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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: April 20, 1998
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(Date of earliest event reported)
Kilroy Realty Corporation
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Maryland Commission File: 95-4598246
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
</TABLE>
2250 East Imperial Highway, Suite 1200, El Segundo, CA 90245
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(Address of principal executive offices, including zip code)
(310) 563-5500
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
(a) Issuance of Preferred Limited Partnership's Units.
On April 20, 1998, Kilroy Realty, L.P., a Delaware limited partnership
(the "Operating Partnership"), and a subsidiary of Kilroy Realty Corporation, a
Maryland corporation (the "Company" and the Operating Partnership's
general partner, completed the private placement of 300,000 8.075% Series A
Cumulative Redeemable Preferred Units, representing a limited partnership
interest in the Operating Partnership, to an institutional investor for a
contribution to the Operating Partnership of $15.0 million. The Operating
Partnership plans to use the net proceeds of approximately $14.6 million to
reduce the balance of its revolving credit facility.
(b) Issuance of Common Stock.
On April 20, 1998, the Company completed a public offering of 110,225
shares of its common stock, par value $.01 per share, to an institutional
investor, which resulted in net offering proceeds to the Company of
approximately $3.0 million. The Company, as general partner of the Operating
Partnership and as required under the terms and conditions of the Operating
Partnership's partnership agreement, invested the net proceeds in the Operating
Partnership. The Operating Partnership plans to use such net proceeds to repay
borrowings under its revolving credit facility.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
Exhibit
No. Description
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3.1 Articles Supplementary of the Registrant,
filed April 20, 1998
3.2 Amended and Restated Registrant Rights
Agreement dated April 20, 1998.
10.1 Third Amended and Restated Agreement of
limited Partnership of Kilroy Realty,
L.P. dated April 20, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized,
KILROY REALTY CORPORATION
Date: April 22, 1998 By /s/ Ann Marie Whitney
____________________________________
Ann Marie Whitney
Vice President and Controller
S-1
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
No. Description Page
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3.1 Articles Supplementary of the Registrant,
filed April 20, 1998
3.2 Amended and Restated Registrant Rights
Agreement dated April 20, 1998.
10.1 Third Amended and Restated Agreement of
limited Partnership of Kilroy Realty,
L.P. dated April 20, 1998
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KILROY REALTY CORPORATION
ARTICLES SUPPLEMENTARY
EXHIBIT 3.1
200,000 SHARES
8.075% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
KILROY REALTY CORPORATION, a Maryland corporation (the "Corporation")
hereby certifies to the State Department of Assessments and Taxation (the
"Department") that:
FIRST: By Articles Supplementary filed with the Department on
February 6, 1998 (the "February 6, 1998 Articles Supplementary"), the
Corporation classified 1,500,000 shares of its authorized but unissued preferred
stock, par value $.01 per share ("Preferred Stock") as a separate class of
Preferred Stock designated as "8.075% Series A Cumulative Redeemable Preferred
Stock" (the "Series A Preferred Stock"), and set the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption and other terms and
conditions of the Series A Preferred Stock, all as set forth in the February 6,
1998 Articles Supplementary.
SECOND: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article IV of the Articles of Amendment and
Restatement of the Corporation filed with the Department on January 21, 1997, as
supplemented by the February 6, 1998 Articles Supplementary (the "Charter") and
Section 2-105 of the Maryland General Corporation Law (the "MGCL"), the Board of
Directors of the Corporation (the "Board of Directors") by resolutions duly
adopted on April 15, 1998, and a duly appointed committee of the Board of
Directors by resolutions adopted on April 17, 1998 pursuant to authority
conferred upon such committee by the Board of Directors, has classified 200,000
additional shares of the authorized but unissued Preferred Stock of the
Corporation as Series A Preferred Stock, having the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption and other terms and
conditions as set forth in the February 6, 1998 Article Supplementary, and has
authorized the issuance of a maximum of 200,000 of such additional shares of
Series A Preferred Stock.
THIRD: The additional 200,000 shares of Series A Preferred Stock have
been classified and designated by the Board of Directors, and a duly appointed
committee thereof, under the authority contained in the Charter.
FOURTH: These Articles Supplementary have been approved by a duly
appointed committee of the Board of Directors, pursuant to authority conferred
upon such committee by the Board of Directors, in the manner and by the vote
required by law. No
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stockholder of the Corporation has any voting rights with respect to these
Articles Supplementary.
FIFTH: The total number of shares of Preferred Stock which the
Corporation has authority to issue is 30,000,000 shares. Immediately prior to
the adoption of the April 15, 1998 resolutions by the Board of Directors and the
April 17, 1998 resolutions by a duly appointed committee of the Board of
Directors, and the filing of these Articles Supplementary, the number of shares
of Preferred Stock classified as Series A Preferred Stock was 1,500,000.
Immediately following the adoption of the April 15, 1998 resolutions by the
Board of Directors and the April 17, 1998 resolutions by a duly appointed
committee of the Board of Directors, and the filing of these Articles
Supplementary, the total number of shares of Preferred Stock of the Corporation
classified as Series A Preferred Stock is 1,700,000 shares.
SIXTH: The undersigned Vice President of the Corporation acknowledges
these Articles Supplementary to be the corporate act of the Corporation and, as
to all matters or facts to be verified under oath, the undersigned Vice
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties of perjury.
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IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
President and attested to by its Secretary on this 20th day of April, 1998.
ATTEST: KILROY REALTY CORPORATION
/s/ Richard E. Moran Jr. By /s/ Jeffrey C. Hawken (SEAL)
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Richard E. Moran Jr. Jeffrey C. Hawken
Secretary Vice President
S-1
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EXHIBIT 3.2
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of
April 20, 1998 (this "Agreement"), is entered into by and among Kilroy Realty
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Corporation, a Maryland corporation (the "Company" or the "REIT"), Kilroy
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Realty, L.P., a Delaware limited partnership (the "Operating Partnership"), and
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the unit holders whose names are set forth on the signature pages hereto (each,
a "Unit Holder" and collectively, the "Unit Holders").
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RECITALS
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WHEREAS, in connection with the offering of 1,200,000 8.075% Series A
Cumulative Redeemable Preferred Units of the Operating Partnership (the "OP
--
Units"), Belair Capital Fund LLC, a Massachusetts limited liability company (the
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"Contributor"), contributed to the Operating Partnership cash in return for the
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OP Units on terms and conditions set forth in the Contribution Agreement, dated
February 6, 1998 (the "February Contribution Agreement"), by and among the
-------------------------------
Company, the Operating Partnership and the Contributor;
WHEREAS, in connection with the offering of 300,000 OP Units, the
Contributor desires to contribute to the Operating Partnership cash in return
for the OP Units on terms and conditions set forth in the Contribution
Agreement, dated April 20, 1998 (the "April Contribution Agreement"), by and
----------------------------
among the Company, the Operating Partnership and the Contributor;
WHEREAS, the Unit Holders will receive the OP Units in exchange for
cash contributed to Operating Partnership;
WHEREAS, pursuant to the Partnership Agreement (as defined below), the
OP Units owned by the Unit Holders will be redeemable for cash or exchangeable
for shares of the Company's 8.075% Series A Cumulative Redeemable Preferred
Stock (the "Preferred Stock") upon the terms and subject to the conditions
---------------
contained therein; and
WHEREAS, in order to induce the Contributor to enter into the April
Contribution Agreement, the Company and the Operating Partnership have agreed to
amend and restate this Agreement and to provide the registration rights set
forth herein to the Contributor and any subsequent holder or holders of the OP
Units.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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ARTICLE I
DEFINITIONS
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SECTION 1.1. DEFINITIONS. In addition to the definitions set forth
-----------
above, the following terms, as used herein, shall have the following meanings:
"Affiliate" of any Person means any other Person directly or
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indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" means this Registration Rights Agreement, as it may be
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amended, supplemented or restated from time to time.
"April Contribution Agreement" means the Contribution Agreement, dated
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April 20, 1998, by and among the Company, the Operating Partnership and the
Contributor.
"Articles of Incorporation" means the Articles of Amendment and
-------------------------
Restatement of the Company, as the same may be amended, modified or restated
from time to time.
"Business Day" means any day except a Saturday, Sunday or other day on
------------
which commercial banks in New York, New York or Los Angeles, California are
authorized by law to close.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time or any successor statute thereto, as interpreted by the applicable
regulations thereunder.
"Commission" means the Securities and Exchange Commission.
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"Company" means Kilroy Realty Corporation, a Maryland corporation.
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"Contributor" means Belair Capital Fund LLC, a Massachusetts limited
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liability company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
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and the rules and regulations of the Commission promulgated thereunder.
"Exchangeable OP Units" means OP Units which may be redeemable for
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cash pursuant to Section 16.4 of the Partnership Agreement or exchangeable for
Preferred Stock or redeemable for cash pursuant to Section 16.7 of the
Partnership Agreement; (without regard to any limitations on the exercise of
such exchange right as a result of the Ownership Limit Provisions, as defined
below).
"February Contribution Agreement" means the Contribution Agreement,
-------------------------------
dated February 6, 1998, by and among the Company, the Operating Partnership and
the Contributor.
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"General Partner" means the Company or its successors as general
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partner of the Operating Partnership.
"Holder" means any Unit Holder who is the record or beneficial owner
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of any Registrable Security or any assignee or transferee of such Registrable
Security (including assignments or transfers of Registrable Securities to such
assignees or transferees as a result of the foreclosure on any loans secured by
such Registrable Securities) unless such Registrable Security is acquired in a
public distribution pursuant to a registration statement under the Securities
Act or pursuant to transactions exempt from registration under the Securities
Act, in each such case where securities sold in such transaction may be resold
without subsequent registration under the Securities Act.
"Incapacitated" shall have the meaning set forth in the Partnership
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Agreement.
"Indemnified Party" shall have the meaning set forth in Section 2.8
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hereof.
"Indemnifying Party" shall have the meaning set forth in Section 2.8
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hereof.
"Inspectors" shall have the meaning set forth in Section 2.4(g).
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"Operating Partnership" means Kilroy Realty, L.P., a Delaware limited
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partnership.
"OP Units" means 8.075% Series A Cumulative Redeemable Preferred Units
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of the Operating Partnership.
"Ownership Limit Provisions" mean the various provisions of the
--------------------------
Articles of Incorporation set forth in Article IV thereof restricting the
ownership of Preferred Stock by certain Persons to specified percentages of the
outstanding Preferred Stock.
"Partnership Agreement" means the Third Amended and Restated Agreement
---------------------
of Limited Partnership of the Operating Partnership dated as of April 20, 1998,
as the same may be amended, modified or restated from time to time.
"Person" means an individual or a corporation, partnership, limited
------
liability company, association, trust, or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Piggy-Back Registration" shall have the meaning set forth in Section
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2.2 hereof.
"Primary Registration" shall have the meaning set forth in Section 2.2
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hereof.
"Preferred Stock" means the Company's 8.075% Series A Cumulative
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Redeemable Preferred Stock.
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"REIT" means a real estate investment trust under Section 856 through
----
Section 860 of the Code.
"Registrable Securities" means shares of Preferred Stock at any time
----------------------
owned, either of record or beneficially, by any Holder and no matter how
acquired (including, without limitation, shares of Preferred Stock issued or
issuable upon exchange of Exchangeable OP Units or issued or issuable by way of
stock dividend or stock split, or in connection with a merger, consolidation,
combination of shares, recapitalization or other reorganization and any other
securities issued pursuant to any other distribution with respect to the
Preferred Shares or in exchange for or replacement of such Preferred Shares)
until (i) a registration statement covering such securities has been declared
effective by the Commission and such shares have been sold or transferred
pursuant to such effective registration statement, (ii) such shares are sold
under circumstances in which all of the applicable conditions of Rule 144 under
the Securities Act (or any similar provisions then in force) under the
Securities Act are met or under which such shares may be sold pursuant to Rule
144(k) under the Securities Act or (iii) such shares have been otherwise
transferred in a transaction that would constitute a sale thereof under the
Securities Act, the Company has delivered a new certificate or other evidence of
ownership for such shares not bearing the Securities Act restricted stock legend
and such shares may be resold without subsequent registration under the
Securities Act.
"Registration Expenses" shall have the meaning set forth in Section
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2.5 hereof.
"Rule 144" means Rule 144 promulgated under the Securities Act, as
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such rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the Company of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act, as
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such rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
"Rule 415" means Rule 415 promulgated under the Securities Act, as
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such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
"Secondary Registration" shall have the meaning set forth in Section
----------------------
2.2 hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission promulgated thereunder.
"Selling Holder" means a Holder who is selling Registrable Securities
--------------
pursuant to a registration statement under the Securities Act pursuant to this
Agreement.
"Shelf Registration" shall have the meaning set forth in Section 2.1
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hereof.
4
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"Shelf Registration Statement" means any registration statement
----------------------------
relating to a Shelf Registration that covers any of the Preferred Stock of the
Company filed with the Commission under the Securities Act, including the
Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"Underwriter" means a securities dealer who purchases any Registrable
-----------
Securities as principal and not as part of such dealer's market-making
activities.
"Unit Holder(s)" shall have the meaning set forth in the introductory
--------------
paragraphs hereto.
ARTICLE II
REGISTRATION RIGHTS
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SECTION 2.1. SHELF REGISTRATION.
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The Company shall prepare and file a "shelf" registration statement
(the "Shelf Registration Statement") with respect to the Registrable Securities
----------------------------
covering the resale thereof by the Holders on an appropriate form for an
offering to be made on a continuous or delayed basis pursuant to Rule 415 (the
"Shelf Registration") within 60 days after the date the OP Units are exchanged
- -------------------
for shares of Preferred Stock and shall use its best efforts to cause the Shelf
Registration Statement to be declared effective within 120 days after the date
of such exchange. The Company shall use its best efforts to keep such Shelf
Registration Statement continuously effective until the earliest of (A) 24
months following the effective date of the Shelf Registration Statement, (B)
such time as all of the Registrable Securities have been sold pursuant to the
Shelf Registration Statement or Rule 144 and (C) the date on which the
Registrable Securities may be sold without volume restrictions in accordance
with Rule 144.
SECTION 2.2. PIGGY-BACK REGISTRATION.
-----------------------
(a) If the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account (a
"Primary Registration") or for the account of any of its respective
--------------------
securityholders (other than (i) any registration statement filed by the Company
under the Securities Act relating to an offering of capital stock for its own
account as a result of the exercise of the exchange rights set forth in Section
8.6 of the Partnership Agreement, and covering the resale by the Holders of the
shares of capital stock received in such exchange, or (ii) a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission) or filed in connection with an exchange offer or offering of
securities solely to the Company's existing securityholders) (a "Secondary
---------
Registration"), then the Company shall give written notice of such proposed
- ------------
filing to the Holders of Registrable Securities as soon as practicable (but in
no event less than ten (10) days before the anticipated filing date), and such
notice shall offer such Holders the opportunity to register such number of
shares of Registrable Securities as each such Holder may request (a "Piggy-Back
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Registration"). The Company shall use its commercially reasonable efforts to
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5
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cause the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in a
Piggy-Back Registration to be included on the same terms and conditions as any
similar securities of the Company included therein.
(b) Withdrawal from Registration. Any Holder requesting inclusion of
----------------------------
Registrable Securities pursuant to this Section 2.2 may, at any time prior to
the effective date of the registration statement relating to such registration,
revoke such request by delivering written notice of such revocation to the
Company; provided, however, that if the Company, in consultation with its
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financial and legal advisors, determines that such revocation would materially
delay the registration or otherwise require a recirculation of the prospectus
contained in the registration statement, then such Holder shall have no such
right to revoke its request. If the withdrawal of any Registrable Securities
would allow, within the marketing limitations set forth above, the inclusion in
the underwriting of a greater number of shares of Registrable Securities, then,
to the extent practicable and without delaying the underwriting, the Company
shall offer to the Holders an opportunity to include additional shares of
Registrable Securities in the proportions discussed in Section 2.3 below.
(c) Termination or Withdrawal by the Company. The Company shall have
----------------------------------------
the right to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
SECTION 2.3. REDUCTION OF OFFERING. Notwithstanding anything
---------------------
contained herein, if the managing Underwriter or Underwriters of an offering
described in Section 2.2 hereof are of the opinion that (i) the size of the
offering that the Holders, the Company and/or such other persons intend to make
or (ii) the kind of securities that the Holders, the Company and/or any other
persons or entities intend to include in such offering are such that the success
of the offering would be materially and adversely affected by inclusion of the
Registrable Securities requested to be included, then (A) if the size of the
offering is the basis of such Underwriter's opinion, the amount of securities to
be offered for the accounts of Holders shall be reduced pro rata (according to
the Registrable Securities proposed for registration) to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing Underwriter or Underwriters; provided that
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if securities are being offered for the account of other persons or entities as
well as the Company, then (1) in the case of a Primary Registration, the
reduction in the amount of securities requested to be offered shall be made
first pro rata among securities offered for the accounts of Holders and such
other persons or entities, and (2) in the case of a Secondary Registration, the
reduction in the amount of securities requested to be offered shall be made in
accordance with the terms of the registration rights agreement pursuant to which
such Secondary Registration is made, provided that if any such registration
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rights agreement is silent with respect to reductions in shares being registered
thereunder, then with respect to the Registrable Securities intended to be
offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other persons or entities is reduced and (B) if the combination
of securities to be offered is the basis of such Underwriter's opinion, (x) the
6
<PAGE>
Registrable Securities to be included in such offering shall be reduced as
described in clause (A) above (subject to the proviso in clause (A)) or, (y) if
the actions described in clause (x) would, in the judgment of the managing
Underwriter, be insufficient to substantially eliminate the adverse effect that
inclusion of the Registrable Securities requested to be included would have on
such offering, such Registrable Securities will be excluded from such offering.
SECTION 2.4. REGISTRATION PROCEDURES; FILINGS; INFORMATION. In
---------------------------------------------
connection with any Shelf Registration Statement under Section 2.1 hereof, the
Company will use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable (and in any event within the
periods referred to in Section 2.1), and in connection with any such request:
(a) As provided in Section 2.1 hereof, the Company will as
expeditiously as possible prepare and file with the Commission a registration
statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale by the Selling Holders of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof and
which shall comply as to form in all material respects with the requirements of
the applicable form and include or incorporate by reference all financial
statements required by the Commission to be filed therewith, and use its best
efforts to cause such filed registration statement to become and remain
effective.
(b) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, notify each
Holder of Registrable Securities that a Shelf Registration Statement is being
filed and advise such Holder that an offering of Registrable Securities will be
made in accordance with the method elected (which method may also include an
underwritten offering) by the Holders of a majority of the Registrable
Securities, furnish to each Selling Holder and each Underwriter, if any, of the
Registrable Securities covered by such registration statement or prospectus
copies of such registration statement or prospectus or any amendment or
supplement thereto as proposed to be filed, and thereafter furnish to such
Selling Holder and Underwriter, if any, such number of conformed copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling Holder or
Underwriter may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Selling Holder.
(c) The Company will notify each Holder of Registrable Securities and
counsel for such Holder promptly and, if requested by such Holder or counsel,
confirm such advice in writing promptly (i) when a registration statement has
become effective and when any post-effective amendments and supplements thereto
become effective, (ii) of any request by the Commission or any state securities
authority for post-effective amendments and supplements to a registration
statement has become effective, (iii) of the issuance by the Commission or any
state securities authority of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that purpose,
(iv) if, during the period a registration
7
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statement is effective, the representations and warranties of the Company
contained in any underwriting agreement, securities sales agreement or other
similar agreement, if any, relating to such offering cease to be true and
correct in all material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (vi) of any determination by
the Company that a post-effective amendment to a registration statement would be
appropriate.
(d) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States (where an exemption is not available) as any
Selling Holder or managing Underwriter or Underwriters, if any, reasonably (in
light of such Selling Holder's intended plan of distribution) requests by the
time the registration statement relating thereto is declared effective by the
Commission and (ii) cause such Registrable Securities to be registered with or
approved by such other governmental agencies or authorities, including the
National Association of Securities Dealers ("NASD"), as may be necessary by
----
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition of the Registrable Securities owned
by such Selling Holder; provided that the Company will not be required to (A)
--------
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction except as may be required by the Securities
Act.
(e) The Company will immediately notify each Selling Holder or
Underwriter of such Registrable Securities, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
occurrence of an event requiring the preparation of a supplement or amendment to
such prospectus and shall file with the Commission such amendments and
supplements to such prospectus and deliver copies of the same to the Selling
Holders or Underwriters, as the case may be, so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances then existing, not misleading and promptly make
available to each Selling Holder a reasonable number of copies of any such
supplement or amendment.
(f) The Company will enter into customary agreements (including an
underwriting agreement or securities sale agreement, if any, in customary form)
containing such representations and warranties to the Holders of such
Registrable Securities and the Underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in similar underwritten
offerings as may be reasonably requested by them and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities.
8
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(g) The Company will make available for inspection by any Selling
Holder of such Registrable Securities, any Underwriter participating in any
disposition pursuant to such registration statement and any attorney, accountant
or other professional retained by any such Selling Holder or Underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
----------
corporate documents and properties of the Company (collectively, the "Records")
-------
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction. Each
Selling Holder of such Registrable Securities agrees that information obtained
by it as a result of such inspections shall be deemed confidential and shall not
be used by it as the basis for any market transactions in the securities of the
company or its Affiliates or otherwise disclosed by it unless and until such is
made generally available to the public. Each Selling Holder of such Registrable
Securities further agrees that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of the Records deemed confidential.
(h) The Company will furnish to each Selling Holder and to each
Underwriter, if any, a signed counterpart, addressed to such Selling Holder or
Underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a
comfort letter or comfort letters from the Company's independent public
accountants (to the extent permitted by the standards of the American Institute
of Certified Public Accountants), each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters, as the
case may be, as the Holders of a majority of the Registrable Securities included
in such offering or the managing Underwriter or Underwriters therefor reasonably
request.
(i) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of twelve (12) months, beginning within three (3) months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of
the Commission promulgated thereunder (or any successor rule or regulation
hereafter adopted by the Commission).
(j) The Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(k) The Company will use its best efforts to obtain CUSIP numbers for
the Preferred Stock not later than the effective date of the Shelf Registration
Statement.
9
<PAGE>
The Company may require, as a condition precedent to the obligations
of the Company under the Agreement, each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding such Selling Holder, the Registrable Securities held by it and the
intended method of distribution of the Registrable Securities as the Company may
from time to time reasonably request and such other information as may be
legally required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 2.4(e)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement and prospectus
covering such Registrable Securities until such Selling Holder's receipt of the
copies of the supplemented or amended prospectus contemplated by Section 2.4(e)
hereof, and, if so directed by the Company, such Selling Holder will deliver to
the Company all copies, other than permanent file copies then in such Selling
Holder's possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. Each Selling Holder of
Registrable Securities agrees that it will immediately notify the Company at any
time when a prospectus relating to the registration of such Registrable
securities is required to be delivered under the Securities Act of the happening
of an event as a result of which information previously furnished by such
Selling Holder to the Company in writing for inclusion in such prospectus
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading. In the
event the Company shall give such notice, the Company shall extend the period
during which such registration statement shall be maintained effective
(including the period referred to in Section 2.4(a) hereof) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 2.4(e) hereof to the date when the Company shall make
available to the Selling Holders of Registrable Securities covered by such
registration statement a prospectus supplemented or amended to conform with the
requirements of Section 2.4(e) hereof.
SECTION 2.5. REGISTRATION EXPENSES. In connection with any
---------------------
registration statement required to be filed hereunder, the Company shall pay the
following registration expenses incurred in connection with the registration
hereunder (the "Registration Expenses"): (i) all Commission, stock exchange,
---------------------
NASD or other registration and filing fees, (ii) fees and expenses of compliance
with securities or blue sky laws and compliance with the rules of the NASD
(including reasonable fees and disbursements of U.S. and local counsel for any
Underwriters and Holders in connection with blue sky qualifications of the
Registrable Securities), (iii) printing expenses of any persons in preparing and
distributing any Shelf Registration Statement, any prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements,
certificates representing the Preferred Stock and any other document relating to
the performance of, and compliance with, this Agreement, (iv) internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange, (vi) reasonable fees and disbursements of counsel for the
Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the
10
<PAGE>
expenses of any special audits or comfort letters or costs associated with
compliance with such special audits or with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
pursuant to Section 2.4(h) hereof), (vii) the reasonable fees and expenses of
any special experts retained by the Company in connection with such
registration, and (viii) reasonable fees and expenses of one counsel (who shall
be reasonably acceptable to the Company) for the Selling Holders. Except as
expressly provided in the preceding sentence, the Company shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities, or any out-of-pocket expenses of the
Holders (or the agents who manage their accounts) or any transfer taxes relating
to the registration or sale of the Registrable Securities.
SECTION 2.6. INDEMNIFICATION BY THE COMPANY. The Company agrees to
------------------------------
indemnify and hold harmless each Selling Holder of Registrable Securities, its
officers, directors and agents, and each Person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and all losses, claims, damages,
expenses and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Company by such
Selling Holder or on such Selling Holder's behalf expressly for inclusion
therein. The Company also agrees to indemnify any Underwriters of the
Registrable Securities, their officers and directors and each Person who
controls such Underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act on substantially the same basis as that of
the indemnification of the Selling Holders provided in this Section 2.6,
provided that the foregoing indemnity with respect to any preliminary prospectus
- --------
shall not inure to the benefit of any Underwriter of the Registrable Securities
from whom the person asserting any such losses, claims, damages or liabilities
purchased the Registrable Securities which are the subject thereof if (i) such
person did not receive a copy of the prospectus (or the prospectus as
supplemented) at or prior to the confirmation of the sale of such Registrable
Securities to such person in any case where such delivery is required by the
Securities Act and the untrue statement or omission of a material fact contained
in such preliminary prospectus was corrected in the prospectus (or the
prospectus as supplemented), provided that such Underwriter received prior
notice that such prospectus (or the prospectus as supplemented) corrected such
untrue statement or omission of a material fact; or (ii) such person received a
prospectus at or prior to the confirmation of the sale of such Registrable
Securities to such person during the period when the use of such prospectus has
been suspended in accordance with Section 2.4, provided that such Underwriter
--------
received prior notice of such suspension.
SECTION 2.7. INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES.
----------------------------------------------------
Each Selling Holder agrees, severally but not jointly, to indemnify and hold
harmless the
11
<PAGE>
Company, its officers, directors and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Selling Holder, but only with respect to
information relating to such Selling Holder furnished in writing by such Selling
Holder or on such Selling Holder's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any amendment
or supplement thereto, or any preliminary prospectus. In case any action or
proceeding shall be brought against the Company or its officers, directors or
agents or any such controlling person, in respect of which indemnity may be
sought against such Selling Holder, such Selling Holder shall have the rights
and duties given to the Company, and the Company or its officers, directors or
agents or such controlling person shall have the rights and duties given to such
Selling Holder, by Section 2.6 hereof.
