<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 1-13375
TOWER REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 13-3938558
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
292 Madison Avenue, 3rd Floor, New York, New York 10017
(Address of Principal Executive Offices)
(Zip Code)
(212) 448-1864
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
The number of shares of common stock, par value $0.01 per share,
outstanding on May 12, 1998 was 16,950,255.
<PAGE> 2
TOWER REALTY TRUST, INC.
Index
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which
involves certain risks and uncertainties. The Company's actual results in future
periods may be materially different from any future performance anticipated
herein. Each forward-looking statement that the Company believes is material is
accompanied by a cautionary statement or statements identifying important
factors that could cause actual results to differ materially from those
described in the forward-looking statement. In the context of forward-looking
information provided in this Quarterly Report on Form 10-Q and in other reports,
please refer to the discussion of risk factors detailed in, as well as the other
information contained in, the Company's filings with the Securities and Exchange
Commission during the past 12 months.
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets of Tower Realty Trust, Inc.
(the "Company") as of March 31, 1998 (Unaudited) and December 31, 1997...... 3
Condensed Consolidated Statement of Operations of the Company for
the Three Months Ended March 31, 1998 (Unaudited) and Condensed
Combined Statement of Operations of Tower Predecessor for the Three
Months Ended March 31, 1997 (Unaudited)..................................... 4
Condensed Consolidated Statement of Cash Flows of the Company for the Three
Months Ended March 31, 1998 (Unaudited) and Condensed Combined Statement of
Cash Flows of Tower Predecessor for the Three Months Ended March 31, 1997... 5
Notes to Condensed Consolidated and Combined Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 18
Item 2. Changes in Securities and Use of Proceeds.............................. 18
Item 3. Defaults Upon Senior Securities........................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.................... 18
Item 5. Other Information...................................................... 18
Item 6. Exhibits and Reports on Form 8-K....................................... 18
Signatures...................................................................... 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Real estate $ 642,203 $ 620,557
Less: accumulated depreciation (6,247) (2,444)
--------- ---------
635,956 618,113
Deferred charges, net 10,745 11,495
Receivables, net 4,283 3,820
Cash and cash equivalents 35,398 1,347
Escrowed cash 6,212 6,373
Other assets 9,212 12,537
Investments in joint ventures 2,614 2,411
--------- ---------
Total assets $ 704,420 $ 656,096
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt on real estate $ 228,939 $ 228,990
Line of credit 45,900 --
Accounts payable and accrued liabilities 6,274 7,494
Distributions payable 7,873 6,543
Deferred real estate taxes 10,017 9,758
Other liabilities 7,731 6,602
Amounts due to affiliates 514 372
--------- ---------
Total liabilities 307,248 259,759
--------- ---------
Minority interest in Operating Partnership net of
dividends declared 36,503 33,920
--------- ---------
Stockholders' equity:
Preferred shares 50,000,000 shares authorized,
none issued and outstanding -- --
Common shares, .01 par value, 150,000,000 shares
authorized, 16,920,455 shares issued and outstanding 169 169
Additional paid in capital 364,469 364,250
Distribution in excess of accumulated earnings (3,969) (2,002)
--------- ---------
Total stockholders' equity 360,669 362,417
--------- ---------
Total liabilities and stockholders' equity $ 704,420 $ 656,096
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Tower
The Company Predecessor
(Consolidated) (Combined)
For the Three For the Three
Months Ended Months Ended
March 31, 1998 March 31, 1997
---------------- --------------
<S> <C> <C>
Revenues
Rental income $ 25,750 $ 6,945
Management fees -- 257
Construction, leasing and other fees 194 498
----------- -----------
Total revenue 25,944 7,700
----------- -----------
Expenses
Property operating and maintenance 5,623 1,350
Real estate taxes 3,612 1,196
General and administrative 2,128 1,095
Interest expense 4,613 3,485
Depreciation and amortization 4,323 1,698
Ground rent/air rights expense 171 150
----------- -----------
Total expenses 20,470 8,974
----------- -----------
Equity in income of joint ventures and unconsolidated
subsidiaries 203 34
----------- -----------
Net income (loss) before minority interest 5,677 (1,240)
Minority interest 496 --
----------- -----------
Net income (loss) $ 5,181 $ (1,240)
=========== ===========
Net income per common share - basic and dilutive $ .31
===========
Weighted average number of common shares outstanding 16,920,455
Effect of dilutive securities --
-----------
Weighted average number of dilutive shares outstanding 16,920,455
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Tower
The Company Predecessor
(Consolidated) (Combined)
For the Three For the Three
Months Ended Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 5,181 $ (1,240)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 4,323 1,698
Amortization of deferred financing costs 142 172
Unbilled rental income (1,529) 153
Equity in income of joint ventures and unconsolidated (203) --
subsidiaries
Changes in assets and liabilities
Receivables 1,066 (1,327)
Escrowed cash (161) (114)
Other assets 3,325 (386)
Deferred real estate taxes 259 --
Accounts payable and other liabilities 1,781 1,068
Minority interest 228 --
Other liabilities and amounts due to affiliates 1,362 2,907
-------- --------
Net cash provided by operating activities 15,774 2,931
-------- --------
Cash flows from investing activities
Acquisitions of real estate, joint venture interests and deferred charges (17,349) (750)
Property and tenant improvements (3,680) (693)
-------- --------
Net cash used in investing activities (21,029) (1,443)
-------- --------
Cash flows from financing activities
Proceeds from debt on real estate and other debt 45,900 474
Repayments of debt on real estate (3,269)
Partners' contributions, net (51) 1,165
Distributions to limited partners (560) --
Distributions to common stockholders (5,983) --
-------- --------
Net cash provided by (used in) financing activities 39,306 (1,630)
-------- --------
Net increase (decrease) in cash and cash equivalents 34,051 (142)
Cash and cash equivalents, beginning of period 1,347 4,985
-------- --------
Cash and cash equivalents, end of period $ 35,398 $ 4,843
======== ========
</TABLE>
Note: The cash flows of the Company from March 27, 1997 through March 31, 1997
were not material and therefore have not been included on this statement
(see Note 1).
The accompanying notes are an integral part of these financial statements.
5
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation:
Tower Realty Trust, Inc.
Tower Realty Trust, Inc. (collectively with its subsidiaries, the
"Company") was incorporated in the state of Maryland on March 27, 1997.
The Company operates so as to qualify as a real estate investment trust
("REIT") for federal income tax purposes. As of October 16, 1997, the
Company consummated an initial public offering (the "Offering") of
13,817,250 shares of common stock, par value $0.01 per share (the
"Common Stock") (including the exercise of the underwriters'
over-allotment option of 1,802,250 shares) and effected concurrent
private placements (the "Concurrent Private Placements") of 1,153,845
shares of Common Stock at a price of $26.00 per share and realized net
proceeds therefrom of approximately $353.35 million. In addition, in
connection with the formation transactions (the "Formation
Transactions") relating to the Offering, including the acquisition of
certain property interests and the cancellation of certain indebtedness,
the Company issued 1,949,360 shares of Common Stock. Upon consummation
of the Offering, the Company acquired a sole 1% general partner interest
in Tower Realty Operating Partnership, L.P., a Delaware limited
partnership (the "Operating Partnership"), and a 91.4% limited partner
interest in the Operating Partnership. At March 31, 1998, the Company
had a 1% general partnership interest and a 89.9% limited partner
interest in the Operating Partnership.
The Company was formed to continue and expand the commercial real estate
business of Tower Equities & Real Estate Corp. and its affiliates
(collectively with its predecessor entities and affiliates, "Tower
Equities"), including developing, acquiring, owning, renovating,
managing, and leasing office properties in the Manhattan, Phoenix,
Tucson, and Orlando markets. Upon consummation of the Offering and the
Formation Transactions, the Operating Partnership owned or had interests
in 21 office properties (the "Initial Properties"). On December 31,
1997, the Company purchased the approximately 700,000 square foot office
tower located at 810 Seventh Avenue in Midtown Manhattan for
approximately $150.0 million, including closing costs, and on January
16, 1998, the Company purchased the approximately 126,000 square foot
Blue Cross/Blue Shield office complex located in Phoenix, Arizona for
$16.9 million (see Note 2). The Initial Properties, together with the
810 Seventh Avenue and Blue Cross/Blue Shield properties, are
collectively referred to as the "Properties." The Company also owns or
has an option to acquire four parcels of land adjacent to four
properties (the "Development Parcels"), which can support 2.2 million
rentable square feet of development. In November 1997, the Company
exercised its option to purchase one of the optioned Development Parcels
located in Phoenix, Arizona for approximately $10.3 million.
On March 31, 1997 interests in certain partnerships, properties and
limited liability companies were contributed to the Operating
Partnership in exchange for units of limited partnership interest in the
Operating Partnership (the "OP Units"). Certain of these interests were
owned by the Operating Partnership after consummation of the Offering.
Simultaneously with such contribution of interests, the Company issued
$12.3 million of notes to certain investors advised by Morgan Stanley
Asset Management, Inc. ("MSAM"). The notes were collateralized by
certain of the Properties. Upon completion of the Offering, all notes
were converted into Common Stock of the Company.
The net proceeds from the Offering were contributed to the Operating
Partnership in exchange, in part, for the Company's approximate 91.4%
interest therein. The Operating Partnership used the proceeds received
from the Company, the $107.0 million net cash proceeds from the
Company's term loan facility (the "Term Loan"), borrowed concurrent with
and subsequent to the Offering and approximately $12.3 million of
proceeds received from MSAM from the conversion of the Notes into common
stock, as follows: (i) approximately $281.0 million for repayment of
certain indebtedness (including associated prepayment penalties)
relating to the Initial Properties and the partnerships that own the
Initial Properties (the "Property
6
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--
(Continued)
Partnerships"), (ii) approximately $137.0 million to acquire certain
equity, debt and fee interests in the Initial Properties; (iii)
approximately $3.1 million to pay for commitment fees and expenses
related to the Term Loan and the Company's $200.0 million unsecured line
of credit (the "Line of Credit"); (iv) approximately $3.0 million to pay
transfer taxes and other expenses associated with the acquisition of the
Initial Properties; and (v) the remaining approximately $48.6 million
for working capital.
The Tower Equities management and leasing companies and Properties
Atlantic, Inc. management and leasing company (which, prior to the
Offering, was controlled and operated by Clifford Stein, Managing
Director, Southeast Region of the Company) contributed an undivided 95%
interest in the assets of such companies to the Operating Partnership,
which, in turn, recontributed such assets to Tower Equities Management,
Inc. (the "Management Company") in exchange for 100% of the non-voting
stock and 5% of the voting stock in the Management Company (which
entitles the Company to receive 95% of the dividends of the Management
Company).
The Management Company and each of the members of Tower Equities that
hold interests in seven retail properties that continue to be owned by
Tower Equities after the consummation of the Offering (the "Excluded
Properties") entered into management agreements with respect to each of
the Excluded Properties. In consideration for the services to be
provided under the management agreements, the Management Company
receives a property management fee and applicable construction fees and
leasing commissions which are determined by reference to existing market
areas for similar transactions.
Tower Predecessor
The following entities comprising the Tower Predecessor were controlled
and managed by Tower Equities, all of which were controlled by Lawrence
H. Feldman, Chairman of the Board, Chief Executive Officer and President
of the Company:
<TABLE>
<CAPTION>
Lawrence H. Feldman's
Ownership Percentage Location
--------------------- ------------------
<S> <C> <C>
Tower 45 6% New York City
120 Mineola Boulevard 5% Long Island, NY
Maitland Forum 15% Maitland, FL
Maitland Center Parkway (3 properties) 90% Maitland, FL
5750 Major Boulevard (purchased in October 1996) 6% Orlando, FL
Management Companies 90% New York City and
Maitland, FL
</TABLE>
Lawrence H. Feldman owned a majority general partnership interest in the
partnerships owning these properties. Accordingly, the Tower Predecessor
financial statements reflect, on a combined basis, 100% of the assets,
liabilities and operations of these properties.
Lawrence H. Feldman held a non-controlling interest in the partnerships
that owned the following properties listed below. Lawrence H. Feldman
was a general partner in these partnerships, and DRA Advisors, Inc.
("DRA") was the managing general partner. These properties are
collectively referred to as the DRA Joint Ventures. The Tower
Predecessor financial statements reflect the investments in the DRA
Joint Ventures using the equity method of accounting. Upon consummation
of the Offering, the Company purchased all of the partnership interests
in the DRA Joint Ventures:
7
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--
(Continued)
<TABLE>
<CAPTION>
Lawrence H. Feldman's
Ownership Percentage Location
---------------------- -----------------------
<S> <C> <C>
286 Madison Avenue 3% New York City
290 Madison Avenue 3% New York City
292 Madison Avenue 3% New York City
Corporate Center Building (6 properties) 20% Phoenix, AZ
5151 East Broadway 3% Tucson, Arizona
One Orlando Center 3% Orlando, Florida
</TABLE>
Lawrence H. Feldman also held a 3.8% non-controlling interest in a
partnership controlling the 2800 North Central Avenue Property ("2800
North Central"). The Tower Predecessor financial statements reflect this
investment using the equity method of accounting. The Company, upon
consummation of the Offering, acquired this interest and the interests
of Tower Equities (10% aggregate interest).
Basis of Presentation
The condensed consolidated balance sheet of the Company as of March 31,
1998, and the related condensed consolidated statement of operations and
cash flows for the three month period ended March 31, 1998 are
unaudited. The condensed combined statement of operations and cash flows
of Tower Predecessor as of March 31, 1997 are also unaudited. The
condensed consolidated balance sheet as of December 31, 1997 has been
derived from the audited consolidated financial statements of the
Company as presented in the Company's Annual Report on Form 10-K as of
December 31, 1997. The financial statements of the Company and Tower
Predecessor have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they
do not include all of the disclosures required by generally accepted
accounting principles for a complete presentation of these financial
statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation of
the financial statements for these interim periods have been included.
The results for the three months ended March 31, 1998 are not
necessarily indicative of the results to be obtained for the full fiscal
year. These financial statements should be read in conjunction with the
December 31, 1997 audited financial statements and notes thereto,
included in its annual report on Form 10-K for the fiscal year ended
December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses
during the reporting period. The most significant estimates and
assumptions are related to the recoverability and depreciable lives of
real estate. Actual results could differ from those estimates.
Net income per common share has been computed by dividing net income
applicable to common stockholders by the weighted average number of
Common Shares outstanding (16,920,455). A total of 975,000 shares were
reserved for issuance under stock options. The effect of the outstanding
options has been excluded from the calculation of net income per common
share as these options had an antidilutive effect in the current period.
8
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--
(Continued)
2. Acquisition of Real Estate:
During the three months ended March 31, 1998, the Company, through the
Operating Partnership, acquired the Blue Cross/Blue Shield office
complex, an approximately 126,000 square foot twin office building
located in the Northwest submarket of Phoenix, Arizona for $16.9
million. In conjunction with this acquisition, the Company drew down
funds from its Line of Credit (see Note 3).
3. Line of Credit:
Upon consummation of the Offering, the Company entered into a $200.0
million Line of Credit with Merrill Lynch Capital Corporation. The Line
of Credit may be used, among other things, to finance acquisitions of
additional office properties, to refinance existing indebtedness, and
for general working capital requirements. In the first quarter of 1998,
the Company drew down $45.9 million on the Line of Credit. These funds
were primarily drawn upon for the acquisition of the Blue Cross/Blue
Shield office complex in Phoenix, the pending closing of the acquisition
of the property located at 90 Broad Street in New York City (the "90
Broad Property") and to fund capital improvements for the properties.
Due to the extension of the final closing on 90 Broad Property, funds
drawn for that closing were returned in early April 1998 (See Note 8).
The final closing of the 90 Broad Property occurred on May 6, 1998, for
which the Company subsequently drew down approximately $29.0 million on
its Line of Credit. As of March 31, 1998, approximately $45.9 million
was outstanding under the Line of Credit.
In conjunction with its Line of Credit, the Company must maintain
certain financial ratios:
i. Total outstanding indebtedness must not exceed 55% of Total Value
(as defined in the Line of Credit) during the first year of the
facility and must not exceed 50% thereafter.
ii. Collateral indebtedness must not exceed 40% of Total Value (as
defined) during the first year of the facility and 35%
thereafter.
iii. Recourse indebtedness cannot exceed 5% of Total Value
(as defined).
iv. Other financial covenants that must be met by the Company include
interest expense and fixed charges to debt ratios, among others.
As of March 31, 1998, the Company has complied with the financial debt
covenants.
As a general policy, the Company intends to maintain a debt policy
limiting the Company's total consolidated indebtedness plus its pro rata
share of joint venture debt to 50% of the Company's total market
capitalization. As of March 31, 1998, the debt to total market
capitalization, including the Company's 10% interest in the debt of 2800
North Central, was 43%. This includes amounts which were drawn relating
to the pending acquisition of the 90 Broad Property, for which title had
not transferred to the Company as of that date.
The Company pays interest on the outstanding amounts on the Line of
Credit at LIBOR (London Interbank Offered Rate) plus 150 basis points
(weighted average of 7.3% for the three months ended March 31, 1998).
Interest expense on the Line of Credit for the period ended March 31,
1998 amounted to approximately $330,000.
In connection with the acquisition of 810 Seventh Avenue, the Company
incurred a $100 million mortgage loan from Credit Suisse First Boston
Mortgage Capital LLC that matures on December 31, 1998. The
9
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--
(Continued)
Company is currently refinancing the $100.0 million mortgage payable
related to 810 Seventh Avenue with a fixed rate mortgage in the amount
of approximately $75.0 million, payable at rates approximately 120 basis
points over the 10-year treasury rate, together with a drawdown on the
Line of Credit in the amount of approximately $25 million. It is
expected that this new mortgage debt will be subject to an increase to
approximately $90.0 million over a six to nine month period subject to
the satisfaction of certain leasing criteria.
4. Distribution:
On March 17, 1998, the Company declared a cash distribution for the
first quarter of 1998 in the amount of $.4225 per share and OP Unit
which was paid on April 15, 1998 to stockholders and OP Unitholders of
record on March 31, 1998. The distributions were paid in April 1998
totaling approximately $7.8 million.
