIO AND MORGAN STANLEY SICAV SUBSIDIARY S.A. 2 TABLE OF CONTENTS SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING........................................................... 1 1.1 Authorization of Securities.................................................................... 1 1.2 Sale and Purchase.............................................................................. 1 1.3 Closing........................................................................................ 1 SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 2 2.1 Organization and Good Standing................................................................. 2 2.2 Authorization.................................................................................. 2 2.3 No Conflict with Law or Documents.............................................................. 3 2.4 Beneficial Interest of Company................................................................. 3 2.5 Consents and Approvals......................................................................... 3 2.6 Private Offering............................................................................... 4 2.7 Declaration of Trust and Bylaws................................................................ 4 2.8 Subsidiaries................................................................................... 4 2.9 SEC Reports.................................................................................... 5 2.10 Litigation..................................................................................... 5 2.11 Compliance with Laws........................................................................... 5 2.12 Financial Statements........................................................................... 6 2.13 Real Property.................................................................................. 7 2.14 Tenant Leases.................................................................................. 8 2.15 Dividends and Other Distributions.............................................................. 9 2.16 Tax Matters.................................................................................... 9 2.17 Agreements Affecting the Company's Securities.................................................. 10 2.18 Insurance...................................................................................... 10 2.19 Employee Benefit Plans......................................................................... 10 2.20 Contracts and Agreements....................................................................... 12 2.21 Absence of Certain Developments................................................................ 12 2.22 Contracts with Insiders........................................................................ 12 2.23 Environmental Matters.......................................................................... 13 2.24 Certain Agreements............................................................................. 13 2.25 Books and Records.............................................................................. 13 2.26 Certain Payments............................................................................... 14 2.27 Labor Agreements and Actions................................................................... 14 2.28 Entire Business; Etc........................................................................... 14 2.29 Registration Statement......................................................................... 14 2.30 Information.................................................................................... 15 2.31 Investment Company............................................................................. 15 2.32 Commodity Exchange Act......................................................................... 15 SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES..................................................... 15
-i- 3 3.1 Pre-Existing Entity............................................................................ 16 3.2 Beneficial Ownership........................................................................... 16 3.3 Principal Place of Business.................................................................... 16 3.4 Purchase Without View to Distribution.......................................................... 16 3.5 Restrictions on Transfer....................................................................... 16 3.6 No General Solicitation........................................................................ 16 3.7 Access to Information.......................................................................... 17 3.8 Additional Representations of the Purchasers................................................... 17 3.9 Legends........................................................................................ 17 3.10 Registration Statement......................................................................... 17 3.11 Due Authorization; Etc......................................................................... 17 3.12 Status......................................................................................... 18 SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS............................................ 18 4.1 Representations and Warranties................................................................. 18 4.2 Performance.................................................................................... 18 4.3 Opinion of Counsel to the Company.............................................................. 18 4.4 Proceedings; Certified Copies.................................................................. 18 4.5 No Proceeding or Litigation.................................................................... 18 4.6 No Material Adverse Change..................................................................... 18 4.7 ASE Listing.................................................................................... 18 4.8 Blue Sky Compliance............................................................................ 19 4.9 Registration Rights............................................................................ 19 4.10 Maryland Anti-Takeover Statutes, Etc........................................................... 19 4.11 Secondary Offering............................................................................. 19 4.12 Beneficial Ownership........................................................................... 19 4.13 Environmental Representation Letter............................................................ 19 4.14 Additional Documents........................................................................... 19 SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.............................................. 19 5.1 Representations and Warranties................................................................. 20 5.2 Performance.................................................................................... 20 5.3 No Proceeding or Litigation.................................................................... 20 5.4 ASE Listing.................................................................................... 20 5.5 Additional Documents........................................................................... 20 5.6 Proceedings; Certified Copies.................................................................. 20 5.7 No SEC Integration Challenge................................................................... 20 5.8 Beneficial Ownership........................................................................... 20 SECTION 6. COVENANTS OF THE COMPANY AND EACH PURCHASER PRIOR TO CLOSING........................................................................................ 21 6.1 Payment of Expenses............................................................................ 21
-ii- 4 6.2 Operation of Business in Ordinary Course....................................................... 21 6.3 Access to Information.......................................................................... 21 6.4 Notification of Certain Matters................................................................ 22 6.5 Conditions Precedent........................................................................... 22 SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND THE PURCHASERS......................................... 22 7.1 Rule 144....................................................................................... 22 7.2 Delivery of Financial Statements............................................................... 23 7.3 Compliance with Laws........................................................................... 23 7.4 Waivers, Consents, Etc......................................................................... 23 7.5 Press Releases................................................................................. 23 7.6 No Rescission.................................................................................. 24 7.7 REIT Status.................................................................................... 24 SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY OF COMMON SHARES............................................................................... 24 8.1 Compliance with 1933 Act....................................................................... 24 8.2 Restrictive Legend............................................................................. 24 8.3 Restrictions on Transferability................................................................ 24 8.4 Termination of Restrictions on Transferability................................................. 25 SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS......................................... 25 SECTION 10. MISCELLANEOUS.................................................................................. 25 10.1 Owner of Common Shares......................................................................... 25 10.2 Successors..................................................................................... 25 10.3 Broker or Finder............................................................................... 26 10.4 Governing Law.................................................................................. 26 10.5 Notice......................................................................................... 26 10.6 Full Agreement................................................................................. 27 10.7 Headings....................................................................................... 27 10.8 Amendment...................................................................................... 27 10.9 Survival of Representations and Warranties..................................................... 27 10.10 Settlement of Disputes......................................................................... 27 10.11 Counterparts................................................................................... 28 10.12 Termination.................................................................................... 28 10.13 Effect of Termination.......................................................................... 29 10.14 Non-Recourse................................................................................... 29
-iii- 5 SCHEDULE OF EXHIBITS Exhibit A -- Disclosure Letter Exhibit B -- Form of Amendment to Partnership Agreement Exhibit C -- Form of Amendment No. 1 to Registration Statement Exhibit D -- Form of Opinion of Counsel to the Company Exhibit E -- Form of Opinion of Special Maryland Counsel to the Company Exhibit F -- Form of Registration Rights Agreement Schedule A Schedule 3.2 -iv- 6 SECURITIES PURCHASE AGREEMENT (this "Agreement") made as of the 6th day of November, 1996 between BRANDYWINE REALTY TRUST, a Maryland real estate investment trust (the "Company"), and MORGAN STANLEY INSTITUTIONAL FUND, INC.-U.S. REAL ESTATE PORTFOLIO and MORGAN STANLEY SICAV SUBSIDIARY S.A. (each a Purchaser and together, the "Purchasers"). BACKGROUND The Company desires to issue and sell to the Purchasers, and each Purchaser desires to purchase Common Shares (as defined in Section 1.1) on the terms and conditions set forth herein. Intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. SALE AND PURCHASE OF SHARES; CLOSING 1.1 AUTHORIZATION OF SECURITIES. The Board of Trustees has authorized the issuance of 709,091 of its authorized but unissued common shares of beneficial interest (the "Common Shares") as provided in Section 1.2. 1.2 SALE AND PURCHASE. Subject to the terms and conditions herein set forth, on the Closing Date (as defined in Section 1.3), the Company shall sell, issue and deliver Common Shares to the Purchasers at a price of $16.50 per share (assuming the Company has combined its Common Shares by means of a one-for-three reverse share split as described in the Registration Statement (as defined in Section 2.29)), and each Purchaser agrees, severally and not jointly, to purchase the number of Common Shares set forth opposite its name on Schedule A attached hereto. All share amounts and prices shall be appropriately adjusted for any share splits, reverse share splits, dividends or similar transactions (with the exception of the one for three reverse share split described in the Registration Statement). The Purchasers shall not be deemed to be affiliated shareholders or affiliated purchasers. 1.3 CLOSING. (a) The closing of the issuance and sale of the Shares to the Purchasers hereunder shall take place as promptly as practicable after the closing of the Secondary Offering, subject to the satisfaction or, if permissible, waiver of the conditions set forth in Sections 4 and 5, at 10:00 A.M. at the offices of Pepper, Hamilton & Scheetz, Two Logan Square, 18th and Arch Streets, Philadelphia, PA 19103, unless another date, time or place is agreed to in writing by the parties hereto. As used herein "Closing" shall mean the closing of the issuance and sale of the Common Shares to the Purchasers hereunder and the "Closing Date" shall mean the date on which such Closing takes place. The term "Secondary Offering" as used herein means an underwritten primary public offering of unissued common shares of beneficial interest of the 7 same class as the Common Shares pursuant to a Registration Statement on Form S-11 declared effective by the SEC (as defined in Section 2.9) which results in gross proceeds to the Company (prior to reduction for the underwriters' discount) of at least $45,000,000. (b) Subject to the terms and conditions herein set forth, at the Closing, the Company shall deliver to each Purchaser certificates for the Common Shares purchased thereby duly executed by the Company and registered in such Purchaser's name or the name of their respective nominee and, in exchange for the delivery of the Common Shares, Purchaser shall deliver to the Company the purchase price for the number of Common Shares set forth opposite its name on Schedule A attached hereto by wire transfer of immediately available funds to an account designated by the Company on the Closing Date. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Other than as set forth on the disclosure letter previously provided to the Purchasers (the "Disclosure Letter") or as described in the Registration Statement or in the SEC Reports or exhibits thereto (as defined in Section 2.09), the Company represents and warrants to each Purchaser as follows: 2.1 ORGANIZATION AND GOOD STANDING. The Company is a real estate investment trust duly formed and existing under and by virtue of the laws of the State of Maryland and is in good standing under the laws of the State of Maryland Department of Assessments and Taxation and has all requisite power and trust authority, and all necessary licenses and permits, to own and lease its properties and assets and to conduct its business as now conducted. Each Subsidiary (as defined in Section 2.9) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority, and all necessary licenses and permits, to own and lease its properties and assets and to conduct its business as now conducted. The Company and its Subsidiaries are each qualified to do business and are in good standing in all states where the conduct of their respective businesses or their ownership or leasing of property requires such qualification. 2.2 AUTHORIZATION. The Company has all requisite power and trust authority to execute and deliver this Agreement and the Registration Rights Agreement (as defined herein) and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and the Registration Rights Agreement have been duly authorized by all requisite corporate action. This Agreement has been duly executed and delivered by the Company and constitutes (and, when executed and delivered as contemplated herein the Registration Rights Agreement will constitute) the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors' rights -2- 8 generally, and except that the availability of specific performance, injunctive relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought. 2.3 NO CONFLICT WITH LAW OR DOCUMENTS. The execution, delivery and performance by the Company of this Agreement and the Registration Rights Agreement will not violate any provision of law, any rule or regulation of any governmental authority, or any judgment, decree or order of any court binding on the Company, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties, assets or outstanding shares of the Company under the Declaration of Trust of the Company as amended to the date of this Agreement (the "Declaration of Trust") or the Bylaws of the Company as amended to the date of this Agreement (the "Bylaws"), or any indenture, mortgage, lease, agreement or other instrument to which the Company is a party or by which it or any of its properties is bound. 