Contribution And Exchange Agreement

FIRST AMENDMENT


TO THE


CONTRIBUTION AND EXCHANGE AGREEMENT


AMONG


THE MK CONTRIBUTORS,


THE MK ENTITIES,


THE PATRIOT CONTRIBUTORS,


THE PATRIOT ENTITIES,


PATRIOT AMERICAN MANAGMENT AND LEASING CORP.,


CALI REALTY, L.P.


AND


CALI REALTY CORPORATION


Dated as of: December 11, 1997


FIRST AMENDMENT
TO THE
CONTRIBUTION AND EXCHANGE AGREEMENT


THIS FIRST AMENDMENT TO THE CONTRIBUTION AND EXCHANGE AGREEMENT (this " FIRST AMENDMENT") made as of this 11th day of December, 1997 by and among the MK Contributors, the MK Entities, the Patriot Contributors, the Patriot Entities, and Patriot American Management and Leasing Corporation ("PAM"); (the MK Contributors and the Patriot Contributors shall collectively be referred to as the "MACK CONTRIBUTORS" and each individually a "MACK CONTRIBUTOR"); (the MK Entities and the Patriot Entities shall collectively be referred to as the "MACK ENTITIES" and each individually a "MACK ENTITY"); (the Mack Contributors and the Mack Entities shall collectively be referred to as "MACK") and CALI REALTY, L.P., a Delaware limited partnership ("CRLP") and CALI REALTY CORPORATION, a Maryland corporation ("CALI").


W I T N E S S E T H


WHEREAS, MACK, CRLP and Cali have entered into a certain Contribution and Exchange Agreement dated September 18, 1997 (the "Original Agreement", which as amended by this First Amendment, shall hereinafter be referred to as the "AGREEMENT"), whereby MACK has agreed (i) to contribute certain properties, ground leases and/or one-hundred (100%) percent of its partnership, limited liability company and/or other ownership interests in and to certain Mack Entities to CRLP or, at CRLP's direction, to an entity (1) owned by (a) CRLP, (b) Cali and/or (c) Cali's one-hundred (100%) percent owned subsidiaries, and (ii) to cause certain key executives of MACK to become part of the management of Cali;


WHEREAS, MACK, CRLP and Cali have agreed that the Original Agreement is to be amended in accordance with the terms and conditions set forth herein;


WHEREAS, all capitalized terms used in this First Amendment and not otherwise defined herein shall have the meaning ascribed to such terms in the Original Agreement, as amended hereby.


NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, do hereby agree as follows:


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1. PROPERTY.
1.1 Based upon the results of due diligence undertaken to date and other developments with respect to the Property,


(a) the property commonly known as Biltmore Plaza or Western Plaza, located at 6001 N. 24th, Phoenix, Arizona, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Patriot American Properties as "No. 3" (the "BILTMORE PROPERTY"), is, pursuant to Section 3.4(b) of the Original Agreement, hereby eliminated from the transaction and deemed a Partner Property, subject to all of the provisions of the Original Agreement applicable thereto, including but not limited to Section 3.4(d) of the Original Agreement, whereby the Biltmore Property may become a Resolved Property and thereby subject to the Put/Call Provisions;


(b) the property commonly known as Mack Murray Hill, located at 890 Mountain Avenue, New Providence, New Jersey, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Mack Properties (the "MURRAY HILL PROPERTY"), is hereby deleted from Schedule 1.1(a)(ii) to the Original Agreement to reflect that the Murray Hill Property is not subject to a ground lease; and


(c) (i) unless a ruling is obtained prior to Closing from the United States Internal Revenue Service (the "IRS") to the effect that Cali's voting interest in a maintenance association constitutes "real estate assets" within the meaning of Section 856(c)(6)(B) for purposes of Section 856(c)(5)(A) of the Internal Revenue Code of 1986, as amended (the "CODE") and the Treasury regulations promulgated thereunder, and that said voting interest will not be considered "voting securities" for purposes of Section 856(c)(5)(B) of the Code, then the property commonly known as Patriot Westage Center, located at 300 South Lake Drive, Fishkill, New York, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Patriot American Properties as "No. 23" (the "FISHKILL PROPERTY") shall be leased to CRLP pursuant to a ninety-nine (99) year ground lease (the "FISHKILL GROUND LEASE"), in the form annexed hereto as Exhibit 1.1(c). In the event that a favorable ruling with respect to the foregoing issues is obtained from the IRS prior to the Closing Date, then this Section 1.1(c) of this First Amendment shall be void AB INITIO, and of no further force and effect, and the Fishkill Property shall be contributed to CRLP, Cali or any of its subsidiaries or affiliates as originally contemplated by the Original Agreement.


