-----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, VykgWt9l1ZXsSCMMvPFzHJs2bAEW4WqIUolVW6GfFZiBqmDM4dFV8y+NzQche8BT UF6pAToDRqXfX3KLkwiH3g== 0001024739-98-000340.txt : 19980401 0001024739-98-000340.hdr.sgml : 19980401 ACCESSION NUMBER: 0001024739-98-000340 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARRAMERICA REALTY L P CENTRAL INDEX KEY: 0001040554 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521976308 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22741 FILM NUMBER: 98583999 BUSINESS ADDRESS: STREET 1: 1700 PENNSYLVANIA AVE N W CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2026247500 MAIL ADDRESS: STREET 1: 1700 PENNSYLVANIA AVENUE STREET 2: SUITE 700 CITY: WASHINGTON STATE: DC ZIP: 20006 10-K405 1 FORM 10-K405 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1997 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file Number 0-22741 CARRAMERICA REALTY, L.P. ----------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 52-1976308 ------------------------------- ------------------------------------ (State or other Jurisdiction or (I.R.S. Employer Identification No.) Incorporation or Organization) 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 --------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (202) 624-7500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities to be registered pursuant to Section 12(g) of the Act: Units of Partnership Interest Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| As of March 4, 1998, assuming that each unit of partnership interest has the same value as a share of common stock of CarrAmerica Realty Corporation (into which such units may be redeemed) the aggregate market value of the 1,777,587 units of partnership Interest held by non-affiliates of the registrant was approximately $52.9 million, based upon the closing price of a share of common stock of CarrAmerica Realty Corporation of $29.75 on the New York Stock Exchange composite tape on such date. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the proxy statement for the Annual Shareholders Meeting of CarrAmerica Realty Corporation to be held in 1998 and the Annual Report on Form 10-K of Carr America Realty Corporation for the year ended December 31, 1997 are incorporated by reference herein. ================================================================================ 1 PART 1 Item 1. BUSINESS General CarrAmerica Realty, L.P., a Delaware limited partnership (the "Partnership"), was organized in March 1996 and its activities as of March 1, 1998 included the acquisition, development, ownership and operation of office properties primarily in select suburban growth markets across the United States. The Partnership's portfolio, as of March 1, 1998, consisted of (i) 54 operating properties containing approximately 4.8 million rentable square feet of space located in suburban Austin, Southeast Denver, suburban Dallas, suburban Salt Lake City, suburban Chicago, suburban Seattle, San Francisco Bay Area and Orange County/Los Angeles (the "Properties"), (ii) eight properties under construction that will contain approximately 797,000 square feet of space, and (iii) land that is expected to support the future development of up to 1.2 million square feet of space. The Properties owned as of December 31, 1997 were 96.4% leased as of that date. Each of the Properties is wholly owned by the Partnership. The Partnership is managed indirectly by CarrAmerica Realty Corporation, a Maryland corporation (together with its subsidiaries, including the Partnership, "CarrAmerica"). CarrAmerica indirectly serves as the sole general partner, of the Partnership and indirectly owned approximately 87% of the units of partnership interest ("Units") in the Partnership as of December 31, 1997. CarrAmerica is a real estate investment trust (a "REIT") for federal income tax purposes and its shares of common stock, $.01 par value per share ("Common Stock"), are listed on the New York Stock Exchange under the symbol "CRE." CarrAmerica is a fully integrated, self-administered and self-managed REIT that focuses primarily on the acquisition, development, ownership and operation of office properties in select suburban growth markets across the United States. As of March 1, 1998, CarrAmerica owned a greater than 50% interest in a portfolio of 256 operating office properties, and 41 properties under construction. These 256 operating properties contain an aggregate of approximately 19.9 million square feet and the 41 properties under construction will contain approximately 3.7 million square feet. The operating properties as of December 31, 1997 were 95.9% leased as of that date, with approximately 1,400 tenants. CarrAmerica and its predecessor, The Oliver Carr Company ("OCCO"), have developed, owned and operated office buildings in the Washington, D.C. metropolitan area for more than 35 years. In November 1995, CarrAmerica announced a strategic alliance with a wholly-owned subsidiary of Security Capital U.S. Realty (together with Security Capital U.S. Realty, "SC-USREALTY"), a European real estate operating Company which owns strategic positions in selected real estate companies in the United States. As of February 28, 1998, SC-USREALTY owned approximately 44.1% of the outstanding common stock of CarrAmerica (39.3% on a fully diluted basis). CarrAmerica organized and administers the Partnership as a means of acquiring, developing, owning and operating certain properties within its portfolio. All of the Partnership's properties, as well as its financial condition and results of operations, are reported as part of the consolidated properties, financial condition and results of operations of CarrAmerica. The Partnership is required to report separately by means of this Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission because it is the guarantor of certain publicly held debt of CarrAmerica. As of December 31, 1997, approximately 23% of the total assets of CarrAmerica were owned by the Partnership or its subsidiaries. The Partnership is capitalized through the issuance of Units. CarrAmerica, through its wholly owned subsidiary, CarrAmerica Realty GP Holdings, Inc., a Delaware corporation ("GP Holdings"), serves as the sole general partner of the Partnership and owned a 1.0% general partner interest (in the form of Units) in the Partnership as of December 31, 1997. In addition, CarrAmerica, through its wholly owned subsidiary, CarrAmerica Realty LP Holdings, Inc., a Delaware corporation ("LP Holdings"), owned an approximate 86% limited partnership interest (in the form of Units) in the Partnership as of December 31, 1997. The remaining Units are owned by persons who received such Units in connection with the contribution to the Partnership of interests in certain Properties. The Partnership has approximately 90 employees, including approximately 70 on-site employees. 2 Business Strategy The Partnership is an integral part of CarrAmerica, and its operations and strategic direction are defined by CarrAmerica. CarrAmerica's primary business objectives are to achieve long-term sustainable per share cash flow growth and to maximize stockholder value through a strategy of (i) acquiring, developing, owning and operating office properties primarily in suburban markets throughout the United States that exhibit strong, long-term growth characteristics and (ii) maintaining and enhancing a national operating system that provides corporate users of office space with a mix of products and services to meet their workplace needs at both the national and local level. CarrAmerica has focused its investments primarily in suburban markets throughout the United States because it believes that the suburban markets provide growth oriented companies and their employees with workplace locations which have lower operating costs, greater convenience and a higher quality of life than traditional central business district locations. Target Markets. CarrAmerica has focused its acquisition and development activity in markets of the United States, which generally possess strong long-term growth characteristics. Within these markets, CarrAmerica is targeting specific submarkets in which (i) operating costs for businesses are relatively low, (ii) long-term population and job growth generally are expected to exceed the national average, (iii) large, well-educated employment pools exist, and (iv) barriers to entry exist for new supplies of office space. CarrAmerica has established a local presence in each of its existing target markets through its investment activity and through relationships established by its experienced market officers. CarrAmerica's target markets include the following: Suburban Atlanta, Suburban Austin, Suburban Chicago, Suburban Dallas, Southeast Denver, Tampa, Florida, Boca Raton, Florida, Orange County/Los Angeles, Suburban Phoenix, Suburban Portland, Oregon, Sacramento, Suburban Salt Lake City, San Diego, San Francisco Bay Area, Suburban Seattle and metropolitan Washington, D.C. For each identified target market, CarrAmerica has established a set of general guidelines and physical characteristics to evaluate investment opportunities. All investment decisions are driven by real estate research, focusing on variables such as composition of economic base rate, and composition of job growth and office space supply and demand fundamentals. During 1997, CarrAmerica believes that it met its critical mass threshold in substantially all of its target markets. By achieving such critical mass, CarrAmerica believes that it is able to better serve its customers' needs, realize certain operating efficiencies and achieve sustainable long-term per share cash flow growth and maximize stockholder value. Operating Property Acquisitions. In November 1995, CarrAmerica implemented a major initiative to acquire operating office properties in order to establish the operating platform for its national business strategy. Between January 1, 1996 and March 1, 1998, CarrAmerica acquired 241 operating properties containing approximately 16.7 million square feet, resulting in an approximate 500% increase in the total square footage of operating properties in which CarrAmerica has a majority interest. These properties were acquired for an aggregate purchase price of approximately $1.9 billion. Development Program. Development of office properties is an increasingly important component of CarrAmerica's growth strategy as attractive acquisition opportunities diminish due to the influx of capital into the office property market. CarrAmerica believes that long-term investment returns resulting from properties it develops generally will exceed those from properties it acquires, and CarrAmerica will not assume significantly increased investment risks. CarrAmerica minimizes its development risk by employing extensively trained and experienced development personnel, by avoiding the assumption of entitlement risk in conjunction with land acquisitions and by entering into guaranteed maximum price (GMP) construction contracts with seasoned and credible contractors. Most importantly, CarrAmerica carefully analyzes the supply and demand characteristics of a target market before commencing inventory development in the market. In general, CarrAmerica will only undertake inventory development (which excludes properties under construction that have been substantially pre-leased) in markets with strong real estate fundamentals, and then CarrAmerica generally will construct office buildings attractive to a wide range of office users. CarrAmerica's research-driven development program enables it to tailor its development activities in each target market, from inventory development, to build-to-suit projects, to holding land for future development. From January 1, 1997 to March 1, 1998, CarrAmerica placed in service nine development properties containing approximately 780,000 square feet. The total cost of these development properties was $99.1 million and CarrAmerica expects that the first year stabilized unleveraged return of these properties will be 11.7%. In addition, as of March 1, 1998, CarrAmerica had an additional 41 properties under construction that will contain approximately 3.7 million square feet. 3 Investments in Land Held for Future Development. CarrAmerica believes that acquiring land to support future development provides it with a competitive advantage in responding to customers' needs for office space in markets with low vacancy rates, barriers to entry for new supplies of office space and increasing rental rates. CarrAmerica also believes that the long-term investment returns available to it on office properties it develops generally will exceed those of office property acquisition opportunities currently available to CarrAmerica. In addition to its portfolio of operating properties and projects currently under development, CarrAmerica owned or controlled, as of March 1, 1998, land in 15 of its target markets that is expected to support future development of up to 5.9 million square feet. CarrAmerica believes that acquiring land to support future development provides it with a competitive advantage in responding to customers' needs for office space in markets with low vacancy rates. National Operating System. As part of its business strategy, CarrAmerica has developed and will continue to enhance a national operating system to provide nationally coordinated customer service, marketing and development. CarrAmerica's national operating system consists of three components: (i) a Market Officer Group, currently consisting of 11 market officers focused on developing and maintaining strong local relationships with CarrAmerica's customers and the brokerage community and identifying investment opportunities for CarrAmerica; (ii) a Corporate Services Group, which is dedicated to marketing CarrAmerica's office space to a targeted list of companies; and (iii) a National Development Group, which is responsible for developing office properties, build-to-suit facilities and business parks. CarrAmerica's national operating system is designed to provide corporate users of office space with a mix of products and services to meet their workplace needs at both the national and local levels. CarrAmerica believes that through its existing portfolio of operating properties, property development opportunities and land acquired and currently held for future development, CarrAmerica can generate incremental demand through the relocation and expansion needs of many of its customers, both within a single target market and in multiple target markets. Market Officer Group. The Market Officer Group currently consists of 11 market officers who cover the 16 target markets in which CarrAmerica currently owns properties. These market officers are responsible for maximizing the performance of CarrAmerica's properties in their markets and ensuring that the needs of CarrAmerica's customers are consistently being met. Because they meet with CarrAmerica's customers on a regular basis, market officers are cognizant of and responsive to customers' relocation or expansion needs. The market officers have extensive knowledge of local conditions in their respective markets and, therefore, are invaluable in identifying attractive investment opportunities in their markets. In addition, through their contact with customers, market officers are well positioned to help the Corporate Services Group identify customers with new build-to-suit and multi-market requirements. Corporate Services Group. CarrAmerica established the Corporate Services Group in 1997. This group is responsible for marketing CarrAmerica's properties, build-to-suit capabilities and the national scope of CarrAmerica's operations to a targeted list of major corporate users . The Corporate Services Group acts as a primary point of contact for national customers, coordinating all of the office space CarrAmerica offers and giving corporate customers the opportunity to address their national space requirements efficiently and economically. National Development Group. The National Development Group is responsible for developing office properties, build-to-suit facilities and business parks. CarrAmerica's development team currently has over 40 professionals consisting of architects, engineers and construction professionals across the United States who have an average of over 15 years of experience developing office properties. This team of development professionals oversees every aspect of CarrAmerica's land planning, building design, construction and development of office properties, ensuring that all projects meet the same high standards and uniform specifications in building design and systems. CarrAmerica believes that the National Development Group's expertise has given CarrAmerica a competitive edge in marketing its facilities and services to customers. 4 Asset Optimization. As a component of its business strategy, CarrAmerica may dispose of assets that become inconsistent with its long-term strategic or return objectives or where market conditions for disposition are favorable. CarrAmerica would then redeploy the proceeds of such dispositions into other office properties (utilizing tax-deferred exchanges where possible). Consistent with this strategy, during 1997, CarrAmerica disposed of seven properties containing approximately 664,000 square feet for approximately $68 million in value. CarrAmerica recognized a gain of $5.4 million in conjunction with these transactions. In addition, in January 1998, CarrAmerica disposed of an additional property containing 267,000 square feet for approximately $78 million in value, resulting in a gain of $43.8 million. CarrAmerica also may consider disposing of additional properties or interests in properties, some of which may be significant. CarrAmerica, however, has agreed with SC-USREALTY to use its reasonable efforts to dispose of properties only through tax-deferred exchanges (and CarrAmerica also is subject to other similar restrictions with respect to certain properties acquired by the Partnership and Carr Realty, L.P.). Recent Developments From January 1, 1997 to March 1, 1998, the Partnership invested approximately $361.8 million ($188.2 million in cash, the assumption of $147.6 million of debt and the issuance of $26.0 million in Units) in 30 operating properties containing approximately 2.6 million square feet and land which is expected to support the development of approximately 1.1 million square feet. The Partnership developed and placed into service two properties containing an aggregate of approximately 290,000 square feet and placed under construction 8 properties which will contain an aggregate of approximately 797,000 square feet. The table below provides certain information by market regarding the operating properties acquired between January 1, 1997 and March 1, 1998: Purchase Price Region/Market (in Number of Rentable millions) Properties Square Feet - ------------------------------------ ------------ ----------- ------------- PACIFIC REGION San Francisco Bay Area $ 14.8 1 70,000 Orange County / Los Angeles 44.9 3 252,000 Suburban Seattle 12.7 1 95,000 CENTRAL REGION Suburban Chicago 43.2 3 318,000 Suburban Austin 15.6 2 171,000 Suburban Dallas 69.8 8 717,000 MOUNTAIN REGION Suburban Salt Lake City 50.1 8 463,000 Suburban Phoenix 92.1 4 533,000 ------------ ----------- ------------- Total $ 343.2 30 2,619,000 ============ =========== ============= The following table provides certain information regarding the development activity on the Partnership's land (including land subject to options), all of which was acquired between January 1, 1997 and March 1, 1998: Square Feet Future Under Buildable Square Region/Market Construction Footage ------------------------------ --------------- ------------------ Suburban Salt Lake City 50,000 193,000 Suburban Dallas 250,000 605,000 --------------- ------------------ TOTAL 300,000 798,000 =============== ================== In addition, CarrAmerica contributed three operating office properties containing approximately 241,000 square feet, one office property under construction which will contain approximately 101,000 square feet of office space and options to acquire land which is expected to support the future development of four office properties. 5 Forward-Looking Statements Certain statements contained herein involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of CarrAmerica and the Partnership or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: national and local economic, business and real estate conditions that will, among other things, affect demand for office properties, availability and creditworthiness of tenants, the level of lease rents and the availability of financing for both tenants and CarrAmerica and the Partnership, adverse changes in the real estate, including, among other things, competition with other companies, risks of real estate acquisition and development (including the failure of pending acquisitions to close and pending developments to be completed on time and within budget), governmental approvals, actions and initiatives, and environmental/safety requirements. Item 2. PROPERTIES General. As of December 31, 1997, the Partnership owned 53 operating office properties ranging from two to 12 stories each, located in nine target markets across the United States. As of December 31, 1997, the Partnership also owned eight office properties under development. Except as disclosed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," the Partnership has no immediate plans to renovate its operating office properties other than for routine capital maintenance. The Partnership believes its properties are adequately covered by insurance. The Partnership believes that, as a result of CarrAmerica's national operating system, market research capabilities, access to capital, and experience as an owner, operator and developer of office properties, the Partnership will continue to be able to identify and consummate acquisition and development opportunities and to operate its portfolio more effectively than competitors without such capabilities. The Partnership, however, competes in many of its target markets with other real estate operators, some of which may have been active in such markets for a longer period than the Partnership. 6 General The following table sets forth certain information about each operating property owned by the Partnership as of December 31, 1997:
The Partnership's Net Total Effective Rentable Annualized Average Base Property Area Percent Base Rent(3) Rent Per Leased Property Ownership (square feet)(1) Leased(2) in thousands) Square Foot(4) - -------- --------- ---------------- --------- ------------- --------------- Consolidated Properties Southern California, Orange County/Los Angeles: South Coast Executive Centre 100.0% 160,301 94.9% $ 3,078 $ 20.23 (2 Properties) 2600 W. Olive 100.0 145,304 100.0 3,051 21.00 Bay Technology Center (2 Properties) 100.0 107,481 100.0 1,570 14.61 Northern California, San Francisco Bay Area: San Mateo I 100.0 70,000 100.0 2,394 34.20 San Mateo II and III (2 Properties) 100.0 140,675 94.8 3,346 25.08 Suburban Seattle: Canyon Park Business Plaza 100.0 95,290 100.0 1,358 14.25 (formerly Tract 17) Austin, Texas: Great Hills Plaza 100.0 135,333 100.0 2,155 15.92 Balcones Center 100.0 75,761 80.2 940 15.47 Park North (2 Properties) 100.0 132,923 88.4 1,775 15.11 City View Centre (formerly The Settings) 100.0 132,647 95.8 2,136 16.81 (3 Properties) Tower of the Hills (2 Properties) 100.0 171,157 98.1 2,332 13.89 Suburban Chicago: Bannockburn Lake Office Plaza I & II (2 Properties) 100.0 209,860 100.0 3,248 15.48 Bannockburn Lake Office Plaza IV 100.0 108,470 98.7 1,681 15.70 Property Significant Tenants(5) - -------- --------------------- Consolidated Properties Southern California, Orange County/Los Angeles: South Coast Executive Centre State Compensation Insurance Fund (33%) (2 Properties) 2600 W. Olive The Walt Disney Company (89%) Bay Technology Center (2 Properties) AMRESCO (100%) Northern California, San Francisco Bay Area: San Mateo I Franklin Resources (100%) San Mateo II and III (2 Properties) Franklin Resources, Inc. (37%), Peoplesoft/Red Pepper (20%) Suburban Seattle: Canyon Park Business Plaza Microsoft (100%) (formerly Tract 17) Austin, Texas: Great Hills Plaza First USA Management, Inc. (48%), Blue Cross (24%), Skjerven Morrill, Machpherson (13%), Businesssuites (12%) Balcones Center Medianet (37%), Austin Diagnostic Clinic (15%), Amil International Ins. (11%) Park North (2 Properties) CSC Continuum Inc. (28%) City View Centre (formerly The Settings) Holt, Rinehart & Winston (78%), Barter Exchange (13%) (3 Properties) Tower of the Hills (2 Properties) Texas Guaranteed Student (67%) Suburban Chicago: Bannockburn Lake Office Plaza I & II (2 Properties) IMC Global (38%), Deutsche Credit Corp. (36%) Bannockburn Lake Office Plaza IV Open Text (35%), Abbott Laboratories (11%), NY Life Insurance (10%)
7
The Partnership's Net Total Effective Rentable Annualized Average Base Property Area Percent Base Rent(3) Rent Per Leased Property Ownership (square feet)(1) Leased(2) in thousands) Square Foot(4) - -------- --------- ---------------- --------- ------------- --------------- Dallas, Texas: Greyhound 100.0% 92,890 100.0% $ 845 $ 9.10 Search Plaza 100.0 151,176 95.3 2,408 16.72 Quorum North 100.0 113,420 80.1 1,471 16.19 Quorum Place 100.0 176,260 91.9 2,413 14.91 Cedar Maple Plaza (3 Properties) 100.0 112,185 96.1 1,923 17.84 Tollhill East & West (2 Properties) 100.0 238,808 90.1 3,106 14.44 Two Mission Park 100.0 76,933 85.6 832 12.64 Southeast Denver: Harlequin Plaza (2 Properties) 100.0 327,711 98.0 4,720 14.70 Quebec Court I & II (2 Properties) 100.0 287,041 100.0 2,887 10.06 Greenwood Center 100.0 75,866 75.6 971 16.93 Quebec Center (3 Properties) 100.0 106,849 97.7 1,467 14.05 Panorama Corporate Center I 100.0 100,542 98.7 2,019 20.34 JD Edwards Building 100.0 189,087 100.0 2,716 14.36 Phoenix, Arizona: US West (4 Properties) 100.0 532,506 100.0 8,129 15.27 Salt Lake City, Utah: Sorenson Research Park (5 Properties) 100.0 285,144 99.1 3,262 11.55 Wasatch Corporate Center (formerly Draper 100.0 178,098 100.0 1,961 11.01 Park North) (3 Properties) ------- ----- ----- ----- TOTAL CONSOLIDATED PROPERTIES: 4,729,718 $ 70,193 ========= ======== WEIGHTED AVERAGE 96.4% $ 15.40 ==== ======== Property Significant Tenants(5) - -------- ---------------------- Dallas, Texas: Greyhound Greyhound Lines (100%) Search Plaza Basic Capital Management (34%) Quorum North Digital Matrix Systems (20%), HQ Dallas Quorum North (14%), ElectronicTransmissions (10%) Quorum Place VHASouthwest, Inc. (22%), Objectspace (16%) Cedar Maple Plaza (3 Properties) Fidelity National Bank (12%) Tollhill East & West (2 Properties) Digital Equipment Corporation (22%) Two Mission Park Bland Garvey and Taylor (16%) Southeast Denver: Harlequin Plaza (2 Properties) Travelers Insurance (21%), Bellco First Federal Credit Union (12%) Quebec Court I & II (2 Properties) Time Warner Communications (45%), Alert Centre (37%), TCI Digital Satellite (17%) Greenwood Center General Motors Corp. (33%) Quebec Center (3 Properties) Gordon Gumeeson & Associates (12%), Walberg & Dagner (11%) Panorama Corporate Center I Teleport Communications Group (70%), Sprint Spectrum, LP (11%) JD Edwards Building JD Edwards (100%) Phoenix, Arizona: US West (4 Properties) US West Business Resources (100%) Salt Lake City, Utah: Sorenson Research Park (5 Properties) Foundation Health Corp (24%), Matrix Marketing, Inc. (22%), Datachem Laboratories, Inc. (20%), Dayna Communications, Inc. (14%), ITT Educational Services (12%) Wasatch Corporate Center (formerly Draper Advanta Financial Corp (28%), Times Mirror Training, Park North) (3 Properties) Inc. (23%), Fonix Corp. (14%), Keytex Corp (14%), Novus Credit Services, Inc. (12%)
- -------------------- (1) Includes office and retail space but excludes storage space. (2) Includes space for leases that have been executed and have commenced as of December 31, 1997. (3) Total annualized base rent equals total original base rent, including historical contractual increases and excluding (i) percentage rents, (ii) additional rent payable by tenants such as common area maintenance, real estate taxes and other expense reimbursements, (iii) future contractual or contingent rent escalations, and (iv) parking rents. (4) Calculated as total annualized base rent divided by net rentable area leased. (5) Includes tenants leasing 10% or more of rentable square footage (with the percentage of rentable square footage in parentheses). 8 Occupancy, Average Rentals and Lease Expirations. As of December 31, 1997, 96.4% of the aggregate net rentable square footage in the Partnership's 53 operating office properties was leased. The following table sets forth the percent leased and average annualized rent per leased square foot (excluding storage space) for office and retail space combined for the past two years at each of the dates indicated:
Average Percent Annualized Rent Number of Leased at Per Leased Consolidated December 31, Year End Square Foot (1) Properties ---------------------- ----------------- ---------------------- --------------------- 1997 96.4% $ 17.10 53 1996 89.7 13.93 25
- --------------------- (1) Calculated as total annualized building operating revenue, including tenant reimbursements for operating expenses and excluding parking and storage revenue, divided by the total square feet, excluding storage, in the building under lease at year end. The following table sets forth a schedule of the lease expirations for leases in place as of December 31, 1997 in each of the next ten years beginning with 1998 and thereafter for the Partnership's 53 operating office properties, assuming that no tenants exercise renewal options:
Net Annual Percent of Rentable Area Base Rent Total Annual Base Number of Subject to Under Rent Year Tenants With Expiring Expiring Represented of Lease Expiring Leases (1) Leases by Expiring Expiration Leases (square feet) (in thousands) Leases - --------------------------- ---------------- ------------------ ------------------- -------------------- 1998 133 581,000 $ 9,315 13.3% 1999 107 549,000 8,259 11.8 2000 94 456,000 8,476 12.1 2001 83 781,000 10,653 15.2 2002 52 512,000 9,152 13.0 2003 19 232,000 3,134 4.5 2004 18 389,000 5,662 8.1 2005 1 2,000 38 0.1 2006 9 178,000 2,676 3.8 2007 7 611,000 9,056 12.8 2008 and thereafter 6 268,000 3,772 5.3
- ---------------------- (1) Excludes 171,000 square feet of space that was vacant as of December 31, 1997. US West. Because the aggregate gross revenues of the four properties that constitute US West were in excess of 10% of the Partnership's total gross revenues for 1997 and for the period from March 6, 1996 (the date of the Partnership's inception) to December 31, 1996, additional information regarding US West is provided below. US West was developed in 1988. The complex includes four buildings, three of which are located in suburban Phoenix and one in Tucson. The Partnership has no immediate plans to renovate US West (other than for routine capital maintenance) and believes that US West is adequately covered by insurance. As of December 31, 1997, approximately 100.0% of the rentable square footage in the four buildings constituting US West was leased. The percent leased and average annualized rent per leased square foot (excluding storage space) for the past five years for US West is not available because US West was purchased by the Partnership in December 1997 (or approximately 532,000 square feet). At December 31, 1997, U.S. West Business Resources occupied 100% of the space (or approximately 532,000 square feet) pursuant to a lease which expires in 2007. U.S. West has two five-year options to extend their lease at the then prevailing market rates, provided notice is given no later than July 1, 2006 on the first option and July 1, 2011 on the second option. The current annual base rent under this lease, excluding operating recoveries, is approximately $8,129,000. 9 The aggregate tax basis of depreciable real property of the office properties constituting US West for federal income tax purposes was approximately $58.0 million as of December 31, 1997. Depreciation is computed on the Modified Accelerated Cost Recovery System (MACRS) over the estimated useful lives of the real property over 39 years. No personal property was purchased with these office properties. The current realty tax rate for the four buildings that constitute US West range from $4.8222 to $10.5124 per $100 assessed value. The annual tax for the four buildings range from approximately $226,000 to $772,000 based on assessed values ranging from $2,096,000 to $9,462,000. Mortgage Financing. As of December 31, 1997, certain of the Partnership's 53 operating office properties were subject to fixed rate mortgage indebtedness in an aggregate principal amount of $186 million. The Partnership's fixed rate mortgage debt bears an effective weighted average interest rate of 8.1% and a weighted average maturity of 6.6 years (assuming loans callable before maturity are called as early as possible). Certain information regarding fixed rate mortgage indebtedness is set forth in the table below as of December 31, 1997:
Estimated Principal Annual Debt Balance Due Interest Balance Service Maturity at Maturity Property Rate (in thousands) (in thousands) Date (in thousands) - -------- ---- ------------ ------------ ---- ------------ US West 6.50% $ 11,562 $ (1) 1/9/98 $ (2) 2600 W. Olive 7.52 19,517 1,994 6/1/98 19,264 (2) South Coast Executive Center 9.01 10,226 1,015 5/31/99 10,103 (2) Quorum Place 6.99 7,719 665 11/15/00 7,327 (2) Bannockburn Lake Office Plaza I & II 9.52 20,464 2,801 8/31/01 16,835 (2) Quorum North 8.27 6,658 640 12/1/01 6,258 (2) Canyon Park Business Plaza (formerly Tract 17) 9.13 5,822 713 12/1/04 4,071 (2) US West 7.92 57,584 8,495 12/1/05 (3) Wasatch Corporate Center (formerly Draper Park North) 8.15 12,834 1,220 1/2/07 10,569 (3) Sorenson Research Park 7.75 2,737 328 7/1/11 (3) Harlequin Plaza and Quebec Court I & II 8.50 29,411 2,899 5/31/11 19,586 (2) Sorenson Research Park 8.88 1,681 182 5/1/17 (3) ------- --- Total $ 186,215 $ 20,952 ======= ======
- ------------------ (1) Note was repaid in full in January 1998. (2) Currently prepayable at the rates stated in the loan documents. (3) Note will be fully repaid at maturity. For additional information regarding the Partnership's office properties and their operation, see "Item 1, Business." 10 Item 3. LEGAL PROCEEDINGS The Partnership is party to a variety of legal proceedings arising in the ordinary course of its business. All of these matters, taken together, are not expected to have a material adverse impact on the Partnership. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for the Units. As of December 31, 1997, there were 23 holders of record of Units. As of December 31, 1997, there were no options or warrants to purchase Units outstanding. In addition, as of December 31, 1997, there were no Units that could be sold pursuant to Rule 144 under the Securities Act of 1993, as amended (the "Securities Act"), or that the Partnership has agreed to register under the Securities Act for sale by Unit holders, and there were no Units that are being, or have been publicly proposed to be, publicly offered by the Partnership. Each Unit held by persons other than GP Holdings or LP Holdings is (subject to certain holding period limitations) redeemable for cash equal to the value of a share of common stock of CarrAmerica or, at the option of GP Holdings, common stock of CarrAmerica on a one-for-one basis. For a presentation of the high and low trading prices of CarrAmerica's common stock for the last two years, see "Item 5 -- Market for Registrant's Common Equity and Related Stockholder Matters" in CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 CarrAmerica 10-K"). The Partnership has made regular quarterly distributions of $0.4375 per Class A Unit (prorated where appropriate to reflect ownership of Units for less than the full period to which such distribution relates) since the second quarter of 1996. A distribution of $.4375 per Class B Unit also was made for each of the second and third quarters of 1996. The Partnership's ability to make distributions depends on a number of factors, including its net cash provided by operating activities, capital commitments and debt repayment schedules. Holders of Units are entitled to receive distributions when, as and if declared by the Board of Directors of GP Holdings, its sole general partner, out of any funds legally available for that purpose. For the fourth quarter 1997, the Partnership increased its quarterly distribution, to be paid in the first quarter of 1998, from $0.4375 to $0.4625. 11 Item 6. SELECTED FINANCIAL DATA The following table sets forth selected financial and operating information for the Partnership as of and for the year ended December 31, 1997, as of December 31, 1996 and for the period from March 6, 1996 (date of inception) to December 31, 1996. The following selected financial and operating information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K and the financial statements and notes thereto included in this Form 10-K. March 6, 1996 (date of inception) Year Ended through December 31, December 31, 1997 1996 ---- ---- (amounts in thousands except Other Data) Operating Data: Real estate operating revenue $ 60,469 $ 13,376 Real estate operating expenses: Property operating expenses 25,804 6,546 Interest expense 6,792 1,475 General and administrative expenses 3,473 680 Depreciation and amortization 13,146 3,148 Real estate operating income 11,254 1,527 Net income 16,693 1,556 Cash distributions paid to Unit holders 1,124 2,050 Balance Sheet Data (at period end): Real estate, before accumulated depreciation $ 624,085 $ 238,073 Total assets 636,568 241,217 Mortgages and notes payable 241,715 51,744 Total Unit holders' (partners') capital 377,615 180,933 Other Data (at period end): Units outstanding 13,694,260 7,520,401 Number of properties 53 25 Square footage 4,730,000 2,295,000 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is based primarily on the Consolidated Financial Statements, of the Partnership as of December 31, 1997, and for the year ended December 31, 1997 and the period from March 6, 1996 (Date of Inception) to December 31, 1996. The comparability of the periods is significantly impacted by acquisitions made during 1997 and 1996 and the Partnership not having a full 12 months of operations for the period ended December 31, 1996, since the Partnership did not acquire any assets until May 1996, with which to compare the 12 months ended December 31, 1997. As of December 31, 1996 the Partnership owned 25 properties. This number grew to 53 properties by December 31, 1997. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. RESULTS OF OPERATIONS - 1997 TO 1996 Real Estate Operating Revenue. Total real estate operating revenue increased $47.1 million, or 352.1%, to $60.5 million for 1997 as compared to $13.4 million for 1996. The increase in revenue was primarily attributable to a $44.4 million and a $2.7 million increase in rental revenue and real estate service income, respectively. The Partnership experienced net growth in its rental revenue as a result of its acquisitions and development properties placed in service, which together contributed the additional rental revenue in 1997. Other real estate operating income increased $2.7 million in 1997 as a result of reimbursements from an affiliate, related to certain services the Partnership personnel provided to the affiliate. 