2.4 BENEFICIAL INTEREST OF COMPANY. The authorized beneficial interest of the Company consists of: (a) 75,000,000 Common Shares, 2,733,554 shares of which are presently issued and outstanding, and (b) 5,000,000 undesignated preferred shares, par value $.01 per share, none of which is presently issued and outstanding. All issued and outstanding Common Shares have been duly and validly issued and are fully paid and nonassessable. There are no outstanding subscriptions, warrants, options or other rights or commitments of any character to subscribe for or purchase from the Company, or obligating the Company to issue, any shares of beneficial interest of the Company or any securities convertible into or exchangeable for such shares, and there are no Common Shares reserved for issuance. The number of Common Shares issuable upon the exercise, conversion or exchange of any outstanding securities of the Company is not subject to adjustment by reason of the issuance and sale of the Common Shares to be sold to the Purchasers. There are no (i) preemptive, first refusal or similar rights to purchase or otherwise acquire securities of the Company or any Subsidiary pursuant to any provision of law, the Declaration of Trust, the Bylaws, the Partnership Agreement (as defined in Section 2.21), other agreement or otherwise; or (ii) rights to adjust the number, type or pricing of securities issuable upon conversion, exercise or exchange of other securities or rights issued by the Company. 2.5 CONSENTS AND APPROVALS. Except as set forth in the Disclosure Letter, no permit, consent, approval or authorization of, or declaration to or filing with, any federal, state, local or foreign governmental or regulatory authority or other person or entity, not made or obtained, is required in connection with the execution or delivery of this Agreement or the Registration Rights Agreement by the Company, the offer, issuance, sale or delivery of the Common Shares, or the carrying out by the Company of the other transactions contemplated hereby, other than (a) the filing with, and approval of, the American Stock Exchange, Inc. ("ASE") with respect to the listing of the Common Shares, (b) any filings required under federal -3- 9 and applicable state securities laws, and (c) the filing of Articles Supplementary with the State Department of Assessments and Taxation of Maryland. Prior to the closing, the Board of Trustees of the Company shall have taken all action necessary so that the transactions contemplated by this Agreement including, without limitation, the issuance of the Common Shares, shall be irrevocably exempt from the operation of Section 3-601 et seq. (the "business combination" statute), and Section 3-701 et seq. (the "control share acquisition" statute) of the Maryland General Corporation Law (collectively, the "Maryland Anti-Takeover Statutes") and from any provisions of the Declaration of Trust and Bylaws that may have the effect of limiting the acquisition of securities of the Company, including without limitation Sections 6.6 and 11.5 of the Declaration of Trust. 2.6 PRIVATE OFFERING. Assuming the accuracy of the Purchasers' representations and warranties contained in Section 3, the offer, issuance and delivery to the Purchasers pursuant to the terms of this Agreement of the Shares are exempt from registration under the Securities Act of 1933, as amended (the "1933 Act"). Based on the representations of the Purchasers contained in Section 3, it is not necessary, under the circumstances contemplated by this Agreement to register issuance of the Common Shares under the 1933 Act or the securities laws of any state or other jurisdiction. 2.7 DECLARATION OF TRUST AND BYLAWS. The Company has filed as exhibits to the SEC Reports the Declaration of Trust and Bylaws, true and correct copies of which have been delivered to the Purchasers. 2.8 SUBSIDIARIES. The SEC Reports or the Disclosure Letter accurately disclose the name of each entity in which the Company owns any interest, other than such entities that neither own any assets nor have ever conducted any business (collectively, the "Subsidiaries," which term includes without limitation Brandywine Operating Partnership, L.P., a Delaware limited partnership). The SEC Reports or the Disclosure Letter accurately describe (a) each Subsidiary's jurisdiction of organization and the percentage of its equity interests owned by the Company and (b) the name of each of the Company's corporate or joint venture affiliates (other than Subsidiaries) and the nature of the affiliation. Except as described in the SEC Reports or the Disclosure Letter, the Company has good and marketable title to all of the equity interests it purports to own of each Subsidiary, free and clear in each case of any mortgage, lien, security interest, charge or other encumbrance, and all such interests have been duly issued and are fully paid and nonassessable. There are no outstanding warrants, options or other rights or commitments of any character to subscribe for or purchase from the Company or a Subsidiary, or obligating such Subsidiary to issue, any additional equity interests or any securities convertible into or exchangeable for such equity interests. 2.9 SEC REPORTS. Since January 1, 1995, the Company and its Subsidiaries have timely filed all forms, reports, schedules, statements and other documents required to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the Securities -4- 10 Exchange Act of 1934, as amended (the "Exchange Act") or the 1933 Act, including without limitation, (a) all Annual Reports on Form 10-K, (b) all Quarterly Reports on Form 10-Q, (c) all reports on Form 8-K, (d) all proxy statements relating to meetings of stockholders (whether annual or special) and (e) all information incorporated by reference into any of the foregoing. As used herein the term "SEC Reports" means any of the foregoing, as amended to the date of this Agreement, filed on or after January 1, 1995. The SEC Reports were prepared in all material respects in accordance with and complied in all material respects with the requirements of applicable law, including the Exchange Act and the 1933 Act and the applicable rules and regulations of the SEC thereunder, and the SEC Reports did not at the time they were filed and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except for the Registration Statement and the Registration Statement on Form S-8 filed on October 12, 1996, the Company has not filed any registration statements with the SEC at any time within the last three years. The Company has delivered to the Purchasers prior to the date hereof true and correct copies of all SEC Reports and any other reports and documents filed with the SEC since January 1, 1995. 2.10 LITIGATION. The SEC Reports, the Registration Statement and/or the Disclosure Letter list all material pending or, to the Company's knowledge, threatened litigation involving the Company and its Subsidiaries. Except as so disclosed, there is no pending or, to the knowledge of the Company, threatened suit, action or litigation, or administrative, arbitration or other proceeding or governmental inquiry or investigation questioning the validity of this Agreement or the transactions contemplated hereby, or affecting in any material adverse respect the Company or any Subsidiary or the business, properties, assets, operations, or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, nor is there, to the knowledge of the Company, any basis for any such suit, action, litigation, proceeding, inquiry or investigation. 2.11 COMPLIANCE WITH LAWS. The Company and each Subsidiary is in compliance in all material respects with all laws, ordinances, rules and regulations of governmental authorities (including, without limitation, the Americans with Disabilities Act of 1990) and requirements of insurance bodies applicable to ownership, leasing, use and operation of its or their properties and has obtained and fully paid for all material licenses, permits, certificates, entitlements, grants of right and any other items and documents required by applicable law to be obtained by the Company or its Subsidiaries for the completion, ownership, leasing, use and occupancy of its or their properties, except where the failure to so comply or obtain would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. Such licenses, permits, certificates, entitlements, grants of right and other items and documents are in full force and effect. Neither the Company nor any of its Subsidiaries have taken any action that would (or failed to take any action, the omission of which would) result in the revocation or suspension of such licenses, permits, certificates, entitlements, grants of right and other items and documents, and neither the Company nor any of its Subsidiaries have -5- 11 received any notice of any material violation from any federal, state or municipal entity or notice of an intent by any such governmental entity to revoke any material certificate of occupancy or other certificate, license, permit, entitlement or grant of right issued by it in connection with the ownership, use and occupancy of any of its or their properties, that in each case has not been cured or otherwise resolved to the satisfaction of such governmental entity. 2.12 FINANCIAL STATEMENTS. (a) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the SEC Reports and the Registration Statement (i) have been prepared in all material respects in accordance with the published rules and regulations of the SEC and generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except in the case of the unaudited financial statements, as permitted by Form 10-Q of the SEC), (ii) comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and (iii) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated (subject, in the case of unaudited consolidated financial statements for interim periods, to year-end adjustments consisting only of normal recurring accruals), except that any pro forma financial statements contained in such consolidated financial statements are not necessarily indicative of the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows for the periods indicated. Since December 31, 1995, the Company has not made any material change in the accounting practices or policies applied in the preparation of its financial statements. (b) Since June 30, 1996 (the "Balance Sheet Date") there has been no material adverse change in the business, properties, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. (c) The consolidated balance sheet of the Company and its Subsidiaries at the Balance Sheet Date (the "Balance Sheet") reflects all liabilities and obligations of the Company and of each Subsidiary, whether accrued, contingent or otherwise as of the date thereof, that are of a nature required to be set forth as a liability on a consolidated balance sheet under GAAP. Neither the Company nor any of its Subsidiaries have any liabilities or obligations of any nature (whether or not of the nature required to be reflected on the balance sheet prepared in accordance with GAAP) that are not reflected on the Balance Sheet, except for current liabilities (within the meaning of GAAP) which (i) have been incurred in the ordinary course of business consistent in nature and amount with past practice, and (ii) are neither material to the Company and its Subsidiaries taken as a whole nor inconsistent with any of the representations and warranties contained herein. The Balance Sheet reflects reserves or other appropriate provisions at least equal to reasonably anticipated liabilities, losses and expenses of -6- 12 the Company and its Subsidiaries as of the date thereof which are required to be disclosed by GAAP. (d) At the time of the issuance and sale of the Common Shares to the Purchasers, neither the Company nor any of its Subsidiaries will have any liabilities or obligations, whether absolute, accrued, contingent, or otherwise, other than (i) current liabilities reflected on the Balance Sheet not paid since the Balance Sheet Date, (ii) current liabilities incurred in the ordinary course of business or in connection with the transactions contemplated hereby or described in the Disclosure Letter and (iii) the other indebtedness of the Company or of its Subsidiaries described in the Disclosure Letter, the Registration Statement or the SEC Reports. 2.13 REAL PROPERTY. (a) The SEC Reports or the Registration Statement describe all real properties owned by the Company and each Subsidiary. To the Company's knowledge, the Company and each Subsidiary has good, valid and marketable title to all such real and personal properties and assets reflected therein as being owned by the Company or such Subsidiary, except for properties and assets sold or otherwise disposed of in the ordinary course of business since the Balance Sheet Date or that are not material to its business taken as a whole, subject to no liens, mortgages, security interests, pledges, encumbrances, or charges of any kind except: (i) liens for taxes or assessments or other government charges or levies not yet due and payable, (ii) liens imposed by law, such as mechanic's, materialmen's, warehousemen's and carrier's liens, and other similar liens, securing obligations incurred in the ordinary course of business which are not past due for more than 30 days, (iii) liens under workmen's compensation, unemployment insurance, social security or similar legislation securing obligations which are not past due, and (iv) the liens securing other indebtedness not past due of the Company or its Subsidiaries described in the SEC Reports, the Registration Statement or the Disclosure Letter (the "Permitted Liens"). (b) No eminent domain, condemnation, incorporation, annexation or moratorium or similar proceeding has been commenced or, to the best of the Company's knowledge, threatened by an authority having the power of eminent domain to condemn any part of the properties owned by the Company and its Subsidiaries. To the best of the Company's knowledge, there are no pending or threatened governmental rules, regulations, plans, studies or efforts, or court orders or decisions, which do or could adversely affect the use or value of such properties for their present use. (c) The improvements at all properties owned by the Company and its Subsidiaries are in good condition and repair, ordinary wear and tear excepted, and have not suffered any casualty or other material damage which has not been repaired in all material respects. To the best of the Company's knowledge, there is no material latent or patent structural, -7- 13 mechanical or other significant defect, soil condition or deficiency in the improvements included in such properties. (d) Each of the properties owned by the Company and its Subsidiaries has been fully assessed and is not subject to abatement. To the best of the Company's knowledge, there are no proposed reassessments of any of such properties by any taxing authority and there are no threatened or pending special assessments or other actions or proceedings (other than county-wide reassessments and/or the usual increases in millage rates that may be under consideration by the taxing authorities in the jurisdictions where such properties are located) that could give rise to an increase in real property taxes or assessments against any of such properties. (e) There are no "Significant Agreements" relating to the properties owned by the Company and its Subsidiaries, or their operations, other than as set forth in the Disclosure Letter, the Registration Statement or the SEC Reports. For purposes hereof, "Significant Agreement" means and includes any of the following by which any of such properties may otherwise be subject or bound, in each such case as amended and currently in effect, inclusive of any waivers relating thereto: (i) all agreements, instruments and documents (excluding tenant leases referred to in Section 2.14 and easements included in the Permitted Liens) evidencing, securing or pertaining to contractual obligations that (A) are not cancelable upon 60 days notice or less and (B) have payments or receipts, as applicable, in excess of $15,000 per year or $25,000 over its life; and (ii) all mortgages and ground leases. 2.14 TENANT LEASES. (a) The Disclosure Letter lists each of the leases currently in effect with respect to the properties owned by the Company and its Subsidiaries as the same have been amended or modified to date (the "Leases"). The Leases are in full force and effect and, except as set forth in the Disclosure Letter, no material uncured Event of Default (as defined in any such Lease), has occurred and is continuing under any such Lease, no tenant has asserted a defense to, offset or claim against its rent or the performance of its obligations under its Lease and no tenant has asserted a default on the part of the landlord which would give it the right to terminate its Lease and there are no rights of first refusal on, or options to purchase, any of such leased properties in favor of any tenant, and no proposed modifications to any Lease that would reduce (A) the space leased to any tenant, (B) the amount of any tenant's rent or (C) the term of any Lease. (b) Except for (i) security deposits or (ii) the first full month's rent, whether or not the term of a Lease has commenced, no prepayments of rent more than thirty (30) -8- 14 days in advance have been made under the Leases. No rent or security deposits under the Leases have been assigned or encumbered, except as security for the mortgages noted in the Disclosure Letter or the SEC Reports, and there are no agreements or understandings, written or oral, with any of the tenants other than as set forth in the Leases. All brokerage commissions and other compensation and fees payable by reason of the Leases have been paid in full. 2.15 DIVIDENDS AND OTHER DISTRIBUTIONS. Since the Balance Sheet Date, except for the Company's regular quarterly cash dividend (not in excess of $.07 per quarter between the Balance Sheet Date and the Closing Date), neither the Company nor any Subsidiary has declared, set aside, or made any payment of a dividend or made any other distribution in respect of the Company's beneficial interest, repurchased or redeemed any of the Company's beneficial interest, or made any other payments to any holder of 5% or more of the Company's outstanding Common Stock other than salary paid to such stockholder for bona fide services to the Company or a Subsidiary as an officer or employee or reimbursement of reasonable expenses incurred in the ordinary course of business. 