TOTAL OF 315 PAGES, INCLUDING ALL EXHIBITS.
As filed with the Securities and Exchange Commission on February 5, 1998
Registration No. 333-35063
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Baron Capital Trust
(Name of small business issuer in its charter)
Delaware 6798 Applied For
State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
7826 Cooper Road Gregory K. McGrath
Cincinnati, Ohio 45242 7826 Cooper Road
(513) 984-5001 Cincinnati, Ohio 45242
(Address and telephone number (513) 984-5001
of principal executive offices (Name, address and telephone
and principal place of business) number of agent for service)
Copies to:
Dennis P. Spates, Esq.
Schoeman, Marsh & Updike, LLP
60 East 42nd Street, 39th Floor
New York, New York 10165
(212) 661-5030
Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective.
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CALCULATION OF REGISTRATION FEE
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Title of each class of Dollar amount to Proposed maximum Proposed maximum Amount of
securities to be registered be registered offering price per unit aggregate offering price registration fee(1)
<S> <C> <C> <C> <C>
Common Shares of Beneficial $25,000,000 $10.00 $25,000,000 $7,576.00
Interest
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(1) Previously paid.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET
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Location or Heading in
Item Number Caption Prospectus
- ----------- ------- ----------
<S> <C> <C>
Item 1 Front of Registration Statement and Outside Front Outside Front Cover
Cover of Prospectus
(Furnish the information required by Item 501 of
Regulation S-B)
Item 2 Inside Front and Outside Back Cover Pages of Inside Front Cover; Outside Back Cover,
Prospectus Additional Information; Summary of
(Furnish the information required by Item 502 of Declaration of Trust - Quarterly and
Regulation S-B) Annual Reports
Item 3 Summary Information and Risk Factors Outside Front Cover; Summary of the
(Furnish the information required by Item 503 of Offering; Summary of Risk Factors; Risk
Regulation S-B) Factors
Item 4 Use of Proceeds Summary of the Trust and Use of Proceeds;
(Furnish the information required by Item 504 of The Trust; Investment Objectives and
Regulation S-B) Policies; Proposed Real Estate Investments
Item 5 Determination of Offering Price Risk Factors - Arbitrary Offering Price
(Furnish the information required by Item 505 of
Regulation S-B)
Item 6 Dilution Not Applicable
(Furnish the information required by Item 506 of
Regulation S-B)
Item 7 Selling Security Holders Not Applicable
(Furnish the information required by Item 507 of
Regulation S-B)
Item 8 Plan of Distribution Outside Front Cover; Summary of the Trust
(Furnish the information required by item 508 of and Use of Proceeds; Terms of the Offering
Regulation S-B)
Item 9 Legal Proceedings Legal Matters
(Furnish the information required by Item 103 of
Regulation S-B)
Item 10 Directors, Executive Officers, Promoters and Management
Control Persons
(Furnish the information required by Item 401 of
Regulation S-B)
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<S> <C> <C>
Item 11 Security Ownership of Certain Beneficial Owners and Management; The Trust; Terms of the Offering
Management
(Furnish the information required by Item 403 of
Regulation S-B)
Item 12 Description of Securities Capital Stock of the Trust
(Furnish the information required by Item 202 of
Regulation S-B)
Item 13 Interest of Named Experts and Counsel Legal Matters
(Furnish the information required by Item 509 of
Regulation S-B)
Item 14 Disclosure of Commission Position on Summary of Declaration of Trust - Liability
Indemnification for Securities Act Liabilities and Indemnification; Terms of the Offering
(Furnish the information required by Item 510 of
Regulation S-B)
Item 15 Organization within Last Five Years Management - The Board of the Trust and
(Furnish the information required by Item 404 of Trustees - Independent Trustees
Regulation S-B)
Item 16 Description of Business Summary of the Trust and Use of Proceeds;
(Furnish the information required by Item 101 of The Trust; Investment Objectives and
Regulation S-B) Policies; Proposed Real Estate Investments
Item 17 Management's Discussion and Analysis or Plan of Summary of the Trust and Use of Proceeds;
Operation The Trust
(Furnish the information required by Item 303 of
Regulation S-B)
Item 18 Description of Property The Trust; Proposed Real Estate Investments
(Furnish the information required by Item 102 of
Regulation S-B)
Item 19 Certain Relationships and Related Transactions Management - The Board of the Trust -
(Furnish the information required by Item 404 of Independent Trustees
Regulation S-B)
Item 20 Market for Common Equity and Related Stockholder Summary of the Trust and Use of Proceeds;
Matters Terms of the Offering; Risk Factors -
(Furnish the information required by Item 201 of Distributions to Shareholders Affected by
Regulation S-B) Many Factors
Item 21 Executive Compensation Management - The Board of the Trust -
(Furnish the information required by Item 402 of Independent Trustees
Regulation S-B)
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<S> <C> <C>
Item 22 Financial Statements Other Information - Financial Statements;
(Furnish the information required by Item 310 of Exhibit A
Regulation S-B)
Item 23 Changes in and Disagreement with Accountants on Not Applicable
Accounting and Financial Disclosure
(Furnish the information required by Item 304 of
Regulation S-B)
Item 24 Indemnification of Directors and Officers Part II of Registration Statement
(Furnish the information required by Item 702 of
Regulation S-B)
Item 25 Other Expenses of Issuance and Distribution Part II of Registration Statement
(Furnish the information required by Item 511 of
Regulation S-B)
Item 26 Recent Sales of Unregistered Securities Not Applicable
(Furnish the information required by Item 701 of
Regulation S-B)
Item 27 Exhibits Part II of Registration Statement
(Furnish the information required by Item 601 of
Regulation S-B)
Item 28 Undertakings Part II of Registration Statement
(Furnish the information required by Item 512 of
Regulation S-B)
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PART I
INFORMATION REQUIRED IN PROSPECTUS
Date of Issuance: ________________, 1998
Subject to Completion:
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
BARON CAPITAL TRUST
a Delaware business trust
2,500,000 Common Shares of Beneficial Interest (maximum)
50,000 Common Shares of Beneficial Interest (minimum)
Baron Capital Trust (the "Trust"), a Delaware business trust, and its
affiliate, Baron Capital Properties, L.P. (the "Operating Partnership"), a
Delaware limited partnership, constitute a self-administered and self-managed
real estate company which has been organized to acquire equity interests in
existing residential apartment properties located in the United States and/or to
provide or acquire debt financing secured by mortgages on such types of
property. The Trust intends to acquire, own, operate, manage and improve
residential apartment properties for long-term ownership, and thereby to seek to
maximize current and long-term income and the value of its assets. See "SUMMARY
OF THE TRUST AND USE OF PROCEEDS," "THE TRUST," and "INVESTMENT OBJECTIVES AND
POLICIES" below. The management of the Trust has been involved in the
residential property business for over 10 years.
The Trust intends to make regular quarterly distributions to its
Shareholders of net income generated from its investments. The Trust intends to
operate as a real estate investment trust (a "REIT") for federal income tax
purposes, provided, however, that if the Managing Shareholder determines, with
the affirmative vote of a Majority of Shareholders entitled to vote on such
matter approving the Managing Shareholder's determination, that it is no longer
in the best interests of the Trust to continue to qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
The Trust is the sole general partner of the Operating Partnership, which
will conduct all of the Trust's real estate operations, and in such capacity the
Trust will control the activities of the Operating Partnership. See "THE TRUST -
The Operating Partnership." The Managing Shareholder of the Trust is Baron
Advisors, Inc. ("Baron Advisors"), a Delaware corporation which will manage the
operations of the Trust and the Operating Partnership. The Corporate Trustee of
the Trust is Baron Capital Properties, Inc. ("Baron Properties"), a Delaware
corporation. The Operating Partnership, Baron Advisors and Baron Properties are
Affiliates of each other, and each of them is an Affiliate of the Trust. The
Board of the Trust, a majority of the members of which will be comprised of
Independent Trustees, will have general supervisory authority over the
activities of the Trust and the Operating Partnership and prior approval
authority in respect of certain actions of the Trust and Operating Partnership
specified in the Declaration of Trust for the Trust. See "MANAGEMENT" and
"SUMMARY OF DECLARATION OF TRUST - Control of Operations."
All of the common shares of beneficial interest in the Trust ("Common
Shares") offered hereby (the "Offering") are being sold by the Trust.
Concurrently with the sales of the Common Shares offered hereby, the Trust will
register with the Securities and Exchange Commission (the "Commission")
2,500,000 units of limited
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partnership interest in the Operating Partnership ("Units") to be used together
with, or as an alternative to, cash proceeds from this Offering to acquire
property interests pursuant to a proposed $25,000,000 exchange offering (the
"Exchange Offering"). Sellers of property interests which acquire Units in the
Exchange Offering ("Unitholders") will be entitled to exchange Units at any time
and from time to time for an equivalent number of Common Shares so long as the
exchange would not cause the seller to own (taking into account certain
ownership attribution rules) in excess of 5.0% of the then outstanding Shares,
subject to certain exceptions. To facilitate such exchanges, 2,500,000
additional Common Shares (in addition to the 2,500,000 Common Shares being
offered in this Offering) will be registered with the Commission in conjunction
with the registration of the Units. The Trust has applied for listing on the
American Stock Exchange (the "AMEX") of the Common Shares being offered hereby
and the Common Shares into which Units will be exchangeable.
The Trust is offering on a best efforts basis a maximum of 2,500,000 Common
Shares in this Offering at a purchase price of $10 per Common Share (minimum
purchase of 200 Common Shares per Investor). Funds received will be held in
escrow until the date on which a minimum number of 50,000 Common Shares has been
sold (the "Escrow Date"), provided, however, that if the Escrow Date has not
occurred on or prior to December 31, 1998, the Trust will be required to
promptly refund all proceeds received from subscriptions for Common Shares as of
such date. The Offering will terminate no later than _____________ [the end of
the eighteenth month following the commencement date of the Offering]. See
"TERMS OF THE OFFERING."
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Offering Price to Underwriting Net Proceeds to
Common Shares Public Commissions* the Trust**
<S> <C> <C> <C>
Per Common Share $ 10.00 $ .80 $ 9.20
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Minimum Common Shares $ 500,000 $ 40,000 $ 460,000
(50,000)
- ---------------------------------------------------------------------------------------------------
Maximum Common Shares $ 25,000,000 $ 2,000,000 $ 23,000,000
(2,500,000)
===================================================================================================
</TABLE>
* The Trust has agreed to indemnify Sigma Financial Corporation, the Dealer
Manager of the Offering, against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. The Trust has also granted the
Dealer Manager a five-year warrant, exercisable beginning on the first
anniversary of the commencement of the Offering and ending on the fifth such
anniversary, to acquire a number of Common Shares in an amount equal to 8.5% of
the number of Common Shares sold by it in the Offering at an exercise price of
$13.00 per Common Share. See "TERMS OF THE OFFERING."
** Before deducting expenses of the Offering payable by the Trust estimated at
approximately $500,000, including a non-accountable fee payable to the Managing
Shareholder in an amount equal to 1% of the gross proceeds from the Offering to
cover its distribution, due diligence and organizational expenses associated
with the formation of the Trust and the Operating Partnership and with the
Offering, and a non-accountable fee payable to the Managing Shareholder in an
amount equal to 1% of the gross proceeds of the Offering to cover legal,
accounting and consulting fees, and printing, filing, recording, postage and
other miscellaneous expenses associated with the Offering.
THE MATERIAL RISKS INVOLVED IN THE PURCHASE OF COMMON SHARES IN THE OFFERING
INCLUDE THE FOLLOWING:
o Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from residential apartment properties in which the
Trust invests and on property values.
o Financing risks exist, including debt service obligations in respect of
debt secured by or associated with properties in which the Trust invests
and the ability of the Trust to incur additional debt; the need to
refinance all of the Trust's indebtedness at various maturities; and the
effect of any increase in interest rates on the
2
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Trust's interest expenses in respect of any adjustable interest rate
financing or in respect of any required refinancing, all of which risks
could adversely affect the Trust's cash flow from its investments.
o The Original Investors serve as executive officers of the Trust and the
Managing Shareholder and collectively own Units which are exchangeable
(with certain restrictions described at "THE TRUST -Formation
Transactions") into 19% of the Common Shares outstanding after the
completion of the Offering and the proposed Exchange Offering. They
received the Units in exchange for their initial capitalization of the
Operating Partnership and other consideration. Accordingly, the Original
Investors have significant influence over the affairs of the Trust which
may result in decisions that do not fully represent the interests of all
Shareholders of the Trust. In addition, Shareholders who acquire Common
Shares in the Offering will pay a significantly higher price per share for
Common Shares than the Original Investors paid for their Units.
o The operation of the Trust involves transactions among the Trust, the
Operating Partnership, the Managing Shareholder, the Original Investors and
certain Affiliates of the Managing Shareholder which may involve conflicts
of interest which could result in decisions that do not fully represent the
interest of all Shareholders of the Trust and Unitholders of the Operating
Partnership.
o Although the Common Shares have been registered under the Securities Act of
1933, as amended, will be freely tradable (subject to certain restrictions
relating to REIT tax laws and rules) and are expected to be listed for
trading on AMEX immediately prior to the completion of the Offering, it is
possible that no public market for the Common Shares will ever develop or
be maintained, resulting in lack of liquidity of the Common Shares.
o The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance acquisitions and improvements of
property without additional debt or equity financing and may limit cash
available for distribution to Shareholders.
o Dependency on key management.
o Taxation of the Trust as a corporation results if it fails to qualify as a
REIT.
o Limitations on the ability of Shareholders to change control of the Trust
exist due to restrictions on ownership by any individual Shareholder (other
than the Original Investors) of more than 5.0% of the Common Shares.
o The Trust is newly formed and has no assets or operating history, and, as a
result, prospective Investors may not have an opportunity prior to their
acquisition of Common Shares in the Offering to evaluate any properties in
which the Trust may acquire an interest.
o There can be no assurance as to the successful completion of this Offering
and the proposed Exchange Offering and it is unlikely that the cash
proceeds from the sale in this Offering of only the minimum number of
Common Shares required to complete this Offering will be sufficient to meet
the investment objectives of the Trust.
SEE "SUMMARY OF RISK FACTORS" AND "RISK FACTORS" ON PAGES 18 AND 19 AND PAGES 27
THROUGH 39, RESPECTIVELY, FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS WHICH
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN COMMON SHARES,
INCLUDING THE FOREGOING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION
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PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The address and telephone and fax numbers of the Trust's principal office are:
Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
(513) 984-5001 (Telephone)
(513) 984-4550 (Fax)
The address and telephone and fax numbers of the Dealer Manager of the Offering
are:
Sigma Financial Corporation
4261 Park Road
Ann Arbor, Michigan 48103
(313) 663-1611 (Telephone)
(313) 663- 0213 (Fax)
The date of this Prospectus is ______________, 1998
4
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A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
FLORIDA DIVISION OF SECURITIES, BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY.
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.
INVESTORS MAY NOT HAVE AN OPPORTUNITY TO EVALUATE THE TRUST'S PROPERTY
INVESTMENTS BECAUSE THE TRUST OWNS NO PROPERTY AS OF THE DATE OF THE
COMMENCEMENT OF THE OFFERING, HAS NOT IDENTIFIED SPECIFIC PROPERTIES IN THIS
PROSPECTUS AS PROPERTIES THE TRUST INTENDS TO ACQUIRE AND HAS NO OPERATING
HISTORY.
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TABLE OF CONTENTS
Page
----
INVESTOR SUITABILITY STANDARDS ............................................ 11
SUMMARY OF THE TRUST AND USE OF PROCEEDS .................................. 13
Summary of the Trust ................................................... 13
Summary of Use of Proceeds ............................................. 15
SUMMARY OF RISK FACTORS .................................................. 18
TAX STATUS OF THE TRUST ................................................... 20
COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES ................... 20
CONFLICTS OF INTEREST ..................................................... 24
FIDUCIARY RESPONSIBILITY .................................................. 26
RISK FACTORS .............................................................. 27
Trust .................................................................. 27
No Operating History ................................................ 27
Limited Marketability of Common Shares .............................. 27
Effect on Price of Common Shares and Units Available for Future Sale 27
Effect of Market Interest Rates on Common Share Prices .............. 28
Arbitrary Offering Price ............................................ 28
Participation Rights of Shareholders in Management .................. 28
Distributions to Shareholders Affected by Many Factors .............. 28
Liability and Indemnification of the Managing Persons ............... 29
Delaware Business Trust ............................................. 29
Issuance of Additional Securities ................................... 30
Limits on Ownership and Transfers of Shares ......................... 30
Anti-Takeover Provisions ............................................ 30
Dependency on Key Management ........................................ 31
Influence of Original Investors ..................................... 31
Conflicts of Interest ............................................... 31
Success of Public Offerings ......................................... 32
Forward Looking Statements .......................................... 32
Property Investments ................................................... 32
Investment Risks .................................................... 32
Lack of Liquidity of Real Estate .................................... 33
Capital Improvements ................................................ 34
Risk of Real Estate Acquisitions .................................... 34
Real Estate Financing Risks ......................................... 34
Risks of Investments in Mortgages ................................... 35
Operating Risks ..................................................... 35
Risk of Joint Activity with Others .................................. 35
Competition ......................................................... 36
Uninsured Loss ...................................................... 36
Regulatory Compliance ............................................... 36
Fair Housing Amendments Act of 1988 .............................. 36
Americans with Disabilities Act .................................. 36
Compliance with Environmental Laws ............................... 37
Extended and Uncertain Period for Returns ........................... 37
Lack of Diversification ............................................. 37
Utilization of Funds for Undesignated Properties .................... 37
Dispositions of Trust Property ...................................... 38
Changes in Laws ..................................................... 38
Unaudited Financial Statements ...................................... 38
6
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Income Tax Considerations .............................................. 39
Adverse Consequences of Failure to Qualify as a REIT ................ 39
State and Local Taxes ............................................... 39
PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER .................. 40
MANAGEMENT ................................................................ 48
Managing Shareholder ................................................... 48
Trust Management Agreement ............................................. 50
Officers of the Trust .................................................. 50
The Board of the Trust and Trustees .................................... 51
The Board of the Trust .............................................. 51
Independent Trustees ................................................ 52
Corporate Trustee ................................................... 53
THE TRUST ................................................................. 54
The Operating Partnership .............................................. 54
Formation Transactions ................................................. 56
Ownership of the Trust and the Operating Partnership ................... 57
Regulations ............................................................ 59
Fair Housing Amendments of 1988 ..................................... 59
Americans with Disabilities Act ("Act") ............................. 59
Environmental Regulations ........................................... 60
Rent Control Legislation ............................................ 60
Employees .............................................................. 60
INVESTMENT OBJECTIVES AND POLICIES ........................................ 61
General ................................................................ 61
Trust Policies with Respect to Certain Activities ...................... 62
Investment Policies ................................................. 62
Disposition Policies ................................................ 64
Financing Policies .................................................. 64
Conflicts of Interest Policies ...................................... 64
PROPOSED REAL ESTATE INVESTMENTS .......................................... 65
FEDERAL INCOME TAX CONSIDERATIONS ......................................... 68
Taxation of the Trust .................................................. 68
General ............................................................. 68
Stock Ownership Tests ............................................... 69
Asset Tests ......................................................... 69
Gross Income Tests .................................................. 70
The 75% Test ..................................................... 70
The 95% Test ..................................................... 71
The 30% Test ..................................................... 71
Annual Distribution Requirements .................................... 71
Failure to Qualify .................................................. 72
Tax Aspects of the Trust's Investments in Partnerships ................. 72
General ............................................................. 72
Entity Classification ............................................... 73
Tax Allocations with Respect to Trust Properties .................... 73
Sale of Trust Properties ............................................ 74
Taxation of Shareholders ............................................... 74
Taxation of Taxable Domestic Shareholders ........................... 74
Backup Withholding .................................................. 75
Taxation of Tax-Exempt Shareholders ................................. 75
Taxation of Foreign Shareholders .................................... 75
Other Tax Considerations ............................................... 76
Possible Legislative or Other Actions Affecting Tax Consequences .... 76
State and Local Taxes ............................................... 76
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SUMMARY OF DECLARATION OF TRUST ........................................... 77
Term ................................................................... 77
Control of Operations .................................................. 77
Liability and Indemnification .......................................... 81
Distributions .......................................................... 82
Quarterly and Annual Reports ........................................... 83
Accounting ............................................................. 83
Books and Records; Tax Information ..................................... 83
Governing Law .......................................................... 83
Amendments and Voting Rights ........................................... 83
Dissolution of Trust ................................................... 84
Removal and Resignation of the Managing Shareholder .................... 84
Transferability of Shareholders' Interest .............................. 84
Independent Activities ................................................. 84
Power of Attorney ...................................................... 84
Meetings and Voting Rights ............................................. 85
Additional Offerings of Shares ......................................... 85
Temporary Investments .................................................. 86
REPORTS TO SHAREHOLDERS ................................................... 86
CAPITAL STOCK OF THE TRUST ................................................ 87
General ................................................................ 87
Transfer Agent ......................................................... 87
Restrictions on Ownership and Transfer ................................. 87
CAPITALIZATION ............................................................ 89
TERMS OF THE OFFERING ..................................................... 90
OTHER INFORMATION ......................................................... 93
General ................................................................ 93
Authorized Sales Material .............................................. 93
Financial Statements .................................................. 93
LITIGATION ................................................................ 94
LEGAL MATTERS ............................................................. 94
ADDITIONAL INFORMATION .................................................... 94
GLOSSARY .................................................................. 95
EXHIBITS
A ... Prior Performance of Affiliates of Managing Shareholder
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INVESTMENT IN THE COMMON SHARES BEING OFFERED MAY NOT BE SUITABLE FOR INVESTORS
WHO DO NOT MEET CERTAIN NET WORTH AND OTHER REQUIREMENTS OR WHO CANNOT AFFORD
THE CONSEQUENCES OF A SPECULATIVE INVESTMENT THAT IS NOT EXPECTED TO HAVE AN
IMMEDIATE ACTIVE AFTER-MARKET WHERE THE INVESTMENT MIGHT BE SOLD. EVEN THOUGH,
AS DESCRIBED HEREIN, THE TRUST BELIEVES THAT IT WILL BE TREATED AS A REAL ESTATE
INVESTMENT TRUST ("REIT") FOR FEDERAL INCOME TAX PURPOSES, THE TRUST HAS NOT
OBTAINED, AND DOES NOT INTEND TO REQUEST, A RULING FROM THE INTERNAL REVENUE
SERVICE ("IRS") THAT IT WILL BE TREATED AS A REIT. ALTHOUGH THE TRUST DOES NOT
INTEND TO REQUEST SUCH A RULING FROM THE IRS, THE TRUST HAS OBTAINED THE OPINION
OF ITS SPECIAL TAX COUNSEL THAT, BASED ON THE ORGANIZATION AND PROPOSED
OPERATION OF THE TRUST AND BASED ON CERTAIN OTHER ASSUMPTIONS AND
REPRESENTATIONS, IT WILL QUALIFY AS A REIT. THE OPINION IS NOT BINDING ON THE
IRS OR ANY COURT.
REFERENCE SHOULD BE MADE TO THE DECLARATION OF TRUST FOR THE TRUST
("DECLARATION") AND THE AGREEMENT OF LIMITED PARTNERSHIP OF THE OPERATING
PARTNERSHIP, SUPPORTING DOCUMENTS AND OTHER INFORMATION FURNISHED FOR COMPLETE
INFORMATION CONCERNING THE RIGHTS AND OBLIGATIONS OF THE PARTIES. CERTAIN
PROVISIONS OF SUCH AGREEMENTS ARE SUMMARIZED IN THIS PROSPECTUS, BUT IT SHOULD
NOT BE ASSUMED THAT THE SUMMARIES ARE COMPLETE. SUCH SUMMARIES ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO THE ACTUAL DOCUMENTS ATTACHED AS EXHIBITS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO ANY PERSON WHO DOES NOT MEET THE
SUITABILITY TESTS DESCRIBED HEREIN. REPRODUCTION OF THIS PROSPECTUS OR ANY
PORTION THEREOF OTHER THAN BY THE TRUST, THE MANAGING SHAREHOLDER OR ANY
AFFILIATE IS STRICTLY PROHIBITED.
THE MANAGING SHAREHOLDER HAS AGREED TO PROVIDE, DURING THE OFFERING PERIOD, TO
EACH OFFEREE OF COMMON SHARES (OR HIS REPRESENTATIVE(S) OR BOTH) THE OPPORTUNITY
TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE MANAGING SHAREHOLDER OR ANY
PERSON ACTING ON ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING
AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT IT POSSESSES SUCH
INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, NECESSARY
TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN. REQUESTS FOR FURTHER
INFORMATION SHOULD BE MADE TO THE TRUST AND SUCH INFORMATION SHOULD BE RELIED
UPON ONLY WHEN FURNISHED IN WRITTEN FORM AND SIGNED ON BEHALF OF THE TRUST.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS PROSPECTUS (OR
ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE MANAGING SHAREHOLDER, AFFILIATES
OR EMPLOYEES OR ANY PROFESSIONAL ASSOCIATED WITH THIS OFFERING) AS LEGAL OR TAX
ADVICE. EACH INVESTOR SHOULD CONSULT HIS OWN COUNSEL, ACCOUNTANT AND OTHER
ADVISERS AS TO LEGAL, TAX, ECONOMIC AND RELATED MATTERS CONCERNING THE
INVESTMENT DESCRIBED HEREIN AND ITS SUITABILITY FOR HIM.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY
STATE OR IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED.
NO BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN RESPECT OF THIS OFFERING, OTHER
THAN THOSE CONTAINED HEREIN (OR INFORMATION REQUESTED BY A PROSPECTIVE INVESTOR
AND FURNISHED TO SUCH PROSPECTIVE INVESTOR IN WRITTEN FORM, SIGNED ON BEHALF OF
THE TRUST) AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
9
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NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ANY OTHER PERSON.
ANY OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. EXCEPT AS
OTHERWISE INDICATED, THIS PROSPECTUS SPEAKS AS OF THE DATE ON THE COVER PAGE.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE
ANY INFERENCE THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST SINCE
THE RESPECTIVE DATES AT WHICH THE INFORMATION IS GIVEN HEREIN OR THE DATE
HEREOF.
CERTAIN DEFINED TERMS MAY BE FOUND AT "GLOSSARY."
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" FOR THE RISK FACTORS THAT MANAGEMENT
BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS OFFERING.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED 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 DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
10
<PAGE>
INVESTOR SUITABILITY STANDARDS
An investment in the Common Shares being offered under this Prospectus
involves a high degree of risk and is suitable only for persons of substantial
financial means who have no need for liquidity in their investments. See "RISK
FACTORS." The Trust has adopted as a general investor suitability standard the
requirement that each subscriber for Common Shares represent in writing in the
Subscription Documents, among other things, that:
(a) The subscriber has received a copy of the Prospectus;
(b) The subscriber is acquiring the Common Shares for his own account and
for investment purposes only;
(c) The subscriber can bear the economic risk of losing the subscriber's
entire investment;
(d) The subscriber meets the following minimum income/net worth standards:
(i) Minimum annual gross income of $45,000 and a minimum net worth
(determined exclusive of home, home furnishings, and automobiles) of
$45,000; or
(ii) Minimum net worth of $150,000 (determined exclusive of home, home
furnishings, and automobiles);
(e) The subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to the subscriber's net worth and the
subscriber's investment in the Common Shares will not cause such overall
commitment to become excessive;
(f) The subscriber has adequate means of providing for the subscriber's
current needs and personal contingencies and has no need for liquidity in the
subscriber's investment in the Common Shares; and
(g) The objectives of the Trust are compatible with the subscriber's
investment goals.
In the case of sales to fiduciary accounts, the foregoing investor
suitability standards must be satisfied by the beneficiary, by the fiduciary
account, or by the donor or grantor who directly or indirectly provides the
funds to purchase the Common Shares (if the donor or grantor is the fiduciary).
In the event the subscriber for the Common Shares is purchasing in a fiduciary
capacity for another person or entity, the foregoing suitability standards must
be satisfied by such other person or entity on whose behalf the fiduciary is
acting.
The suitability standards referred to above represent minimum suitability
requirements for prospective Investors, and the satisfaction of such standards
by a prospective Investor does not necessarily mean that the Common Shares are a
suitable investment for such prospective Investor.