On December 19, 1997, the Company declared a cash distribution for the
period from October 16, 1997 through December 31, 1997 in the amount of
$.3536 per share or OP Unit which was paid on January 19, 1998 to
stockholders and OP Unitholders of record as of December 31, 1997. The
distributions were paid in January 1998 totalling approximately $6.5
million.
5. Supplemental Disclosure of Non-Cash Investing and Financing Activities:
The Company issued 129,032 OP Units on March 6, 1998 relating to the
contribution to the Operating Partnership of the entity that held the
management agreement related on the 810 Seventh Avenue property.
6. Recently Issued Accounting Standards:
The Company adopted the Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 specifies the presentation and disclosure
requirements for reporting comprehensive income, which includes items
which have been formerly reported as a component of stockholders'
equity. SFAS 130 does not have an impact on the Company's financial
statements.
During 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") and Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use"
("SOP 98-1"), which are effective for the fiscal years beginning after
December 15, 1998. In addition, the Emerging Issues Task Force of the
Financial Accounting Standards Board released Issue No. 97-11
"Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" ("EITF 97-11").
SOP 98-5 requires that certain costs incurred in conjunction with
start-up activities be expensed. SOP 98-1 provides guidance on whether
the costs of computer software developed or obtained for internal use
should be capitalized or expensed. EITF 97-11 requires that the internal
pre-acquisition costs of identifying and acquiring operating property be
expensed as incurred.
Management believes that, when adopted, SOP 98-5 and SOP 98-1 will not
have a significant impact on the Company's financial statements. EITF
97-11 was adopted during the first quarter of fiscal 1998 and resulted
in the Company having to expense internal property acquisition costs
they would have otherwise capitalized.
10
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--
(Continued)
7. Commitments and Contingencies:
The Company is party to and has become a successor party-in-interest to
certain legal proceedings arising in the ordinary course of business.
The Company believes it has adequate insurance and does not expect that
these proceedings, in the aggregate, will have a material adverse effect
on the operations, cash flows or financial position of the Company.
8. Subsequent Events:
On May 6, 1998, the Company acquired the 90 Broad Property, a 335,000
square foot, 25 story downtown New York City office building located in
the center of the city's financial district, for approximately $34.3
million. In connection therewith, the Company drew down an additional
$29.0 million under the Line of Credit.
On April 18, 1998, Mr. Joseph D. Kasman resigned as Senior Vice
President and Chief Financial Officer of the Company. Pursuant to, and
under the terms and conditions of, his employment agreement with the
Company, severance payments will be payable over the course of a
12-month period in monthly installments of approximately $46,000.
9. Pro Forma Financial Information (Unaudited):
Due to the impact of the Offering and the Formation Transactions, the
Properties acquired concurrent with and subsequent to the Offering
(including the acquisition of the 90 Broad Property as discussed in Note
8), the historical results of operations are not indicative of future
results of operations. The following Pro Forma Information for the three
months ended March 31, 1998 and March 31, 1997 are presented as if the
Offering and the Formation Transactions and all property acquisitions,
including the acquisitions of the Blue Cross/Blue Shield office complex
and the 90 Broad Property, which occurred subsequent to December 31,
1997, had occurred at January 1, 1998 and 1997. The pro forma
information is based upon historical information and does not purport to
present what actual results would have been had such transactions, in
fact, occurred at January 1, 1998 and 1997, or to projected results for
any future periods.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited)
----------------------------
1998 1997
------------ ------------
(in thousands,
except per share data)
<S> <C> <C>
Total revenues $ 27,432 $ 25,290
Net income $ 5,213 $ 4,723
Net income per common share - basic and dilutive $ .31 $ .28
</TABLE>
10. Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
11
<PAGE> 12
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995, which involves certain risks and uncertainties. The Company's
actual results in future periods may be materially different from any
future performance anticipated herein. Each forward-looking statement
that the Company believes is material is accompanied by a cautionary
statement or statements identifying important factors that could cause
actual results to differ materially from those described in the
forward-looking statement. In the context of forward-looking information
provided in this Quarterly Report on Form 10-Q and in other reports,
please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Company's filings with the
Securities and Exchange Commission during the past 12 months.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview and Recent Developments
The Company was incorporated in the State of Maryland on March 27, 1997.
The Company operates so as to qualify as a REIT for federal income tax
purposes. As of October 16, 1997, the Company consummated the Offering
of 13,817,250 shares of Common Stock (including the exercise of the
underwriters' over-allotment option of 1,802,250 shares) and effected
the Concurrent Private Placements of 1,153,845 shares of Common Stock at
a price of $26.00 per share and realized net proceeds therefrom of
approximately $353.35 million. In addition, in connection with the
Formation Transactions relating to the Offering, including the
acquisition of certain property interests and the cancellation of
certain indebtedness, the Company issued 1,949,360 shares of Common
Stock. Upon consummation of the Offering, the Company acquired a sole 1%
general partner interest in the Operating Partnership, and a 91.4%
limited partner interest in the Operating Partnership. At March 31,
1998, the Company had a 1% general partner interest and a 89.9% limited
partner interest in the Operating Partnership.
The Company was formed to continue and expand the commercial real estate
business of Tower Equities, including developing, acquiring, owning,
renovating, managing, and leasing office properties in the Manhattan,
Phoenix, Tucson and Orlando markets. Upon consummation of the Offering
and the Formation Transactions, the Operating Partnership owned or had
interests in the Initial Properties. On December 31, 1997, the Company
purchased the approximately 700,000 square foot office located at 810
Seventh Avenue in Midtown Manhattan for approximately $150.0 million,
including closing costs, and on January 16, 1998, the Company purchased
the approximately 126,000 square foot Blue Cross/Blue Shield office
complex located in Phoenix, Arizona for $16.9 million. The Company also
owns or has an option to acquire the Development Parcels, which can
support 2.2 million rentable square feet of development. In November
1997, the Company exercised its option to purchase one of the optioned
Development Parcels located in Phoenix, Arizona for approximately $10.3
million.
On March 31, 1997 interests in certain partnerships, properties and
limited liability companies were contributed to the Operating
Partnership in exchange for OP Units in the Operating Partnership.
Certain of these interests were owned by the Operating Partnership
after consummation of the Offering. Simultaneously with such
contributions of interests, the Company issued $12.3 million of notes
to certain investors advised by MSAM. The notes were collateralized by
certain of the properties. Upon completion of the Offering, all notes
were converted into Common Stock of the Company.
Results of Operations
The results of operations for the three month period ended March 31,
1998 and the three month period ended March 31, 1997 include the
operations of the Company and Tower Predecessor, respectively.
Consequently, the comparison of the periods provides only limited
information regarding the operations of the Company as currently
constituted.
12
<PAGE> 13
Comparison of Three Months Ended March 31, 1998 to the Three Months
Ended March 31, 1997
Total revenues increased by $18.2 million, or 236.9%, to $25.9 million
in 1998 as compared to $7.7 million in 1997. Rental income increased by
$18.8 million, or 270.6%, to $25.7 million in 1998 as compared to $6.9
million in 1997, primarily as a result of the Properties acquired
concurrent with and subsequent to the Offering, as described above.
Rental income for the three months ended March 31, 1998 included (i)
$7.8 million of rental income from the Properties previously held by DRA
(these properties were reflected as an 18% investment on the equity
method of accounting by Tower Predecessor) and (ii) rental revenues of
$9.8 million from 100 Wall, Century Plaza, 810 Seventh Avenue and the
Blue Cross/Blue Shield office complex, properties acquired concurrent
with or subsequent to the Offering. The remaining increase in rental
income can be attributed to an increase in base rent, primarily
resulting from (i) an increase in leasing activity from the date of the
Offering and (ii) additional unbilled rent resulting from the effect of
re-straightlining the lease payments over the remaining lease terms from
the date of the Offering.
Management fee income decreased by $0.2 million, or 100.0% to $0 in
1998. These fees relate to services provided to the Properties (which
have been eliminated since the consummation of the Offering) as well as
services to third-party properties (which fees are reflected in the
Management Company in 1998).
Total expenses in 1998 increased by $11.5 million, or 128.1%, to $20.4
million from $8.9 million in 1997 primarily as a result of the inclusion
of the DRA Properties and the properties purchased concurrent with and
subsequent to the Offering. Expenses, excluding interest and
depreciation and amortization, as a percentage of total revenue
decreased from 49.2% in 1997 to 44.5% in 1998, reflecting economies of
scale realized from spreading fixed costs over larger total revenues.
Property operating and maintenance increased as a percentage of revenue
due to the inclusion of the properties located in Arizona, where utility
costs are typically higher. The components of expenses, excluding
interest and depreciation and amortization, as a percentage of total
revenue are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------
1998 1997
--------- ----------
<S> <C> <C>
Property operating and maintenance 21.7% 17.5%
Real estate taxes 13.9 15.5
General and administrative 8.2 14.2
Ground rent/air rights 0.7 2.0
------- --------
Total 44.5% 49.2%
======= ========
</TABLE>
Interest expense increased by $1.2 million to $4.7 million in 1998 as
compared to $3.5 million in 1997 as a result of new acquisitions,
utilization of the Line of Credit and proceeds from the Term Loan for
new acquisitions and capital expenditures.
Depreciation and amortization increased by $2.4 million, or 141.2%, to
$4.1 million in 1998 as compared to $1.7 million in 1997 due to
depreciation of additional properties in 1998 as compared to 1997.
Equity in joint ventures and unconsolidated subsidiaries increased by
approximately $.2 million primarily as a result of the operations of the
Management Company, which is accounted for as an unconsolidated
subsidiary in 1998.
Minority interest, which did not exist at March 31, 1997, pertains to
interests in certain partnerships, properties and Properties Atlantic
which were contributed to the Operating Partnership in exchange for OP
Units concurrent with and subsequent to the Offering.
13
<PAGE> 14
Net income increased by $6.3 million to $5.1 million in 1998 as compared
to a net loss of $1.2 million in 1997, as a result of the acquisition of
properties and other reasons.
Funds From Operations
The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. "Funds from
Operations", as defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), means net income (computed in accordance
with GAAP), excluding gains (or losses) from debt restructurings and
gains (losses) on sales of property, plus depreciation and amortization
on real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that in order to
facilitate a clear understanding of the historical operating results of
the Company, Funds from Operations should be considered in conjunction
with net income (loss), determined in accordance with GAAP, as presented
in the unaudited consolidated and combined financial statements of the
Company and Tower Predecessor, respectively, and notes thereto included
elsewhere in the Form 10-Q. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income, determined in
accordance with GAAP, as an indication of the Company's performance or
to cash flows from operating activities, determined in accordance with
GAAP, as a measure of liquidity or ability to make distributions.
The following is a reconciliation of Net Income to Funds from Operations
for the three months ended March 31, 1998 and March 31, 1997.
<TABLE>
<CAPTION>
The Company Tower Predecessor
Consolidated Combined
Three Months Ended Three Months Ended
March 31,1998 March 31,1997
------------------------ ------------------------
<S> <C> <C>
Net income $ 5,181 $ (1,240)
Add:
Real estate depreciation and amortization 4,323 1,698
Real estate depreciation and amortization of
unconsolidated joint venture 8 203
Minority interest 496 -
------------ -----------
Funds from Operations $ 10,008 $ 661
============ ===========
Funds from Operations available
for Stockholders $ 9,133
============
</TABLE>
Liquidity and Capital Resources
Cash and cash equivalents were $35.4 million and $1.3 million at March
31, 1998 and December 31, 1997, respectively. The significant increase
in cash and cash equivalents is a result of drawing down of $45.9
million on the Line of Credit and cash flows from operations of $15.8
million, net of approximately $21.0 million for additions to real estate
(primarily as a result of the $16.9 million purchase of the Blue
Cross/Blue Shield office complex), and $6.5 million relating to
distributions to stockholders and OP Unitholders.
The remaining cash at March 31, 1998 was available to complete the
purchase of the 90 Broad Property. This transaction was not completed in
early April, as anticipated, and excess funds in the amount of $25.5
million were returned to the lender of the Line of Credit on April 3,
1998, pending completion of the
14
<PAGE> 15
acquisition. The remaining cash was utilized to make the April 15, 1998
$7.8 million distribution to stockholders and OP Unitholders.
The Company believes that its principal short-term liquidity needs are
to fund normal recurring expenses, debt service requirements, and
deferred real estate taxes. The Properties require periodic investment
of capital for tenant-related capital expenditures and for general
capital improvements. In addition, the Company has adopted a policy of
paying regular quarterly distributions on its Common Stock and OP Units.
Based upon its cash and cash equivalents as of March 31, 1998, its
expected cash flows from operations and the funds available under the
Line of Credit, the Company expects to meet its cash requirements for
the foreseeable future.
The Line of Credit has a three-year term and bears interest at the rate
of approximately 150 basis points over LIBOR (London Interbank Offered
Rate). As of March 31, 1998, $45.9 million was outstanding under the
Line of Credit.
In conjunction with its Line of Credit the Company must maintain certain
financial ratios:
i. Total outstanding indebtedness must not exceed 55% of
Total Value (as defined in the Line of Credit) during the
first year of the facility and must not exceed 50%
thereafter.
ii. Collateral indebtedness must not exceed 40% of Total Value
(as defined) during the first year of the facility and 35%
thereafter.
iii. Recourse indebtedness cannot exceed 5% of Total Value (as
defined).
iv. Other financial covenants that must be met by the Company
include interest expense and fixed charges to debt ratios,
among others.
As of March 31, 1998, the Company has complied with the financial debt
covenants.
As a general policy, the Company intends to maintain a debt policy
limiting the Company's total consolidated indebtedness plus its pro rata
share of joint venture debt to 50% of the Company's total market
capitalization. As of March 31, 1998, the debt to total market
capitalization, including the Company's 10% interest in the debt of 2800
North Central, was 43%. This includes amounts which were drawn relating
to the pending acquisition of the 90 Broad Property, for which title had
not transferred to the Company as of that date.
In connection with the acquisition of 810 Seventh Avenue, the Company
incurred a $100 million mortgage loan from Credit Suisse First Boston
Mortgage Capital LLC that matures on December 31, 1998. The Company is
currently refinancing the $100.0 million mortgage payable related to 810
Seventh Avenue with a fixed rate mortgage in the amount of approximately
$75.0 million, payable at rates approximating 120 basis points over the
10-year treasury rate, together with a drawdown on the Company's Line of
Credit in the amount of approximately $25.0 million. This mortgage debt
will be subject to an increase to $90.0 million over a six to nine month
period subject to certain conditions.
Inflation
The Company's leases with the majority of its tenants require the
tenants to pay most operating expenses, including insurance and real
estate taxes, and increases in common area maintenance expenditures
which partially offsets the Company's exposure to increases in costs and
operating expenses resulting from inflation.
15
<PAGE> 16
Year 2000
The year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Any of the Company's computer programs, or computer programs of the
Company's vendors, suppliers, tenants, or lenders, that have
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure,
delays, or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activity.
The Company is currently in the process of completing its assessment of
the impact of the year 2000 on its computer systems and property
operations. Based on the results of their preliminary assessment, the
Company does not believe that the year 2000 will have a material impact
on the results of operations, cash flows or financial position of the
Company.
Environmental Matters
The Company is not aware of any environmental issues at any of its
Properties. The Company believes it has sufficient insurance coverage at
each of its properties.
Other
The Company is obligated, in accordance with its lease provisions, to
provide certain tenants with tenant improvements.
Subsequent Events
On May 6, 1998, the Company acquired the 90 Broad Property, a 335,000
square foot, 25 story downtown New York City office building located in
the center of the city's financial district, for approximately $34.3
million. In connection therewith, the Company drew down an additional
$29.0 million under the Line of Credit.
On April 18, 1998, Mr. Joseph D. Kasman resigned as Senior Vice
President and Chief Financial Officer of the Company. Pursuant to, and
under the terms and conditions of, his employment agreement with the
Company, severance payments will be payable over the course of a
12-month period in monthly installments of approximately $46,000.
Recently Issued Accounting Standards
The Company adopted the Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 specifies the presentation and disclosure
requirements for reporting comprehensive income, which include items
which have been formerly reported as a component of stockholders'
equity. SFAS 130 does not have an impact on the Company's financial
statements.
During 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") and Statement of Position 98-1 "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use"
("SOP 98-1"), which are effective for the fiscal years beginning after
December 15, 1998. In addition, the Emerging Issues Task Force of the
Financial Accounting Standards Board released Issue No. 97-11
"Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" ("EITF 97-11").
SOP 98-5 requires that certain costs incurred in conjunction with
start-up activities be expenses. SOP 98-1 provides guidance on whether
the costs of computer software developed or obtained for internal use
should
16
<PAGE> 17
be capitalized or expensed. EITF 97-11 requires that the internal
pre-acquisition costs of identifying and acquiring operating property be
expensed as incurred.
Management believes that, when adopted, SOP 98-5 and SOP 98-1 will not
have a significant impact on the Company's financial statements. EITF
97-11 was adopted during the first quarter of fiscal 1998 and resulted
in the Company having to expense internal property acquisition costs
they would have otherwise capitalized.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is party to and has become a successor party-in-interest to
certain legal proceedings arising in the ordinary course of business.
The Company believes it has adequate insurance and does not expect that
these proceedings, in the aggregate, will have a material adverse effect
on the operations, cash flows or financial position of the Company.
Item 2. Changes in Securities and Use of Proceeds.
On March 6, 1998, the Operating Partnership privately issued 129,032
Class B OP Units in connection with the acquisition of the entity that
held the management contract on the 810 Seventh Avenue property. At the
time of the issuance, the Class B OP Units were valued at $23.25 per
unit. On April 1, 1998, the Class B OP Units automatically converted
into standard OP Units. The Operating Partnership's private issuance of
these OP Units was made in reliance on an exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Mortgages and Notes Payable.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
The exhibits listed in the Exhibit Index immediately preceding
the exhibits are filed as part of this Quarterly Report on Form
10-Q.
b) Reports on Form 8-K:
A current report on Form 8-K, dated December 31, 1997 and filed
on January 14, 1998 and Form 8-K/A, dated December 31, 1997 and
filed on March 2, 1998, was filed by the Company with respect to
the acquisition by a wholly-owned subsidiary of the Company of
an office building located at 810 Seventh Avenue in New York
City.
