<PAGE>
================================================================================
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: November 24, 1998
(Date of earliest event reported)
KILROY REALTY CORPORATION
(exact name of registrant as specified in its charter)
MARYLAND COMMISSION FILE: 95-4598246
(State or other jurisdiction 1-12675 (I.R.S. Employer
of incorporation or Identification No.)
organization)
2250 EAST IMPERIAL HIGHWAY
SUITE 1200
EL SEGUNDO, CALIFORNIA 90245
(Address of Principal executive offices, including zip code)
(310) 563-5500
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
ITEM 5. OTHER EVENTS
ISSUANCE OF PREFERRED LIMITED PARTNERSHIP UNITS
On November 24, 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 700,000 units of 9.375% Series C
Cumulative Redeemable Preferred Units (the "Series C Preferred Units"),
representing limited partnership interests in the Operating Partnership, to two
institutional investors for an aggregate contribution to the Operating
Partnership of $35.0 million. The Operating Partnership plans to use the net
proceeds of approximately $34.1 to reduce the balance of its revolving credit
facility.
Series C Preferred Units
General. Each Series C Preferred Unit will be entitled to receive
cumulative preferential distributions from the date of issue, payable on or
before the 15th of February, May, August and November of each year, in cash,
commencing February 15, 1999, at a rate of 9.375% per annum in preference to any
payment made on any other class or series of partnership interest of the
Operating Partnership, other than any class or series of partnership interest
expressly designated as ranking on parity with or senior to the Series C
Preferred Units.
Ranking. The Series C Preferred Units will rank on parity with the
Operating Partnership's 8.075% Series A Cumulative Redeemable Preferred Units
with respect to distributions and rights upon liquidation, dissolution, or
winding-up, and senior to all other classes or series of preferred partnership
units not designated as being on parity with the Series C Preferred Units.
Limited Consent Rights. Holders of the Series C Preferred Units do not
have the right to vote on partnership matters. However, without the consent of
the holders of two-thirds of the Series C Preferred Units, the Operating
Partnership will not be permitted to (i) issue units of partnership interest
senior to the Series C Preferred Units, (ii) issue units of partnership interest
on parity with the Series C Preferred Units to an affiliate of the Operating
Partnership, and (iii) consolidate with, merge into, or transfer substantially
all of its assets to, any corporation or other entity, or amend or alter the
terms of the Operating Partnership's partnership agreement whether by merger,
consolidation or otherwise, in each case if the rights and privileges of the
holders of the Series C Preferred Units would be materially and adversely
affected.
Redemption and Exchange. Beginning November 24, 2003, the Series C
Preferred Units may be redeemed by the Operating Partnership out of proceeds
from issuances of the Company's capital stock at a redemption price equal to
$50.00 per unit plus accrued and unpaid distributions to the date of redemption.
Beginning November 24, 2008, the Series C Preferred Units may be exchanged, in
whole but not in part, into shares of the Company's 9.375% Series C Cumulative
Redeemable Preferred Stock (the "Series C Preferred Stock"), at the option of
51% of the holders, subject to certain limitations in order for the Company to
maintain its status as a real estate investment trust ("REIT") for federal
income tax purposes. In addition, the Series C Preferred Units may be exchanged
into shares of Series C Preferred Stock at any time if (i) distributions on the
Series C Preferred Units have not been made for six (6) prior quarterly
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distribution periods, whether or not consecutive, (ii) the Operating Partnership
is or is likely to become a "publicly traded partnership" for federal income tax
purposes, (iii) the Series C Preferred Units would not be considered "stock and
securities" for federal income tax purposes or (iv) the Operating Partnership
believes that the character of its assets and income would not allow it to
qualify as a REIT if the Operating Partnership were a corporation. The Series C
Preferred Units are not convertible into any other securities of the Operating
Partnership.
Series C Preferred Stock
General. Each share of Series C Preferred Stock into which the Series C
Preferred Units may be exchanged will be entitled to receive cumulative
preferential dividends from the date of issue (including any accrued but unpaid
distributions in respect of Series C Preferred Units (as defined herein) at the
time that such units are exchanged for shares of Series C Preferred Stock),
payable on or before the 15th of February, May, August, and November of each
year, in cash, at the rate of 9.375% per annum in preference to any payment made
on any other classes or series of capital stock or other equity securities of
the Company, other than any class or series of equity securities of the Company
expressly designated as ranking on a parity with or senior to the Series C
Preferred Stock.
Redemption. The Series C Preferred Stock may be redeemed, at the Company's
option, on and after November 24, 2003, in whole or in part from time to time,
at a redemption price payable in cash equal to $50.00 per share, plus any
accrued but unpaid dividends to the date of redemption. The redemption price of
the Series C Preferred Stock (other than the portions thereof consisting of
accumulated but unpaid dividends) will be payable solely out of proceeds from
issuances of the Company's capital stock of the Company.
Limited Voting Rights. If at any time full distributions shall not have
been timely made on any Series C Preferred Stock with respect to any six (6)
prior quarterly distribution periods, whether or not consecutive, the holders of
such Series C Preferred Stock, voting together as a single class with the
holders of each class or series of parity preferred stock (including the 8.075%
Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred
Stock")), will have the right to elect two additional directors to the Board of
Directors at a special meeting called by the holders of record of at least 10%
of the then outstanding shares of Series C Preferred Stock and any parity
preferred stock (including the Series A Preferred Stock), or at the next annual
meeting of stockholders, and at each subsequent annual meeting of stockholders
or special meeting held in place thereof, until all such distributions in
arrears and distributions for the current quarter have been paid in full.
Thereafter, the holders of Series C Preferred Stock will be divested of their
voting rights and the term of any member of the Board of Directors elected by
the holders of Series C Preferred Stock and holders of any other shares of
parity preferred stock (including the Series A Preferred Stock) shall terminate.
In addition, for so long as any shares of Series C Preferred Stock are
outstanding, without the consent of two-thirds of the holders of the Series C
Preferred Stock then outstanding, the Company may not (i) designate, authorize
or create, or increase the authorized or issued amount of, reclassify any
authorized class of shares or issue obligations or securities convertible into,
shares of any class of equity securities ranking prior to the Series C Preferred
Stock with respect to distributions and rights upon liquidation, dissolution, or
winding up, (ii) designate, authorize or create, or increase the authorized or
issued amount of, reclassify any authorized class of shares or issue obligations
or securities convertible into, shares of any class of equity securities ranking
equal to the Series C Preferred Stock with respect to distributions and rights
upon liquidation, dissolution, or winding up, but only to the extent that such
securities are issued to an affiliate of the Company, or (iii)
3
<PAGE>
either (A) consolidate with, merge into, or transfer or lease substantially all
of the assets to, any corporation or other entity, or (B) amend or repeal the
provisions of the Articles of Incorporation that adversely affect the powers,
special rights, preferences, privileges or voting power of the Series C
Preferred Stock; provided, however, that with respect to clause (iii) above, so
long as the Company is the surviving entity and the Series C Preferred Stock
remains outstanding on the same terms, or the resulting, surviving or transferee
entity is a corporation organized under the laws of any state and substitutes
for the Series C Preferred Stock other preferred stock having substantially the
same terms and rights as the Series C Preferred Stock. The Series C Preferred
Stock will have no voting rights other than as discussed above and as otherwise
provided by applicable law.
Liquidation Preference. Each share of Series C Preferred Stock is entitled
to a liquidation preference of $50.00 per share, plus any accrued but unpaid
dividends, in preference to any other class or series of capital stock of the
Company, other than any class or series of equity securities of the Company
expressly designated as ranking on a parity with or senior to the Series C
Preferred Stock.
* * * * *
4
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ITEM 7. FINANCIAL STATEMENT AND EXHIBITS.
(c) EXHIBITS
Exhibit
No. Description
- ------- ------------
3.1 Articles Supplementary of the Registrant, filed November 24, 1998
3.2 Registration Rights Agreement dated November 24, 1998
10.1 Fourth Amended and Restated Agreement of Limited Partnership of
Kilroy Realty, L.P. dated November 24, 1998
5
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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: December 9, 1998 By /s/ Ann Marie Whitney
-----------------------------------------
Name: Ann Marie Whitney
Title: Vice President and Controller
6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description Numbered Page
- ------- ----------- -------------
<S> <C> <C>
3.1 Articles Supplementary of the Registrant, filed November 24, 1998
3.2 Registration Rights Agreement dated November 24, 1998
10.1 Fourth Amended and Restated Agreement of Limited Partnership
of Kilroy Realty, L.P. dated November 24, 1998
</TABLE>
<PAGE>
EXHIBIT 3.1
KILROY REALTY CORPORATION
ARTICLES SUPPLEMENTARY
700,000 SHARES
9 3/8% SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK
Kilroy Realty Corporation, a Maryland corporation (the "Company"),
-------
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to the authority expressly vested in the Board of
-----
Directors of the Company by Article IV of the Articles of Amendment and
Restatement of the Company filed with the Department on January 21, 1997, which
comprises, together with the Articles Supplementary (the "Series A Articles
-----------------
Supplementary") filed by the Corporation on February 6, 1998 and April 20, 1998
- -------------
establishing a class of preferred stock of the Corporation, par value $0.01 per
share (the "Preferred Stock"), designated as the "8.073% Series A Cumulative
---------------
Redeemable Preferred Stock" (the "Series A Preferred Stock"), the Articles
------------------------
Supplementary (the "Series B Articles Supplementary") filed by the Corporation
-------------------------------
on October 15, 1998, establishing a class of Preferred Stock designated as the
Series B Junior Participating Preferred Stock (the "Series B Preferred Stock")
------------------------
and these Articles Supplementary, the charter (the "Charter") and Section 2-105
-------
of the Maryland General Corporation Law (the "MGCL"), the Board of Directors of
----
the Company (the "Board of Directors"), by resolution duly adopted on November
------------------
19, 1998 has classified 700,000 shares of the authorized but unissued Preferred
Stock as a separate class of Preferred Stock, authorized the issuance of a
maximum of 700,000 shares of such class of Preferred Stock, set certain of 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 such class of Preferred Stock, and pursuant to
the powers contained in the Bylaws of the Company and the MGCL, appointed a
committee (the "Committee") of the Board of Directors and delegated to the
---------
Committee, to the fullest extent permitted by the MGCL and the Charter and
Bylaws of the Company, all powers of the Board of Directors with respect to
designating, and setting all other preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of, such
class of Preferred Stock determining the number of shares of such class of
Preferred Stock (not in excess of the aforesaid maximum number) to be issued and
the consideration and other terms and conditions upon which such shares of such
class of Preferred Stock are to be issued.
SECOND: Pursuant to the authority conferred upon the Committee as
------
aforesaid, the Committee has unanimously adopted resolutions designating the
aforesaid class of Preferred Stock as the "9 3/8% Series C Cumulative Redeemable
Preferred Stock," setting 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 such 9 3/8% Series C
Cumulative Redeemable Preferred Stock (to the extent not set by the Board of
Directors in the
[SEAL]
STATE OF MARYLAND
-----------------
I hereby certify that this is a true and complete copy of the 23
-------------
page document on file in this office DATED: 11/25/98
---------------------
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
BY: Darla D. Simms , Custodian
-----------------------------------------------------------
This stamp replaces our previous certification system. Effective: 6/95
<PAGE>
resolutions referred to in Article FIRST of these Articles Supplementary) and
-----
authorizing the issuance of up to 700,000 shares of 9 3/8% Series C Cumulative
Redeemable Preferred Stock.
THIRD: The class of Preferred Stock of the Company created by the
-----
resolutions duly adopted by the Board of Directors of the Company and by the
Committee and referred to in Articles FIRST and SECOND of these Articles
----- ------
Supplementary shall have the following designation, number of shares,
preferences, conversion and other rights, voting powers, restrictions and
limitations as to dividends, qualifications, terms and conditions of redemption
and other terms and conditions:
Section 1. Designation and Number. A series of Preferred Stock,
----------------------
designated the "9 3/8% Series C Cumulative Redeemable Preferred Stock" (the
"Series C Preferred Stock") is hereby established. The number of shares of
Series C Preferred Stock shall be 700,000.
Section 2. Rank. The Series C Preferred Stock will, with respect
----
to distributions and rights upon voluntary or involuntary liquidation, winding-
up or dissolution of the Company, rank senior to all classes or series of Common
Stock (as defined in the Charter), the Series B Preferred Stock, and to all
classes or series of equity securities of the Company now or hereafter
authorized, issued or outstanding, other than the Series A Preferred Stock and
any class or series of equity securities of the Company expressly designated as
ranking on a parity with or senior to the Series C Preferred Stock as to
distributions or rights upon voluntary or involuntary liquidation, winding-up or
dissolution of the Company, or both. For purposes of these Articles
Supplementary, the term "Parity Preferred Stock" shall be used to refer to the
----------------------
Series A Preferred Stock and any class or series of equity securities of the
Company now or hereafter authorized, issued or outstanding expressly designated
by the Company to rank on a parity with Series C Preferred Stock with respect to
distributions or rights upon voluntary or involuntary liquidation, winding-up or
dissolution of the Company, or both, as the context may require. The term
"equity securities" does not include debt securities, which will rank senior to
the Series C Preferred Stock prior to conversion.
Section 3. Distributions.
-------------
(a) Payment of Distributions. Subject to the rights of holders of
------------------------
Parity Preferred Stock as to the payment of distributions and holders of equity
securities ranking senior to the Series C Preferred Stock as to payment of
distributions, holders of Series C Preferred Stock will be entitled to receive,
when, as and if declared by the Company, out of funds legally available for the
payment of distributions, cumulative preferential cash distributions at the rate
per annum of 9 3/8% of the $50.00 liquidation preference per share of Series C
Preferred Stock. Such distributions shall be cumulative, shall accrue from the
original date of issuance and will be payable quarterly (such quarterly periods
for purposes of payment and accrual will be the quarterly periods ending on the
dates specified in this sentence and not calendar year quarters) in arrears, on
the 15th of February, May, August and November of each year and, in the event of
a redemption, on the redemption date (each a "Preferred Stock Distribution
----------------------------
Payment Date"), commencing in each case on the first Preferred Stock
- ------------
Distribution Payment Date after the 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
2
<PAGE>
months and for any period shorter than a full quarterly period for which
distributions are computed, the amount of the distributions 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 C
Preferred Stock 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 C Preferred Stock will be made to the holders of
record of the Series C Preferred Stock on the relevant record dates, which,
unless otherwise provided by the Company with respect to any distribution, will
be 15 Business Days prior to the relevant Preferred Stock Distribution Payment
Date (each a "Distribution Record Date"). Notwithstanding any provision to the
------------------------
contrary contained herein, each outstanding share of Series C Preferred Stock
shall be entitled to receive, and shall receive, a dividend with respect to any
Distribution Record Date equal to the dividend paid with respect to each other
share of Series C Preferred Stock which is outstanding on such date. In
addition, notwithstanding anything to the contrary set forth herein, each share
of Series C Preferred Stock shall also continue to accrue all accrued and unpaid
distributions up to the exchange date on any Series C Preference Unit (as
defined in the Fourth Amended and Restated Limited Partnership Agreement of
Kilroy Realty, L.P. dated as of November 24, 1998 (the "Partnership Agreement"))
---------------------
validly exchanged into such share of Series C Preferred Stock in accordance with
the provisions of the Partnership Agreement .