Representations made by each prospective Investor in the Subscription
Documents regarding the foregoing will be reviewed by the Managing Shareholder
and Dealer Manager to determine the suitability of such persons, and the
Managing Shareholder will have the right to refuse a prospective Investor's
subscription for Common Shares if, in its sole discretion, it believes the
offeree does not meet the applicable suitability requirements or the Common
Shares are otherwise an unsuitable investment for the offeree or for any other
reason. The acceptance of a subscription for Common Shares by the Managing
Shareholder does not, however, constitute a determination by the Managing
Shareholder that the investment is suitable for such purchaser.
The Trust and the Managing Shareholder will make every effort to furnish
each qualified prospective Investor with any additional information he desires
which is not set forth herein and to provide an opportunity for inquiry
concerning the terms and conditions of this Offering, including information
required to verify the accuracy of the information contained in this Prospectus.
Copies of all documents described or referred to herein are
11
<PAGE>
available at the offices of the Trust located at 7826 Cooper Road, Cincinnati,
Ohio 45242. The Trust's telephone number is (513) 984-5001 and its fax number is
(513) 984-4550.
IF YOU DO NOT MEET THE REQUIREMENTS DESCRIBED ABOVE, DO NOT READ FURTHER AND
IMMEDIATELY RETURN THIS PROSPECTUS TO THE DEALER MANAGER OF THE OFFERING. IN THE
EVENT YOU DO NOT MEET SUCH REQUIREMENTS, THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL COMMON SHARES TO YOU.
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<PAGE>
SUMMARY OF THE TRUST AND USE OF PROCEEDS
The following summary of this Prospectus is for the convenience of
prospective Investors and does not fully reflect all of the terms of the
Offering. This Prospectus describes in detail the numerous aspects of the
transaction which are material to Investors, including those summarized below.
This Prospectus and accompanying Exhibits and supporting documents referred to
herein should be read in their entirety by each prospective Investor and his
advisors before purchasing any Common Shares. The following summary is qualified
in its entirety by reference to the full text of this Prospectus and the
documents referred to herein. Unless the context otherwise requires, the term
"Trust" as used in this Prospectus shall refer to Baron Capital Trust, the
issuer of the Common Shares being offered hereby, and its affiliate, Baron
Capital Properties, L.P., the Operating Partnership, which will conduct the real
estate operations of the Trust and hold its property interests.
Summary of the Trust
Baron Capital Trust (the "Trust"), a Delaware business trust, and its
affiliate, Baron Capital Properties, L.P. (the "Operating Partnership"), a
Delaware limited partnership, constitute a self-administered and self-managed
real estate company which has been organized to indirectly acquire equity
interests in existing residential apartment properties located in the United
States and to provide or acquire debt financing secured by mortgages on such
types of property. The Trust intends to acquire, own, operate, manage and
improve residential apartment properties for long-term ownership, and thereby to
seek to maximize current and long-term income and the value of its assets. See
"SUMMARY OF THE TRUST AND USE OF PROCEEDS," "THE TRUST," and "INVESTMENT
OBJECTIVES AND POLICIES" below. The management of the Trust has been involved in
the residential apartment business for over 10 years.
The Trust intends to make regular quarterly distributions to its
Shareholders of net income generated from its investments. The Trust intends to
operate as a real estate investment trust (a "REIT") for federal income tax
purposes, provided, however, that if the Managing Shareholder determines, with
the affirmative vote of a Majority of Shareholders entitled to vote on such
matter approving the Managing Shareholder's determination, that it is no longer
in the best interests of the Trust to continue to qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
The real estate operations of the Trust will be conducted through the
Operating Partnership (and any other subsidiaries the Trust may have in the
future), among other reasons, in order to (i) enhance the ability of the Trust
to qualify as a REIT under the Code, and (ii) enable the Trust to indirectly
acquire interests in residential apartment properties in exchange transactions
that involve the exchange of units of limited partner interest in the Operating
Partnership ("Units") for such property interests and thereby permit the
deferral until a later date of any tax liabilities that sellers of such
interests otherwise would incur if they received cash or Common Shares in
connection with such sales. Substantially all of the Trust's assets (including
the property interests acquired) will be held by, and its operations conducted
through, the Operating Partnership. As its sole general partner, the Trust will
control the Operating Partnership as well as hold Units representing an economic
interest in the Operating Partnership. The Operating Partnership will be
responsible for, and pay when due, its share of all administrative and operating
expenses of properties in which it acquires an interest. See "THE TRUST - The
Operating Partnership."
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with this Offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units in the Operating
Partnership. The Operating Partnership will use the net cash proceeds of the
Offering, unissued Units or a combination of net cash proceeds and unissued
Units to acquire interests in residential apartment properties or interests in
other partnerships substantially all of whose assets consist of residential
apartment property interests. In connection with the proposed $25,000,000
Exchange Offering (which will involve the acquisition by the Operating
Partnership of property interests in exchange for Units), the Trust will
register 2,500,000 Units with the Commission. A registration statement in
connection with the Exchange Offering has been filed with the Commission.
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<PAGE>
Sellers of property interests who receive Units in the Exchange Offering
will be entitled to exchange all or a portion of the Units held by them for an
equivalent number of Common Shares at any time and from time to time, so long as
the exchange would not cause the seller to own (taking into account certain
ownership attribution rules) in excess of 5.0% of the then outstanding Shares,
subject to the Trust's right to cash out any holder of Units who requests an
exchange. To facilitate such exchanges, the Trust will also register 2,500,000
additional Common Shares (in addition to the 2,500,000 Common Shares being
offered in this Offering) for issuance to holders of Units who request the Trust
to issue Common Shares in exchange for Units in the future.
The Trust intends to investigate making an additional public or private
offering of Common Shares within the 12-month period following the commencement
of the Offering if the Managing Shareholder determines that suitable property
acquisition opportunities which fulfill the Trust's investment criteria are
available and such an offering would fulfill its cost of funds requirements. The
issuance by the Trust and the Operating Partnership of additional Shares and
Units subsequent to the completion of the Offering and the Exchange Offering
could have a dilutive effect on Shareholders who acquire Common Shares in the
Offering.
Baron Advisors, Inc., the Managing Shareholder of the Trust, has full
exclusive and complete discretion in the management and control of the Trust and
the Operating Partnership (subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership). Gregory K. McGrath, the Chief Executive Officer of the Trust and
the President, sole shareholder and sole director of the Managing Shareholder,
and Robert S. Geiger, the Chief Operating Officer of the Trust and the Managing
Shareholder (together, the "Original Investors"), and James H. Bownas and Peter
M. Dickson, the initial Independent Trustees of the Trust, will make investment
decisions for the Trust. See "MANAGEMENT." The address and telephone and fax
numbers for the Managing Shareholder are as follows:
Baron Advisors, Inc.
7826 Cooper Road
Cincinnati, Ohio 45242
Phone: (513) 984-5001
Fax: (513) 984-4550
The term of the Trust will end on the earliest to occur of (a) December 31,
2098, (b) the determination of the holders of at least a majority of the Shares
then outstanding to dissolve the Trust; (c) the sale of all or substantially all
of the Trust's Property, (d) the withdrawal of the Offering by the Managing
Shareholder prior to the Termination Date of the Offering, and (e) the
occurrence of any other event which, by law, would require the Trust to
terminate. See "SUMMARY OF DECLARATION OF TRUST - Term." The Operating
Partnership will terminate on December 31, 2098 unless terminated earlier in
connection with a merger or a sale of all or substantially all of the assets of
the Operating Partnership or upon a vote of its partners. See "THE TRUST The
Operating Partnership."
As described below in this Prospectus, the Managing Shareholder, certain of
its Affiliates, the Dealer Manager and participating brokers will receive
substantial fees and compensation from the Trust in connection with this
Offering, the operation of the Trust and the acquisition, ownership, operation,
improvement and disposition of the Trust's Property. See "SOURCES AND USES OF
FUNDS," "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES" and "TERMS OF
THE OFFERING."
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. The initial distribution is
expected to be made by March 30, 1998, assuming that the Escrow Date has
occurred by such date.
Net cash proceeds of the Offering have not yet been committed to specific
properties. Although the Managing Shareholder has several investment
opportunities under review for the application of such proceeds none of such
potential opportunities has developed beyond the negotiating stage. The Trust
may
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<PAGE>
direct a substantial portion of the proceeds to investment opportunities that
have not been designated in this Prospectus, as it may be amended or
supplemented from time to time, and the Trust may be unable to or may decline to
apply the proceeds to any specific investments that may be described in this
Prospectus or any amendments or supplements thereto. Therefore, prospective
Investors may not be able to evaluate any properties in which the Trust may
apply the net cash proceeds of the Offering before they purchase Common Shares.
In addition, prospective Investors will not have any vote in the selection of
property investments after they purchase Common Shares. Consequently, Investors
will be relying upon the judgment of the Managing Shareholder and the
Independent Trustees for such decisions.
As described above, concurrently with this Offering, the Operating
Partnership expects to make an Exchange Offering using Units to be registered
with the Commission to acquire interests in residential apartment properties. As
its initial acquisition candidates in connection with the Exchange Offering, the
Trust is currently investigating the acquisition of property interests
indirectly owned by partners in 12 real estate limited partnerships managed by
Affiliates of the Managing Shareholder. The targeted properties consist of an
aggregate of 673 residential units (comprised of studio, one, two and
three-bedroom units) and are all located in Florida with the exception of one
property which is located in Georgia. Such property interests are described in
further detail at "PROPOSED REAL ESTATE INVESTMENTS." If acquisitions are
consummated in respect of all 12 properties, the purchase price is expected to
be in the range of $13 million to $15 million, payable in Units in the Operating
Partnership. The Trust intends to investigate other investment opportunities for
the Exchange Offering, including property interests held by unaffiliated owners
and certain other limited partnerships managed by Affiliates of the Managing
Shareholder. See also "PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
Properties in which the Trust will acquire an interest are expected to use
the straight-line method of depreciation over 27-1/2 years. Among other
investment policies described below at "INVESTMENT OBJECTIVES AND POLICIES," the
Trust will not make an equity investment in respect of any property where the
amount invested by it plus the amount of any existing indebtedness or
refinancing indebtedness in respect of such property exceeds the appraised value
of the property. In addition, the Trust will not acquire or provide debt
financing in respect of any property where the amount invested by the Trust plus
the amount of any existing indebtedness in respect of such property exceeds 80%
of the estimated replacement cost of the property as determined by the Managing
Shareholder.
For the definition of certain terms used in this Prospectus, see
"GLOSSARY."
Summary of Use of Proceeds
Set forth below is the estimated application of proceeds of this Offering.
See also "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES" and "TERMS OF
THE OFFERING."
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<PAGE>
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Gross Offering Proceeds: $ 500,000 100% $25,000,000 100%
Cash Offering Expenses:
Underwriting Commissions (1): 40,000 8% 2,000,000 8%
Distribution, Due Diligence and
Organizational Fee (2): 5,000 1% 250,000 1%
Legal and Consulting Fee (3): 5,000 1% 250,000 1%
----------- ----------- ----------- -----------
Amount Available for Investment and
Trust Operations:
$ 450,000 90% $22,500,000 90%
=========== =========== =========== ===========
Investment Fee (4): 20,000 4% 1,000,000 4%
Proceeds to be Used to Acquire
Property Interests and for Trust
Operations (5): 430,000 86% 21,500,000 86%
Cash Offering Expenses: 50,000 10% 2,500,000 10%
Total Application of Proceeds: $ 500,000 100% $25,000,000 100%
=========== =========== =========== ===========
</TABLE>
Footnotes:
1. The Trust will pay the Dealer Manager selling commissions in an amount
equal to 8% of the gross proceeds received from its sales of Common Shares
in this Offering from which it will pay any broker-dealers that the Trust
or the Dealer Manager selects to participate in the sale of Common Shares.
All or a portion of the commissions payable may be reallocated to
participating broker-dealers. The selling commissions will be due and
payable promptly after the latest to occur of (i) acceptance by the
Managing Shareholder of an Investor's subscription, (ii) the receipt and
collection by the Trust of the gross purchase price of the Common Shares
acquired by such Investor, and (iii) the Escrow Date. The Trust has also
granted the Dealer Manager a five-year warrant, exercisable beginning on
the first anniversary of the commencement of the Offering and ending on the
fifth such anniversary, to acquire a number of Common Shares in an amount
equal to 8.5% of the number of Common Shares sold by it in the Offering at
an exercise price of $13.00 per Common Share.
2. The Trust will pay the Managing Shareholder a non-recurring non-accountable
fee in an amount (up to $250,000) equal to 1% of the gross proceeds from
sales of Common Shares in this Offering to cover the distribution, due
diligence and organizational expenses associated with the formation of the
Trust and the Operating Partnership and with the Offering.
3. The Trust will also pay the Managing Shareholder a non-recurring
non-accountable fee in an amount (up to $250,000) equal to 1% of gross
proceeds from sales of Common Shares in this Offering to cover legal,
accounting, and consulting fees, printing, filing, recording, postage and
other miscellaneous expenses associated with this Offering. The fees
described in footnote 2 and this footnote 3 will be payable at the same
time that selling commissions are payable. To the extent which the
distribution, due diligence and organizational expenses or the legal,
accounting, and consulting fees, printing, filing, recording, postage and
other miscellaneous expenses associated with this Offering exceed 1% of the
gross proceeds from the Offering, those expenses will not be reimbursed to
the Managing Shareholder.
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<PAGE>
4. The Trust will pay the Managing Shareholder an investment fee in an amount
(up to $1,000,000) equal to 4% of the gross proceeds from sales of Common
Shares in this Offering as compensation for the Managing Shareholder's
services and expenses in investigating and evaluating investment
opportunities for the Trust and for assisting the Trust in consummating its
investments. One-half of the fee will be payable at the same time that
selling commissions are payable in connection with this Offering, and the
balance will be payable proportionately upon the consummation of each of
the Trust's real estate investments based on the amount invested.
5. The Trust's intended types of investments are described at "THE TRUST,"
"INVESTMENT OBJECTIVES AND POLICIES" and "PROPOSED REAL ESTATE
INVESTMENTS."
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<PAGE>
SUMMARY OF RISK FACTORS
The following is a summary of the material risk factors applicable to the
purchase of Common Shares in this Offering and the proposed operations of the
Trust. For a more detailed description of the risk factors relating to the
Offering and the Trust's activities, including those set forth below, see "RISK
FACTORS" below.
o Real estate investment considerations, such as the effect of national and
local economic and other conditions on residential apartment property
values, the general lack of liquidity of investments in real estate, the
risks associated with investments in mortgages, the ability of tenants to
pay rents, the possibility that rental units may not be occupied or may be
occupied on terms unfavorable to the Trust, the frequent need for capital
improvements, the possibility that (including the effects of depreciation
and interest) certain properties may have experienced recurring losses for
financial reporting purposes, the possibility of uninsured losses, the
ability of the Trust's property investments to generate sufficient cash
flow to meet expenses, including debt service requirements, or to be sold
on favorable terms, if at all, the availability of capital for investment,
and competition in seeking properties for acquisition and in seeking
tenants, which considerations, individually or in the aggregate, may
negatively impact the Trust's ability to make distributions to
Shareholders.
o Risks associated with debt financing, including the potential inability to
refinance any mortgage indebtedness of the Trust upon maturity, risks
associated with possible investments in loans secured by Junior Mortgages
on property which may not be recorded, and the risk of higher interest
rates on any adjustable interest rate debt or debt incurred to refinance
indebtedness.
o The Trust will be permitted to incur indebtedness in an aggregate amount up
to 300% of its net assets (subject to certain exceptions described at
"INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with respect to
Certain Activities - Financing Policies"), which could result in the Trust
becoming highly leveraged, which in turn could adversely affect the ability
of the Trust to make distributions to Shareholders and increase the risk of
default under its indebtedness.
o The Original Investors serve as executive officers of the Trust and the
Managing Shareholder and collectively own Units which are exchangeable
(with certain restrictions described at "THE TRUST - Formation
Transactions") into 19% of the Common Shares outstanding after the
completion of the Offering and the proposed Exchange Offering. They
received the Units in exchange for their initial capitalization of the
Operating Partnership and other consideration. Accordingly, the Original
Investors have significant influence over the affairs of the Trust which
may result in decisions that do not fully represent the interests of all
Shareholders of the Trust. In addition, Shareholders who acquire Common
Shares in this Offering will pay a significantly higher price per share for
Common Shares than the Original Investors paid for their Units. See
"MANAGEMENT" and "THE TRUST - Formation Transactions" and " - Ownership of
the Trust and the Operating Partnership."
o Although the Trust has adopted certain policies designed to eliminate or
minimize their effect, potential conflicts of interest may arise among the
Trust, the Operating Partnership, the Managing Shareholder, the Original
Investors and certain Affiliates of the Managing Shareholder, including
certain Affiliates which have sponsored and/or managed, or may in the
future sponsor, real estate investment programs which seek to acquire
interests in properties similar to those which the Trust will seek to
acquire. In addition, there will be competing demands for management
resources of the Managing Shareholder and the Trust, the possibility of
transactions between the Trust and Affiliates of the Managing Shareholder,
and a lack of independent representation of Investors in structuring this
Offering. See "CONFLICTS OF INTEREST" and "INVESTMENT OBJECTIVES AND
POLICIES - Conflict of Interest Policies."
o Although the Common Shares have been registered under the Securities Act of
1933, as amended, will be freely tradable (subject to certain restrictions
relating to REIT tax laws and rules) and are expected to be listed for
trading on AMEX immediately prior to the completion of this Offering, it is
possible that no public market for the Common Shares will ever develop or
be maintained, resulting in lack of liquidity of the Common Shares.
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<PAGE>
o The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance acquisitions and improvements of
property without additional debt or equity financing and may limit cash
available for distribution to Shareholders. See "FEDERAL INCOME TAX
CONSIDERATIONS."
o Dependency on key management. See "MANAGEMENT."
o Taxation of the Trust as a corporation if it fails to qualify as a REIT for
federal income tax purposes, the Trust's liability for certain federal,
state and local income taxes in such event, and the resulting decrease in
cash available for distribution to Shareholders; even if the Trust
qualifies for taxation as a REIT, the Trust may be subject to certain
Federal, state and local taxes on its income and property. See "FEDERAL
INCOME TAX CONSIDERATIONS."
o Potential anti-takeover effects of provisions in the Declaration which
generally limit the actual or constructive ownership by any one person or
entity (other than the Original Investors) of equity securities in the
Trust to 5.0% of the outstanding Shares and other Declaration and statutory
provisions that may limit the opportunity for Shareholders to receive a
premium price upon any resale by them of Common Shares. See Article 2A of
the Declaration of the Trust.
o The potential liability of the Trust for unknown or future environmental
liabilities and the costs of compliance with the Americans with
Disabilities Act and other governmental regulations, which may negatively
impact the Trust's financial condition, results of operations and cash
available for distribution to Shareholders.
o The Trust is newly formed and has no assets or operating history, and, as a
result, prospective Investors may not have an opportunity prior to their
acquisition of Common Shares in the Offering to evaluate any properties in
which the Trust may acquire an interest.
o There can be no assurance as to the successful completion of this Offering
and the proposed Exchange Offering and it is unlikely that the cash
proceeds from the sale in this Offering of only the minimum number of
Common Shares required to complete this Offering will be sufficient to meet
the investment objectives of the Trust.
o The possible issuance by the Trust and the Operating Partnership of
additional Shares and Units subsequent to the completion of this Offering
and the proposed Exchange Offering, which may result in the dilution of
Investors which acquire Common Shares in the Offering and effect the then
prevailing market price of Common Shares.
o The investment of the net proceeds of this Offering to acquire interests in
one or more existing residential apartment properties may occur over an
extended period during which the Trust will face risks of changes in
interest rates and adverse changes in the real estate market. Similarly,
during periods in which proceeds are invested in interim investments prior
to such application, the Trust may be affected by changes in prevailing
interest rate levels. Such interim investments would be expected to earn
rates of return which are lower than those earned on the Trust's real
estate investments.
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<PAGE>
TAX STATUS OF THE TRUST
The Trust intends to elect to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ending December 31, 1998. To maintain REIT status, an
entity must meet a number of organizational and operational requirements,
including a requirement that it currently distribute to its Shareholders at
least 95% of its REIT taxable income (determined without regard to the dividends
paid deduction and by excluding net capital gains). For taxable years beginning
after August 5, 1997, the Taxpayer Relief Bill of 1997 (the "1997 Act") (1)
expands the class of excess noncash items that are excluded from the
distribution requirement to include income from the cancellation of indebtedness
and (2) extends the treatment of original issue discount and coupon interest as
excess noncash items to REITs, like the Trust, that use an accrual method of
accounting. As a REIT, the Trust generally will not be subject to federal income
tax on net income it distributes currently to its Shareholders. If the Trust
fails to qualify as a REIT in any taxable year, it will be subject to federal
income tax at regular corporate rates and may not be able to qualify as a REIT
for the four subsequent taxable years. See "RISK FACTORS - Adverse Consequences
of Failure to Qualify as a REIT" and "FEDERAL INCOME TAX CONSIDERATIONS." Even
if the Trust qualifies for taxation as a REIT, the Trust may be subject to
certain federal, state and local taxes on its income and property.
COMPENSATION OF THE MANAGING SHAREHOLDER
AND AFFILIATES
The following table describes all the material fees, compensation, and
other payments that may be received by the Managing Shareholder and Affiliates
in exchange for their respective services and expenses in connection with the
preparation of this Prospectus and the Offering, the operation of the Trust and
the acquisition and disposition of the Trust's Property. The determination of
the type and amount of such compensation was not the result of arms'-length
negotiation. See "CONFLICTS OF INTEREST."
OFFERING AND ORGANIZATIONAL STAGE
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder (Baron Non-recurring non-accountable fee to cover $250,000
(Baron Advisors) distribution, due diligence and
organizational expenses associated with the
formation of the Trust and the Operating
Partnership and with the Offering (1% of
gross proceeds from Offering)
Managing Shareholder
Non-recurring non-accountable fee to cover $250,000
legal, accounting and consulting fees,
filing, recording, printing, postage and
other miscellaneous expenses associated
with the Offering (1% of gross proceeds
from Offering)
</TABLE>
20
<PAGE>
OFFERING AND ORGANIZATIONAL STAGE (cont'd)
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Baron Capital Properties, No compensation will be payable to the Reimbursible expenses are
Inc. (the Corporate Trustee Corporate Trustee for performing services on expected to be limited to the
of the Trust) behalf of the Trust at the direction of the expense of operating an office
Managing Shareholder; however, reimbursement in Delaware (approximately
will be made for reasonable expenses $1,500 per year initially) as
incurred on behalf of the Trust which are required by the Delaware Act -
approved in advance by the Managing see "MANAGEMENT - Corporate
Shareholder. Trustee."
Managing Shareholder The Managing Shareholder and certain Amount of reimbursible expenses
and Affiliates Affiliates are entitled to be reimbursed by incurred on behalf of the Trust.
the Trust for all reasonable direct
expenses incurred on behalf of the Trust,
including but not limited to legal,
accounting and consulting fees and other
expenses, to the extent those expenses were
incurred by them in carrying out
responsibilities assigned to them under the
Declaration and do not constitute payment
for activities for which they already
receive a fee or compensation as described
herein.
ACQUISITION AND OPERATING STAGE
<CAPTION>
<S> <C> <C>
Managing Shareholder Investment fee in an amount (up to $1,000,000; the Managing
$1,000,000) equal to 4% of gross proceeds Shareholder may, in its sole
from the Offering as compensation for discretion, share all or a
investigating and evaluating investment portion of this fee with
opportunities for the Trust and assisting non-Affiliates.
in the consummation of its investments;
one-half of the fee is payable at the same
time that selling commissions are payable
in connection with the Offering, and the
balance is payable proportionately at
investment closings based on amount
invested
</TABLE>
21
<PAGE>
ACQUISITION AND OPERATING STAGE (cont'd)
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder Annual fee payable under the Trust $500,000 per year payable on a
Management Agreement for ongoing monthly basis during the term of
management, administrative, and investment the agreement beginning June 1,
advisory services for the Trust (in an 1998; at its option the Managing
amount equal to 1% of gross proceeds of the Shareholder may elect to be paid
Offering plus 1% of the initial value of in Common Shares with an
Units issued in connection with the equivalent value.
proposed Exchange Offering)
Brentwood Management, LLC or Property Management Fee for managing 5% of collected rental income
an Affiliate properties in which the Trust invests from each apartment property it
manages for the Trust plus $325
monthly bookkeeping fee; it may
earn a monthly performance fee
of $2.00 per residential unit if
greater than 96% of gross
potential rents are collected.
Managing Shareholder or an Fee payable to the Managing Shareholder or Fee limited to an amount equal
Affiliate an Affiliate by a seller, in certain cases to up to five percent of the
where the Trust acquires one or more First amount raised in the Offering.
Mortgage Loans or Junior Mortgage Loans or
accounts receivable from existing creditors
of such obligations, title to a particular
property, or an equity interest in an
entity which owns title to a particular
property at a discount to the appraised
value of such property or equity interest
determined at the time of such acquisition.
Baron Capital Properties, No compensation will be paid for performing Reimbursible expenses are
Inc. (the Corporate Trustee services on behalf of the Trust at the expected to be limited to the
of the Trust) direction of the Managing Shareholder; expense of operating an office
however, reimbursement will be made for in Delaware (approximately
reasonable expenses incurred on behalf of $1,500 per year initially) as
the Trust which are approved in advance by required by the Delaware Act -
the Managing Shareholder. see "MANAGEMENT - Corporate
Trustee."
</TABLE>
22
<PAGE>
ACQUISITION AND OPERATING STAGE (cont'd)
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder and Subject to operational limitations on REITs The compensation, price or fee
Affiliates for federal income tax purposes, the Trust payable must be comparable to
is authorized to contract with the Managing and competitive with that
Shareholder and Affiliates to provide goods charged by a third party
and services other than those specified rendering comparable goods and
herein, but no such contract is services which could reasonably
contemplated at this time. Any such be made available to the Trust.
contract would require, among other things,
that such persons be previously engaged in
the business of providing such goods or
services as an ongoing business and that
the compensation, price or fee does not
exceed that specified in the third column.
Managing Shareholder The Managing Shareholder and certain Amount of reimbursible expenses
and Affiliates Affiliates are entitled to be reimbursed by incurred on behalf of the Trust.
the Trust for all reasonable direct
expenses incurred on behalf of the Trust,
including but not limited to legal,
accounting and consulting fees and other
expenses, to the extent those expenses were
incurred by them in carrying out
responsibilities assigned to them under the
Declaration and do not constitute payment
for activities for which they already
receive a fee or compensation as described
herein.
</TABLE>
23
<PAGE>
CONFLICTS OF INTEREST
The Managing Shareholder will use its best efforts to conduct Trust affairs
for the benefit of the Shareholders. However, the Trust is subject to various
conflicts of interest arising out of its relationship with the Managing
Shareholder, Affiliates of the Managing Shareholder, the Original Investors and
the Shareholders, including but not limited to those described below.
The Managing Shareholder was formed for the sole purpose of serving as the
Managing Shareholder of the Trust. Certain Affiliates of the Managing
Shareholder, however, have formed, manage or participate in other partnerships
or entities which engage in real estate activities and may acquire and/or
develop real estate for their own accounts. Affiliates of the Managing
Shareholder are corporate general partners of 47 other Delaware or Florida real
estate limited partnerships that were previously organized to invest in separate
residential apartment properties and single-family housing and retail projects
located in southeastern and mid-western portions of the United States.
Generally, each such program has a separate general partner and involves
separate projects or phases of projects which have been separately financed and
operated on a "stand-alone" basis. See "MANAGEMENT" and "PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER." It is expected that Affiliates of the
Managing Shareholder will organize similar programs in the future.
Certain Affiliates of the Managing Shareholder have sponsored or may
sponsor real estate investment limited partnerships which may seek to acquire
interests in properties similar to those which the Trust may seek to acquire. In
addition, the Trust may attempt to acquire interests in properties from certain
partnerships managed by Affiliates of the Managing Shareholder that directly or
indirectly own interests in properties or from investors in such partnerships.
Furthermore, the Original Investors, Mr. McGrath and Mr. Geiger, serve as
executive officers of the Trust and the Managing Shareholder and are principal
Unitholders in the Operating Partnership. Therefore, individually and
collectively they have significant influence over the affairs of the Trust which
may result in decisions that do not fully represent the interests of all
Shareholders of the Trust. Mr. McGrath is also the sole principal of the
corporate general partners of the real estate investment limited partnerships
described above, certain of which own interests in residential apartment
properties in which the Trust may acquire an interest.