2.16 TAX MATTERS. Beginning with the first taxable year of the Company, its taxable year ended December 31, 1986, the Company properly elected to be taxed as a real estate investment trust within the meaning of Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), and has satisfied, and continues to satisfy, all of the requirements set forth in those provisions and the regulations thereunder to be taxed as a real estate investment trust within the meaning of those provisions. Without limiting the generality of the foregoing, the Company, for each taxable year of the Company beginning with the first taxable year for which it made an election to be classified as a real estate investment trust: (i) has timely made all of the distributions required under Section 857(a)(1) of the Code; (ii) has timely demanded the statements from its shareholders required under Section 1.857-8(d) of the Treasury Regulations promulgated under the Code and maintained the records required under Treasury Regulations Section 1.857-8(e); (iii) has not sought to apply the provisions of Section 856(c)(7) of the Code in any taxable year of the Company; and (iv) has not revoked its election to be taxed as a real estate investment trust for federal income tax purposes nor has it received any notice that its classification as a real estate investment trust has been challenged by any taxing authority. The Company and each Subsidiary has filed all U.S. Federal, state, local, foreign and other tax returns which were required to be filed on or before the date hereof and has paid all taxes which have become due and payable. All such reports and returns were materially accurate and complete when filed and reflect all taxes required to be paid by the Company and its Subsidiaries for the periods reported therein. The provision for taxes made in the Balance Sheet at the Balance Sheet Date was sufficient for the payment of all accrued and unpaid taxes of the Company and its Subsidiaries with respect to the periods then ended. No additional material assessments, deficiencies or penalties in respect of taxes have been made or claimed against the Company or any Subsidiary which remain unpaid. No tax returns or reports of the Company or any Subsidiary are or ever have been under audit. -9- 15 2.17 AGREEMENTS AFFECTING THE COMPANY'S SECURITIES. There are no agreements, written or oral, between the Company and any holder of its securities or, to the knowledge of the Company, among any holders of its securities, relating to the acquisition, disposition or voting of the securities of the Company. Except for the provisions of the Registration Rights Agreements listed on the Disclosure Schedule, there are no agreements, either written or oral, which obligate the Company to effect the registration of any of its securities under the 1933 Act. 2.18 INSURANCE. The Disclosure Letter lists all insurance policies carried by the Company or any Subsidiary relating to its or their real property and assets. All such policies are in full force and effect and all premiums thereunder have been paid to the extent due, and no notice of cancellation has been received with respect thereto and, to the best knowledge of Company, no cancellation is threatened. 2.19 EMPLOYEE BENEFIT PLANS. Schedule 2.20 to the Disclosure Letter lists all deferred compensation, pension, profit sharing, stock option, stock purchase, savings, group insurance and retirement plans, and all vacation pay, severance pay, incentive compensation, consulting, bonus and other material employee benefit or fringe benefit plans or arrangements maintained by the Company and its Subsidiaries with respect to which contributions are made by the Company (including health, life insurance and other benefit plans or arrangements maintained for the retirees which are specifically identified as such on Schedule 2.20). Such plans, including but not limited to all plans or programs that constitute "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), are sometimes collectively referred to in this section as "Benefit Plans." Neither the Company nor any ERISA Affiliate (as hereinafter defined) maintains, contributes or sponsors, and have not maintained, contributed to or sponsored any "employee benefit plan" (as defined in section 3(3) of ERISA) that is subject to Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended ("Code") or any "Multiemployer Plan" (as defined in Section 4001(a)(3) of ERISA). ERISA Affiliate means all persons which are treated as being under common control or as a single employer with the Company or any of its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code. Each Benefit Plan is and has been maintained in compliance in all material respects with applicable law, including but not limited to ERISA, the Code and with any applicable collective bargaining agreements or other contractual obligations. Each Benefit Plan that provides medical benefits has been operated in compliance with all applicable requirements of Sections 601 through 608 of ERISA and either (i) Section 162(i)(2) and (k) of the Code and regulations thereunder (prior to 1989) or (ii) Section 4980B of the Code and regulations thereunder (after 1988), relating to the continuation of coverage under certain circumstances in which coverage would otherwise cease. Company is not required to make any payment to any current or former employee of the Company in the form of wages or other consideration pursuant to any employment agreement or Benefit Plan that will constitute in the aggregate an "excess parachute payment" (within the meaning of Section 280G(b) of the Code as a consequence in whole or in part of the transactions contemplated by this Agreement. -10- 16 There have been no written statements or communications made or materials provided to any employee or former employee of the Company or its Subsidiaries by any person which provide for or could be construed as a contract or promise by the Company or any subsidiary to provide for any pension, welfare, or other insurance-type benefits to any such employee or former employee, whether before or after retirement, other than benefits under Benefit Plans set forth on the Disclosure Schedule or under the form of employment contracts. All of the Benefit Plans which are pension benefit plans are the subject of favorable determination or opinion letters from the IRS such that the employers maintaining such Benefit Plans, are entitled to rely on the compliance of such Benefit Plans as to the form of the Plan with the applicable requirements of Sections 401(a) and 501(a) of the Code; and no determination letter with respect to any Benefit Plan has been revoked nor, to the best knowledge of the Company, has revocation been threatened, nor has any Benefit Plan been amended since the date of its most recent determination letter or application therefore in any request which would adversely affect its qualification or materially increase its cost. Neither the Company nor any ERISA Affiliate maintains or sponsors any nonqualified deferred compensation plan or arrangements. There are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, other than routine claims for benefits in the ordinary course, asserted or instituted against (i) any Benefit Plan or its assets, (ii) any ERISA Affiliate with respect to any Benefit Plan, or (iii) any fiduciary with respect to any Benefit Plan for which the Company, or its Subsidiaries may be directly or indirectly liable, through indemnification obligations or otherwise. Neither the Company, nor any of its Subsidiaries has engaged, directly or indirectly, in a non-exempt prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Benefit Plan. As of the date of this Agreement, none of the assets of the Company or its Subsidiaries are required to be treated as "plan assets," within the meaning of Title I of ERISA ("Plan Assets"). 2.20 CONTRACTS AND AGREEMENTS. (a) The Company has filed as exhibits to its SEC Reports and/or the Registration Statement all of the contracts and agreements required to be so filed by the 1933 Act, the Exchange Act and the rules and regulations of the SEC. True and correct copies of all such agreements have been provided to the Purchasers prior to the date hereof. Neither the Company nor any Subsidiary is a party to any contract or agreement which is material to the business, properties, assets, operations or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole which has not been filed as an Exhibit to, or otherwise described in, the Registration Statement or the SEC Reports. (b) Neither the Company nor any Subsidiary is (i) in default under any agreement, contract or instrument to which it is a party or by which it is bound, which default is reasonably likely to have a material adverse effect on the business, properties, assets, operations -11- 17 or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, (ii) in violation of the Declaration of Trust, Bylaws or the Agreement of Limited Partnership of Brandywine Operating Partnership, L.P. dated August 22, 1996, as it will be amended in the form of amendment attached hereto as Exhibit B (the "Partnership Agreement") (or other organizational documents), or (iii) in default with respect to any order, writ, injunction or decree of any court or governmental agency binding on it, and no event has occurred which with notice or lapse of time, or both, would create any default or violation described in clauses (i) through (iii). 2.21 ABSENCE OF CERTAIN DEVELOPMENTS. Since the Balance Sheet Date, neither the Company nor any Subsidiary has (a) mortgaged, pledged or subjected to lien, charge or any other encumbrance any of its assets, tangible or intangible, except Permitted Liens, (b) sold, assigned or transferred any of its tangible assets or canceled any debts or obligations except in the ordinary course of business, (c) suffered any extraordinary losses, or waived any rights of substantial value (whether or not in the ordinary course of business), (d) made any changes in officer compensation, (e) entered into any material transaction other than in the ordinary course of business, (f) made any change in any of its material contracts, the Declaration of Trust, Bylaws or Partnership Agreement (or other organizational documents), or in any arrangements or agreements of any nature relating to its officers and directors, (g) sold any equity interests or (h) established any record dates for dividends or other distributions on other than customary quarterly record dates in accordance with past practice. 2.22 CONTRACTS WITH INSIDERS. Excluding any agreements or transactions that would not be required to be disclosed pursuant to Items 402 or 404 of Regulation S-K, no officer or trustee of the Company, or, to the Company's knowledge, holder of more than 5% of the Company's outstanding Common Shares, is a party to any contract, agreement, or arrangement providing for the Company's or a Subsidiary's employment of, furnishing of services to the Company or a Subsidiary by, the rental of real or personal property by the Company or a Subsidiary from, or otherwise requiring payments by the Company or a Subsidiary to, any such person or entity, or, to the Company's knowledge, any member of such person's family, or any corporation, partnership or other entity in which such person or entity, or, to the Company's knowledge, any member of such person's family, has an interest or of which such person, or, to the Company's knowledge, any member of such person's family, is an officer, director, trustee, or beneficiary. 2.23 ENVIRONMENTAL MATTERS. Neither the Company nor its Subsidiaries have (a) caused any substance or waste that is listed or defined as hazardous or toxic under applicable environmental laws or petroleum products (collectively "Hazardous Materials") to be improperly maintained or disposed of on, under or at any of its or their properties, or any part thereof, in a manner which violates, or could give rise to liability under, applicable environmental laws, or (b) failed to remediate, alter, mitigate or abate any condition required to be remediated, altered, mitigated or abated under such environmental laws, to the extent the Company and its -12- 18 Subsidiaries have been notified of the existence of a condition required to be remediated, altered, mitigated or abated. Except as set forth in the environmental site assessments provided by the Company to the Purchasers, (i) to the Company's knowledge, each of its properties, and the properties of its Subsidiaries, is in compliance, and has heretofore complied, with all environmental laws in all material respects, (ii) to the Company's knowledge, there has been no discharge of Hazardous Materials by any tenant of any property of the Company or its subsidiaries in quantities requiring response, remediation or removal, and (iii) the Company has not received any written notice from any governmental unit or other person or entity that it or its Subsidiaries, or any of its or their properties or operations conducted thereon, are not or have not been in compliance with all environmental laws. 2.24 CERTAIN AGREEMENTS. The SEC Reports, the Registration Statement and/or the Disclosure Letter list all employment and severance agreements that the Company and each Subsidiary has entered into with its officers and employees. The issuance and sale of the Common Shares to the Purchasers hereunder, and the completion of the other transactions provided for herein or in the Registration Rights Agreement will not give any employee the right to terminate his or her employment and receive severance or other payments from the Company or any Subsidiary, or result in the acceleration of vesting of any outstanding option issued by the Company. 2.25 BOOKS AND RECORDS. The books and records of the Company and its Subsidiaries accurately and fairly reflect their respective income, expenses, assets and liabilities, and the Company and its Subsidiaries maintain internal accounting controls which provide reasonable assurance that: (a) transactions are executed in accordance with management's authorization; (b) transactions are recorded as necessary to permit preparation of reliable financial statements and to maintain accountability for earnings and assets; (c) access to assets is permitted only in accordance with management's authorization; (d) the recorded accountability of all assets is compared with existing assets at reasonable intervals; and (e) all intercompany transactions, charges and expenses among or between the Company, any Subsidiary, or any other affiliate of the Company are accurately reflected in all financial statements. 2.26 CERTAIN PAYMENTS. Neither the Company nor any of its Subsidiaries, nor, to the Company's knowledge, any trustee, officer, agent or employee of any such entity, or any other person or entity associated with or acting for or on behalf of the Company or any of its Subsidiaries has directly or indirectly (a) made any unlawful contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, private or public, regardless of form, whether in money, property or services, (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, or (iii) to obtain special concessions or special concessions already obtained, for or in respect of the Company or any of its Subsidiaries, or (b) established or maintained any fund or asset that has not been recorded in the books and records of the Company and its Subsidiaries, or (c) taken any other action in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended. -13- 19 2.27 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any Subsidiary is bound by or subject to, any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company or any Subsidiary. There is no strike or other labor dispute involving the Company or any Subsidiary pending, or to the knowledge of the Company threatened, nor is the Company aware of any labor organization activity involving any of the employees of the Company or any Subsidiary. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate his, her or their employment with the Company or any Subsidiary, nor does the Company or any Subsidiary have a present intention to terminate the employment of any of the foregoing. The employment of each employee of the Company or any Subsidiary is terminable at the will of the applicable employer without further liability of such employer to such employee except for the payment of such employee's normal salary accrued but not paid through the date of such termination. 2.28 ENTIRE BUSINESS; ETC. All of the assets (including the Company's and its Subsidiaries' interests under franchises, licenses, leases and permits) necessary for the conduct of the business of the Company and its Subsidiaries as presently conducted are held exclusively by the Company or a Subsidiary. 2.29 REGISTRATION STATEMENT. The Registration Statement on Form S-11 (SEC File No. 333-13969) initially filed by the Company with the SEC on October 11, 1996 (the "Registration Statement"), as it shall be amended from time to time, will comply at all times in all material respects with the provisions of the 1933 Act and the rules and regulations thereunder, as applicable, except that no representation is made by the Company with respect to information supplied in writing by the Purchasers specifically for inclusion in the Registration Statement ("Purchasers Information") and, at the date hereof, at the Closing Date, at the date that the Registration Statement is declared effective by the SEC and at each date that sales of Common Shares are made pursuant to the Registration Statement, except for Purchasers Information, the Registration Statement, as it shall be amended from time to time, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Unless the otherwise specifically provided, references to the Registration Statement are to the Registration Statement as originally filed, as modified by the form of Amendment No. 1 thereto attached hereto as Exhibit C. 2.30 INFORMATION. Neither this Agreement nor any document delivered to the Purchasers pursuant hereto, including the SEC Reports (except to the extent modified by the Disclosure Letter) and the Registration Statement, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. There is no fact, development or threatened development known to the Company which could reasonably be expected to -14- 20 materially adversely effect the business, assets, properties, operations, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole which has not been set forth in this Agreement, the Disclosure Letter, the SEC Reports or the Registration Statement. 