The term "Business Day" shall mean each day, other than a Saturday or
------------
a Sunday, which is not a day on which banking institutions in New York, New York
or Los Angeles, California are authorized or required by law, regulation or
executive order to close.
(b) Limitation on Distributions. No distributions on the Series C
---------------------------
Preferred Stock shall be declared or paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the
Company, including any agreement relating to its indebtedness, prohibits such
declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration, payment or setting
apart for payment shall be restricted or prohibited by law.
(c) Distributions Cumulative. Notwithstanding the foregoing,
------------------------
distributions on the Series C Preferred Stock will accrue whether or not the
terms and provisions set forth in Section 3(b) hereof at any time prohibit the
current payment of distributions, whether or not the Company has earnings,
whether or not there are funds legally available for the payment of such
distributions and whether or not such distributions are authorized. Accrued but
unpaid distributions on the Series C Preferred Stock will accumulate as of the
Preferred Stock Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
(d) Priority as to Distributions.
----------------------------
3
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(i) So long as any Series C Preferred Stock is 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 Common Stock
or any class or series of other stock of the Company ranking junior as to the
payment of distributions to the Series A Preferred Stock and the Series C
Preferred Stock (such Common Stock or other junior stock, including, without
limitation, the Series B Preferred Stock, collectively, "Junior Stock"), nor
------------
shall any cash or other property be set aside for or applied to the purchase,
redemption or other acquisition for consideration of any Series C Preferred
Stock, any Parity Preferred Stock with respect to distributions or any Junior
Stock, unless, in each case, all distributions accumulated on all Series C
Preferred Stock and all classes and series of outstanding Parity Preferred Stock
as to payment of distributions have been paid in full. The foregoing sentence
will not prohibit (i) distributions payable solely in Junior Stock, (ii) the
conversion of Junior Stock or Parity Preferred Stock into stock of the company
ranking junior to the Series C Preferred Stock as to distributions, and (iii)
purchase by the Company of such Series C Preferred Stock, Parity Preferred Stock
with respect to distributions or Junior Stock pursuant to Section 7 of this
Article Third and comparable Charter provisions with respect to other classes of
capital stock of the Company to the extent required to preserve the Company's
status as a real estate investment trust.
(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 C
Preferred Stock, all distributions authorized and declared on the Series C
Preferred Stock and all classes or series of outstanding Parity Preferred Stock
(including Series A Preferred Stock) with respect to distributions shall be
authorized and declared so that the amount of distributions authorized and
declared per share of Series C Preferred Stock and such other classes or series
of Parity Preferred Stock (including Series A Preferred Stock) shall in all
cases bear to each other the same ratio that accrued distributions per share on
the Series C Preferred Stock and such other classes or series of Parity
Preferred Stock (including Series A Preferred Stock) (which shall not include
any accumulation in respect of unpaid distributions for prior distribution
periods if such class or series of Parity Preferred Stock do not have cumulative
distribution rights) bear to each other.
(e) No Further Rights. Holders of Series C Preferred Stock shall not
-----------------
be entitled to any distributions, whether payable in cash, other property or
otherwise, in excess of the full cumulative distributions described herein.
(f) Capital Gain Dividend. If, for any taxable year, the Company
---------------------
elects to designate as a "capital gain dividend" (as defined in Section 857 of
the Internal Revenue Code of 1986, as amended), any portion (the "Capital Gains
Amount") of the dividends paid or made available for the year to holders of any
class or series of stock of the Company, the portion of the Capital Gains Amount
that shall be allocable to holders of the Series C Preferred Stock shall be the
amount that the total dividends (as determined for federal income tax purposes)
paid or made available to the holders of the Series C Preferred Stock for the
year bears to the aggregate amount of dividends (as determined for federal
income tax purposes) paid or made available to the holders of all classes or
series of stock of the Company for such year.
4
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Section 4. Liquidation Preference.
----------------------
(a) Payment of Liquidating Distributions. Subject to the rights of
------------------------------------
holders of Parity Preferred Stock with respect to rights upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and subject to
equity securities ranking senior to the Series C Preferred Stock with respect to
rights upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company, the holders of Series C Preferred Stock shall be entitled to
receive out of the assets of the Company legally available for distribution or
the proceeds thereof, after payment or provision for debts and other liabilities
of the Company, but before any payment or distributions of the assets shall be
made to holders of Common Stock or any other class or series of shares of the
Company that ranks junior to the Series C Preferred stock as to rights upon
liquidation, dissolution or winding-up of the Company, an amount equal to the
sum of (i) a liquidation preference of $50 per share of Series C Preferred
Stock, and (ii) an amount equal to any accumulated and unpaid distributions
thereon to the date of payment. In the event that, upon such voluntary or
involuntary liquidation, dissolution or winding-up, there are insufficient
assets to permit full payment of liquidating distributions to the holders of
Series C Preferred Stock and any Parity Preferred Stock as to rights upon
liquidation, dissolution or winding-up of the Company, all payments of
liquidating distributions on the Series C Preferred Stock and such Parity
Preferred Stock shall be made so that the payments on the Series C Preferred
Stock and such Parity Preferred Stock shall in all cases bear to each other the
same ratio that the respective rights of the Series C Preferred Stock and such
other Parity Preferred Stock (which shall not include any accumulation in
respect of unpaid distributions for prior distribution periods if such Parity
Preferred Stock do not have cumulative distribution rights) upon liquidation,
dissolution or winding-up of the Company bear to each other.
(b) Notice. Written notice of any such voluntary or involuntary
------
liquidation, dissolution or winding-up of the Company, 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 C
Preferred Stock at the respective addresses of such holders as the same shall
appear on the share transfer records of the Company.
(c) No Further Rights. After payment of the full amount of the
-----------------
liquidating distributions to which they are entitled, the holders of Series C
Preferred Stock will have no right or claim to any of the remaining assets of
the Company.
(d) Consolidation, Merger or Certain Other Transactions. The
---------------------------------------------------
consolidation or merger or other business combination of the Company with or
into any corporation, trust or other entity (or of any corporation, trust or
other entity with or into the Company) shall not be deemed to constitute a
liquidation, dissolution or winding-up of the Company.
(e) Permissible Distributions. In determining whether a distribution
-------------------------
(other than upon voluntary or involuntary liquidation) by dividend, redemption
or other acquisition of shares
5
<PAGE>
of stock of the Company or otherwise is permitted under the MGCL, no effect
shall be given to amounts that would be needed, if the Company were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of shares of stock of the Company whose preferential
rights upon dissolution are superior to those receiving the distribution.
Section 5. Optional Redemption.
-------------------
(a) Right of Optional Redemption. The Series C Preferred Stock may
----------------------------
not, subject to Section 7 hereof, be redeemed prior to November 24, 2003. On or
after such date, the Company shall have the right to redeem the Series C
Preferred Stock, 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 $50 per share of Series C Preferred Stock plus
accumulated and unpaid distributions to the date of redemption. If fewer than
all of the outstanding shares of Series C Preferred Stock are to be redeemed,
the shares of Series C Preferred Stock 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 C Preferred Stock
(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 Company and from no other source. For purposes of the preceding sentence,
"capital stock" means any equity securities (including Common Stock and
Preferred Stock), 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) Subject to Section 7 hereof, the Company may not redeem
fewer than all of the outstanding shares of Series C Preferred Stock unless all
accumulated and unpaid distributions have been paid on all Series C Preferred
Stock 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 Company, 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
C Preferred Stock to be redeemed at their respective addresses as they appear on
the transfer records of the Company. No failure to give or defect in such notice
shall affect the validity of the proceedings for the redemption of any Series C
Preferred Stock except as to the holder to whom such notice was defective or not
given. In addition to any information required by law or by the applicable rules
of any exchange upon which the Series C Preferred Stock may be listed or
admitted to trading, each such notice shall state: (i) the redemption date, (ii)
the redemption price, (iii) the number of shares of Series C Preferred Stock to
be redeemed, (iv) the place or places where such shares of Series C Preferred
Stock are to be surrendered for payment of the redemption price, (v) that
distributions on the Series C Preferred
6
<PAGE>
Stock to be redeemed will cease to accumulate on such redemption date and (vi)
that payment of the redemption price and any accumulated and unpaid
distributions will be made upon presentation and surrender of such Series C
Preferred Stock. If fewer than all of the shares of Series C Preferred stock
held by any holder are to be redeemed, the notice mailed to such holder shall
also specify the number of shares of Series C Preferred Stock held by such
holder to be redeemed.
(ii) If the Company gives a notice of redemption in respect of
Series C Preferred Stock (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Company will deposit irrevocably
in trust for the benefit of the Series C Preferred Stock being redeemed funds
sufficient to pay the applicable redemption price, plus any accumulated and
unpaid distributions, if any, on such shares to the date fixed for redemption,
without interest, and will give irrevocable instructions and authority to pay
such redemption price and any accumulated and unpaid distributions, if any, on
such shares to the holders of the Series C Preferred Stock upon surrender of the
Series C Preferred Stock 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 C Preferred Stock or portions thereof called for
redemption, unless the Company defaults in the payment thereof. If any date
fixed for redemption of Series C Preferred Stock 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 or any
accumulated or unpaid distributions in respect of the Series C Preferred Stock
is improperly withheld or refused and not paid by the Company, distributions on
such Series C Preferred Stock 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 and any accumulated and unpaid distributions.
(d) Status of Redeemed Stock. Any Series C Preferred Stock that shall
------------------------
at any time have been redeemed shall after such redemption, have the status of
authorized but unissued Preferred Stock, without designation as to class or
series until such shares are once more designated as part of a particular class
or series by the Board of Directors.
Section 6. Voting Rights.
-------------
(a) General. Holders of the Series C Preferred Stock will not have
-------
any voting rights, except as set forth below.
(b) Right of Elect Directors. (i) If at any time full distributions
------------------------
shall not have been timely made on any Series C Preferred Stock with respect to
any six (6) prior quarterly distribution periods, whether or not consecutive, (a
"Preferred Distribution Default"), the holders such Series C Preferred Stock,
------------------------------
voting together as a single class with the holders of each class or series of
Parity Preferred Stock upon which like voting rights have been conferred and are
exercisable, including the Series A Preferred Stock, will have the right to
elect two additional
7
<PAGE>
directors to serve on the Company's Board of Directors (the "Preferred Stock
---------------
Directors") at a special meeting called in accordance with Section 6(b)(ii)
- ---------
below or at the next annual meeting of stockholders, and at each subsequent
annual meeting of stockholders or special meeting held in place thereof, until
all such distributions in arrears and distributions for the current quarterly
period on the Series C Preferred Stock and each such class or series of Parity
Preferred Stock, including the Series A Preferred Stock, have been paid in full.
A distribution in respect of Series C Preferred Stock shall be considered timely
made if made within two (2) Business Days after the applicable Preferred Stock
Distribution Payment Date if at time of such late payment there shall not be any
prior quarterly distribution periods in respect of which full distributions were
not timely made at the applicable Preferred Stock Distribution Date.
(ii) At any time when such voting rights shall have vested, a
proper officer of the Company shall call or cause to be called, upon written
request of holders of record of at least 10% of the outstanding Shares of Series
C Preferred Stock, a special meeting of the holders of Series C Preferred Stock
and all the series of Parity Preferred Stock upon which like voting rights have
been conferred and are exercisable (collectively, the "Parity Securities") by
mailing or causing to be mailed to such holders a notice of such special meeting
to be held not less than ten and not more than 45 days after the date such
notice is given. The record date for determining holders of the Parity
Securities entitled to notice of and to vote at such special meeting will be the
close of business on the third Business Day preceding the day on which such
notice is mailed. At any such special meeting, all of the holders of the Parity
Securities, by plurality vote, voting together as a single class without regard
to series will be entitled to elect two directors on the basis of one vote per
$50.00 of liquidation preference to which such Parity Securities are entitled by
their terms (excluding amounts in respect of accumulated and unpaid dividends)
and not cumulatively. The holder or holders of one-third of the Parity
Securities then outstanding, present in person or by proxy, will consitute a
quorum for the election of the Preferred Stock Directors except as otherwise
provided by law. Notice of all meetings at which holders of the Series C
Preferred Shares shall be entitled to vote will be given to such holders at
their addresses as they appear in the transfer records. At any such meeting or
adjournment thereof in the absence of a quorum, subject to the provisions of any
applicable law, a majority of the holders of the Parity Securities present in
person or by proxy shall have the power to adjourn the meeting for the election
of the Preferred Stock Directors, without notice other than an announcement at
the meeting, until a quorum is present. If a Preferred Distribution Default
shall terminate after the notice of a special meeting has been given but before
such special meeting has been held, the Company shall, as soon as practicable
after such termination, mail or cause to be mailed notice of such termination to
holders of the Series C Preferred Shares that would have been entitled to vote
at such special meeting.
(iii) If and when all accumulated distributions and the
distribution for the current distribution period on the Series C Preferred Stock
shall have been paid in full or set aside for payment in full, the holders of
the Series C Preferred Stock shall be divested of the voting rights set forth in
Section 6(b) herein (subject to revesting in the event of each and every
Preferred Distribution Default) and, if all distributions in arrears and the
distributions for the current distribution period have been paid in full or set
aside for payment in full on all other classes or series of Parity Preferred
Stock upon which like voting rights have been conferred and are exercisable, the
8
<PAGE>
term and office of each Preferred Stock Director so elected shall terminate.