In order to eliminate or minimize conflicts of interest among the Trust and
such Affiliates which may arise in such situations, the Trust has adopted
provisions in the Declaration which require that at least a majority of the
members of the Board be Independent Trustees and that a majority of the Board,
and, in certain cases, a majority of the Independent Trustees, approve
transactions between the Trust and the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective Affiliates. See "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
In addition, the Trust has adopted the following method of allocation of
the acquisition of properties between the Trust and such other affiliated
partnership programs seeking similar properties. Except in unusual
circumstances, the Trust will not invest its net proceeds in property
investments until such similar programs sponsored prior to the Offering have
specified for investment or committed to invest at least 50% of their investment
funds in respect of particular properties, and no such similar program sponsored
subsequent to the Offering will invest in respect of a particular property until
the Trust has specified for investment or committed to invest at least 50% of
its net offering proceeds in respect of particular properties. The Board and the
Independent Trustees are responsible for overseeing the allocation of the
acquisition of properties under the circumstances described above to insure that
the foregoing allocation method is applied fairly to the Trust. However, there
can be no assurance that these policies will always be successful in eliminating
the influence of such conflicts, and, if they are not successful, decisions
could be made that might fail to reflect fully the interests of all
Shareholders.
In most cases, the management of the Managing Shareholder and its
Affiliates is identical. For example, the President, sole stockholder and sole
director of the Managing Shareholder is Gregory K. McGrath, who is also the
President, sole director and sole shareholder of each of the corporate general
partners of the investment programs referred to in the second paragraph of this
section. See "MANAGEMENT." As a result, the activities of
24
<PAGE>
other investment programs organized by Affiliates of the Managing Shareholder
may also result in conflicting demands upon the time and effort of the
management of the Managing Shareholder in the performance of its duties to the
Trust. However, the Managing Shareholder will devote as much attention to the
Trust's activities as is reasonably necessary to manage the Trust.
In the event that any dispute arises in which the interests of the Trust
and any other programs sponsored by the Affiliates of the Managing Shareholder
diverge, the Trust, if necessary, intends to retain separate counsel for each
party with an adverse interest.
The Managing Shareholder and certain Affiliates are entitled under the
Declaration to receive certain fees and other compensation, payments and
reimbursements discussed in this Prospectus. Such fees and other compensation
generally were not determined through a process of arm's length bargaining. The
prices payable and terms of such transactions may not necessarily be determined
by reference to costs to the Managing Shareholder or such Affiliates,
independent appraisals or comparable third party transactions. As a result, the
fees, compensation, prices or terms may not reflect the fair market value of the
services to be rendered to the Trust by the Managing Shareholder or Affiliates
or the value of the property acquired or disposed of.
In addition, the level of compensation payable to the Managing Shareholder
or its Affiliates in connection with the organization and operation of the Trust
may be greater or less than that payable in connection with the organization and
operation of the other investment programs sponsored by such Affiliates.
The interests of the Shareholders may be inconsistent in some respects with
the interests of the Managing Shareholder. The Managing Shareholder and certain
of its Affiliates, by reasons of their interests in the Trust and their receipt
of compensation and fees from the Trust, have and will have potential conflicts
of interest in connection with their performance of certain activities. For
example, a transaction such as a sale of the Trust's Property may produce an
economic benefit for the Managing Shareholder and/or an Affiliate but adverse
tax consequences for the Shareholders. Also, circumstances may arise where
termination of business by the Trust may be advantageous to the Managing
Shareholder and/or Affiliates, while continuation of the Trust might be
advantageous to the Shareholders.
The Declaration provides that the Trust will indemnify the Managing
Shareholder, Independent Trustees, other members of the Board and each of their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees against certain liabilities, and the availability
of such indemnification could affect the actions of such indemnified parties.
See "SUMMARY OF DECLARATION OF TRUST Liability and Indemnification."
The Managing Shareholder intends to utilize the services of certain
suppliers of goods and services for the Trust that have previously provided
goods or services to prior investment programs organized by Affiliates of the
Managing Shareholder. While such providers of goods and services are
unaffiliated with the Managing Shareholder, the existence of previous business
relationships may affect the ability of the Managing Shareholder to
independently represent the interests of the Trust with respect to such
providers of goods and services in light of such other business relationships.
While the Managing Shareholder believes that it has represented and will
continue to represent the interests of the Trust and believes that there are
benefits to utilizing the services of parties with whom the Managing Shareholder
has previous experience, prospective Investors who are concerned about such
potential conflicts are advised to request further information from the Managing
Shareholder and to independently evaluate such relationships.
The Managing Shareholder has provided no independent representation of
prospective Investors in connection with this Offering, and each prospective
Investor should seek independent advice and counsel before making an investment
in the Trust.
While potential conflicts of interest, including those described herein,
may not be entirely eliminated, the Trust believes that any actual conflicts
that may arise will not materially affect the obligation of the Managing
25
<PAGE>
Shareholder, the Independent Trustees, and any other members of the Board to act
in the best interests of the Shareholders and the Trust. See "FIDUCIARY
RESPONSIBILITY" and "RISK FACTORS."
FIDUCIARY RESPONSIBILITY
The Managing Shareholder, Independent Trustees and other members of the
Board are accountable to the Trust as fiduciaries, and consequently must
exercise good faith and integrity in handling Trust affairs. Where the question
has arisen, courts have held that a limited partner may institute legal action
on behalf of himself and all other similarly situated limited partners (i.e.,
class action) to recover damages for a breach by a general partner of its
fiduciary duty, or on behalf of the partnership (i.e., partnership derivative
action) to recover damages from third parties. Certain recent cases decided by
the Federal courts may also be construed to support the right of a limited
partner to bring such actions under Rule 10b-5 issued under the Securities Act
of 1933, as amended, for the recovery of damages (including losses incurred in
connection with the purchase or sale of a partnership interest) resulting from a
breach by a managing entity of its fiduciary duty.
The foregoing summary is based on statutes, rules and decisions as of the
date of this Prospectus and involves a rapidly developing and changing area of
the law. Investors who believe that a breach of fiduciary duty by the Managing
Shareholder, an Independent Trustee or any other member of the Board has
occurred or who have questions concerning the duties of such persons should
consult with their own counsel.
The Declaration provides that the Trust will indemnify the Managing
Shareholder, the Independent Trustees, other members of the Board and their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees against liability arising out of the management
of the Trust within the scope of the Declaration, unless negligence or
misconduct is involved. As a result of these indemnification arrangements,
purchasers of Common Shares have more limited rights of action than they would
have absent the limitations in the Declaration. The exculpatory provisions do
not include indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), unless (i) there has been a successful
adjudication on the merits of each claim involving alleged securities law
violations as to the particular indemnitee, (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee, or (iii) a court of competent jurisdiction approves a
settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In
addition, the exculpatory provisions do not include indemnification for
liabilities arising from or out of intentional or criminal wrongdoing. See
Section 3.7(b) of the Declaration of Trust. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to the Managing
Shareholder, the Independent Trustees, other members of the Board and their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. See "SUMMARY OF
DECLARATION OF TRUST - Liability and Indemnification."
The Managing Shareholder is not permitted to commingle any funds of the
Trust with its own funds or the funds of any other person. The Trust is
expressly prohibited from making any loans to the Managing Shareholder. The
Trust may borrow money from the Managing Shareholder, but only on terms which
are competitive with those offered by unrelated lending institutions.
26
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following material risk
factors, in addition to the other information set forth in this Prospectus, in
connection with an investment in the Common Shares offered hereby and the
proposed operations of the Trust. See also "SUMMARY OF RISK FACTORS" above.
Unless the context otherwise requires, the term "Trust" as used herein shall
refer to Baron Capital Trust, the issuer of the Common Shares being offered
hereby, and Baron Capital Properties, L.P., the Operating Partnership, which
will conduct the real estate operations of the Trust and hold its property
interests.
Trust
No Operating History
Common Shares offered hereby must be considered speculative investments,
and there can be no assurance that the Trust will fulfill its investment
objectives. The Trust, the Operating Partnership and the Managing Shareholder
have no operating history. In addition, the Operating Partnership's assets will
consist primarily of direct or indirect equity or debt investments it may make
in respect of particular residential apartment properties and thus will be
largely dependent upon the successful operation of such properties. Management
of the Managing Shareholder and Affiliates has substantial prior experience in
and knowledge of the residential apartment property market and its financing,
and has significant experience in the management of investment programs. Subject
to the REIT provisions of the Code and regulations issued thereunder and certain
limitations set forth in Section 1.9 of the Declaration, the Trust will also be
authorized to invest in raw land, stocks, bonds, notes, partnership interests
and other securities, and thus will be dependent to a lesser extent upon the
satisfactory performance of such securities. See "FEDERAL INCOME TAX
CONSIDERATIONS" for a description of the REIT provisions of the Code and
regulations issued thereunder and Section 7.4 of the Declaration of the Trust
regarding such permitted investments.
Limited Marketability of Common Shares
Although Common Shares issued in connection with the Offering have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will be freely transferable, the Common Shares will not be registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or listed
on a stock exchange immediately following the effective date of such Securities
Act registration. The Trust has applied for listing on the American Stock
Exchange ("AMEX") of the Common Shares to be issued in connection with the
Offering and the proposed Exchange Offering and expects to qualify for listing
prior to the completion of the offerings. However, there can be no assurance
whether the Trust will qualify for such listing on AMEX or any other stock
exchange and, if so, of the timing of the effectiveness of any such listing. In
addition, the initial public offering price may not be indicative of the market
price for Common Shares after the Offering.
Prior to the Offering there has not been a public market for Common Shares.
Although Common Shares are expected to be listed for trading on AMEX immediately
prior to the completion of the Offering and the proposed Exchange Offering, it
is possible that no public market for the Common Shares will ever develop or be
maintained after the completion of the offerings. Thus there can be no assurance
that an active trading market will develop after the offerings. Accordingly, an
Investor should purchase Common Shares only as a long-term investment and should
be prepared to remain a Shareholder indefinitely. In addition, to facilitate the
Trust' continued compliance with federal tax laws and regulations governing
REIT's, the Declaration of Trust contains significant restrictions relating to
the ownership and transfer of Shares. See " - Limits on Ownership and Transfers
of Shares," "CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and
Transfer," and Article 2A of the Declaration of the Trust.
Effect on Price of Common Shares and Units Available for Future Sale
Future sales or issuances of a substantial number of Common Shares and
Units following the completion of the Offering, or the perception that such
sales or issuances could occur, could adversely affect then prevailing market
27
<PAGE>
prices for Common Shares. In addition to up to 2,500,000 Common Shares to be
issued in the Offering, up to approximately 1,200,000 Units of the Operating
Partnership (exchangeable into an equivalent number of Common Shares subject to
conditions described at "THE TRUST - Formation Transactions") have been issued
to the Original Investors in connection with the initial capitalization of the
Operating Partnership, and up to 2,500,000 Units may be issued in the Exchange
Offering to sellers of property interests who receive Units in exchange for such
property interests. In addition, the Compensation Committee of the Board of the
Trust may vote to reserve additional Common Shares for issuance in connection
with option plans that may be adopted by the committee. See "MANAGEMENT - Option
Plan" and "THE TRUST - Ownership of the Trust and the Operating Partnership."
The Original Investors have entered into an escrow agreement with the Trust
under which they have agreed to not exchange such Units for Common Shares or
sell Common Shares for a period of six years following the date of this
Prospectus unless the Trust achieves certain operating results described at "THE
TRUST - Formation Transactions."
Effect of Market Interest Rates on Common Share Prices
One of the factors that may influence the price of the Common Shares in
public markets will be the annual yield from dividend distributions made by the
Trust to Shareholders. Thus, following the completion of the Offering, an
increase in market interest rates may lead future purchasers of Common Shares to
demand a higher annual yield, which could adversely affect the market price of
the Common Shares.
Arbitrary Offering Price
The offering price of $10.00 per Common Share has been arbitrarily
established by the Trust, and does not necessarily represent a price at which
the Common Shares could be resold, if at all. See " - Limited Marketability of
Common Shares."
Participation Rights of Shareholders in Management
Management of the Trust and the Operating Partnership is vested in the
Managing Shareholder (subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership). Shareholders will generally not have the right to participate in
the management of the Trust's Property or in the decisions of the Managing
Shareholder relating to the Trust's investments. See Sections 1.9, 6.1 and 7.1
of the Declaration of the Trust. Although the members of the Board of the Trust
owe fiduciary duties to the Trust, their failure to enforce the material terms
of any of the Trust agreements, particularly the indemnification provisions and
remedy provisions for breaches of representations and warranties, could result
in a substantial monetary loss to the Trust.
Distributions to Shareholders Affected by Many Factors
Distributions by the Trust to Shareholders will be based principally on
cash available for distributions from properties in which it invests. Increases
in rents under leases of properties acquired by the Trust will increase the
Trust's cash available for distribution to Shareholders. In contrast, the amount
available to make distributions may decrease if rental rates are lowered or if
properties acquired yield lower than expected returns.
The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance future acquisitions and capital
improvements of properties without additional debt or equity financing. If the
Trust incurs indebtedness in the future, it will require additional funds to
service such indebtedness and, as a result, amounts available to make
distributions may decrease. Distributions by the Trust will also be dependent on
a number of other factors, including the Trust's financial condition, any
decision to reinvest funds rather than to distribute such funds, capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code, and such other factors as the Trust deems relevant. In addition, the
Trust and the Operating Partnership may issue from time to time additional
Common Shares, Preferred Shares, Units or debt securities in connection with the
acquisition of properties or in certain other circumstances. No prediction can
be made as to the number
28
<PAGE>
of such Common Shares, Preferred Shares, Units or debt securities which may be
issued, if any, and, if issued, the effect on cash available for distribution,
on a per Share basis, to Shareholders. Such issuances, if any, would have a
dilutive effect on cash available for distribution on a per Share basis to
Shareholders.
To obtain the favorable tax treatment associated with REITs, the Trust
generally will be required to distribute to its Shareholders at least 95% of its
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains) each year. For taxable years beginning after August
5, 1997, the 1997 Act (1) expands the class of excess noncash items that are
excluded from the distribution requirement to include income from the
cancellation of indebtedness and (2) extends the treatment of original issue
discount and coupon interest as excess noncash items to REITs, like the Trust,
that use an accrual method of accounting. In addition, the Trust will be subject
to tax at regular corporate rates to the extent that it distributes less than
100% of its taxable income (including net capital gains). The Trust will also be
subject to a 4% non-deductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year, are less
than the sum of 85% of its ordinary income, 95% of its capital gain net income,
and 100% of its undistributed income from prior years. Pursuant to the 1997 Act,
the Trust may elect to retain rather than distribute its net long-term capital
gains. The effect of such election is that (i) the Trust is required to pay the
tax on such gains, (ii) Shareholders, while required to include their
proportionate share of the undistributed long-term capital gains in income, will
receive a credit or refund for their share of the tax paid by the Trust, and
(iii) the tax basis of a Shareholder's Shares would be increased by the amount
of undistributed long-term capital gains (less the amount of capital gains tax
paid by the Trust) included in the Shareholder's long-term capital gains.
The Trust intends to make distributions to its Shareholders to comply with
the distribution requirements of the Code and to reduce exposure to federal
income taxes and the non-deductible excise tax. Differences in the timing
between the receipt of income and the payment of expenses in arriving at taxable
income and the effect of required debt amortization payments, could require the
Trust to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT. See Section 1.9 of the Declaration.
Liability and Indemnification of the Managing Persons
Although the Managing Shareholder, Independent Trustees and other members
of the Board will be accountable to the Trust as fiduciaries and, consequently,
will be required to exercise good faith and integrity in handling the Trust's
assets and affairs, the Declaration provides that such persons and their
respective officers, directors, shareholders, partners, agents and employees
will not be liable to the Trust or to any of the Shareholders for errors in
judgment or for actions or omissions taken without negligence or bad faith,
provided they acted within the scope of the Declaration. Moreover, the
Declaration provides that the Trust will indemnify the Managing Shareholder,
Independent Trustees, other members of the Board and such other persons against
all liabilities, costs and expenses (including legal fees and expenses) incurred
by the Managing Shareholder or any such persons arising out of or incidental to
this Offering or the business of the Trust on certain conditions. See Section
3.7 of the Declaration. As a result, the Shareholders will have more limited
rights against the Managing Shareholder and such persons than they would have
absent the limitations in the Declaration. See "FIDUCIARY RESPONSIBILITY" and
"SUMMARY OF DECLARATION OF TRUST - Liability and Indemnification."
Delaware Business Trust
The Trust has been organized as a Delaware business trust having limited
liability of the Shareholders of the Trust. Many states have enacted legislation
recognizing the limited liability provisions of the Delaware business trust.
Other states have not enacted such legislation, although it is expected
(although not assured) that most of such states will also recognize the limited
liability of the Shareholders. Accordingly, there is a risk that Shareholders
will not have limited liability for activities of the Trust in any other state
in which the Trust may conduct activities which does not recognize the limited
liability of beneficiaries of a Delaware business trust. Such risk is
substantially, if not entirely, mitigated by the Trust conducting its activities
and holding its interest in properties in the Operating Partnership.
29
<PAGE>
Issuance of Additional Securities
The Trust and the Operating Partnership have authority to offer authorized
but unissued Shares (which may be comprised of Common Shares and/or Preferred
Shares in the discretion of the Trust), debt securities and Units in exchange
for property or otherwise. As described in further detail at "THE TRUST", in
order to facilitate the proposed Exchange Offering, the Trust will register with
the Commission 2,500,000 Units of the Operating Partnership and an additional
2,500,000 Common Shares into which such Units are exchangeable by their holders
subject to certain restrictions. In addition, the Trust intends to investigate
making an additional public or private offering of Common Shares within the
12-month period following the commencement of the Offering if the Managing
Shareholder determines that suitable property acquisition opportunities are
available to the Trust at attractive prices and such an offering would fulfill
its cost of funds requirements. Shareholders who acquire Common Shares in the
Offering will have no preemptive rights to acquire any such additional Shares,
debt securities or Units, and could suffer dilution as a result of subsequent
issuances of securities. See Article 2 of the Declaration.
Limits on Ownership and Transfers of Shares
In order for the Trust to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which the election to be treated as a REIT has been made). Furthermore,
after the first taxable year for which a REIT election is made, the Trust's
Shares must be held by a minimum of 100 persons for at least 335 days of a
12-month taxable year (or a proportionate part of a short tax year). In
addition, if the Trust, or an owner of 10% or more of the Trust, actually or
constructively, owns 10% or more of a tenant of the Trust (or a tenant of any
partnership in which the Trust is a partner), the rent received by the Trust
(either directly or indirectly through any such partnership) from such tenant
will not be qualifying income for purposes of the REIT gross income tests of the
Code. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust." In order
to protect the Trust against the risk of losing REIT status due to a
concentration of ownership among its Shareholders, the Declaration of the Trust
limits actual or constructive ownership of the outstanding Shares by any single
Shareholder (other than the Original Investors) to 5.0% (the "Limit") of the
then outstanding Shares. See "CAPITAL STOCK OF THE TRUST - Restrictions on
Ownership and Transfer." The Managing Shareholder (upon receipt of a ruling from
the Internal Revenue Service (the "Service") or an opinion of counsel or other
evidence satisfactory to the Managing Shareholder and upon such other conditions
as the Managing Shareholder may require) may in its discretion waive the Limit
depending on the then existing facts and circumstances surrounding the proposed
transfer, including without limitation, the identity of the party requesting
such waiver, the number and extent of Share ownership of other Shareholders, the
aggregate number of outstanding Shares and the extent of any contractual
restrictions (other than that contained in the Declaration of Trust) on any
Shareholders relating to transfer of their Shares. See Section 2A.12 of the
Declaration of Trust. The Managing Shareholder will waive the Limit with respect
to a particular Shareholder if it is satisfied, based upon the foregoing, that
ownership by such Shareholder in excess of the Limit would not jeopardize the
Trust's status as a REIT and the Managing Shareholder otherwise decided that
such action would be in the best interests of the Trust.
Actual or constructive ownership of Shares in excess of the Limit, or with
the consent of the Managing Shareholder, such other limit, will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of Shares in excess of the Limit, or, with the consent
of the Managing Shareholder, such other limit, as applicable. Such purported
transferee or owner would have no right to vote such Shares or be entitled to
dividends or other distributions with respect to such Shares. See "CAPITAL STOCK
OF THE TRUST - Restrictions on Ownership and Transfer" and Article 2A of the
Declaration for additional information regarding the Limit.
Anti-Takeover Provisions
The ownership limitations set forth in the Declaration of the Trust
described above at " - Limits on Ownership and Transfer of Shares" could have
the effect of delaying, deferring or preventing a takeover or other
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transaction in which holders of some, or a majority, of the Common Shares might
receive a premium for their Common Shares over the then prevailing market price
or which such holders might believe to be otherwise in their best interest. See
"CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and Transfer" and
Article 2A of the Declaration for additional information regarding the ownership
limitations.
Dependency on Key Management
The Trust will be dependent upon the efforts of management of the Trust and
the Managing Shareholder (primarily Gregory K. McGrath and Robert S. Geiger) and
other members of management (including, without limitation, the Independent
Trustees and any other members of the Board). While the Trust believes that it
could find replacements for such management, the loss of their services could
have an adverse effect on the Trust's business, financial condition and
operating results.
Influence of Original Investors
Following the completion of the Offering and the proposed Exchange
Offering, Mr. McGrath and Mr. Geiger, the Original Investors, will each own 9.5%
of the outstanding Units in the Operating Partnership (which are exchangeable
into an equivalent number of Common Shares subject to certain conditions
described at "THE TRUST Formation Transactions"), and under the Declaration of
the Trust no other Shareholder may hold more than 5.0% of the beneficial
interest in the Trust. Although a majority of the members of the Board will be
unaffiliated Independent Trustees in accordance with the Trust's Declaration of
Trust, Mr. McGrath serves as the Chief Executive Officer of the Trust and the
President, sole stockholder and sole director of the Managing Shareholder, and
Mr. Geiger serves as Chief Operating Officer of each company. See "MANAGEMENT."
Although there is no agreement, understanding or arrangement for such
individuals to act together in any manner, they are in a position to exercise
significant influence over the affairs of the Trust if they were to act together
in the future. Accordingly, the Original Investors have significant influence
over the affairs of the Trust which may result in decisions that do not fully
represent the interests of all Shareholders of the Trust. See "MANAGEMENT" and
"POLICIES WITH RESPECT TO CERTAIN ACTIVITIES -- Conflict of Interest Policies."
Conflicts of Interest
The Trust is subject to conflicts of interest arising out of its
relationship to the Operating Partnership, the Managing Shareholder, Affiliates
of the Managing Shareholder, the Original Investors, Shareholders, and sellers
of property interests who receive Units in exchange for such property interests.
For example, certain Affiliates of the Managing Shareholder have sponsored
and/or managed, or may in the future sponsor, real estate investment programs
which may seek to acquire interests in properties similar to those which the
Trust may seek to acquire. In addition, the Trust may attempt to acquire
interests in properties from certain partnerships managed by Affiliates of the
Managing Shareholder that directly or indirectly own interests in properties or
from investors in such partnerships.
Furthermore, as described above at " - Influence of Original Investors,"
the Original Investors, Mr. McGrath and Mr. Geiger, serve as executive officers
of the Trust and the Managing Shareholder and have received a significant number
of Units in the Operating Partnership in connection with the formation of the
Trust and the Operating Partnership. Therefore, individually and collectively
they will have significant influence over the affairs of the Trust which may
result in decisions that do not fully represent the interests of all
Shareholders of the Trust. Mr. McGrath is also the sole principal of the
corporate general partners of numerous real estate investment limited
partnerships, certain of which own interests in residential apartment properties
in which the Trust may acquire an interest.
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest. These policies include provisions in the
Declaration which require that (i) at least a majority of the members of the
Board be Independent Trustees and (ii) a majority of the Board, and, in certain
cases, a majority of the Independent Trustees, approve transactions between the
Trust and the Managing Shareholder, a Trustee, and any of their respective
Affiliates. See "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with
Respect to
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Certain Activities - Conflict of Interest Policies." However, there can be no
assurance that these policies will always be successful in eliminating the
influence of such potential conflicts, and, if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
Shareholders. While the potential conflicts of interest cannot be eliminated,
the Trust believes that any actual conflicts will not materially affect the
obligation of the Managing Shareholder and the Board to act in the best
interests of the Shareholders and the Trust. See "CONFLICTS OF INTEREST."
Success of Public Offerings
In this Offering the Trust is offering 2,500,000 Common Shares for sale at
$10 per share (maximum gross proceeds of $25,000,000). As described at "THE
TRUST," the Trust will also register with the Commission 2,500,000 Units of
limited partnership interest in the Operating Partnership in connection with the
proposed $25,000,000 Exchange Offering (and an additional 2,500,000 Common
Shares into which holders of Units may exchange such Units, subject to certain
conditions) which it intends to use, together with or as an alternative to the
cash proceeds of this Offering, to acquire property interests. There can be no
assurance, however, as to the successful completion of this Offering and the
proposed Exchange Offering and it is unlikely that the cash proceeds from the
sale in this Offering of only the minimum number of Common Shares required to
complete this Offering will be sufficient to meet the investment objectives of
the Trust.
In addition, during the period of this Offering there may be ongoing
unregistered private offerings by real estate limited partnerships sponsored and
managed by Affiliates of the Managing Shareholder. Therefore, despite the
different nature and scope of proposed activities of the Trust and such
partnerships, the Trust will be competing with such unregistered offerings to
sell investment securities to prospective Investors with the possible adverse
effect that the Trust will sell fewer Common Shares in this Offering than
otherwise might be the case absent such unregistered offerings. See " -
Conflicts of Interest."
Forward Looking Statements
This Prospectus includes forward-looking statements, including statements
regarding, among other items, (i) the Trust's anticipated business strategies
and (ii) the Trust's intention to acquire property interests in exchange for
cash proceeds it may receive from the Offering, loan proceeds from any debt
financings it may effect, any available net operating revenue, and Units of the
Operating Partnership. These forward-looking statements are based largely on the
Company's expectations and are subject to a number or risks and uncertainties,
certain of which are beyond the Trust's control. Actual results could differ
materially from these forward-looking statements as a result of the facts
described in this "Risk Factors" section of the Prospectus, including, among
others, (i) changes in the competitive marketplace for acquisitions of interests
in residential apartment properties, (ii) changes in the performance of the
operations of properties in which the Trust acquires an interest, and (iii)
changes in the economy. The Trust undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this
Prospectus will in fact occur.
Property Investments
Investment Risks
The results of the Trust's operations will depend, among other things, upon
the quality of opportunities available for investment. It is possible that the
properties in which the Trust invests will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. The performance of an
investment in the Trust will depend on many factors over which the Trust may
have no control, including without limitation the continuation of certain
advantageous provisions of federal tax laws, adverse changes in national and
local economic conditions, increases in operating costs, adverse local
conditions such as decreases in employment or changes in real estate zoning laws
and other characteristics of the geographical location of the Trust's
investments, which may reduce the desirability of real estate in the area,
excessive building, changes in interest rates, the availability of long-term
mortgage funds,
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changes in federal, state or local government laws, regulations, or policies,
changes in tax laws, the ability of tenants to pay rents, the possibility that
rental units may not be occupied or may be occupied on terms unfavorable to the
Trust, the frequent need for capital improvements, the possibility that
(including the effects of depreciation and interest) certain properties may have
experienced recurring losses for financial reporting purposes, various
uninsurable risks, liabilities in tort (which may exceed insurance coverage),
acts of God and other catastrophes, hazardous substances and other environmental
problems in respect of the Trust's investments, the availability of financing
for operating or capital needs and the management capabilities of the management
of the Managing Shareholder and the Trust and their respective Affiliates and
developers, borrowers and property managers.
The above factors may also adversely affect the ability of a borrower to
meet its repayment obligations to the Trust in connection with Mortgage Loans
that may be provided or acquired by the Trust. In the event of a default under
such an obligation, the Trust may experience substantial delays in enforcing its
rights as mortgagee and may incur substantial costs associated with protecting
its investment. The Trust may be required to acquire title to a property and
thereafter to make substantial improvements or repairs in order to maximize the
property's investment potential. In such circumstances, the Trust may be
required to attempt to borrow or raise additional funds and may not be able
ultimately to recover its investment.