SECTION 2.8. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
--------------------------------------
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Sections 2.6 or 2.7 hereof, such person (an "Indemnified Party") shall promptly
-----------------
notify the person against whom such indemnity may be sought (an "Indemnifying
------------
Party") in writing and the Indemnifying Party shall assume the defense thereof,
- -----
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all fees and expenses. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by (i) in the case
of Persons indemnified pursuant to Section 2.6 hereof, by the Selling Holders
which owned a majority of the Registrable Securities sold under the applicable
registration statement and (ii) in the case of Persons indemnified pursuant to
Section 2.7 hereof, the Company. The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Party shall have requested an Indemnifying Party
to reimburse the Indemnified Party for fees and expenses of counsel as
contemplated by the third sentence of this paragraph, the Indemnifying Party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
thirty (30) Business Days after receipt by such Indemnifying Party of the
aforesaid request and (ii) such Indemnifying Party shall not have reimbursed the
Indemnified Party in accordance with such request prior to the date of such
settlement. No Indemnifying
12
<PAGE>
Party shall, without the prior written consent of the Indemnified Party, effect
any settlement of any pending or threatened proceeding in which any Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such proceeding.
SECTION 2.9. CONTRIBUTION. If the indemnification provided for in
------------
Sections 2.6 or 2.7 hereof is unavailable to an Indemnified Party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Company and the Selling Holders on the one hand and the
Underwriters on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Holders on the one
hand and the Underwriters on the other from the offering of the securities, or
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and each Selling Holder on the other, in such proportion as is appropriate
to reflect the relative fault of the Company and of each Selling Holder in
connection with such statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Holders on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Holders bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of the Company
and the Selling Holders on the one hand and of the Underwriters on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Selling Holders or by the Underwriters. The relative fault of the Company on
the one hand and of each Selling Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or such Selling Holder, and the
Company's and the Selling Holder's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 2.9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in Sections 2.6 and 2.7
hereof shall
13
<PAGE>
be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 2.9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Selling Holder's obligations to contribute pursuant to
this Section 2.9 are several in the proportion that the proceeds of the offering
received by such Selling Holder bears to the total proceeds of the offering
received by all the Selling Holders and not joint.
SECTION 2.10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person
-------------------------------------------
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents in customary
form and reasonably required under the terms of such underwriting arrangements
and these registration rights provided for in this Article II.
SECTION 2.11. RULE 144. The Company covenants that it will file any
--------
reports required to be filed by it under the Securities Act and the Exchange Act
and that it will take such further action as any Holder may reasonably request,
all to the extent required from time to time to enable Holders to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
SECTION 2.12. HOLDBACK AGREEMENTS.
-------------------
(a) Restrictions on Public Sale by Holder of Registrable Securities.
---------------------------------------------------------------
To the extent not inconsistent with applicable law, each Holder whose securities
are included in a registration statement pursuant to Section 2.2 agrees, upon
receipt of prior written notice from the Company received not later than 17 days
prior to the effective date of such registration statement, not to effect any
sale or distribution of the issue being registered or a similar security of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including a "broker's transaction" pursuant to Rule 144, but
excluding any private sale made in reliance on Section 4(2) of the Securities
Act, during the 14 days prior to, and during the
14
<PAGE>
90-day period beginning on, the effective date of such registration statement
(except as part of such registration), if and to the extent requested in writing
by the Company in the case of a non-underwritten public offering or if and to
the extent requested in writing by the managing Underwriter or Underwriters in
the case of an underwritten public offering.
(b) If the Company determines in its good faith judgment that the
filing of the Shelf Registration Statement under Section 2.1 hereof or the use
of any related prospectus would require the disclosure of non-public material
information that the Company has a bona fide business purpose for preserving as
confidential or the disclosure of which would impede the Company's ability to
consummate a material transaction, and that the Company is not otherwise
required by applicable securities laws or regulations to disclose, upon written
notice of such determination by the Company, the rights of the Holders to offer,
sell or distribute any Registrable Securities pursuant to the Shelf Registration
Statement or to require the Company to take action with respect to the
registration or sale of any Registrable Securities pursuant to the Shelf
Registration Statement shall be suspended until the earlier of (i) the date upon
which the Company notifies the Holders in writing that suspension of such rights
for the grounds set forth in this Section 2.12(b) is no longer necessary and
(ii) 180 days. The Company agrees to give such notice as promptly as
practicable following the date that such suspension of rights is no longer
necessary.
(c) If all reports required to be filed by the Company pursuant to the
Exchange Act have not been filed by the required date without regard to any
extension, or if the consummation of any business combination by the Company has
occurred or is probable for purposes of Rule 3-05 or Article 11 of Regulation S-
X under the Act, upon written notice thereof by the Company to the Holders, the
rights of the Holders to offer, sell or distribute any Registrable Securities
pursuant to the Shelf Registration Statement or to require the Company to take
action with respect to the registration or sale of any Registrable Securities
pursuant to the Shelf Registration Statement shall be suspended until the date
on which the Company has filed such reports or obtained and filed the financial
information required by Rule 3-05 or Article 11 of Regulation S-X to be included
or incorporated by reference, as applicable, in the Shelf Registration
Statement, and the Company shall notify the Holders as promptly as practicable
when such suspension is no longer required.
ARTICLE III
MISCELLANEOUS
-------------
SECTION 3.1. REMEDIES. In addition to being entitled to exercise all
--------
rights provided herein and granted by law, including recovery of damages, the
Holders shall be entitled to specific performance of the rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
SECTION 3.2. AMENDMENTS AND WAIVERS. The provisions of this
----------------------
Agreement, including the provisions of this sentence, may not be amended,
modified or
15
<PAGE>
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the prior written consent of the Company and the
Holders or any such Holder's representative if any such Holder is Incapacitated.
No failure or delay by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon any breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, agreement or condition.
SECTION 3.3. NOTICES. All notices and other communications in
-------
connection with this Agreement shall be made in writing by hand delivery,
registered first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:
(1) if to any Unit Holder:
Belair Capital Fund LLC
c/o Eaton Vance Management
24 Federal Street
Boston, MA 02110
Attn: Alan Dynner
Facsimile Number: (617) 338-8054
with a copy to:
Peter Blessing, Esq.
(6544-4)
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Facsimile Number: (212) 848-7179
(2) if to the Company or the Operating Partnership:
2250 East Imperial Highway
El Segundo, California 90245
Attention: President and Chief Executive Officer
Facsimile Number: (310) 322-5981
or to such other address as the Company may hereafter
specify in writing.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
16
<PAGE>
SECTION 3.4. SUCCESSORS AND ASSIGNS. Except as expressly provided in
----------------------
this Agreement, the rights and obligations of the Holders under this Agreement
shall not be assignable by any Holder to any Person that is not a Holder. This
Agreement shall be binding upon the parties hereto and their respective
successors and assigns.
SECTION 3.5. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may
----------------------------------
be executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto, which may be an original signature or facsimile thereof.
SECTION 3.6. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of California
without regard to the choice of law provisions thereof.
SECTION 3.7. SEVERABILITY. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
SECTION 3.8. ENTIRE AGREEMENT. This Agreement is intended by the
----------------
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
SECTION 3.9. HEADINGS. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 3.10. NO THIRD PARTY BENEFICIARIES. Nothing express or
----------------------------
implied herein is intended or shall be construed to confer upon any person or
entity, other than the parties hereto and their respective successors and
assigns, any rights, remedies or other benefits under or by reason of this
Agreement.
(Signature Page Follows)
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
KILROY REALTY CORPORATION,
a Maryland corporation
By: /s/ John B. Kilroy, Jr.
--------------------------------
Name: John B. Kilroy, Jr.
Title: President and Chief Executive Officer
KILROY REALTY, L.P.,
a Delaware limited partnership
By: KILROY REALTY CORPORATION,
its general partner
By: /s/ John B. Kilroy, Jr.
--------------------------------
Name: John B. Kilroy, Jr.
Title: President and Chief Executive Officer
BELAIR CAPITAL FUND LLC
By: Eaton Vance Management, as its Manager
By: /s/ Thomas E. Faust, Jr.
--------------------------------
Name: Thomas E. Faust, Jr.
Title: Vice President
18
<PAGE>
EXHIBIT 10.1
----------------------------
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
KILROY REALTY, L.P.
----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE 1. DEFINED TERMS.................................................. 1
Section 1.1. Definitions................................................. 2
ARTICLE 2. ORGANIZATIONAL MATTERS.........................................18
Section 2.1. Organization................................................18
Section 2.2. Name........................................................18
Section 2.3. Resident Agent; Principal Office............................18
Section 2.4. Power of Attorney...........................................18
Section 2.5. Term........................................................20
Section 2.6. Number of Partners..........................................20
ARTICLE 3. PURPOSE........................................................20
Section 3.1. Purpose and Business........................................20
Section 3.2. Powers......................................................20
Section 3.3. Partnership Only for Purposes Specified.....................21
Section 3.4. Representations and Warranties by the Parties...............21
ARTICLE 4. CAPITAL CONTRIBUTIONS..........................................23
Section 4.1. Capital Contributions of the Partners.......................23
Section 4.2. Loans by Third Parties......................................23
Section 4.3. Additional Funding and Capital Contributions................24
Section 4.4. Stock Incentive Plan........................................26
Section 4.5. Other Contribution Provisions...............................26
ARTICLE 5. DISTRIBUTIONS..................................................26
Section 5.1. Requirement and Characterization of Distributions...........26
Section 5.2. Distributions in Kind.......................................27
Section 5.3. Distributions Upon Liquidation..............................27
Section 5.4. Distributions to Reflect Issuance of Additional Partnership
Interests................................................................27
ARTICLE 6. ALLOCATIONS....................................................27
Section 6.1. Timing and Amount of Allocations of Net Income and Net Loss.27
Section 6.2. General Allocations.........................................28
Section 6.3. Additional Allocation Provisions............................29
Section 6.4. Tax Allocations.............................................31
ARTICLE 7. MANAGEMENT AND OPERATIONS OF BUSINESS..........................32
Section 7.1. Management..................................................32
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 7.2. Certificate of Limited Partnership..........................36
Section 7.3. Restrictions on General Partner's Authority.................36
Section 7.4. Reimbursement of the General Partner........................39
Section 7.5. Outside Activities of the General Partner...................39
Section 7.6. Contracts with Affiliates...................................40
Section 7.7. Indemnification.............................................41
Section 7.8. Liability of the General Partner............................43
Section 7.9. Other Matters Concerning the General Partner................44
Section 7.10. Title to Partnership Assets................................44
Section 7.11. Reliance by Third Parties..................................45
ARTICLE 8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.....................45
Section 8.1. Limitation of Liability.....................................45
Section 8.2. Management of Business......................................46
Section 8.3. Outside Activities of Limited Partners......................46
Section 8.4. Return of Capital...........................................46
Section 8.5. Rights of Limited Partners Relating to the Partnership......47
Section 8.6. Common Limited Partner Redemption Rights....................47
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS.........................50
Section 9.1. Records and Accounting......................................50
Section 9.2. Fiscal Year.................................................50
Section 9.3. Reports.....................................................50
ARTICLE 10. TAX MATTERS...................................................51
Section 10.1. Preparation of Tax Returns.................................51
Section 10.2. Tax Elections..............................................51
Section 10.3. Tax Matters Partner........................................52
Section 10.4. Organizational Expenses....................................53
Section 10.5. Withholding................................................53
ARTICLE 11. TRANSFERS AND WITHDRAWALS.....................................54
Section 11.1. Transfer...................................................54
Section 11.2. Transfer of General Partner's Partnership Interest.........54
Section 11.3. Limited Partners' Rights to Transfer.......................56
Section 11.4. Substituted Limited Partners...............................58
Section 11.5. Assignees..................................................59
Section 11.6. General Provisions.........................................59
Section 11.7. Transfer of Pledged Partnership Units......................61
ARTICLE 12. ADMISSION OF PARTNERS.........................................62
Section 12.1. Admission of Successor General Partner.....................62
Section 12.2. Admission of Additional Limited Partners...................62
Section 12.3. Amendment of Agreement and Certificate of Limited
Partnership..............................................................63
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 13. DISSOLUTION AND LIQUIDATION...................................63
Section 13.1. Dissolution................................................63
Section 13.2. Winding Up.................................................64
Section 13.3. Compliance with Timing Requirements of Regulations.........65
Section 13.4. Deemed Contribution and Liquidation........................66
Section 13.5. Rights of Limited Partners.................................66
Section 13.6. Notice of Dissolution......................................66
Section 13.7. Cancellation of Certificate of Limited Partnership.........67
Section 13.8. Reasonable Time for Winding-Up.............................67
Section 13.9. Waiver of Partition........................................67
ARTICLE 14. AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS..................67
Section 14.1. Amendments.................................................67
Section 14.2. Action by the Partners.....................................68
ARTICLE 15. GENERAL PROVISIONS............................................69
Section 15.1. Addresses and Notice.......................................69
Section 15.2. Titles and Captions........................................69
Section 15.3. Pronouns and Plurals.......................................69
Section 15.4. Further Action.............................................69
Section 15.5. Binding Effect.............................................69
Section 15.6. Creditors..................................................69
Section 15.7. Waiver.....................................................70
Section 15.8. Counterparts...............................................70
Section 15.9. Applicable Law.............................................70
Section 15.10. Invalidity of Provisions..................................70
Section 15.11. Limitation to Preserve REIT Status........................70
Section 15.12. Entire Agreement..........................................71
Section 15.13. No Rights as Stockholders.................................71
ARTICLE 16. SERIES A PREFERRED UNITS......................................71
Section 16.1. Designation and Number.....................................71
Section 16.2. Distributions..............................................72
Section 16.3. Liquidation Proceeds.......................................73
Section 16.4. Optional Redemption........................................74
Section 16.5. Voting Rights..............................................76
Section 16.6. Transfer Restrictions......................................77
Section 16.7. Exchange Rights............................................77
Section 16.8. No Conversion Rights.......................................82
Section 16.9. No Sinking Fund............................................82
ARTICLE 17. RIGHTS OF CERTAIN LIMITED PARTNERS............................82
Section 17.1. Limited Partner Consent....................................82
Section 17.2. Redemption Rights..........................................83
</TABLE>
iii
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<TABLE>
<S> <C>
Section 17.3. Activities of Investors....................................84
Section 17.4. Sale of Allen Properties...................................84
Section 17.5. Transfer of Partnership Units..............................84
Section 17.6. Distributions and Allocations..............................85
Section 17.7. Admission of Additional Investors..........................85
</TABLE>
iv
<PAGE>
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
KILROY REALTY, L.P.
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of April 17, 1998, is entered into by and among Kilroy Realty
Corporation, a Maryland corporation (the "Company"), as the General Partner and
the Persons whose names are set forth on Exhibit A attached hereto, as the
Limited Partners, together with any other Persons who become Partners in the
Partnership as provided herein.
ARTICLE 1.
DEFINED TERMS
WHEREAS, the limited partnership was formed on October 2, 1996 and an
original agreement of limited partnership was entered into between the Company,
as general partner and John B. Kilroy, Jr. as limited partner;
WHEREAS, on January 31, 1997, the Company, as general partner,
concurrently with the consummation of its initial public offering of common
stock, caused the Partnership to issue additional limited partnership interests
in the Partnership in exchange for the contribution of property, and with such
new limited partners entered into the Amended and Restated Agreement of Limited
Partnership dated as of the same date;
WHEREAS, in connection with the acquisition of certain properties, the
General Partner entered into the First Amendment to the Amended and Restated
Agreement of Limited Partnership, dated October 31, 1997;
WHEREAS, on February 6, 1998, Belair Capital Fund LLC, a Massachusetts
LLC ("Contributor") made a Capital Contribution of $60,000,000, in cash, to the
Partnership in exchange for which Contributor received an aggregate of 1,200,000
of Series A Preferred Units of limited partnership interest in the Partnership
with the rights, preferences, exchange and other rights, voting powers and
restrictions, limitations as to distributions, qualifications and terms and
conditions as set forth herein.
WHEREAS, on the date hereof, Contributor has made a Capital
Contribution of $15,000,000, in cash, to the Partnership in exchange for which
Contributor is entitled to receive an aggregate of 300,000 additional Series A
Preferred Units of limited partnership interest in the Partnership with the
rights, preferences, exchange and other rights, voting powers and restriction,
limitations as to distributions, qualifications and terms and conditions as set
forth herein.
WHEREAS, pursuant to the authority granted to the General Partner
under the Partnership Agreement, the General Partner desires to amend and
restate the Partnership
<PAGE>
Agreement to reflect (i) the issuance of the additional 300,000 Series A
Preferred Units to the Contributor and (ii) certain other matters described
herein;
WHEREAS, Contributor desires to make the additional capital
contribution referenced above and to continue to be bound by all terms,
conditions and other provisions of the Partnership Agreement.
WHEREAS, by virtue of the execution of this Agreement by the Company
and a Majority in Interest of the Limited Partners (as defined herein), the
Company and such Limited Partners hereby consent to the amendment and
restatement of the Amended and Restated Agreement of Limited Partnership.
NOW, THEREFORE, BE IT RESOLVED, that for good and adequate
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1.1. Definitions.
-----------
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as
---
it may be amended from time to time, and any successor to such statute.
"Additional Funds" shall have the meaning set forth in Section 4.3.A.
----------------
"Additional Limited Partner" means a Person admitted to the
--------------------------
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
--------------------------------
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:
(i) decrease such deficit by any amounts which such Partner is
obligated to restore pursuant to this Agreement or is deemed to
be obligated to restore pursuant to Regulations Section 1.704-
1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations
Sections 1.704-2(i)(5) and 1.704-2(g); and
(ii) increase such deficit by the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Regulations Section 1.704-
1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
2
<PAGE>
"Adjustment Date" shall have the meaning set forth in Section 4.3.E.
---------------
"Affiliate" means, with respect to any Person, any Person directly or
---------
indirectly controlling, controlled by or under common control with such Person.
"Agreed Value" means (i) in the case of any Contributed Property set
------------
forth in Exhibit A and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in Exhibit A; (ii) in the case of
any Contributed Property not set forth in Exhibit A and as of the time of its
contribution to the Partnership, the fair market value of such property or other
consideration as determined by the General Partner, reduced by any liabilities
either assumed by the Partnership upon such contribution or to which such
property is subject when contributed; and (iii) in the case of any property
distributed to a Partner by the Partnership, the fair market value of such
property as determined by the General Partner at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of the
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"Agreement" means this Third Amended and Restated Agreement of Limited
---------
Partnership, as it may be amended, modified, supplemented or restated from time
to time.
"Appraisal" means with respect to any assets, the opinion of an
---------
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith; such opinion may be in the form of an
opinion by such independent third party that the value for such asset as set by
the General Partner is fair, from a financial point of view, to the Partnership.
"Assignee" means a Person to whom one or more Partnership Units have
--------
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"Available Cash" means, with respect to any period for which such
--------------
calculation is being made, (i) the sum of:
a. the Partnership's Net Income or Net Loss (as the case may be)
for such period,
b. Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period,
c. the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(f) below (including, without limitation,
reductions resulting because the General Partner determines such
amounts are no longer necessary),
d. the excess of the net proceeds from the sale, exchange,
disposition, or refinancing of Partnership property for such period
over the gain (or loss, as the
3
<PAGE>
case may be) recognized from any such sale, exchange, disposition,
or refinancing during such period (excluding Terminating Capital
Transactions), and
e. all other cash received by the Partnership for such period
that was not included in determining Net Income or Net Loss for such
period;
(ii) less the sum of:
a. all principal debt payments made during such period by the
Partnership,
b. capital expenditures made by the Partnership during such
period,
c. investments in any entity (including loans made thereto) to
the extent that such investments are not otherwise described in
clauses (ii)(a) or (b),
d. all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period,
e. any amount included in determining Net Income or Net Loss for
such period that was not received by the Partnership during such
period,
f. the amount of any increase in reserves established during
such period which the General Partner determines are necessary or
appropriate in its sole and absolute discretion, and
g. the amount of any working capital accounts and other cash or
similar balances which the General Partner determines to be necessary
or appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Board of Directors" means the Board of Directors of the General
------------------
Partner.
"Business Day" shall mean each day, other than a Saturday or a Sunday,
------------
which is not a day on which banking institutions in Los Angeles, California, or
New York, New York are authorized or required by law, regulation or executive
order to close.
"Capital Account" means, with respect to any Partner, the Capital
---------------
Account maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account there shall be added such
Partner's Capital Contributions, such Partner's share of Net Income and any
items in the nature of income or gain which are specially allocated pursuant to
Section 6.3, and the amount of any Partnership
4
<PAGE>
liabilities assumed by such Partner or which are secured by any property
distributed to such Partner.
(b) From each Partner's Capital Account there shall be subtracted the
amount of cash and the Gross Asset Value of any property distributed to such
Partner pursuant to any provision of this Agreement, such Partner's distributive
share of Net Losses and any items in the nature of expenses or losses which are
specially allocated pursuant to Section 6.3 hereof, and the amount of any
liabilities of such Partner assumed by the Partnership or which are secured by
any property contributed by such Partner to the Partnership.
(c) In the event any interest in the Partnership is transferred in
accordance with the terms of this Agreement the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.
(d) In determining the amount of any liability for purposes of
subsections (a) and (b) hereof, there shall be taken into account Code section
752(c) and any other applicable provisions of the Code and Regulations.
(e) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the General
Partner shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed in order to comply with
such Regulations, the General Partner may make such modification, provided, that
--------
it is not likely to have a material effect on the amounts distributable to any
Person pursuant to Article 13 of this Agreement upon the dissolution of the
Partnership. The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any Partner, the amount
--------------------
of money and the initial Gross Asset Value of any property (other than money)
contributed to the Partnership by such Partner.
"Cash Amount" means, with respect to any Partnership Units subject to
-----------
a Redemption, an amount of cash equal to the Deemed Partnership Interest Value
attributable to such Partnership Units.
5
<PAGE>
"Certificate" means the Certificate of Limited Partnership relating to
-----------
the Partnership filed in the office of the Secretary of State of Delaware, as
amended from time to time in accordance with the terms hereof and the Act.
"Charter" means the Articles of Incorporation of the General Partner
-------
filed with the Maryland State Department of Assessments and Taxation on
September 13, 1996, as amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time or any successor statute thereto, as interpreted by the applicable
regulations thereunder. Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Common Limited Partner" means any Person holding Common Units, and
----------------------
named as a Common Limited Partner in Exhibit A attached hereto, as such Exhibit
may be amended from time to time, or any Substituted Limited Partner or
Additional Limited Partner, in such Person's capacity as a Common Limited
Partner in the Partnership.
"Common Unit" means a Partnership Unit representing a Partnership
-----------
Interest that is without preference as to distributions and allocations.
"Consent" means the consent to, approval of, or vote on a proposed
-------
action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a Majority in
-------------------------------
Interest of the Limited Partners, other than the Preferred Limited Partners,
which Consent shall be obtained prior to the taking of any action for which it
is required by this Agreement and may be given or withheld by a Majority in
Interest of the Limited Partners, unless otherwise expressly provided herein, in
their sole and absolute discretion.
"Consent of the Partners" means the Consent of Partners, other than
-----------------------
the Preferred Limited Partners, holding Percentage Interests that in the
aggregate are equal to or greater than 60% of the aggregate Percentage Interests
of all Partners, other than the Preferred Limited Partners, which Consent shall
be obtained prior to the taking of any action for which it is required by this
Agreement and may be given or withheld by such Partners, in their sole and
absolute discretion.
"Constructively Own" means ownership under the constructive ownership
------------------
rules determined through the application of the constructive ownership rules of
Section 318 of the Code, as modified by Section 856(d)5) of the Code, as such
provisions may be modified from time to time. The terms "Constructive,"
"Constructive Owner," "Constructively Owns" and "Constructively Owned" shall
have the correlative meanings.
"Contributed Property" means each property or other asset, in such
--------------------
form as may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership
6
<PAGE>
(or, to the extent provided in applicable regulations, deemed contributed by the
Partnership on termination and reconstitution thereof pursuant to Section 708 of
the Code).
"Debt" means, as to any Person, as of any date of determination, (i)
----
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
which, in accordance with generally accepted accounting principles, should be
capitalized.
"Deemed Partnership Interest Value" means, as of any date with respect
---------------------------------
to any class of Partnership Interests, the Deemed Value of the Partnership
Interests of such class multiplied by the applicable Partner's Percentage
Interest of such class.
"Deemed Value of the Partnership Interests" means, as of any date with
-----------------------------------------
respect to any class or series of Partnership Interests, (i) the total number of
Partnership Units of the General Partner in such class of Partnership Interests
(as provided for in Sections 4.1 and 4.3.C) issued and outstanding as of the
close of business on such date multiplied by the Fair Market Value of a share of
capital stock of the General Partner which corresponds to such class or series
of Partnership Interests on such date; (ii) divided by the Percentage Interest
------- --
of the General Partner in such class or series of Partnership Interests on such
date; provided, that, if no outstanding shares of capital stock of the General
--------
Partner correspond to a class of series of Partnership Interests, the Deemed
Value of Partnership Interests with respect to such class or series shall be
equal to an amount reasonably determined by the General Partner.
"Depreciation" means, for each fiscal year or other period, an amount
------------
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
-------- -------
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
"Effective Date" means the date of closing of the initial public
--------------
offering of REIT Shares upon which date contributions set forth on Exhibit A
shall become effective.
"Excess Units" shall have the meaning set forth in Section
------------
16.7.A(iii).
7
<PAGE>
"Fair Market Value" means, with respect to any share of capital stock
-----------------
of the General Partner, the average of the daily market price for the ten (10)
consecutive trading days immediately preceding the date with respect to which
"Fair Market Value" must be determined hereunder or, if such date is not a
Business Day, the immediately preceding Business Day. The market price for each
such trading day shall be: (i) if such shares are listed or admitted to trading
on any securities exchange or the Nasdaq National Market, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, (ii) if such shares are
not listed or admitted to trading on any securities exchange or the Nasdaq
National Market, the last reported sale price on such day or, if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reliable quotation source designated by the General Partner, or
(iii) if such shares are not listed or admitted to trading on any securities
exchange or the Nasdaq National Market and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than 10 days prior to the date in question) for
which prices have been so reported; provided, that if there are no bid and asked
--------
prices reported during the 10 days prior to the date in question, the Fair
Market Value of such shares shall be determined by the General Partner acting in
good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event the REIT
Shares Amount for such shares includes rights that a holder of such shares would
be entitled to receive, then the Fair Market Value of such rights shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate; provided, that in connection with determining the Deemed Value of
--------
the Partnership Interests for purposes of determining the number of additional
Partnership Units issuable upon a Capital Contribution funded by an underwritten
public offering of shares of capital stock of the General Partner, the Fair
Market Value of such shares shall be the public offering price per share of such
class of capital stock sold.
"Funding Debt" means the incurrence of any Debt by or on behalf of the
------------
General Partner for the purpose of providing funds to the Partnership.
"General Partner" means the Company or its successors as general
---------------
partner of the Partnership.
"General Partner Interest" means a Partnership Interest held by the
------------------------
General Partner. A General Partner Interest may be expressed as a number of
Partnership Units.
"General Partner Loan" shall have the meaning set forth in Section
--------------------
4.3.B.
"General Partner Payment" shall have the meaning set forth in Section
-----------------------
15.11.
8
<PAGE>
"Gross Asset Value" means, with respect to any asset, the asset's
-----------------
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such asset,
as determined by the contributing Partner and the General Partner (as set forth
on Exhibit A attached hereto, as such Exhibit may be amended from time to time);
provided, that if the contributing Partner is the General Partner then, except
- --------
with respect to the General Partner's initial Capital Contribution which shall
be determined as set forth on Exhibit A, or capital contributions of cash, REIT
Shares or other shares of capital stock of the General Partner, the
determination of the fair market value of the contributed asset shall be
determined by (i) the price paid by the General Partner if the asset is acquired
by the General Partner contemporaneously with its contribution to the
Partnership, or (ii) by Appraisal if otherwise acquired by the General Partner.