Any Preferred Stock Director may be removed at any time with or without cause by
the vote of, and shall not be removed otherwise than by the vote of, the holders
of record of a majority of the outstanding Series C Preferred Stock when they
have the voting rights set forth in Section 6(b) (voting separately as a single
class with all other classes or series of Parity Preferred Stock, including the
Series A Preferred Stock, upon which like voting rights have been conferred and
are exercisable). So long as a Preferred Distribution Default shall continue,
any vacancy in the office of a Preferred Stock Director may be filled by written
consent of the Preferred Stock Director remaining in office, or if none remains
in office, by a vote of the holders of record of a majority of the outstanding
Series C Preferred Stock when they have the voting rights set forth in Section
6(b) (voting separately as a single class with all other classes or series of
Parity Preferred Stock, including the Series A Preferred Stock, upon which like
voting rights have been conferred and are exercisable). The Preferred Stock
Director shall each be entitled to one vote per director on any manner.
(c) Certain Voting Rights. So long as any Series C Preferred Stock
---------------------
remains outstanding, the Company shall not, without the affirmative vote of the
holders of at least two-thirds of the Series C Preferred Stock outstanding at
the time (i) designate or create, or increase the authorized or issued amount
of, any class or series of shares ranking prior to the Series C Preferred Stock
with respect to payment of distributions or rights upon liquidation, dissolution
or winding-up or reclassify any authorized shares of the Company into any such
shares, or create, authorize or issue any obligations or security convertible
into or evidencing the right to purchase any such shares, (ii) designate or
create, or increase the authorized or issued amount of, any Parity Preferred
Stock or reclassify any authorized shares of the Company into any such shares,
or create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such shares, but only to the extent such
Parity Preferred Stock is issued to an affiliate of the Company, or (iii) either
(A) consolidate, merge into or with, or convey, transfer or lease its assets
substantially as an entirety, to any corporation or other entity, or (B) amend,
alter or repeal the provisions of the Company's Charter (including these
Articles Supplementary) or Bylaws, whether by merger, consolidation or
otherwise, in each case that would materially and adversely affect the powers,
special rights, preferences, privileges or voting power of the Series C
Preferred Stock 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 Company
is the surviving entity and the Series C Preferred stock remains outstanding
with the terms thereof unchanged, or (b) the resulting, surviving or transferee
entity is a corporation, business trust or other like entity organized under the
laws of any state and substitutes for the Series C Preferred Stock other
preferred stock having substantially the same terms and same rights as the
Series C Preferred Stock, 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 C Preferred
Stock and provided further that any increase in the amount of authorized
Preferred Stock or the creation or issuance of any other class or series of
Preferred Stock, or any increase in an amount of authorized shares of each class
or series, in each case ranking either (a) junior to the Series C Preferred
Stock with respect to payment of distributions or the distribution of assets
upon liquidation, dissolution or winding-up, or (b) on a parity with the Series
C Preferred Stock with respect to payment of distributions or the distribution
of assets upon liquidation, dissolution or
9
<PAGE>
winding-up to the extent such Preferred Stock is not issued to an affiliate of
the Company, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
Section 7. Restrictions on Ownership and Transfer to Preserve Tax
------------------------------------------------------
Benefit.
- -------
(a) Definitions. For the purposes of Section 7 of these Articles
-----------
Supplementary, the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Series C Preferred
--------------------
Stock by a Person who is or would be treated as an owner of such
Series C Preferred Stock either actually or constructively through the
application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially
Owns" and "Beneficially Owned" shall have the correlative meanings.
"Beneficial Ownership Limit" shall mean 7.0% (by value) of the
--------------------------
outstanding shares of capital stock of the Company.
"Charitable Beneficiary" shall mean one or more beneficiaries of
----------------------
a Trust, as determined pursuant to Section 7(c)(vi) of these Articles
Supplementary, each of which shall be an organization described in
Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
All section references to the Code shall include any successor
provisions thereof as may be adopted from time to time.
"Constructive Ownership" shall mean ownership of Series C
----------------------
Preferred Stock by a Person who is or would be treated as an owner of
such Series C Preferred Stock 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.
"Constructive Ownership Limit" shall mean 9.8% (by value) of the
----------------------------
outstanding shares of capital stock the Company.
"IRS" means the United States Internal Revenue Service.
---
"Market Price" shall mean the last reported sales price reported
------------
on the New York Stock Exchange of the Series C Preferred Stock on the
trading day immediately preceding the relevant date, or if the Series
C Preferred Stock is not then traded on the New York Stock Exchange,
the last reported sales price of the Series C Preferred Stock on the
trading day immediately preceding the relevant date as reported on any
exchange or quotation system over which the Series C Preferred Stock
may be
10
<PAGE>
traded, or if the Series C Preferred Stock is not then traded
over any exchange or quotation system, the market price of the Series
C Preferred Stock on the relevant date as determined in good faith by
the Board of Directors of the Company.
"MGCL" shall mean the Maryland General Corporation Law, as
----
amended from time to time, and any successor statute hereafter
enacted.
"Operating Partnership" shall mean Kilroy Realty, L.P., a
---------------------
Delaware limited partnership.
"Partnership Agreement" shall mean the Agreement of Limited
---------------------
Partnership of the Operating Partnership, as such agreement may be
amended from time to time.
"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; but does not include an underwriter
acting in a capacity as such in a public offering of shares of Series
C Preferred Stock provided that the ownership of such shares of Series
C Preferred Stock by such underwriter would not result in the Company
being "closely held" within the meaning of Section 856(h) of the Code,
or otherwise result in the Company failing to qualify as a REIT.
"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 Section 7(b)(ii) of these Articles
Supplementary, the Purported Record Transferee, unless the Purported
Record Transferee would have acquired or owned shares of Series C
Preferred Stock for another Person who is the beneficial transferee or
owner of such shares, 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 Section 7(b)(ii) of these Articles
Supplementary, the record holder of the Series C Preferred Stock if
such Transfer had been valid under Section 7(b)(i) of these Articles
Supplementary.
"REIT" shall mean a real estate investment trust under Sections
----
856 through 860 of the Code and, for purposes of taxation of the
Company under applicable state law, comparable provisions of the law
of such state.
11
<PAGE>
"Restriction Termination Date" shall mean the first day after the
----------------------------
date hereof on which the Board of Directors of the Company determines
that it is no longer in the best interests of the Company to attempt
to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment,
--------
devise or other disposition of Series C Preferred Stock, (including
(i) the granting of any option or entering into any agreement for the
sale, transfer or other disposition of Series C Preferred Stock or
(ii) the sale, transfer, assignment or other disposition of any
securities (or rights convertible into or exchangeable for Series C
Preferred Stock)), whether voluntary or involuntary, whether such
transfer has occurred of record or beneficially or Beneficially or
Constructively (including but not limited to transfers of interests in
other entities which result in changes in Beneficial or Constructive
Ownership of Series C Preferred Stock), and whether such transfer has
occurred by operation of law or otherwise.
"Trust" shall mean each of the trusts provided for in Section
-----
7(c) of these Articles Supplementary.
"Trustee" shall mean any Person unaffiliated with the Company, or
-------
a Purported Beneficial Transferee, or a Purported Record Transferee,
that is appointed by the Company to serve as trustee of a Trust.
(b) Restriction on Ownership and Transfers.
--------------------------------------
(i) Prior to the Restriction Termination Date:
(A) except as provided in Section 7(i) of these Articles
Supplementary, no Person shall Beneficially Own Series C Preferred
Stock which, taking into account any other capital stock of the
Company Beneficially Owned by such Person, would cause such
ownership to exceed the Beneficial Ownership Limit;
(B) except as provided in Section 7(i) of these Articles
Supplementary, no Person shall Constructively Own Series C
Preferred Stock which, taking into account any other capital stock
of the Company Constructively Owned by such Person, would cause
such ownership to exceed the Constructive Ownership Limit;
(C) no Person shall Beneficially or Constructively Own
Series C Preferred Stock which, taking into account any other
capital stock of the Company Beneficially or Constructively Owned
by such Person, would result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, or otherwise
failing to qualify as a REIT (including but not limited to
Beneficial or Constructive Ownership that would result in the
12
<PAGE>
Company owning (actually or Constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Code if
the income derived by the Company (either directly or indirectly
through one or more partnerships) from such tenant would cause the
Company to fail to satisfy any of the gross income requirements of
Section 856(c) of the Code or comparable provisions of state law).
(ii) If, prior to the Restriction Termination Date, any
Transfer (whether or not such Transfer is the result of a transaction entered
into through the facilities of the New York Stock Exchange ("NYSE")) or other
----
event occurs that, if effective, would result in any Person Beneficially or
Constructively Owning Series C Preferred Stock in violation of Section 7(b)(i)
of these Articles Supplementary, (1) then that number of shares of Series C
Preferred Stock that otherwise would cause such Person to violate Section
7(b)(i) of these Articles Supplementary (rounded up to the nearest whole share)
shall be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 7(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 shares
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 Beneficially or Constructively Owning Series C Preferred Stock in
violation of Section 7(b)(i) of these Articles Supplementary, then the Transfer
of that number of shares of Series C Preferred Stock that otherwise would cause
any Person to violate Section 7(b)(i) shall be void ab initio, and the Purported
Beneficial Transferee shall have no rights in such shares.
(ii) Subject to Section 7(n) of this Article Third and
notwithstanding any other provisions contained herein, prior to the Restriction
Termination Date, any Transfer of Series C Preferred Stock (whether or not such
Transfer is the result of a transaction entered into through the facilities of
the NYSE) that, if effective, would result in the capital stock of the Company
being beneficially owned by less than 100 Persons (determined without reference
to any rules of attribution) shall be void ab initio, and the intended
transferee shall acquire no rights in such Series C Preferred Stock.
It is expressly intended that the restrictions on ownership and Transfer
described in this Section 7(b) shall apply to the exchange rights provided in
Section 17.7 of the Partnership Agreement. Notwithstanding any of the provisions
of the Partnership Agreement to the contrary, a partner of the Operating
Partnership shall not be entitled to effect an exchange of an interest in the
Operating Partnership for Series C Preferred Stock if the actual or beneficial
or Beneficial or Constructive Ownership of Series C Preferred Stock would be
prohibited under the provisions of this Section 7.
(c) Transfers of Series C Preferred Stock in Trust.
----------------------------------------------
(i) Upon any purported Transfer or other event described in
Section 7(b)(ii) of these Articles Supplementary, such Series C Preferred Stock
shall be deemed to have been transferred to the Trustee in his capacity as
trustee of a Trust for the exclusive
13
<PAGE>
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 Section 7(b)(ii). The Trustee shall be appointed by the
Company and shall be a Person unaffiliated with the Company, any Purported
Beneficial Transferee, or any Purported Record Transferee. Each Charitable
Beneficiary shall be designated by the Company as provided in Section 7(c)(vi)
of these Articles Supplementary.
(ii) Series C Preferred Stock held by the Trustee shall be
issued and outstanding Series C Preferred Stock of the Company. The Purported
Beneficial Transferee or Purported Record Transferee shall have no rights in the
shares of the Series C Preferred Stock held by the Trustee. The Purported
Beneficial Transferee or Purported Record Transferee shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends and shall not possess any rights to vote or other
rights attributable to the shares of Series C Preferred Stock held in the Trust.
(iii) The Trustee shall have all voting rights and rights to
dividends with respect to Series C Preferred Stock held in the Trust, which
rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any dividend or distribution paid prior to the discovery by the
Company that shares of Series C Preferred Stock have been transferred to the
Trustee shall be paid to the Trustee upon demand, and any dividend or
distribution declared but unpaid shall be paid when due to the Trustee with
respect to such Series C Preferred Stock. Any dividends or 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 Series C Preferred Stock held in
the Trust and, subject to Maryland law, effective as of the date the Series C
Preferred Stock 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 Series C Preferred
Stock prior to the discovery by the Company that the Series C Preferred Stock
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; provided, however, that if the Company has already taken
irreversible corporate action, then the Trustee shall not have the authority to
rescind and recast such vote. Notwithstanding any other provision of these
Articles Supplementary to the contrary, until the Company has received
notification that the Series C Preferred Stock has been transferred into a
Trust, the Company shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
(iv) Within 20 days of receiving notice from the Company that
shares of Series C Preferred Stock have been transferred to the Trust, the
Trustee of the Trust shall sell the shares of Series C Preferred Stock held in
the Trust to a Person, designated by the Trustee, whose ownership of the shares
of Series C Preferred Stock will not violate the ownership
14
<PAGE>
limitations set forth in Section 7(b)(i). Upon such sale, the interest of the
Charitable Beneficiary in the shares of Series C Preferred Stock 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 Section 7(c)(iv). The Purported Record Transferee shall receive the lesser
of (1) the price paid by the Purported Record Transferee for the shares of
Series C Preferred Stock 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 shares of Series C Preferred Stock at Market Price,
the Market Price of such shares of Series C Preferred Stock on the day of the
event which resulted in the transfer of such shares of Series C Preferred Stock
to the Trust) and (2) the price per share received by the Trustee (net of any
commissions and other expenses of sale) from the sale or other disposition of
the shares of Series C Preferred Stock 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 dividends or
other distributions thereon. If, prior to the discovery by the Company that
shares of such Series C Preferred Stock have been transferred to the Trustee,
such shares of Series C Preferred Stock are sold by a Purported Record
Transferee then (i) such shares of Series C Preferred Stock 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 shares of Series C Preferred Stock
that exceeds the amount that such Purported Record Transferee was entitled to
receive pursuant to this Section 7(c)(iv), such excess shall be paid to the
Trustee upon demand.
(v) Series C Preferred Stock transferred to the Trustee shall
be deemed to have been offered for sale to the Company, or its designee, at a
price per share equal to the lesser of (i) the price paid by the Purported
Record Transferee for the shares of Series C Preferred Stock 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 shares of Series C
Preferred Stock at Market Price, the Market Price of such shares of Series C
Preferred Stock on the day of the event which resulted in the transfer of such
shares of Series C Preferred Stock to the Trust) and (ii) the Market Price on
the date the Company, or its designee, accepts such offer. The Company shall
have the right to accept such offer until the Trustee has sold the shares of
Series C Preferred Stock held in the Trust pursuant to Section 7(c)(iv). Upon
such a sale to the Company, the interest of the Charitable Beneficiary in the
shares of Series C Preferred Stock sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Purported Record Transferee and
any dividends or other distributions held by the Trustee with respect to such
Series C Preferred Stock shall thereupon be paid to the Charitable Beneficiary.
(vi) By written notice to the Trustee, the Company shall
designate one or more nonprofit organizations to be the Charitable Beneficiary
of the interest in the Trust such that the Series C Preferred Stock held in the
Trust would not violate the restrictions set forth in Section 7(b)(i) in the
hands of such Charitable Beneficiary.