The Trust may provide or acquire Mortgage Loans which provide for the
repayment of principal, in whole or in part, in lump-sum "balloon" payments. The
borrower's ability to make such payments may depend upon its ability to obtain
refinancing or sell a particular property securing such property. There is no
assurance that either replacement financing or a sale can be obtained by the
borrower. The borrower's ability to refinance or sell its property will depend
on general economic conditions, the value of the property and, in the case of a
refinancing, upon the financial strength of the borrower. In the event the
borrower fails to make any necessary payment upon maturity or scheduled payments
as they become due, the Trust may be compelled to institute foreclosure
proceedings.
The Trust expects that Mortgage Loans it provides or acquires which are
secured by residential apartment properties would generally be made on a
non-recourse basis under which the other participants in respect of the property
would not be responsible for the debt and the Trust would be able to look only
to the unencumbered assets of the property for repayment. In many cases, the
Trust is expected to be secured by a Second Mortgage that is subordinated to a
First Mortgage. In the event of a default on a Senior Mortgage, the Trust may
find it necessary to make payments to prevent foreclosure on the Senior
Mortgage, without necessarily improving the Trust's position with respect to the
underlying real property. Failure to make such payments could result in
foreclosure on the Senior Mortgage and the extinguishment of the Trust's Junior
Mortgage. In such event, the Trust's entire investment in the property could be
lost. In addition, non-payment of any subordinated Mortgage Loan that may be
made or acquired by the Trust may constitute an event of default to a borrower
under the underlying Senior Mortgage Loan(s), and such Senior Mortgage Loan(s)
may have to be repaid by the borrower before Shareholders in the Trust will
receive any return on their investment in Common Shares. Furthermore, Mortgage
Loans will not be insured or guaranteed by governmental agencies or otherwise.
If the Trust owns real property directly, it may be on a pari passu basis
with other investors. In the event of a default under such an investment, the
Trust remedies may be limited by the size of the Trust's investment relative to
that of other participants.
Lack of Liquidity of Real Estate
Real estate investments are relatively illiquid, and, therefore, the Trust
will have limited ability to vary its portfolio quickly in response to changes
in economic or other conditions. In addition, the prohibitions in the Code and
related regulations on a REIT holding property for sale may affect the Trust's
ability to sell properties without adversely affecting distributions to the
Trust's Shareholders.
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Capital Improvements
Properties in which the Trust may invest will vary in age and require
capital improvements regularly. The cost of such capital improvements (including
capital improvements that may be required in respect of properties in which the
Trust intends to acquire an interest from real estate limited partnerships
managed by Affiliates in connection with the proposed Exchange Offering) may be
funded out of the net proceeds of the Offering, available cash flow of the Trust
or borrowed funds. If the costs of improvement, whether required to attract and
maintain tenants or to comply with governmental requirements, substantially
increases, cash available for distribution to Shareholders could be reduced.
Risks of Real Estate Acquisitions
The Trust intends to actively seek to acquire interests in residential
apartment properties to the extent they can be acquired on advantageous terms
and meet the Trust's investment criteria. See "INVESTMENT OBJECTIVES AND
POLICIES." Acquisitions in respect of such properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring acquired property up to standards established
for the market position intended for that property may prove inaccurate. In
addition, there are general investment risks associated with any new real estate
investment.
The Trust (indirectly through the Operating Partnership) will acquire
property interests from time to time in exchange for cash or unissued Units. The
Trust will obtain appraisals with respect to the market value of any property
interest that the Trust will acquire or an opinion as to the fairness of the
allocation of Units in the Operating Partnership to sellers of property
interests. Appraisals and fairness opinions are only estimates of value and
should not be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of the aggregate percentage interests
in the Trust paid to persons contributing assets to the Trust in exchange for
Units is equivalent to the value the Trust will realize from those contributions
or that the initial public offering price of this Offering reflects the fair
market value of the interests of the purchasers of Common Shares in this
Offering.
Real Estate Financing Risks
The Trust will be subject to the risks normally associated with debt
financing, including the risks that the Trust's cash flow will be insufficient
to meet required payments of principal and interest on any indebtedness of the
Trust, the risk that the interest rates on any adjustable interest rate
indebtedness will increase, the risk that indebtedness on the Trust's properties
will not be refinanced at maturity or that the terms of such refinancing will
not be as favorable as the terms of such indebtedness. If the Trust were unable
to refinance its indebtedness on acceptable terms, if at all, the Trust might be
forced to dispose of one or more of its properties upon disadvantageous terms,
which might result in losses to the Trust and might adversely affect the cash
available for distribution to Shareholders. If prevailing interest rates or
other factors at the time of the refinancing result in higher interest rates on
refinancings, the Trust's interest expense would increase, which would adversely
affect the Trust's cash flow and its ability to pay distributions to
Shareholders. Further, if a property is mortgaged to secure payment of
indebtedness, and the Trust is not able to meet mortgage payments, or is in
default under the related mortgage or deed of trust, such property could be
transferred to the mortgagee, the mortgagee could foreclose upon the property,
appoint a receiver and receive an assignment of rents and leases, or pursue
other remedies, all with the consequence of loss of income and asset value to
the Trust. Foreclosures could also create taxable income without accompanying
cash proceeds, thereby hindering the Trust's ability to meet the REIT
distribution requirements of the Code.
In connection with the Trust's acquisition of an equity interest in a given
property, the Trust may assume the seller's obligations under any underlying
Mortgage Loan or obtain Mortgage financing in connection with the acquisition.
Any such loan would be secured by the property acquired and may require a
"balloon" payment upon the maturity of its term. The ability of the Trust to
repay such obligation may be dependent on its ability to obtain adequate
long-term refinancing or equity financing or to sell the property at or prior to
the maturity date. There is
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no assurance that either replacement debt or equity financing or a sale could be
obtained, and the Company could suffer a complete loss of its investment if
neither a sale nor such replacement financing could be obtained. The ability to
obtain refinancing will be dependent upon general economic conditions, the value
of the property and the financial strength of the Trust. There is no assurance
that any such property would be refinanced upon the maturity of any replacement
debt. Failure to obtain the refinancing necessary to make the foregoing payment
when due, or to make any scheduled payments due with respect to any obligation
secured in whole or in part by the property, could result in a foreclosure and
loss of the property, and the Company could suffer a complete loss of its
investment in the property. See "THE TRUST" and "INVESTMENT OBJECTIVES AND
POLICIES."
Under the Declaration of the Trust, the Trust may incur aggregate
borrowings in an amount up to 300% of the amount of its net assets, except where
the Trust determines that a higher level of borrowing is appropriate. Therefore,
the Trust could become highly leveraged, increasing the risks of leverage as
described above. There can be no assurance that the ratio of debt to any measure
of asset value of the Trust will maximize the level of distributions to
Shareholders.
Risks of Investments in Mortgages
The Trust may invest in mortgages, either by acquiring mortgages or
providing mortgage financing. Mortgage investments are subject to the risk that
borrowers may not be able to make debt service payments or pay principal when
due, the risk that the value of the mortgaged property may be less than the
amounts owed, and the risk that interest rates payable to the Trust on the
mortgages may be lower than the Trust's cost of funds. If the Trust invested in
mortgages and if any of the above occurred, the Trust's ability to make
distributions to Shareholders could be adversely affected.
Any subordinated Mortgage Loan the Trust may make or acquire using net
proceeds of the Offering may or may not be recorded. If the Trust's Mortgage is
not recorded, the Trust's security interest in such Mortgage would not be
perfected and the Trust would be pari passu (i.e., on an equal basis) with all
other unsecured creditors of the borrower, provided, however, the security
instrument which will be entered into in connection with any Mortgage Loan
proposed to be made or acquired by the Trust will generally restrict the
borrower's ability to enter into a subsequent loan arrangement with third
parties which would be senior to or pari passu with the Mortgage to be held by
the Trust.
Operating Risks
There can be no assurance that the Trust will be able to avoid operating
losses in the future in respect of properties in which it acquires an equity
interest or that an Investor's investment in the Trust will be recovered. In
order for the Trust to make cash distributions on residential apartment
properties, certain occupancy percentages and rental rates will need to be
achieved and expense levels maintained. No assurance can be given that these
percentages, rates or expenses can be achieved or maintained. If the properties
do not achieve and maintain such occupancy percentages at such rates, the
Trust's ability to make cash distributions to Shareholders may be eliminated. No
assurance can be given that rental increases can be instituted while maintaining
acceptable occupancy levels. If the Trust fails to generate sufficient gross
income, it may find it necessary to attempt to borrow funds for operating
capital or other purposes. The availability of additional financing to the Trust
is partially dependent upon general economic conditions, the value of the
property and the financial strength of the Trust. See " - Real Estate Financing
Risks."
Risk of Joint Activity with Others
It is anticipated that the Trust will provide or acquire financing in
respect of existing residential apartment properties and thus will jointly
participate with one or more other entities, including without limitation
developers, property owners, and First Mortgage lenders and other financing
sources. If any such other participants fail to fulfill their obligations or
have divergent interests or are in a position to take action contrary to the
policies or objectives of the Trust, the Trust's interest in such project may be
adversely affected. Although the Trust will remain closely involved in all
aspects of the Trust's activities, the Trust may initially rely upon others as
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to the operation of any property in which it participates. It will monitor or
take part in those activities to the extent it deems appropriate. The successful
operation of each property in which the Trust participates will, to a large
extent, be determined by the quality and performance of its managers.
Competition
The Trust will be competing for suitable investments with other financial
institutions such as banks, insurance companies, savings and loan associations,
mortgage bankers, pension funds, real estate investment trusts and other real
estate developers, managers, owners, and investment vehicles, which may have
investment objectives similar to those of the Trust. See "INVESTMENT OBJECTIVES
AND POLICIES." Many of these competitors will have greater resources than the
Trust and some may have, or may have access to, more extensive real estate and
financial experience than does the Managing Shareholder.
It is expected that all properties in which the Trust will invest will be
located in developed areas that include other residential apartment properties.
The number of competitive apartment properties in a particular area could have a
material effect on the Trust's ability to lease apartment units to tenants at
such properties and on the rents charged. The Trust may be competing for tenants
with others that have greater resources than the Trust and whose officers and
directors have more experience than the officers and members of the Board of the
Trust and the Managing Shareholder. In addition, other forms of multifamily
residential properties provide housing alternatives to potential tenants of
residential apartment properties.
Uninsured Loss
Properties in which the Trust invests are expected to be covered by
adequate comprehensive liability and all-risk insurance provided by reputable
companies and with commercially reasonable deductibles, limits and policy
specifications customarily carried for similar properties. Certain types of
losses, however, may be either uninsurable or not economically insurable, such
as losses due to earthquakes, floods, riots or acts of war, or may be insured
subject to certain limitations including large deductibles or co-payments.
Should an uninsured loss or a loss in excess of insured limits occur, the Trust
could lose its investment in and anticipated profit and cash flow from a
property and would continue to be obligated on any mortgage indebtedness or
other obligations related to such properties. Any such loss would adversely
affect the Trust and its ability to make distributions.
Regulatory Compliance
Fair Housing Amendments Act of 1988. The Fair Housing Amendments Act of
1988 (the "FHA") requires residential apartment properties first occupied after
March 13, 1990 to be accessible to the handicapped. Noncompliance with the FHA
could result in the imposition of fines or an award of damages to private
litigants. The Trust will use its best efforts to ensure that properties subject
to the FHA in which it acquires an interest will be in compliance with such law.
Americans with Disabilities Act. Properties in which the Trust acquires an
interest must comply with Title III of the Americans with Disabilities Act (the
"ADA") to the extent that such properties are "public accommodations" and/or
"commercial facilities" as defined by the ADA. Compliance with the ADA
requirements requires that public accommodations "reasonably accommodate"
individuals with disabilities, which includes removal of structural barriers to
handicapped access in certain public areas of the Trust's properties, where such
removal is readily achievable and that new construction or alterations made to
"commercial facilities" conform to accessibility guidelines unless "structurally
impracticable" for new construction, or exceeds 20% of the cost of the
alteration for existing structures. The ADA does not, however, consider
residential properties, such as residential apartment properties, to be public
accommodation or commercial facilities except to the extent portions of such
facilities, such as a leasing office, are open to the public. The Trust will use
its best efforts to ensure that its properties comply with all present
requirements under the ADA and applicable state laws. Noncompliance with the ADA
could result in imposition of injunctive relief, fines or an award of damages.
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Compliance with Environmental Laws. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of such hazardous substances. The presence of such substances, or
the failure to properly remediate such substances, when released, may adversely
affect the owner's ability to sell such real estate or to borrow such real
estate as collateral.
In order to address these issues, the Trust intends to retain an
unaffiliated consultant to conduct a Phase I environmental audit of any property
in which it intends to acquire an interest. The Phase I audit generally consists
of an on-site inspection of the land and improvements; a review of the building
plans and specifications to determine the construction materials and procedures
used; a review of EPA and other governmental agency files to determine if the
subject property or any other properties in its vicinity have been the subject
of any investigations, reports or classifications that would indicate potential
environmental risks; and a review of the chain of title of the subject property
to determine the ownership history of the property. Phase I audits do not
include soil sampling or subsurface investigations. Thus, a Phase I audit is not
comprehensive or exhaustive and will not identify all possible hazardous
substances. The Trust will obtain Phase II environmental audits where matters
disclosed in the Phase I audit warrant further investigation. No assurances can
be given, however, that the environmental studies undertaken with respect to any
particular property will reveal all potential environmental liabilities, that
any prior owner of a property did not create any material environmental
conditions not known to the Trust, or that a material environmental condition
does not otherwise exist as to any particular property in which the Trust
acquires an interest. If it is ever determined that hazardous substances are
present, the Trust could be required to pay all costs of any necessary clean-up
work, although under certain circumstances claims against other responsible
parties could be made by the Trust.
Extended and Uncertain Period for Returns
The use of the net proceeds of this Offering and Units in the Operating
Partnership to acquire interests in one or more existing residential apartment
properties may occur over an extended period during which the Trust will face
risks of changes in interest rates and adverse changes in the real estate
market. Similarly, during periods in which net proceeds of the Offering are
invested in interim investments prior to such application, the Trust may be
affected by changes in prevailing interest rate levels. Such interim investments
would be expected to earn rates of return which are lower than those earned on
the Trust's real estate investments.
Lack of Diversification
Although the Trust is expected to invest in several residential apartment
properties, the number of properties in which the Trust ultimately invests may
be insufficient to afford adequate diversification against the risk that its
investments will not be profitable or return the Trust's invested capital. There
can be no assurance that the Trust's properties will earn a return or that the
returns on its properties will be sufficient to permit distributions to
Shareholders.
Utilization of Funds for Undesignated Properties
The Managing Shareholder expects the Trust to acquire equity interests in
and/or provide or acquire debt financing secured by Mortgages on several
existing residential apartment properties. Net cash proceeds of the Offering
have not yet been committed to specific properties. Although the Managing
Shareholder has several opportunities for the investment of the net proceeds of
the Offering under review, none of such potential opportunities has developed
beyond the negotiating stage. The Trust may direct a substantial portion of the
net proceeds from the Offering to properties that have not been designated in
this Prospectus, as it may be amended or supplemented from time to time, and the
Trust may be unable to or may decline to participate in any specific investments
that may be described in this Prospectus or any amendments or supplements
thereto. Therefore, prospective Investors may not be able to evaluate any
properties in which the Trust may apply the net proceeds of the Offering before
they purchase Common Shares. In addition, prospective Investors will not have
any vote in the selection of property investments after they purchase Common
Shares. Consequently, Investors will be relying
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upon the judgment of the management of the Managing Shareholder and the
Independent Trustees for such decisions.
Concurrently with this Offering, the Trust expects to make an Exchange
Offering using Units in the Operating Partnership to be registered with the
Commission to acquire interests in residential apartment properties. As its
initial acquisition candidates in connection with the proposed Exchange
Offering, the Trust is currently investigating the acquisition of property
interests owned by partners in 12 real estate limited partnerships managed by
Affiliates of the Managing Shareholder. The Trust intends to investigate other
investment opportunities for the Exchange Offering, including property interests
held by unaffiliated owners and certain other limited partnerships managed by
Affiliates of the Managing Shareholder.
The actual number of properties in which the Trust will acquire an interest
will depend upon the amount of net proceeds from the Offering the Trust has
available to invest, the number of suitable investment opportunities available,
the willingness of sellers of property interests to accept Units in the
Operating Partnership in exchange for such property interests, and the amount of
funds and number of Units required for each investment opportunity. See "RISK
FACTORS," "MANAGEMENT," "THE TRUST," "INVESTMENT OBJECTIVES AND POLICIES" and
"PROPOSED REAL ESTATE INVESTMENTS."
Dispositions of Trust Property
The Trust will periodically review the portfolio of assets which the Trust
may acquire. It has no current intention to dispose of any interest in
properties it may acquire, although it reserves the right to do so. There is no
assurance as to the timing of any sales of property or that if the Trust
determines to attempt to sell a particular property it will be able to do so on
favorable terms, if at all. A successful sale of any property will depend upon,
among other things, the operating history of the property and prospects for the
property, the number of potential purchasers, the economics of any bids made by
such potential purchasers and the state of the market for residential properties
of the type sought to be sold. The management of the Trust will have full
discretion to determine whether the properties should be sold and the timing,
price and other terms of any such sales. In addition, the prohibitions in the
Code and related regulations on a REIT holding property for sale may affect the
Trust's ability to sell properties without adversely affecting distributions to
the Trust's Shareholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of
the Trust."
Changes in Laws
Increased costs resulting from changes in real estate taxes or other
governmental requirements may generally not be passed directly through tenants,
inhibiting the Trust's ability to recover such increased costs. An attempt to
pass through any substantial increases in costs by increasing rental rates may
affect tenants' ability to pay rent, causing increased delinquency and vacancy.
Similarly, increases in income or transfer taxes generally are not passed
through to tenants and may adversely affect the Trust's ability to make
distributions to Shareholders. Changes in laws increasing potential liability
for environmental conditions or increasing the restrictions on discharges or
other conditions may result in significant unanticipated expenditures, which
would adversely affect the Trust's ability to make distributions to
Shareholders.
Unaudited Financial Statements
In making an investment decision in respect of any given property, the
Trust may rely on financial statements covering the operations of the property
which may have been prepared by the current owner or property manager of the
property and which may have not been compiled, reviewed or audited by
independent public accountants or reviewed by counsel to the Managing
Shareholder or the Trust. In any such case, therefore, there will not have been
any independent assessment of any of such financial statements and accordingly
the Trust would be subject to the risk that such financial statements do not
properly reflect the prior operation of the property.
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Income Tax Considerations
Unfavorable resolution of any of a number of tax issues could adversely
affect Shareholders. The following is a summary of the principal tax risks of an
investment in the Trust. For a more detailed summary of the Federal income tax
consequences and the tax-related risks of an investment in the Trust, see
"FEDERAL INCOME TAX CONSIDERATIONS." The Trust has not obtained and does not
expect to request a letter ruling from the IRS as to the classification and
treatment of the Trust for federal tax considerations described herein, or any
other tax matters. The Trust has obtained the opinion of its special tax counsel
that, based on the organization and proposed operation of the Trust and based on
certain other assumptions and representations, it will qualify as a REIT. The
opinion is not binding on the IRS or any court. Prospective Shareholders are
advised to consult with and rely upon their own legal, tax and investment
advisor regarding how an investment in the Trust will affect them.
Adverse Consequences of Failure to Qualify as a REIT
The Trust intends to operate so as to qualify as a REIT under the Code,
commencing with its taxable year ending December 31, 1998. Although the Managing
Shareholder believes that the Trust will be organized and will operate in such a
manner, no assurance can be given that the Trust will be organized or will be
able to operate in a manner so as to qualify or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and others on a quarterly basis) established under highly technical
and complex Code provisions of which there are only limited judicial and
administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Trust's control. For
example, in order to qualify as a REIT, at least 95% of the Trust's gross income
in any year must be derived from qualifying sources and the Trust must pay
distributions to Shareholders aggregating annually at least 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains). The complexity of these provisions and the
applicable Treasury Regulations that have been promulgated under the Code is
greater in the case of a REIT that holds its assets in partnership form (as the
Trust intends to do). No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as REIT or the
federal income tax consequences of such qualification. The Trust has been
advised by tax counsel regarding various issues affecting the Trust's ability to
qualify, and continue to qualify, as a REIT. See "FEDERAL INCOME TAX
CONSIDERATIONS - Taxation of the Trust" and "LEGAL MATTERS." No assurance can be
given that actual operating results will meet the REIT requirements.
If the Trust fails to qualify for taxation as a REIT in any taxable year
and no relief provisions apply, the Trust will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to Shareholders in any such year will not be deductible by
the Trust nor will they be required to be made. In such event, to the extent of
current or accumulated earnings and profits, all distributions to Shareholders
will be taxed as ordinary income. Moreover, unless entitled to relief under
certain statutory provisions, the Trust also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the Trust
available for investment or distribution to Shareholders because of the
additional tax liability to the Trust for the years involved. In addition,
distributions to Shareholders would no longer be required to be made. "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust."
State and Local Taxes
Each Investor will also be liable for state and local income taxes payable
in the state or locality in which the Investor is a resident or doing business
or in a state or locality in which the Trust conducts or is deemed to conduct
business. Depending upon the state in question, an Investor who pays such taxes
in a foreign state may be entitled to receive a credit for all or a portion of
such amount paid against any income taxes payable in his state of residence.
Thus each Investor will likely be required to file multiple state income tax
returns as a result of his investment in the Trust. Each prospective Investor is
urged and expected to consult with his personal tax advisor with respect to the
tax consequences connected with an investment in the Trust.
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PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER
This section provides certain historical information regarding 47 private
limited partnerships sponsored and/or managed by Affiliates of the Managing
Shareholder of the Trust. A prospective Investor should be aware that: (i) the
inclusion of the following information and information set forth in the tables
which comprise Exhibit A hereto does not imply that the Trust will experience
results similar to those reflected below and in the tables or that an Investor
who acquires Common Shares in this Offering will receive returns, if any,
comparable to those experienced by investors in such limited partnerships; (ii)
except as otherwise described in this Prospectus, an Investor who acquires
Common Shares in this Offering will not acquire any direct or indirect ownership
interest in any of the prior limited partnerships; and (iii) the following
information and information set forth in the tables is given solely to enable a
prospective Investor to evaluate the experience of the Managing Shareholder and
its Affiliates and, in certain cases, to evaluate certain properties in which
the Trust may acquire an interest in connection with the proposed Exchange
Offering.
Gregory K. McGrath, the President, sole director and sole stockholder of
the Managing Shareholder and the Chief Executive Officer of the Trust, has
substantial experience in the real estate industry. See "MANAGEMENT." Since
1994, Affiliates of the Managing Shareholder and of Mr. McGrath have sponsored
and/or managed 47 prior real estate investment limited partnership offerings,
certain of them with investment objectives similar to those of the Trust. The
limited partner interests in these prior partnerships were offered without
registration under the Securities Act of 1933, as amended, in reliance upon the
non-public offering exemption from registration. As of February 2, 1998, the
prior partnerships had raised aggregate capital contributions of approximately
$36,565,780 from approximately 1,488 investors (including investors who have
invested in two or more programs).
To date, the prior partnerships have acquired interests in 27 properties,
10 of which are located in Florida (Brandon, Clearwater, Daytona Beach,
Jacksonville, Melbourne, Orlando, Port Orange, St. Petersburg, Tampa and
Titusville); one of which is located in Georgia (Statesboro); one in Indiana
(Anderson); three in Kentucky (Alexandria, Independence and Louisville); and
three in Ohio (Bellefontaine, Cincinnati, and Clermont County). All acquisitions
occurred within the last four years. The aggregate dollar amount of property
interests acquired and cash reserves held is approximately $29,546,328. The
property interests acquired have consisted of the following: equity interests in
14 residential apartment properties comprised of 888 units; mortgage financing
interests in seven residential apartment properties comprised of 550 units;
mortgage financing interests in two residential condominium properties comprised
of 184 units; mortgage financing interest in 8.2 acres of land developed into a
195-unit condominium property; and mortgage financing interests in three
single-family housing developments relating to approximately 592 homes. Each of
the properties is subject to first mortgage financing. One property interest has
been sold to date. See the balance of this section and Exhibit A hereto for more
detailed information relating to the individual property interests owned by the
prior partnerships. Additional information relating to the acquisitions of such
property interests is included in Part II of the Form SB-2 registration
statement filed with the Commission in connection with this Offering. The Trust
will provide such information at no charge to any prospective Investor which
requests it.
Concurrently with this Offering, the Operating Partnership expects to make
an Exchange Offering using Units to be registered with the Commission to acquire
interests in residential apartment properties. As its initial acquisition
candidates in connection with the proposed Exchange Offering, the Trust is
currently investigating the acquisition of property interests owned by partners
in 12 of the prior partnerships. Partnerships that may be involved in the
proposed Exchange Offering are indicated where applicable in the following
paragraphs. Additional information relating to the property interests owned by
these partnerships and the proposed Exchange Offering is included at "PROPOSED
REAL ESTATE INVESTMENTS" and in Exhibit A to this Prospectus.
In September 1994, Baron Capital I, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,050 units of limited partner
interest in Tampa Capital Income Fund, Ltd., a Florida limited partnership, at a
purchase price of $1,000 per unit (maximum gross proceeds of $1,050,000). The
offering was fully subscribed and closed in August 1995. The partnership
invested the net proceeds of its offering to acquire
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title to an 83-unit residential apartment community located in Brandon, Florida.
The partnership sold the property in February 1997 in exchange for cash and a
purchase money mortgage taken back by the partnership.
In November 1994, Baron Capital II, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,614 units of limited partner
interest in Florida Capital Income Fund, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $807,000). The
offering was fully subscribed and closed in April 1995. The partnership invested
the net proceeds of its offering to acquire title to a 77-unit residential
apartment community located in Port Orange, Florida. As one of its initial
acquisition candidates in connection with the proposed Exchange Offering, the
Trust is currently investigating the acquisition of partnership interests in
this partnership owned by the partners thereof. Additional information relating
to the property interests owned by this partnership and to the proposed Exchange
Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit A to
this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Appreciation Fund I, Ltd.,
a Florida limited partnership, which in the first half of 1994 sold 205 units of
limited partnership interest in the partnership (gross proceeds of $205,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to an eight-unit residential apartment community located
in Daytona Beach, Florida. As one of its initial acquisition candidates in
connection with the proposed Exchange Offering, the Trust is currently
investigating the acquisition of partnership interests in this partnership owned
by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the proposed Exchange Offering is
included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit A to this
Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Advantage Fund I, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 940 units of
limited partnership interest in the partnership (gross proceeds of $940,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 26-unit residential apartment community located in
Daytona Beach, Florida. As one of its initial acquisition candidates in
connection with the proposed Exchange Offering, the Trust is currently
investigating the acquisition of partnership interests in this partnership owned
by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the proposed Exchange Offering is
included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit A to this
Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Realty Opportunity Income Fund VIII,
Ltd., a Florida limited partnership, which in the first half of 1994 sold 944
units of limited partnership interest in the partnership (gross proceeds of
$944,000) and invested the net proceeds of its offering to acquire a beneficial
interest in a land trust owning title to a 30-unit residential apartment
community located in Daytona Beach, Florida. As one of its initial acquisition
candidates in connection with the proposed Exchange Offering, the Trust is
currently investigating the acquisition of partnership interests in this
partnership owned by the partners thereof. Additional information relating to
the property interests owned by this partnership and to the proposed Exchange
Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit A to
this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Capital Income Fund II, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 1,840 units of
limited partnership interest in the partnership (gross proceeds of $920,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 52-unit residential apartment community located in
Daytona Beach, Florida. As one of its initial acquisition candidates in
connection with the proposed Exchange Offering, the Trust is currently
investigating the acquisition of partnership interests in this partnership owned
by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the proposed Exchange Offering is
included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit A to this
Prospectus.
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In April 1995, Baron Capital VI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 626 units of limited partner
interest in Florida Tax Credit Fund, Ltd., a Florida limited partnership, at a
purchase price of $1,000 per unit (maximum gross proceeds of $626,000). The
offering was fully subscribed and closed in May 1996. The partnership invested
the net proceeds of its offering to acquire an equity interest in a limited
partnership that owns title to a 78-unit residential apartment community located
in Tampa, Florida.