(ii) Section 1.3 of the Original Agreement is hereby amended by deleting the words "at Closing" at the end of the first paragraph of Section 1.3 and adding in its place the words "or Ground Lease at Closing".


(iii) Section 5.3 of the Original Agreement is hereby amended by adding the words "or Ground Lease" at the end of the first sentence.


(iv) The Fishkill Ground Lease is not intended, in any way, to limit, curtail or restrict CRLP's rights under the Agreement. In the event of any conflict between


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the terms and conditions of the Fishkill Ground Lease and the Agreement, the terms and conditions of the Agreement shall govern. 2. EXCHANGE CONSIDERATION ADJUSTMENT.


2.1 To reflect, among other things, the elimination of the Biltmore Property and certain increases in value including the additional value attributable to increased management potential which Cali will be able to realize upon the acquisition of the Exchange Property, the Exchange Consideration shall be adjusted as follows, notwithstanding the terms and provisions of Section 2.6(b) of the Agreement to the contrary:


(a) the total Exchange Consideration shall be one billion one hundred forty-four million seventy-nine thousand and twelve dollars ($1,144,079,012.00), plus the Warrants, consisting of the following combination:


- -------------------------------------------------------------------------------- TYPE OF CONSIDERATION AMOUNT DETAILS - -------------------------------------------------------------------------------- Cash: $468,958,000.00 - -------------------------------------------------------------------------------- Common Units: $125,128,012.00 3,972,318 Units - -------------------------------------------------------------------------------- Series A Preferred Units: $27,132,153.00 27,132 Preferred Units - -------------------------------------------------------------------------------- Series B Preferred Units: $223,123,847.00 223,124 Preferred Units - -------------------------------------------------------------------------------- Mortgage Debt Amount: $299,737,000.00 - --------------------------------------------------------------------------------


- -------------------------------------------------------------------------------- Warrants: 2,000,000 Warrants - --------------------------------------------------------------------------------


3. EARNOUT/CONTINGENT UNITS.


3.1 (a) The property commonly known as Mack Centre IV, located at South 61 Paramus Road, Paramus, New Jersey, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Mack properties (the "MACK CENTRE IV PROPERTY"), the property commonly known as Mack Woodbridge II, located at 581 Main Street, Woodbridge, New Jersey, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Mack properties (the "WOODBRIDGE PROPERTY"), the property commonly known as Mack Plymouth Meeting, located at 1150 Plymouth Meeting Mall, Plymouth Meeting, Pennsylvania, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Mack properties (the "PLYMOUTH MEETING PROPERTY"), the Murray Hill Property, the property commonly known as Patriot Monticello, located at 3100 Monticello, Dallas, Texas, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Patriot American properties as "No. 12" (the "MONTICELLO PROPERTY"), and the property commonly known as the Phelan Building, located at 760 Market Street, San Francisco, California, and which is referenced in Schedule 1.1(a)(i) to the Original Agreement under the Patriot American properties as "No. 13" (the "PHELAN PROPERTY") currently have unleased square footage (the "UNLEASED SPACE") in the respective amounts per Earnout Property (defined below) shown in Column A on Schedule 3.1(a)


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annexed hereto. Hereinafter, the Mack Centre IV Property, the Woodbridge Property, the Plymouth Meeting Property, and the Murray Hill Property shall be cumulatively referred to as the "MACK EARNOUT PROPERTIES", and the Monticello Property and Phelan Property shall be cumulatively referred to as the "PATRIOT EARNOUT PROPERTIES"; cumulatively, the Mack Earnout Properties and the Patriot Earnout Properties shall hereinafter be referred to as the "EARNOUT PROPERTIES" or individually as an "EARNOUT PROPERTY". The aggregate assumed annual base rent (the "ASSUMED UNLEASED RENT") attributed by the parties to the Unleased Space in each Earnout Property is shown in Column C on Schedule 3.1(a) (annexed hereto). It shall be the sole responsibility of MACK to lease the Unleased Space, and if the actual aggregate annual base rent from new leases for the Unleased Space (the "EARNOUT RENT") entered into prior to Closing is less than the Assumed Unleased Rent for any particular Earnout Property, then, at Closing, Cali shall issue to MACK either, or all of the following: (i) contingent Common Units ("CONTINGENT COMMON UNITS") in place of the Common Units shown in Column D of Schedule 3.1(a) (annexed hereto), otherwise allocable to the Unleased Space for each Earnout Property, or (ii) contingent Series A Preferred Units ("CONTINGENT SERIES A PREFERRED UNITS") in place of the Series A Preferred Units shown in Column G of Schedule 3.1(a) (annexed hereto) otherwise allocable to the Unleased Space for each Earnout Property, or (iii) Contingent Series B Preferred Units ("CONTINGENT SERIES B PREFERRED UNITS") in place of the Series B Preferred Units shown in Column F of Schedule 3.1(a) (annexed hereto) otherwise allocable to the Unleased Space for each Earnout Property, all in accordance with the formula set forth on Schedule 3.1(a)-A (hereinafter, the Contingent Common Units, the Contingent Series A Preferred Units and the Contingent Series B Preferred Units shall collectively be referred to as the "CONTINGENT UNITS").