2.31 INVESTMENT COMPANY. Each of the Company and its Subsidiaries is not, and upon the issuance and sale of the Common Shares as herein contemplated and the application of the net proceeds therefrom, will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). 2.32 COMMODITY EXCHANGE ACT. The Common Shares, upon issuance, will be excluded or exempted under, or beyond the purview of, the Commodity Exchange Act, as amended (the "Commodity Exchange Act"), and the rules and regulations of the Commodity Futures Trading Commission under the Commodity Exchange Act (the "Commodity Exchange Act Regulations"). SECTION 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES Each Purchaser understands that the Common Shares will not be registered under the 1933 Act, on the grounds that the sales provided for in this Agreement are exempt pursuant to Section 4(2) of the 1933 Act and/or Regulation D promulgated under Section 4(2) of the 1933 Act, and that the reliance of the Company on such exemptions is predicated in part on each Purchaser's representations, warranties, covenants and acknowledgments set forth in this Section 3. Each Purchaser (except with respect to Section 3.12 which is solely a representation and warranty of Morgan Stanley Institutional Fund, Inc.-U.S. Real Estate Portfolio) severally and not jointly represents and warrants to the Company as follows: 3.1 PRE-EXISTING ENTITY. Such Purchaser is the sole owner of the economic interest in the Common Shares to be issued thereto and that such Purchaser was not organized for the specific purpose of purchasing the Common Shares to be purchased by it hereunder. 3.2 BENEFICIAL OWNERSHIP. Except as set forth on Schedule 3.2, as of the date hereof and prior to the purchase of the Common Shares, (a) it is not the "beneficial owner" of any securities of the Company, as such term is defined in Rule 13d-3 promulgated under the Exchange Act, and (b) it is not a member of a group which has acquired beneficial ownership of securities of the Company for purposes of Sections 13(d) and 13(g) of the Exchange Act. 3.3 PRINCIPAL PLACE OF BUSINESS. The address of its principal place of business or residence is as set forth on Schedule A herein. 3.4 PURCHASE WITHOUT VIEW TO DISTRIBUTION. The Common Shares to be purchased by it are being acquired by such Purchaser for its own account for investment purposes, not as a nominee or agent, and not with a view to resale or distribution within the -15- 21 meaning of the 1933 Act, and the rules and regulations thereunder, and such Purchaser will not distribute the Common Shares in violation of the 1933 Act or in a manner that will cause the Company to lose its exemption from the registration requirements under the 1933 Act with respect to the offer and sale of the Common Shares. 3.5 RESTRICTIONS ON TRANSFER. Such Purchaser (a) acknowledges that the Common Shares are not registered under the 1933 Act or under any state securities laws and that the Common Shares to be acquired by it must be held indefinitely by it unless they are subsequently registered under the 1933 Act and under any applicable state securities laws or an exemption from registration is available, (b) is aware that any routine sales pursuant to Rule 144 promulgated under the 1933 Act of the Common Shares may be made only in limited amounts and in accordance with the terms and conditions of that Rule and that in such cases where the Rule is not applicable, compliance with some other registration exemption will be required, (c) is aware that Rule 144 is not presently available for use by such Purchaser for resale of the Common Shares and (d) is aware that, except as provided in the Registration Rights Agreement, the Company is not obligated to register under the 1933 Act any sale, transfer or other disposition of the Common Shares. 3.6 NO GENERAL SOLICITATION. It is making this investment based upon its own investigation of and discussions with the Company, which investigation and discussions commenced prior to the filing of the Registration Statement, and not from or through any broker, dealer or other third party. 3.7 ACCESS TO INFORMATION. The Company has made available to it the opportunity to ask questions of and receive answers from the Company's officers and trustees concerning the terms and conditions of this transaction and the business and financial condition of the Company and its Subsidiaries, and to acquire, and each Purchaser has received to its satisfaction, such additional information, in addition to that set forth herein, about the business and financial condition of the Company and its Subsidiaries and the terms and conditions of this transaction as it has requested. 3.8 ADDITIONAL REPRESENTATIONS OF THE PURCHASERS. That (a) it is an "accredited investor" as such term is defined in Rule 501 promulgated under the 1933 Act, and either individually or together with its parent has assets in excess of $100 million, (b) its financial situation is such that it can afford to bear the economic risk of holding the Common Shares for an indefinite period of time and suffer complete loss of its investment in the Common Shares, (c) its knowledge and experience in financial and business matters are such that it is capable of evaluating the merits and risks of its purchase of the Common Shares as contemplated by this Agreement and (d) the purchase of the Common Shares by it has been duly and properly authorized and this Agreement has been duly executed by it or on its behalf. -16- 22 3.9 LEGENDS. Such Purchaser understands that the certificates evidencing the Common Shares shall bear the legend set forth in Section 8.2 herein. 3.10 REGISTRATION STATEMENT. None of the material supplied by it in writing specifically for inclusion in the Registration Statement will, at the date that the Registration Statement is declared effective by the SEC and at each date that Common Shares are sold pursuant to the Registration Statement, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. 3.11 DUE AUTHORIZATION; ETC. It has all requisite power and authority to execute and deliver this Agreement and each document required to be executed and delivered by it prior to or at the Closing and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by such Purchaser of this Agreement and such document to which it is a party have been duly authorized. This Agreement has been duly executed and delivered by such Purchaser and constitutes the valid and binding obligation of such Purchaser, enforceable against it in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors' rights generally, except that the availability of specific performance, injunctive relief or other equitable relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought. 3.12 STATUS. Morgan Stanley Institutional Fund, Inc - U.S. Real Estate Portfolio is a regulated investment company as defined in Section 851 of the Code. SECTION 4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS Each Purchaser's obligations to purchase and make payment for the Common Shares subscribed for hereunder by it on the Closing Date is subject, at its option, to the satisfaction of each of the following conditions: 4.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the representations and warranties contained in Section 2 shall be true and correct in all material respects with the same effect as though made on and as of the Closing Date, and the Company shall have so certified to the Purchasers in writing. 4.2 PERFORMANCE. All the covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects, and the Company shall have so certified to the Purchasers in writing. -17- 23 4.3 OPINION OF COUNSEL TO THE COMPANY. On the Closing Date, the Purchasers shall have received an opinion from counsel for the Company and special Maryland Counsel to the Company, each dated the Closing Date, addressed to the Purchasers in the forms of Exhibits D and E hereto, respectively. 4.4 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken in connection with the transactions contemplated by this Agreement to be consummated on or prior to the Closing Date, and all documents incident thereto, shall be satisfactory in form and substance to the Purchasers. The Purchasers shall have received such certified copies or other copies of such documents as it may reasonably request. 4.5 NO PROCEEDING OR LITIGATION. No suit, action, or other proceeding seeking to restrain, prevent or change the transactions contemplated hereby or otherwise questioning the validity or legality of such transactions shall have been instituted and be pending. 4.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change since the Balance Sheet Date in the business, properties, assets, operations, or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. 4.7 ASE LISTING. On or prior to the Closing Date, the Common Shares shall have been approved for listing on the ASE. 4.8 BLUE SKY COMPLIANCE. The Company shall have complied with all applicable requirements of federal and state securities or "blue sky" laws with respect to the issuance of the Common Shares sold at the Closing. 4.9 REGISTRATION RIGHTS. The Registration Rights Agreement, substantially in the form of Exhibit F, shall have been executed and delivered by all the parties thereto and shall be in full force and effect. 4.10 MARYLAND ANTI-TAKEOVER STATUTES, ETC. The Company and its counsel shall have confirmed to the Purchasers' satisfaction that (a) this Agreement, the Registration Rights Agreement and the transactions contemplated hereby and thereby are exempt from the operation of the Maryland Anti-Takeover Statutes and Section 11.5 of the Declaration of Trust; and (b) the Purchasers are exempted from the restrictions set forth in Section 6.6 of the Declaration of Trust, including without limitation from the Ownership Limit and the Permissible Ownership Threshold. 4.11 SECONDARY OFFERING. The Registration Statement shall have been declared effective by the SEC and the Secondary Offering shall have closed. -18- 24 4.12 BENEFICIAL OWNERSHIP. As a result of the sale of the Common Shares, such Purchaser shall not be deemed to be the beneficial owner, directly or indirectly, of 10% or more of the Outstanding common shares of beneficial interest of the Company. 4.13 ENVIRONMENTAL REPRESENTATION LETTER. The Company shall have delivered to each Purchaser a representation letter dated the Closing Date concerning environmental matters in form and substance substantially similar to that which is contained in the Underwriting Agreement for the Secondary Offering 4.14 TAX OPINION. On the Closing Date, Arthur Andersen shall have delivered to the Company an opinion with respect to certain tax matters in such form as may be reasonably acceptable to each Purchaser. 4.15 ADDITIONAL DOCUMENTS. The Company shall have delivered such other documents necessary to effect the transactions contemplated hereby as either Purchaser may reasonably request. SECTION 5. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS The Company's obligation to sell the Common Shares subscribed for by a Purchaser on the Closing Date is subject, at the Company's option, to the satisfaction of each of the following conditions with respect to such Purchaser: 5.1 REPRESENTATIONS AND WARRANTIES. On the Closing Date, the representations and warranties contained in Section 3 shall be true and correct in all material respects with the same effect as though made on and as of the Closing Date and such Purchaser shall have so certified to the Company in writing. 5.2 PERFORMANCE. All the covenants, agreements and conditions contained in this Agreement to be performed or complied with by such Purchaser on or prior to the Closing Date shall have been performed or complied with in all material respects, and such Purchaser shall have so certified to the Company in writing. 5.3 NO PROCEEDING OR LITIGATION. No suit, action, or other proceeding seeking to restrain, prevent or change the transactions contemplated hereby or otherwise questioning the validity or legality of such transactions shall have been instituted and be pending. 5.4 ASE LISTING. On or prior to the Closing Date, the Common Shares shall have been approved for listing on the ASE. -19- 25 5.5 ADDITIONAL DOCUMENTS. Such Purchaser shall have delivered such other documents necessary to effect the transactions contemplated hereby as the Company may reasonably request. 5.6 PROCEEDINGS; CERTIFIED COPIES. All proceedings to be taken in connection with the transactions contemplated by this Agreement to be consummated on or prior to the Closing Date, and all documents incident thereto, shall be satisfactory in form and substance to the Company. The Company shall have received such certified copies or other copies of such documents as it may reasonably request. 5.7 NO SEC INTEGRATION CHALLENGE. The SEC shall not have commented that the issuance of Common Shares pursuant to this Agreement shall or may be required to be integrated with the sale of Common Shares pursuant to the Registration Statement, which assertion, if made, has not been resolved to the reasonable satisfaction of the Company after the Company has used its best efforts to accomplish such resolution. 5.8 BENEFICIAL OWNERSHIP. As a result of the sale of the Common Shares, such Purchaser shall not be deemed to be the beneficial owner, directly or indirectly, of 10% or more of the outstanding common shares of the beneficial interest of the Company. SECTION 6. COVENANTS OF THE COMPANY AND EACH PURCHASER PRIOR TO CLOSING 6.1 PAYMENT OF EXPENSES. (a) If the Closing occurs hereunder, each party shall bear its own expenses. (b) If the Closing hereunder does not occur, each party shall bear its own expenses. 6.2 OPERATION OF BUSINESS IN ORDINARY COURSE. Prior to the Closing, the Company and each Subsidiary will operate its business and the business of each of its Subsidiaries only in the usual and normal course, and will not, except as contemplated by the Registration Statement, as amended through the date of this Agreement, including Amendment No. 1, without the consent of the Purchasers, engage in any of the transactions described in paragraphs (a), (b), (d), (e), (f), (except for the amendment in the form of Exhibit C hereto), (g) or (h) of Section 2.21 hereof. 6.3 ACCESS TO INFORMATION. -20- 26 (a) Between the date hereof and the Closing Date, the Company will give each Purchaser and its authorized representatives reasonable access to all officers, employees, agents, properties, offices and other facilities and to all books and records of the Company and its Subsidiaries, and will permit each Purchaser to make such inspections as such Purchaser may reasonably request and will cause the Company's officers and those of its Subsidiaries to furnish each Purchaser promptly (i) a copy of each report, schedule, registration statement and other document filed by it pursuant to the requirements of federal securities laws and (ii) all other financial and operating data and other information with respect to the business and properties of the Company and any of its Subsidiaries as such Purchaser may from time to time reasonably request. (b) Each Purchaser will hold and will cause its authorized representatives, consultants and advisors to hold in confidence, unless compelled to disclose by judicial or administrative process or, in the written opinion of its legal counsel, by other requirements of law, all documents and information concerning the Company and its Subsidiaries furnished to such Purchaser in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by such Purchaser from sources other than the Company, its trustees, officers, representatives or affiliates, (ii) in the public domain through no fault of such Purchaser or (iii) later lawfully acquired by such Purchaser on a non-confidential basis from other sources who are not known by such Purchaser to be bound by a confidentiality agreement or otherwise prohibited from transmitting the information to such Purchaser by a contractual, legal or fiduciary obligation) and will not release or disclose such information to any other person or entity, except its auditors, attorneys, financial advisors and other consultants, agents and representatives in connection with this Agreement who need to know such information. If the transactions contemplated by this Agreement are not consummated, such confidence shall be maintained and, if requested by or on behalf of the Company, each Purchaser will, and will use all reasonable efforts to cause its auditors, attorneys, financial advisors and other consultants, agents and representatives to, return to the Company or destroy all copies of written information furnished by the Company to the Purchasers, or their agents representatives or advisors. It is understood that each Purchaser shall be deemed to have satisfied its obligation to hold such information confidential if it exercises the same care as it takes to preserve confidentiality for its own similar information. (c) No inquiry or investigation pursuant to Section 3.6 or this Section 6.3 shall affect any representation or warranty in this Agreement made by the Company or its Subsidiaries or any condition to the Purchasers' obligations set forth herein. 