In May 1995, Baron Capital III, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 800 units of limited partner
interest in Florida Opportunity Income Partners, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
60-unit residential apartment community located in Daytona Beach, Florida.
In June 1995, Baron Capital VII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Florida Capital Income Fund III, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
48-unit residential apartment community located in Jacksonville, Florida. As one
of its initial acquisition candidates in connection with the proposed Exchange
Offering, the Trust is currently investigating the acquisition of partnership
interests in this partnership owned by the partners thereof. Additional
information relating to the property interests owned by this partnership and to
the proposed Exchange Offering is included at "PROPOSED REAL ESTATE INVESTMENTS"
and in Exhibit A to this Prospectus.
In June 1995, Baron Capital VIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Homebuyer Mortgage Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in May 1996. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of approximately 200 single-family home sites
located in Louisville, Kentucky.
In August 1995, Baron Capital V, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 3,640 units of limited partner
interest in Florida Capital Income Fund IV, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,820,000). The
offering was fully subscribed and closed in June 1996. The partnership invested
the net proceeds of its offering to acquire title to a 144-unit residential
apartment community located in St. Petersburg, Florida. As one of its initial
acquisition candidates in connection with the proposed Exchange Offering, the
Trust is currently investigating the acquisition of partnership interests in
this partnership owned by the partners thereof. Additional information relating
to the property interests owned by this partnership and to the proposed Exchange
Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit A to
this Prospectus.
In September 1995, Baron Capital X, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in GSU Stadium Student Apartments, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in February 1996. The partnership
invested the net proceeds of its offering to acquire title to a 60-unit student
residential apartment community located in Statesboro, Georgia. As one of its
initial acquisition candidates in connection with the proposed Exchange
Offering, the Trust is currently investigating the acquisition of partnership
interests in this partnership owned by the partners thereof. Additional
information relating to the property interests owned by this partnership and to
the proposed Exchange Offering is included at "PROPOSED REAL ESTATE INVESTMENTS"
and in Exhibit A to this Prospectus.
In November 1995, Baron Capital XI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,300 units of limited partner
interest in Florida Income Growth Fund V, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,150,000). The
offering was fully subscribed and closed in February 1997. The partnership
invested the net proceeds of its offering to acquire title to a 70-unit
residential apartment community located in Orlando, Florida. As one of its
initial acquisition candidates
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in connection with the proposed Exchange Offering, the Trust is currently
investigating the acquisition of partnership interests in this partnership owned
by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the proposed Exchange Offering is
included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit A to this
Prospectus.
In December 1995, Baron Capital XII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 575 units of limited partner
interest in Brevard Mortgage, Ltd., a Florida limited partnership, at a purchase
price of $1,000 per unit (maximum gross proceeds of $575,000). The offering was
fully subscribed and closed in April 1996. The partnership invested the net
proceeds of its offering to acquire a second mortgage loan which is secured by a
64-unit residential apartment community located in Melbourne, Florida.
In December 1995, Baron Capital XV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund II, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in July
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of 39 single-family home sites
located in Louisville, Kentucky.
In January 1996, Baron Capital XVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,500 units of limited partner
interest in Clearwater First Time Home Buyer Program, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$750,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to provide subordinated
mortgage financing to a developer for the acquisition of 8.2 acres of land
located in Clearwater, Florida for a 195-unit residential condominium
development.
In March 1996, Baron Capital IX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 700 units of limited partner
interest in Lamplight Court of Bellefontaine Apartments, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to acquire debt and equity
interests in a limited partnership that owns title to an 80-unit residential
apartment community located in Bellefontaine, Ohio.
In April 1996, Baron Capital XXVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,800 units of limited partner
interest in Baron Strategic Vulture Fund I, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $900,000). The
offering was fully subscribed and closed in October 1996. The partnership
invested the net proceeds of its offering to acquire notes receivable associated
with an 81-unit residential apartment community located in Tampa, Florida.
In April 1996, Baron Capital XXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund III, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in September
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of approximately 100 condominium
units located in Independence, Kentucky.
In May 1996, Baron Capital XXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund IV, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in November
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of approximately 82 single-family
homes in Louisville, Kentucky.
In May 1996, Baron Capital XXIX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund V, Ltd., a Florida
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limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in September
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of the second phase of an 84-unit
residential condominium development in Independence, Kentucky.
In May 1996, Baron Capital XXXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Strategic Investment Fund II, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in October 1996. The
partnership invested the net proceeds of its offering to acquire an equity
interest in a 72-unit residential apartment community located in Anderson,
Indiana.
In May 1996, Baron Capital XXXII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in December 1996. The
partnership invested the net proceeds of its offering to acquire notes
receivable associated with a 68-unit residential apartment community located in
Orlando, Florida. As one of its initial acquisition candidates in connection
with the proposed Exchange Offering, the Trust is currently investigating the
acquisition of partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the proposed Exchange Offering is included at "PROPOSED REAL
ESTATE INVESTMENTS" and in Exhibit A to this Prospectus.
In June 1996, Baron Capital XXIX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,500 units of limited partner
interest in Baron Income Property Mortgage Fund VI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$750,000). The offering was fully subscribed and closed in July 1997. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of a 150-unit apartment community located in
Independence, Kentucky.
In July 1996, Baron Capital XXXIV, an Affiliate of the Managing
Shareholder, sponsored an offering of up to 620 units of limited partner
interest in Florida Tax Credit Fund II, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $310,000). The
offering has raised $280,250 as of October 15, 1997 and continues in progress.
The partnership intends to invest the net proceeds of its offering to acquire
title to a 47-unit residential apartment community located in Bartow, Florida.
In October 1996, Baron Capital XVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Strategic Investment Fund IV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $613,263 as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a subordinated mortgage loan secured by a 73-unit residential
apartment community located in Tampa, Florida.
In October 1996, Baron Capital XXXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,400 units of limited partner
interest in Baron Mortgage Development Fund VII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in July 1997. The
partnership invested the net proceeds of its offering to make a second mortgage
loan to the developer of an 88-unit residential apartment community in
Alexandria, Kentucky.
In October 1996, Baron Capital XXXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,300 units of limited partner
interest in Baron Mortgage Development Fund VIII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$650,000). The offering has raised $344,000 as of October 15, 1997 and continues
in progress. The partnership intends to invest the net proceeds of its offering
to make a second mortgage loan to the developer of a 114-unit residential
apartment community located in Louisville, Kentucky.
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In October 1996, Baron Capital XL, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund V, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in June 1997. The
partnership invested the net proceeds of its offering to purchase receivables
associated with a 60-unit residential apartment community located in Titusville,
Florida.
In November 1996, Baron Capital XXXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund VI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in April 1997. The
partnership has made a temporary advance of funds to two affiliated programs and
intends to apply repayment proceeds to acquire an equity interest in a 91-unit
residential apartment community in Orlando, Florida.
In November 1996, Baron Capital XLI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 3,800 units of limited partner
interest in Baron Strategic Investment Fund VII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,900,000). The offering has raised $1,845,800 as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to purchase receivables associated with a 36-unit residential apartment
community located in Cocoa Beach, Florida.
In November 1996, Baron Capital XLIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering has raised $773,000 as of October 15, 1997 and continues
in progress. The partnership intends to invest the net proceeds of its offering
to make a subordinated mortgage loan to the developer of approximately 200
condominium units in Cincinnati, Ohio.
In December 1996, Baron Capital XLII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Development Fund IX, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $800,000). The
offering was fully subscribed and closed in September 1997. The partnership
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of a 310 single-family home site located in Louisville,
Kentucky.
In February 1997, Baron Capital XXXIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund XI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in August 1997. The
partnership intends to invest the net proceeds of its offering to make a
subordinated mortgage loan to the developer of 152 affordable single-family home
sites in Cincinnati, Ohio.
In February 1997, Baron Capital XLIV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund VIII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering has raised $1,149,040.94 as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to acquire notes receivable associated with a 58-unit residential
apartment community located in Cocoa, Florida.
In March 1997, Baron Capital XLVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XIV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000. The offering has raised $980,750 as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a subordinated mortgage loan to the developer of a 396-unit
luxury residential apartment community in Cincinnati, Ohio.
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In April 1997, Baron Capital XLVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $842,500 as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a subordinated mortgage loan to the developer of a 111,000
square-foot shopping center located in Burlington, Kentucky.
In May 1997, Baron Capital XLVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,400 units of limited partner
interest in Baron Mortgage Development Fund XV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$700,000). The offering has raised $323,600 as of October 15, 1997 and continues
in progress. The partnership intends to invest the net proceeds of its offering
to make a subordinated mortgage loan to the developer of an 88-unit residential
apartment community located in Alexandria, Kentucky.
In May 1997, Baron Capital LX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron First Mortgage Development Fund XVI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $195,646.86 as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a first mortgage loan to the developer of approximately 200
entry-level single-family homes in Independence, Kentucky.
In May 1997, Baron Capital LXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron First Mortgage Development Fund XVII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $167,000 as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a first mortgage loan to the developer of approximately 200
entry-level single-family homes in Clermont County, Ohio.
In June 1997, Baron Capital LXII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund IX, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering has raised $218,500 as of October 15, 1997 and
continues in progress. The partnership has not yet identified for investment or
committed to invest any net offering proceeds.
In June 1997, Baron Capital LXIV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering has raised $863,950 as of October 15, 1997 and
continues in progress. The partnership has not yet identified for investment or
committed to invest any net offering proceeds.
In July 1997, Baron Capital LXV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund XVIII, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering has raised $711,100 as of October 15, 1997 and continues
in progress. The partnership intends to invest the net proceeds of its offering
to make a subordinated mortgage loan to the developer of a 150-unit residential
apartment community in Independence, Kentucky.
In September 1997, Baron Capital LXVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XIX, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has not raised any funds as of October 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a subordinated mortgage loan to the developer of four
approximately one-acre out parcels of land adjacent to a shopping center
development to be constructed in Burlington, Kentucky.
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In September 1997, Baron Capital LXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XX, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $10,000 as of October 15, 1997 and
continues in progress. The partnership has not yet identified for investment or
committed to invest any net offering proceeds.
In November 1997, Baron Capital LXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XXI, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has not raised any funds to date and continues in
progress. The partnership intends to invest the net proceeds of its offering to
make a subordinated mortgage loan to a developer to finance land acquisition,
development and construction in respect of two phases of a 396-unit luxury
residential apartment community to be constructed in four phases in Burlington,
Kentucky, a suburb of Cincinnati, Ohio.
In November 1997, Baron Capital LXX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XXIII, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has not raised any funds to date and continues in
progress. The partnership intends to invest the net proceeds of its offering to
make subordinated mortgage loans in respect of one or more commercial
properties, multi-family residential properties or single-family residential
developments located in the United States and/or such types of properties under
development or construction.
There have been no major adverse business developments or conditions
experienced to date by any of the prior limited partnerships that would be
material to prospective Investors in the Trust. A prospective Investor should
note that certain of the prior limited partnerships described above and in the
tables comprising Exhibit A hereto were only recently organized, that certain
partnerships have only recently commenced operations, and that others are still
in the development stage. Accordingly, it would be premature to draw conclusions
based upon the current stages of operations or development of certain of the
prior limited partnerships.
Exhibit A sets forth certain historical information relating to the
offerings of 24 of such prior limited partnerships, compensation paid to the
general partners of such partnerships and their Affiliates in connection
therewith, operating results of such partnerships, sales of properties and
results of completed programs. Exhibit A is comprised of the following tables:
Table I Baron Advisors and Affiliates Experience in Raising and Investing
Funds
Table II Compensation to Baron Advisors Affiliates from Prior Funds
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
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MANAGEMENT
As Managing Shareholder of the Trust, Baron Advisors, Inc. ("Baron
Advisors") will have direct and exclusive discretion in management and control
of the affairs of the Trust and the Operating Partnership, subject to general
supervision and review by the Independent Trustees and the Managing Shareholder
acting together as the Board of the Trust and to prior approval authority of a
majority of the Board and a majority of the Independent Trustees in respect of
certain specified actions. The Corporate Trustee, Baron Properties (an Affiliate
of the Managing Shareholder), will act on the instructions of the Managing
Shareholder, and will not take independent discretionary action on behalf of the
Trust.
The Board of the Trust and the Independent Trustees will act only where
their consent and participation is required under the Declaration of the Trust.
See "SUMMARY OF DECLARATION OF TRUST - Control of Operations." The members of
the Board and the Independent Trustees are under a fiduciary duty similar to
that of corporation directors to act in the Trust' best interests and may compel
action by the Managing Shareholder to carry out that duty if necessary, but
ordinarily they have no duty to manage or direct the management of the Trust
outside their enumerated duties.
Although the Managing Shareholder will be in control of the Trust (subject
to the powers and obligations of the Board and the Independent Trustees), it
will have no liability to the Trust or the Investors for losses or liabilities
except in cases of its negligence, misconduct or breach of the Declaration. See
"FIDUCIARY RESPONSIBILITY."
Managing Shareholder
Baron Advisors, Inc., the Managing Shareholder of the Trust, was
incorporated in July 1997 as a Delaware corporation. The management of Baron
Advisors has substantial prior experience in and knowledge of the residential
apartment property and single-family housing market and its financing and
experience in the management of investment programs and in directing their
operations. The President, sole director and sole shareholder of Baron Advisors
is Gregory K. McGrath and its Chief Operating Officer is Robert S. Geiger. The
Managing Shareholder will be compensated for its services under the Trust
Management Agreement. Officers and employees of the Managing Shareholder who
perform services on behalf of the Trust will not be paid any compensation by the
Trust. Such officers and employees generally will serve in the same capacity for
the Trust and will be compensated by the Trust in amounts determined by the
Managing Shareholder, in the case of employees, and by the Executive
Compensation Committee described below, in the case of officers. See " - Trust
Management Agreement." Set forth below is certain information concerning Mr.
McGrath and Mr. Geiger.
Gregory K. McGrath, age 36, is the President, sole director and sole
shareholder of Baron Advisors and Chief Executive Officer of the Trust. Mr.
McGrath has over 10 years experience in all aspects of the real estate industry,
including site selection and acquisition, arrangement and closing of mortgage
financing, and property acquisition and management. Between January 1993 and
June 1994, Mr. McGrath served as Senior Vice President of Realty Capital, Inc.,
a Florida corporation which sponsored real estate limited partnerships. Mr.
McGrath is also the President, sole director and sole shareholder of Baron Real
Estate Services, Inc. ("Baron"), an Ohio corporation headquartered in
Cincinnati, Ohio, which he co-founded in 1989. Under Mr. McGrath's leadership,
Baron grew from the property manager of a single site in Ohio to managing over
40 residential apartment properties containing over 3,000 units which have a
current value in excess of $100 million, and commercial space. In January 1997,
substantially all of Baron's property management operations were sold to
Affirmative Management, Inc., an Affiliate of Affirmative Equities Company,
L.P., a New York City-based owner, operator and manager of multi-family
residential apartment properties. Mr. McGrath is the President, sole director
and sole shareholder of Brentwood Management, LLP, an Ohio limited liability
company which may provide property management services in respect of properties
in which the Trust may invest. Mr. McGrath is also a principal of The Baron
Organization, Inc., a Delaware corporation which asset manages an approximately
$100 million real estate portfolio. In addition to the affiliations described
below, Mr. McGrath is also a principal in a number of
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other related business entities which are involved in various aspects of the
real estate industry. Mr. McGrath attended Miami University.
Mr. McGrath is also the President, sole director and sole shareholder of
each of 23 Delaware or Florida corporations which is the sole general partner of
one of 23 separate real estate investment limited partnerships organized in
Delaware or Florida since 1994 to invest in real estate located in the
mid-western and southeastern portions of the United States. The name of each
such corporation and the limited partnership sponsored by it are listed on the
last page of Exhibit A hereto. Each of these limited partnerships is currently
offering limited partner interests in private securities offerings and/or has
not commenced operations yet. One of a group of 20 separate Affiliates of the
Managing Shareholder identified below in "PRIOR PERFORMANCE OF AFFILIATES OF
MANAGING SHAREHOLDER" (and in Table I at the beginning of Exhibit A hereto ) is
also the sole general partner of one of 24 additional real estate investment
limited partnerships formed in Florida which have commenced operations. Mr.
McGrath is the President, sole director and sole shareholder of each of such
affiliated corporations. These partnerships have provided financing in respect
of residential apartment properties located in the mid-western and southeastern
portions of the United States. Each of the partnerships has terminated its
private placement offering and invested the net proceeds thereof. Attached
hereto at the beginning of Exhibit A are five tables which summarize certain
information about such offerings, compensation paid to the general partners of
such programs and their Affiliates in connection therewith, operating results of
such programs, the application of net offering proceeds to real estate
investments, and sales of properties.
Since 1986, Robert S. Geiger, age 46, has been managing director of the law
firm of Geiger Kasdin Heller Kuperstein Chames & Weil, P.A., a Miami, Florida
law firm with a general practice, and its predecessor firms. Mr. Geiger's
practice is concentrated in complex commercial and real property litigation,
insolvency law, business reorganizations and banking law. He serves as general
counsel for national, regional and local corporations engaged in a wide range of
business activities, including regulated industry matters. Mr. Geiger's firm has
performed and is expected to continue to perform legal services for Affiliates
of the Managing Shareholder and may perform legal services for the Trust in
connection with the purchase and sale of real estate assets and other related
activities. Compensation received by the firm for such services has not
represented a material portion of the firm's revenues. Mr. Geiger will continue
in his current capacity at the firm after the Offering. Prior to 1986, Mr.
Geiger practiced law at private law firms. Mr. Geiger is a member of the Panel
of Arbitrators, American Arbitration Association, Dade County and American Bar
Associations, The Florida Bar (member, Corporation, Business and Banking Law),
and the International Bar Association. Mr. Geiger earned a law degree from the
University of Florida in 1974 and a Bachelor of Arts degree from Hobart College
in 1972.
Mr. McGrath and Mr. Geiger are the founders of the Trust and the Operating
Partnership. Each of them has contributed $25,000 for the initial capitalization
of the Operating Partnership and other consideration to the Operating
Partnership in exchange for a number of Units of the Operating Partnership equal
to 9.5% of the Units outstanding upon the completion of this Offering and the
proposed Exchange Offering. Such Units are exchangeable into an equivalent
number of Common Shares, subject to a security escrow agreement among Mr.
McGrath, Mr. Geiger, the Trust and an institutional escrow agent. See "THE TRUST
- - Formation Transactions." Such Units and the Common Shares into which they are
exchangeable are in addition to the 2,500,000 Common Shares which the Trust is
offering for sale in the Offering and the 2,500,000 Units which the Operating
Partnership will offer in connection with the proposed Exchange Offering. See
"THE TRUST - Ownership of the Trust and the Operating Partnership."
The holders of at least 10% of the Common Shares may propose the removal of
the Managing Shareholder, either by calling a meeting or soliciting consents in
accordance with the terms of the Declaration. Removal of the Managing
Shareholder requires either the affirmative vote of a majority of the Common
Shares (excluding Common Shares held by the Managing Shareholder which is the
subject of the vote or by its Affiliates) or the affirmative vote of a majority
of the Independent Trustees. The Shareholders entitled to vote thereon may
replace a removed Managing Shareholder or fill a vacancy by vote of a majority
in interest of such Shareholders. See "SUMMARY OF DECLARATION OF TRUST - Removal
and Resignation of the Managing Shareholder."
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Trust Management Agreement
The Trust will enter into a Trust Management Agreement with the Managing
Shareholder under which the Managing Shareholder will be obligated to provide
management, administrative and investment advisory services to the Trust from
the commencement of the Offering. The services to be rendered will include,
among other things, communicating with and reporting to Investors, administering
accounts, providing to the Trust of office space, equipment and facilities and
other services necessary for the Trust's operation, and representing the Trust
in its relations with custodians, depositories, accountants, attorneys, brokers
and dealers, corporate fiduciaries, insurers, banks and others, as required. The
Managing Shareholder will also be responsible for determining which real estate
investments and non-real estate investments (including the temporary investment
of the Trust's available funds prior to their commitment to particular real
estate investments) the Trust will make and for making divestment decisions,
subject to the provisions of the Declaration.
The Managing Shareholder will be obligated to compensate the personnel and
pay all administrative and service expenses necessary to perform the foregoing
obligations. The Trust will pay all other expenses of the Trust, including
transaction expenses, appraisal costs, expenses of preparing and printing
periodic reports for Investors, the Commission and securities commissions of
applicable states, postage for Trust mailings, Commission and state securities
commission fees, interest, taxes, legal, accounting and consulting fees,
litigation expenses, and other expenses properly payable by the Trust. The Trust
will reimburse the Managing Shareholder for all such Trust expenses paid by it.
As compensation for the Managing Shareholder's performance under the Trust
Management Agreement, beginning June 1, 1998, the Trust will pay to the Managing
Shareholder on a monthly basis during the term of the agreement an annual
management fee in an amount equal to 1% of the aggregate subscription price paid
for Common Shares in the Offering and of the initial value of Units issued in
connection with the proposed Exchange Offering. The Managing Shareholder in its
sole discretion may elect to receive payment for its services in the form of
Common Shares with an equivalent value.
The Trust Management Agreement has an initial term of one year and may be
extended on a year-to-year basis on approval of (i) the Board or a Majority of
the Shareholders entitled to vote on such matter or (ii) a majority of the
Independent Trustees. By executing and delivering to the Trust the Subscription
Agreement, each Investor will be deemed to have consented to the terms and
conditions of the Trust Management Agreement described herein. The Independent
Trustees have responsibility for determining that compensation payable to the
Managing Shareholder under the Trust Management Agreement is reasonable. The
agreement may be terminated without cause or penalty at any time on 60 days'
prior notice by a majority of the Independent Trustees, by a Majority of the
Shareholders entitled to vote on such matter or by the Managing Shareholder.
Amendment of the agreement requires the approval of (i) a majority of the
Trustees or a Majority of the Shareholders entitled to vote on such matter and
(ii) a majority of the Independent Trustees. Shareholders entitled to vote on
such matters will be entitled to vote whether or not to amend or terminate the
agreement or to extend it for an additional one-year period only if such item is
called for a Shareholder vote at the annual meeting of Shareholders or a special
meeting of Shareholders by either the Managing Shareholder, a majority of the
Independent Trustees, any officer of the Trust or Shareholders who hold 10% or
more of the Common Shares then outstanding.
Officers of the Trust
The Declaration provides that the Managing Shareholder will appoint
officers of the Trust who may act on behalf of the Trust and sign documents on
behalf of the Trust as authorized by the Managing Shareholder and who will have
the duties and powers usually applicable to similar officers of a Delaware
corporation in carrying out Trust business. Officers act under the supervision
and control of the Managing Shareholder, which can remove any officer at any
time for any or no reason. Unless otherwise specified by the Managing
Shareholder, the Chief Executive Officer of the Trust will have full power to
act on behalf of the Trust. Mr. McGrath serves as Chief Executive Officer of the
Trust and as President of the Managing Shareholder and Robert S. Geiger serves
as the Chief Operating Officer of each company. The Trust is currently
interviewing suitable candidates to serve as President and Chief Financial
Officer of the Trust upon the commencement of the Offering. Mr. Geiger's initial
annual salary has been set at $100,000 (in addition to benefits, including
without limitation health, disability and
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life insurance, and eligibility for participation in any Common Share option
plan and bonus incentive compensation plan which may be implemented by the
Trust). Mr. McGrath has agreed to serve as Chief Executive Officer during 1998
in exchange for compensation in the form of Common Shares in an amount to be
determined by the Executive Compensation Committee based upon his performance in
1998. The Managing Shareholder will appoint a Secretary for the Trust. Officers
and employees of the Managing Shareholder who perform services on behalf of the
Trust will not be paid any compensation by the Trust. Such officers and
employees generally will serve in the same capacity for the Trust and will be
compensated by the Trust in amounts determined by the Managing Shareholder, in
the case of employees, and by the Executive Compensation Committee described
below, in the case of officers.
Information concerning Mr. McGrath and Mr. Geiger is set forth above at " -
Managing Shareholder."
The Board of the Trust; Committees; and Trustees
As Managing Shareholder of the Trust, Baron Advisors will have direct and
exclusive discretion in management and control of the affairs of the Trust,
subject to general supervision and review by the Independent Trustees and the
Managing Shareholder acting together as the Board of the Trust and to prior
approval authority of the Board and the Independent Trustees in respect of
certain actions specified in the Declaration and described at "SUMMARY OF THE
DECLARATION - Control of Operations."
The Board of the Trust
As described above, the Board of the Trust has general supervisory
authority over the activities of the Managing Shareholder and prior approval
authority in respect of certain actions under the Declaration. A majority of the
members of the Board must be Independent Trustees. The initial Board of the
Trust will be comprised of the Managing Shareholder and two individuals
described below who have agreed to serve as the initial Independent Trustees
upon the completion of the Offering. Each member of the Board must have adequate
experience in the residential real estate industry. The term of each member of
the Board is one year. Each member of the Board (other than the initial members
and any member who is elected to fill the unexpired term of another member no
longer serving) must be elected by vote of the Shareholders entitled to vote on
such matter at the annual meeting of Shareholders. Mid-term vacancies may be
filled by a majority of the remaining members of the Board. Each member may
serve an unlimited number of terms.
The Board may establish such committees as it deems appropriate, provided,
the majority of the members of any such committee are Independent Trustees. At
its initial meeting, which is scheduled to be held in the second quarter of
1998, the Board of the Trust will establish an Audit Committee, Executive
Compensation Committee, and Nominating Committee. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Trust's internal accounting controls. The Executive
Compensation Committee will determine compensation for the Trust's executive
officers and implement a Common Share option plan and bonus incentive
compensation plan for members of management and key employees of the Trust. The
Nominating Committee will nominate the Members of the Board of the Trust to be
presented to Shareholders of the Trust for election at each annual meeting
beginning in 1999.
The Trust intends to pay its Independent Trustees an annual fee of $6,000.
The Executive Compensation Committee will consider from time to time adjustments
in the compensation payable to members of the Board and the possibility of
permitting the members of the Board to participate in any option plans which the
Trust may adopt. Mr. McGrath, the Chief Executive Officer of the Trust and the
President of the Managing Shareholder, will not be paid any fees for serving on
the Board on behalf of the Managing Shareholder. In addition, the Trust will
reimburse all members of the Board for expenses incurred in attending meetings.
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The Board will meet at least annually, and, except to the extent
conflicting with the Delaware Act or the Declaration, the law of Delaware
governing meetings of directors of corporations shall govern such meetings,
voting and consents by the members of the Board. The Compensation Committee of
the Committee may review the compensation payable to the Independent Trustees
and other members of the Board (other than the Managing Shareholder, which will
not be compensated for serving on the Board) annually and may increase or
decrease it as the Committee deems reasonable. Without prior approval of the
Compensation Committee of the Board, the Trust may not pay compensation to any
Independent Trustee or other member of the Board for consulting services
provided to the Trust. Any member of the Board may resign by giving notice to
the Trust, and may be removed (i) for cause by the action of at least two-thirds
of the remaining members of the Board or (ii) with or without cause by action of
the holders of at least two-thirds of the Shares entitled to vote thereon.
Independent Trustees
The Trust is required to have at least two Independent Trustees, and such
Independent Trustees must constitute a majority of the Board. To qualify to
serve the Trust as an Independent Trustee, a person may not be associated or
have been associated within the last two years with the Managing Shareholder (or
any successor advisor to the Trust). A person is deemed to be associated with
the Managing Shareholder if he (i) owns an interest in, is employed by, or is an
officer, director or trustee of the Managing Shareholder or any of its
Affiliates; (ii) performs services, other than as an Independent Trustee, for
the Trust; (iii) is a trustee for more than three REITs organized or advised by
the Managing Shareholder; or (iv) has any material business or professional
relationship with the Managing Shareholder or any of its Affiliates.
The term of each Independent Trustee is one year, and each Independent
Trustee (other than one who has been elected to fill the unexpired term of
another Independent Trustee who no longer serves in such capacity) must be
elected by a vote of the Shareholders. Mid-term vacancies may be filled by a
majority of the remaining members of the Board. Any person may serve an
unlimited number of terms. An Independent Trustee may resign by giving notice to
the Trust, and may be removed (i) for cause by the action of at least two-thirds
of the remaining members of the Board or (ii) with or without cause by action of
the holders of at least two-thirds of the Shares entitled to vote thereon. The
Independent Trustees are not obligated to persons other than Shareholders for
the obligations of the Trust. See "SUMMARY OF DECLARATION OF TRUST - Liability
and Indemnification."