12 Real Estate Operating Expenses. Total real estate operating expenses increased $37.4 million for 1997, or 315.4%, to $49.2 million as compared to $11.8 million for 1996. The net increase in operating expenses was attributable to a $19.3 million increase in property operating expenses, a $5.3 million increase in interest expense, a $2.8 million increase in general and administrative expenses, and a $10.0 million increase in depreciation and amortization. Property operating expenses increased as a result of property acquisitions. The increase in the Partnership's interest expense is primarily related to borrowings for acquisitions. The increase in general and administrative expenses is predominately a result of the addition of new staff. The increase in depreciation and amortization is predominately a result of additional real estate acquisitions. Other Operating Income. Other operating income increased $5.4 million for 1997, as compared to 1996, primarily due to an increase in interest income and gains on the disposition of six operating office properties. Net Income. Net income of $16.7 million was earned for 1997 as compared to $1.6 million during 1996. The comparability of net income between the two periods is impacted by the acquisitions of operating properties, the Partnership not having a full 12 months of operations for the period ended December 31, 1996 with which to compare the 12 months ended December 31, 1997 and the other changes described above. Cash Flows. Net cash provided by operating activities increased $10.8 million, or 114.7%, to $20.2 million for 1997 as compared to $9.4 million for 1996, primarily as a result of the acquisitions of operating properties. Net cash used by investing activities increased $15.4 million, to $215.5 million for 1997 as compared to $200.1 million for 1996, primarily as a result of capital deployed by the Partnership for acquisitions of office properties, land held for future development and construction in progress. Net cash provided by financing activities increased $3.3 million, to $196.4 million for 1997 as compared to $193.1 million for 1996, primarily as a result of net borrowings on the unsecured credit facility. LIQUIDITY AND CAPITAL RESOURCES The Partnership's total indebtedness at December 31, 1997 was $241.7 million, of which $55.5 million, or 23.0%, bears a LIBOR-based floating interest rate. The Partnership's mortgage payable fixed rate indebtedness bears an effective weighted average interest rate of 8.1% at December 31, 1997 and has a weighted average term to maturity of 6.6 years. At December 31, 1997, the total book value of the Partnership's assets was $650.4 million. The Partnership's debt as a percentage of total book value of its assets was 37.2% at December 31, 1997. CarrAmerica has a $450.0 million unsecured credit facility with a current borrowing capacity of $312.0 million under which the Partnership is jointly and severally liable. As of March 16, 1998, CarrAmerica and the Partnership had $217.5 million outstanding and $94.5 million available for draw under this unsecured credit facility. The weighted average interest rate under the unsecured credit facility for 1997 was 6.9%. Currently, the unsecured credit facility bears interest at 90 basis points over LIBOR. In the first quarter of 1998, the Partnership developed a plan to address Year 2000 issues and began converting its computer systems to be Year 2000 compliant. The plan provides for the conversion efforts to be completed prior to the end of 1999 for both the Partnership's financial and property related systems. The Year 2000 issues are the result of computer programs being written using two digits rather than four to define the applicable year. The Partnership believes that through its commitment to maintaining the highest level of systems support and by working closely with vendors providing services to the Partnership's properties, it will, through the normal course of business, convert all systems users to Year 2000 compliant equipment prior to the end of 1999. The Partnership estimates the costs associated with implementation of the plan will not be significant to the Partnership's financial statements. 13 The Partnership will require capital to invest in its existing portfolio of operating assets for major capital projects such as large-scale renovations, routine capital expenditures and deferred maintenance on certain properties recently acquired and tenant related capital expenditures, such as tenant improvements and allowances and leasing commissions. With respect to major capital projects, the Partnership is planning renovations of three properties containing 485,000 square feet during 1998 which is expected to cost $11.2 million, or approximately $23.18 per square foot. With respect to routine capital expenditures and deferred maintenance on certain properties recently acquired, the Partnership anticipates spending approximately $3.0 million, or approximately $0.63 per square foot, during 1998 on its portfolio of operating assets owned as of December 31, 1997. The Partnership expects this amount to decrease in subsequent years as deferred maintenance activities are completed on recently acquired properties and as the emphasis of the Partnership's growth shifts from acquiring existing office properties to developing new properties. The Partnership's capital requirements for tenant related capital expenditures are dependent upon a number of factors, including the square footage covered by expiring leases and tenant retention. During 1998, the Partnership has 581,000 square feet of expiring leases. Tenant-related capital expenditures (tenant improvements, cash allowances and leasing commissions) were $10.11 per square foot for leases executed in 1997. The Partnership intends to use cash flow from operations and its unsecured revolving credit facility to meet its working capital needs for its existing portfolio of operating assets. The Partnership will also require a substantial amount of capital for development projects currently underway and planned for the future. As of March 1, 1998, the Partnership had eight development projects underway which are expected to require a total investment by the Partnership of $94.9 million. The Partnership intends to use cash flow from operations, its unsecured credit facility and contributions from CarrAmerica via its access to public and private equity and debt markets to meet its capital needs for development projects. Net cash provided by operating activities was $20.2 million during 1997, compared to $9.4 million during 1996. The increase in net cash provided by operating activities was primarily a result of acquisitions made by the Partnership. The Partnership's investing activities used approximately $215.5 million and $200.1 million during 1997 and 1996, respectively. The Partnership's investment activities included the acquisitions of office buildings and land held for future development and additions to construction in process of approximately $263.1 million during 1997, as compared to $200.0 million in acquisitions during 1996. Additionally, the Partnership invested approximately $9.9 million and $.1 million in its existing real estate assets during 1997 and 1996, respectively. Net of distributions to the Partnership's partners, the Partnership's financing activities provided net cash of $197.5 million and $195.2 million during 1997 and 1996, respectively. During 1997, the Partnership's partners contributed $155.2 million to fund acquisitions. The Partnership also drew amounts from its unsecured credit facility during 1997 to finance its acquisitions and other investing activities. During 1997, the Partnership's net borrowings of its unsecured credit facility were approximately $53.5 million. Rental revenue and real estate service revenue have been the principal sources of capital to fund the Partnership's operating expenses, debt service and capital expenditures, excluding non-recurring capital expenditures. The Partnership believes that rental revenue and real estate service revenue will continue to provide the necessary funds for its operating expenses and debt service. The Partnership expects to fund capital expenditures, including tenant concession packages, building renovations and construction costs, from (i) available funds from operations, (ii) existing capital reserves, and (iii) if necessary, credit facilities established with third party lenders. If these sources of funds are insufficient, the Partnership's ability to make expected distributions may be adversely impacted. As of December 31, 1997, the Partnership had cash of $5.1 million, of which $1.5 million was restricted. The Partnership's distributions are paid quarterly. Amounts accumulated for distribution are primarily invested by the Partnership in short-term investments that are collateralized by securities of the United States Government or certain of its agencies. For the fourth quarter 1997, the Partnership increased its quarterly distribution, to be paid in the first quarter of 1998, from $0.4375 to $0.4625. 14 Management believes that the Partnership will have access to the capital resources necessary to expand and develop its business. The Partnership may seek to obtain funds through contributions from CarrAmerica through its ability to raise funds through contributions from CarrAmerica through its ability to raise funds through equity offerings or debt offerings, in a manner consistent with its intention to operate with a conservative borrowing policy. The Partnership anticipates that adequate cash will be available to fund its operating and administrative expenses, continuing debt service obligations, the payment of dividends in accordance with REIT requirements in both the short term and long term, and future acquisitions of office properties. ACQUISITION AND DEVELOPMENT ACTIVITY The following is a discussion of the Partnership's acquisition and development activity during 1997. A more detailed discussion can be found in "Item 1. Business--Recent Developments". During 1997, the Partnership acquired the following properties: in its Pacific region, five properties containing a total of approximately .4 million square feet, for an aggregate purchase price of approximately $72.4 million; in its Mountain region, 12 properties containing a total of approximately 1.1 million square feet, for an aggregate purchase price of approximately $142.2 million; and in its Central region, 13 properties containing a total of approximately 1.2 million square feet for an aggregate purchase price of approximately $128.6 million. The Partnership also acquired land for an aggregate purchase price of $8.6 million that is expected to support the development of up to .5 million square feet. In addition, CarrAmerica contributed three operating office properties containing approximately 241,000 square feet, one office property under construction which will contain approximately 101,000 square feet of office space and options to acquire land which is expected to support the future development of four office properties. As of December 31, 1997, the Partnership had nine office properties under construction: 151,000 square feet in its Mountain region and 747,000 square feet in its Central region. Costs incurred during 1997 for properties under construction were $56.8 million. An additional $62.6 million is expected to be expended for completion of projects already under construction as of December 31, 1997. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data included in this Annual Report on Form 10-K are listed in Part IV. Item 14(a). Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. The Partnership is managed by GP Holdings, as the sole general partner of the Partnership. The following table sets forth certain information with respect to the directors and executive officers of GP Holdings:
Name Age Positions and Offices Held - ---- --- -------------------------- Thomas A. Carr.......................... 39 President and Director Brian K. Fields......................... 38 Chief Financial Officer, Treasurer, Vice President and Director Robert G. Stuckey....................... 36 Managing Director and Vice President Philip L. Hawkins....................... 42 Managing Director, Vice President, and Director
CarrAmerica is the sole stockholder of GP Holdings. The additional information required by this item with respect to directors and executive officers of CarrAmerica and GP Holdings is hereby incorporated by reference to the material appearing under the heading "Election of Directors (Item 1)," in CarrAmerica's definitive proxy statement for the annual meeting of its stockholders to be held on May 7, 1998 (the "1997 CarrAmerica Proxy Statement") and under the headings "Directors of the Company" and "Executive Officers and Certain Key Employees of the Company," in the 1997 CarrAmerica 10-K. 15 Item 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. The Partnership is managed by GP Holdings, as the sole general partner of the Partnership. GP Holdings has not paid any compensation to its directors or officers. CarrAmerica is the sole stockholder of GP Holdings. The information required by this item with respect to CarrAmerica's executive officers is hereby incorporated by reference to the material appearing in the 1997 CarrAmerica Proxy Statement under the headings "Executive Compensation" and "Report on Executive Compensation." Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, as of December 31, 1997, regarding the beneficial ownership of Units by each person known by the Partnership to be the beneficial owner of more than five percent of the Partnership's outstanding Units. As of December 31, 1997, no director or executive officer of GP Holdings or CarrAmerica beneficially owned any Units. Each person named in the table has sole voting and investment power with respect to all Units shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. Name and Business Number of Percent of Address of Beneficial Owner Units Units(1) - --------------------------- ----- --------- CarrAmerica Realty Corporation................. 11,916,673(2) 87.0% CarrAmerica Realty LP Holdings, Inc............ 11,779,730 86.0% 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 - ----------------- (1) Based on 13,694,260 Units outstanding as of December 31, 1997. (2) Includes 11,779,730 Units held by LP Holdings and 136,943 Units held by GP Holdings, each of which is a wholly owned subsidiary of CarrAmerica. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CarrAmerica Realty Services, Inc. ("CARSI"), a wholly owned subsidiary of CarrAmerica, provides management and leasing services to all of the office properties owned by the Partnership. During 1997 and 1996, respectively, the Partnership incurred management fees of $1.9 million and $.4 million, respectively, for services performed by CARSI. Additionally, CARSI reimburses the Partnership for certain services the Partnership personnel provide to CARSI. These reimbursements amounted to $2.0 million in 1997. In addition, CarrAmerica Development, Inc.("CADI"), also reimbursed the Partnership for certain services the Partnership personnel provided to CADI. These reimbursements amounted to $.7 million in 1997. CarrAmerica pays on behalf of the Partnership certain administrative costs and certain costs related to the acquisitions of properties which are billed to the Partnership, and makes working capital advances to the Partnership. Amounts due to CarrAmerica and its subsidiaries were $1.4 million at December 31, 1997 and $2.8 million at December 31, 1996. During 1997, the Partnership sold land to CADI that will support the future development of approximately four office properties for $5.9 million, which is payable by a note between the Partnership and CADI. 16 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements -------------------- Reference is made to the Index to Financial Statements and Schedule on page F-1 of this Form 10. (a)(2) Financial Statement Schedules ----------------------------- Reference is made to the Index to Financial Statements and Schedule on page F-1 of this Form 10-K. (a)(3) Exhibits -------- 4.1 Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated May 9, 1997 (incorporated by reference to Exhibit 10.1 to CarrAmerica's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997). 4.2 First Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997 (incorporated by reference to Exhibit 10.2 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 4.3 Second Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997 (incorporated by reference to Exhibit 10.3 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 4.4 Third Amendment to Second Amended and Restated Agreement of Limited Partnership, dated October 6, 1997 (incorporated by reference to Exhibit 10.3 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 4.5 Indenture, dated as of July 1, 1997, by and among CarrAmerica, as Issuer, the Partnership, as Guarantor, and Bankers Trust Company, as Trustee, relating to CarrAmerica's 7.20% Notes due 2004 and 7.375% Notes due 2007 (incorporated by reference to Exhibit 4.1 to CarrAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 4.6 Indenture, dated as of February 23, 1998, by and among CarrAmerica, as Issuer, the Partnership, as Guarantor, and Bankers Trust Company, as Trustee, relating to CarrAmerica's 6.625% Notes due 2005 and 6.875% Notes due 2008 (incorporated by reference to Exhibit 4.2 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 10.1 Stockholders Agreement, dated April 30, 1996, by and among CarrAmerica, Carr Realty, L.P., Security Capital Holdings, S.A. and Security Capital U.S. Realty (incorporated by reference to Exhibit 2.2 of Security Capital U.S. Realty's Schedule 13D dated April 30, 1996). 10.2 Third Amended and Restated Credit Agreement, dated March 11, 1998, by and among CarrAmerica, Carr Realty, L.P., the Partnership, Morgan Guaranty Trust Company of New York, Commerzbank Aktiengesellschaft, New York Branch, NationsBank, N.A., Wells Fargo Bank, National Association, Bank of America National Trust and Savings Association, and the other banks listed therein (incorporated by reference to Exhibit 10.15 to CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997). 17 10.3 Agreements of Purchase and Sale and Contribution Agreement dated September 30, 1997 by and among the Partnership, Phoenixwest Associates, Ltd., Versailles Associates Limited Partnership, Lakeview 436 Associates Ltd., Pines Realty Associates, Ltd., and certain other parties thereto. 21.1 List of Subsidiaries. 23.1 Consent of KPMG Peat Marwick LLP, dated March 31, 1998. 27 Financial Data Schedule. 99.1 Certificate of Incorporation of CarrAmerica GP Holdings, Inc. (incorporated by reference to Exhibit 99.1 to the Partnership's Registration Statement on Form 10/A, filed on October 1, 1997 (File No. 0-22741)). 99.2 Bylaws of CarrAmerica GP Holdings, Inc. (incorporated by reference to Exhibit 99.2 to the Partnership's Registration Statement on Form 10/A, filed on October 1, 1997 (File No. 0-22741). 99.3 Amendment and Restatement of Articles of Incorporation of CarrAmerica, as amended and as supplemented (incorporated by reference to Exhibit 3.1 to CarrAmerica's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). 99.4 Articles Supplementary Relating to Series C Cumulative Redeemable Preferred Stock dated October 30, 1997 (incorporated by reference to Exhibit 4.1 to CarrAmerica's Current Report on Form 8-K dated and filed on November 6, 1997). 99.5 Articles Supplementary Relating to Series D Cumulative Redeemable Preferred Stock dated December 17, 1997 (incorporated by reference to Exhibit 4.1 to CarrAmerica's Current Report on Form 8-K dated December 16, 1997 and filed on December 17, 1997). 99.6 Second Amendment and Restatement of By-laws of CarrAmerica Realty Corporation (incorporated by reference to Exhibit 3.1 to CarrAmerica's Current Report on Form 8-K dated and filed February 12, 1997). 99.7 "Item 5 -- Market for Registrant's Common Equity and Related Stockholder Matters," page 23, from CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997. 18 99.8 "Election of Directors (Proposal 1)," from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 1998 Annual Meeting of Stockholders. 99.9 "Item 1 -- Business -- The Company -- Directors of the Company," pages 7-9, from CarrAmerica's Annual Report on Form 10-K for the year ended December 31, 1997. 99.10 "Item 1 -- Business -- The Company -- Executive Officers and Certain Key Employees of the Company," from CarrAmerica's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 99.11 "Executive Compensation," from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 1998 Annual Meeting of Stockholders. 99.12 "Report on Executive Compensation," from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 1998 Annual Meeting of Stockholders. 99.13 "Executive Compensation Committee Interlocks and Insider Participation," from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 1998 Annual Meeting of Stockholders. 99.14 "Certain Relationships and Related Transactions," from CarrAmerica's Proxy Statement to be delivered to CarrAmerica's stockholders in connection with CarrAmerica's 1998 Annual Meeting of Stockholders. (b) Reports on Form 8-K None (c) Exhibits The list of exhibits filed with this report is set forth in response to Item 14(a)(3). The required exhibit index has been filed with the exhibits. (d) Financial Statements None. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registration has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the District of Columbia on March 31, 1998. CARRAMERICA REALTY, L.P. a Delaware limited partnership By: CarrAmerica Realty GP Holdings, Inc. General Partner By: /s/ THOMAS A. CARR ------------------ Thomas A. Carr President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following person on behalf of the registrant and in the capacities indicated on March 31, 1998.
Signature Title --------- ----- /s/ THOMAS A. CARR ---------------------------------- President, Chief Executive Officer and Thomas A. Carr Director /s/ BRIAN K. FIELDS ---------------------------------- Chief Financial Officer, Treasurer, Vice President Brian K. Fields and Director /s/ PHILIP L. HAWKINS ---------------------------------- Managing Director, Vice President and Director Philip L. Hawkins
20 CARRAMERICA REALTY, L.P. AND SUBSIDIARY INDEX TO FINANCIAL STATEMENTS AND SCHEDULE The following Consolidated Financial Statements and Schedule of CarrAmerica Realty, L.P. and Subsidiary and the Independent Auditors' Reports thereon are attached hereto: CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Balance Sheets as of December 31, 1997 and 1996.....................................F-2 Consolidated Statements of Operations for the Year Ended December 31, 1997 and the Period from March 6, 1996 (Date of Inception) to December 31, 1996....................................................................F-3 Consolidated Statements of Partners Capital for the Year Ended December 31, 1997 and the Period from March 6, 1996 (Date of Inception) to December 31, 1996....................................................................F-4 Consolidated Statements of Cash Flows for the Year Ended December 31, 1997 and the Period from March 6, 1996 (Date of Inception) to December 31, 1996..................F-5 Notes to Consolidated Financial Statements.......................................................F-6 Independent Auditors' Report.....................................................................F-14 FINANCIAL STATEMENT SCHEDULE Independent Auditors' Report.....................................................................S-1 Schedule III: Consolidated Real Estate and Accumulated Depreciation as of December 31, 1997 for CarrAmerica Realty, L.P. and Subsidiary...........................S-2
All other schedules are omitted because they are not applicable, or because the required information is included in the financial statements or notes thereto. F-1 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Balance Sheets As of December 31, 1997 and 1996 - --------------------------------------------------------------------------------
(In thousands) December 31, December 31, 1997 1996 ---------------- --------------- Assets - ------ Rental property (notes 2 and 9): Land $ 91,347 26,404 Buildings 465,276 182,856 Tenant improvements 12,496 7,068 Furniture, fixtures, and equipment 96 6 ---------------- --------------- 569,215 216,334 Less - accumulated depreciation (13,360) (3,104) ---------------- --------------- Total rental property 555,855 213,230 Land held for development 10,526 13,254 Construction in progress 44,344 8,485 Restricted and unrestricted cash and cash equivalents 5,085 2,478 Accounts and notes receivable 11,757 1,888 Accrued straight-line rents 3,317 733 Tenant leasing costs, net of accumulated amortization of $406 in 1997 and $35 in 1996 3,439 881 Prepaid expenses and other assets, net of accumulated depreciation and amortization of $46 in 1997 and $9 in 1996 2,245 268 ---------------- --------------- $ 636,568 241,217 ================ =============== Liabilities and Partners' Capital - --------------------------------- Liabilities: Mortgages and notes payable (note 2) $ 212,304 21,952 Note payable to affiliate (note 2) 29,411 29,792 Accounts payable and accrued expenses 12,591 4,441 Due to affiliates (note 6) 1,386 2,774 Rent received in advance and security deposits 3,244 1,325 ---------------- --------------- Total liabilities 258,936 60,284 Partners' capital (note 3): General partner 3,787 1,809 Limited partners 373,845 179,124 ---------------- --------------- Total partners' capital 377,632 180,933 Commitments and contingencies (notes 4, 8 and 10) ---------------- --------------- $ 636,568 241,217 ================ ===============
See accompanying notes to consolidated financial statements F-2 CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations for the Year Ended December 31, 1997 and for the period from March 6, 1996 (Date of Inception) to December 31, 1996 - --------------------------------------------------------------------------------
(In thousands) March 6, 1996 (Date of Inception) December 31, through 1997 December 31, 1996 ---------------- -------------------- Real estate operating revenue: Rental revenue (note 4): Minimum base rent $ 48,487 11,220 Recoveries from tenants 8,043 1,790 Other tenant charges 1,232 366 ---------------- -------------------- Total rental revenue 57,762 13,376 ---------------- -------------------- Cost reimbursements (note 6) 2,707 -- ---------------- -------------------- Total revenue 60,469 13,376 ---------------- -------------------- Real estate operating expenses: Property operating expenses: Operating expenses 19,102 4,873 Real estate taxes 6,702 1,673 Interest expense 6,792 1,475 General and administrative 3,473 680 Depreciation and amortization 13,146 3,148 ---------------- -------------------- Total operating expenses 49,215 11,849 ---------------- -------------------- Real estate operating income 11,254 1,527 Other operating income: Interest income 372 29 Gain on sale of assets (note 7) 5,067 -- ---------------- -------------------- Net income $ 16,693 1,556 ================ ==================== Net income attributable to general partner $ 167 15 ---------------- -------------------- Net income attributable to limited partners $ 16,526 1,541 ================ ====================
See accompanying notes to consolidated financial statements F-3 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Statements of Partner's Capital For the Year Ended December 31, 1997 and the Period form March 6, 1996 (Date of Inception) to December 31, 1996 (In thousands)
General Partner Limited Partners ------------------- ---------------------------------- CarrAmerica CarrAmerica Realty GP Realty LP Other Limited Holdings, Inc. Holdings, Inc. Partners Total -------------- -------------- -------------- ------ Capital contributions $1,814 161,620 17,993 $181,427 Capital distributions (20) (1,924) (106) (2,050) Net income for the period 15 1,318 223 1,556 ------ ------- ------ -------- Partners' capital at December 31, 1996 1,809 161,014 18,110 180,933 Capital contributions 1,811 153,351 25,968 181,130 Capital distributions -- -- (1,124) (1,124) Net income 167 14,312 2,214 16,693 ------ ------- ------ -------- Partners' capital at December 31, 1997 $3,787 328,677 45,168 $377,632 ====== ======= ====== ========
See accompanying notes to consolidated financial statements F-4 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Consolidated Statements of Cash Flows for the Year Ended December 31, 1997 and for the Period from March 6, 1996 (Date of Inception) to December 31, 1996 (In thousands)
March 6, 1996 (Date of Inception) through 1997 December 31, 1996 ---- ----------------- Cash flows from operating activities: Net income $ 16,693 $ 1,556 ---------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,146 3,148 Loss on write-off of assets 148 -- Increase in accounts receivable and notes receivable (9,869) (1,816) Increase in accrued straight-line rents (2,584) (805) Additions to tenant leasing costs (3,981) (916) Increase in prepaid expenses and other assets (1,991) (277) Increase in accounts payable and accrued expenses 8,150 4,441 Increase (decrease) in due to affiliates (1,388) 2,774 Increase in rent received in advance and security deposits 1,919 1,325 ---------- --------- Total adjustments 3,550 7,874 ---------- --------- Net cash provided by operating activities 20,243 9,430 ---------- --------- Cash flows from investing activities: Additions to rental property (9,892) (98) Acquisitions of rental property (196,295) (178,239) Additions to land held for future development (10,049) (13,254) Additions to construction in progress (56,761) (8,485) Increase in restricted cash and cash equivalents (1,500) -- Proceeds from disposition of rental property and land held for development 58,978 -- ---------- --------- Net cash used by investing activities (215,519) (200,076) ---------- --------- Cash flows from financing activities: Capital Contributions 155,162 163,433 Net borrowings on unsecured line of credit 53,500 2,000 Borrowings on notes payable to affiliates -- 30,000 Repayments on notes and mortgages payable (1,647) (259) Disposition of mortgage payable from sale of rental property (9,508) -- Capital distributions (1,124) (2,050) ---------- --------- Net cash provided by financing activities 196,383 193,124 ---------- --------- Increase in cash and cash equivalents 1,107 2,478 Cash and cash equivalents, beginning of the period 2,478 -- ---------- --------- Cash and cash equivalents, end of the period $ 3,585 2,478 ---------- --------- Supplemental disclosure of cash flow information: Cash paid for interest (net of capitalized interest of $2,909 in 1997 and $431 for the period March 6, 1996 to December 31, 1996) $ 6,210 $ 1,619 ========== =========
Supplemental disclosure of noncash investing and financing activities: (a) During 1997, the Partnership funded a portion of the aggregate purchase price of its property acquisitions by assuming $147.6 million of debt and liabilities and by issuing $26.0 million of minority units in the Partnership. (b) For the period from March 6, 1996 to December 31, 1996, the Partnership funded a portion of the aggregate purchase price of its property acquisitions by assuming $20.0 million of debt and liabilities and $18.0 million of minority units in the Partnership. See accompanying notes to consolidated financial statements F-5 CARRAMERICA REALTY, L.P. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 1997 and 1996 - -------------------------------------------------------------------------------- (1) Description of Business and Summary of Significant Accounting Policies (a) Business CarrAmerica Realty, L.P. (the "Partnership") is a Delaware limited partnership formed on March 6, 1996 to own, acquire, develop, and operate office buildings across the United States. At December 31, 1997, the Partnership owned 53 operating properties and eight properties under development. At December 31, 1996, the Partnership owned 25 operating properties and one property under development. The properties are located in suburban Austin, suburban Chicago, suburban Dallas, Southeast Denver, Orange County/Los Angeles, San Francisco Bay Area, suburban Salt Lake City and suburban Seattle. The Partnership's general partner is CarrAmerica Realty GP Holdings, Inc. (the "General Partner"), a wholly owned subsidiary of CarrAmerica Realty Corporation ("CarrAmerica"), a self-administered and self-managed real estate investment trust. The General Partner owned a 1% interest in the Partnership at December 31, 1997. The Partnership's limited partners are CarrAmerica Realty LP Holdings, Inc., a wholly owned subsidiary of CarrAmerica, which owned an approximate 86% interest in the Partnership at December 31, 1997, and various other individuals and entities which collectively owned an approximate 13% interest in the Partnership at December 31, 1997. (b) Basis of Presentation The accounts of the Partnership and its wholly-owned subsidiary are consolidated in the accompanying financial statements. Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (c) Rental Property Rental property is recorded at cost less accumulated depreciation (which is less than the net realizable value of the rental property). Depreciation is computed on the straight-line basis over the estimated useful lives of the assets, as follows: Base Building...........................30 to 50 years Building components.....................7 to 20 years Tenant improvements.....................Terms of the leases or useful lives, whichever is shorter Furniture, fixtures and equipment.......5 to 15 years Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations are capitalized. The Partnership reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. F-6 (d) Development Property Land held for development and construction in progress are carried at cost. Specifically identifiable direct and indirect acquisition, development and construction costs are capitalized including, where applicable, salaries and related costs, real estate taxes, interest and certain pre-construction costs essential to the development of a property. (e) Tenant Leasing Costs Fees and costs incurred in the successful negotiation of leases have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. (f) Deferred Financing Costs Deferred financing costs include fees and costs incurred to obtain financing and are being amortized over the terms of the respective loans on a basis which approximates the interest method. (g) Fair Value of Financial Instruments The carrying amount of the following financial instruments approximates fair value because of their short-term maturity: cash and cash equivalents; accounts and notes receivable; accounts payable and accrued expenses. (h) Revenue Recognition The Partnership reports base rental revenue for financial statement purposes straight-line over the terms of the respective leases. Accrued straight-line rents represent the amount that straight-line rental revenue exceeds rents collected in accordance with the lease agreements. Management, considering current information and events regarding the tenants' ability to fulfill their lease obligations, considers accrued straight-line rents to be impaired if it is probable that the Partnership will be unable to collect all rents due according to the contractual lease terms. If accrued straight-line rents associated with a tenant are considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows. Impairment losses, if any, are recorded through a loss on the write-off of assets. Cash receipts on impaired accrued straight-line rents are applied to reduce the remaining outstanding balance and as rental revenue, thereafter. (i) New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income," which requires an enterprise to display comprehensive income and its components in a financial statement to be included in an enterprise's full set of financial statements. Comprehensive income represents a measure of all changes in equity of an enterprise that result from recognized transactions and other economic events for the period other than transactions with owners in their capacity as owners. Comprehensive income includes net income and such items as foreign currency items and certain unrealized gains and losses. This standard is effective for the Partnership's fiscal year 1998 and requires prior years' comparative financial statements to be reclassified to reflect the provisions of this standard. Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," which requires a public entity to report selected information about operating segments in financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This standard is also effective F-7 for the Partnership's 1998 fiscal year. The Partnership is currently in the process of evaluating the effect this new standard will have on its financial statement presentation and disclosures and the required information, if any, will be reflected in the Partnership's 1998 financial statements. (j) Income and Other Taxes No provision has been made for federal and state income taxes because each partner reports his or her share of the Partnership's taxable income or loss and any available tax credits on his or her income tax return. (k) Cash Equivalents For the purposes of reporting cash flows, the Partnership considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. (l) Stock Option Plan The Partnership is a participant in the CarrAmerica 1997 stock option and incentive plan. Prior to January 1, 1996, CarrAmerica and the Partnership accounted for its option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expenses would be recorded only if the current market price of the underlying unit or stock on the date of grant exceeded the exercise price. As of January 1, 1996, CarrAmerica and the Partnership adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense, over the vesting period, the fair value of all unit-based and stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. CarrAmerica and the Partnership has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures permitted by SFAS No. 123. (2) Mortgages Payable and Credit Facility The Partnership's mortgages payable and credit facility are summarized as follows (in thousands): December 31, December 31, 1997 1996 ---- ---- Fixed rate mortgages $156,804 19,952 Unsecured credit facility 55,500 2,000 -------- ------ $212,304 21,952 ======== ====== Mortgages payable are collateralized by certain rental properties and generally require monthly principal and/or interest payments. Mortgages payable mature at various dates from June 1998 through July 2019. The weighted average interest rate of mortgages payable was 8.1% and 8.4%, at December 31, 1997 and December 31, 1996, respectively. CarrAmerica and the Partnership also have a $450.0 million unsecured credit facility with Morgan Guaranty Trust Company of New York (Morgan), as agent for a group of banks. At December 31, 1997, the credit facility bore interest, as selected by CarrAmerica, at either (i) the higher of the prime rate or the Federal Funds Rate for such day or (ii) an interest rate equal to 100 basis points above the 30 day London Interbank Offered Rate F-8 (LIBOR). CarrAmerica has predominately selected interest rates equal to 100 basis points above the 30 day LIBOR rate. The credit facility matures in September 2000. The weighted average effective interest rate for 1997 was 6.9%. The unsecured credit facility contains a number of financial and other covenants with which the Partnership must comply including, but not limited to, covenants relating to ratios of annual EBITDA (earning before interest, taxes, depreciation and amortization) to interest expense, annual EBITDA to debt service, and total debt to tangible fair market value of CarrAmerica and CarrAmerica's assets, and restrictions on the ability of CarrAmerica to make dividend distributions in excess of 90% of funds from operations. Availability under the unsecured credit facility is also limited to a specified percentage of the Partnership's unsecured properties. On May 24, 1996, the Partnership entered into a $30 million loan agreement with CarrAmerica. The note payable bears interest at 8.5% and requires monthly principal and interest payments of $242 thousand. The loan matures on May 31, 2011. The note is secured by certain office properties and other assets of the Partnership. The outstanding balance of the note payable to affiliate was $29.4 million and $29.8 million, at December 31, 1997 and December 31, 1996, respectively. The annual maturities of debt as of December 31, 1997 are summarized as follows (in thousands): 1998 $ 37,431 1999 17,381 2000 71,003 2001 31,761 2002 8,796 2003 & thereafter 75,343 -------- $241,715 ======== Restricted and unrestricted cash and cash equivalents includes $1.5 million of restricted cash at December 31, 1997, consisting primarily of escrow deposits required by lenders to be used for future building renovations, tenant improvements or as collateral for letters of credit. Based on the borrowing rates available to the Partnership for fixed rate mortgages payable with similar terms and average maturities, the estimated fair value of the Partnership's mortgages at December 31, 1997 and 1996 was approximately $194.4 million and $20.3 million, respectively. (3) Partners' Capital Contributions, Distributions, and Participation Percentages The Second Amended and Restated Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") details the rights of ownership in the Partnership. Ownership in the Partnership is expressed in partnership units ("Units"). Units currently are designated as Class A, B, C, D or E Units. Class D Units have first preference, Class A and Class E Units together have second preference and Class B Units have third preference as to the allocation of Available Cash, as defined in the Partnership Agreement. Class C units do not share in the allocation of Available Cash. Upon the third anniversary of the date of issuance of Class C Units, they may be converted to Class A Units based on a conversion factor described in the Partnership Agreement. Class E Units have a special allocation of Partnership losses. Upon the first anniversary of the date of issuance (or two years from the date of issuance, in the case of Class D Units), each holder of Class A Units, Class D Units or Class E Units may, subject to certain limitations, require that the Partnership redeem his or her Units. Upon redemption, such holder will receive, at the option of the Partnership, with respect to each Unit tendered, either (i) cash in an amount equal to the market value of F-9 one share of CARC common stock (subject to certain anti-dilution adjustments) or (ii) one share of CARC common stock. In lieu of the Partnership redeeming Class A, Class D or Class E Units for cash, CARC has the right to assume directly and satisfy the redemption right of a Unit holder. Holders of Class B Units and Class C Units are not entitled to exercise this redemption right. The following Units were outstanding: December 31, December 31, 1997 1996 ----------- ------------ Class A Units 950,111 361,677 Class B Units 11,916,673 6,619,131 Class C Units 539,593 539,593 Class D Units 271,363 -- Class E Units 16,520 -- ---------- --------- 13,694,260 7,520,401 ========== ========= (4) Lease Agreements The following table summarizes future minimum base rent to be received under noncancelable tenant leases and the percentage of total rentable space under leases expiring each year, as of December 31, 1997 (in thousands): Future Percentage of Minimum Total Space Under Rent Leases Expiring --------------- ---------------------- 1998 $ 71,031 12.74% 1999 65,966 12.04 2000 58,372 10.01 2001 48,506 17.13 2002 42,179 11.23 2003 & thereafter 133,586 36.85 -------- $419,640 ======== The leases also provide for additional rent based on increases in the Consumer Price Index (CPI) and increases in operating expenses. These increases are generally payable in equal installments throughout the year, based on estimated increases, with any differences being adjusted in the succeeding year. (5) Stock Option Plans As of December 31, 1997, the Partnership participated in the CarrAmerica 1997 Employee Stock Option and Incentive Plan for the purpose of attracting and retaining executive officers and other key employees. The 1997 Employee Stock Option and Incentive Plan ("Stock Option Plan") allows for the grant of options to purchase CarrAmerica's common stock at an exercise price which is equal to the fair market value of the common stock at the date of grant. The Stock Option Plan was approved by CarrAmerica's stockholders at its Annual Meeting of Stockholders on May 8, 1997. At December 31, 1997, CarrAmerica had 3,000,000 shares of common stock F-10 reserved for issuance under the Stock Option Plan, of which 897,121 were outstanding. All of these options have a 10-year term from the date of grant and vest over a five-year period, 20% per year. Number of Weighted Average Shares Exercise Price ------------- ---------------- Balance at December 31, 1996 0 -- Granted 50,517 28.45 Exercised -- -- Forfeited 312 28.56 Expired -- -- ------ ------ Balance at December 31, 1997 50,205 $28.45 ====== ====== At December 31, 1997, the range of exercise prices for options issued to employees of the Partnership was between $26.375 and $29.25 per Unit/share and the weighted average remaining contractual life of outstanding options was 9.26 years. At December 31, 1997, none of the options were exercisable. (6) Transactions With Affiliates CarrAmerica Realty Services, Inc. ("CARSI"), a wholly owned subsidiary of CarrAmerica, provides management and leasing services to all of the office properties owned by the Partnership. During 1997 and 1996, respectively, the Partnership incurred management fees of $1.9 million and $.4 million, respectively, for services performed by CARSI. Additionally, CARSI reimburses the Partnership for certain services the Partnership personnel provide to CARSI. These reimbursements amounted to $2.0 million in 1997. In addition, CarrAmerica Development, Inc.