18
<PAGE> 19
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 thereunto duly authorized.
TOWER REALTY TRUST, INC.
Date: May 15, 1998 By: /s/ Lester S. Garfinkel
---------------------------------------------
Name: Lester S. Garfinkel
Title: Executive Vice President -- Finance and
Administration and Chief Financial
Officer (Principal Financial and
Accounting Officer)
19
<PAGE> 20
Exhibit Index
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q.
Exhibit No. Description
- ----------- -----------
2.1+ Sale-Purchase Agreement, dated December 31, 1997, between 810
Partners LLC and BHONE Corp., as sellers, and 810 7th Avenue,
L.P., as purchaser
2.2+ Loan Agreement, dated December 31, 1997, by and between Credit
Suisse First Boston Mortgage Capital LLC, as lender, and 810
7th Avenue, L.P., as borrower
2.3+ Consolidated, Amended and Restated Mortgage Note, dated
December 31, 1997, between Credit Suisse First Boston Mortgage
Capital LLC and 810 7th Avenue, L.P.
2.4+ Agreement of Principal, dated December 31, 1997, by Tower
Realty Operating Partnership, L.P. to Credit Suisse First
Boston Mortgage Capital LLC
10.1 Second Amendment and Restatement of Agreement of Limited
Partnership of Tower Realty Operating Partnership, L.P., dated
March 6, 1998
27.1 Financial Data Schedule
- ---------------
+ Incorporated by reference to the Company's Current Report on Form 8-K, dated
December 31, 1997.
<PAGE> 1
Exhibit 10.1
SECOND AMENDMENT AND RESTATEMENT OF
AGREEMENT OF LIMITED PARTNERSHIP
OF
TOWER REALTY OPERATING PARTNERSHIP, L.P.
March 6, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINED TERMS..........................................................................1
ARTICLE 2
ORGANIZATIONAL MATTERS................................................................13
2.1 Formation.......................................................................13
2.2 Name............................................................................14
2.3 Registered Office and Agent; Principal Office...................................14
2.4 Power of Attorney...............................................................14
2.5 Term............................................................................16
ARTICLE 3
PURPOSE...............................................................................16
3.1 Purpose and Business............................................................16
3.2 Powers..........................................................................17
ARTICLE 4
CAPITAL CONTRIBUTIONS.................................................................18
4.1 Capital Contributions of the Partners...........................................18
4.2 Additional Funds; Restrictions on the General Partner...........................18
4.3 Issuance of Additional Partnership Interests; Admission of Additional Limited
Partners........................................................................20
4.4 Contribution of Proceeds of Issuance of REIT Stock..............................21
4.5 Repurchase of REIT Stock; Shares-In-Trust.......................................22
4.6 No Third-Party Beneficiary......................................................22
4.7 No Interest; No Return..........................................................23
4.8 No Preemptive Rights............................................................23
ARTICLE 5
DISTRIBUTIONS.........................................................................23
5.1 Regular Distributions...........................................................23
5.2 Qualification as a REIT.........................................................25
5.3 Withholding.....................................................................26
5.4 Additional Partnership Interests................................................26
5.5 Distributions Upon Liquidation..................................................26
ARTICLE 6
ALLOCATIONS...........................................................................26
6.1 Allocations.....................................................................26
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.2 Revisions to Allocations to Reflect Issuance of Partnership Interests...........26
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS.................................................27
7.1 Management......................................................................27
7.2 Certificate of Limited Partnership..............................................31
7.3 Reimbursement of the General Partner............................................32
7.4 Outside Activities of the General Partner.......................................33
7.5 Contracts with Affiliates.......................................................33
7.6 Indemnification.................................................................34
7.7 Liability of the General Partner................................................36
7.8 Other Matters Concerning the General Partner....................................37
7.9 Title to Partnership Assets.....................................................38
7.10 Reliance by Third Parties.......................................................39
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................................39
8.1 Limitation of Liability.........................................................39
8.2 Management of Business..........................................................40
8.3 Outside Activities of Limited Partners..........................................40
8.4 Return of Capital...............................................................40
8.5 Rights of Limited Partners Relating to the Partnership..........................41
8.6 Exchange Rights Agreement.......................................................42
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS................................................42
9.1 Records and Accounting..........................................................42
9.2 Fiscal Year.....................................................................43
9.3 Reports.........................................................................43
ARTICLE 10
TAX MATTERS...........................................................................43
10.1 Preparation of Tax Returns......................................................43
10.2 Tax Elections...................................................................43
10.3 Tax Matters Partner.............................................................44
10.4 Organizational Expenses.........................................................46
10.5 Withholding.....................................................................46
ARTICLE 11
TRANSFERS AND WITHDRAWALS.............................................................47
11.1 Transfer........................................................................47
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.2 Transfer of the General Partner's General Partner Interest......................48
11.3 Limited Partners' Rights to Transfer............................................50
11.4 Substituted Limited Partners....................................................52
11.5 Assignees.......................................................................53
11.6 General Provisions..............................................................53
ARTICLE 12
ADMISSION OF PARTNERS.................................................................54
12.1 Admission of Successor General Partner..........................................54
12.2 Admission of Additional Limited Partners........................................55
12.3 Amendment of Agreement and Certificate of Limited Partnership...................56
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION..............................................57
13.1 Dissolution.....................................................................57
13.2 Winding Up......................................................................58
13.3 No Obligation to Contribute Deficit.............................................60
13.4 Rights of Limited Partners......................................................60
13.5 Notice of Dissolution...........................................................60
13.6 Termination of Partnership and Cancellation of Certificate of Limited Partnership
...............................................................................60
13.7 Reasonable Time for Winding-Up..................................................60
13.8 Waiver of Partition.............................................................61
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..........................................61
14.1 Amendments......................................................................61
14.2 Meetings of the Partners........................................................63
ARTICLE 15
GENERAL PROVISIONS....................................................................64
15.1 Addresses and Notice............................................................64
15.2 Titles and Captions.............................................................64
15.3 Pronouns and Plurals............................................................65
15.4 Further Action..................................................................65
15.5 Binding Effect..................................................................65
15.6 Creditors.......................................................................65
15.7 Waiver..........................................................................65
15.8 Counterparts....................................................................65
15.9 Applicable Law..................................................................65
15.10 Invalidity of Provisions........................................................66
15.11 Entire Agreement................................................................66
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
15.12 Merger..........................................................................66
15.13 No Rights as Stockholders.......................................................66
15.13 No Rights as Stockholders.................................................64
</TABLE>
iv
<PAGE> 6
SECOND AMENDMENT AND RESTATEMENT
OF
AGREEMENT OF LIMITED PARTNERSHIP
OF
TOWER REALTY OPERATING PARTNERSHIP, L.P.
THIS SECOND AMENDMENT AND RESTATEMENT OF AGREEMENT OF LIMITED PARTNERSHIP
OF TOWER REALTY OPERATING PARTNERSHIP, L.P. (this "Agreement"), dated as of
March 6, 1998, is entered into by and among Tower Realty Trust, Inc., a Maryland
corporation, as general partner (the "General Partner"), and the Additional
Limited Partners; and
WHEREAS, the General Partner and the Limited Partners desire to amend and
restate the Amended and Restated Agreement of Limited Partnership of Tower
Realty Operating Partnership, L.P., dated as of October 16, 1997 (as amended,
the "Original Agreement") in its entirety, and in connection therewith certain
Limited Partners that are parties to the Original Agreement will withdraw.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties do hereby agree that the Original Agreement is amended
and restated as follows:
ARTICLE 1
DEFINED TERMS
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
amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person that has executed and
delivered an additional limited partner signature page in the form attached
hereto, has been admitted to the Partnership as a Limited Partner pursuant to
Section 4.3 hereof and that is shown as such on the books and records of the
Partnership. The Initial Limited Partner may also be an Additional Limited
Partner.
"Adjusted Capital Account Deficit" means with respect to any Partner, the
negative balance, if any, in such Partner's Capital Account as of the end of any
relevant fiscal year, determined after giving effect to the following
adjustments:
<PAGE> 7
(a) credit to such Capital Account any portion of such negative
balance which such Partner (i) is treated as obligated to restore to the
Partnership pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of
the Regulations, or (ii) is deemed to be obligated to restore to the
Partnership pursuant to the penultimate sentences of Sections
1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections
1.704- 1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
"Adjusted Contribution" means the Capital Contributions of any Partner
reduced by the total distributions to such Partner from Capital Events. With
respect to the General Partner, the Adjusted Contribution shall include the
difference, if any, between gross proceeds from the future issuance of REIT
Stock, if any, and the proceeds actually received by the General Partner.
"Affiliate" means,
(a) with respect to any individual Person, any member of the
Immediate Family of such Person or a trust established for the benefit of
such member, or
(b) with respect to any Entity, any Person which, directly or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with, any such Entity.
"Agreement" means this Agreement of Limited Partnership, as originally
executed and as amended, modified, supplemented or restated from time to time,
as the context requires.
"Articles of Incorporation" means the General Partner's Articles of
Incorporation, filed with the Maryland State Department of Assessments and
Taxation, as amended, modified, supplemented or restated from time to time, as
the context requires.
"Assignee" means a Person to whom one or more OP 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 the applicable period of
measurement (i.e., any period beginning on the first day of the fiscal year,
quarter or other period commencing immediately after the last day of the fiscal
year, quarter or other applicable period for purposes of the prior calculation
of Available Cash for or with respect to which a distribution has been made, and
ending on the last day of the fiscal year, quarter or other applicable period
immediately preceding the date of the calculation), the excess, if any, as of
such date, of
(a) the gross cash receipts of the Partnership for such period from
all sources whatsoever, including, without limitation, the following:
2
<PAGE> 8
(i) all rents, revenues, income and proceeds derived by the
Partnership from its operations, including, without limitation,
distributions received by the Partnership from any Entity in which
the Partnership has an interest;
(ii) all proceeds and revenues received by the Partnership on
account of any sales of office buildings, development parcels or
other property of the Partnership or as a refinancing of or payment
of principal, interest, costs, fees, penalties or otherwise on
account of any borrowings or loans made by the Partnership or
financings or refinancings of any property of the Partnership;
(iii) the amount of any insurance proceeds and condemnation
awards received by the Partnership;
(iv) all capital contributions or loans received by the
Partnership from its Partners;
(v) all cash amounts previously reserved by the Partnership,
to the extent such amounts are no longer needed for the specific
purposes for which such amounts were reserved; and
(vi) the proceeds of liquidation of the Partnership's property
in accordance with this Agreement;
over
(b) the sum of:
(i) all operating costs and expenses, including taxes and
other expenses of the properties directly and indirectly held by the
Partnership and capital expenditures made during such period
(without deduction, however, for any capital expenditures, charges
for Depreciation or other expenses not paid in cash or expenditures
from reserves described in (viii) below);
(ii) all costs and expenses expended or paid during such
period in connection with the sale or other disposition, or
financing or refinancing, of the property directly or indirectly
held by the Partnership or the recovery of insurance or condemnation
proceeds;
(iii) all fees provided for under this Agreement;
(iv) all debt service, including principal and interest, paid
during such period on all indebtedness (including under any line of
credit) of the Partnership;
3
<PAGE> 9
(v) all capital contributions, advances, reimbursements, loans
or similar payments made to any Person in which the Partnership has
an interest;
(vi) all loans made by the Partnership in accordance with the
terms of this Agreement;
(vii) all reimbursements to the General Partner or its
Affiliates during such period; and
(viii) any new reserves or increases in reserves determined by
the General Partner in its sole and absolute discretion to be
necessary for working capital, capital improvements, payments of
periodic expenditures, debt service or other purposes for the
Partnership or any Person in which the Partnership has an interest.
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.
"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 credited
(i) such Partner's Capital Contributions,
(ii) such Partner's distributive share of Net Income and any
items in the nature of income or gain which are specially allocated
to such Partner pursuant to Paragraphs 1 and 2 of Exhibit B and
(iii) the amount of any Partnership liabilities assumed by
such Partner or which are secured by any asset distributed to such
Partner;
(b) to each Partner's Capital Account there shall be debited
(i) the amount of cash and the Gross Asset Value of any
property distributed to such Partner pursuant to any provision of
this Agreement,
(ii) such Partner's distributive share of Net Losses and any
items in the nature of expenses or losses which are specially
allocated to such Partner pursuant to Paragraphs 1 and 2 of Exhibit
B and
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(iii) the amount of any liabilities of such Partner assumed by
the Partnership or which are secured by any asset contributed by
such Partner to the Partnership; and
(c) in the event all or a portion of a Partnership Interest 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 Partnership Interest.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Sections
1.704-1(b) and 1.704-2 of the Regulations, and shall be interpreted and applied
in a manner consistent with such Regulations. In the event the General Partner
shall reasonably 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 assets or which are assumed by the Partnership, the
General Partner or any Limited Partner) are computed in order to comply with
such Regulations, the General Partner may make such modification; provided that
it would not cause the amounts distributable to any Partner pursuant to Article
13 hereof upon the dissolution of the Partnership to vary from the amount
contemplated as set forth in Section 2(g) of Exhibit B.
"Capital Contribution" means, with respect to any Partner, any cash, cash
equivalents or the Gross Asset Value of property which such Partner contributes
or is deemed to contribute to the Partnership pursuant to Article 4 hereof.
"Capital Event" means any Partnership transaction not in the ordinary
course of its business including, without limitation, principal payments,
prepayments, the incurrence of prepayment penalties, sales, exchanges,
foreclosures or other dispositions of property directly or indirectly owned by
the Partnership, recoveries of damage awards and insurance proceeds not used to
rebuild (other than the receipt of contributions to the capital of the
Partnership and business or rental interruption insurance proceeds not used to
rebuild).
"Certificate" means the Certificate of Limited Partnership relating to the
Partnership to be filed in the form of Exhibit C hereto as soon as practicable
after the date hereof in the office of the Delaware Secretary of State, as
amended from time to time in accordance with the terms hereof and the Act.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, 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.
"Consent" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.2 hereof.
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"Contributed Property" means each property, partnership interest, contract
right or other asset, in such form as may be permitted by the Act, contributed
or deemed contributed to the Partnership by any Partner (including deemed
contributions to the Partnership on termination and reconstitution thereof
pursuant to Section 708 of the Code).
"Depreciation" means, with respect to any asset of the Partnership for any
fiscal year or other period, the depreciation, depletion, amortization or other
cost recovery deduction, as the case may be, allowed or allowable for federal
income tax purposes in respect of such asset for such fiscal year or other
period; provided, however, that except as otherwise provided in Sec tion 1.704-2
of the Regulations, if there is a difference between the Gross Asset Value
(including the Gross Asset Value, as increased pursuant to paragraph (d) of the
definition of Gross Asset Value) and the adjusted tax basis of such asset at the
beginning of such fiscal year or other period, Depreciation for such asset shall
be an amount that bears the same ratio to the beginning Gross Asset Value of
such asset as the federal income tax depreciation, depletion, amortization or
other cost recovery deduction for such fiscal year or other period bears to the
beginning adjusted tax basis of such asset; provided, further, that if the
federal income tax depreciation, depletion, amortization or other cost recovery
deduction for such asset for such fiscal year or other period is zero,
Depreciation of such asset shall be determined with reference to the beginning
Gross Asset Value of such asset using any reasonable method selected by the
General Partner.
"Effective Date" means the date of closing of the initial offering of REIT
Stock by the General Partner.
"Entity" means any general partnership, limited partnership, corporation,
joint venture, trust, business trust, real estate investment trust, limited
liability company, limited liability partnership, cooperative or association.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time (or any corresponding provisions of succeeding laws).
"Exchange Factor" has the meaning set forth in the Exchange Rights
Agreement.
"Exchange Right" has the meaning set forth in the Exchange Rights
Agreement.
"Exchange Rights Agreement" has the meaning set forth in Section 8.6.
"GAAP" means United States generally accepted accounting principles, as in
effect from time to time.
"General Partner" means Tower Realty Trust, Inc., a Maryland corporation,
and any successor as general partner of the Partnership.
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"General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner. A General Partner Interest
may be expressed as a number of OP Units.
"Gross Asset Value" means, with respect to any asset of the Partnership,
such 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, without reduction for liabilities, as determined by the
contributing Partner and the Partnership on the date of contribution
thereof;
(b) if the General Partner reasonably determines that an adjustment
is necessary or appropriate to reflect the relative economic interests of
the Partners, the Gross Asset Values of all Partnership assets shall be
adjusted in accordance with Sections 1.704-1(b)(2)(iv)(f) and (g) of the
Regulations to equal their respective gross fair market values, without
reduction for liabilities, as reasonably determined by the General
Partner, as of the following times:
(i) a Capital Contribution (other than a de minimis Capital
Contribution) to the Partnership by a new or existing Partner as
consideration for a Partnership Interest; or
(ii) the distribution by the Partnership to a Partner of more
than a de minimis amount of Partnership assets as consideration for
the repurchase of a Partnership Interest; or
(iii) the liquidation of the Partnership within the meaning of
Sec tion 1.704-1(b)(2)(ii)(g) of the Regulations;
(c) the Gross Asset Values of Partnership assets distributed to any
Partner shall be the gross fair market values of such assets (taking
Section 7701(g) of the Code into account) without reduction for
liabilities, as reasonably determined by the General Partner as of the
date of distribution; and
(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 Sections 734(b) or 743(b) of the Code, but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Section 1.704- 1(b)(2)(iv)(m) of the Regulations (as
set forth in Exhibit B); provided, however, that Gross Asset Values shall
not be adjusted pursuant to this paragraph (d) to the extent that the
General Partner reasonably determines that an adjustment pursuant to
paragraph (b) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
paragraph (d).
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At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss.
"Immediate Family" means, with respect to any individual, such
individual's spouse, parents, parents-in-law, children, nephews, nieces,
brothers, sisters, brothers-in-law, sisters-in-law, stepchildren, sons-in-law
and daughters-in-law or any trust solely for the benefit of any of the foregoing
family members whose sole beneficiaries include the foregoing family members.