(b) For the purposes of this First Amendment, the Earnout Rent shall be equal to the lesser of the annual base rent for the first year of any lease for the Unleased Space, or the average annual base rent over the term of said lease.


(c) (i) Rents from new leases for the Unleased Space within each Earnout Property shall qualify as Earnout Rent for the purposes of triggering the redemption of Contingent Units for Common Units and/or Preferred Units, as applicable, if (i) the new lease satisfies the minimum criteria set forth on Schedule 3.1(c) annexed hereto, (ii) the tenant has commenced paying the first month's rent under said new lease, and (iii) the new lease term has commenced (the "REDEMPTION STANDARD"). The redemption of Contingent Units for Common Units and/or Preferred Units, as is applicable, shall automatically occur once the Redemption Standard has been met (the "REDEMPTION DATE"), in such amounts as earned and on a pro-rata basis amongst all of the Unit Holders and Preferred Unit Holders holding Contingent Units.


(ii) Subject to the provisions of clause (c)(iii) below, the Common or Preferred Units issued upon the redemption of Contingent Units pursuant to this Section 3 shall be entitled to all of the rights attributable to said units including, without limitation, voting and distribution rights, as of the Redemption Date. In any given calendar quarter in which Contingent Units are redeemed for Common Units or Preferred Units, as applicable, such Common Units and Preferred Units shall receive distributions on a pro-rata basis based upon the number of days contained in said calendar quarter between the Redemption Date (including the Redemption Date) and the subsequent Partnership Record Date.


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(iii) The Contingent Units shall be subject to the same restrictions, set forth in the Original Agreement, as the Common Units and/or Preferred Units into which they are redeemable, and notwithstanding that the Contingent Units shall not be redeemed until after Closing, for purposes of calculation of the Holding Period only, the Holding Period for the Common Units and/or Preferred Units received pursuant to the redemption of the Contingent Units shall be deemed to commence on the Closing Date.


3.2 (a) For the period commencing immediately after the Closing and ending two (2) years after the Closing (the "INITIAL REDEMPTION PERIOD"), the Contingent Units allocated to any particular Earnout Property shall be redeemable for Common Units and/or Preferred Units, as applicable, in accordance with this Section 3 and the formula set forth on Schedule 3.2(a) (annexed hereto).


(b) If new leases for the balance of the Unleased Space are not entered into on or before the last day of the Initial Redemption Period, Cali, at its option, shall either (i) extend (the "EXTENSION OPTION") the Initial Redemption Period for an additional two (2) years (the "EXTENDED REDEMPTION PERIOD"), or (ii) unless the parties otherwise agree on the value for the Unleased Space, cause the Unleased Space to be appraised and issue Common Units and/or Preferred Units, as applicable, in redemption of Contingent Units based upon the appraised value of the balance of the Unleased Space ("APPRAISED VALUE") in accordance with the formula set forth on Schedule 3.2(b) (annexed hereto).


(c) The appraisal shall be conducted, and the Appraised Value agreed upon, in accordance with the arbitration procedures set forth in Schedule 3.2(c) (annexed hereto).


(d) In the event that Cali elects its Extension Option and there is Unleased Space remaining at the end of the Extended Redemption Period, Cali shall redeem Contingent Units and grant MACK Common Units and/or Preferred Units, as applicable, at the end of the Extended Redemption Period in accordance with Sections 3.2(b)(ii) and 3.2(c) of this First Amendment.


3.3 The Contingent Units, if any, issued at Closing shall be represented by certificates duly issued by CRLP, but shall not be entitled to any economic, voting or other rights under the OP Agreement unless ...