(b) As of the times listed below, the Gross Asset Values of all
Partnership assets shall be adjusted to equal their respective gross fair market
values, as determined by the General Partner using such reasonable method of
valuation as it may adopt, provided however, that for such purpose, the net
-------- -------
value of all of the Partnership assets, in the aggregate, shall be equal to the
Deemed Value of the Partnership Interests of all classes of Partnership
Interests then outstanding, regardless of the method of valuation adopted by the
General Partner:
(i) the acquisition of an additional interest in the Partnership by a
new or existing Partner in exchange for more than a de minimis
Capital Contribution, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner of more than a
de minimis amount of Partnership property as consideration for an
interest in the Partnership if the General Partner reasonably
determines that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership;
(iii)the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g); and
(iv) at such other times as the General Partner shall reasonably
determine necessary or advisable in order to comply with
Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner; provided,
--------
that if the distributee is the General Partner, or if the distributee and the
General Partner cannot agree on such a determination, by Appraisal.
9
<PAGE>
(d) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that
-------- -------
Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to
the extent that the General Partner reasonably determines that an adjustment
pursuant to subparagraph (b) is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subparagraph (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subparagraph (a), (b) or (d), such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Income and Net Losses.
"Holder" means either the Partner or Assignee owning a Partnership
------
Unit.
"Immediate Family" means, with respect to any natural Person, such
----------------
natural Person's estate or heirs or current spouse or former spouse, parents,
parents-in-law, children, siblings and grandchildren and any trust or estate,
all of the beneficiaries of which consist of such Person or such Person's
spouse, former spouse, parents, parents-in-law, children, siblings or
grandchildren.
"Incapacity" or "Incapacitated" means, (i) as to any individual
---------- -------------
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him or her incompetent to manage his or her Person or
his or her estate; (ii) as to any corporation which is a Partner, the filing of
a certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership; (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within 120 days after the commencement thereof, (g) the
appointment without the Partner's consent or acquiescence of a
10
<PAGE>
trustee, receiver or liquidator has not been vacated or stayed within 90 days of
such appointment, or (h) an appointment referred to in clause (g) is not vacated
within 90 days after the expiration of any such stay.
"Indemnitee" means (i) any Person subject to a claim or demand or made
----------
or threatened to be made a party to, or involved or threatened to be involved
in, an action, suit or proceeding by reason of his or her status as (A) the
General Partner or (B) a director, officer, employee or agent of the Partnership
or the General Partner, and (ii) such other Persons (including Affiliates of the
General Partner or the Partnership) as the General Partner may designate from
time to time, in its sole and absolute discretion.
"IRS" means the Internal Revenue Service, which administers the
---
internal revenue laws of the United States.
"Junior Units" shall have the meaning set forth in Section 16.2.C
------------
hereof.
"Limited Partner" means each Preferred Limited Partner or Common
---------------
Limited Partner.
"Limited Partnership Interest" means a Partnership Interest of a
----------------------------
Limited Partner representing a fractional part of the Partnership Interests of
all Limited Partners and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partnership Interest may be expressed
as a number of Partnership Units.
"Liquidating Events" shall have the meaning set forth in Section 13.1.
------------------
"Liquidator" shall have the meaning set forth in Section 13.2.A.
----------
"Majority in Interest of the Limited Partners" means Limited Partners
--------------------------------------------
(other than the General Partner, any Limited Partner 50% or more of whose equity
is owned, directly or indirectly, by the General Partner and any Preferred
Limited Partner) holding Percentage Interests that in the aggregate are greater
than fifty percent (50%) of the aggregate Percentage Interests of all Limited
Partners (other than the General Partner, any Limited Partner 50% or more of
whose equity is owned, directly or indirectly, by the General Partner and any
Preferred Limited Partner).
"Majority in Interest of Partners" means Partners (other than
--------------------------------
Preferred Limited Partners) holding Percentage Interests that are greater than
fifty percent (50%) of the aggregate Percentage Interests of all Partners (other
than Preferred Limited Partners).
"Net Income" or "Net Loss" means for each fiscal year of the
---------- --------
Partnership, an amount equal to the Partnership's taxable income or loss for
such fiscal year, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or
11
<PAGE>
deduction required to be stated separately pursuant to Code Section 703(a)(1)
shall be included in taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Income or Net Loss
pursuant to this definition of Net Income or Net Loss shall be added to such
taxable income or loss;
(b) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Net Income or Net Loss pursuant to this definition of Net Income or
Net Loss shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (b) or subparagraph (c) of the definition of
Gross Asset Value, the amount of such adjustment shall be taken into account as
gain or loss from the disposition of such asset for purposes of computing Net
Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year;
(f) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's interest in the Partnership, the amount of
such adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Net Income or Net Loss; and
(g) Notwithstanding any other provision of this definition of Net
Income or Net Loss, any items which are specially allocated pursuant to Section
6.3 hereof shall not be taken into account in computing Net Income or Net Loss.
The amounts of the items of Partnership income, gain, loss, or deduction
available to be specially allocated pursuant to Section 6.3 hereof shall be
determined by applying rules analogous to those set forth in this definition of
Net Income or Net Loss.
Solely for purposes of allocating Net Income or Net Loss in any Fiscal Year to
the holders of the Series A Preferred Units pursuant to Sections 6.2.A.1(b) and
(d), and Section 6.2.A.2(b), items of
12
<PAGE>
Net Income and Net Loss, as the case may be, shall not include Depreciation with
respect to properties that are "ceiling limited" in respect of Preferred Limited
Partners. For purposes of the preceding sentence, Partnership property shall be
considered ceiling limited in respect of a Preferred Limited Partner if
Depreciation attributable to such Partnership property which would otherwise be
allocable to such Partner, without regard to this paragraph, exceeded
depreciation determined for federal income tax purposes attributable to such
Partnership property which would otherwise be allocable to such Partner by more
than 5%.
"New Securities" means (i) any rights, options, warrants or
--------------
convertible or exchangeable securities having the right to subscribe for or
purchase REIT Shares or other shares of capital stock of the General Partner,
excluding grants under any Stock Incentive Plan, or (ii) any Debt issued by the
General Partner that provides any of the rights described in clause (i).
"Nonrecourse Deductions" shall have the meaning set forth in
----------------------
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" shall have the meaning set forth in
---------------------
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption substantially in
--------------------
the form of Exhibit B to this Agreement.
"Original Limited Partner" means the Limited Partners of the
------------------------
Partnership, listed on Schedule A hereto, as of January 31, 1997.
"Parity Preferred Unit" means any class or series of Partnership
---------------------
Interests of the Partnership now or hereafter authorized, issued or outstanding
expressly designated by the Partnership to rank on a parity with Series A
Preferred Units with respect to distributions or rights upon voluntary or
involuntary liquidation, winding up or dissolution of the Partnership, or both,
as the context may require.
"Partner" means a General Partner or a Limited Partner, and "Partners"
------- --------
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
--------------------
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" shall have the meaning set forth in
------------------------
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" shall have the meaning set forth in
------------------------------
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a
13
<PAGE>
Partner Nonrecourse Debt for a Partnership Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
-----------
pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means, an ownership interest in the Partnership
--------------------
of either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. There may be one or
more classes of Partnership Interests as provided in Section 4.3. A Partnership
Interest may be expressed as a number of Partnership Units. Unless otherwise
expressly provided for by the General Partner at the time of the original
issuance of any Partnership Interests, all Partnership Interests (whether of a
Limited Partner or a General Partner) shall be of the same class. The
Partnership Interest represented by the Common Units and the Series A Preferred
Units are the only Partnership Interests and are separate classes of Partnership
Interest for all purposes of this Agreement.
"Partnership Minimum Gain" shall have the meaning set forth in
------------------------
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by the
-----------------------
General Partner for the distribution of Available Cash with respect to
Partnership Interests that are not entitled to any preference in distribution
pursuant to Section 5.1 hereof which record date shall be the same as the record
date established by the General Partner for a distribution to its stockholders
of some or all of its portion of such distribution.
"Partnership Unit" means, with respect to any class of Partnership
----------------
Interest, a fractional, undivided share of such class of Partnership Interest
issued pursuant to Sections 4.1 and 4.3. The ownership of Partnership Units may
be evidenced by a certificate for units substantially in the form of Exhibit D
hereto or as the General Partner may determine with respect to any class of
Partnership Units issued from time to time under Section 4.1 and 4.3.
"Partnership Year" means the fiscal year of the Partnership, which
----------------
shall be the calendar year.
"Percentage Interest" means, as to a Partner holding a class of
-------------------
Partnership Interests, its interest in the Partnership as determined by dividing
the Partnership Units of such class owned by such Partner by the total number of
Partnership Units of such class then outstanding as specified in Exhibit A
attached hereto, as such Exhibit may be amended from time to time. If the
Partnership issues more than one class of Partnership Interest, the interest in
the Partnership among the classes of Partnership Interests shall be determined
as set forth in the
14
<PAGE>
amendment to the Partnership Agreement setting forth the rights and privileges
of such additional classes of Partnership Interest, if any, as contemplated by
Section 4.3.C hereof.
"Person" means an individual or a corporation, partnership, limited
------
liability company, trust, unincorporated organization, association or other
entity.
"Pledge" shall have the meaning set forth in Section 11.3.A.
------
"Pledge Agreement" means the Pledge Agreement dated as of January 31,
----------------
1997 among the Company, as agent, and the Pledgors, as same may be amended,
modified or supplemented from time to time in accordance with its terms.
"Pledgors" means Kilroy Industries, a California corporation, John B.
--------
Kilroy, Sr. and John B. Kilroy, Jr.
"Preferred Limited Partner" means any Person holding a Preferred Unit,
-------------------------
and named as a Preferred Limited Partner in Exhibit A attached hereto, as such
Exhibit may be amended from time to time, or any Substitute Limited Partner or
Additional Limited Partner, in such Person's capacity as a Preferred Limited
Partner in the Partnership.
"Preferred Share" means a share of the General Partner's preferred
---------------
stock, par value $.01 per share, with such rights, priorities and preferences as
shall be designated by the Board of Directors in accordance with the General
Partner's Charter.
"Preferred Unit" means a Partnership Unit representing a Limited
--------------
Partnership Interest, with such rights, priorities and preferences as shall be
designated by the General Partner pursuant to Section 4.3.C hereof.
"Preferred Unit Partnership Record Date" shall have the meaning set
--------------------------------------
forth in Section 16.2.A hereof.
"Preferred Unit Distribution Payment Date" shall have the meaning set
----------------------------------------
forth in Section 16.2.A hereof.
"Priority Return" shall mean, an amount equal to 8.075% per annum,
---------------
determined on the basis of a 360 day year of twelve 30 day months (or actual
days for any month which is shorter than a full monthly period), cumulative to
the extent not distributed for any given distribution period pursuant to
Sections 5.1 and 16.2 hereof, on the stated value of $50 per Series A Preferred
Unit, commencing on the date of issuance of such Series A Preferred Unit as set
forth on Exhibit A hereto.
"Properties" means such interests in real property and personal
----------
property including without limitation, fee interests, interests in ground
leases, interests in joint ventures, interests in mortgages, and Debt
instruments as the Partnership may hold from time to time.
15
<PAGE>
"PTP" shall have the meaning set forth in Section 16.6 hereof.
---
"Qualified REIT Subsidiary" means any Subsidiary of the General
-------------------------
Partner that is a "qualified REIT subsidiary" within the meaning of Section
856(i) of the Code.
"Qualified Transferee" means an "Accredited Investor" as defined in
--------------------
Rule 501 promulgated under the Securities Act.
"Redemption" shall have the meaning set forth in Section 8.6.A.
----------
"Regulations" means the Income Tax Regulations promulgated under the
-----------
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" shall have the meaning set forth in Section
----------------------
6.3.A(viii) of this Agreement.
"REIT" means a real estate investment trust under Sections 856 through
----
860 of the Code.
"REIT Series A Preferred Share" means a share of 8.075% Series A
-----------------------------
Cumulative Redeemable Preferred Stock, par value $.01 per share, liquidation
preference $50 per share, of the General Partner.
"REIT Requirements" shall have the meaning set forth in Section 5.1.
-----------------
"REIT Share" means a share of common stock, par value $.01 per share,
----------
of the General Partner.
"REIT Shares Amount" means, as of any date, an aggregate number of
------------------
REIT Shares equal to the number of Tendered Units, or in the case of Section
11.2.B, all Units, as adjusted pursuant to Section 7.5 (in the event the General
Partner acquires material assets, other than on behalf of the Partnership) and
for stock dividends and distributions, stock splits and subdivisions, reverse
stock splits and combinations, distributions of rights, warrants or options, and
distributions of evidences of indebtedness or assets relating to assets not
received by the General Partner pursuant to a pro rata distribution by the
--- ----
Partnership.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
16
<PAGE>
"Series A Limited Partner" means any Person holding Series A Preferred
------------------------
Units and named as a Series A Limited Partner in Exhibit A attached hereto, as
such Exhibit may be amended from time to time, or any Substitute Limited
Partner, in such Person's capacity as a Series A Limited Partner in the
Partnership.
"Series A Preferred Units" means the Partnership's 8.075% Series A
------------------------
Cumulative Redeemable Limited Partnership Units, with the rights, priorities and
preferences set forth herein.
"Specified Redemption Date" means the day of receipt by the General
-------------------------
Partner of a Notice of Redemption.
"Stock Incentive Plan" means any stock incentive plan of the General
--------------------
Partner.
"Subsidiary" shall mean with respect to any person, any corporation,
----------
partnership, limited liability company, joint venture or other entity of which a
majority of (i) voting power of the voting equity securities or (ii) the
outstanding equity interests, is owned, directly or indirectly, by such person.
"Subsidiary Partnership" means any partnership that is a Subsidiary of
----------------------
the Partnership.
"Substituted Limited Partner" means a Person who is admitted as a
---------------------------
Limited Partner to the Partnership pursuant to Section 11.4.
"Surviving Partnership" shall have the meaning set forth in Section
---------------------
11.2.C.
"Tax Items" shall have the meaning set forth in Section 6.4.A.
---------
"Tenant" means any tenant from which the General Partner derives rent
------
either directly or indirectly through partnerships, including the Partnership.
"Tendered Units" shall have the meaning set forth in Section 8.6.A.
--------------
"Tendering Partner" shall have the meaning set forth in Section 8.6.A.
-----------------
"Terminating Capital Transaction" means any sale or other disposition
-------------------------------
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
17
<PAGE>
ARTICLE 2.
ORGANIZATIONAL MATTERS
Section 2.1. Organization
------------
The Partnership is a limited partnership formed pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein, the rights and obligations of
the Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
Section 2.2. Name
----
The name of the Partnership is Kilroy Realty, L.P. The Partnership's
business may be conducted under any other name or names deemed advisable by the
General Partner, including the name of the General Partner or any Affiliate
thereof. The words "Limited Partnership," "L.P.," "Ltd." or similar words or
letters shall be included in the Partnership's name where necessary for the
purposes of complying with the laws of any jurisdiction that so requires. The
General Partner in its sole and absolute discretion may change the name of the
Partnership at any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to the Limited
Partners.
Section 2.3. Resident Agent; Principal Office
--------------------------------
The name and address of the resident agent of the Partnership in the
State of Delaware is Prentice-Hall Corporation Systems, Inc., 1013 Centre Road,
Wilmington, DE 19805. The address of the principal office of the Partnership in
the State of Delaware is c/o Prentice-Hall Corporation Systems, Inc., 1013
Centre Road, Wilmington, DE 19805 at such address. The principal office of the
Partnership is located at 2250 East Imperial Highway, El Segundo, California
90245, or such other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4. Power of Attorney
-----------------
A. Each Limited Partner and each Assignee constitutes and appoints
the General Partner, any Liquidator, and authorized officers and attorneys-in-
fact of each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof)
that the General Partner or the Liquidator deems appropriate or
necessary to form, qualify or continue the
18
<PAGE>
existence or qualification of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have
limited liability) in the State of Delaware and in all other
jurisdictions in which the Partnership may conduct business or
own property; (b) all instruments that the General Partner or any
Liquidator deems appropriate or necessary to reflect any
amendment, change, modification or restatement of this Agreement
in accordance with its terms; (c) all conveyances and other
instruments or documents that the General Partner or any
Liquidator deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the
terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner
pursuant to, or other events described in, Articles 11, 12 and 13
hereof or the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of
Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of
the General Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other
action which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
and any Liquidator to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or any Liquidator, within 15 days after receipt of the General
Partner's or Liquidator's request therefor, such further designation, powers of
attorney and other
19
<PAGE>
instruments as the General Partner or the Liquidator, as the case may be, deems
necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.5. Term
----
The term of the Partnership commenced on October 2, 1996 and shall
continue until December 31, 2095 unless it is dissolved sooner pursuant to the
provisions of Article 13 or as otherwise provided by law.
Section 2.6. Number of Partners
------------------
The Partnership shall not at any time have more than 100 partners
(including as partners those persons indirectly owning an interest in the
Partnership through a partnership, limited liability company, S corporation or
grantor trust (such entity, a "flow through entity"), but only if substantially
all of the value of such person's interest in the flow through entity is
attributable to the flow through entity's interest (direct or indirect) in the
Partnership).
ARTICLE 3.
PURPOSE
Section 3.1. Purpose and Business
--------------------
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, provided, however, that such
-------- -------
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT for federal income tax
purposes, unless the General Partner ceases to qualify as a REIT for reasons
other than the conduct of the business of the Partnership, (ii) to enter into
any partnership, joint venture or other similar arrangement to engage in any of
the foregoing or to own interests in any entity engaged, directly or indirectly,
in any of the foregoing and (iii) to do anything necessary or incidental to the
foregoing. In connection with the foregoing, and without limiting the General
Partner's right in its sole discretion to cease qualifying as a REIT, the
Partners acknowledge that the General Partner's current status as a REIT inures
to the benefit of all the Partners and not solely the General Partner.
Section 3.2. Powers
------
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness, whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire and develop real
property, and manage, lease, sell, transfer and
20
<PAGE>
dispose of real property; provided, however, that the Partnership shall not
-------- -------
take, or refrain from taking, any action which, in the judgment of the General
Partner, in its sole and absolute discretion, (i) could adversely affect the
ability of the General Partner to continue to qualify as a REIT, (ii) could
subject the General Partner to any taxes under Section 857 or Section 4981 of
the Code, except with respect to the distribution of Available Cash to the
Series A Limited Partners in accordance with Section 16.2, or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless any such action
(or inaction) under (i), (ii) or (iii) shall have been specifically consented to
by the General Partner in writing.
Section 3.3. Partnership Only for Purposes Specified
---------------------------------------
The Partnership shall be a partnership only for the purposes specified
in Section 3.1 hereof, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall
be responsible or liable for any indebtedness or obligation of another Partner,
nor shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4. Representations and Warranties by the Parties
---------------------------------------------
A. Each Partner that is an individual represents and warrants to each
other Partner that (i) such Partner has the legal capacity, to enter into this
Agreement and perform such Partner's obligations hereunder, (ii) the
consummation of the transactions contemplated by this Agreement to be performed
by such Partner will not result in a breach or violation of, or a default under,
any agreement by which such Partner or any of such Partner's property is or are
bound, or any statute, regulation, order or other law to which such Partner is
subject, (iii) such Partner is neither a "foreign person" within the meaning of
Section 1445(f) of the Code nor a "foreign partner" within the meaning of
Section 1446(e) of the Code, and (iv) this Agreement has been duly executed and
delivered by such Partner and is binding upon, and enforceable against, such
Partner in accordance with its terms.
B. Each Partner that is not an individual represents and warrants to
each other Partner that (i) its execution and delivery of this Agreement and all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
stockholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its certificate of limited
21
<PAGE>
partnership, partnership agreement, trust agreement, limited liability company
operating agreement, charter or by-laws, as the case may be, any agreement by
which such Partner or any of such Partner's properties or any of its partners,
beneficiaries, trustees or stockholders, as the case may be, is or are bound, or
any statute, regulation, order or other law to which such Partner or any of its
partners, trustees, beneficiaries or stockholders, as the case may be, is or are
subject, (iii) such Partner is neither a "foreign person" within the meaning of
Section 1445(f) of the Code nor a "foreign partner" within the meaning of
Section 1446(e) of the Code, and (iv) this Agreement has been duly executed and
delivered by such Partner and is binding upon, and enforceable against, such
Partner in accordance with its terms.
C. Each Partner represents, warrants and agrees that it has acquired
and continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances. Each Partner further represents and
warrants that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds it has invested in the Partnership in what it
understands to be a highly speculative and illiquid investment.
D. Each Limited Partner, other than any Limited Partner to whom the
General Partner has granted an exception in its sole discretion to this Section
3.4.D (but, with respect to any such Limited Partner, only to the extent of the
exception so granted by the General Partner), further represents, warrants and
agrees as follows:
(i) At any time a Person actually owns or Constructively Owns a
25% or greater capital interest or profits interest in the Partnership,
such Person does not and will not, without the prior written consent of the
General Partner, (a) actually own or Constructively Own (1) with respect to
any Tenant that is a corporation, any stock of such Tenant and (2) with
respect to any Tenant that is not a corporation, any interests in either
the assets or net profits of such Tenant; or (b) actually own or
Constructively Own any stock in the General Partner, other than any REIT
Shares or other shares of capital stock of the General Partner such Person
may actually or Constructively acquire (1) as a result of an exchange of
Tendered Units pursuant to Section 8.6 or (2) upon the exercise of options
granted or delivery of REIT Shares pursuant to any Stock Incentive Plan, in
each case subject to the applicable ownership limitations with respect to
such shares of capital stock as set forth in the Charter.
(ii) Upon request of the General Partner, such Limited Partner
will disclose to the General Partner the amount of REIT Shares or other
shares of capital stock of the General Partner that it actually owns or
Constructively Owns.
(iii) Such Limited Partner understands that if, for any reason,
(a) the representations, warranties or agreements set forth in Section 3.4.D(i)
are violated or (b) the Partnership's actual ownership or Constructive Ownership
of REIT Shares or other shares of capital
22
<PAGE>
stock of the General Partner violates the limitations set forth in the Charter,
then (x) some or all of the redemption or exchange rights of the Limited
Partners may become non-exercisable, and (y) some or all of such shares owned by
the Limited Partners and/or some or all of the Partnership Units owned by the
Limited Partners may be automatically transferred to a trust for the benefit of
a charitable beneficiary, as provided in the Charter and Exhibit E of this
Agreement, respectively.
E. The representations and warranties contained in Sections 3.4.A,
3.4.B, 3.4.C and 3.4.D hereof shall survive the execution and delivery of this
Agreement by each Partner and the dissolution and winding up of the Partnership.
F. Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that projections and
any other information, including, without limitation, financial and descriptive
information and documentation, which may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.
ARTICLE 4.
CAPITAL CONTRIBUTIONS
Section 4.1. Capital Contributions of the Partners
-------------------------------------
At the time of their respective execution of this Agreement, the
Partners shall make or shall have made Capital Contributions as set forth in
Exhibit A to this Agreement. The Partners shall own Partnership Units of the
class and in the amounts set forth in Exhibit A and shall have a Percentage
Interest in the Partnership as set forth in Exhibit A, which Percentage Interest
shall be adjusted in Exhibit A from time to time by the General Partner to the
extent necessary to accurately reflect exchanges, redemptions, Capital
Contributions, the issuance of additional Partnership Units or similar events
having an effect on a Partner's Percentage Interest. Except as required by law
or as otherwise provided in Sections 4.3, 4.4 and 10.5, no Partner shall be
required or permitted to make any additional Capital Contributions or loans to
the Partnership. Unless otherwise specified by the General Partner at the time
of the creation of any class of Partnership Interests, the corresponding class
of capital stock for any Partnership Units issued shall be REIT Shares.
Section 4.2. Loans by Third Parties
----------------------
Subject to Section 4.3, the Partnership may incur Debt, or enter into
other similar credit, guarantee, financing or refinancing arrangements for any
purpose (including, without limitation, in connection with any further
acquisition of Properties) with any Person that is not the General Partner upon
such terms as the General Partner determines appropriate; provided, that the
--------
Partnership shall not incur any Debt that is recourse to the General Partner,
except to the extent otherwise agreed to by the General Partner in its sole
discretion.
23
<PAGE>
Section 4.3. Additional Funding and Capital Contributions
--------------------------------------------
A. General. The General Partner may, at any time and from time to
-------
time, determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition of additional Properties or for such other
Partnership purposes as the General Partner may determine. Additional Funds may
be raised by the Partnership, at the election of the General Partner, in any
manner provided in, and in accordance with, the terms of this Section 4.3. No
Person shall have any preemptive, preferential or similar right or rights to
subscribe for or acquire any Partnership Interest, except as set forth in this
Section 4.3.
B. General Partner Loans. The General Partner may enter into a
---------------------
Funding Debt, including, without limitation, a Funding Debt that is convertible
into REIT Shares, and lend the Additional Funds to the Partnership (a "General
Partner Loan"); provided, however, that the General Partner shall not be
-------- -------
obligated to lend the net proceeds of any Funding Debt to the Partnership in a
manner that would be inconsistent with the General Partner's ability to remain
qualified as a REIT. If the General Partner enters into such a Funding Debt,
the General Partner Loan will consist of the net proceeds from such Funding Debt
and will be on comparable terms and conditions, including interest rate,
repayment schedule and costs and expenses, as shall be applicable with respect
to or incurred in connection with such Funding Debt.
C. Issuance of Additional Partnership Interests. The General Partner
--------------------------------------------
may raise all or any portion of the Additional Funds by accepting additional
Capital Contributions of cash. The General Partner also may accept additional
Capital Contributions of real property or any other non-cash assets. In
connection with any such additional Capital Contributions (of cash or property),
and subject to Section 16.5 hereof, the General Partner is hereby authorized to
cause the Partnership from time to time to issue to Partners (including the
General Partner) or other Persons (including, without limitation, in connection
with the contribution of property to the Partnership) additional Partnership
Units or other Partnership Interests in one or more classes, or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers, and duties, including
rights, powers, and duties senior to then existing Limited Partnership
Interests, all as shall be determined by the General Partner in its sole and
absolute discretion subject to Delaware law, and as set forth by amendment to
this Agreement, including without limitation, (i) the allocations of items of
Partnership income, gain, loss, deduction, and credit to such class or series of
Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; (iii) the rights of
each such class or series of Partnership Interests upon dissolution and
liquidation of the Partnership; and (iv) the right to vote, including, without
limitation, the limited partner approval rights set forth in Section 11.2.A
hereof; provided, that no such additional Partnership Units or other Partnership
--------
Interests shall be issued to the General Partner unless either (a) the
additional Partnership Interests are issued in connection with the grant, award,
or issuance of shares of the General Partner pursuant to Section 4.3.D below,
which shares have designations, preferences, and other rights (except voting
rights) such that the economic interests attributable to such shares are
substantially similar to the designations, preferences and other rights of the
additional Partnership Interests issued to the General Partner
24
<PAGE>
in accordance with this Section 4.3.C, or (b) the additional Partnership
Interests are issued to all Partners holding Partnership Interests in the same
class in proportion to their respective Percentage Interests in such class. In
the event that the Partnership issues additional Partnership Interests pursuant
to this Section 4.3.C, the General Partner shall make such revisions to this
Agreement (including but not limited to the revisions described in Section 5.4,
Section 6.2.B, and Section 8.6) as it determines are necessary to reflect the
issuance of such additional Partnership Interests.