("CADI"), also reimbursed the Partnership for certain services the Partnership personnel provided to CADI. These reimbursements amounted to $.7 million in 1997. CarrAmerica pays on behalf of the Partnership certain administrative costs and certain costs related to the acquisitions of properties which are billed to the Partnership, and makes working capital advances to the Partnership. Amounts due to CarrAmerica and its subsidiaries were $1.4 million at December 31, 1997 and $2.8 million at December 31, 1996. During 1997, the Partnership sold land to CADI that will support the future development of approximately four office properties for $5.9 million, which is payable by a note between the Partnership and CADI. (7) Gain on Sale of Assets The Partnership disposed of assets that are inconsistent with its long-term strategic or return objectives or where market conditions for sale are favorable. The proceeds were redeployed into other office properties (utilizing tax-deferred exchanges where possible). As such, during 1997, the Partnership disposed of six operating office properties and land which will support the future development of approximately four office properties. The land was sold to an affiliate of the Partnership. The Partnership recognized gains totaling $5.1 million on these dispositions. (8) Commitments and Contingencies At December 31, 1997, the Partnership is contingently liable on letters of credit amounting to approximately $1.4 million for various completion escrows. F-11 The Partnership participates in CarrAmerica's 401(k) plan for employees. The Plan will match 50% of employee contributions up to the first 4% of an employee's pay and will make a base contribution of 3% of pay for participants who remain employed on December 31 (the end of the plan year). Partnership contributions to the plan are subject to a five-year graduated vesting schedule. Partnership contributions to the plan amounted to $41 thousand in 1997. In the course of the Partnership's normal business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against the Partnership. Based on currently available facts, management believes that the disposition of matters that are pending or asserted will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Partnership. In June 1997, the Partnership unconditionally guaranteed unsecured notes by CarrAmerica to institutional investors. The aggregate principal amount of the unsecured notes is $275.0 million of long-term debt as of December 31, 1997. (9) Acquisition and Development Activities From January 1 to December 31, 1997, the Partnership acquired 30 operating office properties for an aggregate purchase price of $343.2 million. Costs incurred during 1997 for properties under construction were $56.8 million. In addition, CarrAmerica contributed to the Partnership three operating office properties, one office property under construction and options to acquire land which will support the future development of approximately four office properties. During 1996, the Partnership acquired 25 operating office properties containing approximately 2.3 million square feet for an aggregate purchase price of $216.2 million. In addition, as of December 31, 1996, the Partnership had one property under development and three properties held for development. Land held for development was purchased for an aggregate purchase price of $13.3 million. Costs incurred during 1996 for properties under construction were $8.5 million. All acquisitions have been accounted for as purchases. Operations of acquired properties have been included in the accompanying financial statements from their respective dates of acquisition. The following unaudited pro forma summary presents information as if the Partnership's acquisitions through December 31, 1997 had occurred on March 6, 1996 (Date of Inception of the Partnership). The pro forma information is provided for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the Partnership. Pro forma information (unaudited): 1997 1996 ---- ---- (in thousands) Total revenue $94,136 $94,475 Net income $30,760 $17,996 (10) Subsequent Events In February 1998, CarrAmerica sold an aggregate principal amount of $200 million of its long-term debt, in the form of $100 million aggregate principal amount of 6.625% unsecured notes due in 2005 and $100 million aggregate principal amount of 6.875% unsecured due in 2008. The Partnership is a guarantor of these notes. From January 1, 1998, to March 1, 1998, the Partnership placed into service one office building and has acquired land which is expected to support the future development of .6 million square feet. The Partnership paid $10.0 million in cash to purchase the land. F-12 (11) Quarterly Financial Information (unaudited) The following is a summary of quarterly results of operations for 1997 and 1996 (in thousands):
First Second Third Fourth 1997 Quarter Quarter Quarter Quarter ---- ------- ------- ------- ------- Real estate operating revenue $9,479 13,540 17,138 20,312 ====== ====== ====== ====== Real estate operating income $1,749 2,690 3,908 2,907 ====== ===== ===== ===== Net income $1,757 2,738 3,924 8,274 ====== ===== ===== ===== First Second Third Fourth 1996 Quarter Quarter Quarter Quarter ---- ------- ------- ------- ------- Real estate operating revenue $-- 959 6,216 6,201 === === ===== ===== Real estate operating income $-- (19) 236 1,310 === ==== ===== ===== Net income $-- (18) 241 1,333 === === ===== =====
F-13 INDEPENDENT AUDITORS' REPORTS CarrAmerica Realty, L.P. and Subsidiary - -------------------------------------------------------------------------------- The Partners CarrAmerica Realty, L.P.: We have audited the accompanying consolidated balance sheets of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1997 and 1996 and the related consolidated statements of operations, partners' capital, and cash flows for the year ended December 31, 1997 and the period from March 6, 1996 (date of inception) to December 31, 1996. These consolidated financial statements are the responsibility of CarrAmerica Realty, L.P.'s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the year ended December 31, 1997 and the period from March 6, 1996 (date of inception) to December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Washington, D.C. February 6, 1998, except as to note 10 which is as of March 1, 1998 F-14 INDEPENDENT AUDITORS' REPORT CarrAmerica Realty, L.P. and Subsidiary - -------------------------------------------------------------------------------- The Partners CarrAmerica Realty, L.P.: Under date of February 6, 1998, we reported on the consolidated balance sheets of CarrAmerica Realty, L.P. and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners' capital, and cash flows for the year ended December 31, 1997 and the period from March 6, 1996 (date of inception) to December 31, 1996, which are included in this Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in this Form 10-K. This financial statement schedule is the responsibility of CarrAmerica Realty, L.P.'s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Washington, D.C. February 6, 1998 S-1 CARRAMERCA REALTY, L.P. AND SUBSIDIARY Consolidated Real Estate and Accumulated Depreciation as of December 31, 1997 - --------------------------------------------------------------------------------
Gross Amount at Which Initial Cost Carried at Close of Period ------------------------- Costs Capitalized ------------------------------- Buildings and Subsequent to Buildings and Properties Encumbrances Land Improvements Acquisition(2) Land Improvements Total - ---------- ------------ ---- ------------ -------------- ---- ------------ ----- Orange County/Los Angeles: South Coast Executive Center $10,226 3,324 17,212 365 3,372 17,529 20,901 2600 W. Olive 19,517 3,855 25,054 2,271 3,855 27,325 31,180 Bay Technology Center -- 2,442 11,164 -- 2,442 11,164 13,606 San Francisco Bay Area: San Mateo II & III -- 9,723 15,556 100 9,755 15,624 25,379 San Mateo I -- 5,703 9,126 -- 5,703 9,126 14,829 Southeast Denver: Quebec Center -- 1,423 5,659 419 1,423 6,078 7,501 Greenwood Center -- 289 6,619 151 289 6,770 7,059 Quebec Court I & II 29,411 (1) 2,368 19,819 564 2,371 20,380 22,751 Harlequin Plaza -- (1) 4,746 21,344 1,700 4,748 23,042 27,790 JD Edwards -- 3,006 5,479 19,173 3,242 24,416 27,658 Panorama Corporate Center I -- 1,325 6,486 1,712 1,325 8,198 9,523 Panorama Corporate Center II(3) -- 1,844 -- 8,190 -- 10,034 10,034 Suburban Seattle: Canyon Park Business Plaza 5,822 2,375 9,958 -- 2,375 9,958 12,333 (formerly Tract 17) Salt Lake City, Utah: Sorenson Research Park 4,418 4,389 25,304 291 4,423 25,561 29,984 Wasatch Corporate Center 12,834 3,318 15,495 68 3,326 15,555 18,881 (formerly Draper Park North) Wasatch Corporate Center -- 1,268 -- 878 -- 2,146 2,146 (formerly Draper Park North)(3) Wasatch Corporate Center -- 1,368 -- -- 1,368 -- 1,368 (formerly Draper Park North) Sorenson Research Park -- 2,262 -- 183 2,445 -- 2,445 Suburban Chicago: Bannockburn Lake Office Plaza IV -- 1,914 12,729 160 1,924 12,879 14,803 Bannockburn Lake Office Plaza I & II 20,464 3,448 22,928 694 3,472 23,598 27,070 Austin, Texas: Balcones Center -- 949 7,649 128 949 7,777 8,726 Great Hills Plaza -- 1,680 13,545 393 1,680 13,938 15,618 Park North -- 1,671 13,471 442 1,671 13,913 15,584 City View Centre -- 1,718 13,854 631 1,718 14,485 16,203 (formerly The Setting I, II & III) Tower of the Hills -- 1,633 13,625 22 1,633 13,647 15,280 Riata Buildings 4,5,8,9(3) -- 3,976 -- 10,384 -- 14,360 14,360 Riata -- 6,145 -- -- 6,145 -- 6,145 City View Centre(3) -- 1,890 -- 12,034 -- 13,924 13,924 Dallas, Texas: Greyhound -- 1,312 7,999 90 1,321 8,080 9,401 Search Plaza -- 1,822 13,362 171 1,827 13,528 15,355 Quorum North 6,658 1,357 9,078 548 1,365 9,618 10,983 Quorum Place 7,719 1,941 14,234 902 1,954 15,123 17,077 Tollhill East & West -- 2,603 19,086 1,239 2,612 20,316 22,928 Two Mission Park -- 823 4,320 172 829 4,486 5,315 Cedar Maple Plaza -- 1,220 10,982 248 1,225 11,225 12,450 Cedar Maple Plaza-Land -- 520 -- 49 569 -- 569 Royal Ridge(3) -- 3,159 -- 721 -- 3,880 3,880 Phoenix, Arizona: U.S. West 69,146 18,517 74,069 460 18,517 74,529 93,046 -------- ------- ------- ------ ------- ------- ------- Total $186,215 113,326 445,206 65,553 101,873 522,212 624,085 ======== ======= ======= ====== ======= ======= =======
Accumulated Date of Year of Properties Depreciation Construction Acquisition - ---------- ------------ ------------ ----------- Orange County/Los Angeles: South Coast Executive Center 680 1987 1996 2600 W. Olive 219 1986 1997 Bay Technology Center 16 1985 1997 San Francisco Bay Area: San Mateo II & III 239 1985 1997 San Mateo I 63 1986 1997 Southeast Denver: Quebec Center 432 1985 1996 Greenwood Center 375 1982 1996 Quebec Court I & II 1,474 1979/1980 1996 Harlequin Plaza 1,519 1981 1996 JD Edwards 371 N/A 1996 Panorama Corporate Center I 455 N/A 1996 Panorama Corporate Center II(3) -- N/A 1996 Suburban Seattle: Canyon Park Business Plaza 62 1988 1997 (formerly Tract 17) Salt Lake City, Utah: Sorenson Research Park 604 1988,1989,1993,1995 1997 1997 Wasatch Corporate Center 281 1996 1997 (formerly Draper Park North) Wasatch Corporate Center -- N/A 1997 (formerly Draper ParkNorth)(3) Wasatch Corporate Center -- N/A 1997 (formerly Draper Park North) Sorenson Research Park -- N/A 1997 Suburban Chicago: Bannockburn IV 232 1988 1997 Bannockburn I & II 702 1980 1997 Austin, Texas: Balcones Center 449 1985 1996 Great Hills Plaza 961 1985 1996 Park North 769 1981 1996 City View Centre 936 1985 1996 (formerly The Setting I, II & III) Tower of the Hills 19 1986 1997 Riata Buildings 4,5,8,9(3) -- N/A 1997 Riata -- N/A 1996 City View Centre(3) -- N/A 1996 Dallas, Texas: Greyhound 303 1962 1996 Search Plaza 469 1985 1996 Quorum North 274 1983 1997 Quorum Place 420 1981 1997 Tollhill East & West 502 1974 1997 Two Mission Park 71 1983 1997 Cedar Maple Plaza 367 1985 1997 Cedar Maple Plaza-Land -- N/A 1997 Royal Ridge (3) -- N/A 1997 Phoenix, Arizona: U.S. West 96 1988 1997 Total ------ 13,360 ======
S-2 Depreciation and amortization of the investment in building and improvements reflected in the statements of operations are calculated over the estimated lives of the assets as follows: Base Building 30 to 50 years Building components 7 to 20 years Tenant improvements Terms of leases or useful lives, whichever is shorter Furniture, fixtures and equipment 5 to 15 years
The aggregate cost for federal income tax purposes was approximately $555,616 at December 31, 1997. The changes in total real estate assets and accumulated depreciation and amortization for 1997 and 1996 are as follows:
Total Real Estate Asset Accumulated Depreciation ----------------------- ------------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Balance, beginning of period $238,073 -- Balance, beginning of period $ 3,104 -- Acquisitions 393,275 232,092 Improvements 53,640 5,981 Depreciation for the period 12,961 3,104 Sales, Retirements and write-offs (60,903) -- Sales, Retirements and write-offs (2,705) -- -------- ------- ------- ----- $624,085 238,073 $13,360 3,104 ======== ======= ======= =====
- --------------------- Notes: (1) Secured by Quebec Court I & II and Harlequin Plaza. (2) Costs capitalized are offset by retirements and write-offs. (3) Under construction as of December 31, 1997. Construction costs are shown under buildings and improvements until completion. At that time, costs will be allocated between land and buildings and improvements. S-3 EX-10.3 2 AGREEMENT OF PURCHASE AND SALE Exhibit 10.3 AGREEMENT OF PURCHASE AND SALE U.S. West Communication Group office portfolio, Phoenix and Tucson, Arizona [HERRICK] ARTICLE 1: CONTRIBUTED PROPERTY/CONTRIBUTION VALUE 1.1 Certain Basic Terms. (a) Contributors and Notice Address PHOENIXWEST ASSOCIATES, LTD. VERSAILLES ASSOCIATES LIMITED PARTNERSHIP LAKEVIEW 436 ASSOCIATES LTD. PINES REALTY ASSOCIATES, LTD., all Florida limited partnerships, together referred to as "Contributors" c/o Herrick Company 2295 Corporate Blvd. NW, Suite 222 Boca Raton, Florida 33431-0810 Telephone: 561/241-9880 Facsimile: 561/241-9887 With a copy to: Kelley Drye & Warren LLP Attention: John A. Garraty, Jr. 101 Park Avenue New York, New York 10178 Telephone: 212/808-7653 Facsimile: 212/808-7897 (b) Carr and Notice Address: CARRAMERICA REALTY, L.P. a Delaware limited partnership, herein referred to as "Carr" Attention: Karen Dorigan 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Telephone: 202/639-3843 Facsimile: 202/ 737-2147 With copies to: Mayer, Brown & Platt Attention: George Ruhlen 141 East Palace Avenue Santa Fe, New Mexico 87501 Telephone: 505/820-8185 Facsimile: 505/820-7334 Mayer, Brown & Platt Attention: James A. Parker 190 South LaSalle Street Chicago, Illinois 60603 Telephone: 312/701-7853 Facsimile: 312/706-8732 (c) Date of this Agreement: September 30, 1997. (d) Contribution Value: $38,112,482 (e) Earnest Money: $327,150, and any other deposits of earnest money made pursuant to the terms of this Agreement, together with interest thereon. (f) Intentionally Omitted. (g) Closing Date: December 1, 1997, subject to extension as provided in Paragraph 1.6(a) or otherwise in this Agreement. (h) Title Company: Chicago Title Company Attention: Frank Jansen 700 South Flower Street, Suite 920 Los Angeles, California 90017 Telephone: 213/488-4346 Facsimile: 213/891-0834 (i) Escrow Agent: Chicago Title Company Attention: Ken Buvala 2201 East Camelback Road, Suite 126B Phoenix, Arizona 85016 Telephone: 602/468-6333 Facsimile: 602/468-6336 (j) Broker: CB Commercial (k) Existing Mortgage Loan: That certain loan in the aggregate principal amount of $64,640,000, evidenced by four promissory notes dated December 31, 1990, payable to UBS Mortgage Finance Inc. ("Lender") in the original principal amounts of $28,441,600, $13,574,400, $13,574,400 and $9,049,600, respectively. (l) Loan Documents: All documents and instruments evidencing, securing or otherwise related to the Existing Mortgage Loan. (m) Master Leases: Those four master leases, each dated December 31, 1990 between PREFCO VII Limited Partnership, as landlord, and U S WEST Business Resources, Inc. ("Master Tenant"), as tenant, as amended, each covering improvements on each of the four separate parcels of land comprising the Property. (n) Master Lease Guaranties: For each of the Master Leases, the Lease Guaranty, dated as of December 31, 1990, by The Mountain States Telephone and Telegraph Company, a Colorado corporation, in favor of the landlord under The Master Leases, the Lease Guaranty, dated as of December 31, 1990, by U S WEST Inc., a Colorado corporation, in favor of the landlord under The Master Leases; and the Lease Guaranty, dated as of December 31, 1990, by U S WEST Real Estate, Inc., a Colorado corporation, in favor of the landlord under the Master Leases. -2- (o) Related Agreements: This Agreement, that Agreement of Purchase and Sale of even date herewith between PREFCO VII Limited Partnership and Carr, and that Agreement of Purchase and Sale of even date herewith (covering the remainder interest) between PREFCO VII Limited Partnership, Ltd. and Carr, the Pitney Debt Agreement, and any related agreements entered into by Carr and Contributors or any other such seller or contributor with respect to the Contributed Property or any other property covered by the Master Leases. (p) Pitney Debt Agreement: That letter agreement of even date herewith among Contributors, Carr, and PREFCO VII Limited Partnership regarding a satisfaction payment to PREFCO VII Limited Partnership in connection with a tenancy-in-common agreement. (q) Contribution Agreement: That certain Contribution Agreement between Contributors and Carr related to this transaction. 1.2 Contributed Property. Subject to the terms and conditions of this Agreement of Purchase and Sale (this "Agreement"), Contributors agree to contribute and convey to Carr, and Carr agrees to accept such contribution and conveyance of the following property (collectively, the "Contributed Property"): (a) Contributors' tenants in common interest with respect to the "Real Property," being the four parcels of land described in Exhibits A-1 through A-4 attached hereto; all improvements and fixtures (other than fixtures owned by tenants pursuant to the Leases) located thereon, including, but not limited to, the office buildings located on such lands, (collectively, the "Improvements"); all and singular the rights, benefits, privileges, easements, tenements, hereditaments and appurtenances thereon or in anyway appertaining to such real property; and all right, title and interest of Contributors in and to all strips and gores and any land lying in the bed of any street, road or alley, open or proposed, adjoining such real property; excepting from such real property remainder interests conveyed to Arizona - Relco Limited Partnership pursuant to Special Warranty Deeds and Assignments, recorded under Recording Numbers 91-0552245, 91- 0552246, and 91-0552247 Maricopa County Recorder, Maricopa County, Arizona, and at Docket 9172, Page 876, Pima County Recorder's Office, Pima County, Arizona. (b) Contributors' tenants in common interest with respect to the landlord's interest in the "Leases," being all leases of space or other occupancy agreements affecting the Improvements, including without limitation the Master Leases and any and all amendments and supplements thereto, the Master Lease Guaranties, and any other guaranties and security received by landlord in connection therewith. (c) All right, title and interest of Contributors, if any, in and to the "Personal Property," being all tangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management, occupancy or improvement of the Real Property including, without limitation: equipment; machinery; furniture; art work; furnishings; office equipment and supplies; and, whether stored on or offsite, all tools, supplies, and construction and finish materials not incorporated in the Improvements and held for repairs and replacements. The term "Personal Property" also shall include any and all deposits, bonds or other security, if any, deposited or delivered by Contributors with or to any and all governmental bodies, utility companies or other third parties in connection with the operation, ownership, maintenance, management, occupancy or improvement of the Real Property. (d) All right, title and interest of Contributors, if any, in and to the "Intangible Property," being all intangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management or occupancy of the Real Property, including, without limitation: all trade names and trade marks associated with the Real Property, including, without limitation, the name of the Improvements; the plans and specifications for the Improvements; warranties covering any of the Real or Personal Property; all contract rights related to the construction, operation, ownership or management of the Real Property that are expressly assumed by Carr pursuant to this Agreement; applications, permits, approvals and licenses (to the extent assignable); insurance proceeds and -3- condemnation awards or claims thereto to be assigned to Carr hereunder; any funds held by Master Tenant or Manager under the Master Leases or the Management Agreement; and all books and records relating to the Real Property. 1.3 Earnest Money. On or before November 7, 1997, Carr shall deposit the Earnest Money with the Escrow Agent. If Carr fails to timely deposit the Earnest Money, then this Agreement shall automatically terminate. The Escrow Agent shall release the Earnest Money to Carr at and upon the Closing, or otherwise, to the party entitled to receive the Earnest Money in accordance with this Agreement. The Earnest Money shall be held and disbursed by the Escrow Agent pursuant to Article 8 of this Agreement. In addition to any other right or remedy of Carr under this Agreement, the Earnest Money shall be returned to Carr if this Agreement is terminated for any reason permitted herein other than Carr's default hereunder. 1.4 Remedies. Contributors' sole and exclusive remedy in the event Carr defaults in its obligation to close this transaction shall be to terminate this Agreement and to retain the Earnest Money as liquidated damages, Contributors waiving all other rights or remedies in the event of such default by Carr. The parties acknowledge that Contributors' actual damages in the event of a default by Carr under this Agreement will be difficult to ascertain, and that such liquidated damages represent the parties' best estimate of such damages. Carr may enforce specific performance of Contributors' obligation to close this transaction or pursue any other remedy at law or in equity in the event of Contributors' breach; provided that Carr may not pursue a claim for damages for such breach unless such breach is willful. 1.5 Effect of Default or Termination under Related Agreement. A default under a Related Agreement does not constitute a default under this Agreement. However, if a Related Agreement is terminated or the closing under a Related Agreement does not occur simultaneously with the Closing because of a default by any party thereunder, then: (i) if neither Carr nor Contributors are in default hereunder, then Carr and Contributors shall be excused from their respective obligations to acquire and contribute the Contributed Property, and this Agreement shall terminate and the Earnest Money shall be returned to Carr; and (ii) if either Carr or the Contributors are in default hereunder, then the nondefaulting party shall have the remedies set forth in Paragraph 1.4. 1.6 Existing Mortgage Loan. The Contributed Property is to be conveyed without release of, and subject to, the Existing Mortgage Loan in accordance with the following: (a) Conditions to Assumption. It shall be a condition precedent to the obligations of Contributors and Carr to close the contribution of the Contributed Property that as of the Closing Date there shall not exist any uncured default or event that, but for the giving of notice or the passage of time, or both would constitute a default under the Loan Documents, and Lender shall have delivered to Carr an estoppel certificate reasonably satisfactory to Carr and to the Contributors (the estoppel certificate will include an agreement by the holder of the Existing Mortgage that the single member limited liability company that Carr will form for the single purpose of holding title to the Contributed Property may be the mortgagor under the Existing Mortgage, and that the transfer of an interest in Carr or CarrAmerica Realty Corporation does not breach the prohibition in the loan documents against a transfer of an interest in the mortgagor or its affiliates; and will acknowledge receipt by Lender of certain guarantees from Contributors). If the conditions set forth in this Paragraph 1.6, or in Paragraph 2.3, or Paragraph 3.2 have not been satisfied by the Closing Date then either party may, by delivering written notice to the other party on or before Closing Date extend the Closing Date up to an aggregate extension of 15 days in order to satisfy such conditions, and if such conditions are not satisfied by the Closing Date, as extended, then this Agreement shall terminate, the Earnest Money shall be returned to Carr and the parties will have no further obligations under this Agreement, except as expressly stated herein. -4- (b) Costs. Any fees and charges charged by Lender pursuant to the Loan Documents to consent to the transfer shall be paid by Carr, regardless of whether the transaction contemplated hereby is consummated. Any costs and expenses incurred by Lender and that pursuant to the Loan Documents Lender requires be reimbursed in connection with the transfer of the Contributed Property, including recording costs and expenses relating to the recordation of any mortgage assignment agreement or other documentation relating to the transfer of the Contributed Property, attorneys' fees incurred by Lender, and any title insurance premiums or costs for endorsements required by Lender, shall be paid by Carr, regardless of whether the transaction contemplated hereby is consummated. (c) Contact with Lender. Carr shall have the right to directly contact Lender concerning the Existing Mortgage Loan. Carr shall promptly provide to Lender all information it may reasonably request in connection with the transfer. Carr shall form a single-purpose entity to assume the Existing Mortgage Loan in accordance with the Loan Documents and shall otherwise use commercially reasonable efforts to comply with the requirements of the Loan Documents with respect to the conveyance of the Property so that no consent is necessary except as described in Paragraph 1.6(a). ARTICLE 2: INSPECTION 2.1 Contributed Property Information. Contributors have delivered to Carr complete copies of the Master Leases, Master Lease Guaranties, Loan Documents, Tripartite Agreement, Management Agreement, and Option Agreements (the last three terms are defined in Paragraph 5.3). At Carr's reasonable request from time to time, Contributors shall make available to Carr, for review and copying, at Contributors offices, all other material information and documents relating to the Contributed Property in Contributors possession. The information and documents provided and made available to Carr pursuant to this Paragraph 2.1 is the "Contributed Property Information." 2.2 Due Diligence. Carr has examined, inspected and investigated the Contributed Property and the agreements, documents and records related thereto that it deemed necessary, and is satisfied with the results of its inspection, examination and investigation. Carr acknowledges that no additional "inspection period" is provided under this Agreement. Subject to the terms of the Master Leases and the Management Agreement, Carr shall have reasonable access to the Contributed Property and all books and records for the Contributed Property that are in Contributors possession or control for the purpose of conducting surveys, architectural, engineering, geotechnical and environmental inspections and tests (including intrusive inspection and sampling), and any other inspections, studies or tests reasonably required by Carr. Carr shall keep the Contributed Property free and clear of any liens and will indemnify, defend, and hold Contributors harmless from all claims asserted by third parties against Contributors to recover for personal injury or Contributed Property damage as a result of entry onto the Contributed Property by Carr, its agents, employees and representatives. If any inspection or test disturbs the Contributed Property, Carr will restore the Contributed Property to its condition before any such inspection or test. During the pendency of this Agreement, subject to the terms of the Master Leases and the Management Agreement, Carr and its agents, employees and representatives shall have a continuing right of reasonable access to the Contributed Property and such books and records for the purpose of examining and making copies of all books and records and other materials relating to the Contributed Property in Contributors possession or control. Subject to the terms of the Master Leases and the Management Agreement, Carr shall have the right to conduct a "walk-through" of the Contributed Property before the Closing upon appropriate notice to tenants as permitted under the Leases. In the course of its investigations, Carr may make inquiries to third parties, including, without limitation, tenants, lenders, contractors, Contributed Property managers, parties to Service Contracts and municipal, local and other government officials and representatives, and Contributors consents to such inquiries. -5- 2.3 Tenant Estoppels. Contributors shall promptly deliver to the Master Tenant an estoppel certificate for each Master Lease in the form of Exhibit B-1 attached hereto (the "Master Tenant Estoppels"). Carr shall prepare the Master Tenant Estoppels for Contributors review and comment before their delivery to the Master Tenant. Carr's obligation to close this transaction is subject to the condition that, as of Closing (1) estoppel certificates for all the Master Leases substantially in the form required above executed by the Master Tenant and consistent with representations of Contributors in Paragraph 7.1 have been delivered to Carr; (2) the Master Leases shall be in full force and effect and no monetary or material nonmonetary default or claim by landlord or tenant shall exist under any such Master Lease; (3) the Tri-partite Agreements, Management Agreement and Option Agreements (defined in Paragraph 5.3(d)) are in full force and effect without any existing default thereunder, and the Tenant has executed and delivered to Carr certificates with respect to the Tri-partite Agreements and Management Agreement substantially in the form of Exhibits B-2 and B-3 attached hereto; and (4) the Master Lease Guaranties are in full force and effect without any existing default thereunder, and the guarantors of the Master Lease Guaranties have executed and delivered to Carr certificates substantially in the form of Exhibit C attached hereto. Contributors shall cooperate with Purchaser, without obligation to incur any expense or liability, in obtaining estoppel certificates from Third Party Lessees, as defined in the Master Leases, but obtaining such certificates is not a condition to Closing. If the conditions set forth in this Paragraph 2.3 have not been satisfied by the Closing Date, then unless Carr waives such conditions in writing, this Agreement shall terminate, the Earnest Money shall be returned to Carr and the parties shall have no further obligations under this Agreement. Nonsatisfaction of the conditions in this Paragraph 2.3 is not a default by Contributor. ARTICLE 3: TITLE AND SURVEY REVIEW 3.1 Delivery of Title Commitment and Survey. Carr shall cause to be prepared (1) a current, effective commitment for title insurance (the "Title Commitment") issued by the Title Company, in the amount of the Contribution Value with Carr as the proposed insured, and accompanied by true, complete and legible copies of all documents referred to in the Title Commitment; (2) a current ALTA-ACSM Urban survey of the Contributed Property (the "Survey") prepared by a surveyor acceptable to Carr, including a certification addressed to Carr substantially in the form attached hereto as Exhibit D; and (3) copies of Uniform Commercial Code, judgment and tax lien searches in the name of Contributors, any general partner, member or manager of Contributors, and the Contributed Property issued by the Title Company or a search company acceptable to Carr ("UCC Searches"). The Title Commitment, the documents referred to therein, the Survey and the UCC Searches are referred to herein collectively as the "Title Documents." 3.2 Title Review and Cure. Contributors will cooperate with Carr in curing any objections Carr may have to title to the Contributed Property; provided however, Contributors shall have no obligation to cure title objections except liens and security interests created by Contributors after the Date of this Agreement, and Contributors agree to remove such exceptions or encumbrances to title which it creates after the Date of this Agreement. As to any other exceptions or objections raised by Carr, Contributors shall have 14 days from the receipt of Carr's notice of objections either to have such exceptions or objections removed or, if acceptable to Carr, to provide affirmative title insurance protection for such exceptions satisfactory to Carr or to notify Carr that it does not intend to cure such objection. If, with respect to those title objections that Contributors have no obligation to cure, Contributors fail either to provide for the removal of such exceptions or objections or to obtain affirmative title insurance protection for such exceptions or objections satisfactory to Carr within such 14 day period, then Carr must elect either to terminate this Agreement by delivering written notice to Contributors within 5 days following such period, or to waive such objections. Upon delivery of such termination notice by Carr, this Agreement shall automatically terminate, the parties shall be released from all further obligations under this Agreement except pursuant to any provisions which by their terms survive a termination of this Agreement, and the Earnest Money shall be promptly returned to Carr. If after the Date of this Agreement, the Title Company revises the Title Commitment, or the surveyor revises the Survey, to add or modify exceptions, or to add or modify the conditions to obtaining any endorsement which the Title Company has agreed to issue, then Carr may terminate this Agreement and receive a refund of the Earnest Money if provision for their removal or modification satisfactory to Carr is not made. Carr shall have been deemed to have approved any title exception that Contributors are not obligated to remove and to which either Carr did not object as provided above, or to which Carr did object, but with respect to which Carr did not terminate this Agreement. If there are exceptions or objections raised by Carr, the Closing Date shall be extended to the extent necessary to permit Contributors and Carr to exercise their rights as provided above, but only in accordance with the time periods set forth in Paragraph 1.6(a). -6- 3.3 Delivery of Title Policy at Closing. As a condition to Carr's obligation to close, at Closing (i) the Title Company shall irrevocably commit to issue to Carr an ALTA Owner's Policy (Revised 10-17-70 and 10-17-84) (or other form if required by state law) of title insurance, with extended coverage (i.e., with ALTA General Exceptions 1 through 5 deleted, or with corresponding deletions if the Contributed Property is located in a non-ALTA state), issued by the Title Company as of the date and time of the recording of the Deed, in the amount of the Contribution Value, containing the Carr's Endorsements, insuring Carr as owner of good, marketable and indefeasible fee simple title to the Contributed Property (the conveyances from Contributors and the sellers under the Related Agreements effecting a merger of the estates held by each, with fee simple title vesting in Carr subject only to the Permitted Exceptions), and subject only to the Permitted Exceptions (the "Title Policy"), and (ii) the updated UCC Searches (within 10 days of Closing) show no security interests (other than Permitted Exceptions) not disclosed in the UCC Searches delivered pursuant to Paragraph 3.1;. "Permitted Exceptions" means the exceptions set forth in Exhibit I to this Agreement; real estate taxes not yet due and payable; the Loan Documents; the Management Agreement, the Tripartite Agreements, and the Option Agreements; and tenants in possession as tenants only under the Leases without (except as provided in the Master Leases) any option to purchase or acquire an interest in the Contributed Property, and the Pitney Debt Documents. "Carr's Endorsements" shall mean, to the extent such endorsements are available under the laws of the state in which the Contributed Property is located: (1) owner's comprehensive; (2) access; (3) survey (accuracy of survey); (4) location (survey legal matches title legal); (5) separate tax lot; (6) legal lot; (7) zoning 3.1, with parking and loading docks; (8) non-imputation endorsement; and (9) such other endorsements as Carr may require during the Due Diligence Period based on its review of the Title Commitment and Survey. 