(d) Remedies For Breach. If the Board of Directors or a committee
-------------------
thereof or other designees if permitted by the MGCL shall at any time determine
in good faith that a Transfer or other event has taken place in violation of
Section 7(b) of these Articles
15
<PAGE>
Supplementary or that a Person intends to acquire, has attempted to acquire or
may acquire beneficial ownership (determined without reference to any rules of
attribution), Beneficial Ownership or Constructive Ownership of any shares of
Series C Preferred Stock of the Company in violation of Section 7(b) of these
Articles Supplementary, the Board of Directors or a committee thereof or other
designees if permitted by the MGCL 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 Company to redeem shares of Series C Preferred Stock, refusing
to give effect to such Transfer on the books of the Company or instituting
proceedings to enjoin such Transfer; provided, however, that any Transfers (or,
in the case of events other than a Transfer, ownership or Constructive Ownership
or Beneficial Ownership) in violation of Section 7(b)(i) of these Articles
Supplementary, shall automatically result in the transfer to a Trust as
described in Section 7(b)(ii) and any Transfer in violation of Section 7(b)(iii)
shall automatically be void ab initio irrespective of any action (or non-action)
by the Board of Directors.
(e) Notice of Restricted Transfer. Any Person who acquires or
-----------------------------
attempts to acquire shares of Series C Preferred Stock in violation of Section
7(b) of these Articles Supplementary, or any Person who is a Purported
Beneficial Transferee such that an automatic transfer to a Trust results under
Section 7(b)(ii) of these Articles Supplementary, shall immediately give written
notice to the Company of such event and shall provide to the Company such other
information as the Company may request in order to determine the effect, if any
of such Transfer or attempted Transfer on the Company's status as a REIT.
(f) Owners Required To Provide Information. Prior to the Restriction
--------------------------------------
Termination Date each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Series C Preferred Stock and each Person (including the
shareholder of record) who is holding Series C Preferred Stock for a beneficial
owner or Beneficial Owner or Constructive Owner shall provide to the Company
such information that the Company may request, in good faith, in order to
determine the Company's status as a REIT.
(g) Remedies Not Limited. Nothing contained in these Articles
--------------------
Supplementary (but subject to Section 7(n) of these Articles Supplementary)
shall limit the authority of the Board of Directors to take such other action as
it deems necessary or advisable to protect the Company and the interests of its
shareholders by preservation of the Company's status as a REIT.
(h) Ambiguity. In the case of an ambiguity in the application of any
---------
of the provisions of this Section 7 of these Articles Supplementary, including
any definition contained in Section 7(a), the Board of Directors shall have the
power to determine the application of the provisions of this Section 7 with
respect to any situation based on the facts known to it (subject, however, to
the provisions of Section 7(n) of these Articles Supplementary). In the event
Section 7 requires an action by the Board of Directors and these Articles
Supplementary fail to provide specific guidance with respect to such action, the
Board of Directors shall have the power to determine the action to be taken so
long as such action is not contrary to the provisions of Section 7. Absent a
decision to the contrary by the Board of Directors (which the Board of
16
<PAGE>
Directors may make in its sole and absolute discretion), if a Person would have
(but for the remedies set forth in Section 7(b)) acquired Beneficial or
Constructive Ownership of Series C Preferred Stock in violation of Section
7(b)(i), such remedies (as applicable) shall apply first to the shares of Series
C Preferred Stock which, but for such remedies, would have been actually owned
by such Person, and second to shares of Series C Preferred Stock, which, but for
such remedies, would have been Beneficially Owned or Constructively Owned (but
not actually owned) by such Person, pro rata among the Persons who actually own
such shares of Series C Preferred Stock based upon the relative number of the
shares of Series C Preferred Stock held by each such Person.
(i) Exceptions.
----------
(i) Subject to Section 7(b)(i)(C), the Board of Directors, in
its sole discretion, may exempt a Person from the limitation on a Person
Beneficially Owning shares of Series C Preferred Stock in violation of Section
7(b)(i)(A) if the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary in the opinion of the
Board of Directors to ascertain that no individual's Beneficial Ownership of
such shares of Series C Preferred Stock will violate Section 7(b)(i)(A) or that
any such violation will not cause the Company to fail to qualify as a REIT under
the Code, and agrees that any violation of such representations or undertakings
(or other action which is contrary to the restrictions contained in Section 7(b)
of these Articles Supplementary) or attempted violation will result in such
Series C Preferred Stock being transferred to a Trust in accordance with Section
7(b)(ii) of the Articles Supplementary.
(ii) Subject to Section 7(b)(i)(C), the Board of Directors, in
its sole discretion, may exempt a Person from the limitation on a Person
Constructively Owning Series C Preferred Stock in violation of Section
7(b)(i)(B), if the Company obtains such representations and undertakings from
such Person as are reasonably necessary in the opinion of the Board of Directors
to ascertain that such Person does not and will not own, actually or
Constructively, an interest in a tenant of the Company (or a tenant of any
entity owned in whole or in part by the Company) that would cause the Company to
own, actually or Constructively more than a 9.8% interest (as set forth in
Section 856(d)(2)(B) of the Code) in such tenant and that any violation or
attempted violation will result in such Series C Preferred Stock being
transferred to a Trust in accordance with Section 7(b)(ii) of these Articles
Supplementary. Notwithstanding the foregoing, the inability of a Person to make
the certification described in this Section 7(i)(ii) shall not prevent the Board
of Directors, in its sole discretion, from exempting such Person from the
limitation on a Person Constructively Owning Series C Preferred Stock in
violation of Section 7(b)(i)(B) if the Board of Directors determines that the
resulting application of Section 856(d)(2)(B) of the Code would affect the
characterization of less than 0.5% of the gross income (as such term is used in
Section 856(c)(2) of the Code) of the Company in any taxable year, after taking
into account the effect of this sentence with respect to all other capital stock
of the Company to which this sentence applies.
17
<PAGE>
(iii) Prior to granting any exception pursuant to Section
7(i)(i) or (ii) of these Articles Supplementary, the Board of Directors may
require a ruling from the Internal Revenue Service, or an opinion of counsel, in
either case in form and substance satisfactory to the Board of Directors in its
sole discretion, as it may deem necessary or advisable in order to determine or
ensure the Company's status as a REIT.
(j) Legends. Each certificate for Series C Preferred Stock shall bear
-------
substantially the following legends in addition to any legends required to
comply with federal and state securities laws:
CLASS OF STOCK
"THE COMPANY IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE
CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED
STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE
PREFERRED STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF
PREFERRED STOCK. THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY
STOCKHOLDER MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE COMPANY'S
CHARTER AND A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES, CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS
AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS
WHICH THE COMPANY HAS THE AUTHORITY TO ISSUE AND, IF THE COMPANY IS
AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS AND SERIES, (i) THE
DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES
OF EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD
OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE SECRETARY
OF THE COMPANY AT ITS PRINCIPAL OFFICE."
RESTRICTION ON OWNERSHIP AND TRANSFER
"THE SHARES OF SERIES C PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE
OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE COMPANY'S MAINTENANCE OF
ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN
FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN
18
<PAGE>
THE ARTICLES SUPPLEMENTARY FOR THE SERIES C PREFERRED STOCK, (i) NO
PERSON MAY BENEFICIALLY OWN SHARES OF THE COMPANY'S SERIES C PREFERRED
STOCK WHICH, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE
COMPANY BENEFICIALLY OWNED BY SUCH PERSON, WOULD CAUSE SUCH OWNERSHIP
TO EXCEED THE BENEFICIAL OWNERSHIP LIMIT OF 7.0%; (ii) NO PERSON MAY
CONSTRUCTIVELY OWN SHARES OF THE COMPANY'S SERIES C PREFERRED STOCK
WHICH, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE COMPANY
CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD CAUSE SUCH OWNERSHIP TO
EXCEED THE CONSTRUCTIVE OWNERSHIP LIMIT OF 9.8%; (iii) NO PERSON MAY
BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES C PREFERRED STOCK THAT,
TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE COMPANY
BENEFICIALLY OR CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD RESULT IN
THE COMPANY BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE OR
OTHERWISE CAUSE THE COMPANY TO FAIL TO QUALIFY AS A REIT; AND (iv) NO
PERSON MAY TRANSFER SERIES C PREFERRED STOCK IF SUCH TRANSFER WOULD
RESULT IN THE CAPITAL STOCK OF THE COMPANY BEING OWNED BY FEWER THAN
100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR
ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES C PREFERRED
STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR
CONSTRUCTIVELY OWN SERIES C PREFERRED STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE COMPANY. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SERIES C
PREFERRED STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED
TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE
BENEFICIARIES. IN ADDITION, THE COMPANY MAY REDEEM SHARES UPON THE
TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE
DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A
TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE.
FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED
TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID
AB INITIO. ALL TERMS IN THIS LEGEND WHICH ARE DEFINED IN THE ARTICLES
SUPPLEMENTARY FOR THE SERIES C PREFERRED STOCK SHALL HAVE THE MEANINGS
ASCRIBED TO THEM IN SUCH ARTICLES SUPPLEMENTARY, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS
ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER
19
<PAGE>
OF SERIES C PREFERRED STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS
FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE COMPANY AT ITS
PRINCIPAL OFFICE."
(k) Exchange of Series C Preferred Units. So long as the Company
------------------------------------
remains the general partner of the Operating Partnership, the Board of Directors
of the Company is hereby expressly vested with authority (subject to the
restrictions on ownership, transfer and redemption of Series C Preferred Stock
set forth in this Section 7) to issue, and shall issue to the extent provided in
the Partnership Agreement, Series C Preferred Stock in exchange for Series C
Preferred Units (as defined in the Partnership Agreement) (the "Series C
--------
Preferred Units").
- ---------------
(l) Reservation of Shares. Pursuant to the obligations of the Company
---------------------
under the Partnership Agreement to issue Series C Preferred Stock in exchange
for Series C Preferred Units, the Board of Directors is hereby required to
reserve and authorize for issuance a number of authorized but unissued shares of
Series C Preferred Stock not less than the number of Series C Preferred Units
issued to permit the Company to issue Series C Preferred Stock in exchange for
Series C Preferred Units that may be exchanged for or converted into Series C
Preferred Stock as provided in the Partnership Agreement.
(m) Severability. If any provision of this Section 7 or any
------------
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
(n) NYSE. Nothing in this Section 7 shall preclude the settlement of
----
any transaction entered into through the facilities of the NYSE. The shares of
Series C Preferred Stock that are the subject of such transaction shall continue
to be subject to the provisions of this Section 7 after such settlement.
(o) Applicability of Section 7. The provisions set forth in this
--------------------------
Section 7 shall apply to the Series C Preferred Stock notwithstanding any
contrary provisions of the Series C Preferred Stock provided for elsewhere in
these Articles Supplementary.
Section 8. No Conversion Rights. The holders of the Series C
--------------------
Preferred Stock 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 Company.
Section 9. No Sinking Fund. No sinking fund shall be established
---------------
for the retirement or redemption of Series C Preferred Stock.
Section 10. No Preemptive Rights. No holder of the Series C
--------------------
Preferred Stock of the Company shall, as such holder, have any preemptive rights
to purchase or subscribe for
20
<PAGE>
additional shares of stock of the Company or any other security of the Company
which it may issue or sell.
FOURTH: The Series C Preferred Stock have been classified and
------
designated by the Board of Directors under the authority contained in the
Charter.
FIFTH: These Articles Supplementary have been approved by the Board
-----
of Directors in the manner and by the vote required by law.
SIXTH: The Articles Supplementary shall be effective at the time
-----
the State Department of Assessments and Taxation of Maryland accepts these
Articles Supplementary for the record.
SEVENTH: The undersigned Vice President of the Company acknowledges
-------
these Articles Supplementary to be the act of the Company and, as to all matters
or facts required 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 for perjury.
21
<PAGE>
IN WITNESS WHEREOF, the Company has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
Senior Vice President and attested to by its Secretary on this 24th day of
November, 1998.
KILROY REALTY CORPORATION
By: /s/ Tyler H. Rose
-------------------------
Tyler H. Rose
Senior Vice President
[SEAL]
ATTEST:
/s/ Richard E. Moran Jr.
- ------------------------
Richard E. Moran Jr.
Secretary
S-1
<PAGE>
EXHIBIT 3.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 24, 1998
(this "Agreement"), is entered into by and among Kilroy Realty Corporation, a
---------
Maryland corporation (the "Company" or the "REIT"), Kilroy Realty, L.P., a
------- ----
Delaware limited partnership (the "Operating Partnership"), and the unit holders
---------------------
whose names are set forth on the signature pages hereto (each, a "Unit Holder"
-----------
and collectively, the "Unit Holders").
------------
RECITALS
--------
WHEREAS, in connection with the offering of 700,000 9% Series C
Cumulative Redeemable Preferred Units of the Operating Partnership (the
"Units"), Belcrest Realty Corporation, a Delaware corporation and Belair Real
-----
Estate Corporation, a Delaware corporation (each a "Contributor" and together
-----------
the "Contributors"), contribute to the Operating Partnership cash in return for
------------
the Units on terms and conditions set forth in the Contribution Agreement, dated
November 24, 1998 (the "Contribution Agreement"), by and among the Company, the
----------------------
Operating Partnership and the Contributors;
WHEREAS, the Unit Holders will receive the Units in exchange for cash
contributed to Operating Partnership;
WHEREAS, pursuant to the Partnership Agreement (as defined below), the
Units owned by the Unit Holders will be redeemable for cash or exchangeable for
shares of the Company's 9% Series C Cumulative Redeemable Preferred Stock (the
"Preferred Stock") upon the terms and subject to the conditions contained
- ----------------
therein; and
WHEREAS, in order to induce the Contributors to enter into the
Contribution Agreement, the Company and the Operating Partnership have agreed to
provide the registration rights set forth herein to the Contributor and any
subsequent holder or holders of the 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:
ARTICLE I
DEFINITIONS
-----------
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
---------
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.
1
<PAGE>
"Agreement" has the meaning given to such term in the recitals hereto.
---------
"Contribution Agreement" means the Contribution Agreement, dated
----------------------
November 24, 1998, by and among the Company, the Operating Partnership and the
Contributors.
"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.
"Articles Supplementary" means the Articles Supplementary of the
----------------------
Company, filed with the Maryland State Department of Assessments and Taxation on
November 24, 1998, designating the 9% Series C Cumulative Redeemable Preferred
Stock.
"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.
----------
"Company" means Kilroy Realty Corporation, a Maryland corporation.
-------
"Contributors" shall have the meaning given to such term in the
------------
recitals hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission promulgated thereunder.