D. Issuance of REIT Shares or Other Securities by the General
----------------------------------------------------------
Partner. The General Partner shall not issue any additional REIT Shares (other
- -------
than REIT Shares issued pursuant to Section 8.6 hereof or pursuant to a dividend
or distribution (including any stock split) of REIT Shares to all of its
stockholders), other shares of capital stock of the General Partner (other than
in connection with the acquisition of Partnership Interests in exchange for
capital stock of the General Partner which corresponds in ranking to the
Partnership's Partnership Interests being acquired) or New Securities unless the
General Partner shall make a Capital Contribution of the net proceeds from the
issuance of such additional REIT Shares, other shares of capital stock or New
Securities, as the case may be, and from the exercise of the rights contained in
such additional New Securities, as the case may be. The General Partner's
Capital Account shall be increased by the amount of cash so contributed.
E. Percentage Interest Adjustments in the Case of Capital
------------------------------------------------------
Contributions for Partnership Units. Upon the acceptance of additional Capital
- -----------------------------------
Contributions in exchange for any class or series of Partnership Units, the
Percentage Interest related thereto shall be equal to a fraction, the numerator
of which is equal to the amount of cash and the Agreed Value of the Property
contributed as of the Business Day immediately preceding the date on which the
additional Capital Contributions are made (an "Adjustment Date") and the
denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests of such class or series (computed as of the Business Day
immediately preceding the Adjustment Date) and (ii) the aggregate amount of cash
and the Agreed Value of the Property contributed to the Partnership on such
Adjustment Date in respect of such class or series. The Percentage Interest of
each other Partner holding Partnership Interests of such class or series not
making a full pro rata Capital Contribution shall be adjusted to equal a
--- ----
fraction, the numerator of which is equal to the sum of (i) the Deemed
Partnership Interest Value of such Limited Partner in respect of such class or
series (computed as of the Business Day immediately preceding the Adjustment
Date) and (ii) the amount of cash and the Agreed Value of the Property
contributed by such Partner to the Partnership in respect of such class or
series as of such Adjustment Date, and the denominator of which is equal to the
sum of (i) the Deemed Value of the Partnership Interests of such class (computed
as of the Business Day immediately preceding the Adjustment Date), plus (ii) the
----
aggregate amount of cash and the Agreed Value of the Property contributed to the
Partnership on such Adjustment Date in respect of such class or series.
Notwithstanding the foregoing, solely for purposes of calculating a Partner's
Percentage Interest pursuant to this Section 4.3.E, (i) in the case of cash
Capital Contributions by the General Partner, such Capital Contributions will be
deemed to equal the cash contributed by the General Partner plus, in the case of
cash contributions funded by an offering of REIT Shares or other shares of
capital stock of the
25
<PAGE>
General Partner, the offering costs attributable to the cash contributed to the
Partnership and (ii) in the case of the contribution of Properties (or any
portion thereof) by the General Partner which were acquired by the General
Partner in exchange for REIT Shares immediately prior to such Contribution, the
General Partner shall be issued a number of Partnership Units equal to the
number of REIT Shares issued by the General Partner in exchange for such
properties, the Partnership Units held by the other Partners shall not be
adjusted and the Partners' Percentage Interests shall be adjusted accordingly.
The General Partner shall promptly give each Partner written notice of its
Percentage Interest, as adjusted.
Section 4.4. Stock Incentive Plan
--------------------
If at any time or from time to time the General Partner sells or
issues REIT Shares pursuant to any Stock Incentive Plan, the General Partner
shall contribute any proceeds therefrom to the Partnership as an additional
Capital Contribution and shall receive an amount of additional Partnership Units
equal to the number of REIT Shares so sold or issued. The General Partner's
Capital Account shall be increased by the amount of cash so contributed.
Section 4.5. Other Contribution Provisions
-----------------------------
In the event that any Partner is admitted to the Partnership and is
given a Capital Account in exchange for services rendered to the Partnership,
such transaction shall be treated by the Partnership and the affected Partner as
if the Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership. In addition, with the
consent of the General Partner, one or more Limited Partners may enter into
contribution agreements with the Partnership which have the effect of providing
a guarantee of certain obligations of the Partnership.
ARTICLE 5.
DISTRIBUTIONS
Section 5.1. Requirement and Characterization of Distributions
-------------------------------------------------
The General Partner shall cause the Partnership to distribute all, or
such portion as the General Partner may in its discretion determine, Available
Cash generated by the Partnership to the Partners who are Partners on the
applicable record date with respect to such distribution, (1) first, with
respect to any Partnership Interests that are entitled to any preference in
distribution, in accordance with the rights of such class of Partnership
Interests (and within such class, pro rata in proportion to the respective
Percentage Interests on the applicable record date), and, (2) second, with
respect to Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class on a quarterly basis and in accordance
with the terms of such class to the Partners who are Partners of such class on
the Partnership Record Date with respect to such distribution (and within each
such class, pro rata in proportion with the respective Percentage Interests on
such Partnership Record Date). Unless otherwise expressly provided for herein
or in an agreement at the time a new class of Partnership Interests is created
in accordance
26
<PAGE>
with Article 4 hereof, no Partnership Interest shall be entitled to a
distribution in preference to any other Partnership Interest. The General
Partner shall take such reasonable efforts, as determined by it in its sole and
absolute discretion and consistent with its qualification as a REIT, to cause
the Partnership to distribute sufficient amounts to enable the General Partner
to pay stockholder dividends that will (a) satisfy the requirements for
qualifying as a REIT under the Code and Regulations ("REIT Requirements"), and
(b) avoid any federal income or excise tax liability of the General Partner,
except to the extent that a distribution pursuant to clause (b) would prevent
the Partnership from making a distribution to the holders of Series A Preferred
Units in accordance with Section 16.2.
Section 5.2. Distributions in Kind
---------------------
Except as expressly provided herein, no right is given to any Partner
to demand and receive property other than cash. The General Partner may
determine, in its sole and absolute discretion, to make a distribution in kind
to the Partners of Partnership assets, and such assets shall be distributed in
such a fashion as to ensure that the fair market value is distributed and
allocated in accordance with Articles 5, 6 and 10; provided, however, that, in
such case, the General Partners shall distribute only cash to the Series A
Limited Partners.
Section 5.3. Distributions Upon Liquidation
------------------------------
Proceeds from a Terminating Capital Transaction shall be distributed
to the Partners in accordance with Section 13.2.
Section 5.4. Distributions to Reflect Issuance of Additional
-----------------------------------------------
Partnership Interests.
---------------------
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Section 4.3.C or 4.4 hereof, the General Partner shall make such revisions to
this Article 5 as it determines are necessary to reflect the issuance of such
additional Partnership Interests.
ARTICLE 6.
ALLOCATIONS
Section 6.1. Timing and Amount of Allocations of Net Income and Net
------------------------------------------------------
Loss
----
Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each fiscal year of the Partnership as of the end of
each such year. Subject to the other provisions of this Article 6, an
allocation to a Partner of a share of Net Income or Net Loss shall be treated as
an allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Income or Net Loss.
27
<PAGE>
Section 6.2. General Allocations
-------------------
A. In General. Except as otherwise provided in this Article 6, Net
----------
Income and Net Loss shall be allocated to each of the Partners holding the same
class of Partnership Interests in accordance with their respective Percentage
Interest of such class.
B.1. Net Income. Net Income for any Partnership Year shall be
----------
allocated in the following manner and order of priority:
(a) First, 100% to the General Partner in an amount equal to the
remainder, if any, of the cumulative Net Losses allocated to the
General Partner pursuant to Section 6.2.B.2(c) for all prior
Partnership Years minus the cumulative Net Income allocated to
the General Partner pursuant to this Section 6.2.B.1(a) for all
prior Partnership Years;
(b) Second, 100% to the Series A Limited Partners in an amount equal
to the remainder, if any, of the cumulative Net Losses allocated
to the Series A Limited Partners pursuant to Section 6.2.B.2(b)
for all prior Partnership Years minus the cumulative Net Income
allocated to the Series A Limited Partners pursuant to this
Section 6.2.B.1(b) for all prior Partnership Years;
(c) Third, 100% to the General Partner and the Common Limited
Partners in an amount equal to the remainder, if any, of the
cumulative Net Losses allocated to each such Partner pursuant to
Section 6.2.B.2(a) for all prior Partnership Years minus the
cumulative Net Income allocated to each Partner pursuant to this
Section 6.2.B.1(c) for all prior Partnership Years;
(d) Fourth, 100% to the Series A Limited Partners until the Series A
Limited Partners have been allocated an amount equal to the
remainder, if any, of (i) the cumulative Priority Return to the
last day of the current Partnership Year or to the date of
redemption, to the extent Series A Preferred Units are redeemed
during such year, minus (ii) the cumulative Net Income allocated
to the Series A Limited Partners pursuant to this Section
6.2.B.1(d) for all prior Partnership Years;
(e) Fifth, 100% to the General Partner and the Common Limited Partner
in accordance with their respective Percentage Interests of such
class.
B.2. Net Losses. Net Losses for any Partnership Year shall be
----------
allocated in the following manner and order of priority:
(a) First, 100% to the General Partner and the Common Limited
Partners in accordance with their respective Percentage Interests
(to the extent consistent with this Section 6.2.B.2(a)) until the
Adjusted Capital Account (ignoring for this purpose any amounts
the General Partner is deemed
28
<PAGE>
obligated to restore pursuant to Regulations Section 1.704-
1(b)(2)(ii)(c)(2)) of each such Partner is zero;
(b) Second, 100% to the Series A Limited Partners until the Adjusted
Capital Account of the Series A Limited Partners are zero; and
(c) Third, 100% to the General Partner.
C. Allocations to Reflect Issuance of Additional Partnership
---------------------------------------------------------
Interests. In the event that the Partnership issues additional Partnership
- ---------
Interests to the General Partner or any Additional Limited Partner pursuant to
Section 4.3 or 4.4 hereof, the General Partner shall make such revisions to this
Section 6.2 as it determines are necessary to reflect the terms of the issuance
of such additional Partnership Interests, including making preferential
allocations to certain classes of Partnership Interests subject to the terms of
the Series A Preferred Units.
Section 6.3. Additional Allocation Provisions
--------------------------------
Notwithstanding the foregoing provisions of this Article 6:
A. Regulatory Allocations.
----------------------
(i) Minimum Gain Chargeback. Except as otherwise provided in
-----------------------
Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 of
the Agreement, or any other provision of this Article 6, if there is a net
decrease in Partnership Minimum Gain during any fiscal year, each Partner shall
be specially allocated items of Partnership income and gain for such year (and,
if necessary, subsequent years) in an amount equal to such Partner's share of
the net decrease in Partnership Minimum Gain, as determined under Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be allocated shall be determined in accordance
with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
6.3.A(i) is intended to qualify as a "minimum gain chargeback" within the
meaning of Regulation Section 1.704-2(f) which shall be controlling in the event
of a conflict between such Regulation and this Section 6.3.A(i).
(ii) Partner Minimum Gain Chargeback. Except as otherwise
-------------------------------
provided in Regulations Section 1.704-2(i)(4), and notwithstanding the
provisions of Section 6.2 of the Agreement, or any other provision of this
Article 6 (except Section 6.3.A(i)), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each General
Partner and
29
<PAGE>
Limited Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-
2(j)(2). This Section 6.3.A(ii) is intended to qualify as a "chargeback of
partner nonrecourse debt minimum gain" within the meaning of Regulation Section
1.704-2(i) which shall be controlling in the event of a conflict between such
Regulation and this Section 6.3.A(ii).
(iii) Nonrecourse Deductions and Partner Nonrecourse Deductions.
---------------------------------------------------------
Any Nonrecourse Deductions for any fiscal year shall be specially allocated to
the Partners in accordance with their Percentage Interests attributable to such
deductions. Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partner(s) who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable, in accordance with Regulations Sections 1.704-
2(b)(4) and 1.704-2(i).
(iv) Qualified Income Offset. If any Partner unexpectedly
-----------------------
receives an adjustment, allocation or distribution described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and
gain shall be allocated, in accordance with Regulations Section 1.704-
1(b)(2)(ii)(d), to the Partner in an amount and manner sufficient to eliminate,
to the extent required by such Regulations, the Adjusted Capital Account Deficit
of the Partner as quickly as possible provided that an allocation pursuant to
this Section 6.3.A(iv) shall be made if and only to the extent that such Partner
would have an Adjusted Capital Account Deficit after all other allocations
provided in this Article 6 have been tentatively made as if this Section
6.3.A(iv) were not in the Agreement. It is intended that this Section 6.3.A(iv)
qualify and be construed as a "qualified income offset" within the meaning of
Regulations 1.704-1(b)(2)(ii)(d), which shall be controlling in the event of a
conflict between such Regulations and this Section 6.3.A(iv).
(v) Gross Income Allocation. In the event any Partner has a
-----------------------
deficit Capital Account at the end of any fiscal year which is in excess of the
sum of (1) the amount (if any) such Partner is obligated to restore to the
Partnership, and (2) the amount such Partner is deemed to be obligated to
restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
Partner shall be specially allocated items of Partnership income and gain in the
amount of such excess as quickly as possible, provided, that an allocation
--------
pursuant to this Section 6.3.A(v) shall be made if and only to the extent that
such Partner would have a deficit Capital Account in excess of such sum after
all other allocations provided in this Article 6 have been tentatively made as
if this Section 6.3.A(v) and Section 6.3.A(iv) were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent any
------------------------------------
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Partner, such allocation of Net Loss shall be reallocated
among the other Partners in accordance with their respective Percentage
Interests, subject to the limitations of this Section 6.3.A(vi).
30
<PAGE>
(vii) Section 754 Adjustment. To the extent an adjustment to the
----------------------
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
into account in determining Capital Accounts as the result of a distribution to
a Partner in complete liquidation of his interest in the Partnership, the amount
of such adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Partners in accordance with their interests in the Partnership in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom
such distribution was made in the event that Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocation. The allocations set forth in Sections
-------------------
6.3.A(i), (ii), (iii), (iv), (v), (vi), and (vii) (the "Regulatory Allocations")
are intended to comply with certain regulatory requirements, including the
requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding
the provisions of Sections 6.1 and 6.2, the Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss and deduction
among the Partners so that, to the extent possible, the net amount of such
allocations of other items and the Regulatory Allocations to each Partner shall
be equal to the net amount that would have been allocated to each such Partner
if the Regulatory Allocations had not occurred.
B. For purposes of determining a Partner's proportional share of the
"excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), each Partner's interest in Partnership
profits shall be such Partner's Percentage Interest, provided that the Series A
Limited Partners shall have no share of such excess nonrecourse liabilities.
Section 6.4. Tax Allocations
---------------
A. In General. Except as otherwise provided in this Section 6.4, for
----------
income tax purposes each item of income, gain, loss and deduction (collectively,
"Tax Items") shall be allocated among the Partners in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated pursuant
to Sections 6.2 and 6.3.
B. Allocations Respecting Section 704(c) Revaluations.
--------------------------------------------------
Notwithstanding Section 6.4.A, Tax Items with respect to Partnership property
that is contributed to the Partnership by a Partner shall be shared among the
Partners for income tax purposes pursuant to Regulations promulgated under
Section 704(c) of the Code, so as to take into account the variation, if any,
between the basis of the property to the Partnership and its initial Gross Asset
Value. With respect to Partnership property that is initially contributed to
the Partnership upon its formation pursuant to Section 4.1, such variation
between basis and initial Gross Asset Value shall be taken into account under
the "traditional method" as described in Regulations Section 1.704-3(b). With
respect to properties subsequently contributed to the Partnership, the
Partnership shall account for such variation under any method approved under
Section 704(c) of
31
<PAGE>
the Code and the applicable regulations as chosen by the General Partner. In the
event the Gross Asset Value of any Partnership asset is adjusted pursuant to
subparagraph (b) of the definition of Gross Asset Value (provided in Article 1
of this Agreement), subsequent allocations of Tax Items with respect to such
asset shall take account of the variation, if any, between the adjusted basis of
such asset and its Gross Asset Value in the same manner as under Section 704(c)
of the Code and the applicable regulations consistent with the requirements of
Regulations Section 1.704-1(b)(2)(iv)(g) using any method approved under 704(c)
of the Code and the applicable regulations as chosen by the General Partner.
ARTICLE 7.
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1. Management
----------
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause, except with the consent of the
General Partner. In addition to the powers now or hereafter granted a general
partner of a limited partnership under the Act and other applicable law or which
are granted to the General Partner under any other provision of this Agreement,
the General Partner, subject to the other provisions hereof including Section
7.3, shall have full power and authority to do all things deemed necessary or
desirable by it to conduct the business of the Partnership, to exercise all
powers set forth in Section 3.2 hereof and to effectuate the purposes set forth
in Section 3.1 hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans and
borrowing money to permit the Partnership to make distributions
to its Partners in such amounts as will permit the General
Partner (so long as the General Partner has determined to qualify
as a REIT) to avoid the payment of any federal income tax
(including, for this purpose, any excise tax pursuant to Section
4981 of the Code) and to make distributions to its stockholders
sufficient to permit the General Partner to maintain REIT
status), the assumption or guarantee of, or other contracting
for, indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by
mortgage, deed of trust or other lien or encumbrance on all or
any of the Partnership's assets) and the incurring of any
obligations it deems necessary for the conduct of the activities
of the Partnership;
32
<PAGE>
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the
Partnership;
(3) subject to the provisions of Section 7.3.D hereof, the
acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership or the
merger or other combination of the Partnership with or into
another entity;
(4) the mortgage, pledge, encumbrance or hypothecation of all or any
assets of the Partnership, and the use of the assets of the
Partnership (including, without limitation, cash on hand) for any
purpose consistent with the terms of this Agreement and on any
terms it sees fit, including, without limitation, the financing
of the conduct or the operations of the General Partner or the
Partnership, the lending of funds to other Persons (including,
without limitation, the General Partner (if necessary to permit
the financing or capitalization of a subsidiary of the General
Partner or the Partnership) and any Subsidiaries of the
Partnership) and the repayment of obligations of the Partnership,
any of its Subsidiaries and any other Person in which it has an
equity investment;
(5) the negotiation, execution, and performance of any contracts,
leases, conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's powers
under this Agreement;
(6) the distribution of Partnership cash or other Partnership assets
in accordance with this Agreement;
(7) the selection and dismissal of employees of the Partnership
(including, without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer"), and
agents, outside attorneys, accountants, consultants and
contractors of the Partnership, the determination of their
compensation and other terms of employment or hiring, including
waivers of conflicts of interest and the payment of their
expenses and compensation out of the Partnership's assets;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(9) the formation of, or acquisition of an interest in, and the
contribution of property to, any
33
<PAGE>
Subsidiary and any other Person in which it has an equity
investment from time to time); provided, that as long as the
--------
General Partner has determined to continue to qualify as a REIT,
the Partnership may not engage in any such formation, acquisition
or contribution that would cause the General Partner to fail to
qualify as a REIT;
(10) the control of any matters affecting the rights and obligations
of the Partnership, including the conduct of litigation and the
incurring of legal expense and the settlement of claims and
litigation, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Person
(including, without limitation, contributing or loaning
Partnership funds to, incurring indebtedness on behalf of, or
guarantying the obligations of any such Persons);
(12) subject to the other provisions in this Agreement, the
determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of
valuation as it may adopt, provided, that such methods are
--------
otherwise consistent with requirements of this Agreement;
(13) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned by the Partnership or any Subsidiary of the
Partnership or any Person in which the Partnership has made a
direct or indirect equity investment;
(14) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(15) the collection and receipt of revenues and income of the
Partnership;
(16) the exercise, directly or indirectly through any attorney-in-fact
acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with
any Subsidiary of the Partnership or any other Person in which
the Partnership has a direct or indirect interest, or jointly
with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have
34
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an interest, pursuant to contractual or other arrangements with
such Person; and
(19) the making, execution and delivery of any and all deeds, leases,
notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments or other
agreements in writing necessary or appropriate in the judgment of
the General Partner for the accomplishment of any of the powers
of the General Partner enumerated in this Agreement.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation. The execution, delivery or performance by the General Partner or
the Partnership of any agreement authorized or permitted under this Agreement
shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner
may cause the Partnership to obtain and maintain (i) casualty, liability and
other insurance (including, without limitation, earthquake insurance) on the
properties of the Partnership and (ii) liability insurance for the Indemnities
hereunder.
D. At all times from and after the date hereof, the General Partner
may cause the Partnership to establish and maintain working capital and other
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the General
Partner may, but, other than as set forth in the following sentence, in Section
11.2.D and as expressly set forth in the agreements listed on Exhibit F hereto,
shall be under no obligation to, take into account the tax consequences to any
Partner (including the General Partner) of any action taken by the General
Partner. The General Partner, on behalf of the Partnership, shall use
commercially reasonable efforts to cooperate with the Common Limited Partners to
minimize any taxes payable in connection with any repayment, refinancing,
replacement or restructuring of Debt, or any sale, exchange or any other
disposition of assets, of the Partnership. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner pursuant
to its authority under this Agreement.
F. Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall
35
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not have any obligations hereunder except to the extent that Partnership funds
are reasonably available to it for the performance of such duties, and nothing
herein contained shall be deemed to authorize or require the General Partner, in
its capacity as such, to expend its individual funds for payment to third
parties or to undertake any individual liability or obligation on behalf of the
Partnership.
Section 7.2. Certificate of Limited Partnership
----------------------------------
To the extent that such action is determined by the General Partner to
be reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and to maintain the Partnership's qualification to do business as a foreign
limited partnership in each other state, the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General
Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware, and any other state, or the District of
Columbia or other jurisdiction, in which the Partnership may elect to do
business or own property.
Section 7.3. Restrictions on General Partner's Authority
-------------------------------------------
A. The General Partner may not take any action in contravention of
this Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise
provided in this Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except
as otherwise provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(4) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability
except as provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or
restricting, the ability of a
36
<PAGE>
Limited Partner to exercise its rights to a Redemption in full,
except with the written consent of such Limited Partner.
B. The General Partner shall not, without the prior Consent of the
Partners, undertake, on behalf of the Partnership, any of the following actions
or enter into any transaction which would have the effect of such transactions:
(1) except as provided in Section 7.3.E, amend, modify or terminate
this Agreement other than to reflect the admission, substitution,
termination or withdrawal of partners pursuant to Article 12
hereof;
(2) make a general assignment for the benefit of creditors or appoint
or acquiesce in the appointment of a custodian, receiver or
trustee for all or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership; or
(4) confess a judgment against the Partnership.
C. The General Partner shall not, without the prior Consent of the
Limited Partners, undertake, on behalf of the Partnership, any of the following
actions or enter into any transaction which would have the effect of such
transactions:
(1) approve or acquiesce to the transfer of the Partnership Interest
of the General Partner to any Person other than the Partnership;
or
(2) admit into the Partnership any Additional or Substitute General
Partners.
in each case other than incident to a transaction pursuant to Section 11.2.B or
Section 11.2.C.
D. If the aggregate Limited Partnership Interests of all Limited
Partners represents 5.0% or more of the aggregate Partnership Interests, the
General Partner shall not, without the prior Consent of the Limited Partners,
undertake, on behalf of the Partnership, any of the following actions or enter
into any transaction which would have the effect of such transactions:
(1) dissolve the Partnership, or
(2) prior to the seventh anniversary of the date of this Agreement,
sell any of the property listed on Exhibit C,
in each case other than incident to a transaction pursuant to Section 11.2.B or
Section 11.2.C.
E. Notwithstanding Sections 7.3.B, 7.3.C and 7.3.D hereof, but
subject to Section 7.3.F hereof, the General Partner shall have the power,
without the Consent of the
37
<PAGE>
Limited Partners, to amend this Agreement as may be required to facilitate or
implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the issuance of additional Partnership Interests
pursuant to Sections 4.3.C and 4.4 or the admission,
substitution, termination, or withdrawal of Partners in
accordance with this Agreement;
(3) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity in, correct or supplement any
provision in, or make other changes with respect to matters
arising under, this Agreement that will not be inconsistent with
law or with the provisions of this Agreement;
(4) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law;
(5) to reflect such changes as are reasonably necessary for the
General Partner to maintain its status as a REIT, including
changes which may be necessitated due to a change in applicable
law (or an authoritative interpretation thereof) or a ruling of
the IRS; and
(6) to modify, as set forth in the definition of "Capital Account,"
the manner in which Capital Accounts are computed.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.E is taken.
F. Notwithstanding Sections 7.3.B, 7.3.C, 7.3.D and 7.3.E hereof,
this Agreement shall not be amended, and no action may be taken by the General
Partner, without the Consent of each Common Limited Partner or Preferred Limited
Partner adversely affected if such amendment or action would (i) convert a
Limited Partner's interest in the Partnership into a general partner's interest
(except as the result of the General Partner acquiring such interest), (ii)
modify the limited liability of a Limited Partner, (iii) alter rights of the
Partner to receive distributions pursuant to Article 5, Section 13.2.A(4) or
Article 16, or the allocations specified in Article 6 (except as permitted
pursuant to Section 4.3 and Section 7.3.E(2) hereof), (iv) alter or modify the
rights to a Redemption or the REIT Shares Amount as set forth in Section 8.6,
and related definitions hereof, (v) alter the redemption or exchange rights as
set forth in Sections 16.4 and 16.7 hereof, respectively, or (vi) amend this
Section 7.3.F. Further, no amendment may alter the restrictions on the General
Partner's authority set forth elsewhere in this Section 7.3 without the Consent
specified in such section. In addition, notwithstanding Sections 7.3.B, 7.3.C,
7.3.D
38
<PAGE>
and 7.3.E hereof, Section 11.2 of this Agreement shall not be amended, and
no action in contravention of Section 11.2 hereof shall be taken, without the
Consent of the Limited Partners.
Section 7.4. Reimbursement of the General Partner
------------------------------------
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments and allocations to which it may be entitled), the General Partner shall
not be compensated for its services as general partner of the Partnership.
B. Subject to Section 15.11, the General Partner shall be reimbursed
on a monthly basis, or such other basis as the General Partner may determine in
its sole and absolute discretion, for all expenses it incurs relating to the
ownership of interests in and operation of, or for the benefit of, the
Partnership. The Limited Partners acknowledge that the General Partner's sole
business is the ownership of interests in and operation of the Partnership and
that such expenses are incurred for the benefit of the Partnership; provided,
--------
that the General Partner shall not be reimbursed for expenses it incurs relating
to the organization of the Partnership and the General Partner or the initial
public offering or subsequent public offerings of REIT Shares, other shares of
capital stock or Funding Debt by the General Partner, but shall be reimbursed
for expenses it incurs with respect to any other issuance of additional
Partnership Interests pursuant to the provisions hereof. Such reimbursements
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7 hereof.
C. If and to the extent any reimbursements to the General Partner
pursuant to this Section 7.4 constitute gross income of the General Partner (as
opposed to the repayment of advances made by the General Partner on behalf of
the Partnership), such amounts shall constitute guaranteed payments within the
meaning of Section 707(c) of the Code, shall be treated consistently therewith
by the Partnership and all Partners, and shall not be treated as distributions
for purposes of computing the Partners' Capital Accounts.