3.4 Title and Survey Costs. Carr shall pay for the cost of the Survey, the premium for extended coverage, the cost of Carr's Endorsements other than the non-imputation endorsement, and the cost of the UCC Searches. ARTICLE 4: OPERATIONS AND RISK OF LOSS 4.1 Ongoing Operations. During the pendency of this Agreement: (a) Preservation of Business. Subject to the rights and obligations of the manager under the Management Agreement, Contributors shall use reasonable efforts to cause the Contributed Property to be operated only in the ordinary and usual course of business and consistent with past practice, shall perform its obligations under Leases and other agreements affecting the Contributed Property, and shall not take any action or omission which would cause any of the representations or warranties of Contributors contained herein to become inaccurate or any of the covenants of Contributors to be breached. (b) New Contracts. Without Carr's prior written consent in each instance, Contributors will not enter into or amend, terminate, waive any default under, or grant concessions regarding any contract or agreement that will be an obligation affecting the Contributed Property or binding on the Carr after the Closing. (c) Listings and Other Offers. Contributors will not list the Contributed Property with any broker or otherwise solicit or make or accept any offers to sell the Contributed Property, engage in any discussions or negotiations with any third party with respect to the sale or other disposition of any of the Contributed Property, or enter into any contracts or agreements (whether binding or not) regarding any disposition of any of the Contributed Property. (d) Leasing Arrangements. Contributors will not amend, terminate, waive any default under, grant concessions regarding, incur any obligation for leasing commissions in connection with, or enter into any Lease without Carr's prior written consent in each instance. (e) Loan Documents. Contributors shall comply with its obligations under the Loan Documents. (f) Agreements. Contributors shall comply with its obligations under any agreement to be assigned to Carr pursuant to Article 5 and shall not amend any such agreement without Carr's prior written approval. -7- 4.2 Damage. Contributors shall promptly give Carr written notice of any damage to the Contributed Property of which Contributors becomes aware, describing such damage, whether such damage is covered by insurance and the estimated cost of repairing such damage. If such damage is material, Carr may elect by notice to Contributors given within 14 days after Carr is notified of such damage (and the Closing shall be extended, if necessary, to give Carr such 14 day period to respond to such notice) to terminate this Agreement, in which event the Earnest Money shall be immediately returned to Carr. Damage as to any one or multiple occurrences is material if the cost to repair the damage, as reasonably estimated by a reputable third party contractor, exceeds in the aggregate $5 million, or triggers any option by Master Tenant to terminate any Master Lease. If Carr does not so terminate this Agreement, then at closing Contributors shall assign to Carr its right and interest in and to the insurance provided under the Master Leases with respect to such damages and shall obtain any appropriate acknowledgment of such assignment by the insurer. 4.3 Condemnation. Contributors shall promptly give Carr notice of any eminent domain proceedings that are contemplated, threatened or instituted with respect to the Contributed Property of which Contributors becomes aware. By notice to Contributors given within 14 days after Carr receives notice of proceedings in eminent domain that are contemplated, threatened or instituted by any body having the power of eminent domain with respect to the Contributed Property (and if necessary the Closing Date shall be extended to give Carr the full 14 day period to make such election), Carr may terminate this Agreement if the taking or threatened taking is material, or proceed under this Agreement, in which event Contributors shall, at the Closing, assign to Carr its right, title and interests in and to any condemnation award, and Carr shall have the sole right during the pendency of this Agreement to negotiate and otherwise deal with the condemning authority in respect of such matter. A taking as to one or more proceedings is material if the award (including any award with respect to remainder interests and interests of co-tenants) is reasonably estimated to exceed $1 million or the taking would likely entitle Master Tenant to an abatement or reduction in rent. ARTICLE 5: CLOSING 5.1 Closing and Escrow. The consummation of the transaction contemplated herein ("Closing") shall occur on the Closing Date at the offices of the Escrow Agent through an escrow with the Escrow Agent. Units (as defined in the Contribution Agreement) and any required closing funds shall be deposited into and held by Escrow Agent in a closing escrow account with a bank satisfactory to Carr and Contributors. Upon satisfaction or completion of all closing conditions and deliveries, the parties shall direct the Escrow Agent to immediately record and deliver the closing documents to the appropriate parties and make disbursements according to the closing statements executed by Contributors and Carr. The Escrow Agent shall agree in writing with Contributors and Carr that (1) recordation of the Deeds constitutes its representation that it is holding the closing documents, closing funds and closing statements and is prepared and irrevocably committed to disburse the closing funds in accordance with the closing statements and (2) release of Units to the Contributors shall irrevocably commit it to issue the Title Policy in accordance with this Agreement. Provided such supplemental escrow instructions are not in conflict with this Agreement as it may be amended in writing from time to time, Contributors and Carr agree to execute such supplemental escrow instructions as may be appropriate to enable Escrow Agent to comply with the terms of this Agreement. 5.2 Conditions to the Parties' Obligations to Close. In addition to all other conditions set forth herein, the obligation of Contributors, on the one hand, and Carr, on the other hand, to consummate the transactions contemplated hereunder shall be contingent upon the following: (a) The other party's representations and warranties contained herein shall be true and correct as of the Date of this Agreement and the Closing Date; (b) As of the Closing Date, the other party shall have performed its obligations hereunder and all deliveries to be made by the other party at Closing shall have been tendered; (c) As of the Closing Date, no action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) which is reasonably expected to restrain, prohibit or invalidate the transactions contemplated by this Agreement, other than an action or proceeding instituted or threatened by such party; and -8- (d) Any other condition set forth in this Agreement to such party's obligation to close is not satisfied by the applicable date. (e) The Closing occurs simultaneously with the closings under the Related Agreements. (f) As to Carr's obligation to close, as of the Closing, neither Contributors nor any other party is in default under any agreement to be assigned to or assumed by Carr hereunder. (g) As of the Closing Date, as to Contributors' obligation, Carr and CarrAmerica Realty Corporation, and, as to Carr's obligation, Contributors shall have performed their respective obligations to be performed and deliveries on their behalf to have been made, as of the Closing Date under the Contribution Agreement, and the conditions to such party's obligations to close under the Contribution Agreement have been satisfied. So long as a party is not in default hereunder, if any condition to such party's obligation to proceed with the Closing hereunder has not been satisfied as of the Closing Date or other applicable date, such party may, in its sole discretion, terminate this Agreement by delivering written notice to the other party and all parties under the Related Agreements on or before the Closing Date or other applicable date, or elect to close, notwithstanding the non-satisfaction of such condition, in which event such party shall be deemed to have waived any such condition except for breach by a party of a covenant in which case the Closing shall not relieve such breaching party from any liability it would otherwise have hereunder. A party shall be entitled to postpone the Closing up to an aggregate of 10 days in order to cause any condition to be satisfied. 5.3 Contributors Deliveries in Escrow. At least one business day before the Closing Date, Contributors shall deliver in escrow to the Escrow Agent the following: (a) Deed. For each of the four parcels comprising the Contributed Property: a special warranty deed conveying Contributors tenancy-in-common interest in the Real Contributed Property to Carr (warranting title against grantor's acts); (b) Assignment of Master Leases. For each of the four Master Leases; an Assignment of Master Lease in the form of Exhibit E attached hereto (the "Master Lease Assignment"), executed and acknowledged by Contributors; (c) Third Party Leases. For each of the Third Party Leases, an assignment substantially in the form of Exhibit E attached hereto, modified as appropriate, executed and acknowledged by Contributors; (d) Bill of Sale and Assignment of Contracts. For each of the four parcels comprising the Contributed Property, a bill of sale and assignment in the form of Exhibit F, assigning that Tripartite Agreement relating to the applicable parcel, dated as of December 31, 1990, among Master Tenant, PREFCO VII Limited Partnership and Arizona- Relco Limited Partnership (the "Tripartite Agreements"); that Management and Rent Disbursement Agreement, dated as of December 31, 1990, between Tenant and Contributors (the "Management Agreement"); and that Option and Subordination Agreement relating to the applicable parcel, dated as of December 31, 1990, between PREFCO VII Limited Partnership and Arizona-Relco Limited Partnership (the "Option Agreements"); (e) Notice to Tenants. A notice to each tenant in form reasonably satisfactory to Contributors and Carr; -9- (f) State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real Contributed Property; (g) FIRPTA. A Foreign Investment in Real Property Tax Act affidavit executed by Contributors. If Contributors fails to provide the necessary affidavit and/or documentation of exemption on the Closing Date, Carr may proceed in accordance with the withholding provisions in such act; (h) Intentionally Omitted; (i) Authority. Evidence of the existence, organization and authority of Contributors and of the authority of the persons executing documents on behalf of Contributors reasonably satisfactory to the Carr and the Title Company; (j) Insurance. Certificates of insurance carried by the Master Tenant pursuant to the Master Leases naming Carr as an additional insured or loss payee, as appropriate; (k) Pitney Debt Agreement. At Closing, Contributors shall be in compliance with and will tender their respective deliveries pursuant to, the Pitney Debt Agreement; and (l) Other Deliveries. Any other Closing deliveries required to be made by or on behalf of Contributors hereunder. 5.4 Carr's Deliveries in Escrow. At least one business day before the Closing Date (except as otherwise permitted below), Carr shall deliver in escrow to the Escrow Agent the following: (a) Contribution Value. The Contribution Value, net of the credits charged against Contributor pursuant to Paragraph 6.1(b) and 6.1(c), is payable by the issuance of Units pursuant to and as defined in the Contribution Agreement; (b) Assignments. The instruments described in Paragraph 5.3(b), (c), (d) and (e) executed by Carr, as provided in each such instrument; (c) State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property; (d) Loan Documents. Such documents and deliveries (if any) by or on behalf of Carr as may be required by the Lender pursuant to the Loan Documents to effect the transfer of the Contributed Property subject to the Existing Mortgage Loan; (e) Authority. Evidence of the existence, organization and authority of Carr and of the authority of the persons executing documents on behalf of Carr reasonably satisfactory to the Contribution and the Title Company; (f) Contribution Agreement. The Closing deliveries and documents required under the Contribution Agreement by the Contributors and their affiliates; and (g) Pitney Debt Agreement. At Closing, Carr shall be in compliance with and will tender its deliveries pursuant to, the Pitney Debt Agreement. (h) Other Deliveries. Any other Closing deliveries required to be made by or on behalf of Carr hereunder. 5.5 Closing Statements/Escrow Fees. Contributors and Carr shall deposit with the Escrow Agent executed closing statements consistent with this Agreement in the form required by the Escrow Agent. -10- 5.6 Sales, Transfer and Documentary Taxes. Carr shall pay all sales, gross receipts, compensating, stamp, excise, documentary, transfer, deed or similar taxes and fees imposed in connection with this transaction under applicable state or local law. 5.7 Possession. At the time of Closing, Contributors shall deliver to Carr possession of the Contributed Property, subject only to the Permitted Exceptions and the Third Party Leases. 5.8 Delivery of Books and Records. Immediately after the Closing, Contributors shall deliver to the offices of Carr's Contributed Property manager to the extent that the same are in Contributors possession: copies or originals of all books and records of account, contracts, copies of correspondence with tenants and suppliers, receipts for deposits, unpaid bills and other papers or documents which pertain to the Contributed Property; all permits and warranties; all advertising materials, booklets, keys and other items, if any, used in the operation of the Contributed Property; the original "as-built" plans and specification; and all other available plans and specifications and all operation manuals. Contributors shall cooperate with Carr after Closing to transfer to Carr any such information stored electronically. ARTICLE 6: PRORATIONS AND ADJUSTMENTS 6.1 Prorations. Not less than 5 days prior to Closing, Contributors shall provide to Carr such information and verification reasonably necessary to support the prorations and adjustments under this Article 6. The items in subparagraph (a) of this Paragraph 6.1 shall be prorated between Contributors and Carr as of the close of the day immediately preceding the Closing Date: (a) Income. The Master Tenant is currently remitting to the Lender the monthly installment of rent payable under the Master Leases, and the Lender is applying such amount to the scheduled monthly installment of principal and interest under the Existing Mortgage Loan that is due on the first day of each month, and delivering the net monthly amount (currently $6803.43) to Contributors and to PREFCO VII Limited Partnership. The parties shall allocate the Contributors' portion (49 percent ) of the net monthly amount for the month in which the Closing Date falls evenly over such month and prorate as of the Closing Date. (b) Loan Documents. Carr shall receive at Closing a credit against the Contribution Value equal to Contributors' allocable portion (49 percent) of the outstanding principal balance of the Existing Mortgage Loan as of the Closing Date (assuming payments under the Loan Documents for the month of Closing have been paid). Carr shall have no obligation to assume or pay or take the Contributed Property subject to any amounts owing under the Existing Mortgage Loan as of the Closing Date other than the outstanding principal balance and accrued interest for the month of Closing. Carr shall purchase any escrows of Contributors funds with Lender that are transferred to Carr at Closing. (c) Pitney Debt. Carr shall receive at Closing a credit against the Contribution Value for the outstanding principal balance of the Prefco Notes (as defined in the Pitney Debt Agreement) as of the Closing Date. 6.2 Tenant Deposits. At Closing, Contributors shall transfer to Carr all its right, title and interest in any tenant security deposits. As of the Closing, Carr shall assume Contributors obligations related to tenant security deposits, but only to the extent Contributors interest therein is properly transferred to Carr. 6.3 Sales Commissions. Contributors and Carr represent and warrant each to the other that they have not dealt with any real estate broker, sales person or finder in connection with this transaction other than Broker. Carr shall pay Broker in accordance with their separate agreement (at Closing if Closing occurs). Broker is an independent contractor and is not authorized to make any agreement or representation on behalf of either party. Except as expressly set forth above, in the event of any claim for broker's or finder's fees or commissions in connection with the negotiation, execution or consummation of this Agreement, or the transactions contemplated hereby, each party shall indemnify and hold harmless the other party from and against any such claim based upon any statement, representation or agreement of such party. This provision shall survive any termination of this Agreement. -11- ARTICLE 7: REPRESENTATIONS AND WARRANTIES 7.1 Contributors Representations and Warranties. As a material inducement to Carr to execute this Agreement and consummate this transaction, Contributors represents and warrants to Carr that: (a) Organization and Authority. Contributors have been duly organized and are validly existing as the entities described in Paragraph 1.1, and is in good standing in its State of incorporation or formation. Contributors have the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Contributors at the Closing will be, authorized and properly executed and constitute, or will constitute, as appropriate, the valid and binding obligations of Contributors, enforceable in accordance with their terms. (b) Conflicts. There is no agreement to which Contributors is a party or, to Contributors knowledge, binding on Contributors which is in conflict with this Agreement, or which challenges or impairs Contributors ability to execute or perform its obligations under this Agreement. (c) Pending Actions or Proceedings. There is not now pending or, to the best of Contributors knowledge, threatened, any action, suit or proceeding before any court or governmental agency or body against the Contributors that would prevent Contributors from performing its obligations hereunder. (d) Master Leases. To Contributors knowledge, Master Tenant has not asserted nor are there any defenses or offsets to rent under the Master Leases accruing after the Closing Date, and no monetary or material nonmonetary default or breach exists on the part of the Master Tenant under any Master Lease. Contributors have not received any notice of any monetary or material nonmonetary default or breach on the part of the landlord under any Master Lease, nor, to the best of Contributors' knowledge, does there exist any such default or breach on the part of the landlord. (e) Agreements. The copies of the Tripartite Agreements, Option and Subordination Agreements, and Management Agreements delivered to Carr pursuant to Paragraph 2.1 are true, correct and complete, and to Contributors knowledge, neither Contributors nor any other party is in default under any such agreement. (f) Disclosure. Other than this Agreement, the Related Agreements, the agreements assigned to Carr at Closing pursuant hereto and the Permitted Exceptions, the tenancy in common agreement among Contributors and PREFCO VII Limited Partnership (which shall be terminated at Closing) there are no contracts or agreements of any kind relating to the Contributed Property to which Contributors or its agents is a party. 7.2 Carr's Representations and Warranties. As a material inducement to Contributors to execute this Agreement and consummate this transaction, Carr represents and warrants to Contributors that: (a) Organization and Authority. Carr has been duly organized and is validly existing as a Delaware limited partnership, in good standing in the State of Delaware, and will be qualified to do business in Arizona on the Closing Date. Carr has the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Carr at the Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligations of Carr, enforceable in accordance with their terms. -12- (b) Conflicts and Pending Action. There is no agreement to which Carr is a party or, to Carr's knowledge, binding on Carr which is in conflict with this Agreement. There is no action or proceeding pending or, to Carr's knowledge, threatened against Carr which challenges or impairs Carr's ability to execute or perform its obligations under this Agreement. (c) Institutional Investor. CarrAmerica Realty Corporation is a real estate investment trust under the Internal Revenue Code and its net worth exceeds $50 million. CarrAmerica Realty Corporation's Annual Report on Form 10-K for the year ended December 31, 1996 and its Quarterly Report for the quarter ended March 31, 1997 do not contain an untrue statement of material for fact or omit to state any factor that would be material, and since the dates and periods of such reports there has been no material adverse change in the financial position of CarrAmerica Realty Corporation. 7.3 Survival of Representations and Warranties. The representations and warranties set forth in this Article 7 are made as of the Date of this Agreement and are remade as of the Closing Date, and shall not be deemed to be merged into or waived by the instruments of Closing, but shall survive the Closing (provided that the representations in Paragraph 7.1(c) through (f) and shall survive only for a period of 1 year, and Carr shall have the right to bring an action thereon only if Carr, as the case may be, has given the other party written notice of the circumstances giving rise to the alleged breach within such 1-year period.) The representation in Paragraph 7.1(d) shall survive the Closing only for a period of 1 year and only to the extent the matters covered by the representation are not addressed in the Master Tenant Estoppels. 7.4 No Reliance on Documents. Except as expressly stated herein, Contributors makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by Contributors to Carr in connection with the transaction contemplated hereby. Carr acknowledges and agrees that all materials, data and information delivered by Contributors to Carr in connection with the transaction contemplated hereby are provided to Carr as a convenience only and that any reliance on or use of such materials, data or information by Carr shall be at the sole risk of Carr, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Carr acknowledges and agrees that except as expressly stated herein Carr shall not have any right to rely on any reports delivered by Contributors to Carr, but rather will rely on its own inspections and investigations of the Contributed Property and any reports commissioned by Carr with respect thereto. 7.5 DISCLAIMERS; AS IS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD AND AGREED THAT CONTRIBUTORS IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE CONTRIBUTED PROPERTY, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE (OTHER THAN CONTRIBUTORS LIMITED WARRANTY OF TITLE TO BE SET FORTH IN THE DEED), ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITIONS, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE CONTRIBUTED PROPERTY WITH GOVERNMENTAL LAWS, THE MASTER LEASES, THE LOAN DOCUMENTS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF CONTRIBUTORS TO Carr, OR ANY OTHER MATTER OR THING REGARDING THE CONTRIBUTED PROPERTY. CARR ACKNOWLEDGES AND AGREES THAT UPON CLOSING CONTRIBUTORS SHALL SELL AND CONVEY TO CARR AND CARR SHALL ACCEPT THE CONTRIBUTED PROPERTY "AS IS, WHERE IS, WITH ALL FAULTS", EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT. CARR HAS NOT RELIED AND WILL NOT RELY ON, AND CONTRIBUTORS IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE CONTRIBUTED PROPERTY, THE MASTER LEASES OR THE LOAN DOCUMENTS MADE OR FURNISHED BY CONTRIBUTORS OR ANY REAL ESTATE BROKER OR AGENT TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT. CARR REPRESENTS TO -13- CONTRIBUTORS THAT CARR HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE CONTRIBUTED PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS CARR DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE CONTRIBUTED PROPERTY, THE MASTER LEASES, THE LOAN DOCUMENTS, ANY OTHER AGREEMENT RELATING TO THE CONTRIBUTED PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE CONTRIBUTED PROPERTY, AND EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT WILL RELY SOLELY UPON SAME. UPON CLOSING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, CARR SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY CARR'S INVESTIGATIONS, AND CARR, UPON CLOSING, SHALL, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED CONTRIBUTORS (AND ITS DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH CARR MIGHT HAVE ASSERTED OR ALLEGED AGAINST CONTRIBUTORS (AND THEIR OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, OR VIOLATIONS OF ANY APPLICABLE LAWS (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS). 7.6 RESERVED RIGHTS. NOTWITHSTANDING PARAGRAPHS 7.4 AND 7.5 ABOVE: CARR IS RELYING UPON, AND DOES NOT WAIVE, RELINQUISH OR RELEASE THE EXPRESS REPRESENTATIONS, WARRANTIES AND OTHER OBLIGATIONS OF CONTRIBUTORS SET FORTH IN THIS AGREEMENT AND IN ANY DOCUMENT OR INSTRUMENT EXECUTED BY CONTRIBUTORS IN CONNECTION WITH THIS AGREEMENT. PARAGRAPH 7.5 DOES NOT CONSTITUTE AN INDEMNITY. ARTICLE 8: EARNEST MONEY PROVISIONS 8.1 Investment and Use of Funds. The Escrow Agent shall invest the Earnest Money in government insured interest-bearing accounts satisfactory to Contributors and Carr, shall not commingle the Earnest Money with any funds of the Escrow Agent or others, and shall promptly provide Carr and Contributors with confirmation of the investments made. 8.2 Intentionally Omitted. 8.3 Termination. Except as otherwise expressly provided herein, upon not less than 10 business days' prior written notice to the Escrow Agent and the other parties, Escrow Agent shall deliver the Earnest Money to the party requesting the same; provided, however, that if any other party shall, within said 10 business day period, deliver to the requesting party and the Escrow Agent a written notice that it disputes the claim to the Earnest Money, Escrow Agent shall retain the Earnest Money until it receives written instructions executed by all parties as to the disposition and disbursement of the Earnest Money, or until ordered by final court order, decree or judgment, which is not subject to appeal, to deliver the Earnest Money to a particular party, in which event the Earnest Money shall be delivered in accordance with such notice, instruction, order, decree or judgment. -14- 8.4 Interpleader. The parties agree that in the event of any controversy regarding the Earnest Money, unless mutual written instructions are received by the Escrow Agent directing the Earnest Money's disposition, the Escrow Agent shall not take any action, but instead shall await the disposition of any proceeding relating to the Earnest Money or, at the Escrow Agent's option, the Escrow Agent may interplead all parties and deposit the Earnest Money with a court of competent jurisdiction, in which event the Escrow Agent may recover all of its court costs and reasonable attorneys' fees. Contributors, or Carr, whichever loses in any such interpleader action, shall be solely obligated to pay such costs and fees of the Escrow Agent, as well as the reasonable attorneys' fees of the prevailing party in accordance with the other provisions of this Agreement. 8.5 Liability of Escrow Agent. The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and that the Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for its negligent acts and for any loss, cost or expense incurred by Contributors, or Carr resulting from the Escrow Agent's mistake of law respecting the Escrow Agent's scope or nature of its duties. Contributors, and Carr shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including reasonable attorneys' fees, incurred in connection with the performance of the Escrow Agent's duties hereunder, except with respect to actions or omissions taken or made by the Escrow Agent in bad faith, in disregard of this Agreement or involving negligence on the part of the Escrow Agent. ARTICLE 9: MISCELLANEOUS 9.1 Parties Bound. Neither party may assign this Agreement without the prior written consent of the other, and any such prohibited assignment shall be void; provided that Carr may assign this Agreement in connection with an assignment of all Related Agreements without Contributors consent to an Affiliate in connection with the transfer of the Contributed Property subject to and in accordance with the requirements of the Existing Mortgage Loan covering transfers to an Institutional Investor. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the respective legal representatives, successors, assigns, heirs and devises of the parties. For the purposes of this paragraph, the term "Affiliate" means (a) an entity that directly or indirectly controls, is controlled by, or is under common control with Carr or (b) an entity at least a majority of whose economic interest is owned by Carr; and the term "control" means the power to direct the management of such entity through voting rights, ownership or contractual obligations. 9.2 Headings. The article and paragraph headings of this Agreement are for convenience only and in no way limit or enlarge the scope or meaning of the language hereof. 9.3 Expenses. Except as otherwise expressly provided herein, each party hereto shall pay its own expenses incident to this Agreement and the transactions contemplated hereunder, including all legal and accounting fees and disbursements. 9.4 Invalidity and Waiver. If any portion of this Agreement is held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be deemed valid and operative, and, to the greatest extent legally possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The failure by either party to enforce against the other any term or provision of this Agreement shall not be deemed to be a waiver of such party's right to enforce against the other party the same or any other such term or provision in the future. 9.5 Governing Law. This Agreement shall, in all respects, be governed, construed, applied, and enforced in accordance with Arizona law. 9.6 Survival. The following provisions of this Agreement shall survive the Closing and shall not be deemed to be merged into or waived by the instruments of Closing: Paragraph 1.6, Carr's indemnity in Paragraph 2.2, Paragraphs 5.6, 5.8, 6.1(a), 6.3, and Article 7 (subject to the limitations set forth in Paragraph 7.3), 8 and 9. Carr's indemnity in Paragraph 2.2, Paragraph 6.3, and Article 8 shall survive any termination of this Agreement. -15- 9.7 No Third Party Beneficiary. This Agreement is not intended to give or confer any benefits, rights, privileges, claims, actions or remedies to any person or entity as a third party beneficiary, decree, or otherwise. 9.8 Entirety and Amendments. This Agreement and the Pitney Debt Agreement embody the entire agreement between the parties and supersedes all prior agreements and understandings relating to the Contributed Property. This Agreement may be amended or supplemented only by an instrument in writing executed by the party against whom enforcement is sought. 9.9 Time of the Essence. Time is of the essence in the performance of this Agreement. 9.10 Confidentiality. Between the date hereof and for a period ending 1 year after the Closing Date, neither party shall release or cause or permit to be released any press notices or advertising promotion or other publicity relating to this transaction without obtaining the written consent of the other party. No provision in this Paragraph 9.10 shall preclude a party from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, affiliates, investors, or any prospective lender, partner or investor, as the case may be, or prevent a party hereto, from complying with laws, rules, regulations and court orders, including without limitation, governmental regulatory, disclosure, tax and reporting requirements and stock exchange rules or prevent Carr or Contributors from making a public announcement of the acquisition or sale of the Contributed Property in accordance with its corporate information policy that does not disclose the Contribution Value or the identity of the other party. 9.11 Attorneys' Fees. Should either party employ attorneys to enforce any of the provisions hereof, the party against whom any final judgment is entered agrees to pay the prevailing party all reasonable costs, charges, and expenses, including reasonable attorneys' fees, expended or incurred by the prevailing party in connection therewith. 9.12 Notices. All notices required or permitted hereunder shall be in writing and shall be served on the parties at the addresses set forth in Paragraph 1.1. Any such notices shall be (1) sent by overnight delivery using a nationally recognized overnight courier, in which case notice shall be deemed delivered one business day after deposit with such courier, (2) sent by facsimile, in which case notice shall be deemed delivered upon confirmed transmission of such notice, or (3) sent by personal delivery, in which case notice shall be deemed delivered upon receipt or refusal of delivery. A party's address may be changed by written notice to the other party; provided that no notice of a change of address shall be effective until actual receipt of such notice. Copies of notices are for informational purposes only, and a failure to give or receive copies of any notice shall not be deemed a failure to give notice. The attorney for a party has the authority to send notices on behalf of such party. 9.13 Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction, to the effect that any ambiguities are to be resolved against the drafting party, shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto. 9.14 Calculation of Time Periods. Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in the location where the Contributed Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday or legal holiday. The last day of any period of time described herein shall be deemed to end at 6 p.m., Washington, D.C. time. 9.15 Information and Audit Cooperation. At Carr's request, at any time before or for one year after the Closing, Contributors shall provide to Carr's designated independent auditor access to the books and records of the Contributed Property, and all related information regarding the period for which Carr is required to have the Contributed Property audited under the regulations of the Securities and Exchange Commission, and Contributors shall provide to such auditor a representation letter regarding the books and records of the Contributed Property, in substantially the form of Exhibit G attached hereto, in connection with the normal course of auditing the Contributed Property in accordance with generally accepted auditing standards. -16- 9.16 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one Agreement. To facilitate execution of this Agreement, the parties may execute and exchange by facsimile counterparts of the signature pages. 9.17 Further Assurances. In addition to the acts and deeds recited herein and contemplated to be performed, executed and/or delivered by the parties at Closing, each party agrees to perform, execute and deliver, on or after the Closing, any further actions and documents, and will obtain such consents, as may be reasonably necessary or as may be reasonably requested to fully effectuate the purposes, terms and conditions of this Agreement or to further perfect the conveyance, transfer and assignment of the Contributed Property to Carr. 9.18 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY. [Signature page to follow.] -17- SIGNATURE PAGE TO AGREEMENT OF PURCHASE AND SALE BETWEEN PHOENIXWEST ASSOCIATES, LTD. VERSAILLES ASSOCIATES LIMITED PARTNERSHIP LAKEVIEW 436 ASSOCIATES LTD. PINES REALTY ASSOCIATES, LTD. AND CARRAMERICA REALTY, L.P. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of September 30, 1997. PINES REALTY ASSOCIATES, LTD., a Florida limited partnership By: 7425, Inc., a Florida corporation, its General Partner By: /s/ Norton Herrick ------------------------------ Norton Herrick President LAKEVIEW 436 ASSOCIATES, LTD., a Florida limited partnership By: Lakeview-Nort, Ltd., its general partner By: 436, Inc., its general partner By: /s/ Norton Herrick --------------------------- Norton Herrick President VERSAILLES ASSOCIATES LIMITED PARTNERSHIP, a Florida limited partnership By: G-P Versailles, Inc., its general partner By: /s/ Norton Herrick -------------------------------- Norton Herrick President -18- PHOENIXWEST ASSOCIATES, LTD., a Florida limited partnership By: G-P PhoenixWest, Inc., its general partner By: /s/ Norton Herrick -------------------------------------- Norton Herrick President "Contributors" CARRAMERICA REALTY, L.P., a Delaware limited partnership By: CarrAmerica Realty GP Holdings, Inc., a Delaware corporation, General Partner By: /s/ Robert G. Stuckey -------------------------------------- Name: Robert G. Stuckey -------------------------------------- Title: Managing Director and Vice President -------------------------------------- "Carr" Escrow Agent has executed this Agreement in order to confirm that Escrow Agent has received and shall hold the Earnest Money, and the interest earned thereon, in escrow, and shall disburse the Earnest Money, and the interest earned thereon, pursuant to the provisions of Article 8 hereof. CHICAGO TITLE COMPANY By: /s/ Ken Buvala -------------------------------- Name: Ken Buvala -------------------------------- Title: Branch Manager -------------------------------- "Escrow Agent" -19- AGREEMENT OF PURCHASE AND SALE U.S. West Communication Group office portfolio, Phoenix and Tucson, Arizona [PITNEY BOWES] ARTICLE 1: PROPERTY/PURCHASE PRICE 1.1 Certain Basic Terms. (a) Seller and Notice Address PREFCO VII LIMITED PARTNERSHIP ("Seller") Attention: Michael Sedgwick Ryan Pitney Bowes Credit Corporation Capital Markets 27 Waterview Drive Shelton, Connecticut 06484-5151 Telephone: 203/922-4000 Facsimile: 203/922-4083 With a copy to: Kelley Drye & Warren LLP Attention: John A. Garraty, Jr. 101 Park Avenue New York, New York 10178 Telephone: 212/808-7653 Facsimile: 212/808-7897 (b) Purchaser and Notice Address: CARRAMERICA REALTY, L.P. ("Carr") a Delaware limited partnership Attention: Karen Dorigan 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Telephone: 202/639-3843 Facsimile: 202/ 737-2147 With copies to: Mayer, Brown & Platt Attention: George Ruhlen 141 East Palace Avenue Santa Fe, New Mexico 87501 Telephone: 505/820-8185 Facsimile: 505/820-7334 Mayer, Brown & Platt Attention: James A. Parker 190 South LaSalle Street Chicago, Illinois 60603 Telephone: 312/701-7853 Facsimile: 312/706-8732 -1- (c) Date of this Agreement: September 30, 1997 (d) Purchase Price: $42,585,000 (e) Earnest Money: $368,400, and any other deposits of earnest money made pursuant to the terms of this Agreement, together with interest thereon. (f) Intentionally Omitted. (g) Closing Date: November 1, 1997, subject to extension as provided in Paragraph 1.6(a) or otherwise in this Agreement. (h) Title Company: Chicago Title Company Attention: Frank Jansen 700 South Flower Street, Suite 920 Los Angeles, California 90017 Telephone: 213/488-4346 Facsimile: 213/891-0834 (i) Escrow Agent: Chicago Title Company Attention: Ken Buvala 2201 East Camelback Road, Suite 126B Phoenix, Arizona 85016 Telephone: 602/468-6333 Facsimile: 602/468-6336 (j) Broker: CB Commercial (k) Existing Mortgage Loan: That certain loan in the aggregate principal amount of $64,640,000, evidenced by four promissory notes dated December 31, 1990, made by Seller, as maker, to UBS Mortgage Finance Inc. ("Lender") in the original principal amounts of $28,441,600, $13,574,400, $13,574,400 and $9,049,600, respectively. (l) Loan Documents: All documents and instruments evidencing, securing or otherwise related to the Existing Mortgage Loan. (m) Master Leases: Those four master leases, each dated December 31, 1990 between PREFCO VII Limited Partnership, as landlord, and U S WEST Business Resources, Inc. ("Master Tenant"), as tenant, as amended, each covering improvements on each of the four separate parcels of land comprising the Property. (n) Master Lease Guaranties: For each of the Master Leases, the Lease Guaranty, dated as of December 31, 1990, by The Mountain States Telephone and Telegraph Company, a Colorado corporation, in favor of Seller, the Lease Guaranty, dated as of December 31, 1990, by U S WEST Inc., a Colorado corporation, in favor of Seller; and the Lease Guaranty, dated as of December 31, 1990, by U S WEST Real Estate, Inc., a Colorado corporation, in favor of Seller. -2- (o) Related Agreements: This Agreement, that Agreement of Purchase and Sale of even date herewith between Pines Realty Associates, Ltd., Lakeview 436 Associates, Ltd., Versailles Associates Limited Partnership and Phoenix West Associates, Ltd. and Purchaser, and that Agreement of Purchase and Sale of even date herewith (covering the remainder interest) between PREFCO VII Limited Partnership and Purchaser, the Pitney Debt Agreement and any related agreements entered into by Purchaser and Seller or any other such seller or contributor with respect to the Property or any other property covered by the Master Leases. (p) Pitney Debt Agreement: That letter agreement of even date herewith among Phoenixwest Associates, Ltd., Versailles Associates Limited Partnership, Lakeview 436 Associates Ltd., and Pines Realty Associates, Ltd., Seller, and Purchaser regarding a satisfaction payment to Seller in connection with a tenancy-in-common agreement. 