"Exchangeable Units" means Units which may be redeemable for cash
------------------
pursuant to Section 17.4 of the Partnership Agreement or exchangeable for
Preferred Stock or redeemable for cash pursuant to Section 17.7 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).
"General Partner" means the Company or its successors as general
---------------
partner of the Operating Partnership.
"Holder" means any Person who is the record or beneficial owner 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.
2
<PAGE>
"Incapacitated" shall have the meaning set forth in the Partnership
-------------
Agreement.
"Indemnified Party" shall have the meaning set forth in Section 2.8
-----------------
hereof.
"Indemnifying Party" shall have the meaning set forth in Section 2.8
------------------
hereof.
"Inspectors" shall have the meaning set forth in Section 2.4(g).
----------
"Operating Partnership" shall have the meaning given to such term in
---------------------
the recitals hereto.
"Ownership Limit Provisions" mean the various provisions of the
--------------------------
Articles Supplementary set forth in Section 7 of Article III thereof restricting
the ownership of Preferred Stock by certain Persons to specified percentages of
the outstanding Preferred Stock.
"Partnership Agreement" means the Fourth Amended and Restated
---------------------
Agreement of Limited Partnership of the Operating Partnership dated as of
November 24, 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
-----------------------
2.2 hereof.
"Primary Registration" shall have the meaning set forth in Section 2.2
--------------------
hereof.
"Preferred Stock" shall have the meaning given to such term in the
---------------
recitals hereto.
"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 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
3
<PAGE>
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
---------------------
2.5 hereof.
"Rule 144" means Rule 144 promulgated under the Securities Act, as
--------
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
---------
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
--------
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
------------------
hereof.
"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 recitals
--------------
hereto.
"Units" shall have the meaning given to such term in the recitals
-----
hereto.
4
<PAGE>
ARTICLE II
REGISTRATION RIGHTS
-------------------
SECTION 2.1. SHELF REGISTRATION.
------------------
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 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
----------
Registration"). The Company shall use its commercially reasonable efforts to
- ------------
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
-------- -------
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
5
<PAGE>
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
--------
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
--------
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
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:
6
<PAGE>
(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 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
7
<PAGE>
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.
(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
8
<PAGE>
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.
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
9
<PAGE>
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 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
10
<PAGE>
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 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.
11
<PAGE>
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 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
12
<PAGE>
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 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
13
<PAGE>
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 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
14
<PAGE>
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 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:
15
<PAGE>
(1) if to any Unit Holder:
Belcrest Realty Corporation and
Belair Real Estate Corporation
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.
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
16
<PAGE>
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/ Tyler H. Rose
-----------------------------------------
Tyler H. Rose
Senior Vice President and Treasurer
KILROY REALTY, L.P.,
a Delaware limited partnership
By: KILROY REALTY CORPORATION,
its general partner
By: /s/ Tyler H. Rose
-----------------------------------------
Tyler H. Rose
Senior Vice President and Treasurer
BELCREST REALTY CORPORATION
By: Eaton Vance Management, as its Manager
By: /s/ Thomas E. Faust, Jr.
-----------------------------------------
Name: Thomas E. Faust, Jr.
Title: Executive Vice President
BELAIR REAL ESTATE CORPORATION
By: Eaton Vance Management, as its Manager
By: /s/ Thomas E. Faust, Jr.
-----------------------------------------
Name: Thomas E. Faust, Jr.
Title: Executive Vice President
S-1
<PAGE>
----------------------
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
KILROY REALTY, L.P.
---------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1. DEFINED TERMS......................................................1
Section 1.1. Definitions.....................................................2
-----------
ARTICLE 2. ORGANIZATIONAL MATTERS............................................20
Section 2.1. Organization...................................................20
------------
Section 2.2. Name...........................................................20
----
Section 2.3. Resident Agent; Principal Office...............................20
--------------------------------
Section 2.4. Power of Attorney..............................................20
-----------------
Section 2.5. Term...........................................................22
----
Section 2.6. Number of Partners.............................................22
------------------
ARTICLE 3. PURPOSE...........................................................22
Section 3.1. Purpose and Business...........................................22
--------------------
Section 3.2. Powers.........................................................22
------
Section 3.3. Partnership Only for Purposes Specified........................23
---------------------------------------
Section 3.4. Representations and Warranties by the Parties..................23
---------------------------------------------
ARTICLE 4. CAPITAL CONTRIBUTIONS.............................................25
Section 4.1. Capital Contributions of the Partners..........................25
-------------------------------------
Section 4.2. Loans by Third Parties.........................................25
----------------------
Section 4.3. Additional Funding and Capital Contributions...................26
--------------------------------------------
Section 4.4. Stock Incentive Plan...........................................28
--------------------
Section 4.5. Other Contribution Provisions..................................28
-----------------------------
Section 4.6. No Preemptive Rights...........................................28
--------------------
ARTICLE 5. DISTRIBUTIONS.....................................................29
Section 5.1. Requirement and Characterization of Distributions..............29
-------------------------------------------------
Section 5.2. Distributions in Kind..........................................29
---------------------
Section 5.3. Distributions Upon Liquidation.................................29
------------------------------
Section 5.4. Distributions to Reflect Issuance of Additional Partnership
-----------------------------------------------------------
Interests......................................................30
---------
ARTICLE 6. ALLOCATIONS.......................................................30
Section 6.1. Timing and Amount of Allocations of Net Income and Net Loss....30
-----------------------------------------------------------
Section 6.2. General Allocations............................................30
-------------------
Section 6.3. Additional Allocation Provisions...............................32
--------------------------------
Section 6.4. Tax Allocations................................................34
---------------
ARTICLE 7. MANAGEMENT AND OPERATIONS OF BUSINESS.............................35
Section 7.1. Management.....................................................35
----------
i
<PAGE>
Section 7.2. Certificate of Limited Partnership.............................39
----------------------------------
Section 7.3. Restrictions on General Partner's Authority....................39
-------------------------------------------
Section 7.4. Reimbursement of the General Partner...........................42
------------------------------------
Section 7.5. Outside Activities of the General Partner......................42
-----------------------------------------
Section 7.6. Contracts with Affiliates......................................43
-------------------------
Section 7.7. Indemnification................................................44
---------------
Section 7.8. Liability of the General Partner...............................46
--------------------------------
Section 7.9. Other Matters Concerning the General Partner...................47
--------------------------------------------
Section 7.10. Title to Partnership Assets...................................47
---------------------------
Section 7.11. Reliance by Third Parties.....................................48
-------------------------
ARTICLE 8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS........................48
Section 8.1. Limitation of Liability........................................48
-----------------------
Section 8.2. Management of Business.........................................48
----------------------
Section 8.3. Outside Activities of Limited Partners.........................49
--------------------------------------
Section 8.4. Return of Capital..............................................49
-----------------
Section 8.5. Rights of Limited Partners Relating to the Partnership.........49
------------------------------------------------------
Section 8.6. Common Limited Partner Redemption Rights.......................50
----------------------------------------
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS............................53
Section 9.1. Records and Accounting.........................................53
----------------------
Section 9.2. Fiscal Year....................................................53
-----------
Section 9.3. Reports........................................................53
-------
Section 9.4. Nondisclosure of Certain Information...........................54
------------------------------------
ARTICLE 10. TAX MATTERS......................................................54
Section 10.1. Preparation of Tax Returns....................................54
--------------------------
Section 10.2. Tax Elections.................................................54
-------------
Section 10.3. Tax Matters Partner...........................................54
-------------------
Section 10.4. Organizational Expenses.......................................56
-----------------------
Section 10.5. Withholding...................................................56
-----------
ARTICLE 11. TRANSFERS AND WITHDRAWALS........................................57
Section 11.1. Transfer......................................................57
--------
Section 11.2. Transfer of General Partner's Partnership Interest............57
--------------------------------------------------
Section 11.3. Limited Partners' Rights to Transfer..........................59
------------------------------------
Section 11.4. Substituted Limited Partners..................................61
----------------------------
Section 11.5. Assignees.....................................................62
---------
Section 11.6. General Provisions............................................62
------------------
Section 11.7. Transfer of Pledged Partnership Units.........................64
-------------------------------------
ARTICLE 12. ADMISSION OF PARTNERS............................................65
Section 12.1. Admission of Successor General Partner........................65
--------------------------------------
ii
<PAGE>
Section 12.2. Admission of Additional Limited Partners......................65
----------------------------------------
Section 12.3. Amendment of Agreement and Certificate of Limited Partnership.66
-------------------------------------------------------------
ARTICLE 13. DISSOLUTION AND LIQUIDATION......................................66
Section 13.1. Dissolution...................................................66
-----------
Section 13.2. Winding Up....................................................67
----------
Section 13.3. Compliance with Timing Requirements of Regulations............68
--------------------------------------------------
Section 13.4. Deemed Distribution and Recontribution........................69
--------------------------------------
Section 13.5. Rights of Limited Partners....................................69
--------------------------
Section 13.6. Notice of Dissolution.........................................69
---------------------
Section 13.7. Cancellation of Certificate of Limited Partnership............69
--------------------------------------------------
Section 13.8. Reasonable Time for Winding-Up................................70
------------------------------
Section 13.9. Waiver of Partition...........................................70
-------------------
ARTICLE 14. AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS.....................70
Section 14.1. Amendments....................................................70
----------
Section 14.2. Action by the Partners........................................70
----------------------
ARTICLE 15. GENERAL PROVISIONS...............................................72
Section 15.1. Addresses and Notice..........................................72
--------------------
Section 15.2. Titles and Captions...........................................72
-------------------
Section 15.3. Pronouns and Plurals..........................................72
--------------------
Section 15.4. Further Action................................................72
--------------
Section 15.5. Binding Effect................................................72
--------------
Section 15.6. Creditors.....................................................72
---------
Section 15.7. Waiver........................................................73
------
Section 15.8. Counterparts..................................................73
------------
Section 15.9. Applicable Law................................................73
--------------
Section 15.10. Invalidity of Provisions.....................................73
------------------------
Section 15.11. Limitation to Preserve REIT Status...........................73
----------------------------------
Section 15.12. Entire Agreement.............................................74
----------------
Section 15.13. No Rights as Stockholders....................................74
-------------------------
ARTICLE 16. SERIES A PREFERRED UNITS.........................................74
Section 16.1. Designation and Number........................................74
----------------------
Section 16.2. Distributions.................................................75
-------------
Section 16.3. Liquidation Proceeds..........................................76
--------------------
Section 16.4. Optional Redemption...........................................77
-------------------
Section 16.5. Voting Rights.................................................78
-------------
Section 16.6. Transfer Restrictions.........................................79
---------------------
Section 16.7. Exchange Rights...............................................80
---------------
Section 16.8. No Conversion Rights..........................................85
--------------------
Section 16.9. No Sinking Fund...............................................85
---------------
iii
<PAGE>
ARTICLE 17. SERIES C PREFERRED UNITS.........................................85
Section 17.1. Designation and Number........................................85
----------------------
Section 17.2. Distributions.................................................85
-------------
Section 17.3. Liquidation Proceeds..........................................87
--------------------
Section 17.4. Optional Redemption...........................................87
-------------------
Section 17.5. Voting Rights.................................................89
-------------
Section 17.6. Transfer Restrictions.........................................90
---------------------
Section 17.7. Exchange Rights...............................................90
---------------
Section 17.8. No Conversion Rights..........................................95
--------------------
Section 17.9. No Sinking Fund...............................................95
---------------
ARTICLE 18. RIGHTS OF CERTAIN LIMITED PARTNERS...............................95
Section 18.1. Limited Partner Consent.......................................95
-----------------------
Section 18.2. Redemption Rights.............................................96
-----------------
Section 18.3. Activities of Investors.......................................97
-----------------------
Section 18.4. Sale of Allen Properties......................................97
------------------------
Section 18.5. Transfer of Partnership Units.................................97
-----------------------------
Section 18.6. Distributions and Allocations.................................97
-----------------------------
Section 18.7. Admission of Additional Investors.............................98
---------------------------------
iv
<PAGE>
FOURTH AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
KILROY REALTY, L.P.
THIS FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of November 24, 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 General Partner and the Limited Partners are parties to
that certain Third Amended and Restated Agreement of Limited Partnership, dated
April 21, 1998, as amended;
WHEREAS, pursuant to Section 4.3.C of the Partnership Agreement, the
-------------
General Partner may, in its sole and absolute discretion subject to Delaware
law, in connection with any Capital Contribution, issue additional Partnership
Interests in one or more classes, or one or more series of any 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;
WHEREAS, on the date hereof, the Series C Contributors (as defined
herein) have made an aggregate Capital Contribution of $35,000,000, in cash, to
the Partnership in exchange for which Contributors are entitled to receive an
aggregate of 700,000 additional Series C 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 Agreement to reflect (i) the issuance of the additional
700,000 Series C Preferred Units to the Contributors and (ii) certain other
matters described herein;
WHEREAS, Contributor desires to make the 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.
<PAGE>
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.
"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
2
<PAGE>
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 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),
3
<PAGE>
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 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.
4
<PAGE>
(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.
"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
5
<PAGE>
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 described in Exhibit G.
"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 (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.
6
<PAGE>
"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 sum of (x) the Fair Market
Value of the number of shares of capital stock of the General Partner which
corresponds to one Partnership Unit of such class or series of Partnership
Interests on such date (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); divided by (ii) 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. Without limiting the
generality of the foregoing, the Deemed Value of the Partnership Interests
referenced in the preceding sentence shall be adjusted for the issuance,
distribution and triggering of exercisability of the Rights (which adjustment
shall be made as necessary to equitably reflect the dilution in REIT Shares
resulting from the issuance and exercise of the Rights, in each case taking into
account any increase pursuant to Section 4.5.B in the number of Partnership
Units held by the Limited Partners).
"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).
"Exchange Notice" shall have the meaning set forth in Section 16.7.B.
---------------
"Exchange Price" shall have the meaning set forth in Section
--------------
16.7.A(i).
"Fair Market Value" means, with respect to any security 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,
7
<PAGE>
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 security is 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 security is 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 security is 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 security 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 shares of common stock 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; and, provided
--------
further, that the Fair Market Value of any rights issued pursuant to the Rights
- -------
Agreement shall be deemed to have no value unless a "triggering event" (as
defined in the Rights Agreement) shall have occurred (i.e., if the Rights issued
pursuant thereto are no longer "attached" to the REIT Shares and are able to
trade independently). Notwithstanding the foregoing, the General Partner in its
reasonable discretion may use a different "Fair Market Value" for purposes of
making the determinations under subparagraph (ii) of the definition of "Gross
Asset Value" and Section 4.3.E. in connection with the contribution of Property
-------------
to the Partnership by a third-party, provided such value shall be based upon the
value per REIT Share (or per Partnership Unit) agreed upon by the General
Partner and such third-party for purposes of such contribution.