Section 7.5. Outside Activities of the General Partner
-----------------------------------------
A. Except in connection with a transaction authorized in Section 11.2
hereof, without the Consent of the Limited Partners, the General Partner shall
not, directly or indirectly, enter into or conduct any business, other than in
connection with the ownership, acquisition and disposition of Partnership
Interests as a General Partner and the management of the business of the
Partnership, its operation as a public reporting company with a class (or
classes) of securities registered under the Securities Exchange Act, its
operation as a REIT and such activities as are incidental to the same. Without
the Consent of the Limited Partners, the General Partner shall not, directly or
indirectly, participate in or otherwise acquire any interest in any real or
personal property, except its General Partner Interest, its minority interest in
any Subsidiary Partnership(s) (held directly or indirectly through a Qualified
REIT Subsidiary) that the General Partner holds in order to maintain such
Subsidiary Partnership's status as a partnership, and such bank accounts,
similar instruments or other short-term investments as it deems necessary to
carry out
39
<PAGE>
its responsibilities contemplated under this Agreement and the Charter. In the
event the General Partner desires to contribute cash to any Subsidiary
Partnership to acquire or maintain an interest of 1% or less in the capital of
such partnership, the General Partner may acquire such cash from the Partnership
in exchange for a reduction in the General Partner's Partnership Units, in an
amount equal to the amount of such cash divided by the Fair Market Value of a
REIT Share on the day such cash is received by the General Partner.
Notwithstanding the foregoing, the General Partner may acquire Properties in
exchange for REIT Shares, to the extent such properties are immediately
contributed by the General Partner to the Partnership, pursuant to the terms
described in Section 4.3.E. Any Limited Partner Interests acquired by the
General Partner, whether pursuant to exercise by a Limited Partner of its right
of Redemption, or otherwise, shall be automatically converted into a General
Partner Interest comprised of an identical number of Partnership Units with the
same rights, priorities and preferences as the class or series so acquired. If,
at any time, the General Partner acquires material assets (other than on behalf
of the Partnership) the definition of "REIT Shares Amount" shall be adjusted, as
reasonably agreed to by the General Partner and the other Limited Partners, to
reflect the relative Fair Market Value of a share of capital stock of the
General Partner relative to the Deemed Partnership Interest Value of the related
Partnership Unit. The General Partner's General Partner Interest in the
Partnership, its minority interest in any Subsidiary Partnership(s) (held
directly or indirectly through a Qualified REIT Subsidiary) that the General
Partner holds in order to maintain such Subsidiary Partnership's status as a
partnership, and interests in such short-term liquid investments, bank accounts
or similar instruments as the General Partner deems necessary to carry out its
responsibilities contemplated under this Agreement and the Charter are interests
which the General Partner is permitted to acquire and hold for purposes of this
Section 7.5.A.
B. In the event the General Partner exercises its rights under the
Charter to purchase REIT Shares or Preferred Shares, then the General Partner
shall cause the Partnership to purchase from it a number of Partnership Units of
the appropriate class as determined based on, in the case of REIT Shares the
REIT Shares Amount equal to the number of REIT Shares so purchased, or in the
case of Preferred Shares an equal number of Preferred Units which correspond in
ranking to the Preferred Shares so purchased, in each case on the same terms
that the General Partner purchased such REIT Shares or Preferred Shares (as
applicable).
Section 7.6. Contracts with Affiliates
-------------------------
A. The Partnership may lend or contribute to Persons in which it has
an equity investment, and such Persons may borrow funds from the Partnership, on
terms and conditions established in the sole and absolute discretion of the
General Partner. The foregoing authority shall not create any right or benefit
in favor of any Person.
B. Except as provided in Section 7.5.A, the Partnership may transfer
assets to joint ventures, other partnerships, corporations or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law.
40
<PAGE>
C. The General Partner, in its sole and absolute discretion and
without the approval of the Limited Partners, may propose and adopt on behalf of
the Partnership employee benefit plans funded by the Partnership for the benefit
of employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership, the General Partner,
or any of the Partnership's Subsidiaries. The General Partner also is expressly
authorized to cause the Partnership to issue to it Partnership Units
corresponding to REIT Shares issued by the General Partner pursuant to its Stock
Incentive Plan or any similar or successor plan and to repurchase such
Partnership Units from the General Partner to the extent necessary to permit the
General Partner to repurchase such REIT Shares in accordance with such plan.
D. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole and absolute discretion, believes are advisable.
Section 7.7. Indemnification
---------------
A. The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees and expenses), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the operations
of the Partnership as set forth in this Agreement in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to the
matter giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. Without limitation, the
foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to
a loan guaranty or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
subject to), and the General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.7 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by
conviction or upon a plea of nolo contendere or its equivalent, or any entry of
an order of probation prior to judgment, creates a rebuttable presumption that
the Indemnitee acted in a manner contrary to that specified in this Section
7.7.A. Any indemnification pursuant to this Section 7.7 shall be made only out
of the assets of the Partnership.
41
<PAGE>
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in Subparagraph A of this Section 7.7 has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount if it
shall ultimately be determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
D. The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by any such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of Section 7.7; and actions taken or
omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to
42
<PAGE>
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
I. If and to the extent any reimbursements to the General Partner
pursuant to this Section 7.7 constitute gross income of the General Partner (as
opposed to the repayment of advances made by the General Partner on behalf of
the Partnership) such amounts shall constitute guaranteed payments within the
meaning of Section 707(c) of the Code, shall be treated consistently therewith
by the Partnership and all Partners, and shall not be treated as distributions
for purposes of computing the Partners' Capital Accounts.
J. Any indemnification hereunder is subject to, and limited by, the
provisions of Section 17-108 of the Act.
K. In the event the Partnership is made a party to any litigation or
otherwise incurs any loss or expense as a result of or in connection with any
Partner's personal obligations or liabilities unrelated to Partnership business,
such Partner shall indemnify and reimburse the Partnership for all such loss and
expense incurred, including legal fees, and the Partnership Interest of such
Partner may be charged therefor. The liability of a Partner under this Section
7.7.K shall not be limited to such Partner's Partnership Interest, but shall be
enforceable against such Partner personally.
Section 7.8. Liability of the General Partner
--------------------------------
A. Notwithstanding anything to the contrary set forth in this
Agreement, none of the General Partner and any of its officers, directors,
agents and employees shall be liable or accountable in damages or otherwise to
the Partnership, any Partners or any Assignees, or their successors or assigns,
for losses sustained, liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or any act or omission if the
General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General
Partner is acting for the benefit of the Partnership, the Limited Partners and
the General Partner's stockholders collectively, that the General Partner is
under no obligation to give priority to the separate interests of the Limited
Partners or the General Partner's stockholders (including, without limitation,
the tax consequences to Limited Partners or Assignees or to stockholders) in
deciding whether to cause the Partnership to take (or decline to take) any
actions and that the General Partner shall not be liable to the Partnership or
to any Limited Partner for monetary damages for losses sustained, liabilities
incurred, or benefits not derived by Limited Partners in connection with such
decisions, provided, that the General Partner has acted in good faith.
--------
C. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either diregctly or by or through its
43
<PAGE>
agents. The General Partner shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of the General Partner and any of its officers,
directors, agents and employees to the Partnership and the Limited Partners
under this Section 7.8 as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
Section 7.9. Other Matters Concerning the General Partner
--------------------------------------------
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion of such Persons as to matters which such General Partner
reasonably believes to be within such Person's professional or expert competence
shall be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or any non-
mandatory provision of the Act, any action of the General Partner on behalf of
the Partnership or any decision of the General Partner to refrain from acting on
behalf of the Partnership, undertaken in the good faith belief that such action
or omission is necessary or advisable in order (i) to protect the ability of the
General Partner to continue to qualify as a REIT or (ii) to avoid the General
Partner incurring any taxes under Section 857 or Section 4981 of the Code
(except with respect to the distribution of Available Cash to the Series A
Limited Partners in accordance with Section 16.2), is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10. Title to Partnership Assets
---------------------------
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners,
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<PAGE>
individually or collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Title to any or all of the
Partnership assets may be held in the name of the Partnership, the General
Partner or one or more nominees, as the General Partner may determine, including
Affiliates of the General Partner. The General Partner hereby declares and
warrants that any Partnership assets for which legal title is held in the name
of the General Partner or any nominee or Affiliate of the General Partner shall
be deemed held by the General Partner or such nominee or Affiliate for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
-------- -------
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
Section 7.11. Reliance by Third Parties
-------------------------
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority to encumber, sell or otherwise use in any
manner any and all assets of the Partnership and to enter into any contracts on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE 8.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1. Limitation of Liability
-----------------------
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement or under the Act.
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Section 8.2. Management of Business
----------------------
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, general partner, agent or
trustee of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such) shall take part in the operations, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
general partner, agent or trustee of the General Partner, the Partnership or any
of their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
Section 8.3. Outside Activities of Limited Partners
--------------------------------------
Subject to any agreements entered into by a Limited Partner or its
Affiliates with the General Partner, Partnership or a Subsidiary, any Limited
Partner and any officer, director, employee, agent, trustee, Affiliate or
stockholder of any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities in direct competition
with the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person, other than the
Limited Partners benefitting from the business conducted by the General Partner,
and such other Person shall have no obligation pursuant to this Agreement to
offer any interest in any such business ventures to the Partnership, any Limited
Partner or any such other Person, even if such opportunity is of a character
which, if presented to the Partnership, any Limited Partner or such other
Person, could be taken by such other Person.
Section 8.4. Return of Capital
-----------------
Except pursuant to the rights of Redemption set forth in Section 8.6
and the redemption and exchange rights set forth in Sections 16.4 and 16.7, no
Limited Partner shall be entitled to the withdrawal or return of his or her
Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein.
Except as expressly set forth herein with respect to the rights, priorities and
preferences of the Preferred Limited Partners holding any series of Preferred
Units, no Limited Partner or Assignee shall have priority over any other Limited
Partner or Assignee either as to the return of Capital Contributions, or as
otherwise expressly provided in this Agreement, as to profits, losses,
distributions or credits.
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Section 8.5. Rights of Limited Partners Relating to the Partnership
------------------------------------------------------
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at the Partnership's expense:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the Securities and Exchange Commission by the General
Partner pursuant to the Securities Exchange Act, and each
communication sent to the stockholders of the General Partner;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers
of attorney pursuant to which this Agreement, the Certificate and
all amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a
Partner.
B. The Partnership shall notify each Common Limited Partner in
writing of any adjustment made in the calculation of the REIT Shares Amount
within 10 Business Days of the date such change becomes effective.
C. Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that (i) the General Partner believes to be in
the nature of trade secrets or other information the disclosure of which the
General Partner in good faith believes is not in the best interests of the
Partnership or (ii) the Partnership or the General Partner is required by law or
by agreements with unaffiliated third parties to keep confidential.
Section 8.6. Common Limited Partner Redemption Rights
----------------------------------------
A. On or after the date two years after the Effective Date or on or
after such later date as expressly provided in an agreement entered into between
the Partnership and any Common Limited Partner, each Common Limited Partner
shall have the right (subject to the
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terms and conditions set forth herein and in any other such agreement, as
applicable) to require the Partnership to redeem all or a portion of the Common
Partnership Units held by such Common Limited Partner (such Partnership Units
being hereafter referred to as "Tendered Units") in exchange for the Cash Amount
(a "Redemption"), provided, that the terms of such Common Partnership Units do
--------
not provide that such Common Partnership Units are not entitled to a right of
Redemption; provided further, that Common Partnership Units subject to the
-------- -------
Pledge Agreement shall, to the extent the pledgee thereunder is entitled to
exercise remedies thereunder, be subject to redemption prior to the date two
years after the Effective Date. Unless otherwise expressly provided in this
Agreement or a separate agreement entered into between the Partnership and the
holders of such Partnership Units, all Common Partnership Units shall be
entitled to a right of Redemption hereunder. Any Redemption shall be exercised
pursuant to a Notice of Redemption delivered to the General Partner by the
Common Limited Partner who is exercising the right (the "Tendering Partner").
The Cash Amount shall be delivered as a certified check payable to the Tendering
Partner within ten (10) days of the Specified Redemption Date in accordance with
the instructions set forth in the Notice of Redemption.
B. Notwithstanding Section 8.6.A above, if a Common Limited Partner
has delivered to the General Partner a Notice of Redemption then the General
Partner may, in its sole and absolute discretion, (subject to the limitations on
ownership and transfer of REIT Shares set forth in Article IV.E of the Charter)
elect to acquire some or all of the Tendered Units from the Tendering Partner in
exchange for the REIT Shares Amount (as of the Specified Redemption Date) and,
if the General Partner so elects, the Tendering Partner shall sell the Tendered
Units to the General Partner in exchange for the REIT Shares Amount. In such
event, the Tendering Partner shall have no right to cause the Partnership to
redeem such Tendered Units. The General Partner shall promptly give such
Tendering Partner written notice of its election, and the Tendering Partner may
elect to withdraw its redemption request at any time prior to the acceptance of
the Cash Amount or REIT Shares Amount by such Tendering Partner.
Notwithstanding the foregoing, the General Partner, at the request of a Common
Limited Partner that is a corporation or limited liability company, shall be
required to issue, and the General Partner agrees to issue, the REIT Shares
Amount in exchange for such Common Limited Partner's Tendered Units, subject to
the ownership restrictions applicable to such shares set forth in the Charter.
In addition, the General Partner agrees to maintain an amount of authorized but
unissued REIT Shares equal to the number of REIT Shares issuable upon the
exchange of Common Partnership Units owned from time to time by Common Limited
Partners that are corporations.
C. The REIT Shares Amount, if applicable, shall be delivered as duly
authorized, validly issued, fully paid and nonassessable REIT Shares and, if
applicable, free of any pledge, lien, encumbrance or restriction, other than
those provided in the Charter, the Bylaws of the General Partner, the Securities
Act, relevant state securities or blue sky laws and any applicable registration
rights agreement with respect to such REIT Shares entered into by the Tendering
Partner. The REIT Shares Amount shall be registered in the name and otherwise
delivered as set forth in the Notice of Redemption. Notwithstanding any delay
in such delivery (but subject to Section 8.6.E), the Tendering Partner shall be
deemed the owner of such REIT
48
<PAGE>
Shares for all purposes, including without limitation, rights to vote or
consent, and receive dividends, as of the Specified Redemption Date.
D. Each Common Limited Partner covenants and agrees with the General
Partner that all Tendered Units shall be delivered to the General Partner free
and clear of all liens, claims and encumbrances whatsoever and should any such
liens, claims and/or encumbrances exist or arise with respect to such Tendered
Units, the General Partner shall be under no obligation to acquire the same.
Each Common Limited Partner further agrees that, in the event any state or local
property transfer tax is payable as a result of the transfer of its Tendered
Units to the General Partner (or its designee), such Common Limited Partner
shall assume and pay such transfer tax.
E. Notwithstanding the provisions of Section 8.6.A, 8.6.B, 8.6.C or
any other provision of this Agreement, a Common Limited Partner (i) shall not be
entitled to effect a Redemption for cash or an exchange for REIT Shares to the
extent the ownership or right to acquire REIT Shares pursuant to such exchange
by such Partner on the Specified Redemption Date would cause such Partner or any
other Person, or, in the opinion of counsel selected by the General Partner, may
cause such Partner or any other Person, to violate the restrictions on ownership
and transfer of REIT Shares set forth in Article IV.E of the Charter and (ii)
shall have no rights under this Agreement to acquire REIT Shares which would
otherwise be prohibited under the Charter. To the extent any attempted
Redemption or exchange for REIT Shares would be in violation of this Section
8.6.E, it shall be null and void ab initio and such Common Limited Partner shall
not acquire any rights or economic interest in the cash otherwise payable upon
such redemption or the REIT Shares otherwise issuable upon such exchange.
F. Notwithstanding anything herein to the contrary (but subject to
Section 8.6.E), with respect to any Redemption or exchange for REIT Shares
pursuant to this Section 8.6:
(1) All Common Partnership Units acquired by the General Partner
pursuant thereto shall automatically, and without further action
required, be converted into and deemed to be General Partner
Interests comprised of the same number and class of Common
Partnership Units.
(2) Without the consent of the General Partner, each Common Limited
Partner may not effect a Redemption for less than 500 Partnership
Units or, if the Common Limited Partner holds less than 500
Partnership Units, all of the Common Partnership Units held by
such Common Limited Partner.
(3) Without the consent of the General Partner, each Common Limited
Partner may not effect a Redemption during the period after the
Partnership Record Date with respect to a distribution and before
the record date established by the General Partner for a
distribution to its common stockholders of some or all of its
portion of such distribution.
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(4) The consummation of any Redemption or exchange for REIT Shares
shall be subject to the expiration or termination of the
applicable waiting period, if any, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
(5) Each Tendering Partner shall continue to own all Common
Partnership Units subject to any Redemption or exchange for REIT
Shares, and be treated as a Common Limited Partner with respect
to such Common Partnership Units for all purposes of this
Agreement, until such Common Partnership Units are transferred to
the General Partner and paid for or exchanged on the Specified
Redemption Date. Until a Specified Redemption Date, the
Tendering Partner shall have no rights as a stockholder of the
General Partner with respect to such Tendering Partner's Common
Partnership Units.
G. In the event that the Partnership issues additional Partnership
Interests to any Additional Limited Partner pursuant to Section 4.3.C hereof,
the General Partner shall make such revisions to this Section 8.6 as it
determines are necessary to reflect the issuance of such additional Partnership
Interests.
ARTICLE 9.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting
----------------------
The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 9.3 hereof. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided,
--------
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2. Fiscal Year
-----------
The fiscal year of the Partnership shall be the calendar year.
Section 9.3. Reports
-------
A. As soon as available, but in no event later than five Business
Days following the date on which Company files its annual report in respect of a
fiscal year on Form
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10-K, or such other applicable form ("Form 10-K"), with the Securities and
Exchange Commission (the "Commission") (or, in the event that Partnership is
required under rules and regulations promulgated by the Commission to file with
the Commission a Form 10-K separate from Company's Form 10-K, five business days
after the filing of such report by Partnership with the Commission), the General
Partner shall cause to be mailed to each Limited Partner a complete copy of
Partnership's audited financial statements for such fiscal year including a
balance sheet, income statement and cash flow statement for such fiscal year
prepared and audited by an independent certified public accountant in accordance
with GAAP; and
B. As soon as available, but in no event later than five Business
Days following the date on which Company files its quarterly report in respect
of a fiscal quarter on Form 10-Q, or such other applicable form ("Form 10-Q"),
with the Commission (or, in the event the Operating Partnership is required
under rules and regulations promulgated by the Commission to file with the
Commission a Form 10-Q separate from Company's Form 10-Q, five business days
after the filing of such report by Partnership with the Commission), the General
Partner shall cause to be mailed to each Limited Partner a complete copy of
Partnership's unaudited quarterly financial statements for such fiscal quarter
including a balance sheet, income statement and cash flow statement for such
fiscal quarter prepared in accordance with GAAP.
ARTICLE 10.
TAX MATTERS
Section 10.1. Preparation of Tax Returns
--------------------------
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within 90 days of the close of each
taxable year, the tax information reasonably required by Limited Partners for
federal and state income tax reporting purposes. The Limited Partners shall
promptly provide the General Partner with such information relating to the
Contributed Properties, including tax basis and other relevant information, as
may be reasonably requested by the General Partner from time to time.
Section 10.2. Tax Elections
-------------
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code, including the election under Section 754 of the Code. The
General Partner shall have the right to seek to revoke any such election
(including without limitation, any election under Section 754 of the Code) upon
the General Partner's determination in its sole and absolute discretion that
such revocation is the best interests of the Partners.
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Section 10.3. Tax Matters Partner
-------------------
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6223(c) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address and profit interest of each of the
Limited Partners and Assignees; provided, however, that such information is
-------- -------
provided to the Partnership by the Limited Partners and Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner
for income tax purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial proceedings being
referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such
agreement shall bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within the time
prescribed pursuant to the Code and Regulations) files a
statement with the IRS providing that the tax matters partner
shall not have the authority to enter into a settlement agreement
on behalf of such Partner or (ii) who is a "notice partner" (as
defined in Section 6231 of the Code) or a member of a "notice
group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into
account by a Partner for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of
such final adjustment, including the filing of a petition for
readjustment with the Tax Court or the United States Claims
Court, or the filing of a complaint for refund with the District
Court of the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
at any time and, if any part of such request is not allowed by
the IRS, to file an appropriate pleading (petition or complaint)
for judicial review with respect to such request;
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(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to
be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or
regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to
restrict the Partnership from engaging an accounting firm to assist the tax
matters partner in discharging its duties hereunder, so long as the compensation
paid by the Partnership for such services is reasonable.
Section 10.4. Organizational Expenses
-----------------------
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a 60-month period as provided in
Section 709 of the Code.
Section 10.5. Withholding
-----------
Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within 15 days after notice from the General Partner that
such payment must be made unless (i) the Partnership withholds such payment from
a distribution which would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the
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Partnership any amounts required to be paid pursuant to this Section 10.5. In
the event that a Limited Partner fails to pay any amounts owed to the
Partnership pursuant to this Section 10.5 when due, the General Partner may, in
its sole and absolute discretion, elect to make the payment to the Partnership
on behalf of such defaulting Limited Partner, and in such event shall be deemed
to have loaned such amount to such defaulting Limited Partner and shall succeed
to all rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions and
the holding of a security interest in such Limited Partner's Partnership
Interest). Any amounts payable by a Limited Partner hereunder shall bear
interest at the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
-------------------
plus two percentage points (but not higher than the maximum lawful rate) from
the date such amount is due (i.e., 15 days after demand) until such amount is
----
paid in full. Each Limited Partner shall take such actions as the Partnership or
the General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE 11.
TRANSFERS AND WITHDRAWALS
Section 11.1. Transfer
--------
A. The term "transfer," when used in this Article 11 with respect to
a Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner purports to assign its General Partner Interest to another
Person or by which a Limited Partner purports to assign its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift (outright or
in trust), pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise. Except to the extent otherwise specified, the
term "transfer" when used in this Article 11 does not include any Redemption or
exchange for REIT Shares pursuant to Section 8.6. or any exchange for REIT
Series A Preferred Shares pursuant to Section 16.7. No part of the interest of
a Limited Partner shall be subject to the claims of any creditor, any spouse for
alimony or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered, except as may be specifically provided
for in this Agreement.
B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void ab initio unless
otherwise consented to by the General Partner in its sole and absolute
discretion.
Section 11.2. Transfer of General Partner's Partnership Interest
--------------------------------------------------
A. The General Partner shall not withdraw from the Partnership and
shall not transfer all or any portion of its interest in the Partnership
(whether by sale, statutory merger or
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consolidation, liquidation or otherwise) without the Consent of the Partners,
which may be given or withheld by each such Partner in its sole and absolute
discretion, and only upon the admission of a successor General Partner pursuant
to Section 12.1. Upon any transfer of a Partnership Interest in accordance with
the provisions of this Section 11.2, the transferee shall become a substitute
General Partner for all purposes herein, and shall be vested with the powers and
rights of the transferor General Partner, and shall be liable for all
obligations and responsible for all duties of the General Partner, once such
transferee has executed such instruments as may be necessary to effectuate such
admission and to confirm the agreement of such transferee to be bound by all the
terms and provisions of this Agreement with respect to the Partnership Interest
so acquired. It is a condition to any transfer otherwise permitted hereunder
that the transferee assumes, by operation of law or express agreement, all of
the obligations of the transferor General Partner under this Agreement with
respect to such transferred Partnership Interest, and no such transfer (other
than pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor General Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor General Partner of
its obligations under this Agreement without the Consent of the Partners, in
their reasonable discretion. In the event the General Partner withdraws from the
Partnership, in violation of this Agreement or otherwise, or otherwise dissolves
or terminates, or upon the Incapacity of the General Partner, a majority in
interest of the remaining Partners may elect to continue the Partnership
business by selecting a substitute General Partner in accordance with the Act.
B. The General Partner shall not engage in any merger, consolidation
or other combination with or into another person, sale of all or substantially
all of its assets or any reclassification, recapitalization or change of its
outstanding equity interests (each, a "Termination Transaction"), unless the
Termination Transaction has been approved by a Consent of the Partners and,
except as otherwise provided in Section 11.2.C, in connection with which all
Common Limited Partners either will receive, or will have the right to elect to
receive, for each Partnership Unit an amount of cash, securities, or other
property equal to the product of the REIT Shares Amount and the greatest amount
of cash, securities or other property paid to a holder of one REIT Share in
consideration of one REIT Share pursuant to the terms of the Termination
Transaction; provided, that if, in connection with the Termination Transaction,
--------
a purchase, tender or exchange offer shall have been made to and accepted by the
holders of the outstanding REIT Shares, each holder of Common Partnership Units
shall receive, or shall have the right to elect to receive, the greatest amount
of cash, securities, or other property which such holder would have received had
it exercised its right to Redemption (as set forth in Section 8.6) and received
REIT Shares in exchange for its Partnership Units immediately prior to the
expiration of such purchase, tender or exchange offer and had thereupon accepted
such purchase, tender or exchange offer and then such Termination Transaction
shall have been consummated.
C. The General Partner may merge, or otherwise combine its assets,
with another entity without satisfying the requirements of Section 11.2.B hereof
if: (i) immediately after such merger or other combination, substantially all of
the assets directly or indirectly owned by the surviving entity, other than
Partnership Units held by such General Partner, are owned directly or indirectly
by the Partnership or another limited partnership or limited liability
55
<PAGE>
company which is the survivor of a merger, consolidation or combination of
assets with the Partnership (in each case, the "Surviving Partnership"); (ii)
the Common Limited Partners own a percentage interest of the Surviving
Partnership based on the relative fair market value of the net assets of the
Partnership (as determined pursuant to Section 11.2.E) and the other net assets
of the Surviving Partnership (as determined pursuant to Section 11.2.E)
immediately prior to the consummation of such transaction; (iii) the rights
preferences and privileges of the Common Limited Partners in the Surviving
Partnership are at least as favorable as those in effect immediately prior to
the consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the Surviving Partnership; and (iv)
such rights of the Common Limited Partners include the right to exchange their
interests in the Surviving Partnership for at least one of: (a) the
consideration available to such Common Limited Partners pursuant to Section
11.2.B or (b) if the ultimate controlling person of the Surviving Partnership
has publicly traded common equity securities, such common equity securities,
with an exchange ratio based on the relative fair market value of such
securities (as determined pursuant to Section 11.2.E) and the REIT Shares.
D. In connection with any transaction permitted by Section 11.2.B or
Section 11.2.C hereof, the General Partner shall use its commercially reasonable
efforts to structure such Termination Transaction to avoid causing the Common
Limited Partners to recognize gain for federal income tax purposes by virtue of
the occurrence of or their participation in such Termination Transaction.
E. In connection with any transaction permitted by Section 11.2.B or
11.2.C, the relative fair market values shall be reasonably determined by the
General Partner as of the time of such transaction and, to the Common extent
applicable, shall be no less favorable to the Limited Partners than the relative
values reflected in the terms of such transaction.