Described below are James H. Bownas and Peter M. Dickson, who have agreed
to serve as the initial Independent Trustees of the Trust upon the completion of
the Offering. Set forth below is certain information concerning these
individuals, who are not otherwise affiliated with the Trust, the Operating
Partnership, the Managing Shareholder or any of their respective Affiliates. In
performing their responsibilities to the Trust, the Independent Trustees are
under a fiduciary duty and obligation to act in the best interests of the Trust.
In interpreting the scope of this obligation, the Independent Trustees will have
the responsibilities of, and will be entitled to, the defenses of directors of a
Delaware corporation.
James H. Bownas, age 49, is a principal in Gamble Hartshorn Alden Co. LPA,
a Columbus, Ohio law firm with a general practice. Mr. Bownas's practice is
concentrated in securities, real estate, taxation, corporate and estate
planning. Between 1989 and January 1996, Mr. Bownas served as General Counsel,
Vice President and Secretary of Cardinal Realty Services, Inc. (ACardinal@)
(formerly known as Cardinal Industries, Inc.), a publicly traded company
headquartered in Reynoldsburg, Ohio which has sponsored numerous real estate
investment limited partnerships. At Cardinal, Mr. Bownas developed significant
experience in the syndication of real estate investment limited partnerships,
negotiated the resolution of over $2 billion of creditors' claims in connection
with the bankruptcy reorganization of Cardinal Industries, Inc., and coordinated
the transition of Cardinal Industries, Inc. from a bankruptcy creditor to a
successful publicly traded company. Since 1995, Cardinal has engaged in several
arms-length transactions (none of which represented a material portion of
Cardinal's assets, liabilities, revenues or expenditures) with Affiliates of the
Managing Shareholder pursuant to which multi-family real estate was sold to,
purchased from and managed by and for such entities. Prior to 1989, Mr. Bownas
served as General Counsel and Vice President of Alliance Corporate Resources,
Inc., Dublin, Ohio, a third party equipment lessor, and practiced law at private
law firms. Mr. Bownas is a member of the American Bar Association, the Ohio
State
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Bar Association and the Columbus Bar Association. Mr. Bownas earned a law degree
from Harvard University in 1971 and a Bachelor of Science degree from Xavier
University in 1968. He resides in Columbus, Ohio.
Since 1991, Peter M. Dickson, age 47, has been managing director of the
Guardian Management Company Limited, a global financial services corporation
based in Bermuda. In addition, since 1994 Mr. Dickson has served as a director
to Grosvenor Trust Company Limited, another Bermuda-based financial services
corporation. Between 1985 and 1990, Mr. Dickson served as the Executive Vice
President of Finance for The Wraxall Group, Bermuda. Between 1979 and 1985, Mr.
Dickson held several positions with Peat, Marwick, Bermuda, beginning as a
Senior Accountant/Supervisor, before being promoted to Manager, then to Senior
Manager, and finally to Director of Accounting Services. Prior to 1979, Mr.
Dickson was a Senior Accountant with Deloitte, Haskin & Sells in Manchester,
with whom he was Articled. Mr. Dickson qualified as a Chartered Accountant in
1974 with the Institute of Chartered Accountants in England and Wales. Mr.
Dickson is a member of the Bermuda Institute of Chartered Accountants, Chartered
Institute of Marketing, and The Offshore Institute. He is a member of the
Institute of Chartered Accountants in England & Wales, Institute of Cost and
Executive Accountants, Association of Financial Controllers Managers and
Association of Business Executives. Mr. Dickson serves as Fellow of the
Institute of Chartered Accountants in England & Wales, Faculty of Corporate
Executive Secretaries, Institute of Directors, Faculty of Business Administrator
and Institute of Financial Accountants. Mr. Dickson earned his undergraduate
degree from Wrekin College, Shropshire, England in 1969.
Corporate Trustee
The Corporate Trustee of the Trust is Baron Capital Properties, Inc.
("Baron Properties"), a Delaware corporation formed in July 1997 and an
Affiliate of the Managing Shareholder. The primary duty of the Corporate Trustee
will be to operate an office in the State of Delaware as the Delaware Act
requires that at least one of the trustees of a Delaware business trust (such as
the Trust) have an office in Delaware. Legal title to Trust Property will be in
the name of the Trust if possible or Baron Properties as trustee. Baron
Properties, as Corporate Trustee of the Trust, will act only at the direction of
the Managing Shareholder, and will not take independent discretionary action on
behalf of the Trust. The Corporate Trustee will not be compensated for its
services, but will be reimbursed only for its reasonable out-of-pocket expenses
in serving in such capacity which are approved in advance by the Managing
Shareholder. Such expenses are expected to be limited to those incurred in
connection with the operation of its Delaware office. Baron Properties may be a
trustee of other similar entities that may organized by the Managing
Shareholder, Baron Capital, Inc., and any of their Affiliates. The President,
sole director and sole stockholder of Baron Properties is Gregory K. McGrath.
See " - Managing Shareholder." The principal office of Baron Properties is at
1105 North Market Street, Suite 1300, Wilmington, Delaware 19899. The Corporate
Trustee is not obligated to persons other than Shareholders for the obligations
of the Trust. See "SUMMARY OF THE DECLARATION."
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THE TRUST
Baron Capital Trust (the "Trust"), a Delaware business trust, and its
affiliate, Baron Capital Properties, L.P., a newly formed Delaware limited
partnership (the "Operating Partnership"), constitute a self-administered and
self-managed real estate company which has been organized to indirectly acquire
equity interests in existing residential apartment properties located in the
United States and to provide or acquire debt financing secured by mortgages on
such types of property. The Trust intends to acquire, own, operate, manage and
improve residential apartment properties for long-term ownership, and thereby to
seek to maximize current and long-term income and the value of its assets. See
"INVESTMENT OBJECTIVES AND POLICIES" below. The management of the Trust has been
involved in the residential apartment business for over 10 years.
The Trust intends to make regular quarterly distributions to its
Shareholders of net income generated from its investments. The Trust intends to
operate as a real estate investment trust (a "REIT") for federal income tax
purposes, provided, however, that if the Managing Shareholder determines, with
the affirmative vote of a Majority of Shareholders entitled to vote on such
matter approving the Managing Shareholder's determination, that it is no longer
in the best interests of the Trust to continue to qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
The Operating Partnership
The operations of the Trust will be carried on through the Operating
Partnership (and any other subsidiaries the Trust may have in the future), among
other reasons, in order to (i) enhance the ability of the Trust to qualify as a
REIT under the Code, (ii) enable the Trust to indirectly acquire interests in
residential apartment properties in exchange transactions that involve the
exchange of Units of limited partnership interest in the Operating Partnership
for such property interests and thereby permit the deferral until a later date
of any tax liabilities that sellers of property interests otherwise would incur
if they received cash or Common Shares in connection therewith. Substantially
all of the Trust's assets (including the property interests acquired) will be
held by, and its operations conducted through, the Operating Partnership. As its
sole general partner, the Trust will control the Operating Partnership as well
as hold Units representing an economic interest in the Operating Partnership.
The Operating Partnership will be responsible for, and pay when due, its share
of all administrative and operating expenses of properties in which it acquires
an interest.
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with the Offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of units of limited partnership
interest in the Operating Partnership ("Units"). The Operating Partnership will
use the net cash proceeds of the Offering, unissued Units or a combination of
net cash proceeds and unissued Units to acquire interests in residential
apartment properties or interests in other partnerships substantially all of
whose assets consist of residential apartment property interests. See
" - Ownership of the Trust and the Operating Partnership."
Concurrently with this Offering, the Operating Partnership expects to make
an Exchange Offering using Units to be registered with the Commission to acquire
interests in residential apartment properties. As its initial acquisition
candidates in connection with the Exchange Offering, the Trust is currently
investigating the acquisition of property interests owned by partners in 12 real
estate limited partnerships managed by Affiliates of the Managing Shareholder.
The targeted properties consist of an aggregate of 673 residential units
(comprised of studio, one, two and three-bedroom units) and are all located in
Florida with the exception of one property which is located in Georgia. Such
property interests are described in greater detail below at "PROPOSED REAL
ESTATE INVESTMENTS." If property acquisitions are consummated in respect of all
12 properties, the purchase price is expected to be in the range of $13 million
to $15 million, payable in Units in the Operating Partnership. The Trust intends
to investigate other investment opportunities for the Exchange Offering,
including property interests held by unaffiliated owners and certain other
limited partnerships managed by Affiliates of the Managing Shareholder. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
As presently contemplated, as part of the Exchange Offering, the Operating
Partnership will make an offer to acquire all the limited partnership interests
in each of the 12 limited partnerships in exchange for registered Units. The
Operating Partnership would offer to acquire each individual limited partner's
interest in a partnership in exchange for a number of Units based on the limited
partner's proportionate share of the appraised
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market value of the property in question. Any limited partner that does not
desire to participate in the Exchange Offering would be entitled to retain his
limited partnership in the partnership on generally the same terms as currently
exist. As part of the transaction the Trust would assume the corporate general
partner's interest in each of the partnerships involved and manage the
partnerships on an ongoing basis.
To facilitate the proposed Exchange Offering, the Trust will register with
the Commission 2,500,000 Units. Sellers of property interests who receive Units
as consideration in connection with the proposed Exchange Offering will be
entitled to exchange all or a portion of the Units held by them for an
equivalent number of Common Shares at any time and from time to time, so long as
the exchange would not cause the seller to own (taking into account certain
ownership attribution rules) in excess of 5.0% of the then outstanding Shares,
subject to the Trust's right to cash out any holder of Units who requests an
exchange. Therefore, in conjunction with the registration of the Units, the
Trust will register 2,500,000 Common Shares (in addition to the 2,500,000 Common
Shares being offered in this Offering) for issuance to holders of Units who
request the Trust to exchange Units for Common Shares. A registration statement
in connection with the proposed Exchange Offering has been filed with the
Commission.
The Trust intends to investigate making an additional public or private
offering of Common Shares within the 12-month period following the commencement
of the Offering if the Managing Shareholder determines that suitable property
acquisition opportunities are available to the Trust at attractive prices and
that such an offering would fulfill its cost of funds requirements. The issuance
by the Trust and the Operating Partnership of additional Shares and Units
subsequent to the completion of the Offering and the proposed Exchange Offering
could have a dilutive effect on Investors which acquire Common Shares in the
Offering.
The Trust's ownership of Units in the Operating Partnership will entitle it
to share in cash distributions from, and in the profits and losses of, the
Operating Partnership in proportion to its percentage ownership of Units. The
Trust in turn will distribute such cash distributions to the Shareholders of the
Trust. The other Unitholders (i.e., other Limited Partners) of the Operating
Partnership, including the Original Investors and property interest sellers who
receive Units in exchange for such property interests, will own the remaining
economic interest in the Operating Partnership. Subject to certain percentage
limitations on ownership, Units may be transferred by Limited Partners (other
than Original Investors) without restriction, although the transferee may only
be admitted as a Unitholder with the consent of the Trust as general partner. As
described below at "THE TRUST - Formation Transactions," the Original Investors
have entered into a security escrow agreement with the Trust under which they
have agreed to deposit into an escrow account with an institutional escrow agent
for at least six years (subject to their earlier release if the Trust meets
certain specified operating criteria) all Units issued to them in connection
with the formation of the Trust and the Operating Partnership. The effect of the
escrow arrangement is that as long as their Units are held in the escrow account
the Original Investors will not be able to exchange their Units into Common
Shares or sell Common Shares. As the Unitholders exchange their Units for Common
Shares, the Trust's interest in the Operating Partnership will increase.
The Trust will hold one Unit in the Operating Partnership for (i) each
Common Share that it issues in this Offering, (ii) each Common Share that it
issues in exchange for a Unit at the request of a Unitholder, and (iii) each
Unit it elects to cash out in lieu of an exchange described in item (ii) above.
The net proceeds from the issuance of Common Shares of the Trust in connection
with the Offering and of any other issuance of Common Shares will be contributed
to the Operating Partnership in exchange for an equivalent number of Units.
As the general partner of the Operating Partnership, the Trust will have
the exclusive power under the Operating Partnership Agreement to manage and
conduct the business of the Operating Partnership. Baron Advisors, Inc., the
Managing Shareholder of the Trust, has full exclusive and complete discretion in
the management and control of the Trust and the Operating Partnership (subject
to the general supervision and review by the Independent Trustees and the
Managing Shareholder acting together as the Board of the Trust and subject to
prior approval of the Board and the Independent Trustees in respect of certain
activities of the Trust and the Operating Partnership). Gregory K. McGrath, the
Chief Executive Officer of the Trust and the President of the Managing
Shareholder, and Robert S. Geiger, the Chief Operating Officer of the Trust and
of the Managing Shareholder, and James H. Bownas and Peter M. Dickson, the
initial Independent Trustees of the Trust, will make investment decisions for
the
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Trust. The Independent Trustees and the Managing Shareholder comprise all the
initial members of the Board of the Trust. The Operating Partnership will
terminate on December 31, 2098 unless terminated earlier in connection with a
merger or a sale of all or substantially all of the assets of the Operating
Partnership or upon a vote of the Partners. The Operating Partnership will be
responsible for, and pay when due, its share of all administrative and operating
expenses of properties in which it acquires an interest.
Formation Transactions
Set forth below is a description of transactions relating to the formation
of the Trust and the Operating Partnership. Gregory K. McGrath and Robert S.
Geiger are the founders of the Trust (the "Original Investors"). Mr. McGrath
will serve as the Chief Executive Officer of the Trust and is the President,
sole shareholder and sole director of the Managing Shareholder, which will
manage the day to day operations of the Trust and the Operating Partnership.
McGrath is also the President, sole shareholder and sole director of the
corporate general partners of 47 real estate investment limited partnerships
which since 1994 have acquired interests in residential and commercial
properties. See "MANAGEMENT" and "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING
SHAREHOLDER." As described below at "PROPOSED REAL ESTATE INVESTMENTS," certain
of the prior partnerships own interests in properties in which the Trust may
acquire an interest in connection with the proposed Exchange Offering.
In connection with the formation of the Trust and the Operating
Partnership, Mr. McGrath is entitled to receive a number of Units in the
Operating Partnership equal to 9.5% of the Units outstanding upon the completion
of this Offering and the proposed Exchange Offering. Mr. McGrath's consideration
for the Units included an initial capital contribution of $25,000 to the
Operating Partnership; a waiver of any ongoing economic interests (including
back end interests and administrative fees) attributable to the corporate
general partners (which he controls) which manage real estate investment limited
partnerships whose investors participate in the proposed Exchange Offering; and
the contribution to the Trust and the Operating Partnership of the goodwill of
the affiliated group of Baron companies under his control.
Mr. Geiger will serve the Trust and the Managing Shareholder as their Chief
Operating Officer. In exchange for an initial capital contribution of $25,000 to
the Operating Partnership and his past and future participation in the formation
and operation of the Trust and the Operating Partnership, he is entitled to
receive a number of Units in the Operating Partnership equal to 9.5% of the
Units outstanding upon the completion of this Offering and the proposed Exchange
Offering.
Mr. McGrath and Mr. Geiger have entered into a security escrow agreement
with the Trust under which they have agreed to deposit into an escrow account
with American Stock Transfer & Trust Company (the transfer agent and registrar
for the Common Shares being offered hereby and the Units to be offered in the
proposed Exchange Offering) Units issuable to them in connection with the
formation of the Trust and the Operating Partnership. Under the agreement, 25%
of the escrowed Units may be released from the escrow account on the sixth,
seventh, eighth and ninth anniversary dates of the commencement of this
Offering, provided that the escrowed Units may be released in their entirety
earlier if either (i) the Trust achieves annual net earnings per Common Share of
at least $.50 (i.e., 5% of the public offering price per share), after taxes and
excluding extraordinary items, for any consecutive two-year period following the
commencement of the Offering, (ii) the Trust achieves average annual net
earnings per share of at least $.50 (after taxes and excluding extraordinary
items) for any consecutive five-year period following the commencement of the
Offering, or (iii) the Common Shares have traded on a national stock market at a
price per share of at least $17.50 (i.e., 175% of the public offering price per
share) for at least 90 consecutive trading days following the first anniversary
of the commencement of the Offering.
The effect of the escrow arrangement is that as long as their Units are
held in the escrow account the Original Investors will not be able to exchange
their Units into Common Shares and sell any Common Shares. The Original
Investors will retain any voting rights to which the escrowed Units are
entitled. Any dividends paid on the escrowed Units will be held in the escrow
account and available for distribution to other Shareholders and Unitholders in
the event of any transaction which results in the distribution of the assets of
the Operating Partnership (such as its
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dissolution, liquidation, merger or sale of substantially all of its assets) to
the extent that the other Shareholders and Unitholders otherwise would not
receive in connection with such transaction, distributions in an amount equal to
at least the initial public offering price of the Common Shares.
Ownership of the Trust and the Operating Partnership
Set forth below is a description of the ownership of the Trust and the
Operating Partnership on a pro forma basis, assuming that the Offering and the
proposed Exchange Offering are completed in their entirety as contemplated
herein and that the Dealer Manager has not exercised any Common Share warrants
granted to it in connection with this Offering. Immediately after the completion
of this Offering and the proposed Exchange Offering, there would be 2,500,000
Common Shares and 6,250,000 Units outstanding. The purchasers of Common Shares
in this Offering would own 100% of the Common Shares, representing a 100%
ownership interest in the Trust as of the closing of this Offering and the
Exchange Offering. The Trust will be the sole general partner of the Operating
Partnership and have a 1% partnership interest in the Operating Partnership
attributable thereto. The purchasers of Common Shares in this Offering, sellers
of property interests who receive Units in the proposed Exchange Offering and
the Original Investors would have a 40%, 40% and 19% beneficial economic
interest in the Trust, respectively.
The two tables below reflect the pro forma allocation of Common Shares and
Units among the participants in this Offering and the proposed Exchange
Offering. The first table assumes the consummation of this Offering by itself
without taking into account the Exchange Offering. The second table assumes the
consummation of this Offering and the Exchange Offering.
THE OFFERING
- ---------------------------------------- Ownership:
Purchasers of Common 100%
BARON CAPITAL TRUST Shares in this Offering
("TRUST")
- ----------------------------------------
- ---------------------------------------- General Partner
Baron Capital Trust 1%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 80%
("OPERATING PARTNERSHIP") Original Investors 19%
Total 100%
- ----------------------------------------
If the Trust sells all 2,500,000 Common Shares being offered in this
Offering (gross proceeds of $25 million) and assuming no transactions are
effected pursuant to the proposed Exchange Offering, the following would result:
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o The Trust would use the net proceeds of this Offering ($22,500,000)
(remaining after payment of commissions and offering fees) to acquire
2,500,000 Units in the Operating Partnership (80% of the then outstanding
amount). The Original Investors would own 19% of the then outstanding Units
(593,750 Units) and the Trust, in its capacity as general partner of the
Operating Partnership, would own the remaining 1% (31,250 Units).
o The purchasers of Common Shares in this Offering would own 100% of the
equity interest in the Trust, which, in turn, would own an 80% partnership
interest in the Operating Partnership.
o The respective ownership percentage interests in the Trust and the
Operating Partnership would remain proportionately the same in the event
the Trust sells less than all Common Shares being offered in this Offering,
even though there would be fewer outstanding Common Shares and Units.
o The Operating Partnership would use the cash proceeds received from the
Trust to acquire property interests and for working capital and other
general business purposes.
THE OFFERING AND PROPOSED EXCHANGE OFFERING
- --------------------------------------- Ownership:
Purchasers of Common 100%
BARON CAPITAL TRUST Shares in this Offering
("TRUST")
- ---------------------------------------
- --------------------------------------- General Partner
Baron Capital Trust 1%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 40%
("OPERATING PARTNERSHIP") Sellers of Property in
Exchange Offering 40%
Original Investors 19%
Total 100%
- ---------------------------------------
If the Trust sells all 2,500,000 Common Shares being offered in this
Offering, and the Operating Partnership uses all registered Units to complete
the proposed Exchange Offering to acquire property interests, the following
would result:
o The Trust would use the net proceeds of the Offering ($22,500,000)
(remaining after payment of commissions and offering fees) to acquire
2,500,000 Units in the Operating Partnership.
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o The Operating Partnership would issue all 2,500,000 registered Units to
sellers of property interests in exchange for such interests and acquire
additional property interests with the cash proceeds received from the
Trust.
o Assuming none of the Unitholders have exercised their right to exchange
Units for an equivalent number of Common Shares, the purchasers of Common
Shares in this Offering would own 100% of the equity interest in the Trust,
and the Units of the Operating Partnership would be owned as follows:
Limited Partners Units Interest
- ---------------- ----- --------
Baron Capital Trust 2,500,000 40%
Sellers of Property Interests
in Exchange Offering 2,500,000 40%
Original Investors 1,187,500 19%
Baron Capital Trust (as general partner) 62,500 1%
--------- ---
Total: 6,250,000 100%
If this Offering is closed and all or a portion of the 2,500,000 Common
Shares being offering hereby are sold prior to that closing, and the proposed
Exchange Offering is closed and less than 2,500,000 Units are issued prior to
that closing, the purchasers of Common Shares in this Offering would hold 100%
of the then outstanding Common Shares of the Trust, and the Trust and the
sellers of property interests who receive Units in the Exchange Offering would
own varying numbers of Units and percentages of the then outstanding Units,
depending upon how many Common Shares and Units were issued in connection with
the respective offerings; the Original Investors would own a varying number of
Units, but their collective ownership percentage would remain at 19%. In
addition, over time as Unitholders exercise their rights to exchange Units for
an equivalent number of Common Shares: (i) the number of outstanding Common
Shares would increase, resulting in changing percentages of ownership among
Shareholders, and (ii) the number of outstanding Units would decrease, resulting
in changing percentages of ownership among Unitholders. However, such exchanges
would not affect the ownership percentage interests of any Shareholder or
Unitholder.
Regulations
General. Residential apartment communities are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas. The
Trust will use its best efforts to provide that each property in which it
acquires an interest has the necessary permits and approvals to operate its
business.
Fair Housing Amendments of 1988. The FHA requires residential apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. The Trust will use its best efforts
to provide that properties subject to the FHA in which it acquires an interest
are in compliance with such law.
Americans with Disabilities Act ("ADA"). Properties in which the Trust
acquires an interest must comply with Title III of the ADA to the extent that
such properties are "public accommodations" and/or "commercial facilities" as
defined by the ADA. Compliance with the ADA requirements could require removal
of structural barriers to handicapped access in certain public areas of
properties where such removal is readily achievable. The ADA does not, however,
consider residential properties, such as apartment communities, to be public
accommodations, except to the extent portions of such facilities, such as a
leasing office, are open to the public. The Trust will use its best efforts to
provide that properties in which it acquires an interest comply with all present
requirements under the ADA and applicable state laws. Noncompliance could result
in imposition of injunctive relief, fines or an award of damages. If required
changes involve a greater expenditure than the Trust might anticipate, or if
changes must be made on a more accelerated basis than it might anticipate, the
Trust's ability to make expected distributions to Shareholders could be
adversely affected. The Trust believes that its competitors would face similar
costs to comply with the requirements of the ADA.
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Environmental Regulations. The Trust is subject to Federal, state, and
local environmental regulations that apply to the development of real property,
including construction activities, the ownership of real property, and the
operation of multifamily apartment communities.
The Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601, et seq. ("CERCLA"), and applicable state Superfund laws subject
the owner of real property to claims or liability for the costs of removal or
remediation of hazardous substances that are disposed of on real property in
amounts that require removal or remediation. Liability under CERCLA and
applicable state Superfund laws can be imposed on the owner of real property or
the operator of a facility without regard to fault or even knowledge of the
disposal of hazardous substances on the property or at the facility. The
presence of hazardous substances in amounts requiring response action or the
failure to undertake remediation where it is necessary may adversely affect an
owner's ability to sell real estate or borrow money using such real estate as
collateral. In addition to claims for cleanup costs, the presence of hazardous
substances on a property could result in a claim by a private party for personal
injury or a claim by an adjacent property owner for property damage.
The Trust intends to retain a qualified environmental consultant to conduct
an environmental investigation of each property that it considers for
investment. If there is any indication of contamination, sampling of the
property will be performed by the environmental consultant. The environmental
investigation report will be reviewed by the Trust and counsel prior to purchase
of an interest in any property.
Rent Control Legislation. Although none currently are applicable to any of
the properties in which the Trust is contemplating an investment, state and
local rent control laws in certain jurisdictions limit a property owner's
ability to increase rents and to cover increases in operating expenses and the
costs of capital improvements. Enactment of such laws has been considered from
time to time in other jurisdictions. The Trust does not presently intend to
acquire interests in residential apartment properties in markets that are either
subject to rent control or in which rent limiting legislation exists.
Employees
The Trust and the Operating Partnership initially expect to employ a total
of approximately 20 employees. The number of employees it will initially hire
will depend upon the amount of net proceeds raised in the Offering and the
results of the proposed Exchange Offering.
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INVESTMENT OBJECTIVES AND POLICIES
General
The Trust has been organized to acquire equity interests in existing
residential apartment properties located in the United States and/or to provide
or acquire debt financing secured by mortgages on such types of property. Such
investments are expected to consist primarily of: (i) the acquisition,
ownership, operation, management, improvement and disposition of equity
interests in such types of properties and/or (ii) Mortgage Loans which the Trust
provides or acquires which are secured by mortgages on such types of properties.
The Managing Shareholder expects that the Trust's proposed investments will (1)
generate current cash flow for distribution to Investors from rental payments
from the rental of residential apartment units which the Trust may acquire
and/or principal and interest payments in respect of Mortgage Loans which the
Trust may provide or acquire and (2) provide the opportunity for capital
appreciation through the sale of all or a portion of the Trust's investment in
equity interests in residential apartment properties. The Trust intends to pay
regular quarterly distributions to its Shareholders. Properties in which the
Trust will acquire an interest are expected to use the straight-line method of
depreciation over 27-1/2 years.
The management of the Trust has been involved in the residential property
business for over 10 years and has extensive experience and presence in the
residential property business which have enabled it to form key alliances and
working relationships with owners of residential apartment properties and
financial institutions.
The Trust intends to acquire, own, operate, manage, and improve residential
apartment properties for long-term ownership, and thereby to seek to maximize
current and long-term income and the value of its assets. The Trust's strategy
is to pursue acquisitions of interests in properties that (i) are available at
prices below estimated replacement cost; (ii) may provide attractive returns
with significant potential growth in cash flow from property operations; (iii)
are strategically located, of high quality and competitive in their respective
markets; (iv) have been under-managed or are otherwise capable of improved
performance through intensive management and leasing that will result in
increased occupancy and rental revenues, and (v) provide anticipated total
returns that will increase the Trust's distributions and its overall market
value. The Trust will make investments in properties indirectly through the
Operating Partnership in which it will hold all of its real estate assets and
conduct all real estate operations.
The Trust's primary business objectives are to increase distributions to
Shareholders and to increase the value of the Trust's portfolio of properties in
which it acquires an interest. The Trust intends to achieve these objectives by:
(i) Acquiring interests in properties that are available at prices
below estimated replacement cost and capable of enhanced performance, both
in terms of cash flow and investment value, through application of the
Trust's management ability and strategic capital improvements;
(ii) Increasing cash flow of the Trust's properties through active
leasing, rent increases, improvement in tenant retention, expense controls,
effective property management, and regular maintenance and periodic
renovations, including additions to amenities;
(iii) Managing operating expenses through the use of affiliated
leasing, marketing, financing, accounting, legal, and data processing
functions; and
(iv) Emphasizing capital improvements to enhance the Trust's
competitive advantages in its markets.
Brentwood Management, LLC ("Brentwood"), an Ohio limited liability company
which is an Affiliate of the Managing Shareholder, or an Affiliate may manage
properties in which the Trust may invest. For managing a residential apartment
property, the property manager would be paid a fee equal to 5% of the collected
rental
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income from the property plus a bookkeeping fee of $325 per month and it may
earn a performance fee of $2.00 per residential unit per month if greater than
96% of gross potential rents are collected.