1.2 Property. Subject to the terms and conditions of this Agreement of Purchase and Sale (this "Agreement"), Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, the following property (collectively, the "Property"): (a) Seller's tenants in common interest with respect to the "Real Property," being the four parcels of land described in Exhibits A-1 through A-4 attached hereto; all improvements and fixtures (other than fixtures owned by tenants pursuant to the Leases) located thereon, including, but not limited to, the office buildings located on such lands, (collectively, the "Improvements"); all and singular the rights, benefits, privileges, easements, tenements, hereditaments and appurtenances thereon or in anyway appertaining to such real property; and all right, title and interest of Seller in and to all strips and gores and any land lying in the bed of any street, road or alley, open or proposed, adjoining such real property; excepting from such Real Property remainder interests conveyed to Arizona - Relco Limited Partnership pursuant to Special Warranty Deeds and Assignments, recorded under Recording Numbers 91-0552245, 91-0552246, and 91-0552247 Maricopa County Recorder, Maricopa County, Arizona, and at Docket 9172, Page 876, Pima County Recorder's Office, Pima County, Arizona. (b) Seller's tenants in common interest with respect to the landlord's interest in the "Leases," being all leases of space or other occupancy agreements affecting the Improvements, including without limitation the Master Leases and any and all amendments and supplements thereto, the Master Lease Guaranties, and any other guaranties and security received by landlord in connection therewith. (c) All right, title and interest of Seller, if any, in and to the "Personal Property," being all tangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management, occupancy or improvement of the Real Property including, without limitation: equipment; machinery; furniture; art work; furnishings; office equipment and supplies; and, whether stored on or offsite, all tools, supplies, and construction and finish materials not incorporated in the Improvements and held for repairs and replacements. The term "Personal Property" also shall include any and all deposits, bonds or other security, if any, deposited or delivered by Seller with or to any and all governmental bodies, utility companies or other third parties in connection with the operation, ownership, maintenance, management, occupancy or improvement of the Real Property. (d) All right, title and interest of Seller, if any, in and to the "Intangible Property," being all intangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management or occupancy of the Real Property, including, without limitation: all trade names and trade marks associated with the Real Property, including, without limitation, the name of the Improvements; the plans and specifications for the Improvements; warranties covering any of the Property; all contract rights related to the construction, operation, ownership or management of the Real Property that are expressly assumed by Purchaser pursuant to this Agreement; applications, permits, approvals and licenses (to the extent assignable); insurance proceeds and condemnation awards or claims thereto to be assigned to Purchaser hereunder; any funds held by Master Tenant or Manager under the Master Leases or the Management Agreement; and all books and records relating to the Property. -3- 1.3 Earnest Money. On or before November 7, 1997, Purchaser shall deposit the Earnest Money with the Escrow Agent. The Escrow Agent shall pay the Earnest Money to Seller at and upon the Closing, or otherwise, to the party entitled to receive the Earnest Money in accordance with this Agreement. The Earnest Money shall be held and disbursed by the Escrow Agent pursuant to Article 8 of this Agreement. In addition to any other right or remedy of Purchaser under this Agreement, the Earnest Money shall be returned to Purchaser if this Agreement is terminated for any reason other than Purchaser's default hereunder. 1.4 Remedies. Seller's sole and exclusive remedy in the event Purchaser defaults in its obligation to close this transaction shall be to terminate this Agreement and to retain the Earnest Money as liquidated damages, Seller waiving all other rights or remedies in the event of such default by Purchaser. The parties acknowledge that Seller's actual damages in the event of a default by Purchaser under this Agreement will be difficult to ascertain, and that such liquidated damages represent the parties' best estimate of such damages. Purchaser may enforce specific performance of Seller's obligation to close this transaction or pursue any other remedy at law or in equity in the event of Seller's breach; provided that Carr may not pursue a claim for damages for such breach unless such breach is willful. 1.5 Effect of Default or Termination under Related Agreement. A default under a Related Agreement does not constitute a default under this Agreement. However, if a Related Agreement is terminated or the closing under a Related Agreement does not occur simultaneously with the Closing because of a default by any party thereunder, then: (i) if neither Purchaser nor Seller is in default hereunder, then Purchaser and Seller shall be excused from their respective obligations to purchase and sell the Property, and this Agreement shall terminate and the Earnest Money shall be returned to Purchaser; and (ii) if either Purchaser or the Seller is in default hereunder, then the nondefaulting party shall have the remedies set forth in Paragraph 1.4. 1.6 Existing Mortgage Loan. The Property is to be conveyed without release of, and subject to, the Existing Mortgage Loan in accordance with the following: (a) Conditions to Assumption. It shall be a condition precedent to the obligations of Seller and Purchaser to close the purchase and sale of the Property that as of the Closing Date there shall not exist any uncured default or event that, but for the giving of notice or the passage of time, or both would constitute a default under the Loan Documents, and Lender shall have delivered to Carr an estoppel certificate reasonably satisfactory to Carr and to Seller (the estoppel certificate will include an agreement by the holder of the Existing Mortgage that the single member limited liability company that Carr will form for the single purpose of holding title to the Property may be the mortgagor under the Existing Mortgage, and that the transfer of an interest in Purchaser or in CarrAmerica Realty Corporation does not breach the prohibition in the loan documents against a transfer of an interest in the mortgagor or its affiliates; and will acknowledge receipt by Lender of certain guarantees). If the conditions set forth in this Paragraph 1.6, or in Paragraph 2.3 or Paragraph 3.2 have not been satisfied by the Closing Date, then either party may, by delivering written notice to the other party on or before Closing Date, extend the Closing Date up to an aggregate extension of 15 days, in order to satisfy such conditions, and if such conditions are not satisfied by the Closing Date, as extended, then this Agreement shall terminate, the Earnest Money shall be returned to Carr and the parties will have no further obligations under this Agreement, except as expressly stated herein. -4- (b) Costs. Any fees and charges charged by Lender pursuant to the Loan Documents to consent to the transfer shall be paid by Purchaser, regardless of whether the transaction contemplated hereby is consummated as well. Any costs and expenses incurred by Lender and that pursuant to the Loan Documents Lender requires be reimbursed in connection with the transfer of the Property, including recording costs and expenses relating to the recordation of any mortgage assignment agreement or other documentation relating to the transfer of the Property, attorneys' fees incurred by Lender, and any title insurance premiums or costs for endorsements required by Lender, shall be paid by Purchaser, regardless of whether the transaction contemplated hereby is consummated. (c) Contact with Lender. Purchaser shall have the right to directly contact Lender concerning the Existing Mortgage Loan. Purchaser shall promptly provide to Lender all information it may reasonably request in connection with the transfer. Purchaser shall form a single-purpose entity to assume the Existing Mortgage Loan in accordance with the Loan Documents and shall otherwise use commercially reasonable efforts to comply with the requirements of the Loan Documents with respect to the conveyance of the Property so that no consent is necessary except as described in Paragraph 1.6(a). ARTICLE 2: INSPECTION 2.1 Property Information. Seller has delivered to Purchaser complete copies of the Master Leases, Master Lease Guaranties, Loan Documents, Tripartite Agreement, Management Agreement, and Option Agreements (the last three terms are defined in Paragraph 5.3). At Purchaser's reasonable request from time to time, Seller shall make available to Purchaser, for review and copying, at Seller's offices, all other material information and documents relating to the Property in Seller's possession. The information and documents provided and made available to Purchaser pursuant to this Paragraph 2.1 is the "Property Information." 2.2 Due Diligence. Carr has examined, inspected and investigated the Property and the agreements, documents and records related thereto that it deemed necessary, and is satisfied with the results of its inspection, examination and investigation. Carr acknowledges that no additional "inspection period" is provided under this Agreement. Subject to the terms of the Master Leases and the Management Agreement, Purchaser shall have reasonable access to the Property and all books and records for the Property that are in Seller's possession or control for the purpose of conducting surveys, architectural, engineering, geotechnical and environmental inspections and tests (including intrusive inspection and sampling), and any other inspections, studies or tests reasonably required by Purchaser. Purchaser shall keep the Property free and clear of any liens and will indemnify, defend, and hold Seller harmless from all claims asserted by third parties against Seller to recover for personal injury or property damage as a result of entry onto the Property by Purchaser, its agents, employees and representatives. If any inspection or test disturbs the Property, Purchaser will restore the Property to its condition before any such inspection or test. During the pendency of this Agreement, subject to the terms of the Master Leases and the Management Agreement, Purchaser and its agents, employees and representatives shall have a continuing right of reasonable access to the Property and such books and records for the purpose of examining and making copies of all books and records and other materials relating to the Property in Seller's possession or control. Subject to the terms of the Master Leases and the Management Agreement, Purchaser shall have the right to conduct a "walk-through" of the Property before the Closing upon appropriate notice to tenants as permitted under the Leases. In the course of its investigations, Purchaser may make inquiries to third parties, including, without limitation, tenants, lenders, contractors, property managers, parties to Service Contracts and municipal, local and other government officials and representatives, and Seller consents to such inquiries. -5- 2.3 Tenant Estoppels. Purchaser shall promptly deliver to the Master Tenant an estoppel certificate for each Master Lease in the form of Exhibit B-1 attached hereto (the "Master Tenant Estoppels"). Purchaser shall prepare the Master Tenant Estoppels for Seller's review and comment before their delivery to the Master Tenant. Purchaser's obligation to close this transaction is subject to the condition that, as of Closing (1) estoppel certificates for all the Master Leases substantially in the form required above executed by the Master Tenant, confirming the rental rate in Exhibit H and the paid through date and consistent with representations of Seller in Paragraph 7.1 have been delivered to Purchaser; (2) the Master Leases shall be in full force and effect and no monetary or material nonmonetary default or claim by landlord or tenant shall exist under any such Master Lease; (3) the Tri-partite Agreements, Management Agreement and Option Agreements (defined in Paragraph 5.3(d)) are in full force and effect without any existing default thereunder, and the Tenant has executed and delivered to Purchaser certificates with respect to the Tri-partite Agreements and Management Agreement substantially in the form of Exhibits B-2 and B-3 attached hereto; and (4) the Master Lease Guaranties are in full force and effect without any existing default thereunder, and the guarantors of the Master Lease Guaranties have executed and delivered to Purchaser certificates substantially in the form of Exhibit C attached hereto. Seller shall cooperate with Purchaser, without obligation to incur any expense or liability, in obtaining estoppel certificates from Third Party Lessees, as defined in the Master Leases, but obtaining such certificates is not a condition to Closing. If the conditions set forth in this Paragraph 2.3 have not been satisfied by the Closing Date, then unless Carr waives such conditions in writing, this Agreement shall terminate, the Earnest Money shall be returned to Carr and the parties shall have no further obligations under this Agreement except as expressly stated herein. Nonsatisfaction of the conditions in this Paragraph 2.3 is not a default by Seller. ARTICLE 3: TITLE AND SURVEY REVIEW 3.1 Delivery of Title Commitment and Survey. Purchaser shall cause to be prepared (1) a current, effective commitment for title insurance (the "Title Commitment") issued by the Title Company, in the amount of the Purchase Price with Purchaser as the proposed insured, and accompanied by true, complete and legible copies of all documents referred to in the Title Commitment; (2) a current ALTA-ACSM Urban survey of the Property (the "Survey") prepared by a surveyor acceptable to Purchaser, including a certification addressed to Purchaser substantially in the form attached hereto as Exhibit D; and (3) copies of Uniform Commercial Code, judgment and tax lien searches in the name of Seller, any general partner, member or manager of Seller, and the Property issued by the Title Company or a search company acceptable to Purchaser ("UCC Searches"). The Title Commitment, the documents referred to therein, the Survey and the UCC Searches are referred to herein collectively as the "Title Documents." 3.2 Title Review and Cure. Seller will cooperate with Purchaser in curing any objections Purchaser may have to title to the Property; provided, however Seller shall not have any obligation to cure title objections except liens and security interests created by Seller after the Date of this Agreement, and Seller agrees to remove such exceptions or encumbrances to title which it creates after the Date of this Agreement. As to any other exceptions or objections raised by Purchaser, Seller shall have 14 days from the receipt of Purchaser's notice of objections either to have such exceptions or objections removed or, if acceptable to Purchaser, to provide affirmative title insurance protection for such exceptions satisfactory to Purchaser or to notify Purchaser that it does not intend to cure such objection. If, with respect to those other objections that Seller has no obligation to cure, Seller fails either to provide for the removal of such exceptions or objections or to obtain affirmative title insurance protection for such exceptions or objections satisfactory to Purchaser within such 14 day period, then Purchaser must elect either to terminate this Agreement by delivering written notice to Seller within 5 days following such period, or to waive such objections. Upon delivery of such termination notice by Purchaser, this Agreement shall either automatically terminate, the parties shall be released from all further obligations under this Agreement except pursuant to any provisions which by their terms survive a termination of this Agreement, and the Earnest Money shall be promptly returned to Purchaser. If after the Date of this Agreement, the Title Company revises the Title Commitment, or the surveyor revises the Survey, to add or modify exceptions, or to add or modify the conditions to obtaining any endorsement which the Title Company has agreed to issue, then Purchaser may terminate this Agreement and receive a refund of the Earnest Money if provision for their removal or modification satisfactory to Purchaser is not made. Purchaser shall have been deemed to have approved any title exception that Seller, is not obligated to remove and to which either Purchaser did not object as provided above, or to which Purchaser did object, but with respect to which Purchaser did not terminate this Agreement. If there are exceptions or objections raised by Purchaser, the Closing Date shall be extended to the extent necessary to permit Seller and Purchaser to exercise their rights as provided above, but only in accordance with the time periods set forth in Paragraph 1.6(a). -6- 3.3 Delivery of Title Policy at Closing. As a condition to Purchaser's obligation to close, at Closing (i) the Title Company shall irrevocably commit to issue to Purchaser an ALTA Owner's Policy (Revised 10-17-70 and 10-17-84) (or other form if required by state law) of title insurance, with extended coverage (i.e., with ALTA General Exceptions 1 through 5 deleted, or with corresponding deletions if the Property is located in a non-ALTA state), issued by the Title Company as of the date and time of the recording of the Deed, in the amount of the Purchase Price, containing the Purchaser's Endorsements, insuring Purchaser as owner of good, marketable and indefeasible fee simple title to the Property (the conveyances from Seller and the sellers under the Related Agreements effecting a merger of the estates held by each, with fee simple title vesting in Purchaser subject only to the Permitted Exceptions), and subject only to the Permitted Exceptions (the "Title Policy"), and (ii) the updated UCC Searches (within 10 days of Closing) show no security interests (other than Permitted Exceptions) not disclosed in the UCC Searches delivered pursuant to Paragraph 3.1;. "Permitted Exceptions" means the exceptions set forth in Schedule I to this Agreement; real estate taxes not yet due and payable; the Loan Documents; the Management Agreement, the Tripartite Agreements, and the Option Agreements; and tenants in possession as tenants only under the Leases without (except as provided in the Master Leases) any option to purchase or acquire an interest in the Property. "Purchaser's Endorsements" shall mean, to the extent such endorsements are available under the laws of the state in which the Property is located: (1) owner's comprehensive; (2) access; (3) survey (accuracy of survey); (4) location (survey legal matches title legal); (5) separate tax lot; (6) legal lot; (7) zoning 3.1, with parking and loading docks; and (8) such other endorsements as Purchaser may require during the Due Diligence Period based on its review of the Title Commitment and Survey. 3.4 Title and Survey Costs. Purchaser shall pay for the cost of the Survey, the premium for extended coverage, the cost of Purchaser's Endorsements, and the cost of the UCC Searches. Seller shall pay the base premium for the Title Policy under this Agreement and the Related Agreements and any premium for a non-imputation endorsement. ARTICLE 4: OPERATIONS AND RISK OF LOSS 4.1 Ongoing Operations. During the pendency of this Agreement: (a) Preservation of Business. Subject to the rights and obligations of the manager under the Management Agreement, Seller shall, use reasonable efforts to cause the Property to be operated only in the ordinary and usual course of business and consistent with past practice, shall perform its obligations under Leases and other agreements affecting the Property, and shall not take any action or omission which would cause any of the representations or warranties of Seller contained herein to become inaccurate or any of the covenants of Seller to be breached. (b) New Contracts. Without Purchaser's prior written consent in each instance, Seller will not enter into or amend, terminate, waive any default under, or grant concessions regarding any contract or agreement that will be an obligation affecting the Property or binding on the Purchaser after the Closing. (c) Listings and Other Offers. Seller will not list the Property with any broker or otherwise solicit or make or accept any offers to sell the Property, engage in any discussions or negotiations with any third party with respect to the sale or other disposition of any of the Property, or enter into any contracts or agreements (whether binding or not) regarding any disposition of any of the Property. (d) Leasing Arrangements. Seller will not amend, terminate, waive any default under, grant concessions regarding, incur any obligation for leasing commissions in connection with, or enter into any Lease without Purchaser's prior written consent in each instance. (e) Loan Documents. Seller shall comply with its obligations under the Loan Documents. (f) Agreements. Seller shall comply with its obligations under any agreement to be assigned to Purchaser pursuant to Article 5 and shall not amend any such agreement without Purchaser's prior written approval. -7- 4.2 Damage. Seller shall promptly give Purchaser written notice of any damage to the Property of which Seller becomes aware, describing such damage, whether such damage is covered by insurance and the estimated cost of repairing such damage. If such damage is material, Purchaser may elect by notice to Seller given within 14 days after Purchaser is notified of such damage (and the Closing shall be extended, if necessary, to give Purchaser such 14 day period to respond to such notice) to terminate this Agreement, in which event the Earnest Money shall be immediately returned to Purchaser. Damage as to any one or multiple occurrences is material if the cost to repair the damage, as reasonably estimated by a reputable third party contractor, exceeds in the aggregate $5 million, or triggers any option by Master Tenant to terminate any Master Lease. If Purchaser does not so terminate this Agreement, then at closing Seller shall assign to Purchaser its right and interest in and to the insurance provided under the Master Leases with respect to such damages and shall obtain any appropriate acknowledgment of such assignment by the insurer. 4.3 Condemnation. Seller shall promptly give Purchaser notice of any eminent domain proceedings that are contemplated, threatened or instituted with respect to the Property of which Seller becomes aware. By notice to Seller given within 14 days after Purchaser receives notice of proceedings in eminent domain that are contemplated, threatened or instituted by any body having the power of eminent domain with respect to the Property or Remainder Interests (and if necessary the Closing Date shall be extended to give Purchaser the full 14 day period to make such election), Purchaser may terminate this Agreement if the taking or threatened taking is material, or proceed under this Agreement, in which event Seller shall, at the Closing, assign to Purchaser its right, title and interests in and to any condemnation award, and Purchaser shall have the sole right during the pendency of this Agreement to negotiate and otherwise deal with the condemning authority in respect of such matter. A taking as to one or more proceedings is material if the award (including any award with respect to remainder interests and interests of co-tenants) is reasonably estimated to exceed $1 million or the taking would likely entitle Master Tenant to an abatement or reduction in rent. ARTICLE 5: CLOSING 5.1 Closing and Escrow. The consummation of the transaction contemplated herein ("Closing") shall occur on the Closing Date at the offices of the Escrow Agent through an escrow with the Escrow Agent. Funds shall be deposited into and held by Escrow Agent in a closing escrow account with a bank satisfactory to Purchaser and Seller. Upon satisfaction or completion of all closing conditions and deliveries, the parties shall direct the Escrow Agent to immediately record and deliver the closing documents to the appropriate parties and make disbursements according to the closing statements executed by Seller and Purchaser. The Escrow Agent shall agree in writing with Seller and Purchaser that (1) recordation of the Deeds constitutes its representation that it is holding the closing documents, closing funds and closing statements and is prepared and irrevocably committed to disburse the closing funds in accordance with the closing statements; and (2) release of funds to the Seller shall irrevocably commit it to issue the Title Policy in accordance with this Agreement. Provided such supplemental escrow instructions are not in conflict with this Agreement as it may be amended in writing from time to time, Seller and Purchaser agree to execute such supplemental escrow instructions as may be appropriate to enable Escrow Agent to comply with the terms of this Agreement. 5.2 Conditions to the Parties' Obligations to Close. In addition to all other conditions set forth herein, the obligation of Seller, on the one hand, and Purchaser, on the other hand, to consummate the transactions contemplated hereunder shall be contingent upon the following: (a) The other party's representations and warranties contained herein shall be true and correct as of the Date of this Agreement and the Closing Date; (b) As of the Closing Date, the other party shall have performed its obligations hereunder and all deliveries to be made by the other party at Closing shall have been tendered; (c) As of the Closing Date, no action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) which is reasonably expected to restrain, prohibit or invalidate the transactions contemplated by this Agreement, other than an action or proceeding instituted or threatened by such party; and (d) Any other condition set forth in this Agreement to such party's obligation to close is not satisfied by the applicable date. -8- (e) The Closing occurs simultaneously with the closings under the Related Agreements. (f) As to Purchaser's obligation to close, as of the Closing, neither Seller nor any other party is in default under any agreement to be assigned to or assumed by Purchaser hereunder. So long as a party is not in default hereunder, if any condition to such party's obligation to proceed with the Closing hereunder has not been satisfied as of the Closing Date or other applicable date, such party may, in its sole discretion, terminate this Agreement by delivering written notice to the other party and all parties under the Related Agreements on or before the Closing Date or other applicable date, or elect to close, notwithstanding the non-satisfaction of such condition, in which event such party shall be deemed to have waived any such condition except for breach by a party of a covenant in which case the Closing shall not relieve such breaching party from any liability it would otherwise have hereunder. A party shall be entitled to postpone the Closing up to an aggregate of 10 days in order to cause any condition to be satisfied. 5.3 Seller's Deliveries in Escrow. At least one business day before the Closing Date, Seller shall deliver in escrow to the Escrow Agent the following: (a) Deed. For each of the four parcels comprising the Property: a special warranty deed conveying Seller's tenancy-in-common interest in the Real Property to Purchaser (warranting title against grantor's acts); (b) Assignment of Master Leases. For each of the four Master Leases; an Assignment of Master Lease in the form of Exhibit E attached hereto (the "Master Lease Assignment"), executed and acknowledged by Seller; and originals of the Master Leases; (c) Third Party Leases. For each of the Third Party Leases, an assignment substantially in the form of Exhibit E attached hereto, modified as appropriate, executed and acknowledged by Seller; (d) Bill of Sale and Assignment of Contracts. For each of the four parcels comprising the Property: a bill of sale and assignment in the form of Exhibit F, assigning among other property: that Tripartite Agreement relating to the applicable parcel, dated as of December 31, 1990, among Master Tenant, PREFCO VII Limited Partnership and Arizona-Relco Limited Partnership (the "Tripartite Agreements"); that Management and Rent Disbursement Agreement, dated as of December 31, 1990, between Tenant and Seller (the "Management Agreement"); and that Option and Subordination Agreement relating to the applicable parcel, dated as of December 31, 1990, between PREFCO VII Limited Partnership and Arizona-Relco Limited Partnership (the "Option Agreements"), together with originals or certified copies of such agreements (except to the extent otherwise agreed to by Purchaser prior to the execution of this Agreement); (e) Notice to Tenants. A notice to each tenant in form reasonably satisfactory to Seller and Purchaser. (f) State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property; (g) FIRPTA. A Foreign Investment in Real Property Tax Act affidavit executed by Seller. If Seller fails to provide the necessary affidavit and/or documentation of exemption on the Closing Date, Purchaser may proceed in accordance with the withholding provisions in such act; (h) Intentionally Omitted; (i) Authority. Evidence of the existence, organization and authority of Seller and of the authority of the persons executing documents on behalf of Seller reasonably satisfactory to the Purchaser and the Title Company; -9- (j) Master Lease Guaranties. The originals of all Master Lease Guaranties; provided, however, Seller may deliver a certified copy of the Master Lease Guarantee from U S WEST INC., of the Master Lease for 5090 North 40th Street, Phoenix, Arizona; (k) Insurance. Certificates of insurance carried by the Master Tenant pursuant to the Master Leases naming Purchaser as an additional insured or loss payee, as appropriate. (l) Pitney Debt Agreement. At Closing, Seller shall be in compliance with and shall tender its deliveries pursuant to, the Pitney Debt Agreement; (m) Letter Agreement. Seller's payments pursuant to that letter agreement of even date herewith between Seller and Purchaser. (n) Other Deliveries. Any other Closing deliveries required to be made by or on behalf of Seller hereunder. 5.4 Purchaser's Deliveries in Escrow. At least one business day before the Closing Date (except as otherwise permitted below), Purchaser shall deliver in escrow to the Escrow Agent the following: (a) Purchase Price. On the Closing Date, the Purchase Price, less the credit applicable to the Existing Mortgage Loan pursuant to Paragraph 6.1(b), less the Earnest Money that is applied to the Purchase Price, plus or minus applicable prorations, deposited by Purchaser with the Escrow Agent in immediate, same-day federal funds wired for credit into the Escrow Agent's escrow account; (b) Assignments. The instruments described in Paragraph 5.3(b), (c) and (d) executed by Purchaser, as provided in each such instrument; (c) State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property; (d) Loan Documents. Such documents and deliveries (if any) by or on behalf of Purchaser as may be required by the Lender pursuant to the Loan Documents to effect the transfer of the Property subject to the Existing Mortgage Loan; and (e) Authority. Evidence of the existence, organization and authority of Seller and of the authority of the persons executing documents on behalf of Purchaser reasonably satisfactory to the Seller and the Title Company. (f) Pitney Debt Agreement. At Closing, Purchaser shall be in compliance with and will tender its deliveries pursuant to, the Pitney Debt Agreement; and (g) Other Deliveries. Any other Closing deliveries required to be made by or on behalf of Purchaser hereunder. 5.5 Closing Statements/Escrow Fees. Seller and Purchaser shall deposit with the Escrow Agent executed closing statements consistent with this Agreement in the form required by the Escrow Agent. The Escrow Agent's escrow fee, closing charges, and any cancellation fee under this Agreement and the Related Agreements shall be divided equally between and paid by Seller and Purchaser. 5.6 Sales, Transfer and Documentary Taxes. Purchaser shall pay all sales, gross receipts, compensating, stamp, excise, documentary, transfer, deed or similar taxes and fees imposed in connection with this transaction under applicable state or local law. -10- 5.7 Possession. At the time of Closing, Seller shall deliver to Purchaser possession of the Property, subject only to the Permitted Exceptions and the Third Party Leases. 5.8 Delivery of Books and Records. Immediately after the Closing, Seller shall deliver to the offices of Purchaser's property manager to the extent that the same are in Seller's possession: copies or originals of all books and records of account, contracts, copies of correspondence with tenants and suppliers, receipts for deposits, unpaid bills and other papers or documents which pertain to the Property; all permits and warranties; all advertising materials, booklets, keys and other items, if any, used in the operation of the Property; the original "as-built" plans and specification; and all other available plans and specifications and all operation manuals. Seller shall cooperate with Purchaser after Closing to transfer to Purchaser any such information stored electronically. ARTICLE 6: PRORATIONS AND ADJUSTMENTS 6.1 Prorations. Not less than 5 days prior to Closing, Seller shall provide to Purchaser such information and verification reasonably necessary to support the prorations and adjustments under this Article 6. The items in subparagraph (a) of this Paragraph 6.1 shall be prorated between Seller and Purchaser as of the close of the day immediately preceding the Closing Date. (a) Income and Expenses. The Master Tenant is currently remitting to the Lender the monthly installment of rent payable under the Master Leases, and the Lender is applying such amounts to the scheduled monthly installment of principal and interest under the Existing Mortgage Loan that is due on the first day of each month, and delivering the net monthly amount (currently $6803.43) to Seller and to the contributors under the Contribution Agreement. The parties shall allocate the Seller's portion (51 percent ) of the net monthly amount for the month in which the Closing Date falls evenly over such month and prorate as of the Closing Date. (b) Loan Documents. Purchaser shall receive at Closing a credit against the Purchase Price equal to Seller's allocable portion (51 percent) of the outstanding principal balance of the Existing Mortgage Loan as of the Closing Date (assuming payments under the Loan Documents for the month of Closing have been paid). Purchaser shall have no obligation to assume or pay or take the Property subject to any amounts owing under the Existing Mortgage Loan as of the Closing Date other than the outstanding principal balance and accrued interest for the month of Closing. Purchaser shall purchase any escrows of Seller's funds with Lender that are transferred to Purchaser at Closing. 6.2 Tenant Deposits. At Closing, Seller shall transfer to Purchaser all its right, title and interest in any tenant security deposits. As of the Closing, Purchaser shall assume Seller's obligations related to tenant security deposits, but only to the extent Seller's interest therein is properly transferred to Purchaser. 6.3 Sales Commissions. Seller and Purchaser represent and warrant each to the other that they have not dealt with any real estate broker, sales person or finder in connection with this transaction other than Broker. Purchaser shall pay Broker in accordance with their separate agreement (at Closing if Closing occurs). Broker is an independent contractor and is not authorized to make any agreement or representation on behalf of either party. Except as expressly set forth above, in the event of any claim for broker's or finder's fees or commissions in connection with the negotiation, execution or consummation of this Agreement, or the transactions contemplated hereby, each party shall indemnify and hold harmless the other party from and against any such claim based upon any statement, representation or agreement of such party. This provision shall survive any termination of this Agreement. ARTICLE 7: REPRESENTATIONS AND WARRANTIES 7.1 Seller's Representations and Warranties. As a material inducement to Purchaser to execute this Agreement and consummate this transaction, Seller represents and warrants to Purchaser that: -11- (a) Organization and Authority. Seller has been duly organized and is validly existing as the entity described in Paragraph 1.1, and is in good standing in its State of incorporation or formation. Seller is in good standing and is qualified to do business in Arizona. Seller has the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Seller at the Closing will be, authorized and properly executed and constitute, or will constitute, as appropriate, the valid and binding obligations of Seller, enforceable in accordance with their terms. (b) Conflicts. There is no agreement to which Seller is a party or, to Seller's knowledge, binding on Seller which is in conflict with this Agreement, or which challenges or impairs Seller's ability to execute or perform its obligations under this Agreement. (c) Pending Actions or Proceedings. There is not now pending or, to the best of Seller's knowledge, threatened, any action, suit or proceeding before any court or governmental agency or body against the Seller that would prevent Seller from performing its obligations hereunder. (d) Master Leases. The documents described in Exhibit H constituting the Master Leases and the Master Lease Guaranties are true, correct and complete copies of all of the Master Leases affecting the Property, including any and all amendments or supplements thereto, and of the Master Lease Guaranties. To Seller's knowledge, Master Tenant has not asserted nor are there any defenses or offsets to rent under the Master Leases accruing after the Closing Date, and no monetary or material nonmonetary default or breach exists on the part of the Master Tenant under any Master Lease. Seller has not received any notice of any monetary or material nonmonetary default or breach on the part of the landlord under any Master Lease, nor, to the best of Seller's knowledge, does there exist any such default or breach on the part of the landlord. (e) Agreements. The copies of the Tripartite Agreements, Option and Subordination Agreements, and Management Agreements delivered to Purchaser pursuant to Paragraph 2.1 are true, correct and complete, and to Seller's knowledge, neither Seller nor any other party is in default under any such agreement. (f) Disclosure. Other than this Agreement, the Related Agreements, the agreements assigned to Purchaser at Closing pursuant hereto, the tenancy in common agreement among Seller and the contributors under the Contribution Agreement, and the Permitted Exceptions, there are no contracts or agreements of any kind relating to the Property to which Seller or its agents is a party. (g) Loan Documents. To Seller's knowledge, the Loan Documents delivered to Purchaser include true, accurate and complete copies of all of the material documents and instruments in effect with respect to the Existing Mortgage. Seller has not received any notice that Seller is in default under the Existing Mortgage, nor, to Seller's knowledge, does any default or breach exist, nor any event or circumstance which, with the giving of notice or passage of time, or both, would constitute a default or breach by Seller under the Loan Documents. 