6.4 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to the Purchasers, and the Purchasers shall give prompt notice to the Company, of (a) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be likely to cause (i) any representation or warranty contained in this Agreement to be untrue or inaccurate or (ii) any covenant, condition or agreement contained in this Agreement not to be -21- 27 complied with or satisfied and (b) any failure of the Company or any Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.4 shall not cure such breach or noncompliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice. 6.5 CONDITIONS PRECEDENT. The Company and each Purchaser shall use their reasonable best efforts to cause the conditions specified in Sections 4 and 5 to be satisfied by the Closing Date. SECTION 7. ADDITIONAL COVENANTS OF THE COMPANY AND THE PURCHASERS 7.1 RULE 144. (a) The Company covenants that (i) the Company will use its best efforts to comply with the current public information requirements of Rule 144(c)(1) under the 1933 Act; and (ii) at all such times as Rule 144 is available for use by the holders of the Common Shares, the Company will furnish each such holder upon request with all information within the possession of the Company required for the preparation and filing of Form 144. (b) At all times during which the Company is neither subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, it will provide as promptly as practicable (in any event not later than 15 days after initial request) in written form, upon the written request of a Purchaser or any prospective buyer of the Common Shares from a Purchaser, all information required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the Commission under the Securities Act ("Rule 144A Information"). The Company's obligations under this Section 7.1 shall at all times be contingent upon such seller's obtaining from a prospective buyer an agreement to take all reasonable precautions to safeguard any non-public Rule 144A Information from disclosure to anyone other than a person or entity who will assist such buyer in evaluating the purchase of the Common Shares. 7.2 DELIVERY OF FINANCIAL STATEMENTS. From and after the date hereof, the Company shall deliver to the Purchasers, until such time as the Purchasers no longer own any Common Shares, a copy of each and every report on Form 10-K, Form 8-K, Form 10-Q and all other reports and proxy statements filed by the Company or any Subsidiary with the SEC within 15 days of such filing. 7.3 COMPLIANCE WITH LAWS. The Company will, and will cause each Subsidiary to, comply in all material respects with all laws and regulations applicable to the -22- 28 conduct of its business, including without limitation ERISA, environmental laws, and employee safety laws. The Company shall use its best efforts to insure that none of the assets of the Company or its Subsidiaries are required to be treated as Plan Assets (as defined in Section 2.20) by any "benefit plan investor" (as defined in Title I of ERISA). The Company shall take such actions as are necessary, on an ongoing basis, to determine whether assets of the Company or its Subsidiaries are required to be treated by a Benefit Plan Investor as including Plan Assets and shall promptly notify the Purchasers in writing if, at any time, it has reason to believe that any Benefit Plan Investor is likely to be required to treat the assets of the Company or its Subsidiaries as Plan Assets. 7.4 WAIVERS, CONSENTS, ETC. Compliance with any of the covenants in this Section 7 may be waived, either generally or in the particular instance, and any consent required thereunder may be given, by the Purchasers in writing. 7.5 PRESS RELEASES. The Purchasers shall have the right reasonably to approve any press release with respect to the transactions contemplated by this Agreement. In addition, at no time may the Company use or otherwise refer to the name of the Purchasers or any of its affiliates in any press release, publication or other report without the prior consent of the Purchasers not to be unreasonably withheld or delayed. 7.6 NO RESCISSION. To the extent permitted under applicable law, each Purchaser hereby (i) waives any right of rescission it might have arising out of the integration of the offer and sale of the Common Shares with the public offering of common shares of beneficial interest pursuant to the Registration Statement and (ii) covenants that it will not make any rescission claim on that basis. 7.7 REIT STATUS. The Company will continue to elect to be taxed as a real estate investment trust within the meaning of Sections 856-860 of the Code, and will continue to satisfy all of the requirements set forth in those provisions and the regulations thereunder to be taxed as a real estate investment trust within the meaning of those provisions and the regulations thereunder. SECTION 8. COMPLIANCE WITH 1933 ACT; RESTRICTIONS ON TRANSFERABILITY OF COMMON SHARES 8.1 COMPLIANCE WITH 1933 ACT. The Common Shares shall not be transferable, except upon the conditions specified in this Section 8, which conditions are intended to ensure compliance with the provisions of the 1933 Act and applicable state securities laws in respect of any such transfer. 8.2 RESTRICTIVE LEGEND. Each certificate evidencing the Common Shares or other securities issued in respect of such Common Shares upon any share split, share dividend, -23- 29 recapitalization, merger, consolidation, similar event, shall (unless otherwise permitted by the provisions of Section 8.4) be stamped or otherwise imprinted with the following legend: "THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW AND THE TRANSFERABILITY [T]HEREOF IS SUBJECT TO THE PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN BRANDYWINE REALTY TRUST AND THE ORIGINAL HOLDER OF THE SECURITIES EVIDENCED HEREBY." 8.3 RESTRICTIONS ON TRANSFERABILITY. The Company shall not be required to register the transfer of the Common Shares on the books of the Company unless the Company shall have been provided with an opinion of counsel reasonably satisfactory to it prior to such transfer to the effect that registration under the 1933 Act or any applicable state securities law is not required in connection with the transaction resulting in such transfer; provided, however, that no such opinion of counsel shall be necessary in order to effectuate a transfer in accordance with the provisions of Rule 144(k) or Rule 144A promulgated under the 1933 Act. Each certificate for Common Shares issued upon any transfer as above provided shall bear the restrictive legend set forth in Section 8.2 above, except that such restrictive legend shall not be required if the opinion of counsel reasonably satisfactory to the Company referred to above is to the further effect that such legend is not required in order to establish compliance with the provisions of the 1933 Act and any applicable state securities law, or if the transfer is made in accordance with the provisions of Rule 144(k) under the 1933 Act. Nothing herein shall restrict a transfer of any or all of the Securities to a Permitted Transferee (as defined in Section 10.2). 8.4 TERMINATION OF RESTRICTIONS ON TRANSFERABILITY. The conditions precedent imposed by this Section 8 upon the transferability of the Common Shares shall cease and terminate as to any of the Common Shares when (i) such securities shall have been registered under the 1933 Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement covering such securities, (ii) at such time as an opinion of counsel satisfactory to the Company shall have been rendered as required pursuant to the second sentence of Section 8.3 to the effect that the restrictive legend on such securities is no longer required, or (iii) when such securities are transferable in accordance with the provisions of Rule 144(k) promulgated under the 1933 Act. Whenever the conditions imposed by this Section 8 shall terminate as hereinabove provided with respect to any of the Common Shares, the holder of any such securities bearing the legend set forth in this Section 8 as to which such conditions shall have terminated shall be entitled to receive from the Company, without expense (except for the payment of any applicable transfer tax) and as expeditiously as possible, new Common Shares certificates not bearing such legend. -24- 30 SECTION 9. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS All covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the execution and delivery of this Agreement and the issuance and sale of the Common Shares hereunder in accordance with Section 10.9. SECTION 10. MISCELLANEOUS 10.1 OWNER OF COMMON SHARES. The Company may deem and treat the person or entity in whose name the Common Shares, as the case may be, are registered as the absolute owner thereof for all purposes whatsoever, and the Company shall not be affected by any notice to the contrary. 10.2 SUCCESSORS. This Agreement shall be binding upon and except as provided herein, shall inure to the benefit of the respective successors and permitted assigns of each of the parties hereto. The rights and obligations of either party hereunder shall not be assignable without the prior written consent of the other party. 10.3 BROKER OR FINDER. Each party to this Agreement represents and warrants that, to the best of its knowledge, no broker or finder has acted for such party in connection with this Agreement or the transactions contemplated by this Agreement and that no broker or finder is entitled to any broker's or finder's fee or other commission in respect thereof based in any way on agreements, arrangements or understandings made by such party. The Company shall indemnify the Purchasers against, and hold it harmless from, any liability, cost or expense (including reasonable attorneys' fees and expenses) resulting from any agreement, arrangement, or understanding made by the Company, and the Purchasers shall indemnify the Company against, and hold the Company harmless from, any liability, cost or expense (including reasonable attorneys' fees and expenses) resulting from any agreement, arrangement, or understanding made by any Purchaser with any third party, for brokerage or finder's fees or other commissions in connection with this Agreement or any of the transactions contemplated hereby. 10.4 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. 10.5 NOTICE. Any notice or other communication required or permitted hereunder shall be deemed given when delivered personally, or upon receipt by the party entitled to receive the notice when sent by registered or certified mail, postage prepaid, addressed as follows or to such other address or addresses as may hereafter be furnished in writing by notice similarly given by one party to the other: -25- 31 To the Company: Brandywine Realty Trust 16 Campus Boulevard Suite 150 Newtown Square, PA 19073 Attention: Gerard H. Sweeney, President With a copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square 18th and Arch Streets Philadelphia, Pennsylvania 19103-2799 Attention: Michael H. Friedman, Esq. To the Purchasers: Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 Attention: Russell Platt With a copy to: Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 Attention: Harold J. Schaff, Jr., Esq. Notice to any holder of Common Shares, other than the Purchasers shall be given in a like manner to such holder at the address reflected in the Company's records. 10.6 FULL AGREEMENT. This Agreement, together with all Exhibits attached hereto or delivered herewith, the Registration Rights Agreement and any other documents delivered herewith, sets forth the entire understanding of the parties with respect to the transactions contemplated hereby. 10.7 HEADINGS. The headings of the sections of this Agreement are inserted for convenience of reference only and shall not be considered a part hereof. 10.8 AMENDMENT. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 10.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made by the parties in this Agreement shall survive the execution of this Agreement for a period of two years after the Closing Date. -26- 32 10.10 SETTLEMENT OF DISPUTES. The parties will attempt in good faith to resolve any and all controversies of every kind and nature between the parties to this Agreement arising out of or in connection with the existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance or termination of this Agreement (each, a "Dispute") promptly by negotiations between senior executives of the parties who have authority to settle the Dispute (and who do not have direct responsibility for administration of this Agreement). The disputing party shall give the other party written notice of the Dispute. Within 20 days after receipt of said notice, the receiving party shall submit to the other a written response. The notice and response shall include (a) a statement of each party's position and a summary of the evidence and arguments supporting its position, and (b) the name and title of the executive who will represent that party. The executives shall meet at a mutually acceptable time and place within 30 days of the date of the disputing party's notice and thereafter as often as they reasonably deem necessary to exchange relevant information and to attempt to resolve the Dispute. If the matter has not been resolved within 60 days of the disputing party's notice, or if the party receiving said notice will not meet within 30 days, either party may initiate mediation of the controversy or claim in accordance with the Center for Public Resources Model Procedure for Mediation of Business Disputes. If the Dispute has not been resolved pursuant to the aforesaid mediation procedure within 60 days of the initiation of such procedure, or if either party will not participate in a mediation, the Dispute shall be submitted to arbitration in accordance with the rules of the American Arbitration Association. The parties further agree that all matters shall be governed by the laws of the Commonwealth of Pennsylvania. The parties further agree that any arbitration conducted pursuant to this Section 10.10 shall be held in Philadelphia, Pennsylvania before a panel of three arbitrators, one selected by the Purchasers and one selected by the Company and the third selected by the arbitrators selected by the parties. All deadlines specified in this Section 10.10 may be extended by mutual agreement. The prevailing party in any Dispute shall be entitled to reimbursement for its costs, including without limitation attorneys' fees and expenses. 10.11 COUNTERPARTS. This Agreement may be executed in two or more counterparts each of which shall be deemed an original, and all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 10.12 TERMINATION. This Agreement may be terminated prior to the Closing with respect to the Company or a Purchaser: (a) by mutual written consent of such Purchaser and the Company; (b) by either a Purchaser or the Company if the Closing shall not have been consummated before January 31, 1997 (unless the failure to so close by such date shall be due to the action or failure to act of the party seeking to terminate this Agreement); -27- 33 (c) by either a Purchaser or the Company if any court of competent jurisdiction or other governmental entity shall have issued a final permanent order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action is or shall have become nonappealable; (d) by a Purchaser if (i) there shall have been a material breach on the part of the Company or any of its Subsidiaries of any representation or warranty of the Company or its Subsidiaries set forth herein, (ii) there shall have been any failure of the Company or any of its Subsidiaries to perform or comply with its covenants or agreements hereunder and, in either case, the aggregate effect of all such breaches or failures, as the case may be, would be material to the Company and the Subsidiaries taken as a whole, or (iii) the Board of Trustees shall have withdrawn, amended or modified in a manner adverse to a Purchaser its approval or recommendation of this Agreement. (e) by the Company if (i) there shall have been a material breach of any representation or warranty on the part of such Purchaser or (ii) there shall have been a failure of such Purchaser to perform or comply with its covenants or agreements hereunder which failure has not been cured within ten days after written notice thereof from the Company to such Purchaser and, in either case, the aggregate effect of all such breaches and failures, as the case may be, would be material. 10.13 EFFECT OF TERMINATION. In the event of the termination and abandonment of this Agreement pursuant to Section 10.12, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its affiliates, trustees, directors, officers or stockholders; provided, however, that nothing contained in this Section 10.13 shall relieve any party from liability for any breach of this Agreement; provided further that Sections 6.1(b), 6.3(b), 8 and 10 shall survive any such termination. 10.14 NON-RECOURSE. No recourse shall be had for any obligation of the Company hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future stockholder or (except for any claim arising due to the bad faith, gross negligence, willful misconduct or fraudulent misconduct of such person) against any trustee, stockholder, officer or employee of the Company, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. No recourse shall be had for any obligation of either Purchaser hereunder, or for any claim based thereon or in respect thereof, against any past, present or future stockholder or (except for any claim arising due to the bad faith, gross negligence, willful misconduct or fraudulent misconduct of such person) against any trustee, officer or employee of either or against any other person or entity, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by each other party hereto. -28- 34 IN WITNESS WHEREOF, each of the parties hereto has fully executed this Agreement as of the date first set forth above. BRANDYWINE REALTY TRUST By: /s/ Gerard H. Sweeney ----------------------------------------------- Gerard H. Sweeney, President MORGAN STANLEY INSTITUTIONAL FUND, INC. - U.S. REAL ESTATE PORTFOLIO, a Maryland corporation By: MORGAN STANLEY ASSET MANAGEMENT INC., AS By: /s/ INVESTMENT ADVISER ----------------------------------------------- MORGAN STANLEY SICAV SUBSIDIARY SA, a Luxembourg corporation By: MORGAN STANLEY ASSET MANAGEMENT INC., AS By: INVESTMENT ADVISER ----------------------------------------------- -29- EX-10.56 24 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.56 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and entered into as of this __ day of __________ ___, 1996 by and among BRANDYWINE REALTY TRUST, a Maryland real estate investment trust (the "Company"), and MORGAN STANLEY INSTITUTIONAL FUND, INC.