Section 11.3. Limited Partners' Rights to Transfer
------------------------------------
A. Prior to the second anniversary of the closing of the initial
public offering of REIT Shares, no Limited Partner shall transfer all or any
portion of its Partnership Interest to any transferee without the consent of the
General Partner, which consent may be withheld in its sole and absolute
discretion; provided, however, that any Limited Partner may, at any time
-------- -------
(whether prior to or after such second anniversary), without the consent of the
General Partner, (i) transfer all or any portion of its Partnership Interest to
the General Partner, (ii) transfer all or any portion of its Partnership
Interest to an Affiliate, another Original Limited Partner or to an Immediate
Family member, subject to the provisions of Section 11.6, or in the case of an
Original Limited Partner, to such Original Limited Partner's shareholders,
members, partners or beneficiaries, as the case may be, (iii) transfer all or
any portion of its Partnership Interest to a trust for the benefit of a
charitable beneficiary or to a charitable foundation, subject to the provisions
of Section 11.6, and (iv) subject to the provisions of Section 11.6, pledge (a
"Pledge") all or any portion of its Partnership Interest to a lending
institution, which is not an Affiliate of such Limited Partner, as collateral or
security for a bona fide loan or other extension of credit, and transfer such
pledged Partnership Interest to such lending institution in connection with the
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<PAGE>
exercise of remedies under such loan or extension or credit. Each Limited
Partner or Assignee (resulting from a transfer made pursuant to clauses (i)-(iv)
of the proviso of the preceding sentence) shall have the right to transfer all
or any portion of its Partnership Interest, subject to the provisions of Section
11.6 and the satisfaction of each of the following conditions (in addition to
the right of each such Limited Partner or Assignee to continue to make any such
transfer permitted by clauses (i)-(iv) of such proviso without satisfying either
of the following conditions):
(a) General Partner Right of First Refusal. The transferring Partner
--------------------------------------
shall give written notice of the proposed transfer to the General
Partner, which notice shall state (i) the identity of the
proposed transferee, and (ii) the amount and type of
consideration proposed to be received for the transferred
Partnership Units. The General Partner shall have ten (10) days
upon which to give the transferring Partner notice of its
election to acquire the Partnership Units on the proposed terms.
If it so elects, it shall purchase the Partnership Units on such
terms within ten (10) days after giving notice of such election.
If it does not so elect, the transferring Partner may transfer
such Partnership Units to a third party, on economic terms no
more favorable to the transferee than the proposed terms, subject
to the other conditions of this Section 11.3.
(b) Qualified Transferee. Any transfer of a Partnership Interest
--------------------
shall be made only to Qualified Transferees.
It is a condition to any transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its reasonable
discretion. Notwithstanding the foregoing, any transferee of any transferred
Partnership Interest shall be subject to any and all ownership limitations
contained in the Charter, which may limit or restrict such transferee's ability
to exercise its Redemption rights or the exchange rights set forth in Section
16.7, and to the representations set forth in Section 3.4.D. Any transferee,
whether or not admitted as a Substituted Limited Partner, shall take subject to
the obligations of the transferor hereunder. Unless admitted as a Substituted
Limited Partner, no transferee, whether by a voluntary transfer, by operation of
law or otherwise, shall have any rights hereunder, other than the rights of an
Assignee as provided in Section 11.5.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator, or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate, and such power as the Incapacitated
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Limited Partner possessed to transfer all or any part of his or its interest in
the Partnership. The Incapacity of a Limited Partner, in and of itself, shall
not dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer otherwise permitted
under Section 11.3 by a Limited Partner of his or her Partnership Units if, in
the opinion of legal counsel to the Partnership, such transfer would require the
filing of a registration statement under the Securities Act by the Partnership
or would otherwise violate any federal or state securities laws or regulations
applicable to the Partnership or the Partnership Unit.
D. No transfer by a Limited Partner of his or her Partnership Units
(including any Redemption or exchange for REIT Shares pursuant to Section 8.6
and the redemption or exchange rights set forth in Sections 16.4 and 16.7, or
any other acquisition of Common Units or Series A Preferred Units by the General
Partner or the Partnership) may be made to any person if (i) in the opinion of
legal counsel for the Partnership, it could result in the Partnership being
treated as an association taxable as a corporation, or (ii) such transfer is
effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of Section 7704 of
the Code.
E. No transfer of any Partnership Units may be made to a lender to
the Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion; provided, that as a condition to such
--------
consent, the lender will be required to enter into an arrangement with the
Partnership and the General Partner to redeem or exchange for the REIT Shares
Amount or the specified amount of REIT Series A Preferred Shares, as the case
may be, any Partnership Units in which a security interest is held
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
Section 11.4. Substituted Limited Partners
----------------------------
A. No Limited Partner shall have the right to substitute a transferee
as a Limited Partner in his or her place (including any transferee permitted by
Section 11.3). The General Partner shall, however, have the right to consent to
the admission of a permitted transferee of the interest of a Limited Partner,
other than a transferee in a transfer permitted by Section 11.3 hereof, as a
Substituted Limited Partner, pursuant to this Section 11.4, which consent may be
given or withheld by the General Partner in its sole and absolute discretion.
The General Partner's failure or refusal to permit a transferee of any such
interests to become a Substituted Limited Partner shall not give rise to any
cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement. The admission of any
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transferee as a Substituted Limited Partner shall be subject to the transferee
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement (including without limitation, the provisions
of Section 2.4 and such other documents or instruments as may be required to
effect the admission, each in form and substance satisfactory to the General
Partner) and the acknowledgment by such transferee that each of the
representations and warranties set forth in Section 3.4 hereof are true and
correct with respect to such transferee as of the date of the transfer of the
Partnership Interest to such transferee and will continue to be true to the
extent required by such representations and warranties.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5. Assignees
---------
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
entitled to all the rights of an assignee of a limited partnership interest
under the Act, including the right to receive distributions from the Partnership
and the share of Net Income, Net Losses, gain and loss attributable to the
Partnership Units assigned to such transferee, the rights to transfer the
Partnership Units provided in this Article 11, the right of Redemption provided
in Section 8.6, and the right of exchange for REIT Series A Preferred Shares set
forth in Section 16.7, but shall not be deemed to be a holder of Partnership
Units for any other purpose under this Agreement, and shall not be entitled to
effect a Consent with respect to such Partnership Units on any matter presented
to the Limited Partners for approval (such Consent remaining with the transferor
Limited Partner). In the event any such transferee desires to make a further
assignment of any such Partnership Units, such transferee shall be subject to
all the provisions of this Article 11 to the same extent and in the same manner
as any Limited Partner desiring to make an assignment of Partnership Units.
Notwithstanding anything contained in this Agreement to the contrary, as a
condition to becoming an Assignee, any prospective Assignee must first execute
and deliver to the Partnership an acknowledgment that each of the
representations and warranties set forth in Section 3.4 hereof are true and
correct with respect to such prospective Assignee as of the date of the
prospective assignment of the Partnership Interest to such prospective Assignee
and will continue to be true to the extent required by such representations or
warranties.
Section 11.6. General Provisions
------------------
A. No Limited Partner may withdraw from the Partnership other than as
a result of (i) a permitted transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11 and the transferee(s) of
such Units being admitted to the Partnership as a Substituted Limited Partner(s)
or (ii) pursuant to the exercise of its right of Redemption of all of
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such Limited Partner's Partnership Units under Section 8.6 or its right of
redemption or exchange of all of such Limited Partner's Series A Preferred Units
under Section 16.7.
B. Any Limited Partner who shall transfer all of such Limited
Partner's Partnership Units in a transfer permitted pursuant to this Article 11
where such transferee was admitted as a Substituted Limited Partner or pursuant
to the exercise of its rights of Redemption of all of such Limited Partner's
Partnership Units under Section 8.6 or its right of redemption or exchange of
all of such Limited Partner's Series A Preferred Units under Section 16.7, shall
cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the
first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
D. If any Partnership Interest is transferred, assigned or redeemed
during any quarterly segment of the Partnership's fiscal year in compliance with
the provisions of this Article 11 or transferred or redeemed pursuant to
Sections 8.6, 16.4 or 16.7, on any day other than the first day of a Partnership
Year, then Net Income, Net Losses, each item thereof and all other items
attributable to such Partnership Interest for such fiscal year shall be divided
and allocated between the transferor Partner and the transferee Partner by
taking into account their varying interests during the fiscal year in accordance
with Section 706(d) of the Code, using the interim closing of the books method.
Except as otherwise required by Section 706(d) of the Code, solely for purposes
of making such allocations, each of such items for the calendar month in which
the transfer, assignment or redemption occurs shall be allocated to the Person
who is a Partner as of midnight on the last day of said month and none of such
items for the calendar month in which a redemption occurs will be allocated to
the redeeming Partner. All distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such transfer,
assignment or redemption shall be made to the transferor Partner, and all
distributions of Available Cash thereafter, in the case of a transfer or
assignment other than a redemption, shall be made to the transferee Partner.
E. In addition to any other restrictions on transfer herein
contained, including without limitation the provisions of this Article 11 and
Section 2.6, in no event may any transfer or assignment of a Partnership
Interest by any Partner (including by way of a Redemption or exchange for REIT
Series A Preferred Shares, or any other acquisition of Common Units or Series A
Preferred Units by the Partnership or the General Partner) be made (i) to any
person or entity who lacks the legal right, power or capacity to own a
Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest; (iv) if in the opinion of legal counsel to the Partnership
such transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the Redemption or exchange for REIT
Shares, and a redemption or exchange for Preferred Shares or cash pursuant to
Sections 16.4 and 16.7, of all Partnership Units held by all Limited Partners or
pursuant to a Termination Transaction expressly permitted under Section 11.2);
(v) if in the opinion of counsel to the Partnership such transfer would cause
the Partnership to cease to be
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classified as a partnership for federal or state income tax purposes (except as
a result of the Redemption or exchange for REIT Shares and a redemption or
exchange for Preferred Shares pursuant to Sections 16.4 and 16.7 of all
Partnership Units held by all Limited Partners); (vi) if such transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in Section 3(14)
of ERISA) or a "disqualified person" (as defined in Section 4975(c) of the
Code); (vii) if such transfer would, in the opinion of counsel to the
Partnership, cause any portion of the assets of the Partnership to constitute
assets of any employee benefit plan pursuant to Department of Labor Regulations
Section 2510.2-101; (viii) if such transfer requires the registration of such
Partnership Interest or requires the registration of the exchange of such
Partnership Interests for any capital stock of the General Partner for which
such General Partner Interest may be exchanged pursuant to any applicable
federal or state securities laws, (other than pursuant to any applicable
registration rights agreement); (ix) if such transfer is effectuated through an
"established securities market" or a "secondary market" (or the substantial
equivalent thereof) within the meaning of Section 7704 of the Code or such
transfer causes the Partnership to become a "Publicly Traded Partnership," as
such term is defined in Sections 469(k)(2) or 7704(b) of the Code; (x) if such
transfer subjects the Partnership to be regulated under the Investment Company
Act of 1940, the Investment Advisors Act of 1940 or the Employee Retirement
Income Security Act of 1974, each as amended; (xi) if the transferee or assignee
of such Partnership Interest is unable to make the representations set forth in
Section 3.4.D or such transfer could otherwise adversely affect the ability of
the General Partner to remain qualified as a REIT; or (xii) if in the opinion of
legal counsel for the Partnership such transfer would adversely affect the
ability of the General Partner to continue to qualify as a REIT or subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code.
F. The General Partner shall monitor the transfers of interests in
the Partnership (including any acquisition of Common Units or Series A Preferred
Units by the Partnership or the General Partner) to determine (i) if such
interests are being traded on an "established securities market" or a "secondary
market (or the substantial equivalent thereof)" within the meaning of Section
7704 of the Code, and (ii) whether such transfers of interests would result in
the Partnership being unable to qualify for at least one of the "safe harbors"
set forth in Regulations Section 1.7704-1 (or such other applicable guidance
subsequently published by the IRS setting forth safe harbors under which
interests will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code)
including, without limitation, IRS Notice 88-75, to the extent applicable (the
"Safe Harbors"). The General Partner shall have the authority in its sole
discretion to take all steps reasonably necessary or appropriate to prevent any
trading of interests or any recognition by the Partnership of such transfers and
to insure that at least one of the Safe Harbors is met.
Section 11.7. Transfer of Pledged Partnership Units
-------------------------------------
A. Notwithstanding anything to the contrary in this Agreement but
subject to Section 11.6 hereof, any or all of the Limited Partnership Interests
pledged to the Company, as agent on behalf of the pledgees, pursuant to the
Pledge Agreement may be transferred, without
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the consent of any other Partner, to any Person designated by the Company in its
sole and absolute discretion in connection with the exercise by the Company of
its rights and remedies under the Pledge Agreement. Any such transferee shall be
admitted as a Substituted Limited Partner, subject to the provisions of Section
11.4 hereof.
B. Each of the Pledgors hereby constitutes and appoints the Company
and authorized officers and attorneys-in-fact of the Company, and each of those
acting singly, in each case with full power of substitution, as its true and
lawful agent and attorney-in-fact, with full power and authority in its name,
place and stead to effect any transfer of Partnership Interests pledged pursuant
to the Pledge Agreement referred to in Subparagraph A of this Section 11.7. The
foregoing power of attorney is hereby declared to be irrevocable and a power
coupled with an interest, and it shall survive and not be affected by the
subsequent Incapacity of any Pledgor and shall extend to such Pledgor's heirs,
successors, assigns and personal representatives. Each such Pledgor hereby
waives any and all defenses which may be available to contest, negate or
disaffirm the action of the Company taken in good faith under such power of
attorney.
ARTICLE 12.
ADMISSION OF PARTNERS
Section 12.1. Admission of Successor General Partner
--------------------------------------
A successor to all of the General Partner's General Partner Interest
pursuant to Section 11.2 hereof who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as the General Partner,
effective upon such transfer. Any such transferee shall carry on the business
of the Partnership without dissolution. In each case, the admission shall be
subject to the successor General Partner executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
and such other documents or instruments as may be required to effect the
admission. In the case of such admission on any day other than the first day of
a Partnership Year, all items attributable to the General Partner Interest for
such Partnership Year shall be allocated between the transferring General
Partner and such successor as provided in Article 11 hereof.
Section 12.2. Admission of Additional Limited Partners
----------------------------------------
A. A Person who makes a Capital Contribution to the Partnership in
accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner,
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which consent may be given or withheld in the General Partner's sole and
absolute discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the receipt of
the Capital Contribution in respect of such Limited Partner, the documents set
forth in Paragraph A of this Section 12.2 hereof and the consent of the General
Partner to such admission. If any Additional Limited Partner is admitted to the
Partnership on any day other than the first day of a Partnership Year, then Net
Income, Net Losses, each item thereof and all other items allocable among
Partners and Assignees for such Partnership Year shall be allocated among such
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing books method. Solely for purposes
of making such allocations, each of such items for the calendar month in which
an admission of an Additional Limited Partner occurs shall be allocated among
all the Partners and Assignees including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner (other than in its capacity
as an Assignee) and except as otherwise agreed to by the Additional Limited
Partners and the General Partner, and all distributions of Available Cash
thereafter shall be made to all Partners and Assignees including such Additional
Limited Partner.
Section 12.3. Amendment of Agreement and Certificate of Limited
-------------------------------------------------
Partnership
-----------
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE 13.
DISSOLUTION AND LIQUIDATION
Section 13.1. Dissolution
-----------
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner (selected
as described in Section 13.1.B below) shall continue the business of the
Partnership. The Partnership shall dissolve, and its affairs shall be wound up,
upon the first to occur of any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
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B. an event of withdrawal of the General Partner, as defined in the
Act, unless, within 90 days after the withdrawal, all of the remaining Partners
agree in writing, in their sole and absolute discretion, to continue the
business of the Partnership and to the appointment, effective as of the date of
withdrawal, of a substitute General Partner;
C. subject to the provisions of Section 7.3.D(1) hereof, an election
to dissolve the Partnership made by the General Partner;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets and properties
of the Partnership;
F. the Incapacity of the General Partner, unless a majority in
interest of all of the remaining Partners in their sole and absolute discretion
agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such Incapacity, of a
substitute General Partner; or
G. the redemption or exchange for REIT Shares or REIT Series A
Preferred Shares of all Partnership Units (other than those of the General
Partner) pursuant to this Agreement.
Section 13.2. Winding Up
----------
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner (or, in the event there is no remaining General Partner, any
Person elected by a Majority in Interest of the Limited Partners (the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and assets and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock of the General Partner) shall be applied and distributed
in the following order:
(1) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the Partnership's
debts and liabilities to the other Partners; and
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(4) The balance, if any, to the General Partner and Limited Partners
in accordance with their positive Capital Account balances,
determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which the
liquidation occurs (other than those made as a result of the
liquidating distribution set forth in this Section 13.2.A(4)).
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
Section 13.3. Compliance with Timing Requirements of Regulations
--------------------------------------------------
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in his or her Capital Account (after giving
effect to all contributions, distributions and allocations for the taxable
years, including the year during which such liquidation occurs), such Partner
shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the discretion of the Liquidator or the General Partner, a pro
rata portion of the distributions that would otherwise be made to the General
Partner and Limited Partners pursuant to this Article 13 may be:
A. distributed to a trust established for the benefit of the General
Partner and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner and Limited Partners from
time
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to time, in the reasonable discretion of the Liquidator or the General Partner,
in the same proportions and the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement; or
B. withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided, that such
--------
withheld amounts shall be distributed to the General Partner and Limited
Partners as soon as practicable.
Section 13.4. Deemed Contribution and Liquidation
-----------------------------------
If the Partnership is liquidated within the meaning of Section 1.704-
1(b)(2)(ii)(g) of the Regulations and no Liquidating Event has occurred and is
continuing, the Partnership property shall not be liquidated, the Partnership's
debts and liabilities shall not be paid or discharged (except to the extent due
and payable in the ordinary course) and the Partnership's affairs shall not be
wound up. Instead, solely for federal income tax purposes, the Partnership
shall be deemed to have contributed the Partnership property in-kind to a "new
partnership," which shall be deemed to have taken the Partnership property
subject to all debts and liabilities of the Partnership. Immediately
thereafter, the Partnership shall be deemed to have been liquidated,
distributing new partnership interests to the Partners, all in accordance with
their respective Capital Accounts. The new partnership shall operate in
accordance with this Agreement.
Section 13.5. Rights of Limited Partners
--------------------------
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of his Capital
Contribution and shall have no right or power to demand or receive property from
the General Partner. Except as expressly set forth herein with respect to the
rights, priorities and preferences of the Preferred Limited Partners holding any
series of Preferred Units, no Limited Partner shall have priority over any other
Limited Partner as to the return of his Capital Contributions, distributions or
allocations.
Section 13.6. Notice of Dissolution
---------------------
In the event a Liquidating Event occurs or an event occurs that would,
but for provisions of Section 13.1, result in a dissolution of the Partnership,
the General Partner shall, within 30 days thereafter, provide written notice
thereof to each of the Partners and to all other parties with whom the
Partnership regularly conducts business (as determined in the discretion of the
General Partner) and shall publish notice thereof in a newspaper of general
circulation in each place in which the Partnership regularly conducts business
(as determined in the discretion of the General Partner).
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Section 13.7. Cancellation of Certificate of Limited Partnership
--------------------------------------------------
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8. Reasonable Time for Winding-Up
------------------------------
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9. Waiver of Partition
-------------------
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14.
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1. Amendments
----------
A. The actions requiring consent or approval of the Partners or of
the Limited Partners pursuant to this Agreement, including Sections 7.3 and
16.5, or otherwise pursuant to applicable law, are subject to the procedures in
this Article 14.
B. Amendments to this Agreement requiring the consent or approval of
Limited Partners may be proposed by the General Partner or by any Limited
Partner. Following such proposal, the General Partner shall submit any proposed
amendment to the Partners or of the Limited Partners, as applicable. The
General Partner shall seek the written consent or approval of the Partners or of
the Limited Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written consent, the General Partner may require a
response within a reasonable specified time, but not less than 15 days, and
failure to respond in such time period shall constitute a consent which is
consistent with the General Partner's recommendation (if so recommended) with
respect to the proposal; provided, that an action shall become effective at such
--------
time as requisite consents are received even if prior to such specified time.
The Series A Limited Partners agree not to object to an amendment proposed after
December 31, 1998 to one or more of Sections 2.6, 11.3.D, 11.6.E and 11.6.F that
is deemed appropriate or necessary by the General Partner in its sole and
absolute discretion.
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Section 14.2. Action by the Partners
----------------------
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Common Limited Partners holding 25 percent or more of the Partnership Interests
held by Common Limited Partners. The call shall state the nature of the
business to be transacted. Notice of any such meeting shall be given to all
Partners not less than seven days nor more than 30 days prior to the date of
such meeting. Partners may vote in person or by proxy at such meeting.
Whenever the vote of the Percentage Interests of the Partners, or the Consent of
the Partners or Consent of the Limited Partners is permitted or required under
this Agreement, such vote or Consent may be given at a meeting of Partners or
may be given in accordance with the procedure prescribed in Section 14.1 hereof.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by the percentage as is expressly required by this
Agreement for the action in question. Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of
the Percentage Interests of the Partners (expressly required by this Agreement).
Such consent shall be filed with the General Partner. An action so taken shall
be deemed to have been taken at a meeting held on the effective date so
certified.
C. Each Limited Partner may authorize any Person or Persons to act
for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
D. To the extent the Company is entitled to exercise its rights and
remedies under the Pledge Agreement, the Company is hereby authorized to act for
each Pledgor with respect to such Pledgor's Partnership Interests pledged
pursuant to the Pledge Agreement by proxy on all matters in which such Pledgor
is now or hereafter entitled to participate under this Agreement by reason of
such pledged Partnership Interests, including waiving notice of any meeting, or
voting or participating at a meeting. Notwithstanding anything to the contrary
in Subparagraph C of this Section 14.2, the foregoing proxy is irrevocable and
coupled with an interest, shall survive and not be affected by the subsequent
Incapacity of any Pledgor and shall extend to such Pledgor's heirs, successors,
assigns and personal representatives and shall be valid until such time as all
collateral subject to the Pledge Agreement, if any, is returned to the Pledgors
pursuant to the terms of the Pledge Agreement.
E. Each meeting of Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate.
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ARTICLE 15.
GENERAL PROVISIONS
Section 15.1. Addresses and Notice
--------------------
Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by
certified first class United States mail, nationally recognized overnight
delivery service or facsimile transmission to the Partner or Assignee at the
address set forth in Exhibit A or such other address as the Partners shall
notify the General Partner in writing.
Section 15.2. Titles and Captions
-------------------
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3. Pronouns and Plurals
--------------------
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
Section 15.4. Further Action
--------------
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5. Binding Effect
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6. Creditors
---------
Other than as expressly set forth herein with respect to Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
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Section 15.7. Waiver
------
No failure or delay by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon any breach thereof shall constitute waiver
of any such breach or any other covenant, duty, agreement or condition.
Section 15.8. Counterparts
------------
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9. Applicable Law
--------------
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to the principles of conflicts
of law.
Section 15.10. Invalidity of Provisions
------------------------
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.11. Limitation to Preserve REIT Status
----------------------------------
To the extent that any amount paid or credited to the General Partner
or its officers, directors, employees or agents pursuant to Section 7.4 or
Section 7.7 would constitute gross income to the General Partner for purposes of
Sections 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then,
notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) 4.17% of the
General Partner's total gross income (but not including the
amount of any General Partner Payments) for the fiscal year which
is described in subsections (A) through (H) of Section 856(c)(2)
of the Code over (b) the amount of gross income (within the
meaning of Section 856(c)(2) of the Code) derived by the General
Partner from sources other than those described in subsections
(A) through (H) of Section 856(c)(2) of the Code (but not
including the amount of any General Partner Payments); or
(ii) an amount equal to the excess, if any, of (a) 25% of the General
Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described
in subsections (A)
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through (I) of Section 856(c)(3) of the Code over (b) the amount
of gross income (within the meaning of Section 856(c)(3) of the
Code) derived by the General Partner from sources other than
those described in subsections (A) through (I) of Section
856(c)(3) of the Code (but not including the amount of any
General Partner Payments);
provided, however, that General Partner Payments in excess of the amounts set
- -------- -------
forth in subparagraphs (i) and (ii) above may be made if the General Partner, as
a condition precedent, obtains an opinion of tax counsel that the receipt of
such excess amounts would not adversely affect the General Partner's ability to
qualify as a REIT. To the extent General Partner Payments may not be made in a
year due to the foregoing limitations, such General Partner Payments shall carry
over and be treated as arising in the following year, provided, however, that
-------- -------
such amounts shall not carry over for more than five years, and if not paid
within such five year period, shall expire; provided further, that (i) as
-------- -------
General Partner Payments are made, such payments shall be applied first to carry
over amounts outstanding, if any, and (ii) with respect to carry over amounts
for more than one Partnership Year, such payments shall be applied to the
earliest Partnership Year first.
Section 15.12. Entire Agreement
----------------
This Agreement (together with the agreements listed on Exhibit F
hereto as to rights and obligations in respect of the Units held by the Limited
Partners who are parties thereto, or their permitted transferees) contains the
entire understanding and agreement among the Partners with respect to the
subject matter hereof and supersedes any other prior written or oral
understandings or agreements among them with respect thereto.
Section 15.13. No Rights as Stockholders
-------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the holders of Partnership Units any rights whatsoever as stockholders of
the General Partner, including without limitation any right to receive dividends
or other distributions made to stockholders of the General Partner or to vote or
to consent or to receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the General Partner or any other
matter.
ARTICLE 16.
SERIES A PREFERRED UNITS
Section 16.1. Designation and Number
----------------------
A series of Partnership Units in the Partnership designated as the
8.075% Series A Cumulative Redeemable Preferred Units (the "Series A Preferred
------------------
Units") is hereby established. The number Series A Preferred Units shall be
- -----
1,500,000.
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Section 16.2. Distributions
-------------
A. Payment of Distributions. Subject to the rights of holders of
------------------------
Parity Preferred Units as to the payment of distributions, pursuant to Section
5.1 hereof, holders of Series A Preferred Units will be entitled to receive,
when, as and if declared by the Partnership acting through the General Partner,
out of Available Cash, cumulative preferential cash distributions at the rate
per annum of 8.075% of the original Capital Contribution per Series A Preferred
Unit. Such distributions shall be cumulative, shall accrue from the original
date of issuance and will be payable (A) quarterly in arrears, on or before
February 15, May 15, August 15 and November 15 of each year and, (B), in the
event of (i) an exchange of Series A Preferred Units into REIT Series A
Preferred Shares, or (ii) a redemption of Series A Preferred Units, on the
exchange date or redemption date, as applicable (each a "Preferred Unit
--------------
Distribution Payment Date"), commencing (i) in the case of Series A Preferred
- -------------------------
Units originally issued on February 6, 1998, on May 15, 1998 and (ii) in the
case of all other Series A Preferred Units, on the first of such payment dates
to occur following their original date of issuance. The amount of the
distribution payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months and for any period shorter than a full quarterly
period for which distributions are computed, the amount of the distribution
payable will be computed on the basis of the actual number of days elapsed in
such a 30-day month. If any date on which distributions are to be made on the
Series A Preferred Units is not a Business Day (as defined herein), then payment
of the distribution to be made on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
Distributions on the Series A Preferred Units will be made to the holders of
record of the Series A Preferred Units on the relevant record dates, which will
be fifteen (15) days prior to the relevant Preferred Unit Distribution Payment
Date (the "Preferred Unit Partnership Record Date").
--------------------------------------
B. Distributions Cumulative. Notwithstanding the foregoing,
------------------------
distributions on the Series A Preferred Units will accrue whether or not the
terms and provisions of any agreement of the Partnership at any time prohibit
the current payment of distributions, whether or not the Partnership has
earnings, whether or not there are funds legally available for the payment of
such of such distributions and whether or not such distributions are authorized.