7.2 Purchaser's Representations and Warranties. As a material inducement to Seller and Remainderman to execute this Agreement and consummate this transaction, Purchaser represents and warrants to Seller and Remainderman that: (a) Organization and Authority. Purchaser has been duly organized and is validly existing as a Delaware limited partnership, in good standing in the State of Delaware, and will be qualified to do business in Arizona on the Closing Date. Purchaser has the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Purchaser at the Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligations of Purchaser, enforceable in accordance with their terms. -12- (b) Conflicts and Pending Action. There is no agreement to which Purchaser is a party or, to Purchaser's knowledge, binding on Purchaser which is in conflict with this Agreement. There is no action or proceeding pending or, to Purchaser's knowledge, threatened against Purchaser which challenges or impairs Purchaser's ability to execute or perform its obligations under this Agreement. (c) Institutional Investor. CarrAmerica Realty Corporation is a real estate investment Trust under the Internal Revenue Code and its net worth exceeds $50 million. CarrAmerica Realty Corporation's Annual Report on Form 10-K for the year ended December 31, 1996 and its Quarterly Report for the quarter ended March 31, 1997 do not contain an untrue statement of material for fact or omit to state any factor that would be material, and since the dates and periods of such reports there has been no material adverse change in the financial position of CarrAmerica Realty Corporation. 7.3 Survival of Representations and Warranties. The representations and warranties set forth in this Article 7 are made as of the Date of this Agreement and are remade as of the Closing Date, and shall not be deemed to be merged into or waived by the instruments of Closing, but shall survive the Closing (provided that the representations in Paragraph 7.1(c) through (f) shall survive only for a period of 1 year, and Purchaser shall have the right to bring an action thereon only if Purchaser, as the case may be, has given the other party written notice of the circumstances giving rise to the alleged breach within such 1-year period.) The representation in Paragraph 7.1(d) shall survive the Closing only for a period of 1 year and only to the extent the matters covered by the representation are not addressed in the Master Tenant Estoppels. 7.4 No Reliance on Documents. Except as expressly stated herein, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by Seller to Purchaser in connection with the transaction contemplated hereby. Purchaser acknowledges and agrees that all materials, data and information delivered by Seller to Purchaser in connection with the transaction contemplated hereby are provided to Purchaser as a convenience only and that any reliance on or use of such materials, data or information by Purchaser shall be at the sole risk of Purchaser, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Purchaser acknowledges and agrees that except as expressly stated herein Purchaser shall not have any right to rely on any reports delivered by Seller to Purchaser, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Purchaser with respect thereto. 7.5 DISCLAIMERS; AS IS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE (OTHER THAN SELLER'S LIMITED WARRANTY OF TITLE TO BE SET FORTH IN THE DEED), ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITIONS, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE MASTER LEASES, THE LOAN DOCUMENTS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY "AS IS, WHERE IS, WITH ALL FAULTS", EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT. PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, THE MASTER LEASES OR THE LOAN DOCUMENTS MADE OR FURNISHED BY SELLER OR ANY REAL ESTATE BROKER OR AGENT TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT. PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH -13- INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY, THE MASTER LEASES, THE LOAN DOCUMENTS, ANY OTHER AGREEMENT RELATING TO THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT WILL RELY SOLELY UPON SAME. UPON CLOSING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND ITS DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND ITS OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, OR VIOLATIONS OF ANY APPLICABLE LAWS (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS). 7.6 RESERVED RIGHTS. NOTWITHSTANDING PARAGRAPHS 7.4 AND 7.5 ABOVE: PURCHASER IS RELYING UPON, AND DOES NOT WAIVE, RELINQUISH OR RELEASE THE EXPRESS REPRESENTATIONS, WARRANTIES AND OTHER OBLIGATIONS OF SELLER SET FORTH IN THIS AGREEMENT AND IN ANY DOCUMENT OR INSTRUMENT EXECUTED BY SELLER IN CONNECTION WITH THIS AGREEMENT. PARAGRAPH 7.5 DOES NOT CONSTITUTE AN INDEMNITY. ARTICLE 8: EARNEST MONEY PROVISIONS 8.1 Investment and Use of Funds. The Escrow Agent shall invest the Earnest Money in government insured interest-bearing accounts satisfactory to Seller and Purchaser, shall not commingle the Earnest Money with any funds of the Escrow Agent or others, and shall promptly provide Purchaser and Seller with confirmation of the investments made. 8.2 Intentionally Omitted. 8.3 Termination. Except as otherwise expressly provided herein, upon not less than 10 business days' prior written notice to the Escrow Agent and the other parties, Escrow Agent shall deliver the Earnest Money to the party requesting the same; provided, however, that if any other party shall, within said 10 business day period, deliver to the requesting party and the Escrow Agent a written notice that it disputes the claim to the Earnest Money, Escrow Agent shall retain the Earnest Money until it receives written instructions executed by all parties as to the disposition and disbursement of the Earnest Money, or until ordered by final court order, decree or judgment, which is not subject to appeal, to deliver the Earnest Money to a particular party, in which event the Earnest Money shall be delivered in accordance with such notice, instruction, order, decree or judgment. 8.4 Interpleader. The parties agree that in the event of any controversy regarding the Earnest Money, unless mutual written instructions are received by the Escrow Agent directing the Earnest Money's disposition, the Escrow Agent shall not take any action, but instead shall await the disposition of any proceeding relating to the Earnest Money or, at the Escrow Agent's option, the Escrow Agent may interplead all parties and deposit the Earnest Money with a court of competent jurisdiction, in which event the Escrow Agent may recover all of its court costs and reasonable attorneys' fees. Seller, Remainderman or Purchaser, whichever loses in any such interpleader action, shall be solely obligated to pay such costs and fees of the Escrow Agent, as well as the reasonable attorneys' fees of the prevailing party in accordance with the other provisions of this Agreement. -14- 8.5 Liability of Escrow Agent. The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and that the Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for its negligent acts and for any loss, cost or expense incurred by Seller, or Purchaser resulting from the Escrow Agent's mistake of law respecting the Escrow Agent's scope or nature of its duties. Seller, and Purchaser shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including reasonable attorneys' fees, incurred in connection with the performance of the Escrow Agent's duties hereunder, except with respect to actions or omissions taken or made by the Escrow Agent in bad faith, in disregard of this Agreement or involving negligence on the part of the Escrow Agent. ARTICLE 9: MISCELLANEOUS 9.1 Parties Bound. Neither party may assign this Agreement without the prior written consent of the other, and any such prohibited assignment shall be void; provided that Purchaser may assign this Agreement in connection with an assignment of all Related Agreements without Seller's consent to an Affiliate in connection with the transfer of the Property subject to and in accordance with the requirements of the Existing Mortgage Loan covering transfers to an Institutional Investor. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the respective legal representatives, successors, assigns, heirs and devises of the parties. For the purposes of this paragraph, the term "Affiliate" means (a) an entity that directly or indirectly controls, is controlled by, or is under common control with Purchaser or (b) an entity at least a majority of whose economic interest is owned by Purchaser; and the term "control" means the power to direct the management of such entity through voting rights, ownership or contractual obligations. 9.2 Headings. The article and paragraph headings of this Agreement are for convenience only and in no way limit or enlarge the scope or meaning of the language hereof. 9.3 Expenses. Except as otherwise expressly provided herein, each party hereto shall pay its own expenses incident to this Agreement and the transactions contemplated hereunder, including all legal and accounting fees and disbursements. 9.4 Invalidity and Waiver. If any portion of this Agreement is held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be deemed valid and operative, and, to the greatest extent legally possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The failure by either party to enforce against the other any term or provision of this Agreement shall not be deemed to be a waiver of such party's right to enforce against the other party the same or any other such term or provision in the future. 9.5 Governing Law. This Agreement shall, in all respects, be governed, construed, applied, and enforced in accordance with Arizona law. 9.6 Survival. The following provisions of this Agreement shall survive the Closing and shall not be deemed to be merged into or waived by the instruments of Closing: Paragraph 1.6, Purchaser's indemnity in Paragraph 2.2, Paragraphs 5.6, 5.8, 6.1(a), 6.3, and Article 7 (subject to the limitations set forth in Paragraph 7.3), 8 and 9. Purchaser's indemnity in Paragraph 2.2, Paragraph 6.3, and Article 8 shall survive any termination of this Agreement. -15- 9.7 No Third Party Beneficiary. This Agreement is not intended to give or confer any benefits, rights, privileges, claims, actions or remedies to any person or entity as a third party beneficiary, decree, or otherwise. 9.8 Entirety and Amendments. This Agreement, the Pitney Debt Agreement and the letter agreement of even date herewith among the parties embody the entire agreement between the parties and supersedes all prior agreements and understandings relating to the Property. This Agreement may be amended or supplemented only by an instrument in writing executed by the party against whom enforcement is sought. 9.9 Time of the Essence. Time is of the essence in the performance of this Agreement. 9.10 Confidentiality. Between the date hereof and for a period ending 1 year after the Closing Date, neither party shall release or cause or permit to be released any press notices or advertising promotion or other publicity relating to this transaction without obtaining the written consent of the other party. No provision in this Paragraph 9.10 shall preclude a party from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, affiliates, investors, or any prospective lender, partner or investor, as the case may be, or prevent a party hereto, from complying with laws, rules, regulations and court orders, including without limitation, governmental regulatory, disclosure, tax and reporting requirements and stock exchange rules or prevent Purchaser or Seller from making a public announcement of the acquisition or sale of the property in accordance with its corporate information policy that does not disclose the purchase price or the identity of the other party. 9.11 Attorneys' Fees. Should either party employ attorneys to enforce any of the provisions hereof, the party against whom any final judgment is entered agrees to pay the prevailing party all reasonable costs, charges, and expenses, including reasonable attorneys' fees, expended or incurred by the prevailing party in connection therewith. 9.12 Notices. All notices required or permitted hereunder shall be in writing and shall be served on the parties at the addresses set forth in Paragraph 1.1. Any such notices shall be (1) sent by overnight delivery using a nationally recognized overnight courier, in which case notice shall be deemed delivered one business day after deposit with such courier, (2) sent by facsimile, in which case notice shall be deemed delivered upon confirmed transmission of such notice, or (3) sent by personal delivery, in which case notice shall be deemed delivered upon receipt or refusal of delivery. A party's address may be changed by written notice to the other party; provided that no notice of a change of address shall be effective until actual receipt of such notice. Copies of notices are for informational purposes only, and a failure to give or receive copies of any notice shall not be deemed a failure to give notice. The attorney for a party has the authority to send notices on behalf of such party. 9.13 Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction, to the effect that any ambiguities are to be resolved against the drafting party, shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto. 9.14 Calculation of Time Periods. Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in the location where the Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday or legal holiday. The last day of any period of time described herein shall be deemed to end at 6 p.m., Washington, D.C. time. 9.15 Information and Audit Cooperation. At Purchaser's request, at any time before or for one year after the Closing, Seller shall provide to Purchaser's designated independent auditor access to the books and records of the Property, and all related information regarding the period for which Purchaser is required to have the Property audited under the regulations of the Securities and Exchange Commission, and Seller shall provide to such auditor a representation letter regarding the books and records of the Property, in substantially the form of Exhibit G attached hereto, in connection with the normal course of auditing the Property in accordance with generally accepted auditing standards. -16- 9.16 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one Agreement. To facilitate execution of this Agreement, the parties may execute and exchange by facsimile counterparts of the signature pages. 9.17 Further Assurances. In addition to the acts and deeds recited herein and contemplated to be performed, executed and/or delivered by the parties at Closing, each party agrees to perform, execute and deliver, on or after the Closing, any further actions and documents, and will obtain such consents, as may be reasonably necessary or as may be reasonably requested to fully effectuate the purposes, terms and conditions of this Agreement or to further perfect the conveyance, transfer and assignment of the Property to Purchaser. 9.18 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY. -17- SIGNATURE PAGE TO AGREEMENT OF PURCHASE AND SALE BETWEEN PREFCO VII LIMITED PARTNERSHIP AND CARRAMERICA REALTY, L.P. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of September 30, 1997. PREFCO VII LIMITED PARTNERSHIP, a Connecticut limited partnership By: PREFCO VII, Inc., a Connecticut corporation and its general partner By: /s/ Michael Ryan ----------------------------------------- Name: Michael Ryan --------------------------------------- Title: Vice President -------------------------------------- "Seller" CARRAMERICA REALTY, L.P., a Delaware limited partnership By: CarrAmerica Realty GP Holdings, Inc. a Delaware corporation, General Partner By: /s/ Robert G. Stuckey ----------------------------------------- Name: Robert G. Stuckey --------------------------------------- Title: Managing Director and Vice President -------------------------------------- "Purchaser" Escrow Agent has executed this Agreement in order to confirm that Escrow Agent has received and shall hold the Earnest Money, and the interest earned thereon, in escrow, and shall disburse the Earnest Money, and the interest earned thereon, pursuant to the provisions of Article 8 hereof. CHICAGO TITLE COMPANY By: /s/ Ken Buvala ----------------------------------------- Name: Ken Buvala --------------------------------------- Title: Branch Manager -------------------------------------- "Escrow Agent" -18- AGREEMENT OF PURCHASE AND SALE U.S. West Communication Group office portfolio, Phoenix and Tucson, Arizona [Remainder Interest] ARTICLE 1: PROPERTY/PURCHASE PRICE 1.1 General Provisions. Purchaser acknowledges that Seller does not possess title to the Property. Simultaneously with the Closing (as hereinafter defined) and immediately prior to the conveyance contemplated herein, Seller will acquire the Property pursuant to the terms of that certain Agreement of Purchase and Sale by and between Seller, as purchaser, and Roller Hockey of Southeast Florida, Ltd., a Florida limited partnership ("Roller Hockey") as seller (the "Roller Hockey Contract"). l.lA Certain Basic Terms. (a) Seller and Notice Address: PREFCO VII Limited Partnership a Connecticut limited partnership c/o Pitney Bowes Credit Corporation Capital Markets 27 Waterview Drive Shelton, Connecticut 06484-4361 Attention: Mr. Michael Ryan With a copy to: Kelley Drye & Warren LLP Att: John A. Garraty, Jr. 101 Park Avenue New York, New York 10178 Telephone: 212/808-7653 Facsimile: 212/808-7897 (b) Purchaser and Notice Address: CARRAMERICA REALTY, L.P. a Delaware limited partnership Attention: Joseph Wallace 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Telephone: 202/624-7507 Facsimile: 202/630-0102 With copies to: Mayer, Brown & Platt Attention: George Ruhlen 141 East Palace Avenue Santa Fe, New Mexico 87501 Telephone: 505/820-8185 Facsimile: 505/820-7334 Mayer, Brown & Platt Attention: James A. Parker 190 South LaSalle Street Chicago, Illinois 60603 Telephone: 312/701-7853 Facsimile: 312/706-8732 (c) Date of this Agreement: as of September 30, 1997 (d) Purchase Price: $6,502,518.00 (e) Earnest Money: $54,600 and any other deposits of earnest money made pursuant to the terms of this Agreement, together with interest thereon. (f) Intentionally Omitted (g) Closing Date: The same date as the Closing under the Related Agreements. (h) Title Company: Chicago Title Company Attention: Frank Jansen 700 South Flower Street, Suite 920 Los Angeles, California 90017 Telephone: 213/4884346 Facsimile: 213/891-0834 2 (i) Escrow Agent: Chicago Title Company Attention: Ken Buvala 2201 East Camelback Road, Suite 126B Phoenix, Arizona 85016 Telephone: 602/468-6333 Facsimile: 602/468-6336 (j) Broker: CB Commercial (k) Existing Mortgage Loan: That certain loan in the aggregate principal amount of $64,640,000, evidenced by four promissory notes dated December 31, 1990, payable to UBS Mortgage Finance Inc. ("Lender") in the original principal amounts of $28,441,600, $13,574,400, $13,574,400 and $9,049,600, respectively. (1) Loan Documents: All documents and instruments evidencing, securing or otherwise related to the Existing Mortgage Loan. (m) Master Leases: Those four master leases, each dated December 31, 1990 between PREFCO VII Limited Partnership, as landlord, and U S WEST Business Resources, Inc. ("Master Tenant"), as tenant, each covering improvements on each of the four separate parcels of land comprising the Property. (n) Master Lease Guaranties: For each of the Master Leases, the Lease Guaranty, dated as of December 31, 1990, by The Mountain States Telephone and Telegraph Company, a Colorado corporation, in favor of Seller, the Lease Guaranty, dated as of December 31, 1990, by U S WEST Inc., a Colorado corporation, in favor of Seller, and the Lease Guaranty, dated as of December 31, 1990, by U S WEST Real Estate, Inc., a Colorado corporation, in favor of Seller. 3 (o) Related Agreements: This Agreement, that Agreement of Purchase and Sale of even date herewith between Pines Realty Associates, Ltd., Lakeview 436 Associates, Ltd., Versailles Associates Limited Partnership and PhoenixWest Associates, Ltd. and Purchaser, that Agreement of Purchase and Sale of even date herewith between Seller and Purchaser relating to the conveyance of Seller's tenancy-in-common interest in an estate-for-years in the Real Property and any related agreements entered into by Purchaser and Seller or any other such seller with respect to the Property or any other property covered by the Master Leases. 1.2 Property. Subject to the terms and conditions of this Agreement of Purchase and Sale (this "Agreement"), Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, the following property (collectively, the "Property"): (a) The remainder interests conveyed to Arizona - Relco Limited Partnership pursuant to Special Warranty Deeds and Assignments, recorded under Recording Numbers 91-0552245, 91-0552246, and 91-0552247 Maricopa County Recorder, Maricopa County, Arizona, and Docket 9172, Page 876, Pima County Recorder's Office, Pima County, Arizona, covering the real property described in Exhibits A-1 through _ attached hereto (the "Real Property") (the "Remainder Interest"). (b) All right, title and interest of Seller, if any, in and to the "Intangible Property," being all intangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management or occupancy of the Real Property, including, without limitation: all trade names and trade marks associated with the Real Property, including, without limitation, the name of the Improvements; the plans and specifications for the Improvements; warranties covering any of the Property; all contract rights related to the construction, operation, ownership or management of the Real Property that are expressly assumed by Purchaser pursuant to this Agreement; applications, permits, approvals and licenses (to the extent assignable); insurance proceeds and condemnation awards or claims thereto to be assigned to Purchaser hereunder; any funds held by Master Tenant or Manager under the Master Leases or the Management Agreement; and all books and records relating to the Property. 1.3 Earnest Money. On or before November 7, 1997, Purchaser shall deposit the Earnest Money with the Escrow Agent. The Escrow Agent shall pay the Earnest Money to Seller at and upon the Closing, or otherwise to the party entitled to receive the Earnest Money in accordance with this Agreement. The Earnest Money shall be held and disbursed by the Escrow Agent pursuant to Article 8 of this Agreement. In addition to any other right or remedy of Purchaser under this Agreement, the Earnest Money shall be returned to Purchaser if this Agreement is terminated for any reason other than Purchaser's default hereunder. 4 1.4 Remedies. In the event of a default by Purchaser in its obligations under this Agreement, Seller's sole and exclusive remedy shall be to terminate this Agreement and to retain the Earnest Money as liquidated damages, Seller waiving all other rights or remedies in the event of such default by Purchaser. The parties acknowledge that Seller's actual damages in the event of a default by Purchaser under this Agreement will be difficult to ascertain, and that such liquidated damages represent the parties' best estimate of such damages. In the event of a breach by Seller in its obligations under this Agreement, Purchaser may enforce specific performance of Seller's obligation to close this transaction or pursue any other remedy at law or in equity in the event of Seller's breach; provided that Purchaser may not pursue a claim for damages for such breach unless such breach is willful. 1.5 Effect of Default or Termination under Related Agreements. A default under a Related Agreement does not constitute a default under this Agreement. However, if a Related Agreement is terminated or the closing under a Related Agreement does not occur simultaneously with the Closing because of a default by any party thereunder, then: (i) if neither Purchaser nor Seller are in default hereunder, then Purchaser and Seller shall be excused from their respective obligations to acquire and sell the Property, and this Agreement shall terminate and the Earnest Money shall be returned to Purchaser; and (ii) if either Purchaser or Seller are in default hereunder, then the nondefaulting party shall have the remedies set forth in Paragraph 1.4. ARTICLE 2: INSPECTION 2.1 Property Information. Seller has delivered to Purchaser complete copies of the Tripartite Agreement and Option Agreements (as defined in Paragraph 5.3). At Purchaser's reasonable request from time to time, Seller shall make available to Purchaser, for review and copying, at Seller's offices, all other material information and documents relating to the Property in Seller's possession. The information and documents provided and made available to Purchaser pursuant to this Paragraph 2.1 is the "Property Information." 2.2 Due Diligence. Purchaser has examined, inspected and investigated the Property and the agreements, documents and records related thereto that it deemed necessary, and is satisfied with the results of its inspection, examination and investigation. Purchaser acknowledges that no additional "inspection period" is provided under this Agreement and that Purchaser is acquiring the Property "as is" as set forth in Section 7.5 hereof. ARTICLE 3: TITLE AND SURVEY REVIEW 3.1 Delivery of Title Commitment and Survey. Purchaser shall cause to be prepared (1) a current, effective commitment for title insurance (the "Title Commitment") issued by the Title Company, in the amount of the Purchase Price with Purchaser as the proposed insured, and accompanied by true, complete and legible copies of all documents referred to in the Title Commitment; and (2) copies of Uniform Commercial Code, judgment and tax lien searches in the name of 5 Seller any general partner, member or manager of Seller, and the Property issued by the Title Company or a search company acceptable to Purchaser ("WCC Searches"). The Title Commitment, the documents referred to therein, the Survey and the UCC Searches are referred to herein collectively as the "Title Documents." 3.2 Title Review and Cure. Seller will cooperate with Purchaser in curing any objections Purchaser may have to title to the Property; however, Seller shall not have any obligation to cure title objections except liens and security interests created by Seller after the Date of this Agreement. As to any other exceptions or objections raised by Purchaser, Seller shall have fourteen (14) days from the receipt of Purchaser's notice of objections either to have such exceptions or objections removed or, if acceptable to Purchaser, to provide affirmative title insurance protection for such exceptions satisfactory to Purchaser, or to notify Purchaser that it does not intend to cure such objection. If, with respect to those title objections that Seller has no obligation to cure, Seller fails either to provide for the removal of such exceptions or objections or to obtain affirmative title insurance protection for such exceptions or objections satisfactory to Purchaser within such fourteen (14) day period, then Purchaser must elect either to terminate this Agreement by delivering written notice to Seller within five (5) days following such period or, if later, before the expiration of the Title Review Period, or to waive such objection. Upon delivery of such termination notice by Purchaser, this Agreement shall automatically terminate, the parties shall be released from all further obligations under this Agreement except pursuant to any provisions which by their terms survive a termination of this Agreement, and the Earnest Money shall be promptly returned to Purchaser. If after the expiration of the Title Review Period, the Title Company revises the Title Commitment, or the surveyor revises the Survey, to add or modify exceptions, or to add or modify the conditions to obtaining any endorsement requested by Purchaser during the Title Review Period, then Purchaser may terminate this Agreement and receive a refund of the Earnest Money if provision for their removal or modification satisfactory to Purchaser is not made. Purchaser shall have been deemed to have approved any title exception that Seller is not obligated to remove and to which either Purchaser did not object as provided above, or to which Purchaser did object, but with respect to which Purchaser did not terminate this Agreement. If there are exceptions or objections raised by Purchaser, the Closing Date shall be extended to the extent necessary to permit Seller and Purchaser to exercise their rights as provided above. 3.3 Delivery of Title Policy at Closing. As a condition to Purchaser's obligation to close, at Closing (i) the Title Company shall irrevocably commit to issue to Purchaser an ALTA Owner's Policy (Revised 10-17-70 and 10-17-84) (or other form if required by state law) of title insurance, with extended coverage (i.e., with ALTA General Exceptions 1 through 5 deleted, or with corresponding deletions if the Property is located in a non-ALTA state), issued by the Title Company as of the date and time of the recording of the Deed, in the amount of the Purchase Price, containing the Purchaser's Endorsements, insuring Purchaser as owner of good, marketable and indefeasible fee simple title to the Property (the conveyances from Seller and the sellers under the Related Agreements effecting a merger of the estates held by each, with fee simple title vesting in Purchaser subject only to the Permitted Exceptions), and subject only to the Permitted Exceptions (the "Title Policy"), and (ii) the updated UCC Searches 6 (within 10 days of Closing) show no security interests (other than Permitted Exceptions) not disclosed in the UCC Searches delivered pursuant to Paragraph 3.1; "Permitted Exceptions" means exceptions set forth in Exhibit C hereto; real estate taxes not yet due and payable; the Loan Documents; the Tripartite Agreements; the Option Agreements. "Purchaser's Endorsements" shall mean, to the extent such endorsements are available under the laws of the state in which the Property is located: (1) owner's comprehensive; (2) access; (3) survey (accuracy of survey); (4) location (survey legal matches title legal); (5) separate tax lot; (6) legal lot; (7) zoning 3.1, with parking and loading docks; and (8) such other endorsements as Purchaser may require during the Title Review Period based on its review of the Title Commitment. ARTICLE 4: ROLLER HOCKEY CONTRACT; RISK OF LOSS 4.1 Roller Hockey Contract. Seller shall comply with its obligations under the Roller Hockey Contract in all material respects. 4.2 Condemnation. Seller shall promptly give Purchaser notice of any eminent domain proceedings that are contemplated, threatened or instituted with respect to the Property of which Seller becomes aware. By notice to Seller given within fourteen (14) days after Purchaser receives notice of proceedings in eminent domain that are contemplated, threatened or instituted by any body having the power of eminent domain with respect to the Property (and if necessary the Closing Date shall be extended to give Purchaser the full fourteen (14) day period to make such election), Purchaser may terminate this Agreement if the taking or threatened taking is material, or proceed under this Agreement, in which event Seller shall, at the Closing, assign to Purchaser its right, title and interests in any to any condemnation award, and Purchaser shall have the sole right during the pendency of this Agreement to negotiate and otherwise deal with the condemning authority in respect of such matter. A taking as to one or more proceedings is material if the award (including any award with respect to interests of the sellers under the other Related Agreements) is reasonably estimated to exceed $1 million or the taking would likely entitle Master Tenant to an abatement or reduction in rent. ARTICLE 5: CLOSING 5.1 Closing and Escrow. The consummation of the transaction contemplated herein ("Closing") shall occur on the Closing Date at the offices of the Escrow Agent through an escrow with the Escrow Agent. Funds shall be deposited into and held by Escrow Agent in a closing escrow account with a bank satisfactory to Purchaser and Seller. Upon satisfaction or completion of all closing conditions and deliveries, the parties shall direct the Escrow Agent to immediately record and deliver the closing documents to the appropriate parties and make disbursements according to the closing statements executed by Seller and Purchaser. The Escrow Agent shall agree in writing with Seller and Purchaser that (1) recordation of the Deeds constitutes its representation that it is holding the closing documents, closing funds and closing statements and is prepared and irrevocably committed to disburse the closing funds in accordance with the closing statements and (2) release of funds to the Seller shall irrevocably commit it to issue the Title Policy in accordance with this Agreement. Provided such supplemental escrow instructions are not in conflict with this Agreement as it may be amended in writing from time to time, Seller and Purchaser agree to execute such supplemental escrow instructions as may be appropriate to enable Escrow Agent to comply with the terms of this Agreement. 7 5.2 Conditions to the Parties' Obligations to Close. In addition to all other conditions set forth herein, the obligation of Seller, on the one hand, and Purchaser, on the other hand, to consummate the transactions contemplated hereunder shall be contingent upon the following: (a) The other party's representations and warranties contained herein shall be true and correct as of the Date of this Agreement and the Closing Date; (b) As of the Closing Date, the other party shall have performed its obligations hereunder and all deliveries to be made by the other party at Closing shall have been tendered; (c) As of the Closing Date, no action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) which is reasonably expected to restrain, prohibit or invalidate the transactions contemplated by this Agreement, other than an action or proceeding instituted or threatened by such party; and (d) Any other condition set forth in this Agreement to such party's obligation to close is satisfied by the applicable date. (e) The Closing occurs simultaneously with the closings under the Related Agreements. (f) As to Purchaser's obligation to close, as of the Closing, neither Seller nor any other party is in default under any agreement to be assigned to or assumed by Purchaser hereunder. So long as a party is not in default hereunder, if any condition to such party's obligation to proceed with the Closing hereunder has not been satisfied as of the Closing Date or other applicable date, such party may, in its sole discretion, terminate this Agreement by delivering written notice to the other party and all parties under the Related Agreements on or before the Closing Date or other applicable date, or elect to close, notwithstanding the non-satisfaction of such condition, in which event such party shall be deemed to have waived any such condition except for breach by a party of a covenant in which case the Closing shall not relieve such breaching party from any liability it would otherwise have hereunder. A party shall be entitled to postpone the Closing up to an aggregate of ten (10) days in order to cause any condition to be satisfied. 5.3 Seller's Deliveries in Escrow. At lease one (1) business day before the Closing Date, Seller shall deliver in escrow to the Escrow Agent the following: (a) Deed. For each of the four parcels comprising the Property: a special warranty deed conveying the remainder interest described in Paragraph 1.2(a) (warranting title only against Seller's acts); 8 (b) Bill of Sale and Assignment of Contracts. For each of the four parcels comprising the Property, a bill of sale and assignment in the form of Exhibit B, assigning that Tripartite Agreement relating to the applicable parcel, dated as of December 31, 1990, among Master Tenant, Seller and Arizona-Relco Limited Partnership ( the "Tripartite Agreements"), and that Option and Subordination Agreement relating to the-applicable parcel, dated as of December 31, 1990, between Seller and Arizona-Relco Limited Partnership (the "Option Agreements"); (c) State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property; (d) FIRPTA. A Foreign Investment in Real Property Tax Act affidavit executed by Seller. If Seller fails to provide the necessary affidavit and/or documentation of exemption on the Closing Date, Purchaser may proceed in accordance with the withholding provisions in such act; (e) Intentionally Omitted; (f) Authority. Evidence of the existence, organization and authority of Seller and the authority of the persons executing documents on behalf of Seller reasonably satisfactory to the Purchaser and the Title Company; and (g) Other Deliveries. Any other Closing deliveries required to be made by or on behalf of Seller hereunder. 5.4 Purchaser's Deliveries in Escrow. At least one (1) business day before the Closing Date (except as otherwise permitted below), Purchaser shall deliver in escrow to the Escrow Agent the following: (a) Purchase Price. On the Closing Date, the Purchase Price, less the Earnest Money that is applied to the Purchase Price deposited by Purchaser with the Escrow Agent in immediate, same-day federal funds wired for credit into the Escrow Agent's escrow account; (b) Assignment. The instrument described in Paragraph 5.3(b) executed by Purchaser, as provided in each such instrument; (c) State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property; (d) Intentionally Omitted; (e) Authority. Evidence of the existence, organization and authority of Purchaser and the authority of the persons executing documents on behalf of Purchaser reasonably satisfactory to Seller and the Title Company; and 9 (f) Other Deliveries. Any other Closing deliveries required to be made by or on behalf of Purchaser hereunder. 5.5 Intentionally Omitted 5.6 Sales. Transfer and Documentary Taxes. Purchaser shall pay all sales, gross receipts, compensating, stamp, excise, documentary, transfer, deed or similar taxes and fees imposed in connection with this transaction under applicable state or local law. ARTICLE 6: PRORATIONS AND ADJUSTMENTS 6.1 Prorations. Intentionally Omitted 6.2 Sales Commissions. Seller and Purchaser represent and warrant each to the other that they have not dealt with any real estate broker, sales person or finder in connection with this transaction other than Broker. Purchaser shall pay Broker in accordance with their separate agreement (at Closing if Closing occurs). Broker is an independent contractor and is not authorized to make any agreement or representation on behalf of either party. Except as expressly set forth above, in the event of any claim for broker's or finder's fees or commissions in connection with the negotiation, execution or consummation of this Agreement, or the transactions contemplated hereby, each party shall indemnify and hold harmless the other party from and against any such claim based upon any statement, representation or agreement of such party. This provision shall survive any termination of this Agreement. ARTICLE 7: REPRESENTATIONS AND WARRANTIES 7.1 Seller's Representations and Warranties. As a material inducement to Purchaser to execute this Agreement and consummate this transaction, Seller represents and warrants to Purchaser that: (a) Organization and Authority. Seller has been duly organized and is validly existing as the entity described in Paragraph 1.1, and is in good standing in its State of incorporation or formation. Seller is in good 10 standing and is qualified to do business in Arizona. Seller has the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Seller at the Closing will be, authorized and properly executed and constitute, or will constitute, as appropriate, the valid and binding obligations of Seller, enforceable in accordance with their terms. 