"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.
8
<PAGE>
"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.
"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) Immediately prior to 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.
9
<PAGE>
(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.
(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
10
<PAGE>
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 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" means Partnership Units representing any class or
------------
series of Partnership Interest ranking, as to distributions and voluntary or
involuntary liquidation, dissolution or winding up of the Partnership, junior to
the Series A Preferred Units and the Series C Preferred Units, including,
without limitation, the Series B Preferred Units, if any.
"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).
11
<PAGE>
"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 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
12
<PAGE>
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 and Series C Preferred Units
pursuant to Sections 6.2.B.1(c) and (e), and Section 6.2.B.2(b), items of 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 the Series A
Preferred Units and the Series C 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
13
<PAGE>
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 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 Interests represented by the Common Units, the Series A Preferred
Units and the Series C Units are the only Partnership Interests and each such
type of unit is a separate class 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 Common
Units 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 Sections 4.1 and 4.3.
"Partnership Year" means the fiscal year of the Partnership, which
----------------
shall be the calendar year.
14
<PAGE>
"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 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 Distribution Shortfall" means, with respect to any
--------------------------------
Partnership Interests that are entitled to any preference in distributions of
Available Cash pursuant to this Agreement, the aggregate amount of the required
distributions for such outstanding Partnership Interests for all prior
distribution periods minus the aggregate amount of the distributions made with
respect to such outstanding Partnership Interests pursuant to this Agreement.
"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 preferential rights and priorities as shall be
designated by the General Partner pursuant to Section 4.3.C hereof, including,
without limitation, the Series A Preferred Units and the Series C Preferred
Units.
"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.
15
<PAGE>
"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.
"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.
----------
"Redemption Notice" shall have the meaning set forth in Section 16.7.B
-----------------
"Redemption Price" shall have the meaning set forth in Section 16.4.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 Series B Preferred Share" means a share of Series B Preferred
-----------------------------
Stock, par value $.01 per share, liquidation preference $25 per share, of the
General Partner, issuable upon exercise of the Rights.
"REIT Series C Preferred Share" means a share of 9% Series C
-----------------------------
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.
16
<PAGE>
"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. Without limiting the generality of the foregoing, such aggregate
number of REIT Shares referenced in the preceding sentence shall be adjusted for
the issuance, distribution and triggering of exercisability of the Rights
governed by the Rights Agreement (which adjustment shall be satisfied by issuing
together with the REIT Shares Amount the aggregate number Rights (if prior to
expiration of the Rights pursuant to the Rights Agreement) or REIT Shares (if
subsequent to the triggering of the exercisability of such Rights and subsequent
to the expiration of the Rights pursuant to the Rights Agreement) necessary to
reflect equitably the dilution in REIT Shares resulting from the issuance and
exercise of the Rights, in each case taking into account any increase pursuant
to Section 4.5.B in the number of Partnership Units held by the Limited
Partners).
"Rights" means the rights issued pursuant to the Rights Agreement.
------
"Rights Agreement" means the Rights Agreement, dated as of October 2,
----------------
1998, by and between the General Partner and ChaseMellon Shareholder Services,
L.L.C.
"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.
"Senior Preferred Unit" shall mean the Series A Preferred Units and
---------------------
Series C Preferred Units, and 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 parity with the Series A Preferred
Units and Series C Preferred Units with respect to distributions and rights upon
voluntary or involuntary liquidation, winding up or dissolution of the
Partnership, as the context may require.
"Series A Contributor" means the Belair Capital Fund, LLC, as party to
--------------------
the Contribution Agreement, dated February 6, 1998, and the Contribution
Agreement, dated April 20, 1998, and any Affiliate to which the Series A
Preferred Units may be assigned in accordance with this Agreement.
"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.
17
<PAGE>
"Series A Preferred Capital" means a Capital Account balance equal to
--------------------------
the product of (i) the number of Series A Preferred Units then held by the
Series A Limited Partners and/or the General Partner multiplied by (ii) the sum
of $50 and any Preferred Distribution Shortfall per Series A Preferred Unit.
"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.
"Series A 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.
"Series B Preferred Units" means the Series B Preferred Units of the
------------------------
Partnership issuable to the General Partner upon contribution of the proceeds
from the exercise of the Rights, pursuant to Section 4.5.B hereof.
"Series C Priority Return" shall mean an amount equal to 9% 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 17.2 hereof, on the stated value of $50 per Series C Preferred
Unit, commencing on the date of issuance of such Series C Preferred Unit as set
forth on Exhibit A hereto.
"Series C Contributors" means Belcrest Realty Corporation, a Delaware
---------------------
corporation, and Belair Real Estate Corporation, a Delaware corporation, as
parties to the Contribution Agreement, dated November 24, 1998, and any
Affiliate to which the Series C Preferred Units may be assigned in accordance
with this Agreement.
"Series C Exchange Notice" shall have the meaning set forth in Section
------------------------
17.7.B.
"Series C Exchange Price" shall have the meaning set forth in Section
-----------------------
17.7.A.
"Series C Excess Units" shall have the meaning set forth in Section
---------------------
17.7.A(iii).
"Series C Limited Partner" means any Person holding Series C Preferred
------------------------
Units and named as a Series C 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 C Limited Partner in the
Partnership.
"Series C Preferred Capital" means a Capital Account balance equal to
--------------------------
the product of (i) the number of Series C Preferred Units then held by the
Series C Limited Partners
18
<PAGE>
and/or the General Partner multiplied by (ii) the sum of $50 and any Preferred
Distribution Shortfall per Series C Preferred Unit.
"Series C Preferred Units" shall have the meaning set forth in Section
------------------------
17.1.
"Series C Preferred Unit Distribution Payment Date" shall have the
-------------------------------------------------
meaning set forth in Section 17.2.A.
"Series C Preferred Unit Partnership Record Date" shall have the
-----------------------------------------------
meaning set forth in Section 17.2.A.
"Series C Redemption Notice" shall have the meaning set forth in
--------------------------
Section 17.7.B.
"Series C Redemption Price" shall have the meaning set forth in
-------------------------
Section 17.4.A.
"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 or limited liability
----------------------
company 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.
19
<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
20
<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
21
<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 dispose of real property;
provided, however, notwithstanding anything to the contrary in this
- -------- -------
22
<PAGE>
Agreement, 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) absent the consent of the General Partner
which may be given or withheld in its sole and absolute discretion, and except
with respect to the distribution of Available Cash to the Series A Limited
Partners in accordance with Section 16.2, and to the Series C Limited Partners
in accordance with Section 17.2, could subject the General Partner to any taxes
under Section 857 or Section 4981 of the Code, 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 in the case of any Person other than an
individual, the power and authority, and in the case of an individual, 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
23
<PAGE>
transactions shall not result in a breach or violation of, or a default under,
its certificate of limited 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
24
<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.
25
<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 may also 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 and Section 17.5 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
26
<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 Sections 5.4,
6.2.B, and 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 issued to all of its
common stockholders or other capital stock issued to all of its stockholders who
hold a class of stock of the General Partner), 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 (including, without limitation, cash and
Properties) 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 or
the value of Properties 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 Properties
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) 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 of Partnership Interests.
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
27
<PAGE>
case of cash contributions funded by an offering of REIT Shares or other shares
of capital stock of the 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
-----------------------------
A. 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.
B. Notwithstanding the foregoing provisions of this Article IV, in
the event the General Partner has made contributions of cash to the Partnership
attributable to the General Partner's receipt of cash pursuant to the exercise
of the Rights, the General Partner shall be issued a number of Partnership Units
as a result of such contribution equal to the number of REIT Shares (or the
number of Series B Preferred Units equal to the number of REIT Series B
Preferred Shares, as the case may be) sold pursuant to such exercise. In such
case or in the event the General Partner makes other contributions to the
Partnership in connection with the issuance of REIT Shares after the Rights have
become exercisable, the number of Partnership Units held by the Limited Partners
shall be increased to equitably offset the dilution resulting from such
issuance.
Section 4.6. No Preemptive Rights
--------------------
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) making additional Capital Contributions or
loans to the Partnership or (ii) issuance or sale of any Partnership Units or
other Partnership Interests.
28
<PAGE>
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 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 or Series C Preferred Units in accordance
with Section 17.2.
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 or Series C 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.
29
<PAGE>
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 Holder 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.
Section 6.2. General Allocations
-------------------
A. In General. Except as otherwise provided in this Article 6, Net
----------
Income and Net Loss allocable with respect to a class of Partnership Interests
shall be allocated to each of the Holders holding such class of Partnership
Interests in accordance with their respective Percentage Interest of such class.
B.1. Net Income. Except as provided in Section 6.3, 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(d) 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 each Holder in an amount equal to the remainder,
if any, of the cumulative Net Losses allocated to each such
Holder pursuant to Section 6.2.B.2(c) for all prior Partnership
Years minus the cumulative Net Income allocated to such Holder
pursuant to this Section 6.2.B.1(b) for all prior Partnership
Years;
(c) Third, 100% to the Holders of Senior Preferred Units in an amount
equal to the remainder, if any, of the cumulative Net Losses
allocated to such Holder pursuant to Section 6.2.B.2(b) for all
prior Partnership Years minus
30
<PAGE>
the cumulative Net Income allocated to such Holders pursuant to
this Section 6.2.B.1(c) for all prior Partnership Years;
(d) Fourth, 100% to the Holders of Common Units in an amount equal to
the remainder, if any, of the cumulative Net Losses allocated to
each such Holder pursuant to Section 6.2.B.2(a) for all prior
Partnership Years minus the cumulative Net Income allocated to
each Holder pursuant to this Section 6.2.B.1(d) for all prior
Partnership Years;
(e) Fifth, 100% to the Holders of Senior Preferred Units in an amount
equal to the sum of (i) in respect of the Series A Preferred
Units, an amount equal to the cumulative Series A 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, over the cumulative Net Income allocated to the
Holders of such units pursuant to this Section 6.2.B.1(e) for all
prior Partnership Years; and (ii) in respect of the Series C
Preferred Units, an amount equal to the cumulative Series C
Priority Return to the last day of the current Partnership Year
or to the date of redemption, to the extent Series C Preferred
Units are redeemed during such year, over the cumulative Net
Income allocated to the Holders of such units pursuant to this
Section 6.2.B.1(e) for all prior Partnership Years; and
------------------
(f) Sixth, 100% to the Holders of Common Units in accordance with
their respective Percentage Interests in the Common Units.
To the extent the allocations of Net Income set forth above in any
paragraph of this Section 6.2.B.1 are not sufficient to entirely satisfy the
---------------
allocation set forth in such paragraph, such allocation shall be made in
proportion to the total amount that would have been allocated pursuant to such
paragraph without regard to such shortfall.
B.2. Net Losses. Except as provided in Section 6.3, Net Losses for
----------
any Partnership Year shall be allocated in the following manner and order of
priority:
(a) First, 100% to the Holders of Common Units in accordance with
their respective Percentage Interests in the Common Units (to the
extent consistent with this Section 6.2.B.2(a)) until the
Adjusted Capital Account (ignoring for this purpose any amounts a
Holder is obligated to contribute to the capital of the
Partnership or is deemed obligated to restore pursuant to
Regulations Section 1.704-1(b)(2)(ii)(c)(2) and ignoring the
Holder's Series A Preferred Capital and Series C Preferred
Capital) of each such Holder is zero;
(b) Second, 100% to the Holders of Senior Preferred Units, pro rata
to each such Holder's Adjusted Capital Account (ignoring for this
purpose any
31
<PAGE>
amounts a Holder is obligated to contribute to the capital of the
Partnership or is deemed obligated to contribute pursuant to
Regulations Section 1.704-1(b)(2)(ii)(c)(2)), until the Adjusted
Capital Account (as so modified) of each such Holder is zero;
(c) Third, 100% to the Holders to the extent of, and in proportion
to, the positive balance (if any) in their Adjusted Capital
Accounts; and
(d) Fourth, 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, the General Partner shall make such revisions to this
Section 6.2 or to Section 12.2.B 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 and the Series C 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,
or any other provision of this Article 6, if there is a net decrease in
Partnership Minimum Gain during any fiscal year, each Holder shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Holder'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 Holder 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, 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
Holder's share of the net decrease in Partner Minimum Gain attributable to
32
<PAGE>
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 Holder
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 Holders in accordance with their respective Percentage Interest in Common
Units. Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Holder(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 Holder 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 Holder in an amount and manner sufficient to eliminate,
to the extent required by such Regulations, the Adjusted Capital Account Deficit
of the Holder 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 Holder
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 Holder has a
-----------------------
deficit Capital Account at the end of any fiscal year which is in excess of the
sum of (a) the amount (if any) such Holder is obligated to restore to the
Partnership, and (b) the amount such Holder 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
Holder 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 Holder 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 Holder, such allocation of Net Loss shall be reallocated among
the other Holders in accordance with their respective Percentage Interests in
Common Units subject to the limitations of this Section 6.3.A(vi).
33
<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 Holder 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
Holders 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 Holders 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 Holders so that, to the extent possible, the
net amount of such allocations of other items and the Regulatory Allocations to
each Holder shall be equal to the net amount that would have been allocated to
each such Holder if the Regulatory Allocations had not occurred.
B. For purposes of determining a Holder's proportional share of the
"excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), each Holder's interest in Partnership profits
shall be such Holder's Percentage Interest in Common Units.
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 Holders 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
Holders 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 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
34
<PAGE>
Gross Asset Value (provided in Article 1), (ii) 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 (for 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;
(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;
35
<PAGE>
(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 further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of
interests in, and the contributions of property to any 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;
36
<PAGE>
(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 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
37
<PAGE>
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 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.
38
<PAGE>
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 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, (in addition to any Consent of the Limited Partners required by any
other provision hereof)
39
<PAGE>
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 Limited Partners, to amend this Agreement as may be
required to facilitate or implement any of the following purposes:
40
<PAGE>
(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),
Article 16 or Article 17, 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, 16.7, 17.4 and 17.7, hereof, as
applicable, 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 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.
41
<PAGE>
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 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
42
<PAGE>
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 redeem 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.
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
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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.
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 Section 7.7.A 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.
44
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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 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.
45
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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 directly or by or through its 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.