"Incapacity" or "Incapacitated" means,
(a) as to any individual Partner, death, total physical disability
or entry by a court of competent jurisdiction adjudicating him incompetent
to manage his person or his estate;
(b) 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;
(c) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership;
(d) as to any estate which is a Partner, the distribution by the
fiduciary of the estate's entire interest in the Partnership;
(e) 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
(f) as to any Partner, the bankruptcy of such Partner, which shall
be deemed to have occurred when
(i) 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;
(ii) 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;
(iii) the Partner executes and delivers a general assignment
for the benefit of the Partner's creditors;
(iv) 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 (ii) above;
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<PAGE> 14
(v) the Partner seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator for the Partner or
for all or any substantial part of the Partner's properties;
(vi) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy,
insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the
commencement thereof;
(vii) the appointment without the Partner's consent or
acquiescence of a trustee, receiver or liquidator has not been
vacated or stayed within ninety (90) days of such appointment; or
(viii) an appointment referred to in clause (vii) which has
been stayed is not vacated within ninety (90) days after the
expiration of any such stay.
"Indemnitee" means
(a) any Person made a party to a proceeding by reason of
(i) such Person's status as
(A) the General Partner,
(B) a director, trustee or officer of the Partnership
or the General Partner, or
(C) a director, trustee, member or officer of any
other Entity, each Person serving in such capacity at the
request of the Partnership or the General Partner, or
(ii) his or its liabilities, pursuant to a loan guarantee 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 assets subject to); and
(b) such other Persons (including Affiliates of the General Partner
or the Partnership) as the General Partner may designate from time to time
(whether before or after the event giving rise to potential liability), in
its sole and absolute discretion.
"IRS" shall mean the Internal Revenue Service of the United States.
"Lien" means any lien, security interest, mortgage, deed of trust, charge,
claim, encumbrance, pledge, option, right of first offer or first refusal and
any other right or interest of others of any kind or nature, actual or
contingent, or other similar encumbrance of any nature whatsoever.
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<PAGE> 15
"Limited Partner" means, prior to the admission of the first Additional
Limited Partner to the Partnership, the Initial Limited Partner, and thereafter
any Person named as a Limited Partner in Exhibit A, as such Exhibit may be
amended from time to time, upon the execution and delivery by such Person of an
additional limited partner signature page, or any Substituted Limited Partner or
Additional Limited Partner, in such Person's capacity as a Limited Partner of
the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all 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 Partner Interest may be expressed as a
number of OP Units.
"Liquidating Event" has the meaning set forth in Section 13.1 hereof.
"Liquidator" has the meaning set forth in Section 13.2 hereof.
"Lock-Up Agreement" means each letter issued by certain Limited Partners
to the Partnership and Merrill Lynch & Co.
"Net Income" or "Net Loss" means, for each fiscal year or other applicable
period, an amount equal to the Partnership's taxable income or loss for such
year or period as determined for federal income tax purposes by the General
Partner, determined in accordance with Sec tion 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a) of the Code shall be included in taxable
income or loss), adjusted as follows:
(a) by including as an item of gross income any tax-exempt income
received by the Partnership and not otherwise taken into account in
computing Net Income or Net Loss;
(b) by treating as a deductible expense any expenditure of the
Partnership described in Section 705(a)(2)(B) of the Code (or which is
treated as a Sec tion 705(a)(2)(B) expenditure pursuant to Section
1.704-1(b)(2)(iv)(i) of the Regulations) and not otherwise taken into
account in computing Net Income or Net Loss, including amounts paid or
incurred to organize the Partnership (unless an election is made pursuant
to Section 709(b) of the Code) or to promote the sale of interests in the
Partnership and by treating deductions for any losses incurred in
connection with the sale or exchange of Partnership property disallowed
pursuant to Section 267(a)(1) or 707(b) of the Code as expenditures
described in Section 705(a)(2)(B) of the Code;
(c) by taking into account Depreciation in lieu of depreciation,
depletion, amortization and other cost recovery deductions taken into
account in computing taxable income or loss;
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<PAGE> 16
(d) by computing gain or loss resulting from any disposition of
Partnership property with respect to which gain or loss is recognized for
federal income tax purposes by reference to the Gross Asset Value of such
property rather than its adjusted tax basis;
(e) in the event of an adjustment of the Gross Asset Value of any
Partnership asset which requires that the Capital Accounts of the
Partnership be adjusted pursuant to Sections 1.704-1(b)(2)(iv)(e), (f) and
(g) of the Regulations, by taking into account the amount of such
adjustment as if such adjustment represented additional Net Income or Net
Loss pursuant to Exhibit B; and
(f) by not taking into account in computing Net Income or Net Loss
items separately allocated to the Partners pursuant to Paragraphs 1 and 2
of Exhibit B.
"Nonrecourse Deductions" has the meaning set forth in Sections
1.704-2(b)(1) and 1.704-2(c) of the Regulations.
"Nonrecourse Liabilities" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"OP Unit" means a fractional, undivided share of the Partnership Interests
of all Partners issued pursuant to Sections 4.1, 4.2 and 4.3. The number of OP
Units outstanding and the Percentage Interests in the Partnership represented by
such OP Units are set forth in Exhibit A, as such Exhibit may be amended from
time to time. The ownership of OP Units shall be evidenced by such form of
certificate for OP Units as the General Partner adopts from time to time unless
the General Partner determines that the OP Units shall be uncertificated
securities.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Sec tion 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations Sec
tion 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Sec tion 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership taxable 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.
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<PAGE> 17
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by 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. A Partnership Interest may be expressed as a number of OP Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations Sec
tion 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any
net increase or decrease in a Partnership Minimum Gain, for a Partnership
taxable 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 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 Year" means the fiscal year of the Partnership, as set forth
in Section 9.2 hereof.
"Percentage Interest" means, as to a Partner, the fractional part of the
Partnership Interests owned by such Partner and expressed as a percentage as
specified in Exhibit A, as such Exhibit may be amended from time to time.
"Permitted Partners" has the meaning set forth in subparagraph 1(b) of
Exhibit B.
"Permitted Transferee" means any person to whom OP Units are Transferred
in accordance with Section 11.3 of this Agreement.
"Person" means an individual or Entity.
"Precontribution Gain" has the meaning set forth in subparagraph 3(c) of
Exhibit B.
"Quarter" means each of the three-month periods ending on March 31, June
30, September 30 and December 31.
"Registration Statement" means the Registration Statement on Form S-11 to
be filed by the General Partner with the Securities and Exchange Commission, and
any amendments at any time made thereto.
"Regulations" means the final, temporary or proposed Income Tax
Regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust as defined in Section 856 of
the Code.
"REIT Requirements" has the meaning set forth in Section 5.2.
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"REIT Stock" means a share of stock of the General Partner.
"REIT Stock Amount" has the meaning set forth in the Exchange Rights
Agreement.
"Restricted Partner" has the meaning set forth in Section 1(b) of Exhibit
B.
"Stock Option Plans" means collectively, the General Partner's 1997
Incentive Plan and Non-Employee Directors' Incentive Plan and any other plan
adopted from time to time by the General Partner pursuant to which REIT Stock is
issued, or options to acquire REIT Stock are granted, to employees or directors
of the General Partner, employees of the Partnership or employees of their
respective Affiliates in consideration for services or future services.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company or other entity of which a majority of
(a) the voting power of the voting equity securities; or
(b) the outstanding equity interests, is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4 hereof.
"Tax Items" has the meaning set forth in Exhibit B.
"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.
"Transfer" as a noun, means any sale, assignment, conveyance, pledge,
hypothecation, gift, encumbrance or other transfer, and as a verb, means to
sell, assign, convey, pledge, hypothecate, give, encumber or otherwise transfer.
Certain additional terms and phrases have the meanings set forth in
Exhibit B.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 Formation
The Partners have agreed to form the Partnership under and pursuant to the
Act. Except as expressly provided herein to the contrary, 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.
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2.2 Name
The name of the Partnership shall be Tower Realty Operating Partnership,
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 and shall notify the Limited Partners of such change
in the next regular communication to the Limited Partners.
2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is United Corporate Services, Inc.,
15 East North Street, Dover (Kent County), Delaware 19901. The principal office
of the Partnership shall be 120 West 45th Street, New York, New York 10036-4003,
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.
2.4 Power of Attorney
(a) Each Limited Partner and each Assignee is deemed to irrevocably
constitute and appoint 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:
(i) 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 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 or plans to conduct
business or own property, including, without limitation, any
documents necessary or advisable to convey any Contributed
Property to the Partnership;
(B) all instruments that the General Partner deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance
with its terms;
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(C) all conveyances and other instruments or documents
that the General Partner or the 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, Article 11, 12 or 13 hereof
or the Capital Contribution of any Partner;
(E) all certificates, documents and other instruments
relating to the determination of the rights, preferences and
privileges of Partnership Interest; and
(F) amendments to this Agreement as provided in Article
14 hereof; and
(ii) execute, swear to, seal, 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) (i) 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 OP Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives.
(ii) 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,
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<PAGE> 21
negate or disaffirm the action of the General Partner or any
Liquidator, taken in good faith under such power of attorney.
(iii) Each Limited Partner or Assignee shall execute and
deliver to the General Partner or the Liquidator, within fifteen
(15) days after receipt of the General Partner's or Liquidator's
request therefor, such further designation, powers of attorney and
other 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.
2.5 Term
The term of the Partnership shall commence on the date hereof and shall
continue until December 31, 2047, unless the Partnership is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
3.1 Purpose and Business
(a) The purpose and nature of the business to be conducted by the
Partnership is to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act including, without
limitation, to engage in the following activities:
(i) to acquire, hold, own, develop, construct, improve,
maintain, operate, sell, lease, transfer, encumber, convey,
exchange, and otherwise dispose of or deal with the properties
described in the prospectus contained in the Registration Statement;
(ii) to acquire, hold, own, develop, construct, improve,
maintain, operate, sell, lease, transfer, encumber, convey,
exchange, and otherwise dispose of or deal with real and personal
property of all kinds;
(iii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing;
(iv) to undertake such other activities as may be necessary,
advisable, desirable or convenient to the business of the
Partnership; and
(v) to engage in such other ancillary activities as shall be
necessary or desirable to effectuate the foregoing purposes;
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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, unless the General Partner ceases to qualify as a REIT for any reason not
related to the business conducted by the Partnership.
(b) The Partnership shall have all powers necessary or desirable to
accomplish the purposes enumerated.
(c) In connection with the foregoing, but subject to all of the
terms, covenants, conditions and limitations contained in this Agreement
and any other agreement entered into by the Partnership, the Partnership
shall have full power and authority to enter into, perform, and carry out
contracts of any kind, to borrow money and to issue evidences of
indebtedness, whether or not secured by mortgage, trust deed, pledge or
other Lien, and, directly or indirectly, to acquire and construct
additional properties necessary or useful in connection with its business.
3.2 Powers
(a) Subject to paragraph (c) below, 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; provided, that the Partnership shall not take, or
refrain from taking, any action which, in the judgment of the General
Partner, in its sole and absolute discretion,
(i) could adversely affect the ability of the General Partner
to continue to qualify as a REIT, unless the General Partner
otherwise ceases to qualify as a REIT;
(ii) could subject the General Partner to any additional 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.
(b) The Partnership also is empowered to do any and all acts and
things necessary, appropriate or advisable to ensure that the Partnership
will not be classified as a "publicly traded partnership" for the purposes
of Section 7704 of the Code.
(c) Prior to the effectiveness of the Registration Statement and the
issuance and sale of the shares of the General Partner's common stock to
be issued and sold thereunder, the affirmative vote or consent of the
General Partner's independent director (as such term is used in the
General Partner's Articles of Incorporation) will be required for the
approval of any of the following actions by or with respect to the
Partnership or any Subsidiary:
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(i) filing or consenting to the filing of a bankruptcy
petition;
(ii) otherwise instituting or causing the Partnership or such
Subsidiary to acquiesce in the institution of an insolvency
proceeding;
(iii) dissolving, liquidating, consolidating, merging or
selling all or substantially all of its assets; or
(iv) amending this Agreement or the articles of incorporation,
limited liability company agreement, partnership agreement or trust
agreement of any Subsidiary.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions of the Partners
(a) The Partners have made or shall make at the Effective Date, if
applicable, the Capital Contributions as set forth in Exhibit A to this
Agreement.
(b) To the extent the Partnership acquires any property by the
merger of any other Person into the Partnership, Persons who receive
Partnership Interests in exchange for their interests in the Person
merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger
agreement and as set forth in Exhibit A, as amended to reflect such deemed
Capital Contributions.
(c) Each Partner shall own OP Units in the amounts set forth for
such Partner 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 reflect accurately exchanges, additional Capital
Contributions, the issuance of additional OP Units or similar events
having an effect on any Partner's Percentage Interest.
(d) The number of OP Units held by the General Partner, in its
capacity as general partner, shall be deemed to be the General Partner
Interest.
(e) Except as provided in Sections 4.2 and 10.5, the Partners shall
have no obligation to make any additional Capital Contributions or loans
to the Partnership.
4.2 Additional Funds; Restrictions on the General Partner
(a) (i) The sums of money required to finance the business and
affairs of the Partnership shall be derived from the initial capital
Contributions made to the Partnership by the Partners as set forth
in Section 4.1 and from funds generated
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from the operation and business of the Partnership, including,
without limitation, rents and distributions directly or indirectly
received by the Partnership from any Subsidiary.
(ii) In the event additional financing is needed from sources
other than as set forth in Section 4.2(a)(i) for any reason, the
General Partner may, in its sole and absolute discretion, in such
amounts and at such times as it solely shall determine to be
necessary or appropriate,
(A) cause the Partnership to issue additional
Partnership Interests and admit additional Limited Partners to
the Partnership in accordance with Section 4.3;
(B) make additional Capital Contributions to the
Partnership (subject to the provisions of Section 4.2(b));
(C) cause the Partnership to borrow money, enter into
loan arrangements, issue debt securities, obtain letters of
credit or otherwise borrow money on a secured or unsecured
basis;
(D) make a loan or loans to the Partnership (subject to
Sec tion 4.2(b)); or
(E) sell any assets or properties directly or indirectly
owned by the Partnership.
(iii) In no event shall the Limited Partners be required to
make any additional Capital Contributions or any loan to, or
otherwise provide any financial accommodation for the benefit of,
the Partnership.
(b) The General Partner shall not issue any debt securities, any
preferred stock or any common stock (including additional REIT Stock
(other than (i) as payment of the REIT Stock Amount or (ii) in connection
with the conversion or exchange of securities of the General Partner
solely in conversion or exchange for other securities of the General
Partner)) or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase any of the
foregoing (collectively, "Securities"), other than to all holders of REIT
Stock, unless the General Partner shall
(i) in the case of debt securities, lend to the Partnership
the proceeds of or consideration received for such Securities on the
same terms and conditions, including interest rate and repayment
schedule, as shall be applicable with respect to or incurred in
connection with the issuance of such Securities and the proceeds of,
or consideration received from, any subsequent exercise, exchange or
conversion thereof (if applicable);
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(ii) in the case of equity Securities senior or junior to the
REIT Stock as to dividends and distributions on liquidation,
contribute to the Partnership the proceeds of or consideration
(including any property or other non-cash assets) received for such
Securities and the proceeds of, or consideration received from, any
subsequent exercise, exchange or conversion thereof (if applicable),
and receive from the Partnership, interests in the Partnership in
consideration therefor with the same terms and conditions, including
dividend, dividend priority and liquidation preference, as are
applicable to such Securities; and
(iii) in the case of REIT Stock or other equity Securities on
a parity with the REIT Stock as to dividends and distributions on
liquidation, (including, without limitation, REIT Stock or other
Securities issued as a stock award or upon exercise of options
issued under the Stock Option Plans), contribute to the Partnership
the proceeds of or consideration (including any property or other
non-cash assets, including services) received for such Securities
and the proceeds of, or consideration received from, any subsequent
exercise, exchange or conversion thereof (if applicable), and
receive from the Partnership a number of additional OP Units in
consideration therefor equal to the product of
(A) the number of shares of REIT Stock or other equity
Securities issued by the General Partner, multiplied by
(B) a fraction the numerator of which is one and the
denominator of which is the Exchange Factor in effect on the
date of such contribution.
4.3 Issuance of Additional Partnership Interests; Admission of
Additional Limited Partners
(a) In addition to any Partnership Interests issuable by the
Partnership pursuant to Section 4.2, the General Partner is authorized to
cause the Partnership to issue additional Partnership Interests (or
options therefor) in the form of OP Units or other Partnership Interests
in one or more series or classes, or in one or more series of any such
class senior or junior to the OP Units to any Persons at any time or from
time to time, on such terms and conditions, as the General Partner shall
establish in each case in its sole and absolute discretion subject to
Delaware law, including, without limitation, (i) the allocations of items
of Partnership income, gain, loss, deduction and credit to each class or
series of Partnership Interests, (ii) the right of each class or series of
Partnership Interests to share in Partnership distributions, and (iii) the
rights of each class or series of Partnership Interest upon dissolution
and liquidation of the Partnership; provided that, no such Partnership
Interests shall be issued to the General Partner unless either (a) the
Partnership Interests are issued in connection with the grant, award, or
issuance of REIT Stock or other equity interests in the General Partner
having designations, preferences and other rights such that the economic
interests attributable to such REIT Stock or other equity interests are
substantially similar to the designations, preferences and other rights
(except voting rights) of the Partnership Interests issued to the General
Partner in
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accordance with this Section 4.3(a) 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, without any approval being required from any Limited Partner or any
other Person; provided, however, that
(i) such issuance does not cause the Partnership to become,
with respect to any employee benefit plan subject to Title I of
ERISA or Section 4975 of the Code, a "party in interest" (as defined
in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(e) of the Code); and
(ii) such issuance would not cause any portion of the assets
of the Partnership to constitute assets of any employee benefit plan
pursuant to Sec tion 2510.3-101 of the regulations of the United
States Department of Labor.