After the Trust has invested the net proceeds of the Offering and completed
the proposed Exchange Offering, it intends to utilize one or more sources of
capital for future acquisitions and capital improvements, which may include
undistributed cash flow, borrowings, issuance of debt or equity securities and
other bank and/or institutional borrowings. The Trust intends to investigate
making an additional public or private offering of Common Shares within the
12-month period following the commencement of the Offering if the Board of the
Trust determines that suitable property acquisition opportunities which meet its
investment criteria are available to the Trust at attractive prices and such an
offering would fulfill its cost of funds requirements. There can be no
assurance, however, that the Trust will be able to obtain capital for any such
acquisitions or improvements on terms favorable to the Trust.
The Trust expects to qualify as a REIT for federal income tax purposes
beginning with its taxable year ending December 31, 1998. See "TAX STATUS OF THE
TRUST" and "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust."
Trust Policies with Respect to Certain Activities
The following is a discussion of the Trust's policies with respect to
investments, dispositions, financings, and conflicts of interest. These policies
have been determined by the Managing Shareholder of the Trust and under the
Declaration may be amended or revised from time to time at the discretion of the
Board with approval of a majority in interest of the Shareholders entitled to
vote on such matters.
At all times, the Trust intends to make investments and conduct its
operations in such a manner as to be consistent with the requirements of the
Code for the Trust to qualify as a REIT unless, because of changing
circumstances or changes in the Code (or in Treasury Regulations), the Managing
Shareholder, with the consent of a majority of the Shareholders entitled to vote
on such matter approving the Managing Shareholder's determination, determines
that it is no longer in the best interests of the Trust to qualify as a REIT. No
assurance can be given that the Trust's objectives will be attained.
Investment Policies
The Trust's investment objective is to provide quarterly cash distributions
and achieve long-term appreciation through increases in cash flows and the value
of its properties. The Trust intends to pursue these objectives by acquiring
equity interests in one or more existing residential apartment properties
located in the United States and/or making or investing in Mortgage Loans and
other real estate interests related to such types of properties consistent with
its qualification as a REIT. The Trust may invest in First Mortgage Loans or
Junior Mortgage Loans and participating or convertible mortgages if it concludes
that it may benefit from the cash flow or any appreciation in the value of the
subject property. Such mortgages are similar to equity participation. The Trust
may also retain a purchase money mortgage for a portion of the sale price in
connection with the disposition of properties from time to time.
Subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, the Trust also may invest in securities of
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. See "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust." The Trust may acquire all or
substantially all of the securities or assets of other REITs or similar entities
where such investments would be consistent with the Trust's investment policies.
The Trust will not make an equity investment in respect of any property
where the amount invested by it plus the amount of any existing indebtedness or
refinancing indebtedness in respect of such property exceeds the appraised value
of the property. In addition, the Trust will not acquire or provide debt
financing in respect of any property where the amount invested by the Trust plus
the amount of any existing indebtedness in respect of such
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property exceeds 80% of the estimated replacement cost of the property as
determined by the Managing Shareholder. Repayment of any Mortgage Loans provided
or acquired by the Trust would typically be secured by a Mortgage on the land,
apartment units, and other improvements financed by the Trust and be
non-recourse to the borrower. It is expected that in certain cases the Trust
will provide or acquire a Second Mortgage Loan that is subordinate to a First
Mortgage Loan provided by a lending institution. In certain cases, Mortgage
Loans provided or acquired by the Trust may be in the form of First Mortgage
Loans.
Junior Mortgages securing Junior Mortgage Loans to be provided or acquired
by the Trust may or may not be recorded. If any Junior Mortgage in favor of the
Trust is not recorded, the Trust's security interest in the Mortgage would be
unperfected and the Trust would be pari passu (i.e., on an equal basis) with all
other unsecured creditors of the borrower, provided, however, the security
instruments that will be entered into in connection with Mortgage Loans to be
provided or acquired by the Trust will typically restrict the borrower's ability
to enter into a subsequent loan arrangement with third parties which would be
senior to or pari passu with (i.e., equal to) the Mortgage held by the Trust.
Non-payment of any Junior Mortgage Loan that may be made or acquired by the
Trust may constitute an event of default by the borrower under the underlying
Senior Mortgage Loan, and such Senior Mortgage Loan may have to be repaid by the
borrower before Shareholders in the Trust will receive any return on their
investment.
The Trust will obtain and maintain insurance coverage on property in which
it acquires an equity interest (and, prior to providing or acquiring any
Mortgage Loan in respect of a property, will be listed as an additional insured
or loss payee in respect of such property), protecting against casualty loss up
to replacement cost (with a $1,000 deductible per loss), and against public
liability in an amount that is reasonable taking into account the market value
of the property at the time insurance is obtained. There can be no assurance,
however, that the Trust's Property would not sustain losses in excess of its
applicable insurance coverage, and it could sustain losses as a result of risks
which are uninsurable. There are certain types of losses (generally of a
catastrophic nature, such as earthquakes, floods and wars) which may be either
uninsurable or not economically insurable. Should such a loss occur, the Trust
could lose its invested capital in the property. In that case, the Shareholders
could suffer a complete loss of their investment in the Trust.
Real estate investment programs previously sponsored by and which may in
the future be sponsored by Affiliates of the Managing Shareholder may seek to
acquire interests in properties similar to those which the Trust will seek to
acquire. The following method of allocation of the acquisition of such
properties between the Trust and such other programs will generally be followed
by the Trust in such cases. Except in unusual circumstances, the Trust will not
invest its net offering proceeds in property investments until such similar
programs sponsored prior to the Offering have specified for investment or
committed to invest at least 50% of their investment funds in respect of
particular properties, and no such similar program sponsored subsequent to the
Offering will invest in respect of a particular property until the Trust has
specified for investment or committed to invest at least 50% of its net offering
proceeds in respect of particular properties. The Board and the Independent
Trustees are responsible for overseeing the allocation of the acquisition of
properties under the circumstances described above to insure that the foregoing
allocation method is applied fairly to the Trust.
Pending the commitment of Trust funds for the purposes described in this
Prospectus, for distributions to Shareholders or for application of reserve
funds to their purposes, the Managing Shareholder has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest.
The Trust intends to make investments in such a way that it will not be
treated as an investment company under the Investment Company Act of 1940.
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<PAGE>
Disposition Policies
The Managing Shareholder will periodically review the portfolio of assets
which the Trust acquires. The Trust has no current intention to dispose of any
property interests it may acquire, although it reserves the right to do so.
Disposition decisions relating to a particular property will be made based on
(but not limited to) the following factors: (i) potential to continue to
increase cash flow and value; (ii) the sale price; (iii) strategic fit of the
property with the rest of the Trust's portfolio; (iv) potential for, or the
existence of, any environmental or regulatory problems; (v) alternative uses of
capital; and (vi) maintaining qualification as a REIT. Any decision to dispose
of a property will be made by the Managing Shareholder.
Financing Policies
The Trust will have the right to borrow funds, and use the Trust's
available assets as security for any such loan, if the Trust's cash requirements
exceed its available cash. Under the Declaration of the Trust, the aggregate
borrowings of the Trust in relation to its net assets may not exceed 300%,
except where the Trust determines that a higher level of borrowing is
appropriate. It is expected that each property in which the Trust invests will
secure a First Mortgage Loan. The principal balance of any such First Mortgage
Loan typically would represent a substantial percentage of the Trust's basis in
any property in which the Trust owns an equity interest.
To the extent that the Managing Shareholder desires that the Trust obtain
additional capital, the Trust may raise such capital through additional public
and private equity offerings, debt financing, retention of cash flow (subject to
satisfying the Trust's distribution requirements under the REIT rules) or a
combination of these methods. The Trust may determine to issue securities senior
to the Common Shares, including Preferred Shares and debt securities (either of
which may be convertible into Common Shares or be accompanied by warrants to
purchase Common Shares). The Trust may also finance acquisitions of properties
or interests in properties through the exchange of properties, the issuance of
Shares, or the issuance of Units of limited partnership interest in the
Operating Partnership and any other partnerships the Trust may form or acquire
an equity interest in to conduct all or a portion of its real estate operations.
The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
any applicable Operating Partnership, to refinance existing indebtedness or to
finance acquisitions or capital improvements of new properties.
Conflict of Interest Policies
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest, as described below. However, there can be no
assurance that these policies always will be successful in eliminating the
influences of such conflicts, and if they are not successful, decisions could be
made that might fail to reflect the interests of all Shareholders.
The Managing Shareholder will have discretion in management and control of
the affairs of the Trust and the Operating Partnership, subject to (i) general
supervision and review by the Independent Trustees and the Managing Shareholder
acting together as the Board of the Trust and (ii) prior approval authority of a
majority of the Board and/or of a majority of the Independent Trustees in
respect of certain actions of the Trust and the Operating Partnership. The
Declaration of the Trust requires that a majority of the Board of the Trust be
comprised of Independent Trustees not affiliated with the Managing Shareholder
or its Affiliates.
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Actions of the Trust and the Operating Partnership requiring approval of
the Board and/or the Independent Trustees include, without limitation, the
payment of compensation to the Managing Shareholder, a Trustee, any other member
of the Board of the Trust or any of their respective Affiliates in amounts in
excess of certain specified limits for services performed for the Trust and the
acquisition of properties from or the sale of properties to any such parties.
For example, the Trust may not purchase property from the Managing Shareholder,
a Trustee, any other member of the Board or any of their respective Affiliates
unless a majority of the members of the Board and a majority of the Independent
Trustees who have no other interest in the particular proposed transaction
(beyond their role on the Board or as Independent Trustees) review the proposed
transaction and determine that it is fair and reasonable to the Trust and that
the purchase price to the Trust for such property is no greater than the cost of
the property to such proposed seller, or if the purchase price to the Trust is
in excess of such cost, that substantial justification for such excess exists
and such excess is reasonable, provided, however, in no event may the purchase
price for the property exceed its then current appraised value.
For a more detailed description of Trust and Operating Partnership actions
requiring approval of the Board and/or the Independent Trustees, see "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
PROPOSED REAL ESTATE TRANSACTIONS
Net cash proceeds of the Offering have not yet been committed to specific
properties. Although the Managing Shareholder has several investment
opportunities under review for the application of the proceeds, none of such
potential opportunities has developed beyond the negotiating stage. The Trust
may direct a substantial portion of the proceeds to investment opportunities
that have not been designated in this Prospectus, as it may be amended or
supplemented from time to time, and the Trust may be unable to or may decline to
apply the proceeds to any specific investments that may be described in this
Prospectus or any amendments or supplements thereto. Therefore, prospective
Investors may not be able to evaluate any properties in which the Trust may
apply the net cash proceeds of the Offering before they purchase Common Shares.
In addition, prospective Investors will not have any vote in the selection of
property investments after they purchase Common Shares. Consequently, Investors
will be relying upon the judgment of the Managing Shareholder and the
Independent Trustees for such decisions.
As described above, concurrently with this Offering, the Operating
Partnership expects to make an Exchange Offering using Units to be registered
with the Commission to acquire interests in residential apartment properties. As
its initial acquisition candidates in connection with the Exchange Offering, the
Trust is currently investigating the acquisition of property interests owned by
partners in 12 real estate limited partnerships managed by Affiliates of the
Managing Shareholder. The targeted properties consist of an aggregate of 673
residential units (comprised of studio, one, two and three-bedroom units) and
are all located in Florida with the exception of one property which is located
in Georgia. Certain information relating to the 12 properties and indebtedness
secured thereby is summarized in two tables set forth below. If property
acquisitions are consummated in respect of all 12 properties, the purchase price
is expected to be in the range of $13 million to $15 million, payable in Units
of limited partnership interest in the Operating Partnership. The Trust intends
to investigate other investment opportunities for the Exchange Offering,
including property interests held by unaffiliated owners and certain other
limited partnerships managed by Affiliates of the Managing Shareholder. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER," THE TRUST," and
"INVESTMENT OBJECTIVES AND POLICIES."
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<TABLE>
PROPERTY INFORMATION
PROPOSED INITIAL PROPERTIES - EXCHANGE OFFERING
The table set forth below summarizes certain information relating to the initial 12 properties in which the Trust intends to
acquire an interest in connection with the proposed Exchange Offering, including (i) the name and location of the properties, (ii)
the year each property was completed, (iii) the number of units, acreage, rentable area, average unit size, average rental rate per
unit and per square feet of rentable area as of December 1, 1997, and (iv) the weighted average physical occupancy of each property
as of January 1, 1998.
<CAPTION>
Approx. 12/1/97 Physical
Number Rentable Average Average Rental Rates/ Occupancy
Year Of Approx. Area Unit Size Month As of
Property Location Completed Units Acres (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 1/1/98
-------- -------- --------- ----- ----- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blossom Corners Orlando, 1980 70 3.67 39,300 561 $431 $.77 97.1%
Apartments (Phase I) Florida
Blossom Corners Orlando, 1981 68 3.51 38,100 560 $431 $.77 100.0%
Apartments (Phase II) Florida
Bridgepoint Apartments Jacksonville, 1986 48 3.39 27,360 570 $449 $.79 94.5%
(Phase II) Florida
Candlewood II Tampa, 1983 33 2.50 17,568 532 $398 $.75 100.0%
Apartments Florida
Eagle Lake Apartments Port 1987 78 4.68 46,080 590 $444 $.75 97.4%
Orange,
Florida
Forest Glen Apartments Daytona 1985 52 6.85 62,696 1,205 $624 $.52 92.1%
(Phase I) Beach,
Florida
Forest Glen Apartments Daytona 1985 30 6.85 36,802 1,226 $604 $.49 93.3%
(Phase II) Beach,
Florida
Forest Glen Apartments Daytona 1985 26 6.85 30,654 1,179 $601 $.51 92.3%
(Phase III) Beach,
Florida
Forest Glen Apartments Daytona 1985 8 6.85 9,800 1,225 $605 $.49 87.5%
(Phase IV) Beach,
Florida
Glen Lake Apartments St. 1986 144 7.16 79,200 550 $495 $.90 93.8%
Petersburg,
Florida
Grove Hamlet Deland, 1986 56 6.21 45,396 807 $473 $.58 83.9%
Apartments Florida
Stadium Club Apartments Statesboro, 1987 60 3.50 51,840 864 $700 $.81 92.0%
Georgia
--------- --------- ----------- ---------- ----------- ------------ ------------
TOTAL PROPERTIES: 673 62.02 484,796 720 $504 $.70 94.2%
========= ========= =========== ========== =========== ============ ============
</TABLE>
- --------
* Includes only apartment units and excludes common areas.
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<PAGE>
<TABLE>
BARON CAPITAL TRUST
MORTGAGE INFORMATION
PROPOSED INITIAL PROPERTIES - EXCHANGE OFFERING
The table below sets forth certain information relating to the indebtedness secured by or associated with the initial 12
properties in which the Trust intends to acquire an interest in connection with the proposed Exchange Offering, including (i) the
name and location of the properties, (ii) the principal balances as of December 1, 1997, (iii) the interest rates, (iv) the annual
debt service, (v) the amortization term, (vi) the maturity dates, (vii) the balances due on maturity, (viii) the monthly payments,
and (ix) the name of the lending institution.
<CAPTION>
12/97 Annual Balance
Principal Interest Debt Amortization Maturity Due On Monthly
Property Location Balance Rate Service Term Date Maturity Payment Lender
-------- -------- --------- -------- ------- ------------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blossom Corners Orlando, $1,038,151 9.04% $105,288 25 years 11/1/06 $882,430 $8,774 Column Financial,
Apartments Florida Inc.
(Phase I)
Blossom Corners Orlando, 1,119,428 8.24% 107,793 25 years 3/1/02 1,050,024 8,841 Main America
Apartments Florida Capital
(Phase II)
Bridgepoint Jacksonville, 724,971 9.52% 77,096 25 years 7/1/06 625,327 6,381 Huntington
Apartments Florida Mortgage
(Phase II) Co.
Candlewood II Tampa, 601,432 7.79% 54,350 25 years 2/1/03 535,143 4,556 Republic Bank
Apartments Florida
Eagle Lake Port 1,463,114 8.56% 144,638 25 years 11/1/05 1,244,562 12,053 Column Financial,
Apartments Orange, Inc.
Florida
Forest Glen Daytona 1,274,321 7.88% 122,304 25 years 12/31/00 1,189,757 10,192 First Union Nat'l
Apartments Beach, Bank
(Phase I) Florida
Forest Glen Daytona 743,906 7.88% 71,397 25 years 12/31/00 694,540 5,948 First Union Nat'l
Apartments Beach, Bank
(Phase II) Florida
Forest Glen Daytona 593,045 7.88% 56,918 25 years 12/31/00 553,690 4,743 First Union Nat'l
Apartments Beach, Bank
(Phase III) Florida
Forest Glen Daytona 164,155 7.88% 15,755 25 years 12/31/00 153,262 1,313 First Union Nat'l
Apartments Beach, Bank
(Phase IV) Florida
Glen Lake St. 2,738,157 9.55% 298,709 25 years 5/18/00 2,652,341 24,475 Republic Bank
Apartments Petersburg, 361,952 8.00% 34,728 25 years 5/1/05 343,772 2,894 Glen Lake Arms
Florida Joint Venture
Grove Hamlet Deland, 1,323,137 9.50% 156,030 25 years 6/27/98 1,314,872 13,002 Midland Loan
Apartments Florida Services
Stadium Club Statesboro, 1,750,000 7.87% 151,271 30 years 10/1/05 1,615,458 12,606 GMAC
Apartments Georgia
----------- ---------- --------
TOTAL $13,895,769 $1,396,277 $115,778
=========== ========== ========
PROPERTIES:
</TABLE>
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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The Trust intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the Code.
No assurance can be given, however, that such requirements will be met. The
following is a summary of the Federal income tax considerations for the Trust
and its Shareholders with respect to the treatment of the Trust as a REIT. Since
these provisions are highly technical and complex, each prospective purchaser of
the Trust's Common Shares is urged to consult his own tax advisor with respect
to the Federal, state, local, foreign and other tax consequences of the
purchase, ownership and disposition of the Common Shares.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Trust, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to Shareholders. This treatment
substantially eliminates the "double taxation" (i.e., at both the corporate and
Shareholder levels) that generally results from the use of corporations.
If the Trust fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and its
Shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Trust could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its Shareholders would be reduced or eliminated.
The Managing Shareholder of the Trust currently expects that the Trust will
operate in a manner that permits it to elect, and that it will elect, REIT
status for the taxable year ending December 31, 1998, and in each taxable year
thereafter. There can be no assurance, however, that this expectation will be
fulfilled, since qualification as a REIT depends on the Trust continuing to
satisfy numerous asset, income and distribution tests described below, which in
turn will be dependent in part on the Trust's operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of Federal income taxation that may be relevant to a prospective
Shareholder in light of his particular circumstances or to certain types of
Shareholders (including insurance companies, tax-exempt entities, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the Federal income tax laws.
Taxation of the Trust
General. In any year in which the Trust qualifies as a REIT, in general it
will not be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to Shareholders. The Trust may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualification as a REIT, the Trust may also be subject
to taxation in certain other circumstances. If the Trust should fail to satisfy
either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% test
or 95% test, multiplied by a fraction intended to reflect the Trust's
profitability. The Trust will also be subject to a tax of 100% on net income
from any "prohibited transaction" as described below, and if the Trust has (i)
net income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to tax
on such income from foreclosure property at the highest corporate rate. In
addition, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, the Trust would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. For taxable years beginning after August 5, 1997, the Trust may
elect to retain rather than distribute its
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<PAGE>
net long-term capital gains. The effect of such election is that (i) the Trust
is required to pay the tax on such gains within 30 days after the close of the
Trust's taxable year, (ii) Shareholders, while required to include their
proportionate share of the undistributed long-term capital gains in income, will
receive a credit or refund for their share of the tax paid by the Trust, and
(iii) the tax basis of a Shareholder's beneficial interest in the Trust would be
increased by the amount of undistributed long-term capital gains (less the
amount of capital gains tax paid by the Trust) included in the Shareholder's
long-term capital gains. To designate amounts as undistributed capital gains,
the designation must be made in a written notice to Shareholders and mailed at
any time prior to the expiration of 60 days after the close of the Trust's
taxable year or mailed with its annual report for the taxable year. The Trust
may also be subject to the corporate alternative minimum tax, as well as tax in
certain situations not presently contemplated. The Trust will use the calendar
year both for Federal income tax purposes, as is required of a newly organized
REIT, and for financial reporting purposes.
In order to qualify as a REIT, the Trust must meet, among others, the
following requirements:
Stock Ownership Tests. The Trust's Shares must be held by a minimum of 100
persons for at least 335 days in each taxable year (or a proportional number of
days in any short taxable year). In addition, at all times during the second
half of each taxable year, no more than 50% in value of the Shares of the Trust
may be owned, directly or indirectly and by applying certain constructive
ownership rules, by five or fewer individuals, which for this purpose includes
certain tax-exempt entities. For purposes of this test, in general, any Shares
held by a qualified domestic pension or other retirement trust will be treated
as held directly by its beneficiaries in proportion to their actuarial interest
in such trust rather than by such trust. These stock ownership requirements need
not be met until the second taxable year of the Trust for which a REIT election
is made.
In order to ensure compliance with the foregoing stock ownership tests, the
Trust has placed certain restrictions on the transfer of its Shares to prevent
additional concentration of share ownership. Moreover, to evidence compliance
with these requirements, under Treasury regulations the Trust must maintain
records which disclose the actual ownership of its outstanding Shares. In
fulfilling its obligations to maintain records, the Trust must and will demand
written statements each year from the record holders of designated percentages
of its Shares disclosing the actual owners of such Shares (as prescribed by
Treasury regulations). Under the 1997 Act, for taxable years beginning after
August 5, 1997, if the Trust complies with the Treasury regulations for
ascertaining its actual ownership and did not know, or exercise reasonable
diligence would not have reason to know, that more than 50% in value of its
outstanding Shares were held, actually or constructively, by five or fewer
individuals, then the Trust will be treated as meeting such requirement. A list
of those persons failing or refusing to comply with such demand must be
maintained as a part of the Trust's records. A Shareholder failing or refusing
to comply with the Trust's written demand must submit with his tax return a
similar statement disclosing the actual ownership of Shares and certain other
information. In addition, the Declaration of Trust for the Trust provides
restrictions regarding the transfer of its Shares that are intended to assist
the Trust in continuing to satisfy the stock ownership requirements. See
"CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and Transfer."
Asset Tests. At the close of each quarter of the Trust's taxable year, the
Trust must satisfy three tests relating to the nature of its assets (determined
in accordance with generally accepted accounting principles). First, at least
75% of the value of the Trust's total assets must be represented by real estate
assets (which for this purpose includes (i) its allocable share of real estate
assets held by partnerships (such as the Operating Partnership) in which the
Trust owns an interest ("Related Partnerships"); (ii) stock or debt instruments
purchased with the proceeds of a stock offering and held for not more than one
year from the date the Trust receives such proceeds), cash, cash items and
government securities and (iii) stock in other real estate investment trusts).
Second, not more than 25% of the Trust's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, securities in this class may not exceed (i) in
the case of securities of any one non-government issuer, 5% of the value of the
Trust's total assets or (ii) 10% of the outstanding voting securities of any one
such issuer. See "FEDERAL INCOME TAX CONSIDERATIONS - Tax Aspects of the Trust's
Investments in Partnerships - General." The Trust's investment in any properties
through its interest in the Operating Partnership and in one or more other
Related Partnerships would be intended to constitute an investment in qualified
assets for purposes of the 75% asset test.
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<PAGE>
Gross Income Tests. There are currently three separate percentage tests
relating to the sources of the Trust's gross income which must be satisfied for
each taxable year. For purposes of these tests, where the Trust invests in one
or more Related Partnerships (such as the Operating Partnership), the Trust will
be treated as receiving its share of the income and loss of such partnerships,
and the gross income of the partnerships will retain the same character in the
hands of the Trust as it has in the hands of the respective partnerships. See
"FEDERAL INCOME TAX CONSIDERATIONS - Tax Aspects of the Trust's Investments in
Partnerships - General" below. The three tests are as follows:
1. The 75% Test. At least 75% of the Trust's gross income for the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (except as described below); (ii)
interest on obligations secured by mortgages on, or interests in, real
property; (iii) gains from the sale or other disposition of interests in
real property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Trust's trade
or business ("dealer property"); (iv) dividends or other distributions on
shares in other REITs, as well as gain from the sale of such shares; (v)
abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure
property"); (vii) commitment fees received for agreeing to make loans
secured by mortgages on real property or to purchase or lease real
property; and (viii) qualified temporary investment income.
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test
described below) if the Trust, or an owner of 10% or more of the Trust,
directly or constructively owns 10% or more of such tenant. In addition, if
rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will
not qualify as rents from real property. Moreover, an amount received or
accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based
in whole or in part on the income or profits of any person, although an
amount received or accrued generally will not be excluded from "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the Trust generally must not operate or manage
the property or furnish or render services to tenants, other than through
an "independent contractor" from whom the Trust derives no income, except
that the "independent contractor" requirement does not apply to the extent
that the services provided by the Trust are "usually or customarily
rendered" in connection with the rental of space for occupancy only, or are
not otherwise considered "rendered to the occupant for his convenience."
For taxable years beginning after August 5, 1997, a REIT is permitted to
render a de minimis amount of impermissible services to tenants, or in
connection with the management of property, and still treat amounts
received with respect to that property as rents from real property.
The amount received or accrued by the Trust during the taxable year
for the impermissible services with respect to a property may not exceed 1%
of all amounts received or accrued by the Trust directly or indirectly from
the property. The amount received for any service (or management operation)
for this purpose shall be deemed to be not less than 150% of the direct
cost of the Trust in furnishing or rendering the service (or providing the
management or operation).
Brentwood Management, LLC, an Affiliate of the Managing Shareholder
which is wholly owned by the sole stockholder of the Managing Shareholder
(which is expected to satisfy the independent contractor standard), or one
or more other Affiliates of the Managing Shareholder (each of which is
expected to satisfy the independent contractor standard) (collectively,
"Brentwood"), may perform property management services in respect of one or
more of the properties in which the Trust acquires an interest. The Trust
believes that the services that may be provided by Brentwood on such
properties would be of the type usually or customarily rendered in
connection with the rental of space for occupancy only, and therefore, that
the provision of such services would not cause the rents received with
respect to such properties to fail to qualify as rents from real property
for purposes of the 75% and the 95% gross income
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<PAGE>
tests. The Trust intends to monitor any services that may be provided by
Brentwood as property management agent as well as those provided by
managers on other properties in which it owns an interest.
2. The 95% Test. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Trust's gross income for the
taxable year must be derived from the above-described qualifying income,
and from dividends, interest, or gains from the sale or other disposition
of Shares or other securities that are not dealer property. Dividends and
interest on any obligations not collateralized by an interest in real
property are included for purposes of the 95% test, but not for purposes of
the 75% test.
For purposes of determining whether the Trust complies with the 75%
and 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a
sale of property if such property is held by the Trust for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made thereto)
are satisfied. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the
Trust - General" and " - Tax Aspects of the Trust's Investments in
Partnerships - Sale of Trust Properties."
The Trust believes that, for purposes of both the 75% and 95% gross
income tests, its investment in properties directly or through the
Operating Partnership and one or more other Related Partnerships will in
major part give rise to qualifying income in the form of rents, and that
gains on sales of properties, or of the Trust's interest in the Operating
Partnership and any other Related Partnership, generally will also
constitute qualifying income. The Trust intends to closely monitor its
non-qualifying income and anticipates that any non-qualifying income on its
investments and activities will not result in the Trust failing either the
75% or 95% gross income test.
Even if the Trust fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if: (i) the Trust's
failure to comply was due to reasonable cause and not to willful neglect;
(ii) the Trust reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and (iii)
any incorrect information on this schedule is not due to fraud with intent
to evade tax. If these relief provisions apply, however, the Trust will
nonetheless be subject to a 100% tax on the greater of the amount by which
it fails either the 75% or 95% gross income test, multiplied by a fraction
intended to reflect the Trust's profitability.
3. The 30% Test. For taxable years beginning on or before August 5,
1997, a REIT was required to derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities (including an interest
rate swap or cap agreement) held for less than one year; and (iii) property
in a prohibited transaction. The Trust does not anticipate that it will
have difficulty in complying with this test. The 30% test has been repealed
for taxable years beginning after August 5, 1997.
