WESTBROOK PARTNERS
September 11, 1997
Mr. Clay W. Hamlin, III
President
South Brunswick Investment Company
One Logan Square
Suite 1105
Philadelphia, PA 19103
Re: South Brunswick Investors, L.P. (the "Partnership")
Dear Clay:
Following up on our discussions of the proposed Royale transaction,
Westbrook Real Estate Partners, L.L.C., on behalf of its entities affiliated
with South Brunswick Investors, L.P., (collectively "Westbrook"), hereby gives
its consent to the transaction described in the two booklets prepared by The
Shidler Group entitled "The Royale Merger" dated August, 1997 provided by you,
with the following modifications:
(1) The Partnership will merge into First Commercial after the
transfer by the Partnership of its undeveloped land to a newly formed
mirror image partnership at Shidler's sole cost and expense, (including
partnership formation costs, transfer taxes, deed preparation, recording
fees, title premiums, etc.). Westbrook will be paid $1,840,000 in cash and
will receive 366,633 common partnership units (value of $5.50 per unit) and
241,978 preferred partnership units (face value of $25.00 per unit). South
Brunswick Investment Company and Dayton Investors, L.L.C. (collectively
"Shidler") will receive 207,537 (value of $5.50 per unit) common
partnership units and 136,974 preferred partnership units (face value of
$25.00 per unit). These unit allocations are based on relative
distributions to Westbrook and Shidler assuming a hypothetical sale value
of $27,465,480. The merged entity will pay all costs and expenses and be
responsible for all liabilities.
(2) Westbrook will have an option to put its common and preferred
units to Jay Shidler and/or Clay Hamlin within 60 days after the second
anniversary of the closing of the merger for $3,481,579, payable in cash.
This amount plus Westbrook's original investment of $1,840,000 equates to a
current gross asset value of $25,000,000 using the Sale scenario
methodology (see attached). Subject to transfer restrictions, the option
also would be immediately exercisable by Westbrook for $3,481,579 if any
quar-
-2-
terly dividend distributions were not made in accordance with the attached
table.
(3) Westbrook will be permitted to name one of its principals to serve
as an independent director of Royale.
Westbrook agrees to take such actions and execute such documentation as
reasonably necessary to complete the transaction.
Westbrook's consent is conditioned on its Investment Committee approval and
Shidler's compliance with all material terms of the transaction and the accuracy
of the information provided, to be reflected in the transaction documentation
which shall be acceptable to Westbrook.
Please execute a copy of this letter and return it to me to indicate your
agreement.
Yours truly,
/s/ William H. Walton
------------------------------
William H. Walton
Managing Member,
Westbrook Real Estate
Partners, L.L.C.
Sept. 12, 1997
- -----------------------------
(Date)
Princeton Technology Center
Allocation of Proceeds by Partner
Merger vs.
27,465,480 25,000,000 32,588,891 $25MM
Sale Sale Merger Difference
Partners
Jay H. Shidler 584,769 351,095 3,041,159 690,064
SELP 265,390 201,970 389,255 187,285
Clay W. Hamlin, III 850,152 553,059 1,430,398 877,339
Robert L. Denton 89,700 58,391 150,849 92,458
James K. Davis 32,679 20,156 57,137 36,981
LGR Investment Fund, Ltd. 1,284,669 975,945 1,887,632 911,687
Tiger South Brunswick, L.L.C. 49,246 37,411 72,359 34,948
Westbrook Real Estate Fund I, L.P. 6,089,201 4,807,860 8,591,767 3,783,907
Westbrook Real Estate Co-Inv. Partnership
I, L.P. 603,249 476,308 851,175 374,867
--------- --------- ---------- ---------
9,849,055 7,482,195 14,471,731 6,989,536
========= ========= ========== =========
Total Westbrook Consideration 6,471,696 5,321,579 9,515,301
Westbrook Percent of Total 68.5% 71.1% 65.8%
Total Shidler Consideration 3,107,359 2,160,616 4,956,430
Shidler Percent of Total 31.5% 28.9% 34.2%
Westbrook Adjustment for $27.5MM Value 9,905,926 68.5%
Shidler Adjustment for $27.5MM Value 4,565,805 31.5%
----------
14,471,731
Westbrook Merger Shidler Merger
Total Adj. Total Adj.
Consideration Consideration
9,905,926 Merger 4,565,805 Merger
------------- ------
(1,840,000) Minus Cash 0 Minus Cash
--------- ---------
8,065,926 Value Units 4,565,805 Value Units
6,049,445 75% Preferred 3,424,354 75% Preferred
--------- ---------
241,978 Preferred Units at $25 136,974 Preferred Units at $25
2,016,482 25% Common 1,141,451 25% Common
--------- ---------
366,633 Common Units at $5.50 207,537 Common Units at $5.50
9,905,926 4,565,805
Westbrook $25MM Sale Put Option
5,321,579 Total Consideration $25MM Sale
(1,840,000) Minus Cash
3,481,579 Put Option
Royale Merger
Westbrook Internal Rate of Return
Dividend on
Dividend on 366,633
241,978 Shares of Conv. Shares of
Preferred @ Common Stock@
Capital $1.625 $0.50
Contribution/ Annual Rate Annual Rate Total Cash Flow
(Distribution) Stream
1. 4/21/95 (1,840,000) (1,840,000)
2. 6/30/95 0 0
3. 9/30/95 0 0
4. 12/30/95 0 0
5. 3/30/96 0 0
6. 6/30/96 0 0
7. 9/30/96 0 0
8. 12/30/96 0 0
9. 3/30/97 0 0
10. 6/30/97 0 0
11. 9/30/97 1,840,000 1,840,000
12. 12/30/97 98,303 45,829 144,133
13. 3/30/98 98,303 45,829 144,133
14. 6/30/98 98,303 45,829 144,133
15. 9/30/98 98,303 45,829 144,133
16. 12/30/98 98,303 45,829 144,133
17. 3/30/99 98,303 45,829 144,133
18. 6/30/99 98,303 45,829 144,133
19. 9/30/99 3,481,579 98,303 45,829 3,625,712
Total Cash Flow 6,474,640
Net Cash Flow 4,634,640
Princeton Technology Center
Comparison of Value Received
In a Sale Versus UPREIT Contribution
Sale Merger Difference
Gross Property Value 25,000,000 32,588,891 7,588,891
Add:
Partnership Cash Balance 16,269 16,269 0
Less:
Existing Loan Payoff 12,893,244 12,893,244 0
Tenant Improvement Reserves 2,485,400 2,485,400 0
Leasing Commission Reserves 696,950 696,950 0
Capital Improvement Reserve 253,000 253,000 0
Rent Guaranty Reserves 205,480 205,480 0
1997/1998 Real Property Taxes 0 40,980 40,980
New Mortgage Loan Costs 0 296,481 296,481
Selling Costs (2%) 500,000 0 (500,000)
Transfer Tax (1% for Sale
Estimate for Merger) 250,000 7,511 (242,489)
Merger Costs 0 928,494 928,494
Accrued Acquisition Fee 0 0 0
Refinance Fee (1%) 0 0 0
Sales Coordination Fee (1%) 250,000 325,889 75,889
Accrued Asset Management Fee 0 0 0
Accrued Property Management Fee 0 0 0
------------- ------------ ------------
Net Property Value 7,482,195 14,471,731 6,989,536
============= ============ ============