Accrued but unpaid distributions on the Series A Preferred Units will accumulate
as of the Preferred Unit Distribution Payment Date on which they first become
payable. Accumulated and unpaid distributions will not bear interest.
C. Priority as to Distributions. (i) So long as any Series A
----------------------------
Preferred Units are outstanding, no distribution of cash or other property shall
be authorized, declared, paid or set apart for payment on or with respect to any
class or series of Partnership Interest of the Partnership ranking junior as to
the payment of distributions to the Series A Preferred Units (collectively,
"Junior Units"), nor shall any cash or other property (other than capital stock
- -------------
of the General Partner which corresponds in ranking to the Partnership Interests
being acquired) be set
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aside for or applied to the purchase, redemption or other acquisition for
consideration of any Series A Preferred Units, any Parity Preferred Units with
respect to distributions or any Junior Units, unless, in each case, all
distributions accumulated on all Series A Preferred Units and all classes and
series of outstanding Parity Preferred Units as to payment of distributions have
been paid in full. The foregoing sentence will not prohibit (a) distributions
payable solely in Junior Units, (b) the exchange of Junior Units or Parity
Preferred Units into Partnership Interests of the Partnership ranking junior to
the Series A Preferred Units as to distributions, or (c) the redemption of
Partnership Interests corresponding to REIT Series A Preferred Shares, Parity
Preferred Stock with respect to distributions or Junior Stock to be purchased by
the General Partner pursuant to the Charter with respect to the General
Partner's common stock and comparable charter provisions with respect to other
classes or series of capital stock of the General Partner to preserve the
General Partner's status as a real estate investment trust, provided that such
redemption shall be upon the same terms as the corresponding purchase pursuant
to Article IV.E. of the Charter or such other comparable provisions.
(ii) So long as distributions have not been paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series A
Preferred Units, all distributions authorized and declared on the Series A
Preferred Units and all classes or series of outstanding Parity Preferred Units
with respect to distributions shall be authorized and declared so that the
amount of distributions authorized and declared per Series A Preferred Unit and
such other classes or series of Parity Preferred Units shall in all cases bear
to each other the same ratio that accrued distributions per Series A Preferred
Unit and such other classes or series of Parity Preferred Units (which shall not
include any accumulation in respect of unpaid distributions for prior
distribution periods if such class or series of Parity Preferred Units do not
have cumulative distribution rights) bear to each other.
(iii) Notwithstanding anything to the contrary set forth herein,
distributions on Partnership Interests held by either (a) the General Partner or
(b) any other holder of Partnership Interest in the Partnership, in each case
ranking junior to or on parity with the Series A Preferred Units may be made,
without preserving the priority of distributions described in Sections 16.2.C(i)
and (ii), but only to the extent such distributions are required to preserve the
real estate investment trust status of the General Partner and in the case of
any holder other than the General Partner only to the extent required by the
Partnership Agreement.
D. No Further Rights. Holders of Series A Preferred Units shall not
-----------------
be entitled to any distributions, whether payable in cash, other property or
otherwise, in excess of the full cumulative distributions described herein.
Section 16.4. Liquidation Proceeds
--------------------
A. Upon voluntary or involuntary liquidation, dissolution or winding-
up of the Partnership, distributions on the Series A Preferred Units shall be
made in accordance with Article 13 of the Partnership Agreement.
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<PAGE>
B. Notice. Written notice of any such voluntary or involuntary
------
liquidation, dissolution or winding-up of the Partnership, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by (i) fax and (ii) by first
class mail, postage pre-paid, not less than 30 and not more that 60 days prior
to the payment date stated therein, to each record holder of the Series A
Preferred Units at the respective addresses of such holders as the same shall
appear on the transfer records of the Partnership.
C. No Further Rights. After payment of the full amount of the
-----------------
liquidating distributions to which they are entitled, the holders of Series A
Preferred Units will have no right or claim to any of the remaining assets of
the Partnership.
D. Consolidation, Merger or Certain Other Transactions. The
---------------------------------------------------
consolidation or merger or other business combination of the Partnership with or
into any corporation, trust or other entity (or of any corporation, trust or
other entity with or into the Partnership) shall not be deemed to constitute a
liquidation, dissolution or winding-up of the Partnership.
Section 16.4. Optional Redemption
-------------------
A. Right of Optional Redemption. The Series A Preferred Units may not
----------------------------
be redeemed prior to February 6, 2003. On or after such date, the Partnership
shall have the right to redeem the Series A Preferred Units, in whole or in
part, at any time or from time to time, upon not less than 30 nor more than 60
days' written notice, at a redemption price, payable in cash, equal to the
Capital Account balance of the holder of Series A Preferred Units (the
"Redemption Price"); provided, however, that no redemption pursuant to this
- -----------------
Section 16.4 will be permitted if the Redemption Price does not equal or exceed
the original Capital Contribution of such holder plus the cumulative Priority
Return to the redemption date to the extent not previously distributed. If
fewer than all of the outstanding Series A Preferred Units are to be redeemed,
the Series A Preferred Units to be redeemed shall be selected pro rata (as
nearly as practicable without creating fractional units).
B. Limitation on Redemption. (i) The Redemption Price of the Series
------------------------
A Preferred Units (other than the portion thereof consisting of accumulated but
unpaid distributions) will be payable solely out of the sale proceeds of capital
stock of the General Partner, which will be contributed by the General Partner
to the Partnership as additional capital contribution, or out of the sale of
limited partner interests in the Partnership and from no other source. For
purposes of the preceding sentence, "capital stock" means any equity securities
(including Common Stock and Preferred Stock (as such terms are defined in the
Charter)), shares, participation or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities) or options to purchase any of the foregoing.
(ii) The Partnership may not redeem fewer than all of the outstanding
Series A Preferred Units unless all accumulated and unpaid distributions have
been paid on all Series A
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<PAGE>
Preferred Units for all quarterly distribution periods terminating on or prior
to the date of redemption.
C. Procedures for Redemption. (i) Notice of redemption will be (i)
-------------------------
faxed, and (ii) mailed by the Partnership, by certified mail, postage prepaid,
not less than 30 nor more than 60 days prior to the redemption date, addressed
to the respective holders of record of the Series A Preferred Units at their
respective addresses as they appear on the records of the Partnership. No
failure to give or defect in such notice shall affect the validity of the
proceedings for the redemption of any Series A Preferred Units except as to the
holder to whom such notice was defective or not given. In addition to any
information required by law, each such notice shall state: (a) the redemption
date, (b) the Redemption Price, (c) the aggregate number of Series A Preferred
Units to be redeemed and if fewer than all of the outstanding Series A Preferred
Units are to be redeemed, the number of Series A Preferred Units to be redeemed
held by such holder, which number shall equal such holder's pro rata share
(based on the percentage of the aggregate number of outstanding Series A
Preferred Units that the total number of Series A Preferred Units held by such
holder represents) of the aggregate number of Series A Preferred Units to be
redeemed, (d) the place or places where such Series A Preferred Units are to be
surrendered for payment of the Redemption Price, (e) that distributions on the
Series A Preferred Units to be redeemed will cease to accumulate on such
redemption date and (f) that payment of the Redemption Price will be made upon
presentation and surrender of such Series A Preferred Units.
(ii) If the Partnership gives a notice of redemption in respect of
Series A Preferred Units (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Partnership will deposit
irrevocably in trust for the benefit of the Series A Preferred Units being
redeemed funds sufficient to pay the applicable Redemption Price and will give
irrevocable instructions and authority to pay such Redemption Price to the
holders of the Series A Preferred Units upon surrender of the Series A Preferred
Units by such holders at the place designated in the notice of redemption. On
and after the date of redemption, distributions will cease to accumulate on the
Series A Preferred Units or portions thereof called for redemption, unless the
Partnership defaults in the payment thereof. If any date fixed for redemption
of Series A Preferred Units is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date fixed for
redemption. If payment of the Redemption Price is improperly withheld or
refused and not paid by the Partnership, distributions on such Series A
Preferred Units will continue to accumulate from the original redemption date to
the date of payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the applicable
Redemption Price.
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Section 16.5. Voting Rights
-------------
A. General. Holders of the Series A Preferred Units will not have
-------
any voting rights or right to consent to any matter requiring the consent or
approval of the Limited Partners, except as set forth below and in Section
7.3.F.
B. Certain Voting Rights. So long as any Series A Preferred Units
---------------------
remains outstanding, the Partnership shall not, without the affirmative vote of
the holders of at least two-thirds of the Series A Preferred Units outstanding
at the time (i) authorize or create, or increase the authorized or issued amount
of, any class or series of Partnership Interests ranking prior to the Series A
Preferred Units with respect to payment of distributions or rights upon
liquidation, dissolution or winding-up or reclassify any Partnership Interests
of the Partnership into any such Partnership Interest, or create, authorize or
issue any obligations or security convertible into or evidencing the right to
purchase any such Partnership Interests, (ii) authorize or create, or increase
the authorized or issued amount of any Parity Preferred Units or reclassify any
Partnership Interest of the Partnership into any such Partnership Interest or
create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such Partnership Interests but only to the
extent such Parity Preferred Units are issued to an affiliate of the
Partnership, other than the General Partner to the extent the issuance of such
interests was to allow the General Partner to issue corresponding preferred
stock to persons who are not affiliates of the Partnership or (iii) either
consolidate, merge into or with, or convey, transfer or lease its assets
substantially as an entirety to, any corporation or other entity or amend, alter
or repeal the provisions of the Partnership Agreement (including, without
limitation, this Article 16), whether by merger, consolidation or otherwise, in
each case in a manner that would materially and adversely affect the powers,
special rights, preferences, privileges or voting power of the Series A
Preferred Units or the holders thereof; provided, however, that with respect to
-------- -------
the occurrence of any event set forth in (iii) above, so long as (a) the
Partnership is the surviving entity and the Series A Preferred Units remain
outstanding with the terms thereof unchanged, or (b) the resulting, surviving or
transferee entity is a partnership, limited liability company or other pass-
through entity organized under the laws of any state and substitutes the Series
A Preferred Units for other interests in such entity having substantially the
same terms and rights as the Series A Preferred Units, including with respect to
distributions, voting rights and rights upon liquidation, dissolution or
winding-up, then the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, privileges or voting powers of the
holders of the Series A Preferred Units; and provided further, that any increase
-------- -------
in the amount of Partnership Interests or the creation or issuance of any other
class or series of Partnership Interests, in each case ranking (a) junior to the
Series A Preferred Units with respect to payment of distributions or the
distribution of assets upon liquidation, dissolution or winding-up, or (b) on a
parity to the Series A Preferred Units with respect to payment of distributions
or the distribution of assets upon liquidation, dissolution or winding-up to the
extent such Partnership Interest are not issued to an affiliate of the
Partnership, other than the General Partner to the extent the issuance of such
interests was to allow the General Partner to issue corresponding preferred
stock to persons who are not affiliates of the Partnership, shall not be deemed
to materially and adversely affect such rights, preferences, privileges or
voting powers.
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Section 16.6. Transfer Restrictions
---------------------
The Series A Preferred Units shall be subject to the provisions of
Article 11 hereof; provided, however, that the Series A Preferred Units shall
-------- -------
not be subject to the right of first refusal of the General Partner as described
in Section 11.3 hereof. No transfer of Series A Preferred Units is permitted,
without the consent of the General Partner which consent may be given or
withheld in its sole and absolute discretion, if such transfer would result in
more than four partners holding all outstanding Series A Preferred Units within
the meaning of Treasury Regulation Section 1.7704-1(h)(3); provided, however,
-------- -------
that the General Partner's consent may not be unreasonably withheld if (a) such
transfer would not result in more than ten partners holding all outstanding
Series A Preferred Units within the meaning of Treasury Regulation Section
1.7704-1(h)(3) and (b) the General Partner is relying on a provision other than
Treasury Regulation Section 1.7704-1(h) to avoid classification of Operating
Partnership as a "publicly traded partnership" within the meaning of Code
Section 7704 (a "PTP"). In addition, no transfer may be made to any person if
---
such transfer would cause the exchange of the Series A Preferred Units for REIT
Series A Preferred Shares, as provided herein, to be required to be registered
under the Securities Act of 1933, as amended, or any state securities laws. If
(i) Contributor concludes based on results or projected results that there
exists (in the reasonable judgment of Contributor) an imminent and substantial
risk that the Contributor's interest in the Partnership represents or will
represent more than 19.5% of the total profits or capital interests in the
Partnership for a taxable year, (ii) Contributor delivers to the General Partner
an opinion of nationally recognized independent counsel to the effect that there
is a substantial risk that Contributor's interest in the Partnership will
represent more than 19.5% (the "19.5% Limit") of the total profits or capital
interests in the Partnership (determined in accordance with Regulations Section
1.731-2(e)(4)), and (iii) the General Partner agrees with the conclusions
referred to in clauses (i) and (ii) of this sentence, such agreement not to be
unreasonably withheld, then Contributor shall, subject to the above limitations,
be permitted to transfer so much of its Series A Preferred Units as may be
appropriate to alleviate the risk of not satisfying the 19.5% Limit to the trust
described in Exhibit E, with the Contributor having the rights set forth in such
Exhibit.
Section 16.7. Exchange Rights
---------------
A. Right to Exchange. (i) Series A Preferred Units will be
-----------------
exchangeable in whole but not in part unless expressly otherwise provided herein
at anytime on or after February 6, 2008, at the option of 51% of the holders of
all outstanding Series A Preferred Units, for authorized but previously unissued
REIT Series A Preferred Shares at an exchange rate of one REIT Series A
Preferred Share from the General Partner for one Series A Preferred Unit,
subject to adjustment as described below (the "Exchange Price"), provided that
-------------- --------
the Series A Preferred Units will become exchangeable at any time, in whole but
not in part unless expressly otherwise provided herein, at the option of 51% of
the holders of all outstanding Series A Preferred Units for REIT Series A
Preferred Shares if (y) at any time full distributions shall not have been
timely made on any Series A Preferred Unit with respect to six (6) prior
quarterly distribution periods, whether or not consecutive, provided, however,
-------- -------
that a distribution in respect of Series A Preferred Units shall be considered
timely made if made within two (2) Business Days after the
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<PAGE>
applicable Preferred Unit Distribution Payment Date if at the time of such late
payment there shall not be any prior quarterly distribution periods in respect
of which full distributions were not timely made or (z) upon receipt by a holder
or holders of Series A Preferred Units of (A) notice from the General Partner
that the General Partner or a Subsidiary of the General Partner has taken the
position that the Partnership is, or upon the consummation of an identified
event in the immediate future will be, a PTP and (B) an opinion rendered by
outside nationally recognized independent counsel familiar with such matters
addressed to a holder or holders of Series A Preferred Units, that the
Partnership is or likely is, or upon the occurrence of a defined event in the
immediate future will be or likely will be, a PTP. In addition, the Series A
Preferred Units may be exchanged for REIT Series A Preferred Shares, in whole
but not in part unless expressly otherwise provided herein, at the option of 51%
of the holders of all outstanding Series A Preferred Units prior to February 6,
2008 and after February 6, 2001 if such holders of a Series A Preferred Units
shall deliver to the General Partner either (i) a private ruling letter
addressed to such holder of Series A Preferred Units or (ii) an opinion of
independent counsel reasonably acceptable to the General Partner based on the
enactment of temporary or final Treasury Regulations or the publication of a
Revenue Ruling, in either case to the effect that an exchange of the Series A
Preferred Units at such earlier time would not cause the Series A Preferred
Units to be considered "stock and securities" within the meaning of section
351(e) of the Code for purposes of determining whether the holder of such Series
A Preferred Units is an "investment company" under section 721(b) of the Code if
an exchange is permitted at such earlier date. Furthermore, the Series A
Preferred Units, if Contributor so determines, may be exchanged in whole but not
in part (regardless of whether held by Contributor) for REIT Series A Preferred
Shares (but only if the exchange in whole may be accomplished consistently with
the ownership limitations set forth under the Series A Articles Supplementary
(as defined herein), taking into account exceptions thereto) if (1) Contributor
concludes based on results or projected results that there exists (in the
reasonable judgment of Contributor) an imminent and substantial risk that the
Contributor's interest in the Partnership represents or will represent more than
19.5% of the total profits or capital interests in the Partnership for a taxable
year, (2) Contributor delivers to the General Partner an opinion of nationally
recognized independent counsel, to the effect that there is a substantial risk
that its interest in the Partnership will not satisfy the 19.5% Limit and (3)
the General Partner agrees with the conclusions referred to in clauses (1) and
(2) of this sentence, such agreement not to be unreasonably withheld; provided,
however, that if, as a result of such conclusion, Contributor's interest in the
Partnership is reduced pursuant to the last sentence of Section 16.6 hereof
(which procedure shall be available to Contributor to the exclusion of the
procedure under this sentence for so long as, on a cumulative basis, sales of
10% or fewer of the Series A Preferred Units originally acquired by Contributor
would in the opinion of the above-referenced counsel reduce the risk that
Contributor's interest in the Partnership would not satisfy the 19.5% Limit to
less than a substantial risk, and thereafter shall be a permitted alternative to
the procedure pursuant to this sentence) or the risk of Contributor not
satisfying the 19.5% Limit otherwise is reduced below a substantial risk, then
an exchange in whole under this sentence shall not be permitted unless and until
a change in facts occurs and a further determination by Contributor is made
under this sentence.
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(ii) Notwithstanding anything to the contrary set forth in Section
16.7.A(i), if an Exchange Notice (as defined herein) has been delivered to the
General Partner, then the General Partner may, at its option, within ten (10)
Business Days after receipt of the Exchange Notice, elect to cause the
Partnership to redeem all or a portion of the outstanding Series A Preferred
Units for cash in an amount equal to the original Capital Contribution per
Series A Preferred Unit and all accrued and unpaid distributions thereon to the
date of redemption. If the General Partner elects to redeem fewer than all of
the outstanding Series A Preferred Units, the number of Series A Preferred Units
held by each holder to be redeemed shall equal such holder's pro rata share
(based on the percentage of the aggregate number of outstanding Series A
Preferred Units that the total number of Series A Preferred Units held by such
holder represents) of the aggregate number of Series A Preferred Units being
redeemed.
(iii) In the event an exchange of all Series A Preferred Units
pursuant to Section 16.7.A would violate the provisions on ownership limitation
of the General Partner set forth in Section 7 of the Articles Supplementary to
the Charter with respect to REIT Series A Preferred Shares (the "Series A
Articles Supplementary"), each holder of Series A Preferred Units shall be
entitled to exchange, pursuant to the provisions of Section 16.7.B, a number of
Series A Preferred Units which would comply with the provisions on the ownership
limitation of the General Partner set forth in such Section 7 of the Series A
Articles Supplementary, with respect to such holder, and any Series A Preferred
Units not so exchanged (the "Excess Units") shall be redeemed by the Partnership
------------
for cash in an amount equal to the original Capital Contribution per Excess
Unit, plus any accrued and unpaid distributions thereon to the date of
redemption subject to any restriction thereon contained in any debt instrument
or agreement of the Partnership. In the event an exchange would result in
Excess Units, as a condition to such exchange, each holder of such units agrees
to provide representations and covenants reasonably requested by the General
Partner relating to (i) the widely held nature of the interests in such holder,
sufficient to assure the General Partner that the holder's ownership of stock of
the General Partner (without regard to the limits described above) will not
cause any individual to own in excess of 6.2% of the stock of the General
Partner; and (ii) to the extent such holder can so represent and covenant
without obtaining information from its owners, the holder's ownership of tenants
of the Partnership and its affiliates. For purposes of determining the number
of Excess Units under this Section 16.7.A(iii), the "Beneficial Ownership Limit"
and "Constructive Ownership Limit" set forth in the Series A Articles
Supplementary shall be deemed to be 0.8 percentage points less than the limits
set forth in the Series A Articles Supplementary. To the extent the General
Partner would not be able to pay the cash set forth above in exchange for the
Excess Units, and to the extent consistent with the Charter, the General Partner
agrees that it will grant to the holders of the Series A Preferred Units
exceptions to the Beneficial Ownership Limit and Constructive Ownership Limit
set forth in the Series A Articles Supplementary sufficient to allow such
holders to exchange all of their Series A Preferred Units for REIT Series A
Preferred Stock, provided such holders furnish to the General Partner
representations acceptable to the General Partner in its sole and absolute
discretion which assure the General Partner that such exceptions will not
jeopardize the General Partner's tax status as a REIT for purposes of federal
and applicable state law. Notwithstanding any provision of this Agreement to
the contrary, no
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Series A Limited Partner shall be entitled to effect an exchange of Series A
Preferred Units for REIT Series A Preferred Shares to the extent that ownership
or right to acquire such shares would cause the Partner or any other Person or,
in the opinion of counsel selected by the General Partner, may cause the Partner
or any other Person, to violate the restrictions on ownership and transfer of
REIT Series A Preferred Shares set forth in the Charter. To the extent any such
attempted exchange for REIT Series A Preferred Shares would be in violation of
the previous sentence, it shall be void ab initio and such Series A Limited
Partner shall not acquire any rights or economic interest in the REIT Series A
Preferred Shares otherwise issuable upon such exchange.
(iv) The redemption of Series A Preferred Units described in Section
16.7.A(ii) and (iii) shall be subject to the provisions of Section 16.4.B(i) and
Section 16.4.C(ii); provided, however, that the term "Redemption Price" in such
-------- -------
Sections 16.4.B(i) and 16.4.C(ii) shall be read to mean the original Capital
Contribution per Series A Preferred Unit being redeemed as set forth on Exhibit
A plus all accrued and unpaid distributions to the redemption date.
B. Procedure for Exchange and/or Redemption of Series A Preferred
--------------------------------------------------------------
Units. (i) Any exchange shall be exercised pursuant to a notice of exchange
- -----
(the "Exchange Notice") delivered to the General Partner by the Partners
---------------
representing at least 51% of the outstanding Series A Preferred Units (or by
Contributor in the case of an exchange pursuant to the last sentence of Section
16.7.A.(i) hereof) by (a) fax and (b) by certified mail postage prepaid. The
General Partner may effect any exchange of Series A Preferred Units, or exercise
its option to cause the Partnership to redeem any portion of the Series A
Preferred Units for cash pursuant to Section 16.7.A(ii) or redeem Excess Units
pursuant to Section 16.7.A(iii), by delivering to each holder of record of
Series A Preferred Units, within ten (10) Business Days following receipt of the
Exchange Notice, (a) if the General Partner elects to cause the Partnership to
acquire any of the Series A Preferred Units then outstanding, (1) certificates
representing the Series A Preferred Shares being issued in exchange for the
Series A Preferred Units of such holder being exchanged and (2) a written notice
(a "Redemption Notice") stating (A) the redemption date, which may be the date
-----------------
of such Redemption Notice or any other date which is not later than sixty (60)
days following the receipt of the Exchange Notice, (B) the redemption price, (C)
the place or places where the Series A Preferred Units are to be surrendered and
(D) that distributions on the Series A Preferred Units will cease to accrue on
such redemption date, or (b) if the General Partner elects to cause the
Partnership to redeem all of the Series A Preferred Units then outstanding in
exchange for cash, a Redemption Notice. Series A Preferred Units shall be
deemed canceled (and any corresponding Partnership Interest represented thereby
deemed terminated) simultaneously with the delivery of shares of Series A
Preferred Shares (with respect to Series A Preferred Units exchanged) or
simultaneously with the redemption date (with respect to Series A Preferred
Units redeemed). Holders of Series A Preferred Units shall deliver any canceled
certificates representing Series A Preferred Units which have been exchanged or
redeemed to the office of General Partner (which currently is located at 2250 E.
Imperial Highway, El Segundo, CA 90245) within ten (10) Business Days of the
exchange or redemption with respect thereto. Notwithstanding anything to the
contrary contained herein, any and all Series A Preferred Units to be exchanged
for REIT Series A Preferred Stock pursuant to this Section 16.7 shall be so
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exchanged in a single transaction at one time. As a condition to exchange, the
General Partner may require the holders of Series A Preferred Units to make such
representations as may be reasonably necessary for the General Partner to
establish that the issuance of REIT Series A Preferred Shares pursuant to the
exchange shall not be required to be registered under the Securities Act or any
state securities laws. Any Series A Preferred Shares issued pursuant to this
Section 16.7 shall be delivered as shares which are duly authorized, validly
issued, fully paid and nonassessable, free of any pledge, lien, encumbrance or
restriction other than those provided in the Charter, the By-Laws of the General
Partner, the Securities Act and relevant state securities or blue sky laws.
The certificates representing the Series A Preferred Shares issued
upon exchange of the Series A Preferred Units shall contain the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR (B) IF THE
CORPORATION HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL
FOR THE HOLDER OF THE SHARES REPRESENTED HEREBY, OR OTHER EVIDENCE
SATISFACTORY TO THE CORPORATION, THAT SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE
PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS
THEREUNDER.
(ii) In the event of an exchange of Series A Preferred Units for REIT
Series A Preferred Shares, an amount equal to the accrued and unpaid
distributions to the date of exchange on any Series A Preferred Units tendered
for exchange shall (i) accrue on the REIT Series A Preferred Shares into which
such Series A Preferred Units are exchanged, and (ii) continue to accrue on such
Series A Preferred Units, which shall remain outstanding following such
exchange, with the General Partner as the holder of such REIT Series A Preferred
Units. Notwithstanding anything to the contrary set forth herein, in no event
shall a holder of a Series A Preferred Unit that was validly exchanged for REIT
Series A Preferred Shares pursuant to this section (other than the General
Partner now holding such Series A Preferred Unit), receive a distribution out of
Available Cash of the Partnership, if such holder, after exchange, is entitled
to receive a distribution out of Available Cash with respect to the REIT Series
A Preferred Shares for which such Series A Preferred Unit was exchanged or
redeemed. Further for purposes of the foregoing, in the event of an exchange of
Series A Preferred Units for REIT Shares, if the accrued and unpaid
distributions per Series A Preferred Unit is not the same for each Series A
Preferred Unit, the accrued and unpaid distributions per Series A Preferred Unit
for each such
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<PAGE>
Series A Preferred Unit shall be equal to the greatest amount of such accrued
and unpaid distributions per Series A Preferred Unit on any such unit.
(iii) Fractional REIT Series A Preferred Shares are not to be issued
upon exchange but, in lieu thereof, the General Partner will pay a cash
adjustment based upon the fair market value of the REIT Series A Preferred
Shares on the day prior to the exchange date as determined in good faith by the
Board of Directors of the General Partner.
C. Adjustment of Exchange Price. In case the General Partner
----------------------------
shall be a party to any transaction (including, without limitation, a merger,
consolidation, statutory share exchange, tender offer for all or substantially
all of the General Partner's capital stock or sale of all or substantially all
of the General Partner's assets), in each case as a result of which the REIT
Series A Preferred Shares will be converted into the right to receive shares of
capital stock, other securities or other property (including cash or any
combination thereof), each Series A Preferred Unit will thereafter be
exchangeable into the kind and amount of shares of capital stock and other
securities and property receivable (including cash or any combination thereof)
upon the consummation of such transaction by a holder of that number of REIT
Series A Preferred Shares or fraction thereof into which one Series A Preferred
Unit was exchangeable immediately prior to such transaction. The General
Partner may not become a party to any such transaction unless the terms thereof
are consistent with the foregoing.
Section 16.8. No Conversion Rights
--------------------
The holders of the Series A Preferred Units shall not have any rights
to convert such shares into shares of any other class or series of stock or into
any other securities of, or interest in, the Partnership.
Section 16.9. No Sinking Fund
---------------
No sinking fund shall be established for the retirement or redemption
of Series A Preferred Units.