7.2 Purchaser's Representations and Warranties. As a material inducement to Seller to execute this Agreement and consummate this transaction, Purchaser represents and warrants to Seller that: (a) Organization and Authority. Purchaser has been duly organized and is validly existing as a Delaware limited partnership, in good standing in the State of Delaware, and will be qualified to do business in Arizona on the Closing Date. Purchaser has the full right and authority and has obtained any and all required to enter into this Agreement subject only to obtaining certain internal approvals on or before the expiration of the Due Diligence Period and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Purchaser at the Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligations of Purchaser, enforceable in accordance with their terms. (b) Conflicts and Pending Action. There is no agreement to which Purchaser is a party or, to Purchaser's knowledge, binding on Purchaser which is in conflict with this Agreement. There is no action or proceeding pending or, to Purchaser's knowledge, threatened against Purchaser which challenges or impairs Purchaser's ability to execute or perform its obligations under this Agreement. 7.3 Survival of Representations and Warranties. The representations and warranties set forth in this Article 7 are made as of the Date of this Agreement and are remade as of the Closing Date, and shall not be deemed to be merged into or waived by the instruments of Closing, but shall survive the Closing. 7.4 No Reliance on Documents. Except as expressly stated herein, Seller makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by Seller to Purchaser in connection with the transaction contemplated hereby. Purchaser acknowledges and agrees that all materials, data and information delivered by Seller to Purchaser in connection with the transaction contemplated hereby are provided to Purchaser as a convenience only and that any reliance on or use of such materials, data or information by Purchaser shall be at the sole risk of Purchaser, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Purchaser acknowledges and agrees that except as expressly stated herein Purchaser shall not have any right to rely on any reports delivered by Seller to Purchaser, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Purchaser with respect thereto. 7.5 DISCLAIMERS; AS IS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE (OTHER THAN SELLER'S LIMITED WARRANTY OF TITLE TO BE SET FORTH IN THE DEED), ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITIONS, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE MASTER LEASES, THE LOAN DOCUMENTS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY "AS IS, WHERE IS, WITH ALL FAULTS", EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT. PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR 11 BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, THE MASTER LEASES OR THE LOAN DOCUMENTS MADE OR FURNISHED BY SELLER OR ANY REAL ESTATE BROKER OR AGENT TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT. PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS THE CONDITION OF THE PROPERTY, THE MASTER LEASES, THE LOAN DOCUMENTS, ANY OTHER AGREEMENT RELATING TO THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT WILL RELY SOLELY UPON SAME. UPON CLOSING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND ITS DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND ITS OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, OR VIOLATIONS OF ANY APPLICABLE LAWS (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS). 7.6 RESERVED RIGHTS. NOTWITHSTANDING PARAGRAPHS 7.4 AND 7.5 ABOVE, PURCHASER IS RELYING UPON AND DOES NOT WAIVE RELINQUISH OR RELEASE THE EXPRESS REPRESENTATIONS, WARRANTIES AND OTHER OBLIGATIONS OF SELLER SET FORTH IN THIS AGREEMENT AND IN ANY DOCUMENT OR INSTRUMENT EXECUTED BY SELLER IN CONNECTION WITH THIS AGREEMENT; PARAGRAPH 7.5 DOES NOT CONSTITUTE AN INDEMNITY. 12 ARTICLE 8: EARNEST MONEY PROVISIONS 8.1 Investment and Use of Funds. The Escrow Agent shall invest the Earnest Money in government insured interest-bearing accounts satisfactory to Seller and Purchaser, shall not commingle the Earnest Money with any funds of the Escrow Agent or others, and shall promptly provide Purchaser and Seller with confirmation of the investments made. 8.2 Intentionally Omitted 8.3 Termination. Except as otherwise expressly provided herein, upon not less than 10 business days' prior written notice to the Escrow Agent and the other parties, Escrow Agent shall deliver the Earnest Money to the party requesting the same; provided, however, that if any other party shall, within said 10 business day period, deliver to the requesting party and the Escrow Agent a written notice that it disputes the claim to the Earnest Money, Escrow Agent shall retain the Earnest Money until it receives written instructions executed by all parties as to the disposition and disbursement of the Earnest Money, or until ordered by final court order, decree or judgment, which is not subject to appeal, to deliver the Earnest Money to a particular party, in which event the Earnest Money shall be delivered in accordance with such notice, instruction, order, decree or judgment. 8.4 Interpleader. The parties agree that in the event of any controversy regarding the Earnest Money, unless mutual written instructions are received by the Escrow Agent directing the Earnest Money's disposition, the Escrow Agent shall not take any action, but instead shall await the disposition of any proceeding relating to the Earnest Money or, at the Escrow Agent's option, the Escrow Agent may interplead all parties and deposit the Earnest Money with a court of competent jurisdiction, in which event the Escrow Agent may recover all of its court costs and reasonable attorneys' fees. Seller or Purchaser, whichever loses in any such interpleader action, shall be solely obligated to pay such costs and fees of the Escrow Agent, as well as the reasonable attorneys' fees of the prevailing party in accordance with the other provisions of this Agreement. 8.5 Liability of Escrow Agent. The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and that the Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for its negligent acts and for any loss, cost or expense incurred by Seller, or Purchaser resulting from the Escrow Agent's mistake of law respecting the Escrow Agent's scope or nature of its duties. Seller and Purchaser shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including reasonable attorneys' fees, incurred in connection with the 13 performance of the Escrow Agent's duties hereunder, except with respect to actions or omissions taken or made by the Escrow Agent in bad faith, in disregard of this Agreement or involving negligence on the part of the Escrow Agent. ARTICLE 9: MISCELLANEOUS 9.1 Parties Bound. Neither party may assign this Agreement without the prior written consent of the other, and any such prohibited assignment shall be void; provided that Purchaser may assign this Agreement in connection with an assignment of all Related Agreements without Seller's consent to an Affiliate in connection with the transfer of the Property subject to and in accordance with the requirements of the Existing Mortgage Loan. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the respective legal representatives, successors, assigns, heirs and devises of the parties. For the purposes of this paragraph, the term "Affiliate" means (a) an entity that directly or indirectly controls, is controlled by, or is under common control with Purchaser or (b) an entity at least a majority of whose economic interest is owned by Purchaser, and the term "control" means the power to direct the management of such entity through voting rights, ownership or contractual obligations. 9.2 Headings. The article and paragraph headings of this Agreement are for convenience only and in no way limit or enlarge the scope or meaning of the language hereof. 9.3 Expenses. Except as otherwise expressly provided herein, each party hereto shall pay its own expenses incident to this Agreement and the transactions contemplated hereunder, including all legal and accounting fees and disbursements. 9.4 Invalidity and Waiver. If any portion of this Agreement is held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be deemed valid and operative, and, to the greatest extent legally possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The failure by either party to enforce against the other any term or provision of this Agreement shall not be deemed to be a waiver of such party's right to enforce against the other party the same or any other such term or provision in the future. 9.5 Governing Law. This Agreement shall, in all respects, be governed, construed, applied, and enforced in accordance with Arizona law. 9.6 Survival. The following provisions of this Agreement shall survive the Closing and shall not be deemed to be merged into or waived by the instruments of Closing: Purchaser's indemnity in Paragraph 2.2, Paragraphs 5.6, 6.2, and Article 7, 8 and 2. Purchaser's indemnity in Paragraph 2.2, Paragraph 6.2 and Article 8 shall survive any termination of this Agreement. 9.7 No Third Party Beneficiary. This Agreement is not intended to give or confer any benefits, rights, privileges, claims, actions or remedies to any person or entity as a third party beneficiary, decree, or otherwise. 9.8 Entirety and Amendments. This Agreement embodies the entire agreement between the parties and supersedes all prior agreements and understandings relating to the Property. This Agreement may be amended or supplemented only by an instrument in writing executed by the party against whom enforcement is sought. 14 9.9 Time of the Essence. Time is of the essence in the performance of this Agreement. 9.10 Confidentiality. Between the date hereof and for a period ending 1 year after the Closing Date, neither party shall release or cause or permit to be released any press notices or advertising promotion or other publicity relating to this transaction without obtaining the written consent of the other party. No provision in this Paragraph 9.10 shall preclude a party from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, affiliates, investors, or any prospective lender, partner or investor, as the case may be, or prevent a party hereto, from complying with laws, rules, regulations and court orders, including without limitation, governmental regulatory, disclosure, tax and reporting requirements and stock exchange rules or prevent Purchaser or Seller from making a public announcement of the acquisition or sale of the property in accordance with its corporate information policy that does not disclose the purchase price or the identity of the other party. 9.11 Attorneys' Fees. Should either party employ attorneys to enforce any of the provisions hereof, the party against whom any final judgment is entered agrees to pay the prevailing party all reasonable costs, charges, and expenses, including reasonable attorneys' fees, expended or incurred by the prevailing party in connection therewith. 9.12 Notices. All notices required or permitted hereunder shall be in writing and shall be served on the parties at the addresses set forth in Paragraph 1.1. Any such notices shall be (1) sent by overnight delivery using a nationally recognized overnight courier, in which case notice shall be deemed delivered one business day after deposit with such courier, (2) sent by facsimile, in which case notice shall be deemed delivered upon confirmed transmission of such notice, or (3) sent by personal delivery, in which case notice shall be deemed delivered upon receipt or refusal of delivery. A party's address may changed by written notice to the other party; provided that no notice of a change of address shall be effective until actual receipt of such notice. Copies of notices are for informational purposes only, and a failure to give or receive copies of any notices shall not be deemed a failure to give notice. The attorney for a party has the authority to send notices on behalf of such party. 9.13 Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction, to the effect that any ambiguities are to be resolved against the drafting party, shall not be employed in the interpretation of this agreement or any exhibits or amendments hereto. 9.14 Intentionally Omitted 9.15 Calculation of Time Periods. Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in the location where the Property is 15 located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday or legal holiday. The last day of any period of time described herein shall be deemed to end at 6 p.m., Washington, D.C. time. 9.16 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one Agreement. To facilitate execution of this Agreement, the parties may execute and exchange by facsimile counterparts of the signature pages. 9.17 Intentionally Omitted 9.18 Further Assurances. In addition to the acts and deeds recited herein and contemplated to be performed, executed and/or delivered by the parties at Closing, each party agrees to perform, execute and deliver, on or after the Closing, any further actions and documents, and will obtain such consents, as may be reasonably necessary or as may be reasonably requested to fully effectuate the purposes, terms and conditions of this Agreement or to further perfect the conveyance, transfer and assignment of the Property to Purchaser. 9.19 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY. 16 SIGNATURE PAGE TO AGREEMENT OF PURCHASE AND SALE BETWEEN PREFCO VII LIMITED PARTNERSHIP AND CARRAMERICA REALTY, L.P. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 30th day of September, 1997. PREFCO VII LIMITED PARTNERSHIP, a Connecticut limited partnership By: PREFCO VII, a Connecticut corporation By: -------------------------------- Name: Title: "Seller" CARRAMERICA REALTY, L.P., a Delaware limited partnership By: CarrAmerica Realty GP Holdings, Inc., a Delaware corporation By: --------------------------------- Name: Title: "Purchaser" Escrow Agent has executed this Agreement in order to confirm that Escrow Agent has received and shall hold the Earnest Money, and the interest earned thereon, in escrow, and shall disburse the Earnest Money, and the interest earned thereon, pursuant to the provisions of Article 8 hereof. CHICAGO TITLE COMPANY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- "Escrow Agent" 17 CONTRIBUTION AGREEMENT by and among CARRAMERICA REALTY, L.P., CARRAMERICA REALTY CORPORATION and PHOENIXWEST ASSOCIATES, LTD., VERSAILLES ASSOCIATES LIMITED PARTNERSHIP, LAKEVIEW 436 ASSOCIATES, LTD., and PINES REALTY ASSOCIATES, LTD. September 30, 1997 TABLE OF CONTENTS Page ---- ARTICLE I CONTRIBUTION OF PROPERTY.................................... 1 1.1. Contribution and Acquisition of Contributed Property........ 1 1.2. Closing..................................................... 1 ARTICLE II EXCHANGE AMOUNT............................................ 2 2.1. Exchange Amount............................................. 2 2.2. Section 704(c) Allocation and Method........................ 3 ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR............. 3 3.1. Organization and Standing................................... 3 3.2. Authorization; No Conflicts................................. 3 3.3. Binding Obligations......................................... 4 3.4. No Litigation............................................... 4 3.5. Securities Law Matters...................................... 4 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CARR..................... 6 4.1. Organization and Standing................................... 6 4.2. Authorization; No Conflicts................................. 6 4.3. Binding Obligations......................................... 7 4.4. No Litigation............................................... 7 4.5. No Tax Audits............................................... 7 4.6. Issuance of Units........................................... 7 4.7. Tax Reporting............................................... 7 4.8. Carr LLC.................................................... 8 4.9. No Investment Company....................................... 8 4.10. No Representation with Regard to Tax Treatment............. 8 ARTICLE V CONDITIONS PRECEDENT TO THE CLOSING......................... 8 5.1. Conditions to Obligations of Contributors................... 8 5.2. Conditions to Obligations of Carr and CRC................... 9 ARTICLE VI SURVIVAL; INDEMNIFICATION.................................. 9 6.1. Survival.................................................... 9 6.2. Agreement of Contributors................................... 10 6.3. Agreement of Carr to Indemnify.............................. 10 6.4. Agreement of CRC to Indemnify............................... 10 6.5. Conditions of Indemnification............................... 10 ARTICLE VII CONFIDENTIALITY; TAX MATTERS.............................. 11 7.1. Confidentiality............................................. 11 7.2. Limitation on Sale of Contributed Property.................. 12 7.3. Debt Guarantee Agreement.................................... 13 7.4. Damages..................................................... 14 7.5. Lockout Restrictions; Redemption of Herrick Units........... 15 7.6. Special Loss Allocation..................................... 16 7.7. Rights and Remedies of Contributors......................... 17 ARTICLE VIII REMEDIES; TERMINATION.................................... 17 8.1. Remedies.................................................... 17 8.2. Termination................................................. 18 ARTICLE IX MISCELLANEOUS.............................................. 18 -i- 9.1. Additional Actions and Documents............................ 18 9.2. Expenses.................................................... 18 9.3. Assignment.................................................. 18 9.4. Entire Agreement; Amendment................................. 18 9.5. Waiver...................................................... 19 9.6. Severability................................................ 19 9.7. Governing Law............................................... 19 9.8. Notices..................................................... 19 9.9. Headings.................................................... 20 9.10. Execution in Counterparts.................................. 20 9.11. Attorneys' Fees............................................ 21 9.12. Waiver of Jury Trial....................................... 21 EXHIBITS Exhibit A Form of Registration Rights Agreement Exhibit B Form of Side Letter Exhibit C Partnership Agreement of Carr and Form of Second Amendment thereto Exhibit D Form of Partner Consent Exhibit E Information Regarding Carr and CRC Exhibit F Form of Guarantees SCHEDULES Schedule 1 Allocation of Units Schedule 2 List of Partners of Contributors CONTRIBUTION AGREEMENT THIS CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of September 30, 1997 by and among CarrAmerica Realty, L.P., a Delaware limited partnership ("Carr"), CarrAmerica Realty Corporation, a Delaware corporation ("CRC") and PhoenixWest Associates, Ltd. (formerly known as Cypress Lakes of Boca Rio Associates, Limited Partnership), a Florida limited partnership, Versailles Associates Limited Partnership, a Florida limited partnership, Lakeview 436 Associates, Ltd., a Florida limited partnership and Pines Realty Associates, Ltd., a Florida limited partnership (each a "Contributor," and collectively, "Contributors"). RECITALS: A. Contributors own a forty-nine percent (49%) tenants-in-common interest in the property known as the U.S. West Communication Group office portfolio (the "Contributed Property"). B. Carr and Contributors have entered into an Agreement of Purchase and Sale dated as of the date hereof (the "Acquisition Agreement") pursuant to which Contributors have agreed to transfer the Contributed Property to Carr on the terms and conditions set forth therein and herein and have made certain representations and warranties in connection therewith (the "Acquisition"). C. Carr and a newly formed Delaware limited liability company of which Carr is the sole member ("Carr LLC") will enter into an Assignment Agreement (the "Assignment Agreement"), pursuant to which Carr shall transfer the Contributed Property to Carr LLC, upon which Carr LLC shall hold the Contributed Property as its sole assets. D. Carr and Contributors desire to enter into this Agreement to set forth certain additional terms and conditions upon which Contributors will transfer the Contributed Property to Carr. ARTICLE I CONTRIBUTION OF PROPERTY 1.1. Contribution and Acquisition of Contributed Property Subject to the terms and conditions hereof, Contributors agree to contribute to Carr, and Carr agrees to acquire and accept from Contributors, all of Contributors' right, title and interest in and to the Contributed Property, in exchange for Class E units of limited partnership interest in Carr ("Class E Units"), as set forth in Article II hereof, in a transaction intended by the partners to qualify for nonrecognition of gain to Contributors pursuant to Section 721 of the Internal Revenue Code of 1986, as amended (the "Code"). 1.2. Closing The closing of the transactions contemplated by this Agreement and the Acquisition Agreement (the "Closing") shall occur on a date (the "Closing Date") as set forth in Section 1.1(g) of the Acquisition Agreement, subject to extension pursuant to Section 1.6(a) of the Acquisition Agreement, and upon satisfaction or waiver of the conditions set forth in Article V hereof. The Closing shall occur simultaneously with the delivery of the following documents: -1- (a) the amendment to the Partnership Agreement (as defined in Section 2.1(b) below) referred to in Section 2.1(a) below, executed by CarrAmerica Realty GP Holdings, Inc., as general partner ("GP Holdings"), and Contributors; (b) the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A, executed by CarrAmerica Realty Corporation ("CRC"), Contributors and, if the partners of Contributors (or partners of such partners) will receive a distribution from Contributors of Class E Units, each of such partners, as contemplated in Article II hereof; (c) certificates of each of Carr and CRC and each Contributor certifying as to continued accuracy of the representations and warranties made by such party herein, executed by an officer or other authorized signatory of such party; (d) the side letter, substantially in the form attached hereto as Exhibit B, executed by GP Holdings and delivered to Contributors regarding the transfer and pledge of the Class E Units; (e) the closing documents delivered by the parties pursuant to the Acquisition Agreement; and (f) such other documents as the parties may mutually agree. ARTICLE II EXCHANGE AMOUNT 2.1. Exchange Amount (a) Units Delivered at Closing. In exchange for the contribution of the Contributed Property and upon execution and delivery of the Partnership Agreement (as defined below) by Contributors, Contributors shall receive, at the Closing, a number of Class E Units in Carr (rounded to the nearest whole number) equal to (i) the difference of (A) the Contribution Value (as defined in the Acquisition Agreement), less (B) any third-party debt and other obligations assumed (or taken subject to), divided by the Closing Value (the "Units"). For purposes of this Agreement, the "Closing Value" shall mean the average closing price of a share of common stock of CRC (the "Common Stock") for the ten (10) day trading period ending on the date that is five (5) business days immediately preceding the Closing Date. Each Contributor shall be entitled to receive the proportionate number of Units as set forth in Schedule 1 hereto. (b) Distribution of Units. At the Closing, Carr shall issue the Units either to Contributors or, at the option of Contributors, directly to Contributors' partners (or to partners of such partners) in accordance with written instructions provided to Carr by Contributors (or Contributors' partners) setting forth the name and address of, and the number of Units received by, each partner, provided that each such partner (i) makes each of the representations and warranties set forth in Section 3.5 hereof and (ii) has executed and delivered the Second Amended and Restated Agreement of Limited Partnership of Carr, as amended, and as proposed to be further amended by a Second Amendment thereto (the "Second Amendment") substantially in the form attached hereto as Exhibit C (the "Partnership Agreement"). -2- 2.2. Section 704(c) Allocation and Method Carr and Contributors agree that, for purposes of Section 704(c) of the Internal Revenue Code of 1986 as amended (the "Code"), the Contribution Value as set forth in the Acquisition Agreement will be allocated among the various components of the Contributed Property in a manner to be reasonably agreed upon by Carr and Contributors prior to the Closing. The method under section 704(c) of the Code used by Carr with respect to the Contributed Property (or any property received in exchange for the Contributed Property in a like-kind exchange) to adjust for discrepancies between the agreed upon value of the various components of the Contributed Property and the adjusted tax basis of such components will be the "traditional method," as set forth in Treasury Regulation 1.704-3(c)(1). ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR Contributors jointly and severally represent and warrant to Carr as follows: 3.1. Organization and Standing Each Contributor is a limited partnership duly formed, validly existing and in good standing under the laws of its jurisdiction of organization. Each Contributor has the full and unrestricted partnership power and authority to own, operate and lease its assets, to carry on its business as currently conducted, to execute and deliver this Agreement, the Assignment Agreement and each other agreement, instrument or document relating to the Acquisition (including the Acquisition Agreement) or contemplated hereby or thereby (the "Other Agreements") to which it is a party and to carry out the transactions contemplated hereby or thereby. 3.2. Authorization; No Conflicts The execution and delivery of this Agreement and the Other Agreements by each Contributor and the performance by each Contributor of its covenants and agreements under this Agreement and the Other Agreements have been, or at Closing will have been, duly authorized by all necessary partnership action on the part of such Contributor, and a valid consent of each partner of such Contributor to the Acquisition and the transactions related thereto substantially in the form attached hereto as Exhibit D has been received by such Contributor and delivered to Carr, or at Closing will have been received by such Contributor and delivered to Carr. The execution, delivery and performance by each Contributor of this Agreement and each Other Agreement to which such Contributor is a party, the fulfillment of and compliance with the respective terms and provisions hereof and thereof, and the consummation by such -3- Contributor of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with, or violate any provision of, the certificate of limited partnership or agreement of limited partnership of any Contributor; (b) conflict with, or violate any provision of, any statute, law, ordinance, regulation, rule, order, writ or injunction having applicability to any Contributor or any of its assets; (c) conflict with, result in any breach of, or constitute a default under any agreement to which any Contributor or any Contributor's partners is a party or by which it or they or any of its or their assets are bound; (d) result in or require the creation or imposition of or result in the acceleration of any indebtedness or of any encumbrance of any nature upon, or with respect to, Contributor or any Contributor's partners or any of the assets now owned or hereafter acquired by any Contributor; except (in the case of clauses (b), (c) and (d) above) for such conflicts, violations, breaches or defaults as will not have a material adverse effect on the business or financial condition of any Contributor or the consummation of the Acquisition. 3.3. Binding Obligations This Agreement and each Other Agreement executed and delivered by each Contributor on or prior to the date hereof constitutes a valid and binding obligation of such Contributor, enforceable in accordance with its terms; and each Other Agreement to be executed by each Contributor pursuant hereto or thereto, when executed and delivered in accordance with the provisions hereof or thereof, shall be a valid and binding obligation of such Contributor, enforceable in accordance with its terms. 3.4. No Litigation There are no actions, suits, claims, arbitrations, proceedings or investigations pending or, to the knowledge of any Contributor, threatened against, affecting or involving any Contributor or its businesses or assets, or the transactions contemplated by this Agreement, at law or in equity, or before or by any court, arbitrator or governmental authority, domestic or foreign, that could reasonably be expected to have a material adverse effect on the business or financial condition of any Contributor or to challenge or impair the ability of any Contributor to consummate the Acquisition. 3.5. Securities Law Matters (a) Each Contributor acknowledges that Carr intends the offer and issuance of the Units to be exempt from registration under the Securities Act and applicable state securities laws by virtue of (i) the status of each Contributor and each partner of such Contributor as an Accredited Investor (as defined below), and (ii) Regulation D promulgated under Section 4(2) of the Securities Act ("Regulation D"), and that Carr will rely in part upon the representations and warranties made by each Contributor in this Agreement in making the determination that the offer and issuance of the Units qualify for exemption under Rule 506 of Regulation D as an offer and sale only to Accredited Investors (as defined below). (b) Each Contributor, each of such Contributor's partners and each other person or entity who has a right to vote upon or approve the transactions contemplated hereby or who will receive a distribution of Units pursuant to Section 2.1(b) are "accredited investors" as defined in Regulation 501(a) under Regulation D ("Accredited Investors"). The only partners of Contributors are as set forth in Schedule 2 hereto. Each Contributor has provided to Carr a true, correct and complete copy of such Contributor's limited partnership agreement. -4- (c) Each Contributor and each other person or entity who will receive a distribution of Units pursuant to Section 2.1(b) will acquire the Units for their own account and not with a view to or for sale in connection with any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (d) Each Contributor and its partners have sufficient knowledge and experience in financial, tax and business matters to enable them to evaluate the merits and risks of investment in the Units. Each Contributor and its partners have the ability to bear the economic risk of acquiring the Units. Each Contributor acknowledges that (i) the transactions contemplated by this Agreement and the Other Agreements involve complex tax consequences for each Contributor and its partners, and each Contributor and its partners are relying solely on the advice of their own tax advisors in evaluating such consequences, (ii) neither Carr nor CRC has made (or shall be deemed to have made) any representations as to the tax consequences of such transaction to any Contributor or any of its partners, and (iii) references in this Agreement to the intended tax effect of the Acquisition and the other matters described herein shall not be deemed to imply any representation by Carr as to a particular tax effect that may be obtained by any Contributor or its partners. Each Contributor and its partners remain responsible for all tax consequences relating to each Contributor and its partners, except for the tax consequences to Contributors that Carr and CRC have agreed to be responsible for as expressly provided in this Agreement. (e) Each Contributor has received and reviewed the materials containing certain information regarding Carr and CRC, the parent of the general partner of Carr and a publicly traded corporation, listed on Exhibit E hereto prior to executing this Agreement. Each Contributor has been supplied with, or had access to, information to which a reasonable investor would attach significance in making an investment decision to acquire the Units and any other information Contributors have requested. Each Contributor has had an opportunity to ask questions of and receive information and answers from Carr and CRC concerning Carr, CRC, the Units and the Common Stock into which the Units may be redeemed, and to assess and evaluate any information supplied to each Contributor by Carr or CRC, and all such questions have been answered and all such information has been provided to the full satisfaction of Contributors. (f) Each Contributor acknowledges that the Units are not registered under the Securities Act or any state securities laws and cannot be resold without registration thereunder or exemption therefrom. Each Contributor agrees that it will not, or, if any person or entity receives a distribution of Units pursuant to Section 2.1(b), such person or entity will not transfer all or any portion of the Units (or any Common Stock received upon redemption of Units) for at least one (1) year after the Closing Date, and thereafter only if such transfer has been registered or is exempt from registration under the Securities Act and any applicable state securities laws. -5- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CARR AND CRC Carr represents and warrants to Contributors and CRC represents and warrants to Contributors (solely with respect to Section 4.1 through Section 4.5) as follows: 4.1. Organization and Standing (a) Carr is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full and unrestricted partnership power and authority to own, operate and lease its assets and to carry on its business as currently conducted. Carr is duly qualified to conduct business as a foreign limited partnership and is in good standing in each jurisdiction where the nature of the business conducted by Carr or the character of the assets owned, leased or otherwise held by it makes any such qualification necessary, except where the failure to be so qualified would not have a material adverse effect upon the business of Carr as currently conducted. (b) CRC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full and unrestricted corporate power and authority to own, operate and lease its assets and to carry on its business as currently conducted. CRC is duly qualified to conduct business as a foreign corporation and is in good standing in each jurisdiction where the nature of the business conducted by CRC or the character of the assets owned, leased or otherwise held by it makes any such qualification necessary, except where the failure to be so qualified would not have a material adverse effect upon the business of CRC as currently conducted. 4.2. Authorization; No Conflicts (a) The execution, delivery and performance by Carr of this Agreement and each Other Agreement to which Carr is a party, the fulfillment of and compliance with the respective terms and provisions hereof and thereof, and the consummation by Carr of the transactions contemplated hereby and thereby, do not and will not: (i) conflict with, or violate any provisions of, the certificate of limited partnership or agreement of limited partnership of Carr; (ii) conflict with, or violate any provision of, any statute, law, ordinance, regulation, rule, order, writ or injunction having applicability to Carr or any of its assets; or (iii) conflict with, result in any breach of, or constitute a default under any agreement to which Carr is a party or by which it or any of its assets are bound; except (in the case of clauses (ii) and (iii) above) for such conflicts, violations, breaches or defaults as will not have a material adverse effect on the business or financial condition of Carr or the consummation of the Acquisition. (b) The execution, delivery and performance by CRC of this Agreement and each Other Agreement to which CRC is a party, the fulfillment of and compliance with the respective terms and provisions hereof and thereof, and the consummation by CRC of the transactions contemplated hereby and thereby, do not and will not: (i) conflict with, or violate any provisions of, the certificate of incorporation or by-laws of CRC; (ii) conflict with, or violate any provision of, any statute, law, ordinance, regulation, rule, order, writ or injunction having applicability to CRC or any of its assets; or (iii) conflict with, result in any breach of, or constitute a default under any agreement to which CRC is a party or by which it or any of its assets are bound; except (in the case of clauses (ii) and (iii) above) for such conflicts, violations, breaches or defaults as will not have a material adverse effect on the business or financial condition of CRC or the consummation of the Acquisition. -6- 4.3. Binding Obligations This Agreement and each Other Agreement executed and delivered by Carr and CRC constitutes a valid and binding obligation of Carr and CRC, respectively, enforceable in accordance with its terms; and each Other Agreement to be executed by Carr and CRC pursuant hereto or thereto, when executed and delivered in accordance with the provisions hereof or thereof, shall be a valid and binding obligation of Carr and CRC, respectively, enforceable in accordance with its terms. 4.4. No Litigation There are no actions, suits, claims, arbitrations, proceedings or investigations pending or, to the knowledge of Carr or CRC, threatened against, affecting or involving Carr, CRC or their businesses or assets or the transactions contemplated by this Agreement, at law or in equity, or before or by any court, arbitrator or governmental authority, domestic or foreign, that could reasonably be expected to have a material adverse effect on the business or financial condition of Carr or CRC or challenge or impair the ability of Carr or CRC to consummate the Acquisition. 4.5. No Tax Audits Neither Carr nor CRC is a party to any pending action, audit or proceeding by any taxing authority for any assessment or collection of any federal, state or local taxes. An audit of Carr and CRC for the taxable year ended 1993 was recently completed, which audit resulted in a proposed adjustment to which Carr, CRC and the other partners of Carr agreed to and is not expected to result in any direct liability to CRC. The Internal Revenue Service did not take any positions or raise any issues during such audit that would bear on the tax treatment of the transactions contemplated herein. 4.6. Issuance of Units The Units to be issued to Contributors pursuant to Article II hereof at the Closing will have been duly authorized for issuance by Carr to Contributors, and upon issuance will be validly issued, fully paid and non-assessable. At the Closing, the terms of the Units will conform in all material respects to the terms set forth in the Partnership Agreement. 4.7. Tax Reporting Carr will treat the transfer of the Contributed Property to Carr for federal income tax purposes as a contribution that qualifies for nonrecognition of gain pursuant to Section 721 of the Code and will determine the share of Carr's liabilities allocable to the Contributors by including the amount of those liabilities guaranteed by the Herricks pursuant to Section 7.3 hereof. -7- 4.8. Carr LLC Carr shall not take any actions or assume any positions which will cause Carr LLC to be treated as an association taxable as a corporation. 4.9. No Investment Company As of the Closing Date and immediately thereafter, less than eighty (80%) percent of the value of Carr's assets (i) are held for investment and (ii) consist of stocks and securities, as such term is defined in Section 351(e)(1) of the Code. There is no plan in existence as of the Closing Date which would cause this representation to not be accurate at a subsequent date. 4.10. No Representation with Regard to Tax Treatment Notwithstanding any provision of this Agreement, Carr makes no representation regarding the tax consequences (and shall have no liability with respect to representations of tax consequences) to any Contributor or to any of its direct or indirect partners of the transactions contemplated herein or in any Other Agreements. ARTICLE V CONDITIONS PRECEDENT TO THE CLOSING 5.1. Conditions to Obligations of Contributors The obligation of Contributors to consummate the closing of the contribution described in Section 1.2 hereof is subject to the fulfillment, at or prior to the Closing, of each of the following conditions, and failure to satisfy any such condition shall excuse and discharge all obligations of Contributors to carry out the provisions of this Agreement unless such failure is waived in writing by Contributors: (a) Representations and Warranties. The representations and warranties made by Carr and CRC herein and the statements contained in any document furnished by Carr and CRC in connection with the Closing pursuant to this Agreement shall be true in all material respects when made and on and as of the Closing Date as though such representations and warranties were made on and as of such date, except for any changes therein contemplated by this Agreement or any Other Agreement. (b) Legal Proceedings. No action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) which is reasonably expected to restrain, prohibit or invalidate the transactions contemplated by this Agreement, other than an action or proceeding instituted or threatened by any Contributor. (c) Conditions under Acquisition Agreement. All conditions to the obligation of Contributors to consummate the closing under the Acquisition Agreement shall have been satisfied or waived by Contributors. -8- (d) Documents at Closing. All documents required to be furnished to Contributors (either hereunder or under the Acquisition Agreement) prior to or at the Closing shall have been so furnished. 