-U.S. REAL ESTATE PORTFOLIO, a Maryland corporation and MORGAN STANLEY SICAV SUBSIDIARY SA, a Luxembourg corporation (each a Purchaser and together the "Purchasers"). BACKGROUND Pursuant to a Securities Purchase Agreement dated as of November 6, 1996 by and between the Company and the Purchasers (the "Securities Purchase Agreement"), the Company has agreed to issue to the Purchasers an aggregate of 709,091 shares of the Company's common shares of beneficial interest par value $.01 per share (the "Shares"). To induce each Purchaser to enter into the foregoing transaction, the Company has agreed to provide them with the registration rights set forth in this Agreement. 1. CERTAIN DEFINITIONS. In addition to the other terms defined in this Agreement, the following terms shall be defined as follows: "Additional Holders" means those Persons who have registration rights with respect to securities of the Company pursuant to either of the Additional Registration Rights Agreements. "Additional Registration Rights Agreements" means that certain Registration Rights Agreement of the Company and Safeguard Scientifics (Delaware) Inc., the Nichols Company and the Turkey Venture Fund XIII, Ltd. and that certain Registration Rights Agreement of the Company and RAI Real Estate Advisers, Inc., as the voting trustee of a voting trust executed by the Commonwealth of Pennsylvania State Employes' Retirement System. "Additional Securities" means those securities of the Company which are or become subject to the registration provisions of either of the Additional Registration Rights Agreements. "Brokers Transactions" has the meaning ascribed to such term pursuant to Rule 144 under the Securities Act. 2 "Business Day" means any day on which the American Stock Exchange is open for trading. "Closing Date" means the date of closing under the Securities Purchase Agreement. "Common Stock" means common shares of beneficial interest of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. "Holder(s)" means each Purchaser for so long as (and to the extent that) it owns any Registrable Securities, and its successors, assigns, and direct and indirect transferees who become registered owners of Registrable Securities or securities exercisable, exchangeable or convertible into Registrable Securities. "Outstanding" means with respect to any securities as of any date, all such securities theretofore issued, except any such securities theretofore converted, exercised or canceled or held by the issuer or any successor thereto (whether in its treasury or not) or any affiliate of the issuer or any successor thereto. "Person" means an individual, a partnership (general or limited), corporation, limited liability company, joint venture, business trust, cooperative, association or other form of business organization, whether or not regarded as a legal entity under applicable law, a trust (inter vivos or testamentary), an estate of a deceased, insane or incompetent person, a quasi-governmental entity, a government or any agency, authority, political subdivision or other instrumentality thereof, or any other entity. "Registrable Security(ies)" means (I) all or any portion of the Shares, (ii) any additional common shares of beneficial interest or other equity securities of the Company issued or issuable after the Closing Date in respect of any such securities (or other equity securities issued in respect thereof) by way of a stock dividend or stock split, in connection with a combination, exchange, reorganization, recapitalization or reclassification of Company securities, or pursuant to a merger, division, consolidation or other similar business transaction or combination involving the Company, and (iii) any other common shares of beneficial interest obtained in open market transactions or otherwise; provided that in the case of equity securities other than Common Stock such securities are registered under Section 12(b) or Section 12(g) of the Exchange Act; and further provided that: as to any particular Registrable Securities, such securities shall cease to constitute Registrable Securities (I) when a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of thereunder; or (ii) when such securities shall have ceased to be issued and outstanding. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with the registration requirements set forth in this Agreement including, without -2- 3 limitation, the following: (I) the fees, disbursements and expenses of the Company's counsel(s), accountants, and experts in connection with the registration under the Securities Act of Registrable Securities; (ii) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto, and the mailing and delivering of copies thereof to the underwriters and dealers, if any; (iii) the cost of printing or producing any agreement(s) among underwriters, underwriting agreement(s) and blue sky or legal investment memoranda, any selling agreements, and any other documents in connection with the offering, sale or delivery of Registrable Securities to be disposed of; (iv) any other expenses in connection with the qualification of Registrable Securities for offer and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of Registrable Securities to be disposed of and any blue sky registration or filing fees, and (vi) the fees and expenses incurred in connection with the listing of Registrable Securities on each securities exchange (or The NASDAQ Stock Market) on which Company securities of the same class are then listed; provided, however, that Registration Expenses with respect to any registration pursuant to this Agreement shall not include (x) expenses incurred by any Holder in connection with any offering, including the fees and expenses of counsel, accountants, and experts retained by such Holder (other than the fees and expenses of one counsel for the Holders as and to the extent provided in Section 10), (y) any underwriting discounts or commissions attributable to Registrable Securities, or (z) any transfer taxes applicable to Registrable Securities. "SEC" means the United States Securities and Exchange Commission, or such other federal agency at the time having the principal responsibility for administering the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. "Shelf Registration Statement" means a Shelf Registration Statement of the Company pursuant to the provisions of Section 2(b) of this Agreement which covers Common Stock on an appropriate form then permitted by the SEC to be used for such registration and the sales contemplated to be made thereby, under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such Registration Statement, including pre and post-effective amendments thereto, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Shelf Registration" means a registration of Common Stock effected pursuant to Section 2(b) hereof. "Trading Day" means a day on which the principal securities exchange or stock market on which the applicable security is traded is open for the transaction of business. -3- 4 2. DEMAND REGISTRATION; SHELF REGISTRATION. (a) (I) A Holder may request at any time (by written notice delivered to the Company) that the Company register under the Securities Act all or any portion of the Registrable Securities held by (or then issuable to) such Holder (the "Requesting Holder"), representing in the aggregate not less than twenty percent of the Registrable Securities held by such Requesting Holder, for sale in the manner specified in such notice (including, but not limited to, an underwritten public offering); provided however, that no such request shall be made prior to one hundred twenty (120) days after the date that the Company's Registration Statement on Form S-11 (File No. 333-13969)(the "1996 Registration Statement") has been declared effective by the SEC. In each such case, such notice shall specify the number of Registrable Securities for which registration is requested, the proposed manner of disposition of such securities, and the minimum price per share at which the Requesting Holder would be willing to sell such securities in an underwritten offering. The Company shall, within five (5) Business Days after its receipt of any Requesting Holder's notice under this Section 2(a)(I), give written notice of such request to all other Holders and all Additional Holders and afford them the opportunity of including in the requested registration statement such of their Registrable Securities or Additional Securities, as the case may be, as they shall specify in a written notice given to the Company within twenty (20) days after their receipt of the Company's notice. Within ten (10) Business Days after the expiration of such twenty (20) day period, the Company shall notify all Holders and Additional Holders requesting registration of (A) the aggregate number of Registrable Securities or Additional Securities, as the case may be, proposed to be registered by all Holders and Additional Holders, (B) the proposed filing date of the registration statement, and (C) such other information concerning the offering as any Holder or Additional Holder may have reasonably requested. If the Requesting Holder of the Registrable Securities to be included in such offering shall have requested that such offering be underwritten, the managing underwriter for such offering shall be chosen by such Holder with the consent of the Company, which consent shall not be unreasonably withheld, not less than thirty (30) days prior to the proposed filing date stated in the Company's notice, and the Company shall thereupon promptly notify such Holders and any Additional Holders to be included in such offering as to the identity of the managing underwriter, if any, for the offering. On or before the 30th day prior to such anticipated filing date, any Holder or Additional Holder may give written notice to the Company and the managing underwriter specifying either that (A) Registrable Securities or Additional Securities, as the case may be, of such Holder or Additional Holder are to be included in the underwriting, on the same terms and conditions as the securities otherwise being sold through the underwriters under such registration or (B) such Registrable Securities or Additional Securities, as the case may be, are to be registered pursuant to such registration statement and sold in the open market without any underwriting, on terms and conditions comparable to those normally applicable to offerings in reasonably similar circumstances, regardless of the method of disposition originally specified in such Holder's or Additional Holder's request for registration. To the extent that any or all of the Registrable Securities to be included in any registration pursuant to this Section 2(a)(I) or any other provision of this Agreement are to be issued upon conversion, exercise or exchange of other securities, there shall be no obligation for any Holder to effect any such conversion, exercise or exchange until immediately prior to the closing of the sale of such Registrable Securities. -4- 5 (ii) The Company shall use its commercially reasonable best efforts to file with the SEC within eighty (80) days (thirty (30) days if the Company may use a Registration Statement on Form S-3 to register such Registrable Securities) after the Company's receipt of the initial Requesting Holder's written notice pursuant to Section 2(a)(I), a registration statement for the public offering and sale, in accordance with the method of disposition specified by such Holder, of the number of Registrable Securities specified in such notice, and thereafter use its commercially reasonable best efforts to cause such registration statement to become effective within sixty (60) days after its filing. Such registration statement may be on Form S-11 or another appropriate form (including Form S-3) that the Company is eligible to use and that is reasonably acceptable to the managing underwriter; provided, however, that if any Form other than Form S-11 is used in an underwritten offering, upon the request of the managing underwriter, or the selling shareholders, the prospectus included in the registration statement shall be amplified to include such additional information as such persons may reasonably request regarding the Company, its business and management (including, without limitation, the information called for by Items 101, 102, 103, 201, 202, 301 and 303 of Regulation S-K under the Securities Act). (iii) With respect to any Holder, the Company shall not have any obligation hereunder (A) to permit or participate in more than two offerings pursuant to this Section 2(a), or (B) to register any Registrable Securities under this Section 2(a) unless it shall have received requests from the Requesting Holder to register at least 20% of the aggregate Registrable Securities of such Requesting Holder issued at the date hereof. (iv) If the Company is required to use commercially reasonable best efforts to register Registrable Securities and Additional Securities in a registration initiated upon the demand of any Holder pursuant to Section 2(a) of this Agreement and the managing underwriters for such offering advise that the inclusion of all securities sought to be registered by the Holders and Additional Holders may interfere with an orderly sale and distribution of or may materially adversely affect the price of such offering, then, unless all such Holders and Additional Holders otherwise notify the Company in writing, the aggregate number of Registrable Securities and Additional Securities included by the Holders and Additional Holders in such offering shall be reduced to a number which the managing underwriters advise will not likely have such effect and the maximum number of Registrable Securities and Additional Securities able to be included in such offering by each Holder and Additional Holder shall be reduced giving first preference to all Registrable Securities before any Additional Securities are included and thereafter pro rata (in accordance with such Holder's or Additional Holder's, as the case may be, proportionate share of all Registrable Securities and Additional Securities duly requested to be included in such registration). (b) At any time during the 60-day period following the end of any fiscal year of the Company, other than the fiscal year in which a registration statement is to be filed pursuant to Section 2(a) (except that the registration pursuant to a Deemed Additional Share Request shall not be subject to such limitation), any Holder or Holders may request in writing that the Company register under the Securities Act all or any portion of the Registrable Securities held by (or then issuable to) such Requesting Holders for sale pursuant to a Shelf Registration Statement; provided that any distribution or sale pursuant to any such Shelf Registration shall be limited to Brokers' Transactions or other transactions that do not involve an underwritten public offering. By closing -5- 6 under the Securities Purchase Agreement, the Purchasers shall be deemed to have made (as of the date of such closing) a request under Section 2(b) (the "Deemed Additional Share Request") that the Company register for sale pursuant to a Shelf Registration Statement all Shares. The Company shall, within five (5) Business Days after its receipt of any Requesting Holder's notice under this Section 2(b), give written notice of such request to all other Holders and Additional Holders and afford them the opportunity of including in the requested Shelf Registration Statement such of their Registrable Securities or Additional Securities, as the case may be, as they shall specify in a written notice given to the Company within twenty (20) days after their receipt of the Company's notice. The Company shall thereupon use its commercially reasonable best efforts to file the Shelf Registration Statement with the SEC within sixty (60) days after its receipt of the initial Requesting Holder's notice and to cause such registration statement to be declared effective within sixty (60) days after its filing (or in the case of the Deemed Additional Share Request the earlier of 60 days after filing or March 31, 1997); provided, however, that the Company shall not be required (A) to effect more than one registration pursuant to this Section 2(b) in any fiscal year for a Holder, or (B) to effect any registration for a Holder pursuant to this Section 2(b) during the fiscal year during which Registrable Securities of such Holder are registered pursuant to Section 2(a) of this Agreement, or (C) to register for a Holder any Registrable Securities under this Section 2(b) (other than pursuant to the Deemed Additional Share Request) unless it shall receive requests from such Holder to register at least 10% of the aggregate Registrable Securities of such Holder issued at the date hereof. The Company shall use its commercially reasonable best efforts to keep such Shelf Registration Statement (or, if required hereunder, a successor Shelf Registration Statement filed pursuant to Section 2(d) below) continuously effective in order to permit the prospectus forming a part thereof to be usable by Holders and Additional Holders until all securities included in such Shelf Registration Statement have ceased to be Registrable Securities or Additional Securities, as the case may be. (the "Lapse Date"). (c) Notwithstanding any other provision of this Agreement, the Company shall have the right to defer the filing or effectiveness of a registration statement relating to any registration requested under Section 2(a) for a reasonable period of time not to exceed 180 days if (x) the Company is, at such time, working on an underwritten, primary public offering of its securities and is advised by its managing underwriter(s) that such offering would in its or their opinion be materially adversely affected by such filing; or (y) a prior registration statement of the Company for an underwritten, primary public offering by the Company of its securities was declared effective by the SEC less than 120 days prior to the anticipated effective date of the requested registration. (d) If the Company is precluded by Rule 415 or any other applicable rule under the Securities Act from including all Registrable Securities and Additional Securities in any Shelf Registration or from keeping any Shelf Registration Statement continuously effective from the filing date thereof through the Lapse Date, the Company shall file such additional or further Shelf Registration Statements, as may be required, so that, subject to the other provisions of this Agreement, all Registrable Securities and Additional Securities requested to be included are included on a continuously effective Shelf Registration Statement for substantially all of the period from the filing date of the first Shelf Registration Statement through the Lapse Date. (e) Neither the Company nor any Person other than a Holder or an Additional Holder shall be entitled to include any securities held by it or him in any underwritten offering pursuant to Section 2(a) of this Agreement. -6- 7 (f) No registration of Registrable Securities under this Article 2 shall relieve the Company of its obligation (if any) to effect registrations of Registrable Securities pursuant to Article 3. 