46
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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 to protect the ability of
the General Partner, for so long as the General Partner has determined to
qualify as a REIT, to (i) continue to qualify as a REIT or (ii) except with
respect to the distribution of Available Cash to the Series A Limited Partners
and the Series C Limited Partners in accordance with Sections 16.2 and 17.2,
----------------------
respectively, avoid the General Partner incurring any taxes under Section 857 or
Section 4981 of the Code, 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, 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
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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.
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.
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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 benefiting 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, 16.7, 17.4
and 17.7, 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.
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;
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(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 is 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 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.
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<PAGE>
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 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 Sections 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
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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.
(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 as of 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
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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 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
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sheet, income statement and cash flow statement for such fiscal quarter prepared
in accordance with GAAP.
Section 9.4. Nondisclosure of Certain Information
------------------------------------
Notwithstanding the provisions of Sections 9.1 and 9.3, the General
--------------------
Partner may keep confidential from the Limited Partners any information that 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 which the Partnership is
required by law or by agreements with unaffiliated third parties to keep
confidential.
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 any
Contributed Property contributed by such Limited Partner to the Partnership.
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.
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:
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(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;
(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.
55
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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 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.
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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 or Series C Preferred Shares
pursuant to Section 17.7. 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 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
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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. Without limiting Sections 16.5 and 17.5 of this Agreement, 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. Without limiting Sections 16.5 and 17.5 of this Agreement, 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 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.
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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
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
59
<PAGE>
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 Sections
16.7 and 17.7, 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 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, 16.7, 17.4 and
17.7, or any other acquisition of Common Units, Series A Preferred Units or
Series C 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 could be treated as effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.
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<PAGE>
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, or the
specified amount of REIT Series C Preferred Shares or 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.
F. No Limited Partner may withdraw from the Partnership except as a
result of transfer, Redemption or exchange of Partnership Units pursuant hereto.
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 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.
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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, the right of exchange for REIT Series A Preferred Shares set
forth in Section 16.7 and the right to exchange for REIT Series C Shares
pursuant to Section 17.7, 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 such
Limited Partner's Partnership Units under Section 8.6, its right of Redemption
or exchange of all of such Limited Partner's Series A Preferred Units under
Section 16.7 or its right of Redemption or exchange of all of such Limited
Partner's Series C Preferred Units under Section 17.7.
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, exchange of all
of such Limited Partner's Series A Preferred Units under Section 16.7 or
exchange of all of such Limited Partner's Series C Preferred Units under Section
17.7, shall cease to be a Limited Partner.
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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, 16.7, 17.4 or 17.7 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 or as otherwise specified in this
Agreement or as otherwise determined by the General Partner (to the extent
consistent 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) except with the
consent of the General Partner, which may be given or withheld in its sole and
absolute discretion, 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) except with the consent of the
General Partner, which may be given or withheld in its sole and absolute
discretion, 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,
16.7, 17.4 and 17.7, 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 could cause
the Partnership to cease to be 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, 16.7, 17.4 and 17.7 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
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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
could be treated as 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 could cause 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 could adversely affect the ability of the General
Partner to continue to qualify as a REIT or, except with the consent of the
General Partner, which may be given or withheld in its sole and absolute
discretion, 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, Series A Preferred
Units or Series C 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
authority (but shall not be required to) to take any steps it determines are
necessary or appropriate in its sole and absolute discretion to prevent any
trading of interests which could cause the Partnership to become a PTP, or any
recognition by the Partnership of such transfers, or 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 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
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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, 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
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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, in a reasonable manner determined by
the General Partner in its sole discretion.
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;
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;
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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 or REIT Series C 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
(4) The balance, if any, to the Partners in accordance with their
Capital Account balances, determined after giving effect to all
contributions and distributions for all periods, and 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)).
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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.
C. The Partnership shall be terminated when any notes received in
connection with any such sale or disposition referenced in Section 13.1.E above,
--------------
or in connection with the liquidation of the Partnership have been paid and all
of the cash or property available for application and distribution under this
Agreement have been applied and distributed in accordance with this Agreement.
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, except to the extent otherwise agreed to by such Partner and the
General Partner. 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 establish any reserves deemed necessary or
appropriate for any contingent or unforeseen liabilities or obligations of the
Partnership; 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 Distribution and Recontribution
--------------------------------------
Notwithstanding any other provision of this Article 13, in the event
----------
the Partnership is liquidated within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's property
shall not be liquidated, the Partnership's liabilities shall not be paid or
discharged, and the Partnership's affairs shall not be wound up. Instead, the
Partnership shall be deemed to have distributed the Partnership property in kind
to the General Partner and Limited Partners, who shall be deemed to have assumed
and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
General Partner and Limited Partners shall be deemed to have recontributed the
Partnership property in kind to the Partnership, which shall be deemed to have
assumed and taken such property subject to all such liabilities.
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).
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
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qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled 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, 16.5
and 17.5, 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 and the Series C Limited Partners agree not to
object to an amendment proposed after December 31, 1999 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.
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
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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 Interests 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.
F. Except as otherwise herein expressly provided, on matters on which
Limited Partners are entitled to vote, each Limited Partner shall have a vote
equal to the number of Partnership Units held.
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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 Sections 7.4 or 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) through (I) of Section 856(c)(3) of the Code
over (b) the amount of gross
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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 (such quarterly periods for
purposes of payment and accrual will be the quarterly periods ending on the
dates specified in this sentence and not calendar year quarters) 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
Junior Units, nor shall any cash or other property (other than capital stock of
the General Partner which corresponds in ranking to the Partnership
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Interests being acquired) be set 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 Junior Units, 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 irrevocably 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 16.3 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.
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
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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 Preferred Units for all quarterly distribution periods
terminating on or prior to the date of redemption.
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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.
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.
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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 and 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
and 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.
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 and any Affiliate of the
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<PAGE>
Series A Contributor to whom the Series A Preferred Units are assigned (in whole
or in part) in accordance with this Agreement (other than the right of first
refusal) shall be admitted to the Partnership as a Substitute Limited Partner.
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)(i); 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)(i) 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.
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 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 letter ruling addressed to such Holder
of Series A Preferred Units or (ii) an opinion of independent counsel
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<PAGE>
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 the 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
the Series A Contributor so determines, may be exchanged in whole but not in
part (regardless of whether held by the Series A 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 at any time (i) the Partnership takes the position that assets and
income of the Partnership are such as would not permit the Partnership to
satisfy the income and assets tests of Section 856 of the Code if the
Partnership were a real estate investment trust within the meaning of the Code
or (ii) any Holder of the Series A Preferred Units shall deliver to the
Partnership and the Company an opinion of independent counsel reasonably
acceptable to the Company to the effect that the assets and income of the
Partnership are such as would not permit the Partnership to satisfy the income
and assets tests of Section 856 of the Code if the Partnership were a real
estate investment trust within the meaning of the Code.
(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
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<PAGE>
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 (other than one or more direct or indirect parent corporations, limited
liability companies or partnerships and not the holders of any interests in any
such parent), 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 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 Series A
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
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<PAGE>
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 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
83
<PAGE>
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 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 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.
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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.
SERIES C PREFERRED UNITS
Section 17.1 Designation and Number
----------------------
A series of Partnership Units in the Partnership designated as the
9 3/8% Series C Cumulative Redeemable Preferred Units (the "Series C Preferred
------------------
Units") is hereby established. The number of Series C Preferred Units shall be
- -----
700,000.
Section 17.2 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 C 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 9 3/8% of the original Capital Contribution per Series C Preferred
Unit. Such distributions shall be cumulative, shall accrue from the original
date of issuance and will be payable (A) quarterly (such quarterly periods for
purposes of payment and accrual will be the quarterly periods ending on the
dates specified in this sentence and not calendar year quarters) in arrears, on
the 15th day of February, May, August and November of each year and, (B), in the
event of (i) an exchange of Series C Preferred Units into REIT Series C
Preferred Shares, or (ii) a redemption of Series C Preferred Units, on the
exchange date or redemption date, as applicable (each a "Series C Preferred Unit
-----------------------
Distribution Payment Date"), commencing 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 C
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
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<PAGE>
made on such date. Distributions on the Series C Preferred Units will be made to
the Holders of record of the Series C Preferred Units on the relevant record
dates, which will be fifteen (15) days prior to the relevant Preferred Unit
Distribution Payment Date (the "Series C Preferred Unit Partnership Record
------------------------------------------
Date").
- ----
B. Distributions Cumulative. Notwithstanding the foregoing,
------------------------
distributions on the Series C 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 C 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 C
----------------------------
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
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 aside for or applied to the purchase, redemption or other
acquisition for consideration of any Series C Preferred Units, any Parity
Preferred Units (including the Series A Preferred Units) with respect to
distributions or any Junior Units, unless, in each case, all distributions
accumulated on all Series C 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 (including the Series A Preferred Units) into Junior Units, or (c) the
redemption of Partnership Interests corresponding to REIT Series C Preferred
Shares, Parity Preferred Stock with respect to distributions or Junior Stock to
be purchased by the General Partner pursuant to the Charter 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 stock purchase
pursuant to the Charter.
(ii) So long as distributions have not been paid in full (or a sum
sufficient for such full payment is not irrevocably so set apart) upon the
Series C Preferred Units, all distributions authorized and declared on the
Series C Preferred Units and all classes or series of outstanding Parity
Preferred Units (including the Series A Preferred Units) with respect to
distributions shall be authorized and declared so that the amount of
distributions authorized and declared per Series C Preferred Unit and such other
classes or series of Parity Preferred Units (including the Series A Preferred
Units) shall in all cases bear to each other the same ratio that accrued
distributions per Series C Preferred Unit and such other classes or series of
Parity Preferred Units (including the Series A 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
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Interest in the Partnership, in each case ranking junior to or on parity with
the Series C Preferred Units may be made, without preserving the priority of
distributions described in Sections 17.2.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 C 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 17.3 Liquidation Proceeds
--------------------
A. Upon voluntary or involuntary liquidation, dissolution or winding-
up of the Partnership, distributions on the Series C Preferred Units shall be
made in accordance with Article 13 of the Partnership Agreement.
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 C
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 C
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 17.4 Optional Redemption
-------------------
A. Right of Optional Redemption. The Series C Preferred Units may not
----------------------------
be redeemed prior to November 24, 2003. On or after such date, the Partnership
shall have the right to redeem the Series C 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 C Preferred Units (the "Series C
--------
Redemption Price"); provided, however, that no redemption pursuant to this
- ----------------
Section 17.4 will be permitted if the Series C Redemption Price does not equal
or exceed the original Capital Contribution of such Holder plus the cumulative
Series C Priority Return to the redemption date to the extent not previously
distributed. If fewer than all of the outstanding Series C Preferred
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Units are to be redeemed, the Series C Preferred Units to be redeemed shall be
selected pro rata (as nearly as practicable without creating fractional units).
B. Limitation on Redemption. (i) The Series C Redemption Price of
------------------------
the Series C 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 an 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 C Preferred Units unless all accumulated and unpaid distributions have
been paid on all Series C 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 C 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 C 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 Series C Redemption Price, (c) the aggregate number of Series C
Preferred Units to be redeemed and if fewer than all of the outstanding Series C
Preferred Units are to be redeemed, the number of Series C 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 C
Preferred Units that the total number of Series C Preferred Units held by such
Holder represents) of the aggregate number of Series C Preferred Units to be
redeemed, (d) the place or places where such Series C Preferred Units are to be
surrendered for payment of the Series C Redemption Price, (e) that distributions
on the Series C Preferred Units to be redeemed will cease to accumulate on such
redemption date and (f) that payment of the Series C Redemption Price will be
made upon presentation and surrender of such Series C Preferred Units.
(ii) If the Partnership gives a notice of redemption in respect of
Series C 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 C Preferred Units being
redeemed funds sufficient to pay the applicable Series C Redemption Price and
will give irrevocable instructions and authority to pay such Series C Redemption
Price to the Holders of the Series C Preferred Units upon surrender of the
Series C Preferred Units by such Holders at the place designated in the notice
of redemption. On and after the date of
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<PAGE>
redemption, distributions will cease to accumulate on the Series C Preferred
Units or portions thereof called for redemption, unless the Partnership defaults
in the payment thereof. If any date fixed for redemption of Series C Preferred
Units is not a Business Day, then payment of the Series C 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 Series C Redemption Price is improperly withheld or refused and not paid
by the Partnership, distributions on such Series C 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 Series C Redemption Price.
Section 17.5 Voting Rights
-------------
A. General. Holders of the Series C 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 C Preferred Units
---------------------
remain outstanding, the Partnership shall not, without the affirmative vote of
the Holders of at least two-thirds of the Series C 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 C
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 17), 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 C
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 C 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
C Preferred Units for other interests in such entity having substantially the
same terms and rights as the Series C
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<PAGE>
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 C 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 C Preferred Units with respect to
payment of distributions and the distribution of assets upon liquidation,
dissolution or winding-up, or (b) on a parity to the Series C Preferred Units
with respect to payment of distributions and 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.
Section 17.6 Transfer Restrictions
---------------------
The Series C Preferred Units shall be subject to the provisions of
Article 11 hereof; provided, however, that the Series C Preferred Units shall
-------- -------
not be subject to the right of first refusal of the General Partner as described
in Section 11.3 hereof and any Affiliate of the Series C Contributors to whom
the Series C Preferred Units are assigned (in whole or in part) in accordance
with this Agreement (other than the right of first refusal) shall be admitted to
the Partnership as a Substitute Limited Partner. No transfer of Series C
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
C Preferred Units within the meaning of Treasury Regulation Section 1.7704-
1(h)(3)(i); 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 C Preferred Units within the meaning of
Treasury Regulation Section 1.7704-1(h)(3)(i) 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 PTP. In addition, no
transfer may be made to any person if such transfer would cause the exchange of
the Series C Preferred Units for REIT Series C Preferred Shares, as provided
herein, to be required to be registered under the Securities Act of 1933, as
amended, or any state securities laws.