5.2. Conditions to Obligations of Carr and CRC The obligation of Carr and CRC to consummate the closing of the contribution described in Section 1.2 hereof is subject to the fulfillment, at or prior to the Closing, of each of the following conditions, and failure to satisfy any such condition shall excuse and discharge all obligations of Carr and CRC to carry out the provisions of this Agreement unless such failure is waived in writing by Carr: (a) Representations and Warranties. The representations and warranties made by Contributors herein and the statements contained in any document furnished by Contributors or its partners in connection with the Closing pursuant to this Agreement shall be true in all material respects when made and on and as of the Closing Date as though such representations and warranties were made on and as of such date, except for any changes therein contemplated by this Agreement or any Other Agreement. (b) Legal Proceedings. No action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) which is reasonably expected to restrain, prohibit or invalidate the transactions contemplated by this Agreement other than an action or proceeding instituted or threatened by Carr or CRC. (c) Conditions under Acquisition Agreement. All conditions to the obligation of Carr to consummate the closing under the Acquisition Agreement shall have been satisfied or waived by Carr and CRC. (d) Documents at Closing. All documents required to be furnished to Carr and CRC (either hereunder or under the Acquisition Agreement) prior to or at the Closing shall have been so furnished. ARTICLE VI SURVIVAL; INDEMNIFICATION 6.1. Survival All representations, warranties, covenants, indemnities and other agreements of the parties hereto made in this Agreement or in any document furnished pursuant hereto shall not be extinguished by the Closing, but shall survive the Closing, except as may be otherwise specified herein or as limited by law. No investigation, audit or inspection made by or on behalf of any party hereto shall affect the survival of the representations, warranties, covenants, indemnities and other agreements of the parties hereto. All representations and warranties of the parties hereto made in this Agreement or in any document delivered pursuant hereto shall also be deemed made on and as of the Closing Date. -9- 6.2. Agreement of Contributors Subject to the conditions and provisions of this Article VI, Contributors hereby jointly and severally agree to indemnify, defend and hold harmless Carr and its subsidiaries and affiliates (including CRC) and each of their respective officers, directors, partners, employees, successors and assigns (collectively, the "Carr Indemnified Persons") from and against and in respect of all demands, claims, actions or causes of action, assessments, losses, damages (including, without limitation, diminution in value), liabilities, costs and expenses, including, without limitation, interest, penalties and attorneys' fees and disbursements (the "Claims"), asserted against, resulting to, imposed upon or incurred by the Carr Indemnified Persons, directly or indirectly, by reason of or resulting from any breach of any representation or warranty in any material respect made by Contributors in this Agreement or in any document furnished by or on behalf of Contributors pursuant to this Agreement. 6.3. Agreement of Carr to Indemnify Subject to the conditions and provisions of this Article VI, Carr hereby agrees to indemnify, defend and hold harmless each Contributor and its subsidiaries and affiliates and each of their respective officers, directors, partners, employees, successors and assigns (collectively, the "Contributor Indemnified Persons"), from and against and in respect of all Claims asserted against, resulting to, imposed upon or incurred by the Contributor Indemnified Persons, directly or indirectly, by reason of or resulting from any breach of any representation or warranty in any material respect made by Carr in this Agreement or in any document furnished by or on behalf of Carr pursuant to this Agreement. 6.4. Agreement of CRC to Indemnify Subject to the conditions and provisions of this Article VI, CRC hereby agrees to indemnify, defend and hold harmless each Contributor Indemnified Person, from and against and in respect of all Claims asserted against, resulting to, imposed upon or incurred by the Contributor Indemnified Persons, directly or indirectly, by reason of or resulting from any breach of any representation or warranty in any material respect made by CRC in this Agreement or in any document furnished by or on behalf of CRC pursuant to this Agreement. 6.5. Conditions of Indemnification The obligations and liabilities of Contributors, Carr and CRC hereunder with respect to their respective indemnities pursuant to this Article VI resulting from any Claim shall be subject to the following terms and conditions: (a) The indemnified party shall give prompt written notice (which notice shall be deemed to have been promptly given unless the indemnifying party shall have suffered a material adverse effect by reason of failure to give such notice) to the indemnifying party of any Claim which is asserted against, resulting to, imposed upon or incurred by such indemnified party and which may give rise to liability of the indemnifying party pursuant to this Article VI, stating (to the extent known or reasonably anticipated) the nature and basis of such Claim and the amount thereof. -10- (b) If the facts pertaining to a Claim arise out of the Claim of any third party, or if there is any Claim against a third party available by virtue of the circumstances of the Claim, the indemnifying party may assume the defense of such action or proceeding at such indemnifying party's own expense with counsel chosen by the indemnifying party and approved by the indemnified party, which approval shall not be unreasonably withheld; provided, however, that the indemnifying party shall not agree to settlement of any such action or proceeding which provides for any relief other than the payment of monetary damages or which could have a material precedential impact or effect on the business or financial condition of the indemnified party without the prior written consent of the indemnified party; and provided further, that if the indemnified party reasonably determines that a conflict of interest exists where it is advisable for the indemnified party to be represented by separate counsel or that, upon advice of counsel, there may be legal defenses available to it which are different from or in addition to those available to the indemnifying party, then the indemnifying party shall not be entitled to assume such defense and the indemnified party shall be entitled to separate counsel at the indemnifying party's expense. If the indemnifying party is not entitled to assume the defense of such action or proceeding as a result of the proviso to the preceding sentence, the indemnifying party's counsel shall be entitled to conduct the indemnifying party's defense and the indemnified party's counsel shall be entitled to conduct the indemnified party's defense, it being understood that both such counsel will cooperate with each other to conduct the defense of such action or proceeding as efficiently as possible. If the indemnifying party is not so entitled to assume the defense of such action or does not assume such defense, after having received the notice referred to in subparagraph (a) above, the indemnifying party will pay the reasonable fees and expenses of counsel for the indemnified party. In such event, however, the indemnifying party will not be liable for any settlement effected without the written consent of the indemnifying party. If an indemnifying party is entitled to assume, and assumes, the defense of such action or proceeding in accordance with this paragraph, the indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified party incurred thereafter in connection with such action or proceeding. Whether or not the indemnifying party chooses to so defend or prosecute such Claim, all the parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith. The indemnifying party shall be subrogated to all rights and remedies of the indemnified party. ARTICLE VII CONFIDENTIALITY; TAX MATTERS 7.1. Confidentiality (a) Information. Before the Closing or if the Closing does not occur, all information provided by Carr to Contributors in connection with the transactions contemplated by this Agreement shall be kept strictly confidential and shall not, without the prior consent of Carr, be disclosed by any Contributor or used for any purpose other than evaluating such transactions. Each Contributor agrees that such information shall only be transmitted to such Contributor's partners, officers, directors, trustees, employees, attorneys, accountants, contractors, consultants, advisors and agents who need to know such information for purposes of evaluating such transactions and who agree to be bound by these confidentiality provisions, and each Contributor agrees that in the event the Closing does not take place for any reason, each Contributor shall -11- return all such information to Carr. The provisions of this section shall not apply to any information which is a matter of public record or lawfully obtainable from other sources and shall not prevent either party from complying with applicable laws, rules, regulations and court orders, including, without limitation, governmental regulatory, disclosure, tax and reporting requirements. (b) Public Notices. Between the date hereof and for a period ending one (1) year after the Closing Date, neither party shall release or cause or permit to be released any press notices or advertising promotion or other publicity relating to this transaction without first giving reasonable notice to, and consulting with, the other party and, as required herein, obtaining the written consent of the other party. No provisions in this Section 7.1 shall preclude a party from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, affiliates, investors, or any prospective lender, partner or investor, as the case may be, or prevent a party hereto, from complying with laws, rules, regulations and court orders, including without limitation, governmental regulatory, disclosure, tax and reporting requirements (including, in the case of Carr, disclosure by CRC of information that it determines is necessary or appropriate in accordance with its obligations as a public company under rules of the New York Stock Exchange, the Securities and Exchange Commission or other regulatory body) and stock exchange rules or making an announcement or making any communication to its shareholders in accordance with its corporate policy. 7.2. Limitation on Sale of Contributed Property Carr agrees that it will not sell, transfer, exchange or otherwise dispose of part or all of its interest in the Contributed Property during the period (the "Lockout Period") commencing on the Closing Date and ending on the later of the date of death of Norton Herrick ("N. Herrick") and his spouse, Elaine Herrick ("E. Herrick") (N. Herrick, E. Herrick, Howard Herrick, Michael Herrick, Evan Herrick and the general partners of Contributors are hereinafter referred to as the "Herricks"), subject to earlier termination as set forth in Section 7.5 below, except in connection with either a like-kind exchange of the Contributed Property pursuant to Section 1031 of the Code or other disposition that pursuant to a nonrecognition provision in the Code does not result in the current recognition of any gain to the Herricks, in which case the newly acquired property shall be treated as Contributed Property and shall continue to be subject to the Lockout Restrictions. Notwithstanding anything to the contrary set forth herein, the prohibition against the sale, transfer, exchange or other disposition by Carr with respect to the Contributed Property during the Lockout Period shall automatically terminate in the event that (i) Carr terminates the Lockout Restrictions in accordance with Section 7.5, (ii) the Herricks at any time exercise their right to redeem the Units held by the Herricks (the "Herrick Units") for Common Stock, or (iii) a taxable sale, transfer, assignment or other disposition of the Herrick Units, including upon foreclosure with respect thereto (but excluding a pledge or other grant of security interest in the Herrick Units). -12- 7.3. Debt Guarantee Agreement (a) Carr agrees that it will take the Contributed Property at Closing subject to Contributors' obligations under that certain first mortgage loan provided by UBS Mortgage Finance, Inc. (the "Existing Debt"), and that so long as Carr owns such Contributed Property (or, if earlier, until the expiration of the Lockout Period), it will provide the Herricks and the Contributors (collectively, the "Guarantors") with the opportunity, at Closing and until the Existing Debt is repaid in full, to guarantee a portion of the Existing Debt equal to the lesser of (i) $27,000,000, or (ii) the outstanding principal balance on the Existing Debt (the "Existing Debt Guarantee Amount"); provided, however, that Carr shall agree to use its commercially reasonable efforts to maintain at least $16,000,000 of debt secured by the Contributed Property that may be guaranteed by the Guarantors pursuant to either the Existing Debt or other indebtedness (including debt that may be provided by CRC or any affiliate thereof). (b) Carr and CRC represent, warrant and covenant that they will enter into loan arrangements whereby CRC will loan and Carr will borrow as necessary an amount equal to the amount, if any, by which the Existing Debt Guarantee Amount pursuant to Section 7.3(a) is less than $27,000,000 (the "CarrAmerica Loan"), which loan shall be a recourse loan on the assets of Carr (but not to the partners of Carr) and secured by the Carr Properties (as defined in Section 7.3(c)) in accordance with Section 7.3(c), and that it will provide the Guarantors with the opportunity, for the duration of the Lockout Period, to guarantee amounts due under the CarrAmerica Loan (the "CarrAmerica Loan Guarantee Amount"), which together with the Existing Debt Guarantee Amount shall be no less than $27,000,000. Carr represents and warrants that it is the present intention of Carr that the proceeds of the CarrAmerica Loan shall be used solely for the ordinary business and operations of Carr. Carr further agrees that it will not prepay, refinance, or otherwise replace the CarrAmerica Loan during the Lockout Period; provided, however, that the foregoing limitation shall not apply if Carr replaces or refinances the CarrAmerica Loan with a new loan secured by the Carr Properties so long as the Guarantors are offered the opportunity to irrevocably and unconditionally guarantee such replacement financing in an amount up to the CarrAmerica Loan Guarantee Amount or indemnify and hold harmless CRC and its affiliates, at the option of the Guarantors, if applicable, from any liability with respect to a corresponding amount of the CarrAmerica Loan Guarantee Amount. Carr represents and warrants that it is the present intention of Carr that the proceeds of such replacement financing shall be used solely for the ordinary business and operations of Carr. Notwithstanding anything to the contrary set forth herein, the obligation of Carr to make available the CarrAmerica Loan Guarantee Amount shall automatically terminate in the event that (i) Carr terminates the Lockout Restrictions in accordance with Section 7.5, (ii) the Herricks at any time exercise their right to redeem the Herrick Units for Common Stock, or (iii) a taxable sale, transfer, assignment or other disposition of the Herrick Units, including upon foreclosure with respect thereto (but excluding a pledge or other grant of security interest in the Herrick Units). -13- (c) Carr and CRC represent, warrant and covenant that the security for the Carr America Loan made pursuant to the provisions of Section 7.3(b) shall consist solely of real estate assets of Carr and shall have a fair market value of at least five times the amount of such loan (each real estate asset securing the CarrAmerica Loan being referred to herein as a "Carr Property" and collectively, the "Carr Properties"), and that Carr and CRC shall deliver a written certificate to the Herricks certifying as to such value. CRC represents, warrants and covenants that CRC shall have a valid and enforceable first mortgage lien on any such Carr Properties. Carr shall have the right, in its sole and absolute discretion, to elect to sell or otherwise dispose of any of the Carr Properties, in which case Carr shall provide substitute security for the CarrAmerica Loan by pledging additional unencumbered assets of Carr selected by Carr with a fair market value at least equal to the value previously allocated to the Carr Property being sold or otherwise replaced; provided, however, that Carr and CRC shall have delivered a written certificate to the Herricks prior to such replacement certifying that the fair market value of such substitute asset is at least equal to the value previously allocated to the Carr Property being sold or otherwise replaced; and further provided, however, that in the event such Carr Property is also a Contributed Property, then Carr shall not have the right to sell or otherwise dispose of such Carr Property, as provided for in Section 7.2, unless such sale or disposition is permitted by Section 7.2. (d) Carr agrees that, so long as this Section 7.3 is in effect, it will not place a mortgage or lien (or permit any such mortgage or lien) to be placed upon the Contributed Property and the other interests in the U.S. West Communication Group office portfolio addressed in the Related Agreements (as defined in the Acquisition Agreement) unless such mortgage or lien secures only the Existing Debt or any replacement financing. (e) Any guarantees provided by the Guarantors shall be in the respective forms of composite Exhibit E attached hereto, as applicable, and shall provide that such guarantees shall terminate in accordance with the terms of the respective guarantees. (f) The Herricks shall have the right, effective upon the seventh (7th) anniversary of the Closing Date or at any time thereafter as specified by the Herricks, by written notice delivered to Carr, to require that Carr redeem the Herrick Units for real estate in accordance with the terms and procedures set forth in Section 7.5(b). (g) Carr and CRC represent, warrant and covenant that no person or entity other than the Guarantors shall have the right to guarantee the Existing Debt or the CarrAmerica Loan, if and when such loan is made by CRC to Carr. 7.4. Damages In the event that Carr breaches any of its obligations set forth in Section 7.2 or Section 7.3, the Herricks shall be entitled to receive from Carr as damages an amount equal to the aggregate federal, state and local income taxes incurred by the Herricks as a result thereof and the payment of such amount shall be guaranteed by CRC. Any such federal, state and local income taxes shall be deemed to be the amount of gain or income recognized by the Herricks multiplied by the then highest rate or rates applicable to such gain or income for the year in which such gain or income is recognized. The parties agree that such damages shall be considered to include any federal, state and local income taxes incurred by the Herricks by reason of the receipt of a payment from Carr for a breach of such obligations. No effect shall be given in determining the amount of damages to the Herricks of their other taxable income, tax deductions, tax credits, tax carry forwards nor to any other of their tax -14- benefits or tax attributes. The same principles of computation shall apply for state and local taxes. In addition, Carr shall pay to the Herricks any interest and/or penalties incurred by the Herricks as a result of a breach by Carr in the event that the Herricks actually incur the obligations to pay such interest and/or penalties as a result of such breach; provided, however, that Carr shall not be liable for any additional interest and/or penalties incurred by the Herricks as a result of the failure by the Herricks to pay any such interest and/or penalties to the appropriate governmental entity upon payment by Carr to the Herricks of all damages, if any, determined in accordance with Section 7.7. 7.5. Lockout Restrictions; Redemption of Herrick Units (a) The provisions set forth in Section 7.2 and Section 7.3 with respect to the obligations and/or restrictions of Carr or CRC (or any affiliate thereof) during the Lockout Period shall be collectively referred to hereafter as the "Lockout Restrictions." Carr shall have the right to cause a termination of the Lockout Restrictions, if such Lockout Restrictions remain in effect and have not theretofore been terminated in accordance with this Agreement, effective on the twentieth (20th) anniversary of the Closing Date or at any time thereafter as specified by Carr, by written notice delivered to the Herricks, which notice shall not be delivered prior to the date of such twentieth (20th) anniversary, and upon payment by Carr to the Herricks in an amount equal to fifty percent (50%) of the aggregate federal, state and local income taxes incurred by the Herricks, which amount shall be based on a reasonable estimate made by the Herricks of such taxes (or if such reasonable estimate is not received by Carr within ninety (90) days of such written notice, then Carr may estimate the amount due based on an assumed $27,000,000 gain recognition by the Herricks multiplied by the then highest current tax rate applicable to such gain), and the difference between the estimated taxes and the actual amounts due under this paragraph shall be delivered to the Herricks or Carr, as appropriate, by the other party within ten (10) business days after the date on which the actual amounts due under this paragraph are determined (with a copy of the tax filings to be delivered to Carr by the Herricks as soon as practicable). The taxes incurred shall be based on the then highest rate or rates applicable to such gain or income for the year in which such gain or income is recognized; provided, however, that the maximum amount payable by Carr under this Section 7.5(a) shall not exceed $8,000,000, which maximum amount shall be reduced by $1,000,000 on each successive anniversary date following the twentieth (20th) anniversary of the Closing Date (the "Optional Payment"). The maximum amount of the Optional Payment shall be that amount applicable to the year in which the notice of exercise of the right to terminate is given by Carr to the Herricks although payment of the Optional Payment may occur at a later date. No effect shall be given in determining the amount of damages to the Herricks of their other taxable income, tax deductions, tax credits, tax carry forwards nor to any other of their tax benefits or tax attributes. The termination of the Lockout Restrictions under this Section 7.5(a) shall be effective upon the latest to occur of the (i) first anniversary of the date of such notice from Carr to the Herricks provided that the completion of the redemption of the Herrick Units as set forth in Section 7.5(b) below has occurred prior to such first anniversary date (or, such earlier date upon completion of the redemption of the Herrick Units as set forth in Section 7.5(b) below), or (ii) the payment by Carr of the Optional Payment. Notwithstanding anything to the contrary in the preceding sentence or otherwise, if the completion of the redemption of the Herricks Units -15- as set forth in Section 7.5(b) has not occurred prior to the first anniversary of the date of such notice from Carr, then Carr shall have the right to terminate the Lockout Restrictions within five (5) months from the date of such first anniversary, which termination shall be effective upon the payment by Carr of the Optional Payment; provided, however, that if Carr does not pay the Optional Payment within this five (5) month period, the termination of the Lockout Restrictions shall not be deemed to have occurred, and Carr shall have no further right to terminate the Lockout Restrictions under this Section 7.5(a); provided, further, that upon the twenty-eighth (28th) anniversary of the Closing Date (at which time the Optional Payment shall have been reduced to zero), Carr shall have the right to cause a termination of the Lockout Restrictions at any time thereafter in accordance with the terms set forth in this Section 7.5(a). (b) In the event that Carr shall deliver notice of its exercise right to terminate the Lockout Restrictions pursuant to Section 7.5(a) above, the Herricks shall have a period of one (1) year after receipt of such notice to complete the redemption of the Herrick Units for real estate to be selected by the Herricks (in their sole discretion) and acquired by Carr for purposes of executing such redemption (the "Herrick Designated Replacement Property") subject to the following conditions (and completion of the redemption of the Herrick Units within such one (1) year period shall be deemed to constitute a full waiver by the Herricks of the right to receive the Optional Payment). The Herrick Designated Replacement Property shall have such value and be subject to such debt as shall be designated by the Herricks; provided, however, that (i) Carr shall not be required in any event to expend more in connection with the acquisition and delivery of the Herrick Designated Replacement Property than the value equal to the number of Herrick Units multiplied by the value of a share of common stock of CRC, as adjusted in accordance with the Partnership Agreement (the "Unit Equity Value"); (ii) to the extent that the total cost of acquiring and delivering the Herrick Designated Replacement Property would exceed the Unit Equity Value, the Herricks shall be obligated to pay to Carr the balance in cash as needed from time to time in advance of Carr incurring an obligation to proceed with the acquisition of such Herrick Designated Replacement Property; and (iii) the Herricks shall provide any credit support necessary to obtain the level of debt requested by the Herricks with respect to such Herrick Designated Replacement Property. (c) The Herricks shall reimburse, indemnify and hold harmless Carr for any losses and expenses that may be incurred by Carr in connection with the acquisition and delivery of the Herrick Designated Replacement Property in excess of the Unit Equity Value (and shall provide to Carr reasonably security therefor). 7.6. Special Loss Allocation Pursuant to the terms of the Second Amendment, the Class E Units shall be allocated losses in the aggregate amount of $50,000 per year for a period of twenty (20) years. Carr shall make available for the Herricks sufficient additional debt of Carr to permit the Herricks to have an adjusted tax basis in the Herrick Units in an amount that would permit them to utilize such losses, which debt shall be subject to the terms and conditions set forth in Section 7.3 above. -16- 7.7. Rights and Remedies of Contributors Notwithstanding any provision of this Agreement, Contributors agree that the sole and exclusive rights and remedies to which they may be entitled at law or in equity for a breach or violation by the other party of any of the covenants and agreements set forth in Sections 7.2 through 7.5 (the "Tax-Related Covenants") shall be for damages as determined pursuant to this Section 7.7, and Contributors shall not be entitled to pursue a claim for specific performance of the terms of Sections 7.2 through 7.5 (other than with respect to a breach by Carr of the provisions of Section 7.3(f); the parties agreeing that monetary damages may be difficult to ascertain and that specific performance will be an appropriate remedy). If Contributors notify Carr of a claim that Carr has breached or violated any of the Tax-Related Covenants, Carr and Contributors agree to negotiate in good faith to resolve any disagreements regarding any such breach or violation. If any such disagreement cannot be resolved by Carr and Contributors within thirty (30) days after receipt by Carr of the notice in accordance with the preceding sentence, Carr and Contributors shall jointly retain a nationally recognized independent public accounting firm ("an Accounting Firm") to act as an arbitrator to resolve as expeditiously as possible all points of any such disagreement (including, without limitation, whether a breach by Carr of any of the Lockout Restrictions has occurred and, if so, the amount of damages that the Herricks are entitled to as a result thereof, determined as set forth in Section 7.4). If the parties cannot agree on an Accounting Firm, each of Contributors and Carr shall retain an Accounting Firm, and the Accounting Firm selected by Carr and the Accounting Firm selected by Contributors shall jointly retain an Accounting Firm. If the two Accounting Firms cannot agree upon a third Accounting Firm within thirty (30) days, such matter shall be referred to a court of competent jurisdiction to select the third Accounting Firm. The Accounting Firms shall be instructed to resolve as expeditiously as possible all points of any such disagreement (including, without limitation, whether a breach by Carr of any of the Lockout Restrictions has occurred and, if so, the amount of damages that the Herricks are entitled to as a result thereof, determined as set forth in Section 7.4). All determinations made by the Accounting Firm or the Accounting Firms, as the case may be, with respect to the resolution of any breach or violation of the Tax-Related Covenants shall be final, conclusive and binding on Carr and Contributors. The fees and expenses of any Accounting Firms incurred in connection with any such determination shall be shared equally by Carr and Contributors. The rights and remedies of Contributors set forth in this Section 7.7 shall be available to any of the Contributors individually. ARTICLE VIII REMEDIES; TERMINATION 8.1. Remedies If this Agreement is terminated prior to the Closing, Carr and Contributors shall have the same rights and remedies set forth in Section 1.4 of the Acquisition Agreement, as if such section had been set forth in this Agreement; provided, however, that no party shall be entitled to additional damages beyond those set forth in the Acquisition Agreement. -17- 8.2. Termination If the Acquisition Agreement is terminated in accordance with the provisions thereof, then this Agreement shall automatically terminate. So long as a party is not in default hereunder, if any condition to such party's obligation to proceed with the Closing hereunder has not been satisfied as of the Closing Date or other applicable date, such party may, in its sole discretion, terminate this Agreement by written notice to the other party on or before the Closing Date or other applicable date, or elect to close, notwithstanding the non-satisfaction of such condition, in which event such party shall be deemed to have waived any such condition. ARTICLE IX MISCELLANEOUS 9.1. Additional Actions and Documents Each of the parties hereto hereby agrees to take or cause to be taken such further actions, to execute, deliver and file or cause to be executed, delivered and filed such further documents, and will obtain such consents, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement. 9.2. Expenses Each party hereto shall pay its own legal, accounting and other advisory fees incurred in connection with the negotiation and closing of the Agreement. The provisions of this Section 9.2 shall survive any termination of this Agreement. 9.3. Assignment No party hereto shall assign its rights and/or obligations under this Agreement, in whole or in part, whether by operation of law or otherwise, without the prior written consent of the other parties hereto. Notwithstanding anything to the contrary in the preceding sentence, at any time after the Closing Date, Carr may assign its rights and/or obligations under this Agreement to an affiliate, or any other person or entity in connection with a merger, consolidation, sale or contribution of all or substantially all of its or CRC's assets, or other similar corporate transaction; provided, that no assignment pursuant to the preceding clause shall release the assigning party from its respective liabilities and obligations hereunder. 9.4. Entire Agreement; Amendment This Agreement, including the Exhibits and other documents referred to herein or furnished pursuant hereto, together with the Acquisition Agreement and the exhibits and other documents referred to therein or furnished pursuant thereto, constitute the entire agreement among the parties hereto with respect to the transactions contemplated herein, and supersede all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein; provided, that nothing in this Section 9.4 shall have any effect on the Other Agreements. Prior drafts of this Agreement shall not be admissible as evidence in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated herein. No amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed and delivered by the party against whom enforcement of the amendment, modification, or discharge is sought. -18- 9.5. Waiver No delay or failure on the part of any party hereto in exercising any right, power or privilege under this Agreement or under any other documents furnished in connection with or pursuant to this Agreement shall impair any such right, power or privilege or be construed as a waiver of any default or any acquiescence therein. No single or partial exercise of any such right, power or privilege shall preclude the further exercise of such right, power or privilege, or the exercise of any other right, power or privilege. No waiver shall be valid against any party hereto unless made in writing and signed by the party against whom enforcement of such waiver is sought and then only to the extent expressly specified therein. 9.6. Severability If any part of any provision of this Agreement or any other agreement or document given pursuant to or in connection with this Agreement shall be invalid or unenforceable in any respect, such part shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts of such provision or the remaining provisions of this Agreement. 9.7. Governing Law This Agreement, the rights and obligations of the parties hereto, and any claim or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Delaware (excluding the choice of law rules thereof). 9.8. Notices All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be hand delivered, sent by overnight courier or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by facsimile, telegram, telecopy or telex, addressed as follows: (i) If to any Contributor: The Herrick Company, Inc. Attn: Norton Herrick 2295 Corporate Boulevard, N.W., Suite 222 Boca Raton, FL 33431 Telephone: 561/241-9880 Facsimile: 561/241-9887 -19- With a copy to: Battle Fowler, LLP Attn: Peter Fass, Esq. 75 E. 55th Street New York, NY 10022 Telephone: 212/856-6850 Facsimile: 212/856-7822 (ii) If to Carr: CarrAmerica Realty Corporation Attn: Robert G. Stuckey 1700 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Telephone: 202/624-7533 Facsimile: 202/638-0102 With a copy to: Hogan & Hartson L.L.P. Attn: David W. Bonser, Esq. Columbia Square 555 Thirteenth Street, N.W. Washington, D.C. 20004 Telephone: 202/637-5868 Facsimile: 202/637-5910 Each party may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be hand delivered, sent, mailed, faxed, telecopied or telexed in the manner described above, or which shall be delivered to a telegraph company, shall be deemed sufficiently given, served, sent, received or delivered for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, the confirmation receipt (with respect to a facsimile), or (with respect to a telecopy or telex) the answerback being deemed conclusive, but not exclusive, evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 9.9. Headings Section headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 9.10. Execution in Counterparts To facilitate execution, this Agreement may be executed in as many counterparts as may be required. It shall not be necessary that the signatures of, or on behalf of, each party, or that the signatures of all persons required -20- to bind any party, appear on each counterpart; but it shall be sufficient that the signature of, or on behalf of, each party, or that the signatures of the persons required to bind any party, appear on one or more of the counterparts. All counterparts shall collectively constitute a single agreement. It shall not be necessary in making proof of this Agreement to produce or account for more than a number of counterparts containing the respective signatures of, or on behalf of, all of the parties hereto. 9.11 Attorneys' Fees Should either party employ attorneys to enforce any of the provisions hereof, the party against whom any final judgment is entered agrees to pay the prevailing party all reasonable costs, charges and expenses, including reasonable attorneys' fees, expended or incurred by the prevailing party in connection therewith. 9.12. Waiver of Jury Trial TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ACQUISITION AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE PROVISIONS OF THIS SECTION 9.12 SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT. -21- IN WITNESS WHEREOF, the parties hereto have caused this Contribution Agreement to be duly executed on their behalf as of the date first above written. CONTRIBUTORS: PhoenixWest Associates, Ltd. (formerly known as Cypress Lakes at Boca Rio Associates, Limited Partnership) By: G-P PhoenixWest, Inc., General Partner By: /s/ Norton Herrick --------------------------- Name: Norton Herrick Title: President Versailles Associates Limited Partnership By: G-P Versailles, Inc., General Partner By: /s/ Norton Herrick ------------------------- Name: Norton Herrick Title: President Lakeview 436 Associates, Ltd. By: Lakeview-Nort, Ltd., General Partner By: 436, Inc., General Partner By: /s/ Norton Herrick ------------------------- Name: Norton Herrick Title: President Pines Realty Associates, Ltd. By: 7425, Inc., General Partner By: /s/ Norton Herrick ------------------------- Name: Norton Herrick Title: President -22- CARR: CARRAMERICA REALTY, L.P. By: CarrAmerica Realty GP Holdings, Inc., General Partner By: /s/ Robert G. Stuckey ---------------------------------- Name: Robert G. Stuckey Title: Managing Director and Vice President CRC: CARRAMERICA REALTY CORPORATION By: /s/ Robert G. Stuckey ---------------------------------- Name: Robert G. Stuckey Title: Chief Investment Officer -23- EX-21.1 3 LIST OF SUBSIDIARIES EXHIBIT 21.1 U.S. West, L.L.C. EX-23.1 4 ACCOUNTANTS' CONSENT EXHIBIT 23.1 ACCOUNTANTS' CONSENT The Partners CarrAmerica Realty, L.P.: We consent to incorporation by reference in the registration statement (No. 333-22353) on Form S-3 of CarrAmerica Realty, L.P. of our report dated February 6, 1998, relating to the consolidated balance sheets of CarrAmerica Realty, L.P. as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners' capital and cash flows for the year ended December 31, 1997 and the period from March 6, 1996 (date of inception) to December 31, 1996 and the related schedule of Consolidated Real Estate and Accumulated Depreciation as of December 31, 1997. Washington, D.C. March 31, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARRAMERICA REALTY, L.P. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND FROM CARRAMERICA REALTY, L.P. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 0001040554 chefw$d5 1,000 U.S. Dollar 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1.000 41,894 0 5,085 0 0 0 569,215 13,360 636,568 0 258,953 0 0 0 377,632 636,568 0 60,469 0 49,215 0 0 0 16,693 0 16,693 0 0 0 16,693 0 0 Notes & accounts receivable are presented net of allowance for doubtful accounts as the allowance is immaterial.
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