(b) Subject to the limitations set forth in Section 4.3(a), the
General Partner may take such steps as it, in its sole and absolute
discretion, deems necessary or appropriate to admit any Person as a
Limited Partner of the Partnership or to issue any Partnership Interests,
including, without limitation, amending the Certificate, Exhibit A or any
other provision of this Agreement.
(c) From and after the Effective Date, subject to Section 4.3(a)
above, the Partnership shall have one subclass of Partnership Interests entitled
"Class B OP Units." Class B OP Units, at the election of the General Partner, in
its sole and absolute discretion, may be issued to newly admitted Partners in
exchange for the contribution by such Partners of cash, real estate partnership
interests, stock, notes or other assets or consideration; provided, that any
Partnership Interest that is not specifically designated by the General Partner
as being of a particular class shall be deemed to be an OP Unit. Each Class B OP
Unit shall be converted automatically into an OP Unit on the day immediately
following the Partnership Record Date for the Distribution Period (as defined in
Section 5.1) in which such Class B OP Unit was issued, without the requirement
for any action by either the Partnership or the Partner holding the Class B OP
Unit.
4.4 Contribution of Proceeds of Issuance of REIT Stock
In connection with the initial offering of common stock by the General
Partner, and any other offering, grant, award, or issuance of REIT Stock or
securities, rights, options, warrants or convertible or exchangeable securities
pursuant to Section 4.2, the General Partner shall make aggregate Capital
Contributions to the Partnership of the proceeds raised in connection with such
offering, grant, award, or issuance; provided, however, that if the proceeds
actually received by the General Partner are less than the gross proceeds of
such offering, grant, award, or issuance as a result of any underwriter's
discount, commission, or fee or other expenses paid or incurred in connection
with such offering, grant, award, or issuance, then the General Partner shall be
deemed to have made a Capital Contribution to the Partnership in the amount of
the gross
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proceeds of such issuance and the Partnership shall be deemed simultaneously to
have paid pursuant to Section 7.3(c) for the amount of such underwriter's
discount or other expenses.
4.5 Repurchase of REIT Stock; Shares-In-Trust
(a) In the event that the General Partner shall elect to purchase
from its stockholders REIT Stock for the purpose of delivering such REIT
Stock to satisfy an obligation under any dividend reinvestment program
adopted by the General Partner, any employee stock purchase plan adopted
by the General Partner, or any other obligation or arrangement undertaken
by the General Partner in the future, the purchase price paid by the
General Partner for such REIT Stock and any other expenses incurred by the
General Partner in connection with such purchase shall be considered
expenses of the Partnership and shall be reimbursed to the General
Partner, subject to the condition that:
(i) if such REIT Stock subsequently is to be sold by the
General Partner, the General Partner shall pay to the Partnership
any proceeds received by the General Partner from the sale of such
REIT Stock (provided that an exchange of REIT Stock for OP Units
pursuant to the Exchange Rights Agreement would not be considered a
sale for such purposes); and
(ii) if such REIT Stock is not re-transferred by the General
Partner within 30 days after the purchase thereof, the General
Partner shall cause the Partnership to cancel a number of OP Units
held by the General Partner (as applicable) equal to the product of
(x) the number of shares of such REIT Stock,
multiplied by
(y) a fraction, the numerator of which is one and the
denominator of which is the Exchange Factor in effect on the
date of such cancellation.
(b) In the event the General Partner purchases Shares-in-Trust (as
from time to time defined in the Articles of Incorporation), the
Partnership will purchase from the General Partner a number of OP Units
equal to the product of
(i) the number of Shares-in-Trust purchased by the General
Partner, multiplied by
(ii) a fraction, the numerator of which is one and the
denominator of which is the Exchange Factor in effect on the date of
such purchase.
4.6 No Third-Party Beneficiary
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No creditor or other third party having dealings with the Partnership
shall have the right to enforce the right or obligations of any Partner to make
Capital Contributions or loans or to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be enforced solely
by, the parties hereto and their respective successors and assigns.
4.7 No Interest; No Return
(a) No Partner shall be entitled to interest on its Capital
Contribution or on such Partner's Capital Account.
(b) Except as provided herein or by law, no Partner shall have any
right to demand or receive the return of its Capital Contribution from the
Partnership.
4.8 No Preemptive Rights
Subject to any preemptive rights that may be granted pursuant to Section
4.3 hereof, no Person shall have any preemptive or other similar right with
respect to
(a) additional Capital Contributions or loans to the Partnership; or
(b) issuance or sale of any OP Units or other Partnership Interests.
ARTICLE 5
DISTRIBUTIONS
5.1 Regular Distributions
(a) Except for distributions pursuant to Section 13.2 in connection with
the dissolution and liquidation of the Partnership, and subject to the
provisions of Sections 5.3, 5.4, 5.5 and 12.2(c), the General Partner shall
cause the Partnership to distribute, on a quarterly basis (or, at the election
of the General Partner, more frequently), an amount of Available Cash,
determined by the General Partner in its sole discretion to the Partners, as of
the applicable Partnership Record Date, in accordance with each Partner's
respective Percentage Interest; provided, however, that in no event may a
Partner receive a distribution of Available Cash with respect to an OP Unit if
such Partner is entitled to receive a distribution out of such Available Cash
with respect to REIT Stock for which such OP Unit has been exchanged.
(b) If for any quarter or shorter period with respect to which a
distribution is to be made (a "Distribution Period") Class B OP Units are
outstanding on the Partnership Record Date for such Distribution Period, the
General Partner shall allocate the Available Cash with respect to such
Distribution Period available for distribution with respect to the OP Units and
Class B OP
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Units collectively between the Partners who are holders of OP Units and the
Partners who are holders of Class B OP Units ("Class B") as follows:
(1) Holders of OP Units shall receive that portion of the
Available Cash (the " OP Unit REIT Portion") determined by
multiplying the amount of Available Cash by the following fraction:
A x Y
---------------
(A x Y)+(B x X)
(2) Class B shall receive that portion of the Available Cash
(the "Class B REIT Portion") determined by multiplying the amount of
Available Cash by the following fraction:
B x X
---------------
(A x Y)+(B x X)
(3) For purposes of the foregoing formulas, (i) "A" equals the
number of OP Units outstanding on the Partnership Record Date for
such Distribution Period; (ii) "B" equals the number of Class B OP
Units outstanding on the Partnership Record Date for such
Distribution Period; (iii) "Y" equals the number of days in the
Distribution Period; and (iv) "X" equals the number of days in the
Distribution Period for which the Class B OP Units were issued and
outstanding.
The OP Unit REIT Portion shall be distributed among Partners holding OP
Units on the Partnership Record Date for the Distribution Period in accordance
with the number of OP Units held by each Partner on such Partnership Record
Date; provided that, in no event may a Partner receive a distribution of
Available Cash with respect to an OP Unit if a Partner is entitled to receive a
distribution out of such Available Cash with respect to a REIT Portion for which
such OP Unit has been redeemed or exchanged. The Class B REIT Shares shall be
distributed among the Partners holding Class B OP Units on the Partnership
Record Date for the Distribution Period in accordance with the number of Class B
OP Units held by each Partner on such Partnership Record Date. In no event shall
any Class B OP Units be entitled to receive any distribution of Available Cash
for any Distribution Period ending prior to the date on which such Class B OP
Units are issued.
(c) Distributions When Class B OP Units Have Been Issued on Different
Dates. If Class B OP Units which have been issued on different dates are
outstanding on the Partnership Record Date for any Distribution Period, then the
Class B OP Units issued on each particular date shall be treated as a separate
series of Partnership Interests for purposes of making the allocation of
Available Cash for such Distribution Period among the holders of Partnership
Interests (and the formula for making such allocation, and the definitions of
variables used therein, shall be modified accordingly). Thus, for example, if
two series of Class B OP Units are
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outstanding on the Partnership Record Date for any Distribution Period, the
allocation formula for each series, "Series B1" and "Series B2" would be as
follows:
(4) Series B1 shall receive that portion of the Available Cash
determined by multiplying the amount of Available Cash by the
following fraction:
B1 x X1
---------------------------
(A x Y)+(B1 x X1)+(B2 x X2)
(5) Series B2 shall receive that portion of the Available Cash
determined by multiplying the amount of Available Cash by the
following fraction:
B2 x X2
---------------------------
(A x Y)+(B1 x X1)+(B2 x X2)
(6) For purposes of the foregoing formulas the definitions set
forth in Section 5.1(b)(3) remain the same except that (i) "B1"
equals the number of Partnership Interests in Series B1 outstanding
on the Partnership Record Date for such Distribution Period; (ii)
"B2" equals the number of Partnership Interests in Series B2
outstanding on the Partnership Record Date for such Distribution
Period; (iii) "X1" equals the number of days in the Distribution
Period for which the Partnership Interests in Series B1 were issued
and outstanding; and (iv) "X2" equals the number of days in the
Distribution Period for which the Partnership Interests in Series B2
were issued and outstanding.
5.2 Qualification as a REIT
The General Partner shall use its best efforts to cause the Partnership to
distribute sufficient amounts under this Article 5 to enable the General Partner
to pay stockholder dividends that will enable the General Partner to
(a) satisfy the requirements for qualification as a REIT under the
Code and Regulations ("REIT Requirements"), and
(b) avoid any federal income or excise tax liability;
provided, however, the General Partner shall not be bound to comply with this
covenant to the extent such distributions would
(x) violate applicable Delaware law or
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(y) contravene the terms of any notes, mortgages or other types of
debt obligations to which the Partnership may be subject in conjunction
with borrowed funds.
5.3 Withholding
With respect to any withholding tax or other similar tax liability or
obligation to which the Partnership may be subject as a result of any act or
status of any Partner or to which the Partnership becomes subject with respect
to any OP Unit, the Partnership shall have the right to withhold amounts of
Available Cash distributable to such Partner or with respect to such OP Units,
to the extent of the amount of such withholding tax or other similar tax
liability or obligation pursuant to the provisions contained in Section 10.5.
5.4 Additional Partnership Interests
If the Partnership issues Partnership Interests in accordance with Section
4.2 or 4.3, the distribution priorities set forth in Section 5.1 shall be
amended, as necessary, to reflect the distribution priority of such Partnership
Interests and corresponding amendments shall be made to the provisions of
Exhibit B.
5.5 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE 6
ALLOCATIONS
6.1 Allocations
The Net Income, Net Loss and other Partnership items shall be allocated
pursuant to the provisions of Exhibit B.
6.2 Revisions to Allocations to Reflect Issuance of Partnership Interests
If the Partnership issues Partnership Interests to the General Partner or
any additional Limited Partner pursuant to Article IV, the General Partner shall
make such revisions to this Article 6 and Exhibit B as it deems necessary to
reflect the terms of the issuance of such Partnership Interests, including
making preferential allocations to classes of Partnership Interests that are
entitled thereto. Such revisions shall not require the consent or approval of
any other Partner.
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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
7.1 Management
(a) (i) Except as otherwise expressly provided in this Agreement,
full, complete and exclusive discretion to manage and control the
business and affairs of the Partnership are and shall be 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.
(ii) The General Partner may not be removed by the Limited
Partners with or without cause.
(iii) In addition to the powers now or hereafter granted a
general partner of a limited partnership under applicable law or
which are granted to the General Partner under any other provision
of this Agreement, the General Partner 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 Sec tion 3.2 hereof and to effectuate the purposes set
forth in Section 3.1 hereof, including, without limitation:
(A) (I) the making of any expenditures, the lending or
borrowing of money, including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the General
Partner (so long as the General Partner qualifies as a
REIT) to avoid the payment of any federal income tax
(including, for this purpose, any excise tax pursuant to
Sec tion 4981 of the Code) and to make distributions to
its stockholders in amounts sufficient to permit the
General Partner to maintain REIT status,
(II) the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities,
(III) the issuance of evidence of indebtedness
(including the securing of the same by deed, mortgage,
deed of trust or other lien or encumbrance on the
Partnership's assets) and
(IV) the incurring of any obligations it deems
necessary for the conduct of the activities of the
Partnership, including the payment of all expenses
associated with the General Partner;
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(B) 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 or the General Partner;
(C) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets of the
Partnership (including the exercise or grant of any
conversion, option, privilege, or subscription right or other
right available in connection with any assets at any time held
by the Partnership) or the merger or other combination of the
Partnership with or into another entity;
(D) 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,
(I) the financing of the conduct of the operations
of the General Partner, the Partnership or any of the
Partnership's Subsidiaries,
(II) the lending of funds to other Persons
(including, without limitation, the Subsidiaries of the
Partnership and/or the General Partner) and the
repayment of obligations of the Partnership and its
Subsidiaries and any other Person in which it has an
equity investment, and
(III) the making of capital contributions to its
Subsidiaries;
(E) the expansion, development, construction, leasing,
repair, alteration, demolition or improvement of any property
in which the Partnership or any Subsidiary of the Partnership
owns an interest;
(F) the negotiation, execution, and performance of any
contracts, 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, including contracting
with contractors, developers, consultants, accountants, legal
counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the
Partnership's assets;
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(G) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(H) holding, managing, investing and reinvesting cash
and other assets of the Partnership;
(I) the collection and receipt of revenues and income of
the Partnership;
(J) the establishment of one or more divisions of the
Partnership, the selection and dismissal of employees of the
Partnership (including, without limitation, employees having
titles such as "president," "vice president," "secretary" and
"treasurer" of the Partnership), and agents, outside
attorneys, accountants, consultants and contractors of the
Partnership, and the determination of their compensation and
other terms of employment or engagement;
(K) the maintenance of such insurance for the benefit of
the Partnership and the Partners as it deems necessary or
appropriate;
(L) the formation of, or acquisition of an interest in,
and the contribution of property to, any further Entities or
other relationships that it deems desirable, including,
without limitation, the acquisition of interests in, and the
contributions of property to, its Subsidiaries and any other
Person from time to time;
(M) the control of any matters affecting the rights and
obligations of the Partnership, including
(I) the settlement, compromise, submission to
arbitration or any other form of dispute resolution, or
abandonment of, any claim, cause of action, liability,
debt or damages, due or owing to or from the
Partnership,
(II) the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitration or
other forms of dispute resolution, and
(III) the representation of the Partnership in all
suits or legal proceedings, administrative proceedings,
arbitrations or other forms of dispute resolution, the
incurring of legal expenses, and the indemnification of
any Person against liabilities and contingencies to the
extent permitted by law;
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(N) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(O) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable
method of valuation as the General Partner, in its sole
discretion, may adopt;
(P) 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;
(Q) 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;
(R) 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;
(S) the making, execution and delivery of any and all
deeds, leases, notes, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments or
agreements in writing necessary or appropriate, in the
judgment of the General Partner, for the accomplishment of any
of the foregoing;
(T) the issuance of additional OP Units in connection
with Capital Contributions by Additional Limited Partners and
additional Capital Contributions by Partners pursuant to
Article 4 hereof; and
(U) The opening of bank accounts on behalf of, and in
the name of, the Partnership and its Subsidiaries.
(b) (i) 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
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of the Partners, notwithstanding any other provision of this
Agreement to the fullest extent permitted under the Act or other
applicable law, rule or regulation.
(ii) 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
at the expense of the Partnership, may or may not, cause the Partnership
to obtain and maintain
(i) casualty, liability and other 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 at any and all times
working capital accounts and other cash or similar balances in such amount
as the General Partner, in its sole and absolute discretion, deems
appropriate and reasonable from time to time.
(e) (i) In exercising its authority under this Agreement, the
General Partner may, but shall be under no obligation to, take into
account the tax consequences to any Partner of any action taken (or
not taken) by it. The General Partner and the Partnership shall not
have liability to a Limited Partner for monetary damages or
otherwise for losses sustained, liabilities incurred or benefits not
delivered by such Limited Partner in connection with such decisions,
provided that the General Partner has acted in good faith pursuant
to its authority under this Agreement
(ii) 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 taken
pursuant to its authority under and in accordance with this
Agreement.
7.2 Certificate of Limited Partnership
(a) Promptly after the execution and delivery of this Agreement by
the General Partner and the Initial Limited Partner, the General Partner
will file the Certificate with the Secretary of State of Delaware as
required by the Act.
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(b) (i) 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, in which the Partnership may elect to do
business or own property.
(ii) 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 of 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 each other state, or the District of Columbia, in which
the Partnership may elect to do business or own property.
(iii) Subject to the terms of Section 8.5(a)(iv) 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.
7.3 Reimbursement of the General Partner
(a) Except as provided in this Section 7.3 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) (i) The General Partner shall be reimbursed on a monthly
basis, or such other basis as it may determine in its sole and
absolute discretion, for all expenses that it incurs on behalf of
the Partnership relating to the ownership and operation of the
Partnership's assets, or for the benefit of the Partnership,
including all expenses associated with compliance by the General
Partner and the Initial Limited Partner with laws, rules and
regulations promulgated by any regulatory body and any and all
salaries, compensation and expenses of officers and employees of the
General Partner; provided, that the amount of any such reimbursement
shall be reduced by any interest earned by the General Partner with
respect to bank accounts or other instruments or accounts held by it
in its name.
(ii) Such reimbursement shall be in addition to any
reimbursement made as a result of indemnification pursuant to
Section 7.6 hereof.
(iii) Notwithstanding any provisions to the contrary set forth
herein, the General Partner shall not be entitled to reimbursement
for the ratable portion of
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any administrative costs and expenses incurred by it with respect
to, or that are attributable to, properties or partnership interests
in a Subsidiary of the Partnership that are owned by the General
Partner directly. If certain expenses are incurred for the benefit
of the Partnership and other entities (including the General
Partner), such expenses will be allocated to the Partnership and
such other entities in such a manner as the General Partner, it its
sole and absolute discretion, deems fair and reasonable.
(c) (i) Expenses incurred by the General Partner relating to the
organization or reorganization of the Partnership and the General
Partner, the initial public offering of REIT Stock by the General
Partner and any other issuance of additional Partnership Interests,
REIT Stock or rights, options, warrants, or convertible or
exchangeable securities pursuant to Section 4.2 hereof and all costs
and expenses associated with the preparation and filing of any
periodic reports by the General Partner under federal, state or
local laws or regulations (including, without limitation, all costs,
expenses, damages, and other payments resulting from or arising in
connection with litigation related to any of the foregoing) are
primarily obligations of the Partnership.