Section 17.7 Exchange Rights
---------------
A. Right to Exchange. (i) Series C Preferred Units will be
-----------------
exchangeable in whole but not in part unless expressly otherwise provided herein
at anytime on or after November 24, 2008, at the option of 51% of the Holders of
all outstanding Series C Preferred Units, for authorized but previously unissued
REIT Series C Preferred Shares at an exchange rate of one REIT Series C
Preferred Share from the General Partner for one Series C Preferred Unit,
subject to adjustment as described below (the "Series C Exchange Price"),
-----------------------
provided that the Series C 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 C Preferred Units for
REIT Series C Preferred Shares if (y) at any time full distributions shall not
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<PAGE>
have been timely made on any Series C Preferred Unit with respect to six (6)
prior quarterly distribution periods, whether or not consecutive, provided,
--------
however, that a distribution in respect of Series C Preferred Units shall be
- -------
considered timely made if made within two (2) Business Days after the 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 C 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 C 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 C
Preferred Units may be exchanged for REIT Series C 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 C Preferred Units prior to November 24,
2008 and after November 24, 2001 if such Holders of a Series C Preferred Units
shall deliver to the General Partner either (i) a private letter ruling
addressed to such Holder of Series C 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 C
Preferred Units at such earlier time would not cause the Series C 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
C 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 C
Preferred Units, if Series C Contributors holding 51% of all outstanding Series
C Preferred Units so determine, may be exchanged in whole but not in part
(regardless of whether held by Series C Contributors) for REIT Series C
Preferred Shares (but only if the exchange in whole may be accomplished
consistently with the ownership limitations set forth under the Series C
Articles Supplementary (as defined herein), taking into account exceptions
thereto) if at any time (i) the Partnership takes the position that assets and
income of the Partnership are such as would not permit the Partnership to
satisfy the income and assets tests of Section 856 of the Code if the
Partnership were a real estate investment trust within the meaning of the Code
or (ii) any Holder of the Series C Preferred Units shall deliver to the
Partnership and the Company an opinion of independent counsel reasonably
acceptable to the Company to the effect that the assets and income of the
Partnership are such as would not permit the Partnership to satisfy the income
and assets tests of Section 856 of the Code if the Partnership were a real
estate investment trust within the meaning of the Code.
(ii) Notwithstanding anything to the contrary set forth in Section
17.7.A(i), if a Series C 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 Series C Exchange Notice, elect to cause
the Partnership to redeem all or a portion of the outstanding Series C Preferred
Units for cash in an amount equal to the original Capital Contribution per
Series C 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 C
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<PAGE>
Preferred Units, the number of Series C 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 C Preferred Units that the total
number of Series C Preferred Units held by such Holder represents) of the
aggregate number of Series C Preferred Units being redeemed.
(iii) In the event an exchange of all Series C Preferred Units
pursuant to Section 17.7.A would violate the provisions on ownership limitation
of the General Partner set forth in Section 7 of Article Third of the Articles
Supplementary to the Charter with respect to REIT Series C Preferred Shares (the
"Series C Articles Supplementary"), each Holder of Series C Preferred Units
shall be entitled to exchange, pursuant to the provisions of Section 17.7.B, a
number of Series C Preferred Units which would comply with the provisions on the
ownership limitation of the General Partner set forth in such Section 7 of
Article Third of the Series C Articles Supplementary, with respect to such
Holder, and any Series C Preferred Units not so exchanged (the "Series C Excess
---------------
Units") shall be redeemed by the Partnership for cash in an amount equal to the
- -----
original Capital Contribution per Series C 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 Series C 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 (other than one or more direct or
indirect parent corporations, limited liability companies or partnerships and
not the holders of any interests in any such parent), the Holder's ownership of
tenants of the Partnership and its affiliates. For purposes of determining the
number of Series C Excess Units under this Section 17.7.A(iii), the "Beneficial
Ownership Limit" and "Constructive Ownership Limit" set forth in the Series C
Articles Supplementary shall be deemed to be 0.8 percentage points less than the
limits set forth in the Series C Articles Supplementary. To the extent the
General Partner would not be able to pay the cash set forth above in exchange
for the Series C Excess Units, and to the extent consistent with the Charter,
the General Partner agrees that it will grant to the Holders of the Series C
Preferred Units exceptions to the Beneficial Ownership Limit and Constructive
Ownership Limit set forth in the Series C Articles Supplementary sufficient to
allow such Holders to exchange all of their Series C Preferred Units for REIT
Series C 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 Series C Limited Partner shall be entitled to effect an
exchange of Series C Preferred Units for REIT Series C 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 C Preferred Shares set forth in the
Charter. To the extent any such attempted exchange for REIT Series C Preferred
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<PAGE>
Shares would be in violation of the previous sentence, it shall be void ab
initio and such Series C Limited Partner shall not acquire any rights or
economic interest in the REIT Series C Preferred Shares otherwise issuable upon
such exchange.
(iv) The redemption of Series C Preferred Units described in Section
17.7.A(ii) and (iii) shall be subject to the provisions of Section 17.4.B(i) and
Section 17.4.C(ii); provided, however, that the term "Series C Redemption Price"
-------- -------
in such Sections 17.4.B(i) and 17.4.C(ii) shall be read to mean the original
Capital Contribution per Series C 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 C Preferred
--------------------------------------------------------------
Units. (i) Any exchange shall be exercised pursuant to a notice of exchange (the
- -----
"Series C Exchange Notice") delivered to the General Partner by the Partners
------------------------
representing at least 51% of the outstanding Series C Preferred Units (or by the
Contributors in the case of an exchange pursuant to the last sentence of Section
17.7.A.(i) hereof) by (a) fax and (b) by certified mail postage prepaid. The
General Partner may effect any exchange of Series C Preferred Units, or exercise
its option to cause the Partnership to redeem any portion of the Series C
Preferred Units for cash pursuant to Section 17.7.A(ii) or redeem Series C
Excess Units pursuant to Section 17.7.A(iii), by delivering to each Holder of
record of Series C Preferred Units, within ten (10) Business Days following
receipt of the Series C Exchange Notice, (a) if the General Partner elects to
cause the Partnership to acquire any of the Series C Preferred Units then
outstanding, (1) certificates representing the Series C Preferred Shares being
issued in exchange for the Series C Preferred Units of such Holder being
exchanged and (2) a written notice (a "Series C Redemption Notice") stating (A)
--------------------------
the redemption date, which may be the date of such Series C Redemption Notice or
any other date which is not later than sixty (60) days following the receipt of
the Series C Exchange Notice, (B) the redemption price, (C) the place or places
where the Series C Preferred Units are to be surrendered and (D) that
distributions on the Series C 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 C Preferred Units then outstanding in exchange for
cash, a Series C Redemption Notice. Series C Preferred Units shall be deemed
canceled (and any corresponding Partnership Interest represented thereby deemed
terminated) simultaneously with the delivery of shares of Series C Preferred
Shares (with respect to Series C Preferred Units exchanged) or simultaneously
with the redemption date (with respect to Series C Preferred Units redeemed).
Holders of Series C Preferred Units shall deliver any canceled certificates
representing Series C 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 C Preferred Units to be exchanged for REIT
Series C Preferred Stock pursuant to this Section 17.7 shall be so exchanged in
a single transaction at one time. As a condition to exchange, the General
Partner may require the Holders of Series C Preferred Units to make such
representations as may be reasonably necessary for the General Partner to
establish that the issuance of REIT Series C Preferred Shares pursuant to the
exchange shall not be required to be registered under the Securities Act or any
state securities
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laws. Any Series C Preferred Shares issued pursuant to this Section 17.7 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 Bylaws of the General Partner, the Securities
Act and relevant state securities or blue sky laws.
The certificates representing the Series C Preferred Shares issued
upon exchange of the Series C 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") AND STATE SECURITIES
LAWS 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 STATE SECURITIES LAWS
AND THE RULES AND REGULATIONS THEREUNDER.
(ii) In the event of an exchange of Series C Preferred Units for REIT
Series C Preferred Shares, an amount equal to the accrued and unpaid
distributions to the date of exchange on any Series C Preferred Units tendered
for exchange shall (i) accrue on the REIT Series C Preferred Shares into which
such Series C Preferred Units are exchanged, and (ii) continue to accrue on such
Series C Preferred Units, which shall remain outstanding following such
exchange, with the General Partner as the Holder of such Series C Preferred
Units. Notwithstanding anything to the contrary set forth herein, in no event
shall a Holder of a Series C Preferred Unit that was validly exchanged for REIT
Series C Preferred Shares pursuant to this section (other than the General
Partner now holding such Series C 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
C Preferred Shares for which such Series C Preferred Unit was exchanged or
redeemed. Further for purposes of the foregoing, in the event of an exchange of
Series C Preferred Units for REIT Shares, if the accrued and unpaid
distributions per Series C Preferred Unit is not the same for each Series C
Preferred Unit, the accrued and unpaid distributions per Series C Preferred Unit
for each such Series C Preferred Unit shall be equal to the greatest amount of
such accrued and unpaid distributions per Series C Preferred Unit on any such
unit.
(iii) Fractional REIT Series C 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
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market value of the REIT Series C 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 C 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 C 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 C Preferred Shares or fraction thereof into which one Series C 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 17.8. No Conversion Rights
--------------------
The Holders of the Series C 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 17.9. No Sinking Fund
---------------
No sinking fund shall be established for the retirement or redemption
of Series C Preferred Units.
ARTICLE 18.
RIGHTS OF CERTAIN LIMITED PARTNERS
Section 18.1. 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. 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
95
<PAGE>
similarly affect the other Limited Partners, such Investor's Partnership Units
shall be voted in accordance with such Investor's direction.
Section 18.2. Redemption Rights
-----------------
A. Pursuant to Section 8.6 hereof, each Common Limited 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 18.2.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 18.2.A and 18.2.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.
Section 18.3. 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
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<PAGE>
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 18.4. 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 18.5. Transfer of Partnership Units
-----------------------------
A. Subject to the provisions of this Section 18.5, 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 18.5 hereof, the transferee shall
be subject to and bound by all of the provisions of this Agreement as if such
transferee were an Investor.
Section 18.6. 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.
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<PAGE>
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 18.7. 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)
98
<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, Sr.
-----------------------------------
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, Sr.
--------------------------------
John B. Kilroy, Sr.
Chairman
KILROY TECHNOLOGIES, LLC
By: /s/ John B. Kilroy, Jr.
--------------------------------
John B. Kilroy, Jr.
President
S-2
<PAGE>
SERIES A LIMITED PARTNER:
BELAIR CAPITAL FUND LLC
By: Eaton Vance Management,
as its Manager
By: /s/ Thomas Otis
--------------------------------
Name: Thomas Otis
Title: Vice President
SERIES C LIMITED PARTNERS:
BELCREST REALTY CORPORATION
By: /s/ Thomas E. Faust, Jr.
--------------------------------
Name: Thomas E. Faust, Jr.
Title: Executive Vice President
BELAIR REAL ESTATE CORPORATION
By: /s/ Thomas E. Faust, Jr.
--------------------------------
Name: Thomas E. Faust, Jr.
Title: Executive Vice Presient
S-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) and 501(c)(3)
of the Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"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
E-1
<PAGE>
Transferee would have acquired or owned Partnership Units for another
Person who 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.
--------------------------------------
(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) 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
E-2
<PAGE>
such Person to violate subsection (b)(i) (rounded up to the nearest whole
Partnership Unit) shall be 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.
---------------------------------------
(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 Delaware 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
E-3
<PAGE>
in accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary; 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 E 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
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 (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
E-4
<PAGE>
shall distribute the net proceeds of the sale to the Purported Record Transferee
and any distributions 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.
(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,
- -------
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
E-5
<PAGE>
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. First Supplement to Second Amended and Restated Agreement of Limited
Partnership of Kilroy Realty, L.P., dated as of March 27, 1998, by and among
Kilroy Realty, L.P. and the other parties named therein.
5. Contribution Agreement and Joint Escrow Instructions, dated as of April 15,
1998, by and between Kilroy Realty, L.P. and Kilroy Calabasas Associates
6. Contribution Agreement, dated as of April 20, 1998, by and among Belair
Capital Fund LLC, Kilroy Realty, L.P. and Kilroy Realty Corporation.
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EXHIBIT G
CONSTRUCTIVE OWNERSHIP DEFINITION
The term "Constructively Owns" means ownership determined through the
application of the constructive ownership rules of Section 318(a) of the Code,
as modified by Section 856(d)(5) of the Code. Generally, these rules provide
the following:
a. an individual is considered as owning the Ownership Interest that is
owned, actually or constructively, by or for his spouse, his children, his
grandchildren, and his parents;
b. an Ownership Interest that is owned, actually or constructively, by or
for a partnership, limited liability company or estate is considered as owned
proportionately by its partners, members or beneficiaries;
c. an Ownership Interest that is owned, actually or constructively, by or
for a trust is considered as owned by its beneficiaries in proportion to the
actuarial interest of such beneficiaries (provided, however, that in the case of
a "grantor trust" the Ownership Interest will be considered as owned by the
grantors);
d. if ten percent (10%) or more in value of the stock in a corporation is
owned, actually or constructively, by or for any person, such person shall be
considered as owning the Ownership Interest that is owned, actually or
constructively, by or for such corporation in that proportion which the value of
the stock which such person so owns bears to the value of all the stock in such
corporation;
e. an Ownership Interest that is owned, actually or constructively, by or
for a partner or member which actually or constructively owns a 25% or greater
capital interest or profits interest in a partnership or limited liability
company, or by or for a beneficiary of an estate or trust, shall be considered
as owned by the partnership, limited liability company, estate, or trust (or, in
the case of a grantor trust, the grantors);
f. if ten percent (10%) or more in value of the stock in a corporation is
owned, actually or constructively, by or for any person, such corporation shall
be considered as owning the Ownership Interest that is owned, actually or
constructively, by or for such person;
g. if any person has an option to acquire an Ownership Interest (including
an option to acquire an option or any one of a series of such options), such
Ownership Interest shall be considered as owned by such person;
h. an Ownership Interest that is constructively owned by a person by
reason of the application of the rules described in paragraphs (a) through (g)
above shall, for purposes of applying paragraphs (a) through (g), be considered
as actually owned by such person provided, however, that (i) an Ownership
Interest constructively owned by an individual by reason of paragraph (a) shall
not be considered as owned by him for purposes of again applying paragraph (a)
in order to make another the constructive owner of such Ownership Interest, (ii)
an Ownership Interest constructively owned by a partnership, estate, trust, or
corporation by reason of the application of paragraphs (e) or (f) shall not be
considered as owned by it for purposes of applying paragraphs (b), (c), or (d)
in order to make another the constructive owner of such Ownership Interest,
(iii) if an Ownership Interest may be considered as owned by an individual under
paragraphs (a) or (g), it shall be considered as owned by him under paragraph
(g) and (iv) for purposes of the above described rules, an S corporation shall
be treated as a partnership and any stockholder of the S corporation shall be
treated as a partner of such partnership except that this rule shall not apply
for purposes of determining whether stock in the S corporation is constructively
owned by any person.
i. For purposes of the above summary of the constructive ownership rules,
the term "Ownership Interest" means the ownership of stock with respect to a
corporation and, with respect to any other type of entity, the ownership of an
interest in either its assets or net profits.
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