3. INCIDENTAL REGISTRATION. (a) Until all securities subject to this Agreement have ceased to be Registrable Securities, if the Company proposes, other than pursuant to Article 2 hereof and other than pursuant to the 1996 Registration Statement, to register any of its Common Stock or other securities issued by it having terms substantially similar to Registrable Securities or any successor securities (collectively, "Other Securities") for public sale under the Securities Act (whether proposed to be offered for sale by the Company or by any other Person) on a form and in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it will give prompt written notice (which notice shall specify the intended method or methods of disposition) to the Holders and the Additional Holders of its intention to do so, and upon the written request of any Holder or Additional Holder delivered to the Company within fifteen (15) Business Days after the giving of any such notice (which request shall specify the number of Registrable Securities or Additional Securities, as the case may be, intended to be disposed of by such Holder or Additional Holder) the Company will use its commercially reasonable best efforts to effect, in connection with the registration of the Other Securities, the registration under the Securities Act of all Registrable Securities and Additional Securities which the Company has been so requested to register by Holders and Additional Holders; provided, however, that: (i) if, at any time after giving such written notice of its intention to register Other Securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such Other Securities, the Company may, at its election, given written notice of such determination to the Holders and Additional Holders requesting registration and thereupon the Company shall be relieved of its obligation to register such Registrable Securities and Additional Securities in connection with the Registration of such Other Securities (but not from its obligation to pay Registration Expenses to the extent incurred in connection therewith as provided in Article 11), without prejudice, however, to the rights (if any) of the Holders to request that such registration be effected as a registration under Article 2; and (ii) the Company will not be required to effect any registration of Registrable Securities or Additional Securities pursuant to this Article 3 in connection with a primary offering of securities by it if the Company shall have been advised in writing (with a copy to the Holders requesting registration) by a nationally recognized investment banking firm (which may be the managing underwriter for the offering) selected by the Company, that, in such firm's opinion, a registration of Registrable Securities and Additional Securities at that time may interfere with an orderly sale and distribution of the securities being sold by the Company in such offering or materially and adversely affect the price of such securities; provided however, that if an offering of some but not all of the Registrable Securities and Additional Securities requested to be registered by the Holders and Additional Holders would not adversely affect the distribution or price of the securities to be sold by the Company in the offering in the opinion of such firm or are included in such offering notwithstanding any such opinion, the Company shall only include such lesser amount of Registerable -7- 8 Securities and Additional Securities and the aggregate number of Registrable Securities and Additional Securities to be included in such offering by each Holder and Additional Holder shall be allocated pro rata among the Holders and Additional Holders requesting such registration on the basis of the percentage of the securities held by such Holders and Additional Holders which have requested that such securities be included provided further, however, that a registration under this Article 3 pursuant to demand registration rights of any Additional Holders shall be treated as a primary offering for purposes of this clause (ii) with the result that the applicable Additional Holders shall be entitled to the same priority with respect to the Holders to which the Company is entitled as provided above; and (iii) The Company shall not be required to give notice of, or effect any registration of Registrable Securities under this Article 3 incidental to, the registration of any of its securities in connection with mergers, consolidations, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock options or other employee benefit or compensation plans. (b) No registration of Registrable Securities effected under this Article 3 shall relieve the Company of its obligations (if any) to effect registrations of Registrable Securities pursuant to Article 2. 4. HOLDBACKS AND OTHER RESTRICTIONS. (a) Each Holder hereby covenants and agrees with the Company that: (i) such Holder shall not, if requested by the managing underwriters in an underwritten offering that includes such Holder's Registrable Securities, effect any public sale or distribution of securities of the Company of the same class as the securities included in such registration statement (or convertible into such class), including a sale pursuant to Rule 144(k) under the Securities Act (except as part of such underwritten registration: (A) during the ninety (90)-day period (or such longer period of not more than one hundred eighty (180) days if such longer period is also required by the managing underwriters of the Company and all other Persons having securities included in such registration) beginning on the effective date of such registration statement, to the extent timely notified in writing by the Company or the managing underwriters; and (B) in the event of a primary offering by the Company, to the extent such Holder does not elect to sell such securities in connection with such offering, during the period of distribution of the Company's securities in such offering and during the period in which the underwriting syndicate, if any, participates in the aftermarket. In any such case the Company shall require the underwriters to notify the Company and the Company, in turn, shall notify all Holders of Registrable Securities included in the offering promptly after such participation ceases; (ii) such Holder shall not, during any period in which any of his or its Registrable Securities are included in any effective registration statement: (A) effect any stabilization transactions or engage in any stabilization activity in connection with the Common Stock or other equity securities of the Company in contravention of Rule 10b-7 under the Exchange Act; (B) permit any Affiliated Purchaser (as that term is defined in Rule 10b-6 under the Exchange Act) to bid for or purchase for any account in which such Holder has a beneficial interest, or attempt to induce any other person to purchase, any shares of Common Stock or Registrable Securities in contravention of -8- 9 Rule 10b-6 under the Exchange Act; or (C) offer or agree to pay, directly or indirectly, to anyone any compensation for soliciting another to purchase, or for purchasing (other than for such Holder's own account), any securities of the Company on a national securities exchange in contravention of Rule 10b-2 under the Exchange Act; and (iii) such Holder shall, in the case of a registration including Registrable Securities to be offered by it for sale through Brokers Transactions, furnish each broker through whom such Holder offers Registrable Securities such number of copies of the prospectus as the broker may require and otherwise comply with the prospectus delivery requirements under the Securities Act. (b) The Company covenants and agrees with the Holders not to effect any public or private sale or distribution (other than distributions pursuant to employee benefit plans) of its securities, including a sale pursuant to Regulation D under the Securities Act (or Section 4(2) thereof), during the ten (10) day period prior to, and during the ninety (90) day period (or such longer period of not more than one hundred eighty (180) days if such longer period is also required by the managing underwriters of the Holders and all other Persons having securities included in such registration) beginning with, the effectiveness of a Registration Statement filed under Section 2(a) hereof, to the extent timely requested in writing by the managing underwriters, if any, or, if there be none, by the Holders of a majority in aggregate amount of the Registrable Securities included on such registration statement for such registration, except pursuant to registrations on Form S-4, Form S-8 or any successor form. 5. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of this Agreement to use commercially reasonable best efforts to effect or cause a registration as provided in this Agreement, the Company will: (a) Use its commercially reasonable best efforts to prepare and file with the SEC, a registration statement within the time periods specified herein, and use its commercially reasonable best efforts to cause such registration statement to become effective as promptly as practicable and to remain effective under the Securities Act until (I) the Lapse Date with respect to registrations pursuant to Section 2(b) and (ii) until the earlier of such time as all securities covered thereby are no longer Registrable Securities or one hundred and eighty (180) days after such registration statement becomes effective with respect to registrations pursuant to Section 2(a), in every case as any such period may be extended pursuant to Section 5(h). (b) Prepare and file (and, if applicable, cause to become effective) with the SEC, as promptly as practicable, such amendments, post-effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for such period of time required by Section 5(a) above, as such period may be extended pursuant to Section 5(h). -9- 10 (c) Comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during the period during which any such registration statement is required to be effective. (d) Furnish to any Holder and any underwriter of Registrable Securities, (I) such number of copies (including manually executed and conformed copies) of such registration statement and of each amendment thereof and supplement thereto (including all annexes, appendices, schedules and exhibits), (ii) such number of copies of the prospectus used in connection with such registration statement (including each preliminary prospectus, any summary prospectus and the final prospectus), and (iii) such number of copies of other documents, in each case as such Holder or such underwriter may reasonably request. (e) Use its commercially reasonable best efforts to register or qualify all Registrable Securities covered by such registration statement under the securities or "blue sky" laws of states of the United States as any Holder or any underwriter shall reasonably request, and do any and all other acts and things which may be reasonably requested by such Holder or such underwriter to consummate the offering and disposition of Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally to do business as a foreign corporation or as a dealer in securities, subject itself to taxation, or consent to general service of process in any jurisdiction wherein it is not then so qualified or subject. (f) Use, as soon as practicable after the effectiveness of the registration statement, commercially reasonable best efforts to cause the Registrable Securities covered by such registration statement to be registered with, or approved by, such other United States public, governmental or regulatory authorities, if any, as may be required in connection with the disposition of such Registrable Securities. (g) Use its commercially reasonable best efforts to list the Common Stock covered by such registration statement on any securities exchange (or if applicable, The NASDAQ Stock Market) on which any securities of the Company are then listed, if the listing of such Registrable Securities in then permitted under the applicable rules of such exchange (or if applicable, The NASDAQ Stock Market). (h) Notify each Holder as promptly as practicable and, if requested by any Holder, confirm such notification in writing, (I) when a prospectus or any prospectus supplement has been filed with the SEC, and, with respect to a registration statement or any post-effective amendment thereto, when the same has been declared effective by the SEC, (ii) of the issuance by the SEC of any stop order or the coming to the Company's attention of the initiation of any proceedings for such or a similar purpose, (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (iv) of the occurrence of any event which requires the making of any changes to a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to each Holder a reasonable number of copies of a supplemented or amended prospectus such that, -10- 11 as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading), and (v) of the Company's determination that the filing of a post-effective amendment to the Registration Statement shall be necessary or appropriate. Upon the receipt of any notice from the Company of the occurrence of any event of the kind described in clause (iv) or (v) of this Section 5(h), the Holders shall forthwith discontinue any offer and disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until all Holders shall have received copies of a supplemented or amended prospectus which is no longer defective and, if so directed by the Company, shall deliver to the Company, at the Company's expense, all copies (other than permanent file copies) of the defective prospectus covering such Registrable Securities which are then in the Holders' possession. If the Company shall provide any notice of the type referred to in the preceding sentence, the period during which the registration statements are required to be effective as set forth under Section 5(a) shall be extended by the number of days from and including the date such notice is provided, to and including the date when Holders shall have received copies of the corrected prospectus. (i) Enter into such agreements and take such other appropriate actions as are customary and reasonably necessary to expedite or facilitate the disposition of such Registrable Securities, and in that regard, deliver to the Holders such documents and certificates as may be reasonably requested by any Holder of the Registrable Securities being sold or, as applicable, the managing underwriters, to evidence the Company's compliance with this Agreement including, without limitation, using commercially reasonable best efforts to cause its independent accountants to deliver to the Company's Board of Trustees (and to the Holders of Registrable Securities being sold in any registration) an accountants' comfort letter substantially similar to that in scope delivered in an underwritten public offering and covering audited and interim financial statements included in the registration statement or, if such letter cannot be obtained through the exercise of commercially reasonable best efforts, cause its independent accountants to deliver to the Company's Board of Trustees (and to the Holders of Registrable Securities being sold in any registration) a comfort letter based on negotiated procedures providing comfort with respect to the Company's financial statements included or incorporated by reference in the registration statement at the highest level permitted to be given by such accountants under the then applicable standards of the Association of Independent Certified Accountants with respect to such registration statement. In addition, the Company shall furnish to the Holders of Registrable Securities being included in any registration hereunder an opinion of counsel substantially identical in substance and scope to that customarily delivered to underwriters in public offerings. 6. UNDERWRITING. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration hereunder, the Company will enter into and perform its obligations under an underwriting agreement with the underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, customary provisions relating to indemnities and contribution and the provision of opinions of counsel and accountants' letters. -11- 12 (b) If any registration pursuant to Article 3 hereof shall involve, in whole or in part, an underwritten offering, the Company may require Registrable Securities requested to be registered pursuant to Article 3 to be included in such underwriting on the same terms and conditions as shall be applicable to the securities being sold through underwriters under such registration. In such case, each Holder requesting registration shall be a party to any such underwriting agreement. Such agreement shall contain such representations and warranties by the Holders requesting registration and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, provisions relating to indemnities and contribution. (c) In any offering of Registrable Securities pursuant to a registration hereunder, each Holder requesting registration shall also enter into such additional or other agreements as may be customary in such transactions, which agreements may contain, among other provisions, such representations and warranties as the Company or the underwriters of such offering may reasonably request (including, without limitation, those concerning such Holder, its Registrable Securities, such Holder's intended plan of distribution and any other information supplied by it to the Company for use in such registration statement), and customary provisions relating to indemnities and contribution. 