(ii) To the extent the General Partner pays or incurs such
expenses, the General Partner shall be reimbursed for such expenses.
7.4 Outside Activities of the General Partner
(a) Without the Consent of Limited Partners holding a majority of
the Partnership Interests not held by the General Partner, 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 and the management of the business of
the Partnership, and such activities as are incidental thereto.
(b) The General Partner and any Affiliates of the General Partner
may acquire Limited Partner Interests and shall be entitled to exercise
all rights of a Limited Partner relating to such Limited Partner
Interests.
7.5 Contracts with Affiliates
(a) (i) The Partnership may lend or contribute funds or other
assets to its Subsidiaries or other Persons in which it has an
equity investment and such Subsidiaries and Persons may borrow funds
from the Partnership, on terms and conditions established in the
sole and absolute discretion of the General Partner.
(ii) The foregoing authority shall not create any right or
benefit in favor of any Subsidiary or any other Person.
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(b) Except as provided in Section 7.4, the Partnership may Transfer
assets to 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 as the General Partner, in its sole and absolute
discretion, may determine.
(c) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, Transfer or convey
any property to, or purchase any property from, the Partnership, directly
or indirectly, except pursuant to transactions that are determined by the
General Partner in good faith to be fair and reasonable.
(d) 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, stock option plans, and
similar plans funded by the Partnership for the benefit of employees of
the Partnership, the General Partner, any 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,
any Subsidiaries of the Partnership or any Affiliate of any of them.
(e) The General Partner is expressly authorized to enter into, in
the name and on behalf of the Partnership, a "right of first opportunity"
or "right of first offer" arrangement, non-competition agreements 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.
7.6 Indemnification
(a) (i) To the fullest extent permitted by Delaware law, the
Partnership shall indemnify each Indemnitee from and against any and
all losses, claims, damages, liabilities, joint or several, expenses
(including, without limitation, reasonable attorneys' fees and other
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 or the General Partner
as set forth in this Agreement, in which such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise,
except to the extent it is finally determined by a court of
competent jurisdiction, from which no further appeal may be taken,
that such Indemnitee's action constituted intentional acts or
omissions constituting willful misconduct or fraud.
(ii) 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
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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 7.6 in favor of any
Indemnitee having or potentially having liability for any such
indebtedness.
(iii) Any indemnification pursuant to this Section 7.6 shall
be made only out of the assets of the Partnership, and neither the
General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership, or otherwise provide
funds, to enable the Partnership to fund its obligations under this
Section 7.6.
(b) Reasonable expenses incurred by an Indemnitee who is a party
to a proceeding shall be paid or reimbursed by the Partnership
in advance of the final disposition of the proceeding.
(c) The indemnification provided by this Section 7.6 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 unless otherwise provided in a
written agreement pursuant to which such Indemnities are indemnified.
(d) The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnities 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 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 7.6, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an
employee benefit plan whenever the performance by such Indemnitee of its
duties to the Partnership also imposes duties on, or otherwise involves
services by, such Indemnitee 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 this Section 7.6; 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 any of the Partners to
personal liability by reason of the indemnification provisions set forth
in this Agreement.
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(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.6 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) (i) The provisions of this Section 7.6 are for the benefit of
the Indemnities, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any
other Persons.
(ii) Any amendment, modification or repeal of this Section 7.6
or any provision hereof shall be prospective only and shall not in
any way affect the Partnership's liability to any Indemnitee under
this Section 7.6, 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.
7.7 Liability of the General Partner
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner and its officers and directors shall not be
liable for monetary damages to the Partnership, any Partners or any
Assignees for losses sustained or liabilities incurred as a result of
errors in judgment or mistakes of fact or law or of any act or omission
unless the General Partner acted in bad faith and the act or omission was
material to the matter giving rise to the loss, liability or benefit not
derived.
(b) (i) The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the
shareholders of the General Partner collectively, that the General
Partner, subject to the provisions of Sec tion 7.1(e) hereof, is
under no obligation to consider the separate interest of the Limited
Partners (including, without limitation, the tax consequences to
Limited Partners or Assignees) in deciding whether to cause the
Partnership to take (or decline to take) any actions, and that the
General Partner shall not be liable 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.
(ii) With respect to any indebtedness of the Partnership which
any Limited Partner may have guaranteed, the General Partner shall
have no duty to keep such indebtedness outstanding.
(c) (i) 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
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to it by this Agreement and perform any of the duties imposed upon
it hereunder either directly or by or through its agent.
(ii) The General Partner shall not be responsible for any
misconduct or negligence on the part of any such agent appointed by
the General Partner in good faith.
(d) The Limited Partners expressly acknowledge that in the event of
any conflict in the fiduciary duties owed by the General Partner to its
stockholders and by the General Partner, in its capacity as a general
partner of the Partnership, to the Limited Partners, the General Partner
may act in the best interests of the General Partner's stockholders
without violating its fiduciary duties to the Limited Partners, and that
the General Partner shall not be liable for monetary damages for losses
sustained, liabilities incurred, or benefits not derived by the Limited
Partners in connection with any such violation.
(e) 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 General Partner's and its officers' and directors'
liability to the Partnership and the Limited Partners 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.
7.8 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 in good faith 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, architects,
engineers, environmental consultants 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) (i) 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 duly appointed attorneys-in-fact.
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(ii) 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 each 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 the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or
omission is necessary or advisable in order
(i) to protect the ability of the General Partner to continue
to qualify as a REIT; or
(ii) to avoid the General Partner incurring any taxes under
Section 857 or Section 4981 of the Code,
is expressly authorized under this Agreement and is deemed approved by all
of the Limited Partners.
7.9 Title to Partnership Assets
(a) 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 Partner, individually or collectively,
shall have any ownership interest in such Partnership assets or any
portion thereof.
(b) (i) 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.
(ii) The General Partner hereby declares and warrants that any
Partnership asset for which legal title is held in the name of the
General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement;
provided, that the General Partner shall use its best efforts to
cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable.
(iii) 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.
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7.10 Reliance by Third Parties
(a) 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, without consent or approval
of any other Partner or Person, 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 take any and all actions on
behalf of the Partnership, and such Person shall be entitled to deal with
the General Partner as if the General Partner were the Partnership's sole
party in interest, both legally and beneficially.
(b) 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.
(c) 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
expediency of any act or action of the General Partner or its
representatives.
(d) 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
8.1 Limitation of Liability
The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.
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8.2 Management of Business
(a) No Limited Partner or Assignee (other than the General Partner,
any of its Affiliates or any officer, director, employee, agent or trustee
of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such) shall take part in the operation, 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.
(b) The transaction of any such business by the General Partner, any
of its Affiliates or any officer, director, employee, 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.
8.3 Outside Activities of Limited Partners
(a) Subject to any agreements entered into pursuant to Section 7.5
hereof and any other agreements entered into by a Limited Partner or its
Affiliates with the Partnership or any of its Subsidiaries, any Limited
Partner and any officer, director, employee, agent, trustee, Affiliate or
shareholder 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
that are in direct competition with the Partnership or that are enhanced
by the activities of the Partnership.
(b) 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.
(c) 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 and such
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 Person.
8.4 Return of Capital
(a) Except pursuant to the Exchange Rights Agreement, no Limited
Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein.
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(b) Except to the extent provided by Exhibit B, or as otherwise
expressly provided in this Agreement, 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 to profits, losses or distributions.
8.5 Rights of Limited Partners Relating to the Partnership
(a) In addition to the other rights provided by this Agreement or by
the Act, and except as limited by Section 8.5(b) 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 such
Limited Partner's own expense (including such reasonable copying and
administrative charges as the General Partner may establish from time to
time):
(i) 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 of 1934;
(ii) to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(iv) to obtain a copy of this Agreement and the Certificate
and all amendments or restatements thereto, together with executed
copies of all powers of attorney pursuant to which this Agreement,
the Certificate and all amendments and/or restatements thereto have
been executed; and
(v) 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) 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 reasonably 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 could damage the Partnership or its
business; or
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(ii) the Partnership is required by law or by agreements with
an unaffiliated third party to keep confidential.
8.6 Exchange Rights Agreement
(a) The Limited Partners have been granted the right, but not the
obligation, to exchange all or a portion of their OP Units for cash or, at
the option of the General Partner, for shares of REIT Stock on the terms
and subject to the conditions and restrictions contained in that certain
Exchange Rights Agreement among the General Partners and the Limited
Partners (as amended from time to time, the "Exchange Rights Agreement"),
the form of which is attached hereto as Exhibit E.
(b) The Limited Partners and all successors, assignees and
transferees (whether by operation of law, including by merger or
consolidation, dissolution or liquidation of an entity that is a Limited
Partner, or otherwise) shall be bound by the provisions of the Exchange
Rights Agreement.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
9.1 Records and Accounting
(a) The General Partner shall keep or cause to be kept at the
principal office of the Partnership those records and documents required
to be maintained by the Act and other books and records deemed by the
General Partner to be appropriate with respect to the Partnership's
business, including, without limitation, all books and records necessary
for the General Partner to comply with applicable REIT Requirements and to
provide to the Limited Partners any information, lists and copies of
documents required to be provided pursuant to Sections 8.5(a) and 9.3
hereof.
(b) 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.
(c) 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, or such other basis as the
General Partner determines to be necessary or appropriate.
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9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
9.3 Reports
(a) As soon as practicable, but in no event later than the date on
which the General Partner mails its annual report to its Stockholders, the
General Partner shall cause to be mailed to each Limited Partner as of the
close of the Partnership Year, an annual report containing financial
statements of the Partnership, or of the General Partner, if such
statements are prepared on a consolidated basis with the Partnership, for
such Partnership Year, presented in accordance with GAAP, such statements
to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner in its sole discretion.
(b) If and to the extent that the General Partner mails quarterly
reports to its Stockholders, then as soon as practicable, but in no event
later than the date such reports are mailed, the General Partner shall
cause to be mailed to each Limited Partner a report containing unaudited
financial statements as of the last day of the calendar quarter of the
Partnership, or of the General Partner, if such statements are prepared on
a consolidated basis with the Partnership, and such other information as
may be required by applicable law or regulation, or as the General Partner
determines to be appropriate.
ARTICLE 10
TAX MATTERS
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 ninety (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.
10.2 Tax Elections
(a) 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; provided, however, that the
General Partner shall make the election under Section 754 of the Code in
accordance with applicable regulations thereunder effective for the first
calendar year following the Effective Date.
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(b) The General Partner shall elect a permissible method of
eliminating the disparity between the book value and the tax basis of
property contributed to the Partnership or to a Subsidiary of the
Partnership pursuant to the regulations promulgated under the provisions
of Section 704(c) of the Code.
(c) The General Partner shall have the right to seek to revoke any
tax election it makes, including, without limitation, the election under
Section 754 of the Code, upon the General Partner's determination, in its
sole and absolute discretion, that such revocation is in the best
interests of the Partners.
10.3 Tax Matters Partner
(a) (i) The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes.
(ii) Pursuant to Section 6230(e) of the Code, upon receipt of
notice from the Internal Revenue Service of the beginning of an
administrative proceeding with respect to the Partnership, the tax
matters partner shall furnish the Internal Revenue Service with the
name, address, taxpayer identification number, and profit interest
of each of the Limited Partners and the Assignees; provided, that
such information is provided to the Partnership by the Limited
Partners and the Assignees.
(iii) The tax matters partner is authorized, but not required:
(A) to enter into any settlement with the Internal
Revenue Service 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
Internal Revenue Service 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 Sec
tion 6231(a)(8) of the Code) or a member of a "notice
group" (as defined in Section 6223(b)(2) of the Code);
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(B) 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
filing of a complaint for refund with the United States Claims
Court or the District Court of the United States for the
district in which the Partnership's principal place of
business is located;
(C) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(D) to file a request for an administrative adjustment
with the Internal Revenue Service and, if any part of such
request is not allowed by the Internal Revenue Service, to
file an appropriate pleading (petition or complaint) for
judicial review with respect to such request;
(E) to enter into an agreement with the Internal Revenue
Service to extend the period for assessing any tax which is
attributable to any item required to be taken account of by a
Partner for tax purposes, or an item affected by such item;
and
(F) to take any other action on behalf of the Partners
or 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 Sec tion 7.6 of
this Agreement shall be fully applicable to the tax matters partner
in its capacity as such.
(c) (i) The tax matters partner shall receive no compensation for
its services.
(ii) All third party costs and expenses incurred by the tax
matters partner in performing its duties as such (including legal
and accounting fees and expenses) shall be borne by the Partnership.
(iii) Nothing herein shall be construed to restrict the
Partnership from engaging an accounting firm to assist the tax
matters partner in discharging its
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duties hereunder, so long as the compensation paid by the
Partnership for such services is reasonable.
10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
10.5 Withholding
(a) 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.
(b) (i) 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
fifteen (15) days after notice from the General Partner that such
payment must be made unless
(A) the Partnership withholds such payment from a
distribution which would otherwise be made to the Limited
Partner; or
(B) 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.
(ii) Any amounts withheld pursuant to the foregoing clauses
(i)(A) or (B) shall be treated as having been distributed to such
Limited Partner.
(c) (i) 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.
(ii) (A) In the event that a Limited Partner fails to pay when
due any amounts owed to the Partnership pursuant to this
Section 10.5, 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,
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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.
(B) Without limitation, in such event, the General
Partner shall have the right to receive distributions that
would otherwise be distributable to such defaulting Limited
Partner until such time as such loan, together with all
interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be
treated as having been distributed to the defaulting Limited
Partner and immediately paid by the defaulting Limited Partner
to the General Partner in repayment of such loan.
(iii) Any amount payable by a Limited Partner hereunder shall
bear interest at the highest base or prime rate of interest
published from time to time by any of Citibank, N.A., Chemical Bank,
Morgan Guaranty Trust Company of New York and Chase Manhattan Bank,
N.A., plus four (4) percentage points, but in no event higher than
the maximum lawful rate of interest on such obligation, such
interest to accrue from the date such amount is due (i.e., fifteen
(15) days after demand) until such amount is paid in full.
(iv) Each Limited Partner shall take such actions as the
Partnership or the General Partner shall request in order to perfect
or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
11.1 Transfer
(a) (i) The term "Transfer," when used in this Article 11 with
respect to an OP Unit, shall be deemed to refer to a transaction by
which
(A) the General Partner purports to assign all or any
part of its General Partner Interest to another Person or
(B) a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person.
(ii) The term "Transfer" when used in this Article 11 does not
include any exchange of OP Units for cash or REIT Stock pursuant to
the Exchange Rights Agreement.
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(b) (i) 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.
(ii) Any Transfer or purported Transfer of a Partnership
Interest not made in accordance with this Article 11 shall be null
and void.
11.2 Transfer of the General Partner's General Partner Interest
(a) The General Partner may not Transfer any of its General Partner
Interest or withdraw as General Partner, or Transfer any of its Limited
Partner Interest, except
(i) if Limited Partners holding at least a majority of the
Percentage Interests of the Limited Partners (other than Limited
Partner Interests held by the General Partner or any Affiliate
thereof) consent to such Transfer or withdrawal,
(ii) if such Transfer is to an entity which is wholly owned by
the General Partner and is a Qualified REIT Subsidiary as defined in
Section 856(i) of the Code or
(iii) in connection with a transaction described in Section
11.2(c) or 11.2(d) (as applicable).
(b) In the event the General Partner withdraws as general partner of
the Partnership in accordance with Section 11.2(a), the General Partner's
General Partner Interest shall immediately be converted into a Limited
Partner Interest.
(c) Except as otherwise provided in Section 11.2(d), the General
Partner shall not engage in any merger, consolidation or other combination
with or into another Person or sale of all or substantially all of its
assets, or any reclassification, or any recapitalization or change of
outstanding REIT Stock (other than a change in par value, or from par
value to no par value, or as a result of a subdivision or combination of
REIT Stock) (a "Transaction"), unless
(i) in connection with the Transaction all Limited Partners
will either receive, or will have the right to elect to receive, for
each OP Unit an amount of cash, securities, or other property equal
to the product of the Exchange Factor and the greatest amount of
cash, securities or other property or value paid in the Transaction
to or received by a holder of one share of REIT Stock in
consideration of one share of REIT Stock at any time during the
period from and after the date on which the Transaction is
consummated; provided that if, in connection with the Transaction, a
purchase, tender or exchange offer ("Offer") shall have been made to
and accepted by the holders of more than 50% of the outstanding REIT
Stock, each holder of OP Units shall be given the option to
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exchange its OP Units for the greatest amount of cash, securities,
or other property which a Limited Partner would have received had it
(A) exercised its Exchange Right and
(B) sold, tendered or exchanged pursuant to the Offer
the REIT Stock received upon exercise of the Exchange Right
immediately prior to the expiration of the Offer; and
(ii) no more than 75% of the equity securities of the
acquiring Person in such Transaction shall be owned, after
consummation of such Transaction, by the General Partner or Persons
who were Affiliates of the Partnership or the General Partner
immediately prior to the date on which the Transaction is
consummated.
(d) (i) Notwithstanding Section 11.2(c), the General Partner may
merge into or consolidate with another entity if immediately after
such merger or consolidation
(A) substantially all of the assets of the successor or
surviving entity (the "Surviving General Partner"), other than
OP Units held by the General Partner, are contributed to the
Partnership as a Capital Contribution in exchange for OP Units
with a fair market value equal to the value of the assets so
contributed as determined by the Surviving General Partner in
good faith and
(B) the Surviving General Partner expressly agrees to
assume all obligations of the General Partner hereunder.
(ii) (A) Upon such contribution and assumption, the Surviving
General Partner shall have the right and duty to amend this
Agreement and the Exchange Rights Agreement as set forth in this
Section 11.2(d).
(B) (I) The Surviving General Partner shall in good
faith arrive at a new method for the calculation of the
Exchange Factor for an OP Unit after any such merger or
consolidation so as to approximate the existing method
for such calculation as closely as reasonably possible.