ARTICLE 17.
RIGHTS OF CERTAIN LIMITED PARTNERS
Section 17.1. Limited Partner Consent
-----------------------
With respect to matters requiring by the terms of this Agreement the
consent or approval of the Limited Partners of the Partnership, including any
amendments to, or waivers of, the provisions of this Agreement, each of the
investors set forth on Schedule 1 (each an "Investor," and collectively the
"Investors"), other than those set forth on Schedule 2, hereby agrees that it
shall vote (which term shall include the giving of any written consent or
approval) all of its Partnership Units, and all of its Partnership Units shall
be deemed to have been voted, in the same proportion and in the same manner as
the Partnership Units held and voted by John B.
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Kilroy, Jr., or, in the event of his death, by his legal representative;
provided, however, that with respect to any matter requiring the consent or
- -------- -------
approval of the Limited Partners that would amend the preferences, rights or
privileges of such Investor's Partnership Units under the provisions of the
Partnership Agreement in a materially adverse manner, which amendment would not
also similarly affect the other Limited Partners, such Investor's Partnership
Units shall be voted in accordance with such Investor's direction.
Section 17.2. Redemption Rights
-----------------
A. Pursuant to Section 8.6 hereof, each Limited Common Partner has
the right, subject to the terms and conditions set forth in Section 8.6 hereof,
to require the Partnership to redeem all or a portion of the Partnership Units
held by such Common Limited Partner for the Cash Amount or, at the General
Partner's election, the REIT Shares Amount (the "Redemption Right"), provided,
--------
however, that such Redemption Right shall not be available to any Investor with
- -------
respect to any Partnership Unit until a holding period for any such Partnership
Unit has occurred ending on the date which is the later of (i) October 31, 2000
(or, in the case of the Investors set forth on Schedule 1, January 31, 1999) and
(ii) one year from the date of issuance of such Partnership Unit to such
Investor.
B. Provided further, that the fourth and fifth full sentences under
-------- -------
Section 8.6.B hereof shall not be applicable to the Redemption Rights of any
Investor. Notwithstanding the foregoing subsection 17.2.A, if any Partnership
Unit of any Investor has been pledged to a lending institution, which is not an
Affiliate of such Investor (a "Lender"), as collateral or security for a bona
fide loan or other extension of credit, then, to the extent the Lender has
exercised its remedies under such pledge and becomes the owner of such
Partnership Unit, such Lender will be entitled to the Redemption Right with
respect to such Partnership Unit beginning January 31, 1999, but in no event
shall such Partnership Unit of the Lender be subject to the Redemption Right
prior to the date which is one year from the date of issuance of such
Partnership Unit to such Investor.
C. Notwithstanding the foregoing subsections 17.2.A and 17.2.B,
following the occurrence of a Change of Control (as defined below), each
Investor may exercise the Redemption Right, provided, that such Redemption Right
--------
shall not be available to any Investor with respect to any Partnership Unit
until a holding period for any such Partnership Unit of no less than one year
from the date of issuance of such Partnership Unit to such Investor has
occurred. "Change of Control" means the sale, transfer or other conveyance by
John B. Kilroy, Jr. (the "Transfer"), in one or more transactions, of a total of
at least 70% of the Equity Interests (as defined below) beneficially owned by
John B. Kilroy, Jr. on October 31, 1997, other than (i) any involuntary
Transfer, (ii) any Transfer in respect of a marital dissolution or similar
proceeding, (iii) any Transfer to a trust for the benefit of John B. Kilroy,
Jr., his spouse or any member of his immediate family, (iv) any Transfer to a
trust for which John B. Kilroy, Jr. serves as trustee, and (v) any Transfer to
any entity, all of the interests of which are beneficially owned by John B.
Kilroy, Jr. "Equity Interests" means Partnership Units and capital stock of the
General Partner.
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<PAGE>
Section 17.3. Activities of Investors
-----------------------
Section 8.3 hereof relating to the business activities of Limited
Partners and certain other persons is modified with respect to each Investor in
all respects by the terms of the Contribution Agreement, dated October 31, 1997,
by and among the Partnership, the General Partner and the other parties named
therein (the "Allen Group Contribution Agreement") and any other documents
entered into in connection with the acquisition of the Allen Properties (as
defined in the Allen Group Contribution Agreement) pursuant thereto.
Section 17.4. Sale of Allen Properties
------------------------
The General Partner shall not sell any of the Allen Properties prior
to October 31, 2002 unless (i) the sale will not constitute a taxable event to
the Investors, or (ii) the sale is incident to a transaction pursuant to Section
11.2.B or 11.2.C hereof.
Section 17.5. Transfer of Partnership Units
-----------------------------
A. Subject to the provisions of this Section 17.5, transfers of
Partnership Interests by the Investors shall be governed by the provisions of
Article 11 hereof, provided, however, that the restrictions on transfer
-------- -------
prescribed in Section 11.3 shall apply with respect to transfer by Investors
through October 30, 2000. If any Partnership Units of an Investor shall be
pledged in accordance with the terms of Section 11.3.A(iv) hereof and the
pledgee exercises its remedies under such pledge by acceleration, notice of
intent to foreclose or other exercise, the Partnership may either:
(i) purchase the indebtedness, security interest in the Partnership
Units and any other rights with respect to the Partnership Units held by the
pledgee for the amounts owed to pledgee or any lesser amount agreed to by such
pledgee and the Partnership or
(ii) after a foreclosure of such pledgee's security interest in the
Partnership Units, at any time until the later of (A) October 31, 2000 or (B)
the date that such Partnership Units become subject to the Redemption Right,
acquire the Partnership Units from such pledgee for an amount equal to the
Deemed Partnership Interest Value for such Partnership Units.
The pledgee shall give the Partnership any notice of default or
delinquency given to such Investor and no less than 30 days written notice of
any proposed public or private sale, transfer or exchange of such Partnership
Units.
B. Upon the transfer of Partnership Units by an Investor pursuant to
the terms of the Article 11 and this Section 17.5 hereof, the transferee shall
be subject to and bound by all of the provisions of this Agreement as if such
transferee were an Investor.
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Section 17.6. Distributions and Allocations
-----------------------------
A. For the fiscal quarter in which Partnership Units are issued to an
Investor, such Investor shall be entitled to a distribution equal to its pro
rata share of the distributions made on all Limited Partnership Interests held
by Common Limited Partners multiplied by a fraction, the numerator of which
shall be the number of days in such fiscal quarter in which the Investor has
held the Partnership Units, and the denominator of which shall be the total
number of days in such fiscal quarter.
B. For the fiscal quarter in which the Partnership Units are issued
to an Investor, net income and net loss (and items thereof) shall be allocated
to such Investor and the other Partners by taking into account their varying
interests in the Partnership during the year using a method selected by the
General Partner in its sole discretion, which is in accordance with Section
706(d) of the Code.
Section 17.7. Admission of Additional Investors
---------------------------------
Any Investor (other than an Investor listed on Schedule 1 hereto) who
makes a Capital Contribution after the date hereof will be admitted as a Limited
Partner at such time and Exhibit A will be revised to reflect such Capital
Contribution. Each Investor will confirm that the representations and
warranties set forth in Section 3.4 hereof, and Section 11.1(x) of the
Contribution Agreement, as to such Investor will be true and correct on the date
of any subsequent Capital Contributions by such Investor. Each Investor agrees
to be bound by the terms and conditions of this Agreement.
(Signature Page Follows)
85
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
KILROY REALTY, L. P.
By: Kilroy Realty Corporation,
its General Partner
By: /s/ John B. Kilroy, Jr.
-------------------------------------
John B. Kilroy, Jr.
President and Chief Executive Officer
MAJORITY IN INTEREST
OF THE LIMITED PARTNERS:
JOHN B. KILROY, SR.
/s/ John B. Kilroy, Sr.
----------------------------
John B. Kilroy, Sr.
JOHN B. KILROY, JR.
/s/ John B. Kilroy, Jr.
----------------------------
John B. Kilroy, Jr.
S-1
<PAGE>
SEA/TAC PROPERTIES, LTD.
KILROY-FREEHOLD INDUSTRIAL
DEVELOPMENT ORGANIZATION
KILROY LONG BEACH
ASSOCIATES II
KILROY BUILDING 73 PARTNERSHIP
KILROY GARDEN GROVE ASSOCIATES
KILROY AIRPORT ASSOCIATES
By: Kilroy Industries,
its General Partner
By: /s/ John B. Kilroy, Jr.
-----------------------
John B. Kilroy, Jr.
President
KILROY INDUSTRIES
By: /s/ John B. Kilroy, Jr.
-----------------------
John B. Kilroy, Jr.
President
KILROY TECHNOLOGIES, LLC
By: /s/ John B. Kilroy, Jr.
-----------------------
John B. Kilroy, Jr.
President
2
<PAGE>
SERIES A LIMITED PARTNER:
BELAIR CAPITAL FUND LLC
By: Eaton Vance Management,
as its Manager
By: /s/ Thomas E. Faust, Jr.
------------------------
Name: Thomas E. Faust, Jr.
Title: Vice President
3
<PAGE>
SCHEDULE 1
INVESTORS
INVESTORS WHO RECEIVED UNITS ON OCTOBER 31, 1997:
Richard S. Allen, Inc.
Commercial Management Corporation
Allen Investments, Inc.
Steven L. Black
Martin V. Clevenger
Self Directed Individual Retirement Account(s) Of Martin V. Clevenger
Allen Development, Inc.
THE FOLLOWING INVESTORS MAY RECEIVE UNITS AFTER OCTOBER 31, 1997 AND MAY EXECUTE
THE AGREEMENT AT A LATER DATE:
T. Patrick Smith
Doyle & Associates, Inc.
LPL Holdings, Inc.
SCHEDULE 1-1
<PAGE>
SCHEDULE 2
Doyle & Associates, Inc., a California corporation
Martin V. Clevenger, an individual
Self Directed Individual Retirement Account(s) of Martin V. Clevenger
LPL Holdings, Inc., a Delaware corporation
Steven L. Black*
T. Patrick Smith*
*Steven L. Black and T. Patrick Smith are included only for purposes of Section
17.2.A. Messrs. Black and Smith shall be bound by the voting restrictions set
forth in Section 17.1 of the Agreement, notwithstanding their inclusion on this
Schedule 2.
SCHEDULE 2-1
<PAGE>
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
A-1
<PAGE>
EXHIBIT B
NOTICE OF REDEMPTION
The undersigned hereby [irrevocably] (i) exchanges ____________
Limited Partnership Units in Kilroy Realty, L.P. in accordance with the terms of
the Limited Partnership Agreement of Kilroy Realty, L.P. dated as of __________,
as amended, and the rights of Redemption referred to therein, (ii) surrenders
such Limited Partnership Units and all right, title and interest therein, and
(iii) directs that the cash (or, if applicable, REIT Shares) deliverable upon
Redemption or exchange be delivered to the address specified below, and if
applicable, that such REIT Shares be registered or placed in the name(s) and at
the address(es) specified below.
Dated:________________________
Name of Limited Partner:
__________________________________
(Signature of Limited Partner)
__________________________________
(Street Address)
__________________________________
(City) (State) (Zip Code)
__________________________________
Signature Guaranteed by:
Issue REIT Shares in the name of:
Please insert social security or identifying number:
Address (if different than above):
B-1
<PAGE>
EXHIBIT C
SCHEDULE OF CERTAIN PROPERTY OF THE PARTNERSHIP
2260 E. Imperial Highway, El Segundo, California
C-1
<PAGE>
EXHIBIT D
FORM OF PARTNERSHIP UNIT CERTIFICATE
CERTIFICATE FOR PARTNERSHIP UNITS OF
KILROY REALTY, L.P.
No. _________ _______ UNITS
Kilroy Realty Corporation as the General Partner of Kilroy Realty,
L.P., a Delaware limited partnership (the "Operating Partnership"), hereby
certifies that ______________________________________________________ is a
Limited Partner of the Operating Partnership whose Partnership Interests
therein, as set forth in the Agreement of Limited Partnership of Kilroy Realty,
L.P., dated as of ______________, 1997 (as it may be amended, modified or
supplemented from time to time in accordance with its terms, (the "Partnership
Agreement"), under which the Operating Partnership is existing and as filed in
the office of the Delaware [State Department of Assessments and Taxation]
(copies of which are on file at the Operating Partnership's principal office at
__________________________________________________, represent ______________
units of limited partnership interest in the Operating Partnership (the
"Partnership Units").
THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE PARTNERSHIP AGREEMENT (A
COPY OF WHICH IS ON FILE WITH THE OPERATING PARTNERSHIP). EXCEPT AS OTHERWISE
PROVIDED IN THE PARTNERSHIP AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE PARTNERSHIP UNITS REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF
THE OPERATING PARTNERSHIP HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF
COUNSEL FOR THE HOLDER OF THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE
THAT SUCH TRANSFER, SALE ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND
REGULATIONS IN EFFECT THEREUNDER.
DATED: _____________________________, 1997.
KILROY REALTY CORPORATION
General Partner of
Kilroy Realty, L.P.
ATTEST:
By: By:
-------------------------- _______________________
D-1
<PAGE>
EXHIBIT E
RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX BENEFIT
(a) Definitions. for the purposes of this Exhibit E, the following terms shall
-----------
have the following meanings:
"Charitable Beneficiary" shall mean one or more beneficiaries of
a Trust, as determined pursuant to subsection (c)(vi), each of which
shall be an organization described in Sections 170(b)(1)(A), 170(c)(2)
or 501(c)(3) of the Code.
"Constructive Ownership" shall mean ownership of Partnership
Units by a Person who is or would be treated as an owner of such
Partnership Units either actually or constructively through the
application of Section 318 of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner," "Constructively
Owns" and "Constructively Owned" shall have the correlative meanings.
"Exempted Person" shall mean any Person exempted from time to
time by the General Partner in its sole and absolute discretion.
"Market Price" shall mean the market price of the Partnership
Units on the relevant date as determined in good faith by the General
Partner; provided, however, if the General Partner has outstanding
-------- -------
shares of capital stock which correspond to such Partnership Units,
the Market Price of each such Partnership Unit shall be equal to the
Value of a share of such capital stock, subject to adjustment if the
right to exchange such Partnership Units for such stock is other than
one-to-one.
"Ownership Limit" shall mean 24.5% of the capital or profits
interests of the Partnership.
"Person" shall mean an individual, corporation, partnership,
limited liability company, estate, trust (including a trust qualified
under Section 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the purposes
described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint
stock company or other entity.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer (or other event) which results in a transfer to a
Trust, as provided in subsection (b)(ii), the Purported Record
Transferee, unless the Purported Record Transferee would have acquired
or owned Partnership Units for another Person who
E-1
<PAGE>
is the beneficial transferee or owner of such Partnership Units, in
which case the Purported Beneficial Transferee shall be such Person.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer (or other event) which results in a transfer to a
Trust, as provided in subsection (b)(ii), the holder of the
Partnership Units as set forth or to be set forth in Exhibit A to the
Partnership Agreement, and any Assignee of such Partnership Units, if
such Transfer or ownership had been valid under subsection (b)(i).
"Restriction Termination Date" shall mean the first day after the
date hereof on which the General Partner determines, in its sole and
absolute discretion, that compliance with subsection (b)(i) is no
longer necessary or advisable.
"Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Partnership Units, (including (i) the
granting of any option or entering into any agreement for the sale,
transfer or other disposition of Partnership Units or (ii) the sale,
transfer, assignment or other disposition of any securities (or rights
convertible into or exchangeable for Partnership Units), whether
voluntary or involuntary, whether such transfer has occurred of record
or beneficially or Constructively (including but not limited to
transfers of interests in other entities which results in changes in
Constructive Ownership of Partnership Units), and whether such
transfer has occurred by operation of law or otherwise.
"Trust" shall mean each of the trusts provided for in subsection
(c).
"Trustee" shall mean any Person unaffiliated with the
Partnership, or a Purported Beneficial Transferee, or a Purported
Record Transferee, that is appointed by the Partnership to serve as
trustee of a Trust.
Capitalized terms used and not defined herein shall have the meanings ascribed
to them in the Third Amended and Restated Agreement of Limited Partnership of
Kilroy Realty, L.P. (the "Partnership Agreement), as such agreement may be
amended from time to time. All references to "Section" refer to the Partnership
Agreement.
(b) Restriction on Ownership and Transfers.
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(i) Prior to the Restriction Termination Date, no Person, other than
an Exempted Person, shall at any time Constructively Own Partnership Units
in excess of the Ownership Limit if the representations contained in
Section 3.4.D(i)(a) are not at such time true and correct.
(ii) If, prior to the Restriction Termination Date, any Transfer or
other event occurs that, if effective, would result in any Person
Constructively Owning Partnership Units in violation of subsection (b)(i),
(1) then that number of Partnership Units that otherwise would cause such
Person to violate subsection (b)(i) (rounded up to the nearest whole
Partnership Unit) shall be
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automatically transferred (provided such Transfer is not in violation of the
restrictions on transfer set forth in the Partnership Agreement, except to the
extent the General Partner waives such restrictions) to a Trust for the benefit
of a Charitable Beneficiary, as described in subsection (c), effective as of the
close of business on the business day prior to the date of such Transfer or
other event, and such Purported Beneficial Transferee shall thereafter have no
rights in such Partnership Units or (2) if, for any reason, the transfer to the
Trust described in clause (1) of this sentence is not automatically effective as
provided therein to prevent any Person from Constructively Owning Partnership
Units in violation of subsection (b)(i), then the Transfer of that number of
Partnership Units that otherwise would cause any Person to violate subsection
(b)(i) shall be void ab initio, and the Purported Beneficial Transferee shall
have no rights in such Partnership Units.
(c) Transfers of Partnership Units in Trust.
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(i) Upon any purported Transfer or other event described in subsection
(b)(ii), such Partnership Units shall be deemed to have been transferred to the
Trustee in his capacity as trustee of a Trust for the exclusive benefit of one
or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed
to be effective as of the close of business on the business day prior to the
purported Transfer or other event that results in a transfer to the Trust
pursuant to subsection (b)(ii). The Trustee shall be appointed by the
Partnership and shall be a Person unaffiliated with the Partnership, any
Purported Beneficial Transferee, or any Purported Record Transferee. Each
Charitable Beneficiary shall be designated by the Partnership as provided in
subsection (c)(vi).
(ii) Partnership Units held by the Trustee shall be issued and
outstanding Partnership Units of the Partnership. The Purported Beneficial
Transferee or Purported Record Transferee shall have no rights in the
Partnership Units held by the Trustee. The Purported Beneficial Transferee or
Purported Record Transferee shall not benefit economically from ownership of any
Partnership Units held in trust by the Trustee, shall have no rights to
distributions or allocations with respect to Partnership Units held in the Trust
and shall not possess any rights to vote or other rights attributable to the
Partnership Units held in the Trust.
(iii) The Trustee shall have all voting rights and rights to distributions
and allocations with respect to Partnership Units held in the Trust, which
rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any distribution paid prior to the discovery by the Partnership
that Partnership Units have been transferred to the Trustee shall be paid to the
Trustee upon demand, and any distribution with respect to such Partnership Units
shall be paid when due to the Trustee. Any distributions so paid over to the
Trustee shall be held in trust for the Charitable Beneficiary.
The Purported Record Transferee and Purported Beneficial Transferee shall
have no voting rights with respect to the Partnership Units held in the Trust
and, subject to Maryland law, effective as of the date the Partnership Units has
been transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Purported
Record Transferee with respect to such Partnership Units prior to the discovery
by the Partnership that the Partnership Units has been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary;
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provided, however, that if the Partnership has already taken irreversible
action, then the Trustee shall not have the authority to rescind and recast such
vote. Notwithstanding any other provision of this Exhibit I to the contrary,
until the Partnership has received notification that the Partnership Units have
been transferred into a Trust, the Partnership shall be entitled to rely on its
Partnership Unit transfer and other unitholder records for purposes of preparing
Exhibit A to the Partnership Agreement, lists of unitholders entitled to vote at
meetings, and otherwise conducting votes of Partners.
(iv) Within 20 days of receiving notice from the Partnership that
Partnership Units have been transferred to the Trust, the Trustee of the Trust
shall, in accordance with the terms of (and subject to the limitations contained
in) the Partnership Agreement, sell the Partnership Units held in the Trust to a
Person, designated by the Trustee, whose ownership of the Partnership Units will
not violate the ownership limitations set forth in subsection (b)(i). Upon such
sale, the interest of the Charitable Beneficiary in the Partnership Units sold
shall terminate and the Trustee shall distribute the net proceeds of the sale to
the Purported Record Transferee and to the Charitable Beneficiary as provided in
this subsection (c)(iv). The Purported Record Transferee shall receive the
lesser of (1) the price paid by the Purported Record Transferee for the
Partnership Units in the transaction that resulted in such transfer to the Trust
(or, if the event which resulted in the transfer to the Trust did not involve a
purchase of such Partnership Units at Market Price, the Market Price of such
Partnership Units on the day of the event which resulted in the transfer of such
Partnership Units to the Trust) and (2) the price per Partnership Unit received
by the Trustee (net of any commissions and other expenses of sale) from the sale
or other disposition of the Partnership Units held in the Trust. Any net sales
proceeds in excess of the amount payable to the Purported Record Transferee
shall be immediately paid to the Charitable Beneficiary together with any
distributions thereon. If, prior to the discovery by the Partnership that
Partnership Units have been transferred to the Trustee, such Partnership Units
are sold by a Purported Record Transferee then (i) such Partnership Units shall
be deemed to have been sold on behalf of the Trust and (ii) to the extent that
the Purported Record Transferee received an amount for such Partnership Units
that exceeds the amount that such Purported Record Transferee was entitled to
receive pursuant to this subsection (c)(iv), such excess shall be paid to the
Trustee upon demand. The expenses described in item (2) above shall include any
expenses of administering the Trust, any transfer of Partnership Units thereto
or disposition of Partnership Units thereby, which shall be allocated equitably
among the Partnership Units which are transferred to the Trust.
(v) Partnership Units transferred to the Trustee shall be deemed to have
been offered for sale to the Partnership, or its designee, at a price per
Partnership Unit equal to the lesser of (i) the price paid by the Purported
Transferee for the Partnership Units in the transaction that resulted in such
transfer to the Trust (or, if the event which resulted in the transfer to the
Trust did not involve a purchase of such Partnership Units at Market Price, the
Market Price of such Partnership Units on the day of the event which resulted in
the transfer of such Partnership Units to the Trust) and (ii) the Market Price
on the date the Partnership, or its designee, accepts such offer. The
Partnership shall have the right to accept such offer until the Trustee has sold
the Partnership Units held in the Trust pursuant to subsection (c)(iv). Upon
such a sale to the Partnership, the interest of the Charitable Beneficiary in
the Partnership Units sold shall terminate and the Trustee shall distribute the
net proceeds of the sale to the Purported Record Transferee and any
distributions
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held by the Trustee with respect to such Partnership Units shall thereupon be
paid to the Charitable Beneficiary.
(vi) By written notice to the Trustee, the Partnership shall designate
one or more nonprofit organizations to be the Charitable Beneficiary of the
interest in the Trust such that (i) the Partnership Units held in the Trust
would not violate the restrictions set forth in subsection (b)(i) in the hands
of such Charitable Beneficiary and (ii) each Charitable Beneficiary is an
organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the
Code.
(d) Remedies For Breach. If the General Partner shall at any time
-------------------
determine in good faith that a Transfer or other event has taken place in
violation of subsection (b) or that a Person intends to acquire, has attempted
to acquire or may acquire beneficial ownership (determined without reference to
any rules of attribution) or Constructive Ownership of any Partnership Units of
the Partnership in violation of subsection (b), the General Partner shall take
such action as it deems advisable to refuse to give effect or to prevent such
Transfer, including, but not limited to, causing the Partnership to redeem
Partnership Units, refusing to give effect to such Transfer on the books of the
Partnership or instituting proceedings to enjoin such Transfer; provided,
--------
however, that any Transfers (or, in the case of events other than a Transfer,
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ownership or Constructive Ownership) in violation of subsection (b)(i), shall
automatically result in the transfer to a Trust as described in subsection
(b)(ii).
(e) Notice of Restricted Transfer. Any Person who acquires or attempts to
-----------------------------
acquire or own Partnership Units in violation of subsection (b), or any Person
who is a Purported Beneficial Transferee such that an automatic transfer to a
Trust results under subsection (b)(ii), shall immediately give written notice to
the Partnership of such event and shall provide to the Partnership such other
information as the Partnership may request in order to determine the effect, if
any, of such Transfer or attempted Transfer on such Person's compliance with
subsection (b)(i).
(f) Owners Required To Provide Information. Prior to the Restriction
--------------------------------------
Termination Date each Person who is a beneficial owner or Constructive Owner of
Partnership Units and each Person who is holding Partnership Units for a
beneficial owner or Constructive Owner shall provide to the Partnership such
information that the Partnership may request, in good faith, in order to
determine the Partnership's status as a partnership (as opposed to a
corporation) or the General Partner's status as a REIT for federal income tax
purposes.
(g) Remedies Not Limited. Nothing contained in this Exhibit E shall
--------------------
limit the authority of the General Partner to take such other action as it deems
necessary or advisable to protect the Partnership and the interests of its
Partners by preservation of the Partnership's status as a partnership (as
opposed to a corporation) or the General Partner's status as a REIT for federal
income tax purposes.
(h) Ambiguity. In the case of an ambiguity in the application of any of the
---------
provisions of this Exhibit E, including any definition contained in subsection
(a), the General Partner shall have the power to determine the application of
the provisions of this Exhibit E with respect to any situation based on the
facts known to it. In the event that a provision of this Exhibit E requires an
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action by the General Partner and Exhibit E fails to provide specific guidance
with respect to such action, the General Partner shall have the power to
determine the action to be taken so long as such action is not contrary to the
provisions of Exhibit E. Absent a decision to the contrary by the General
Partner (which the General Partner may make in its sole and absolute
discretion), if a Person would have (but for the remedies set forth in
subsection (b)) acquired Constructive Ownership of Partnership Units in
violation of subsection (b)(i), such remedies (as applicable) shall apply first
to the Partnership Units which, but for such remedies, would have been actually
owned by such Person, and second to Partnership Units which, but for such
remedies, would have been Constructively Owned (but not actually owned) by such
Person, pro rata among the Persons who actually own such Partnership Units based
upon the relative number of the Partnership Units held by each such Person.
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EXHIBIT F
SCHEDULE OF CERTAIN AGREEMENTS CONTAINING
LIMITATIONS ON GENERAL PARTNERS GENERAL AUTHORITY
1. Purchase and Sale Agreement, Contribution Agreement and Joint Escrow
Instructions by and between Shidler West Acquisition Company, LLC, and Kilroy
Realty, L.P. dated May 12, 1997.
2. Contribution Agreement, dated as of October 21, 1997, by and among Kilroy
Realty, L.P., Kilroy Realty Corporation and the other parties named therein.
3. Contribution Agreement, dated as of February 6, 1998, by and among Belair
Capital Fund LLC, Kilroy Realty, L.P. and Kilroy Realty Corporation.
4. Contribution Agreement and Joint Escrow Instuctions, dated as of April 15,
1998, by and between Kilroy Realty, L.P. and Kilroy Calabasas Associates
5. Contribution Agreement, dated as of April 20, 1998, by and among Belair
Capital Fund LLC, Kilroy Realty, L.P. and Kilroy Realty Corporation.
F-1