7. RULE 144. The Company shall use commercially reasonable best efforts to take all actions necessary to comply with the filing requirements described in Rule 144(c)(1) or any successor thereto so as to enable the Holders to sell Registrable Securities without registration under the Securities Act. Upon the written request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with the filing requirements under Rule 144(c)(1) or any successor thereto. 8. PREPARATION; REASONABLE INVESTIGATION; INFORMATION. In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, (a) the Company will give the Holders and the underwriters, if any, and their respective counsel and accountants, drafts of such registration statement for their review and comment prior to filing and (during normal business hours and subject to such reasonable limitations as the Company may impose to prevent disruption of its business) such reasonable and customary access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of a Holder of the Registrable Securities being registered and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act and (b) as a condition precedent to including any Registrable Securities of any Holder in any such registration, the Company may require such Holder to furnish the Company such information regarding such Holder and the distribution of such securities as the Company may from time to time reasonably request in writing or as shall be required by law or the SEC in connection with any registration; provided, however, that, upon the reasonable request of the supplier of any such information, the recipient thereof shall enter into a confidentiality agreement respecting such information in customary form for an underwritten public offering. -12- 13 9. INDEMNIFICATION AND CONTRIBUTION. (a) In the case of each offering of Registrable Securities made pursuant to this Agreement, the Company shall indemnify and hold harmless each Holder, its officers, directors and trustees, each underwriter of Registrable Securities so offered and each Person, if any, who controls any of the foregoing Persons within the meaning of the Securities Act ("Holder Indemnitees"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any violation or alleged violation by the Company of the Securities Act, or relating to action taken or action or inaction required of the Company in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) relating to the offering and sale of such Registrable Securities, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that the Company shall not be liable to any Holder Indemnitee in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement, or any omission, if such statement or omission shall have been made in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of such Holder specifically for use in the preparation of the registration statement (or in any preliminary or final prospectus included therein), or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Holder Indemnitee. (b) In the case of each offering of Registrable Securities made pursuant to this Agreement, each Holder, severally and not jointly, shall indemnify and hold harmless the Company, its officers and trustees, and each Person, if any, who controls any of the foregoing within the meaning of the Securities Act and (if requested by the underwriters) each underwriter who participates in the offering and each Person, if any, who controls any such underwriter within the meaning of the Securities Act (the "Company Indemnitees"), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any violation or alleged violation by such Holder of the Securities Act, any blue sky laws, securities laws or other applicable laws of any state or country in which the Registrable Securities are offered and relating to action taken or action or inaction required of such Holder in connection with such offering, or shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any -13- 14 preliminary or final prospectus included therein) relating to the offering and sale of such Registrable Securities or any amendment thereof or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement is contained in, or such fact is omitted from, information furnished in writing to the Company by or on behalf of such Holder specifically for use in the preparation of such registration statement (or in any preliminary or final prospectus included therein). The liability of each Holder under such indemnity provision (and under Section 9(d) below) shall be limited to an amount equal to the total net proceeds received by such Holder from such offering. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company and shall survive the transfer of such securities. The foregoing indemnity is in addition to any liability which each Holder may otherwise have to any Company Indemnitee. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article 9, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 9(a) or (b) shall be available to any person who shall fail to give notice as provided in this Section 9(c) if the indemnifying party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 9(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred the fees and expenses of the counsel retained by the indemnified party in the event (I) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel, in the written opinion of such counsel, would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgement for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Article 9 is unavailable to or insufficient to hold harmless an indemnified party under Section 9(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, or if the indemnified party failed to give the notice required under Section 9(c) above, then each -14- 15 indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in proportion as is appropriate to reflect not only both the relative benefits received by such party (as compared to the benefits received by all other parties) from the offering in respect of which indemnity is sought, but also the relative fault of all parties in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by a party shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by it bear to the total amounts (including, in the case of any underwriter, underwriting commission and discounts) received by each other party. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contributions pursuant to this Section 9(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 10. EXPENSES. In connection with any registration under this Agreement, the Company shall pay all Registration Expenses. In addition, in connection with each registration, the Company shall pay the reasonable fees and expenses of one counsel to represent the interests of a Holder selling Registrable Securities in such registration. Notwithstanding the foregoing, in the event that any Holder or Holders require the Company to conduct an underwritten public offering of Registrable Securities pursuant to Section 2(a) prior to 12 months after the date hereof, each such Holder or Holders shall pay its pro rata share of all Registration Expenses. 11. NOTICES. Except as otherwise provided below, whenever it is provided in this Agreement that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties hereto, or whenever any of the parties hereto, desires to provide to or serve upon the other party any other communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be delivered in person, mailed by registered or certified mail (return receipt requested) or sent by overnight courier service or via facsimile transmission (which is confirmed), as follows: (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 11, which address initially -15- EX-10.57 25 LETTER FROM SAFEGUARD SCIENTIFICS, INC. 1 EXHIBIT 10.57 November 4, 1996 Safeguard Scientifics, Inc. 800 The Safeguard Building 435 Devon Park Drive Wayne, PA Gentlemen: Reference is made to the Declaration of Trust, as amended (the "Declaration") of Brandywine Realty Trust (the "Trust"), a Maryland real estate investment trust. In connection with the contemplated underwritten offering (the "Public Offering") by the Trust of common shares of beneficial interest, par value $.01 per share ("Common Shares"), as more fully described in a Registration Statement on Form S-11 filed by the Trust with the Securities and Exchange Commission on October 11, 1996, the Trust's Board of Trustees (the "Board") desires to exercise its authority to increase the Ownership Limit (as defined in the Declaration) from 4.16% to 9.8% in value of the outstanding Shares (as defined in the Declaration), concurrently with, and subject to, the consummation of the Public Offering. By executing this letter in the place designated below: Safeguard Scientifics, Inc. ("SSI") agrees, for itself and on behalf of its SSI Affiliates (as defined in the Declaration), that the Permissible Ownership Threshold (as defined in the Declaration) applicable to them, which the Declaration has fixed at 35.25%, shall be reduced from 35.25% to 14.75%, as fully as if such reduction were contained in the Declaration, subject to, and effective automatically upon, the occurrence of each of the following conditions: (w) the Public Offering shall have been consummated; (x) the Ownership Limit shall have been increased by the Board to 9.8%; (y) immediately following consummation of the Public Offering, the Common Shares beneficially owned by SSI shall be below 14.75% of the outstanding Common Shares (as computed under the ownership limitations of Article 6 of the Declaration); and (z) the Trust shall not have amended or agreed to amend the letter dated the date hereof executed by Richard M. 2 Osborne and two of his affiliates, a copy of which letter is attached as Exhibit A. Sincerely, BRANDYWINE REALTY TRUST By: /s/ Gerard H. Sweeney ------------------------ Title: President and Chief Executive Officer AGREED TO: SAFEGUARD SCIENTIFICS, INC. By: /s/ Gerald M. Wilk --------------------- Title: Sr. Vice President EX-10.58 26 LETTER FROM RICHARD M. OSBORNE 1 EXHIBIT 10.58 November 4, 1996 The Richard M. Osborne Trust Turkey Vulture Fund XIII, Ltd. Richard M. Osborne c/o Mr. Richard M. Osborne OSAIR, Inc. 7001 Center Street Mentor, OH 44060 Gentlemen: Reference is made to the Declaration of Trust, as amended (the "Declaration") of Brandywine Realty Trust (the "Trust"), a Maryland real estate investment trust. In connection with the contemplated underwritten offering (the "Public Offering") by the Trust of common shares of beneficial interest, par value $.01 per share ("Common Shares"), as more fully described in a Registration Statement on Form S-11 filed by the Trust with the Securities and Exchange Commission on October 11, 1996, the Trust's Board of Trustees (the "Board") desires to exercise its authority to increase the Ownership Limit (as defined in the Declaration) from 4.16% to 9.8% in value of the outstanding Shares (as defined in the Declaration), concurrently with, and subject to, the consummation of the Public Offering. By executing this letter in the place designated below: (i) Richard M. Osborne, (ii) The Richard M. Osborne Trust and (iii) Turkey Vulture Fund XIII, Ltd. (collectively, the "Osborne Parties") agree that the Permissible Ownership Threshold (as defined in the Declaration) applicable to them, which the Declaration has fixed at 33.33%, shall be reduced from 33.33% to 9.8%, as fully as if such reduction were contained in the Declaration, subject to, and effective automatically upon, the occurrence of each of the following conditions: (x) the Ownership Limit shall have been increased by the Board to 9.8%; (y) immediately following consummation of the Public Offering and the repayment of the then outstanding balance of the loan (including accrued interest) from Turkey Vulture Fund XIII, Ltd. to the Trust through the issuance by the Trust of Common Shares and 2 warrants exercisable for Common Shares, the Common Shares beneficially owned by the Osborne Parties, as a group, shall be below 9.8% of the outstanding Common Shares (as computed under the ownership limitations of Article 6 of the Declaration); and (z) the Trust shall not have amended or agreed to amend the letter dated the date hereof executed by Safeguard Scientifics, Inc., a copy of which letter is attached as Exhibit A. Sincerely, BRANDYWINE REALTY TRUST By: /s/ Gerard H. Sweeney ----------------------- Title: President and Chief Executive Officer AGREED TO: THE RICHARD M. OSBORNE TRUST By: /s/ Richard M. Osborne -------------------------- Title: Trustee TURKEY VULTURE FUND XIII, LTD. By: /s/ Richard M. Osborne -------------------------- Title: Manager /s/ Richard M. Osborne - ------------------------------ Richard M. Osborne EX-21.1 27 LIST OF SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 1. Brandywine Operating Partnership, L.P. a Delaware limited partnership. 2. Brandywine Realty Services Corporation, a Pennsylvania corporation. 3. Brandywine Holdings I, Inc., a Pennsylvania corporation. 4. Brandywine Holdings II, Inc., a Pennsylvania corporation. 5. Brandywine Holdings III, Inc., a Pennsylvania corporation. 6. Fifteen Horsham, L.P., a Pennsylvania limited partnership. 7. C/N Oaklands Limited Partnership I, a Pennsylvania limited partnership. 8. Newtech IV Limited Partnership, a Pennsylvania limited partnership. 9. Newtech III Limited Partnership, a Pennsylvania limited partnership. 10. LC/N Keith Valley Limited Partnership I, a Pennsylvania limited partnership. 11. LC/N Horsham Limited Partnership, a Pennsylvania limited partnership. 12. Nichols Lansdale Limited Partnership III, a Pennsylvania limited partnership. 13. Witmer Operating Partnership I, L.P., a Delaware limited partnership. 14. C/N Leedom II Limited Partnership, a Pennsylvania limited partnership. 15. C/N Horsham Towne Limited Partnership, a Pennsylvania limited partnership. 16. C/N Oaklands Limited Partnership III, a Pennsylvania limited partnership. 17. Iron Run Limited Partnership V, a Pennsylvania limited partnership. 18. C/N Iron Run Limited Partnership III, a Pennsylvania limited partnership. 19. Brandywine Realty Partners, a Pennsylvania general partnership.
EX-23.1 28 CONSENTS OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated March 4, 1996 (except with respect to the matters discussed in Note 16, as to which the date is October 7, 1996) on the consolidated financial statements of Brandywine Realty Trust as of December 31, 1994 and 1995, and for each of the three years in the period ended December 31, 1995, and to all references to our firm included in or made a part of this Registration Statement on Form S-11. It should be noted that we have not audited any financial statements of Brandywine Realty Trust subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Philadelphia, Pa., November 6, 1996 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated April 12, 1996 on the combined financial statements of the SSI/TNC Properties as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, and to all references to our firm included in or made a part of this Registration Statement on Form S-11. It should be noted that we have not audited any financial statements of the SSI/TNC Properties subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Philadelphia, Pa., November 6, 1996 3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated June 14, 1996 on the statement of revenue and certain expenses of the LibertyView Building for the year ended December 31, 1995, and to all references to our firm included in or made a part of this Registration Statement on Form S-11. It should be noted that we have not audited any financial statements of the LibertyView Building subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Philadelphia, Pa., November 6, 1996 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated October 29, 1996 on the statement of revenue and certain expenses of the SERS Acquisition Properties for the year ended December 31, 1995, and to all references to our firm included in or made a part of this Registration Statement on Form S-11. It should be noted that we have not audited any financial statements of the SERS Acquisition Properties subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Philadelphia, Pa., November 6, 1996 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated October 31, 1996 on the statement of revenue and certain expenses of the Delaware Acquisition Property for the year ended December 31, 1995, and to all references to our firm included in or made a part of this Registration Statement on Form S-11. It should be noted that we have not audited any financial statements of the Delaware Acquisition Property subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Philadelphia, Pa., November 6, 1996 6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated October 13, 1996 on the statement of revenue and certain expenses of the Equivest Acquisition Properties for the year ended December 31, 1995, and to all references to our firm included in or made a part of this Registration Statement on Form S-11. It should be noted that we have not audited any financial statements of the Equivest Acquisition Properties subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Philadelphia, Pa., November 6, 1996 EX-23.2 29 CONSENT OF CUSHMAN & WAKEFIELD OF PENNSYLVANIA INC 1 EXHIBIT 23.2 CONSENT We hereby consent to the references in the Prospectus which is part of the Registration Statement on Form S-11 for Brandywine Realty Trust (the "Registration Statement") to (i) the statistical and other information from our Mid-Year 1996 Philadelphia Office Market Report and Mid-Year 1996 Philadelphia Industrial Market Report and from 10 additional market analyses, each dated August 1, 1996, which were prepared by us at the request of Brandywine Realty Trust, and (ii) to the data reflected in the chart under the caption "Historical Feet Under Construction -- Philadelphia MSA"; and we further consent to the reference to us under the heading "Experts" in the Registration Statement. CUSHMAN & WAKEFIELD OF PENNSYLVANIA, INC. By: /s/ John B. Rush -------------------------- Name: John B. Rush Title: Director -----END PRIVACY-ENHANCED MESSAGE-----