(II) Such calculation shall take into account,
among other things, the kind and amount of securities,
cash and other property that was receivable upon such
merger or consolidation by a holder of REIT Stock or
options, warrants or other rights relating
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thereto, and which a holder of OP Units could have
acquired had such OP Units been redeemed for REIT Stock
immediately prior to such merger or consolidation.
(C) Such amendment to this Agreement shall provide for
adjustment to such method of calculation, which shall be as
nearly equivalent as may be practicable to the adjustments
provided for with respect to the Exchange Factor.
(iii) The above provisions of this Section 11.2(d) shall
similarly apply to successive mergers or consolidations permitted
hereunder.
11.3 Limited Partners' Rights to Transfer
(a) Subject to the provisions of Sections 11.3(c), 11.3(d), 11.3(e)
and 11.4 and the restrictions included in the applicable Lock-up
Agreement, a Limited Partner may, without the consent of the General
Partner, Transfer all or any portion of its Limited Partnership Interest.
(b) (i) If a Limited Partner is Incapacitated, the executor,
administrator, trustee, committee, guardian, conservator or receiver
of such Limited Partner's estate shall have all of 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.
(ii) 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 by a Limited
Partner of its OP Units if, in the opinion of legal counsel to the
Partnership, such Transfer would require filing of a registration
statement under the Securities Act of 1933, as amended, or would otherwise
violate any federal or state securities laws or regulations applicable to
the Partnership or the OP Units.
(d) No Transfer by a Limited Partner of its OP Units may be made to
any Person if
(i) in the opinion of legal counsel of the Partnership, it
would adversely affect the ability of the General Partner to
continue to qualify as a REIT or would subject the General Partner
to any additional taxes under Section 857 or Section 4981 of the
Code;
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(ii) in the opinion of legal counsel for the Partnership, it
would result in the Partnership being treated as an association
taxable as a corporation for federal income tax purposes;
(iii) such Transfer would cause the Partnership to become,
with respect to any employee benefit plan subject to Title I of
ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA)
or a "disqualified person" (as defined in Sec tion 4975(c) of the
Code);
(iv) such Transfer would, in the opinion of legal counsel for
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 Sec tion 2510.2-101;
(v) such Transfer would subject the Partnership to regulation
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;
(vi) without the consent of the General Partner, which consent
may be withheld in its sole and absolute discretion, such Transfer
is a sale or exchange, and such sale or exchange would, when
aggregated with all other sales and exchanges during the 12-month
period ending on the date of the proposed Transfer, result in 50% or
more of the interests in Partnership capital and profits being sold
or exchanged during such 12-month period; or
(vii) such Transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.
(e) No transfer of any OP Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose
loan constitutes a nonrecourse liability (within the meaning of
Regulations Section 1.752-1(a)(2)), without the consent of the General
Partner, which may be withheld 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 exchange for the Cash Amount (as such term is defined in the Exchange
Rights Agreement) any OP 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.
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(f) Any Transfer in contravention of any of the provisions of this
Section 11.3 shall be void and ineffectual and shall not be binding upon,
or recognized by, the Partnership.
11.4 Substituted Limited Partners
(a) (i) No Limited Partner shall have the right to substitute a
Permitted Transferee for a Limited Partner in his place.
(ii) The General Partner shall, however, have the right to
consent to the admission of a Permitted Transferee of the
Partnership Interest of a Limited Partner pursuant to this Section
11.4 as a Substitute Limited Partner, which consent may be given or
withheld by the General Partner in its sole and absolute discretion.
(iii) The General Partner's failure or refusal to permit such
transferee 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.
(c) (i) No Permitted Transferee will be admitted as a Substituted
Limited Partner unless such transferee has furnished to the General
Partner
(A) evidence of acceptance in form satisfactory to the
General Partner of all of the terms and conditions of this
Agreement and the Exchange Rights Agreement, including,
without limitation, the power of attorney granted in Section
2.4 hereof, and
(B) such other documents or instruments as may be
required in the reasonable discretion of the General Partner
in order to effect such Person's admission as a Substituted
Limited Partner.
(ii) Upon the admission of a Substituted Limited Partner, the
General Partner shall amend Exhibit A to reflect the name, address,
number of OP 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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11.5 Assignees
(a) If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any transferee as a Substituted
Limited Partner, as described in Sec tion 11.4(a), such transferee shall
be considered an Assignee for purposes of this Agreement.
(b) An Assignee shall be deemed to have had assigned to it, and
shall be entitled to receive distributions from the Partnership and the
share of Net Income, Net Losses and any other items, gain, loss deduction
and credit of the Partnership attributable to the OP Units assigned to
such transferee, but shall not be deemed to be a holder of OP Units for
any other purpose under this Agreement, and shall not be entitled to vote
such OP Units in any matter presented to the Limited Partners for a vote
(such OP Units being deemed to have been voted on such matter in the same
proportion as all other OP Units held by Limited Partners are voted).
(c) In the event any such transferee desires to make a further
assignment of any such OP Units, such transferee shall be subject to all
of 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 OP Units.
11.6 General Provisions
(a) No Limited Partner may withdraw from the Partnership other than
as a result of a permitted Transfer of all of such Limited Partner's OP
Units in accordance with this Article 11 or pursuant to exchange of all of
its OP Units pursuant to the Exchange Rights Agreement.
(b) (i) Any Limited Partner which shall Transfer all of its OP
Units in a Transfer permitted pursuant to this Article 11 shall
cease to be a Limited Partner upon the admission of all Assignees of
such OP Units as Substituted Limited Partners.
(ii) Similarly, any Limited Partner which shall Transfer all
of its OP Units pursuant to an exchange of all of its OP Units
pursuant to the Exchange Rights Agreement shall cease to be a
Limited Partner.
(c) Other than pursuant to the Exchange Rights Agreement or without
the consent of the General Partner, transfers pursuant to this Article 11
may only be made as of the first day of a fiscal quarter of the
Partnership.
(d) (i) If any Partnership Interest is transferred or assigned
during the Partnership's fiscal year in compliance with the
provisions of this Article 11 or
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exchanged pursuant to the Exchange Rights Agreement 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
interest for such Partnership Year shall be divided and allocated
between the transferor Partner and the transferee Partner by taking
into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using the interim
closing of the books method.
(ii) Solely for purposes of making such allocations, each of
such items for the calendar month in which the Transfer or
assignment occurs shall be allocated to the transferee Partner, and
none of such items for the calendar month in which an exchange
occurs shall be allocated to the exchanging Partner, provided,
however, that the General Partner may adopt such other conventions
relating to allocations in connection with transfers, assignments,
or exchanges as it determines are necessary or appropriate.
(iii) All distributions of Available Cash attributable to OP
Units, with respect to which the Partnership Record Date is before
the date of such transfer, assignment, or exchange of such OP Units,
shall be made to the transferor Partner or the exchanging Partner,
as the case may be, and in the case of a transfer or assignment
other than an exchange, all distributions of Available Cash
thereafter attributable to such OP Units shall be made to the
transferee Partner.
ARTICLE 12
ADMISSION OF PARTNERS
12.1 Admission of Successor General Partner
(a) (i) A successor to all of the General Partner Interest pursuant
to Sec tion 11 hereof who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as the General
Partner, effective immediately following such transfer and the admission
of such successor General Partner as a general partner of the Partnership
upon the satisfaction of the terms and conditions set forth in Section
12.1(b).
(ii) Any such transferee shall carry on the business of the
Partnership without dissolution.
(b) A Person shall be admitted as a substitute or successor General
Partner of the Partnership only if the following terms and conditions are
satisfied:
(i) the Person to be admitted as a substitute or additional
General Partner shall have accepted and agreed to be bound by all
the terms and provisions
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of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order
to effect the admission of such Person as a General Partner;
(ii) if the Person to be admitted as a substitute or
additional General Partner is a corporation or a partnership it
shall have provided the Partnership with evidence satisfactory to
counsel for the Partnership of such Person's authority to become a
General Partner and to be bound by the terms and provisions of this
Agreement; and
(iii) counsel for the Partnership shall have rendered an
opinion (relying on such opinions from other counsel as may be
necessary) that the admission of the person to be admitted as a
substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission
of such Person as a substitute or additional General Partner will
cause
(A) the Partnership to be classified other than as a
partnership for federal income tax purposes, or
(B) the loss of any Limited Partner's limited liability.
(c) 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 Section
11.6(d) hereof.
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 and the
Exchange Rights Agreement, including, without limitation, the power
of attorney granted in Sec tion 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) (i) Notwithstanding anything to the contrary in this Section
12.2, no Person shall be admitted as an Additional Limited Partner
without the consent of
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the General Partner, which consent may be given or withheld in the
General Partner's sole and absolute discretion.
(ii) The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of
such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
(c) (i) 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 Additional 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 of the books
method.
(ii) (A) Solely for purposes of making such allocations, each
of such items for the calendar month in which an admission of
any Additional Limited Partner occurs shall be allocated among
all of the Partners and Assignees, including such Additional
Limited Partner.
(B) distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such
admission shall be made solely to Partners and Assignees,
other than the Additional Limited Partner, and all
distributions of Available Cash thereafter shall be made to
all of the Partners and Assignees, including such Additional
Limited Partner.
(d) Upon the admission of the first Additional Limited Partner to
the Partnership, the Initial Limited Partner's original interest in
the Partnership shall automatically, and without further action on
the part of the Initial Limited Partner or the Partnership, be
withdrawn.
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 Sec tion 2.4
hereof.
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ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
13.1 Dissolution
(a) 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.
(b) The Partnership shall dissolve, and its affairs shall be wound
up, only upon the first to occur of any of the following ("Liquidating
Events"):
(i) the expiration of its term as provided in Section 2.5
hereof;
(ii) an event of withdrawal of the General Partner, as defined
in the Act (other than an event of bankruptcy), unless, within
ninety (90) days after such event of withdrawal, a majority in
interest of the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of
the date of withdrawal, of a successor General Partner;
(iii) from and after the date of this Agreement through
December 31, 2047, an election to dissolve the Partnership made by
the General Partner, with the Consent of Limited Partners holding at
least a majority of the Percentage Interest of the Limited Partners
(including Limited Partner Interests held by the General Partner);
(iv) on or after January 1, 2048, an election to dissolve the
Partnership made by the General Partner, in its sole and absolute
discretion;
(v) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(vi) the sale of all or substantially all of the assets and
properties of the Partnership;
(vii) a final and non-appealable judgment is entered by a
court of competent jurisdiction ruling that the General Partner is
bankrupt or insolvent, or a final and non-appealable order for
relief is entered by a court with appropriate jurisdiction against
the General Partner, in each case under any federal or state
bankruptcy or insolvency laws as now or hereafter in effect, unless
prior to the entry of such order or judgment all of the remaining
Partners 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 order or judgment, of a substitute General Partner.
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13.2 Winding Up
(a) (i) 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.
(ii) 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.
(iii) The General Partner, or, in the event there is no
remaining General Partner, any Person elected by Limited Partners
holding at least a majority of the Limited Partnership Interests
(the General Partner or such other Person being referred to herein
as 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 property 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 common stock or other securities of the
General Partner) shall be applied and distributed in the following
order:
(A) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than
the Partners;
(B) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General Partner;
(C) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other Partners; and
(D) The balance, if any, to the General Partner and
Limited Partners to the extent of and in accordance with the
positive balances in their Capital Accounts, after giving
effect to all contributions, distributions, and allocations
for all periods.
(iv) The General Partner shall not receive any additional
compensation for any services performed pursuant to this Article 13.
(v) Any distributions pursuant to this Section 13.2(a) shall
be made by the end of the Partnership's taxable year in which the
liquidation occurs (or, if later, within 90 days after the date of
the liquidation).
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(b) (i) 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 asset except those necessary
to satisfy liabilities of the Partnership (including to those
Partners as creditors) 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.
(ii) 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 interests 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.
(iii) 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) In the discretion of the Liquidator, 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 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 to time, in the
reasonable discretion of the Liquidator, in the same
proportions as 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 or escrowed to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations
owed to the Partnership, provided that such withheld or
escrowed amounts shall be distributed to
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the General Partner and Limited Partners in the manner and
order of priority set forth in Section 13.2(a) as soon as
practicable.
13.3 No Obligation to Contribute Deficit
If any Partner has a deficit balance in his Capital Account (after giving
effect to all contributions, distributions and allocations for all 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.
13.4 Rights of Limited Partners
(a) Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return
of its Capital Contributions and shall have no right or power to demand or
receive property other than cash from the Partnership.
(b) Except as otherwise provided in this Agreement, no Limited
Partner shall have priority over any other Partner as to the return of its
Capital Contributions, distributions, or allocations.
13.5 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
13.6 Termination of Partnership and Cancellation of Certificate of Limited
Partnership
Upon the completion of the liquidation of the Partnership's assets, as
provided in Sec tion 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all 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.
13.7 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 among the Partners during the period of liquidation.
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13.8 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
14.1 Amendments
(a) (i) Amendments to this Agreement may be proposed by the
General Partner or by any Limited Partners holding in the aggregate
25 percent or more of the Partnership Interests.
(ii) (A) Following such proposal, the General Partner shall
submit any proposed amendment to the Limited Partners.
(B) The General Partner shall seek the written vote of
the Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may
deem appropriate.
(C) For purposes of obtaining a written vote, the
General Partner may require a response within a reasonable
specified time, but not less than fifteen (15) days, and
failure to respond in such time period shall constitute a vote
which is consistent with the General Partner's recommendation
with respect to the proposal.
(D) Except as provided in Section 14.1(b), 14.1(c) or
14.1(d), a proposed amendment shall be adopted and be
effective as an amendment hereto if it is approved by the
General Partner and it receives the Consent of Limited
Partners holding at least a majority of the Percentage
Interests of the Limited Partners (including Limited Partner
Interests held by the General Partner).
(b) (i) Notwithstanding Section 14.1(a), 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:
(A) 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;
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<PAGE> 67
(B) to reflect the admission, substitution, termination,
or withdrawal of Partners in accordance with this Agreement
(which may be effected through the amendment or replacement of
Exhibit A);
(C) to set forth the designations, rights, powers,
duties, and preferences of the holders of any additional
Partnership Interests issued pursuant to Section 4.3 hereof;
(D) to reflect a change that does not adversely affect
the Limited Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions,
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; and
(E) 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.
(ii) The General Partner shall provide notice to the Limited
Partners when any action under this Section 14.1(b) is taken in the
next regular communication to the Limited Partners.
(c) Notwithstanding Section 14.1(a) and 14.1(b) hereof, this
Agreement shall not be amended with respect to any Partner adversely
affected without the Consent of such Partner adversely affected if such
amendment would
(i) convert a Limited Partner's interest in the Partnership
into a General Partner Interest;
(ii) modify the limited liability of a Limited Partner in a
manner adverse to such Limited Partner; or
(iii) amend this Section 14.1(c).
This Section 14.1(c) does not require unanimous consent of all Partners
adversely affected unless the amendment is to be effective against all Partners
adversely affected.
(d) Notwithstanding Section 14.1(a) or Section 14.1(b) hereof, the
General Partner shall not amend, without the Consent of Limited Partners
holding a majority of the Percentage Interests of the Limited Partners,
Section 4.3 (a), Article 5, Article 6 (except that Articles V and VI may
be amended as permitted pursuant to Sections 4.3, 5.4, 6.2 and
14.1(b)(i)(c)), Section 7.4, 7.5, 11.2, or 13.1.
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<PAGE> 68
14.2 Meetings of the Partners
(a) (i) 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 Limited Partners holding 25 percent or more
of the Partnership Interests.
(ii) The request shall state the nature of the business to be
transacted.
(iii) Notice of any such meeting shall be given to all
Partners not less than seven (7) days nor more than thirty (30) days
prior to the date of such meeting.
(iv) Partners may vote in person or by proxy at such meeting.
(v) Whenever the vote or Consent of the Limited Partners is
permitted or required under this Agreement, such vote or Consent may
be given at a meeting of the Partners or may be given in accordance
with the procedure prescribed in Section 14.1(a) hereof.
(vi) Except as otherwise expressly provided in this Agreement,
the Consent of holders of a majority of the Percentage Interests
held by Partners (including the General Partner) shall control.
(b) (i) 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 a majority of the
Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement).
(ii) Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Partners (or such other
percentage as is expressly required by this Agreement).
(iii) Such consent shall be filed with the General Partner.
(iv) An action so taken shall be deemed to have been taken at
a meeting held on the effective date of the consent as certified by
the General Partner.
(c) (i) 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.
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<PAGE> 69
(ii) Every proxy must be signed by the Limited Partner or his
attorney-in-fact and a copy thereof delivered to the Partnership.
(iii) No proxy shall be valid after the expiration of eleven
(11) months from the date thereof unless otherwise provided in the
proxy.
(iv) Every proxy shall be revocable at the pleasure of the
Limited Partner executing it, such revocation to be effective upon
the General Partner's receipt of written notice of such revocation
from the Limited Partner executing such proxy.
(d) (i) Each meeting of the 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.
(ii) Meetings of Partners may be conducted in the same manner
as meetings of the stockholders of the General Partner and may be
held at the same time, and as part of, meetings of the stockholders
of the General Partner.
ARTICLE 15
GENERAL PROVISIONS
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 first class
United States mail or by overnight delivery or via facsimile to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.
15.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only, shall not be deemed part of this Agreement and shall 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.
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<PAGE> 70
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.
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.
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.
15.6 Creditors
Other than as expressly set forth herein with respect to the Indemnities,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
15.7 Waiver
No failure 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 a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
15.8 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of 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.
15.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of laws thereof.
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<PAGE> 71
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.
15.11 Entire Agreement
This Agreement 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.
15.12 Merger
Subject to Section 4.2 herein, the Partnership may merge with, or
consolidate into, any Person or Entity in accordance with Section 17-211 of the
Act.
15.13 No Rights as Stockholders
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the OP Units any rights whatsoever as stockholders of the General
Partner, including, without limitation, any right to receive dividends or other
distributions made to shareholders or to vote or to consent or receive notice as
shareholders in respect to any meeting or shareholders for the election of
directors of the General Partner or any other matter.
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<PAGE> 72
Signature Page to Agreement of Limited Partnership of Tower Realty
Operating Partnership, L.P., by and among the undersigned and the other parties
thereto.
GENERAL PARTNER:
TOWER REALTY TRUST, INC.
By:/s/ Lawrence H. Feldman
--------------------------------------
Name: Lawrence H. Feldman
Title: Chairman of the Board, Chief
Executive Officer and President
<PAGE> 73
EXHIBIT A
Partners' Contributions and Partnership Interests
<TABLE>
<CAPTION>
Name and Address Type of Capital Number Security
of Partner Interest Contribution of Units Interest
---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C>
Tower Realty Trust, Inc. General $ 4,811,066 186,331 None
120 West 45th Street
New York, NY 10036
Tower Realty Trust, Inc. Limited $435,120,764 16,734,124 None
120 West 45th Street
New York, NY 10036
Charles B. Hickcox Limited $ 25 1 None
5702 East Desert
Winds Drive
Cave Creek, AZ 85331
Carlyle Industries, Inc. Limited $ 111,000 4,440 None
1 Palmer Terrace
Carlstadt, NJ 07072
Leo V. Berger Limited $ 150,000 6,000 None
9801 Collins Avenue -
PH1
Bal Harbour, FL 33154
Shoen U.S.A. Inc. Limited $ 74,075 2,963 None
222 Kalakaua Avenue,
Suite 909
Honolulu, HI 96815
Richard Cook Limited $ 62,500 2,500 None
9400 East Maplewood, #7
Englewood, CO 80111
</TABLE>
A-1
<PAGE> 74
<TABLE>
<CAPTION>
Name and Address Type of Capital Number Security
of Partner Interest Contribution of Units Interest
---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C>
Brian Cook Limited $ 31,250 1,250 None
7374 South Poplar Street
Denver, CO 80237
Craig Cook Limited $ 31,250 1,250 None
4605 South Yosemete #
402
Denver, CO 80257
General Electric Real Limited $ 25 1 None
Estate Equities, Inc.
292 Longridge Road
Stamford, CT 06927
Maitland Property Limited $ 407,700 16,308 None
Investors, Ltd.
c/o Lake Success Realty
Investors, Inc.
120 West 45th Street
New York, NY 10036
Jeffrey Feldman Limited $ 15,400 616 None
411 Druid Road West,
Clearwater, FL 33756
Bama Equities, Inc. Limited $ 100,000 4,000 None
220 East 63rd Street
Suite LH
New York, NY 10021
Lawrence Stein Limited $ 318,850 12,754 None
The Old Rectory,
Combpyne
Axminster, Devon
England
</TABLE>
A-2
<PAGE> 75
<TABLE>
<CAPTION>
Name and Address Type of Capital Number Security
of Partner Interest Contribution of Units Interest
---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C>
Reid Berman Limited $ 1,702,550 68,102 None
1688 Pine Avenue
Winter Park, FL 32789
Clifford Stein Limited $ 3,265,775 130,631 None
388 Gilston Court
Lake Mary, FL 32746
Robert Adams Limited $ 1,349,825 53,993 None
12 Hampton Court
Port Washington, NY
11050
Richard M. Wisely Limited $ 950,000 38,000 None
7800 East Lincoln
#1045
Scotsdale, AZ 85250
Reuben Friedberg Limited $ 752,975 30,119 None
556 Richmond Road
East Meadow, NY 11554
Eric S. Reimer Limited $ 1,968,050 78,722 None
231 Honey Hollow Road
Pound Ridge, NY 10576
Joseph D. Kasman Limited $ 2,735,525 109,421 None
12 Mohawk Trail
Katonan, NY 10536
Robert L. Cox Limited $ 2,668,075 106,723 None
27 Anchor Street, #27-S
Freeport, NY 11520
</TABLE>
A-3
<PAGE> 76
<TABLE>
<CAPTION>
Name and Address Type of Capital Number Security
of Partner Interest Contribution of Units Interest
---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C>
Lawrence H. Feldman Limited $ 22,896,150 915,846 None
351 Mill River Road
Upper Brookville, NY
11771
Max Tower 810, LLC Limited managment 129,032 None
c/o N. Richard Kalikow agreement rights
NRK Management Corp.
1110 Second Avenue
New York, NY 10022
TOTAL 18,633,127
==========
</TABLE>
A-4
<PAGE> 77
Exhibit B
Allocations
1. Allocation of Net Income and Net Loss.
(a) Net Income. Except as otherwise provided in this Exhibit B, Net Income
(or items thereof) (other than Net Income, or items thereof, arising in
connection with a Terminating Capital Transaction) for any fiscal year or other
applicable period shall be allocated to the Partners in accordance with their
respective Percentage Interests.
(b) Net Loss. Except as otherwise provided in this Exhibit B, Net Loss (or
items thereof) of the Partnership for each fiscal year or other applicable
period shall be allocated to the Partners in accordance with the Partners'
respective Percentage Interests. Notwithstanding the preceding sentence, to the
extent any Net Loss (or items thereof) allocated to a Partner under this
subparagraph (b) would cause such Partner (hereinafter, a "Restricted Partner")
to have an Adjusted Capital Account Deficit, or increase the amount of an
existing Adjusted Capital Account Deficit, as of the end of the fiscal year or
other applicable period to which such Net Loss relates, such Net Loss shall not
be allocated to such Restricted Partner and instead shall be allocated to the
other Partner(s) (hereinafter, the "Permitted Partners") pro rata in accordance
with each Permitted Partner's Percentage Interest.
(c) Terminating Capital Transaction; Liquidation. Allocations of Net
Income or Net Loss (or items thereof) in connection with a Terminating Capital
Transaction or liquidation of the Partnership shall first be made so that, to
the extent possible, each Partner's Capital Account balance is equal to such
Partner's Adjusted Contribution, and the remainder of such Net Income or Net
Loss (or items thereof) shall be allocated to the Partners in accordance with
their Percentage Interests. Notwithstanding the preceding sentence, to the
extent any Net Loss (or items thereof) would be allocated to a Restricted
Partner under this subparagraph (c), such Net Loss shall not be allocated to
such Restricted Partner and instead shall be allocated to the Permitted Partners
pro rata in accordance with each Permitted Partner's Percentage Interest.
(d) Rules of Construction.
(1) Capital Account Increases. For purposes of making allocations
pursuant to subparagraph 1(c) of this Exhibit B, a Partner's Capital Account
balance shall be deemed to be increased by such Partner's share of any
Partnership Minimum Gain and Partner Minimum Gain remaining at the close of the
fiscal period in respect of which such allocations are being made.
(2) Change in Percentage Interests. In the event any Partner's
Percentage Interest changes during a fiscal year for any reason, including
without limitation, the Transfer of any interest in the Partnership, the tax
allocations contained in this Exhibit B shall be applied as necessary to reflect
the varying interests of the Partners during such year.
A-5
<PAGE> 78
2. Special Allocations. Notwithstanding any provisions of paragraph 1 of
this Exhibit B, the following special allocations shall be made.
(a) Minimum Gain Chargeback (Nonrecourse Liabilities). Except as otherwise
provided in Section 1.704-2(f) of the Regulations, if there is a net decrease in
Partnership Minimum Gain for any Partnership fiscal year, each Partner shall be
specially allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Partner's share of the
net decrease in Partnership Minimum Gain to the extent required by Regulations
Section 1.704-2(f). The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f) and (i) of the Regulations. This
subparagraph 2(a) is intended to comply with the minimum gain chargeback
requirement in said section of the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this subparagraph 2(a) shall be
made in proportion to the respective amounts required to be allocated to each
Partner pursuant hereto.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided in Sec
tion 1.704-2(i)(4) of the Regulations, 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 Section 1.704-2(i)(5) of
the Regulations, shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
that Partner's share of the net decrease in the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt to the extent and in the manner
required by Section 1.704-2(i) of the Regulations. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(i)(4) and (j)(2) of the
Regulations. This subparagraph 2(b) is intended to comply with the minimum gain
chargeback requirement with respect to Partner Nonrecourse Debt contained in
said section of the Regulations and shall be interpreted consistently therewith.
Allocations pursuant to this subparagraph 2(b) shall be made in proportion to
the respective amounts required to be allocated to each Partner pursuant hereto.
(c) Qualified Income Offset. In the event a Partner unexpectedly receives
any adjustments, allocations or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, and such Partner has an
Adjusted Capital Account Deficit, items of Partnership income (including gross
income) and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly
as possible as required by the Regulations. This subparagraph 2(c) is intended
to constitute a "qualified income offset" under Section 1.704-1(b)(2)(ii)(d) of
the Regulations and shall be interpreted consistently therewith.
(d) Other Chargeback of Impermissible Negative Capital Account. To the
extent any Partner has an Adjusted Capital Account Deficit at the end of any
Partnership fiscal year, each such Partner shall be specially allocated items of
Partnership income (including gross income) and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
paragraph 2(d) shall be made if and only to the extent that such Partner would
have an
A-6
<PAGE> 79
Adjusted Capital Account Deficit after all other allocations provided for in
this Exhibit B have been tentatively made as if this paragraph 2(d) were not in
the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or
other applicable period shall be allocated to the Partners in accordance with
their respective Percentage Interests.
(f) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any
fiscal year or other applicable period with respect to a Partner Nonrecourse
Debt shall be specially allo cated to the Partner that bears the economic risk
of loss for such Partner Nonrecourse Debt (as determined under Sections
1.704-2(b)(4) and 1.704-2(i)(1) of the Regulations).
(g) Intent of Allocations. The parties intend that the allocation
provisions of this Exhibit B shall result in final Capital Account balances of
the Partners that initially are equal to each Partner's Adjusted Contribution
and are then in proportion to the Partners' respective Percentage Interests, so
that when liquidating distributions are made in accordance with such final
Capital Account balances under Section 13.2A(4) hereof, such distributions will
be able to return to each Partner its Adjusted Contribution and then will be
made in proportion to the Partners' respective Percentage Interests. To the
extent that such final Capital Account balances do not so reflect the provisions
of this Exhibit B, income and loss of the Partnership for the current year and
future years, as computed for book purposes, shall be allocated among the
Partners so as to result in final Capital Account balances reflecting the
provisions of this Exhibit B and to the extent such allocations of items of
income (including gross income) and deduction do not result in such final
Capital Account balances, then, income and loss of the Partnership for prior
open years, as computed for book purposes (or items of gross income and
deduction of the Partnership for such years, as computed for book purposes)
shall be reallocated among the Partners consistent with the foregoing. This
subparagraph shall control notwithstanding any reallocation of income, loss, or
items thereof, as computed for book purposes, by the Internal Revenue Service or
any other taxing authority.
(h) Section 754 Adjustment. To the extent an adjustment to the adjusted
tax basis of any asset of the Partnership pursuant to Section 734(b) of the Code
or Section 743(b) of the Code is required, pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in determining
Capital Accounts, 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 among the Partners in a manner consistent with the manner in
which each of their respective Capital Accounts are required to be adjusted
pursuant to such section of the Regulations.
(i) Gross Income Allocation. There shall be specially allocated to the
General Partner an amount of Partnership income and gain during each Partnership
Year or portion thereof, before any other allocations are made hereunder, which
is equal to the excess, if any, of the cumulative distributions of cash made to
the General Partner under Section 7.3B hereof over
A-7
<PAGE> 80
the cumulative allocations of Partnership income and gain to the General Partner
pursuant to this Section 2(i) of this Exhibit B.
3. Tax Allocations.
(a) Items of Income or Loss. Except as is otherwise provided in this
Exhibit B, an allocation of Partnership Net Income or Net Loss to a Partner
shall be treated as an allocation to such Partner of the same share of each item
of income, gain, loss, deduction and item of tax-exempt income or Section
705(a)(2)(B) expenditure (or item treated as such expenditure pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i)) ("Tax Items") that is taken into
account in computing Net Income or Net Loss.
(b) Section 1245/1250 Recapture. If any portion of gain from the sale of
Partnership assets is treated as gain which is ordinary income by virtue of the
application of Code Sections 1245 or 1250 ("Affected Gain"), then such Affected
Gain shall be allocated among the Partners in the same proportion that the
depreciation and amortization deductions giving rise to the Affected Gain were
allocated. This subparagraph 3(b) shall not alter the amount of Net Income (or
items thereof) allocated among the Partners, but merely the character of such
Net Income (or items thereof). For purposes hereof, in order to determine the
proportionate allocations of depreciation and amortization deductions for each
fiscal year or other applicable period, such deductions shall be deemed
allocated on the same basis as Net Income and Net Loss for such respective
period.
(c) Precontribution Gain, Revaluations. With respect to any Contributed
Property, the Partnership shall use any permissible method contained in the
Regulations promulgated under Section 704(c) of the Code selected by the General
Partner, in its sole discretion, to take into account any variation between the
adjusted basis of such asset and the fair market value of such asset as of the
time of the contribution ("Precontribution Gain"). Each Partner hereby agrees to
report income, gain, loss and deduction on such Partner's federal income tax
return in a manner consistent with the method used by the Partnership. If any
asset has a Gross Asset Value which is different from the Partnership's adjusted
basis for such asset for federal income tax purposes because the Partnership has
revalued such asset pursuant to Regulations Section 1.704- 1(b)(2)(iv)(f), the
allocations of Tax Items shall be made in accordance with the principles of
Section 704(c) of the Code and the Regulations and the methods of allocation
promulgated thereunder. The intent of this subparagraph 3(c) is that each
Partner who contributed to the capital of the Partnership a Contributed Property
will bear, through reduced allocations of depreciation, increased allocations of
gain or other items, the tax detriments associated with any Precontribution
Gain. This subparagraph 3(c) is to be interpreted consistently with such intent.
(d) Excess Nonrecourse Liability Safe Harbor. Pursuant to Regulations Sec
tion 1.752-3(a)(3), solely for purposes of determining each Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
(as defined in Regulations Section 1.752- 3(a)(3)), the Partners' respective
interests in Partnership profits shall be determined in accordance with each
Partner's Percentage Interest; provided, however, that each Partner who has
contributed
A-8
<PAGE> 81
an asset to the Partnership shall be allocated, to the extent possible, a share
of "excess nonrecourse liabilities" of the Partnership which results in such
Partner being allocated nonrecourse liabilities in an amount which is at least
equal to the amount of income pursuant to Section 704(c) of the Code and the
Regulations promulgated thereunder (the "Liability Shortfall"). In the event
there is an insufficient amount of nonrecourse liabilities to allocate to each
Partner an amount of nonrecourse liabilities equal to the Liability Shortfall,
then an amount of nonrecourse liabilities in proportion to, and to the extent
of, the Liability Shortfall shall be allocated to each Partner.
(e) References to Regulations. Any reference in this Exhibit B or the
Agreement to a provision of proposed and/or temporary Regulations shall, in the
event such provision is modified or renumbered, be deemed to refer to the
successor provision as so modified or renumbered, but only to the extent such
successor provision applies to the Partnership under the effective date rules
applicable to such successor provision.
(f) Successor Partners. For purposes of this Exhibit B, a transferee of a
Partnership Interest shall be deemed to have been allocated the Net Income, Net
Loss and other items of Partnership income, gain, loss, deduction and credit
allocable to the transferred Partnership Interest that previously have been
allocated to the transferor Partner pursuant to this Agreement.
A-9
<PAGE> 82
FOR ALL INVESTORS:
THE OP UNITS ISSUED UNDER THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR REGISTERED OR
QUALIFIED UNDER THE APPLICABLE STATE SECURITIES LAWS, IN RELIANCE UPON
EXEMPTIONS FROM REGISTRATION AND QUALIFICATION PROVIDED IN THE SECURITIES ACT
AND THE APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
QUALIFICATION OR REGISTRATION UNDER THE APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED.
IN ADDITION, THE OP UNITS ISSUED UNDER THIS AGREEMENT MAY BE SOLD OR TRANSFERRED
ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THE OP UNITS OFFERED HEREBY HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OP UNITS OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
FOR NEW YORK INVESTORS:
THIS AGREEMENT HAS NOT BEEN REVIEWED BY THE ATTORNEY GENERAL PRIOR TO ITS
ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
(iv)
<PAGE> 83
THIS AGREEMENT DOES NOT CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT
TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY ARE MADE, NOT MISLEADING. STATEMENTS CONTAINED
HEREIN AS TO THE CONTENTS OF DOCUMENTS GOVERNING THIS INVESTMENT ARE SUMMARIES
AND ARE NOT COMPLETE COPIES OF THE DOCUMENTS, AND, ACCORDINGLY, REFERENCE SHOULD
BE MADE TO THE DOCUMENTS THEMSELVES FOR A MORE COMPLETE UNDERSTANDING OF THE
INVESTMENT. HOWEVER, THIS PARTNERSHIP AGREEMENT CONTAINS A FAIR SUMMARY OF THE
MATERIAL TERMS OF DOCUMENTS PURPORTED TO BE SUMMARIZED HEREIN.
FOR FLORIDA INVESTORS:
THE OP UNITS OFFERED HEREBY WILL BE SOLD TO, AND ACQUIRED BY, THE PURCHASER IN A
TRANSACTION EXEMPT UNDER SECTION 517.061(11) OF THE FLORIDA SECURITIES AND
INVESTOR PROTECTION ACT. THAT SECTION PROVIDES THAT WHEN SALES ARE MADE TO FIVE
OR MORE PERSONS, ANY SALE MADE PURSUANT TO SUCH SECTION IS VOIDABLE AT THE
OPTION OF THE PURCHASER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
(v)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOWER REALTY TRUST, INC. FOR THE PERIOD ENDED MARCH 31,
1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 35,398
<SECURITIES> 0
<RECEIVABLES> 4,283
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 642,203
<DEPRECIATION> 6,247
<TOTAL-ASSETS> 704,420
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 169
<OTHER-SE> 360,500
<TOTAL-LIABILITY-AND-EQUITY> 704,420
<SALES> 0
<TOTAL-REVENUES> 25,944
<CGS> 0
<TOTAL-COSTS> 20,470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,613
<INCOME-PRETAX> 5,181
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,181
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