Annual Distribution Requirements. In order to qualify as a REIT, the Trust
is required to distribute dividends (other than capital gain dividends) to its
Shareholders each year in an amount at least equal to (A) the sum of (i) 95% of
the Trust's REIT taxable income (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. For taxable years beginning after August 5, 1997 the Act (i)
expands the class of non-cash income that is excluded from the distribution
requirement to include income from the cancellation of indebtedness, and (ii)
extends the treatment of original issue discount ("OID") (over cash and the fair
market value of property received on the instrument) as such non-cash income to
OID instruments generally and for REITs that use an accrual method of
accounting. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Trust timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. To the extent that the Trust
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does not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its REIT taxable income, as adjusted, it will be subject to
tax on the undistributed amount at regular capital gains or ordinary corporate
tax rates, as the case may be. For taxable years beginning after August 5, 1997,
the Trust may elect to retain rather than distribute its net long-term capital
gains. The effect of such election is that (i) the Trust is required to pay the
tax on such gains within 30 days after the close of the Trust's taxable year,
(ii) Shareholders, while required to include their proportionate share of the
undistributed long-term capital gains in income, will receive a credit or refund
for their share of the tax paid by the Trust, and (iii) the tax basis of a
Shareholder's beneficial interest in the Trust would be increased by the amount
of undistributed long-term capital gains (less the amount of capital gains tax
paid by the Trust) included in the Shareholder's long-term capital gains. To
designate amounts as undistributed capital gains, the designation must be made
in a written notice to Shareholders and mailed at any time prior to the
expiration of 60 days after the close of the Trust's taxable year or mailed with
its annual report for the taxable year.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the preceding paragraph. In this
regard, the Declaration authorizes the Managing Shareholder of the Trust to take
such steps as may be necessary to cause the Operating Partnership and any other
Related Partnerships in which the Trust may own an interest to distribute to
their respective partners an amount sufficient to permit the Trust to meet these
distribution requirements. It is possible that the Trust may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement, due to
timing differences between the actual receipt of income and actual payment of
expenses, on the one hand, and the inclusion of such income and deduction of
such expenses in computing the Trust's REIT taxable income, on the other hand;
due to the Operating Partnership's or any other Related Partnership's inability
to control cash distributions with respect to those properties as to which it
does not have decision making control; or for other reasons. To avoid any
problem with the 95% distribution requirement, the Trust will closely monitor
the relationship between its REIT taxable income and cash flow and, if
necessary, intends to borrow funds (or cause the Operating Partnership or other
applicable Related Partnerships or other Affiliates to borrow funds) in order to
satisfy the distribution requirement. However, there can be no assurance that
such borrowing would be available at such time.
If the Trust fails to meet the 95% distribution requirement as a result of
an adjustment to the Trust's tax return by the Internal Revenue Service (the
"Service"), the Trust may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
Failure to Qualify. If the Trust fails to qualify for taxation as a REIT in
any taxable year and the relief provisions do not apply, the Trust will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to Shareholders in any year in
which the Trust fails to qualify as a REIT will not be deductible by the Trust,
nor generally will they be required to be made under the Code. In such event, to
the extent of current and accumulated earnings and profits, all distributions to
Shareholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Trust also will be disqualified from re-electing taxation as a
REIT for the four taxable years following the year during which qualification
was lost.
Tax Aspects of the Trust's Investments in Partnerships
General. The Trust will hold a partnership interest in the Operating
Partnership and may hold an interest in one or more other Related Partnerships
in which all or a portion of its real estate assets might be held and its real
estate operations might be conducted. See "INVESTMENT OBJECTIVES AND POLICIES."
In general, a partnership is a "pass-through" entity which is not subject to
Federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. For purposes of the various REIT
gross income and asset tests, the Trust will include its proportionate share of
the assets and income of any partnership (including the Operating Partnership)
in which it holds an interest. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation
of the Trust - General" and " - Gross Income Tests."
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Accordingly, any resultant increase in the Trust's REIT taxable income from
its interest in the Operating Partnership and in any other Related Partnerships
(whether or not a corresponding cash distribution is also received from the
Operating Partnership or any such other Related Partnership) will increase its
distribution requirements (see "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of
the Trust - Annual Distribution Requirements"), but will not be subject to
Federal income tax in the hands of the Trust provided that an amount equal to
such income is distributed by the Trust to its Shareholders. Moreover, for
purposes of the REIT asset tests (see "FEDERAL INCOME TAX CONSIDERATIONS -
Taxation of the Trust - Asset Tests"), the Trust will include its proportionate
share of assets held by the Operating Partnership and any other Related
Partnerships.
Entity Classification. The Trust's interest in the Operating Partnership
involves special tax considerations, and if the Trust holds an interest in one
or more other Related Partnerships, special tax considerations will arise,
including the possibility of a challenge by the Service of the status of the
Operating Partnership or a particular other Related Partnership as a partnership
(as opposed to an association taxable as a corporation for Federal income tax
purposes). If the Operating Partnership or any other Related Partnership were to
be treated as an association, it would be taxable as a corporation and therefore
subject to an entity-level tax on its income. In such a situation, the character
of the Trust's assets and items of gross income would change, which would
preclude the Trust from satisfying the REIT asset tests and the REIT gross
income tests (see "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust -
Asset Tests" and " - Gross Income Tests"), which in turn would prevent the Trust
from qualifying as a REIT. (See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of
the Trust - Failure to Qualify" above, for a discussion of the effect of the
Trust's failure to meet such tests.)
Tax Allocations with Respect to Trust Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic arrangements among the partners. The
utilization of the Operating Partnership or any other Related Partnership by the
Trust for its real estate operations may include contributions of appreciated
property by the seller of the property in exchange for a limited partner
interest in the applicable partnership. Consequently, in such cases, the
partnership agreement that would govern the relationship between the Trust
(which would serve as the general partner) and the limited partner would require
certain allocations to be made in a manner consistent with Section 704(c) of the
Code.
In general, in such cases, the seller as a contributor of one or more
properties or interests therein would be allocated lower amounts of depreciation
deductions for tax purposes and increased taxable income and gain on sale by the
particular Related Partnership on the contributed properties. In addition,
depending on the method of allocation that is selected, the property contributor
could be allocated items of income for tax purposes to offset depreciation which
is allocated to other partners in excess of depreciation otherwise permitted to
be allocated to such other partners by the ceiling rule of the Treasury
regulations. This would tend to eliminate the Book-Tax Difference over the life
of the Related Partnership. However, the special allocation rules of Section
704(c) do not always entirely rectify the Book-Tax Difference on an annual basis
or with respect to a specific taxable transaction such as a sale, and
accordingly variations from normal Section 704(c) principles could arise.
Treasury regulations under Section 704(c) of the Code require that
allocations from the partnership be made using a reasonable method consistent
with Section 704(c) so that allocations of income, gain, loss and deduction with
respect to property contributed to the partnership will take into account any
variation between the contributed property's adjusted basis and its fair market
value at the time of contribution. The regulations generally apply on a
property-by-property basis, and different methods may be used with respect to
different items of contributed property, provided the method selected for each
property is applied consistently.
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With respect to any property purchased by the Operating Partnership or any
other Related Partnership subsequent to the admission of the Trust to the
Operating Partnership or such other Related Partnership, as the case may be, in
general, such property would initially have a tax basis equal to its fair market
value and Section 704(c) of the Code will not apply.
Sale of Trust Properties. The Trust's share of any gain realized by the
Operating Partnership or any other Related Partnership on the sale of any dealer
property generally will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. See "FEDERAL INCOME TAX CONSIDERATIONS -
Taxation of the Trust - General" and " - Gross Income Tests - The 95% Test."
Under existing law, whether property is dealer property is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership and other Related Partnership utilized by
the Trust for its real estate operations would be expected to hold properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, owning, operating and developing the properties, and to make such
occasional sales of the properties as are consistent with the Trust's investment
objectives. Based upon the Trust's investment objectives, the Trust believes
that overall, properties acquired by it or the Operating Partnership or any
other Related Partnership utilized by it should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
would not be material.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Trust qualifies
as a REIT, distributions made to the Trust's taxable domestic Shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions (and for taxable years beginning after August 5, 1997,
undistributed amounts) that are designated as capital gain dividends will be
taxed as long-term capital gains (to the extent they do not exceed the Trust's
actual net capital gain for the taxable year) without regard to the period from
which the Shareholder has held its Common Shares. However, corporate
Shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. To the extent that the Trust makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the Shareholders, reducing
the tax basis of a Shareholder's Common Shares by the amount of such excess
distribution (but not below zero), with distributions in excess of the
Shareholder's tax basis being taxed as capital gains (if the Common Shares is
held as a capital asset). In addition, any dividend declared by the Trust in
October, November or December of any year and payable to a Shareholder of record
on a specific date in any such month shall be treated as both paid by the Trust
and received by the Shareholder on December 31 of such year, provided that the
dividend is actually paid by the Trust during January of the following calendar
year. Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of the Trust. Federal income tax rules
may also require that certain minimum tax adjustments and preferences be
apportioned to Shareholders.
In general, any loss upon a sale or exchange of Common Shares by a
Shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Trust required to be treated by such
Shareholder as long-term capital gains.
The 1997 Act made certain changes to the Code with respect to taxation of
long-term capital gains earned by taxpayers other than a corporation. In
general, for sales made after May 6, 1997, the maximum tax rate for individual
taxpayers on net long-term capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) is lowered to 20% for most
assets. This 20% rate applies to sales on or after July 29, 1997 only if the
asset was held more than 18 months at the time of disposition. Capital gains on
the disposition of assets on or after July 29, 1997 held for more than one year
and up to 18 months at the time of disposition will be taxed as "mid-term gain"
at a maximum rate of 28%. Also, so called "unrecaptured Section 1250 gain" is
subject to a maximum federal income tax rate of 25%. "Unrecaptured Section 1250
gain" generally includes the long-term capital gain realized on (i) the sale
after May 6, 1997 of a real property asset described in Section 1250 of the
Code, or (ii) the sale after July 28, 1997 of a real property asset described in
Section 1250 of the Code which the taxpayer has held for more than 18 months,
but in each case not in excess of the amount of depreciation (less the
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gain, if any, treated as ordinary income under Code Section 1250) taken on such
asset. The rate of 18% instead of 20% will apply after December 31, 2000 for
assets held more than five years. However, the 18% rate applies only to assets
acquired after December 31, 2000 unless the taxpayer elects to treat an asset
held prior to such date as sold for fair market value on January 1, 2001. In the
case of individuals whose ordinary income is taxed at a 15% rate, the 20% rate
is reduced to 10%, and the 10% rate for assets held more than five years is
reduced to 8%.
On November 12, 1997, the IRS issued Notice 97-64 which describes temporary
Treasury regulations that will be issued under Section 1(h) of the Code and
provides guidance regarding the application of the 1997 Act's new capital gain
rates to the sale of assets by REITs and other pass-through entities.
Shareholders of the Trust should consult their tax advisor with regard to
(i) the application of the changes made by the 1997 Act with respect to taxation
of capital gains and capital gain dividends, and (ii) to state, local and
foreign taxes on capital gains.
Backup Withholding. The Trust will report to its domestic Shareholders and
to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a Shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such Shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact; or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
Shareholder that does not provide the Trust with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
Shareholder's income tax liability. U.S. Shareholders should consult their own
tax advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption. The Trust may be required to
withhold a portion of capital gain distributions made to any Shareholders who
fail to certify their non-foreign status to the Trust. See "Taxation of Foreign
Shareholders" below.
Taxation of Tax-Exempt Shareholders. The Service has issued a revenue
ruling in which it held that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based
upon such ruling and the statutory framework of the Code, distributions by the
Trust to a Shareholder that is a tax-exempt entity should also not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its Common Shares with "acquisition indebtedness" within the meaning of the
Code, that the Common Shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity, and that the Trust, consistent with its
present intent, does not hold a residual interest in a "real estate mortgage
investment conduit" ("REMIC").
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
Taxation of Foreign Shareholders. The rules governing United States Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign Shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of Federal, state, local and foreign income tax
laws with regard to an investment in Common Shares, including any reporting
requirements. The Trust will qualify as a "domestically-controlled REIT" so long
as less than 50% in value of its Shares is held by foreign persons (i.e.,
non-resident aliens, and foreign corporations, partnerships, trusts and
estates). The Trust currently anticipates that it will qualify as a
domestically-controlled REIT. Under these circumstances, gain from the sale of
Common Shares by a foreign person should not be subject to United States
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taxation, unless such gain is effectively connected with such person's United
States business or, in the case of an individual foreign person, such person is
present within the United States for more than 182 days during the taxable year.
However, notwithstanding the Trust's current anticipation that the Trust will
qualify as a domestically controlled REIT, because the Common Shares will be
freely tradable by Shareholders, no assurance can be given that the Trust will
continue to so qualify.
Distributions of cash generated by the Trust's real estate operations (but
not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign Shareholder
files with the Trust the required form evidencing such lower rate, or (ii) the
foreign Shareholder files an IRS Form 4224 with the Trust claiming that the
distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United
States real property interests of the Trust are subject to income and
withholding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), and may be subject to branch profits tax in the hands of a
Shareholder which is a foreign corporation if it is not entitled to treaty
relief for exemption. The Trust is required by applicable Treasury Regulations
to withhold 35% of any distribution to a foreign person that could be designated
by the Trust as a capital gain dividend; this amount is creditable against the
foreign Shareholder's FIRPTA tax liability.
The Federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in the Trust should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investments in
the Trust.
Other Tax Considerations
Possible Legislative or Other Actions Affecting Tax Consequences.
Prospective Shareholders should recognize that the present Federal income tax
treatment of investment in the Trust may be modified by legislative, judicial or
administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with Federal
income taxation are constantly under review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in Federal tax laws and interpretations thereof could
adversely affect the tax consequences of investment in the Trust.
State and Local Taxes. The Trust and its Shareholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the Trust
and its Shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective Shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in Common Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
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SUMMARY OF DECLARATION OF TRUST
In connection with this Offering, Investors who acquire Common Shares in
the Offering will have the rights and obligations of Investors under the
Declaration of Trust for the Trust (the "Declaration"). The following briefly
summarizes material provisions of the Declaration not described elsewhere in
this Prospectus and is qualified in its entirety by express reference to the
provisions of the agreement. The Trust will deliver a copy of the Declaration to
each requesting prospective Investor without charge.
Term
The term of the Trust commenced on July 31, 1997 and will end on the
earliest to occur of (a) December 31, 2098, (b) the determination of the holders
of at least a majority of the Shares then outstanding to dissolve the Trust; (c)
the sale of all or substantially all of the Trust's Property, (d) the withdrawal
of the Offering by the Managing Shareholder prior to the Termination Date of the
Offering, and (e) the occurrence of any other event which, by law, would require
the Trust to terminate. Upon dissolution, the Managing Shareholder or a
liquidity receiver or trustee selected by the Managing Shareholder or the
Investors will liquidate the Trust's assets. (See Recitals and Article 9 of the
Declaration.)
Control of Operations
The Managing Shareholder will manage and control the affairs of the Trust
and the Operating Partnership, subject to general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and to prior approval authority of the Board and/or the Independent
Trustees in respect of certain actions. The Declaration requires that a majority
of the Board of the Trust be comprised of Independent Trustees not affiliated
with the Managing Shareholder or its Affiliates. The Managing Shareholder will
be obligated to devote to the Trust such time as may be reasonably necessary to
conduct the Trust's business. The Investors will have no participation in or
control over the management of the Trust or the Operating Partnership. The
Managing Shareholder is obligated to manage the Trust in the best interest of
its Partners. (See "FIDUCIARY RESPONSIBILITY" and Article 7 of the Declaration.)
The following discussion describes certain actions of the Trust and the
Operating Partnership, as applicable, which require approval and/or supervision
of the Board and/or the Independent Trustees and certain other provisions,
restrictions and limitations affecting the operations of the Trust and the
Operating Partnership. (See Section 1.9 of the Declaration.)
o At, or prior to, the initial meeting of the Board of the Trust, the
Declaration and the Operating Partnership Agreement must be reviewed and
ratified by a majority vote of the Board and of the Independent Trustees.
(See Section 1.9(b) of the Declaration.)
o The Board must establish written policies on investments and any borrowing
to be made by the Trust and Operating Partnership and monitor the
administrative procedures, investment operations and performance of the
Trust, the Operating Partnership and the Managing Shareholder to ensure
that such policies are being carried out. (See Section 1.9(c) of the
Declaration.)
o The Board must evaluate the performance of the Managing Shareholder (and
any successor advisor of the Trust) prior to entering into or renewing a
management agreement relating to the administration and management of the
Trust (other than the initial term of the Trust Management Agreement which
is described in this Prospectus (see "MANAGEMENT - Trust Management
Agreement"), which is deemed to have been approved by Investors who acquire
Common Shares in the Offering, by a majority of the Board and a majority of
the Independent Trustees). Any such management agreement may not have a
term of more than one year and must be terminable by a majority of the
Independent Trustees or the Managing Shareholder (or any successor advisor,
as the case may be) on at least 60 days prior written notice without cause
or penalty. The Board must determine that any successor to the Managing
Shareholder (or any successor advisor) possesses
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sufficient qualifications to perform the advisory function for the Trust
and justify the compensation provided for in the applicable management
agreement. (See Section 1.9(d) of the Declaration.)
o The Independent Trustees must determine, at least annually, that the total
fees and expenses of the Trust and the Operating Partnership are reasonable
in light of their investment performance, their net assets, their net
income, and the fees and expenses of other comparable unaffiliated REITs.
(See Section 1.9(f) of the Declaration.)
o The Independent Trustees must determine that organizational and offering
expenses payable by the Trust and the Operating Partnership in connection
with the formation of the Trust and the Operating Partnership and any
offerings of Shares or Units is reasonable and in no event exceeds an
amount equal to 15% of the gross proceeds of the particular offering. (See
Section 1.9(g) of the Declaration.)
o The Independent Trustees must determine that the total amount of any
acquisition fee and expenses payable by the Trust or the Operating
Partnership in connection with acquiring its investments is reasonable and
in no event exceeds an amount equal to 6% of the purchase price of the
subject property, or in the case of a mortgage loan made or acquired by the
Trust or the Operating Partnership, 6% of the funds advanced, unless a
majority of the disinterested members of the Board and a majority of the
disinterested Independent Trustees approve payment of an acquisition fee in
excess of such amounts based upon their determination that such excess fee
is commercially competitive, fair and reasonable to the Trust and the
Operating Partnership. (See Section 1.9(h) of the Declaration.)
o The Independent Trustees have the fiduciary responsibility of limiting the
total operating expenses (less certain items described below) of each of
the Trust and the Operating Partnership in any fiscal year to the greater
of (i) 2% of the aggregate book value of their respective investments, or
(ii) 25% of their respective net income for such year unless the
Independent Trustees make a finding that, based on such unusual and
non-recurring factors which they deem sufficient, a higher level of such
operating expenses is justified for such year. Within 60 days after the end
of each fiscal year in which the Trust or the Operating Partnership incurs
operating expenses in excess of such amount, the Trust or the Operating
Partnership, as the case may be, must send to the Shareholders and
Unitholders written disclosure of such fact, together with an explanation
of the factors the Independent Trustees considered in arriving at their
finding that such higher operating expenses were justified. If the
Independent Trustees do not determine such excess expenses are justified,
the Managing Shareholder must reimburse the Trust or the Operating
Partnership, as applicable, at the end of such fiscal year the amount by
which the total operating expenses paid or incurred by the Trust or the
Operating Partnership exceed the limitations herein provided. For purposes
of determining "total operating expenses" the following items are excluded:
(i) the expenses of raising capital, including without limitation
organizational and offering expenses, legal, audit, accounting,
underwriting, brokerage, listing, registration and other fees, printing and
other such expenses, and tax incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange listing, if any,
of the Trust's Shares and the Operating Partnership's Units; (ii) interest
payments; (iii) taxes; (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves; (v) incentive compensation paid which
is based on the gain from the sale of Trust or Operating Partnership
assets; and (e) acquisition fees and expenses, real estate commissions on
resale of property and other expenses connected with the acquisition,
disposition, and ownership of real estate interests, mortgage loans, or
other property. (See Section 1.9(i) of the Declaration.)
o A majority of the Independent Trustees must determine that any real estate
commission paid to the Managing Shareholder, a Trustee, any other member of
the Board or any of their respective Affiliates in connection with the
resale of any Trust or Operating Partnership asset is reasonable, customary
and competitive in light of the size, type and location of such property
and in no event exceeds 3% of the sale price, and that the amount of such
commissions payable when added to the commissions payable to unaffiliated
real estate brokers does not exceed the lesser of such competitive real
estate commission or an amount equal to 6% of the sale price. (See Section
1.9(j) of the Declaration.)
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o The Independent Trustees must determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder
(or any successor advisor) is reasonable in relation to the nature and
quality of services performed and that such compensation is within the
limits prescribed in the fourth item above in this section. The Independent
Trustees must also supervise the performance of the Managing Shareholder
(and any successor advisor) and the compensation payable to it by the Trust
to determine that the terms and conditions of the contract are being
carried out. (See Section 1.9(k) of the Declaration.)
o Neither the Trust nor the Operating Partnership may purchase property or
any equity interest in any entity owning one or more properties from the
Managing Shareholder, a Trustee, any other member of the Board, or any of
their respective Affiliates unless a majority of the disinterested members
of the Board and a majority of the disinterested Independent Trustees
review the proposed transaction and determine that it is fair and
reasonable to the Trust and the Operating Partnership and that the purchase
price to the Trust or the Operating Partnership, as applicable, for such
property or equity interest is no greater than the cost of the property or
equity interest to such proposed seller, or if the purchase price to the
Trust or the Operating Partnership is in excess of such cost, that
substantial justification for such excess exists and such excess is
reasonable, provided, however, in no event may the purchase price for the
property exceed its current appraised value. (See Section 1.9(l) of the
Declaration.)
o Neither the Managing Shareholder, any Trustee, any other member of the
Board nor any of their respective Affiliates may acquire or lease any
assets from the Trust or the Operating Partnership unless a majority of the
disinterested members of the Board and a majority of the disinterested
Independent Trustees determine that the proposed transaction is fair and
reasonable to the Trust and the Operating Partnership. (See Section 1.9(m)
of the Declaration.)
o No loans may be made by the Trust or the Operating Partnership to the
Managing Shareholder, a Trustee, any other member of the Board or any of
their respective Affiliates except as provided below or to any wholly owned
subsidiary of the Trust or the Operating Partnership. (See Section 1.9(n)
of the Declaration.)
o Neither the Trust nor the Operating Partnership may borrow money from or
invest in joint ventures with the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective Affiliates unless a
majority of the disinterested members of the Board and a majority of the
disinterested Independent Trustees determine that such proposed transaction
is fair, competitive, and commercially reasonable and no less favorable to
the Trust and the Operating Partnership than such transactions between
unaffiliated parties under the same circumstances. (See Section 1.9(o) of
the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in equity
securities unless a majority of the disinterested members of the Board and
a majority of the disinterested Independent Trustees determine that such
proposed transaction is fair, competitive, and commercially reasonable.
(See Section 1.9(q) of the Declaration.)
o The Independent Trustees must review the investment policies of the Trust
at least annually to determine that the policies being followed by the
Trust at any time are in the best interests of the Shareholders and the
Unitholders. (See "INVESTMENT OBJECTIVES AND POLICIES" and Section 1.9(r)
of the Declaration.)
o In the event that the Trust or the Operating Partnership and one or more
other investment programs sponsored by the Managing Shareholder or an
Affiliate of the Managing Shareholder seek to acquire similar types of
properties, the Board (including the Independent Trustees) must review the
method described in "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies
with Respect to Certain Activities - Investment Policies" for allocating
the acquisition of properties among the Trust or the Operating Partnership,
as applicable, and such other programs in order to determine that such
method is applied fairly to the Trust and the Operating Partnership. (See
Section 1.9(s) of the Declaration.)
o Any other transaction not described in this section between the Trust or
the Operating Partnership and the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective Affiliates requires
the determination of a majority of the disinterested members of the Board
and a majority of the disinterested Independent Trustees that the proposed
transaction is fair and reasonable to the Trust and the Operating
Partnership and on terms and conditions no less favorable to the Trust and
the Operating Partnership than those available from unaffiliated parties.
(See Section 1.9(t) of the Declaration.)
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o The purchase price payable for property to be acquired by the Trust and the
Operating Partnership must be based on the fair market value of the
property as determined by a majority of the members of the Board, provided,
however, in cases in which a majority of the Independent Trustees in their
sole discretion determine, and in all cases in which the Trust or the
Operating Partnership proposes to acquire property from the Managing
Shareholder, a Trustee, any other member of the Board or any of their
respective Affiliates, such fair market value must be determined by a
qualified independent appraiser selected by the Independent Trustees. (See
Section 1.9(u) of the Declaration.)
o In connection with a proposed Roll-up (as defined below) involving the
assets of the Trust or the Operating Partnership, an appraisal of all such
assets must be obtained from a qualified independent appraiser and
delivered to the Shareholders and Unitholders in connection with the
proposed transaction. The sponsor of the transaction must offer to
Shareholders and Unitholders who vote against the proposal the choice of:
(i) accepting the securities of the Roll-up entity (i.e., the entity
surviving the Roll-up) or (ii) either (x) remaining as Shareholders in the
Trust or Unitholders in the Operating Partnership, as applicable, and
preserving their interests therein on the same terms and conditions as
existed previously or (y) receiving cash in an amount equal to their
respective pro rata share of the appraised value of the net assets of the
Trust or the Operating Partnership, as applicable. The Trust is prohibited
from participating in certain types of Roll-ups specified in the
Declaration. Generally, a "Roll-up" is a transaction involving the
acquisition, merger, conversion, or consolidation either directly or
indirectly of the Trust or the Operating Partnership and the issuance of
securities of a Roll-up entity. (See Section 1.9(v) of the Declaration.)
o The aggregate borrowings of each of the Trust and the Operating
Partnership, secured and unsecured, must be reasonable in relation to their
respective net assets and must be reviewed at least quarterly by the Board.
The maximum amount of such borrowings in relation to such net assets may
not exceed 300%, in the absence of a satisfactory showing that higher level
of borrowing is appropriate. Any borrowing in excess of such amount
requires the approval of a majority of the Independent Trustees and must be
disclosed to Shareholders and the Unitholders in the next quarterly report
of the Trust, along with an explanation of the justification of such
excess. (See Section 1.9(w) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest more than 10% of
its total assets in unimproved real property or mortgage loans on such type
of property. (See Section 1.9(x) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in commodities
or commodity future contracts, excluding future contracts used solely for
hedging purposes in connection with the Trust's or the Operating
Partnership's ordinary business of investing in real estate assets and
mortgages. (See Section 1.9(y) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in or make
mortgage loans (other than loans insured or guaranteed by a government or
government agency) unless an appraisal of replacement cost is obtained
concerning the underlying property. In cases in which a majority of the
Independent Trustees in their sole discretion determine, and in all cases
in which the proposed transaction is with the Managing Shareholder, a
Trustee, any other member of the Board or any of their respective
Affiliates, the appraisal must be obtained from a qualified independent
appraiser. The appraisal must be maintained in the Trust's records for at
least five years, and must be available for inspection and duplication by
any Shareholder or Unitholder at the Shareholder's or Unitholder's own
expense. In addition to the appraisal, the Trust or the Operating
Partnership, as applicable, must also obtain a mortgagee's or owner's title
insurance policy or commitment as
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to the priority of the mortgage or the condition of the title. The Trust
and the Operating Partnership are prohibited from (i) investing in real
estate contracts of sale (i.e., land sale contracts), unless such contracts
are in recordable form and appropriately recorded in the chain of title;
(ii) investing in or making any mortgage loans on any one property if the
aggregate amount of all mortgage loans outstanding on the property,
including the loans of the Trust or the Operating Partnership, as
applicable, would exceed an amount equal to 80% of the replacement cost of
the property as determined by appraisal unless substantial justification
exists; and (iii) making or investing in any mortgage loans that are
subordinate to any mortgage or equity interest of the Managing Shareholder,
Trustees, any other members of the Board or any of their respective
Affiliates. (See Section 1.9(z) of the Declaration.)
o The Trust and the Operating Partnership may not issue options or warrants
to purchase Shares or Units to the Managing Shareholder, the Trustees, any
other member of the Board or any of their respective Affiliates except on
the same terms as such options or warrants are sold to the general public.
The Trust and the Operating Partnership may issue options or warrants to
persons not so connected with the Trust or the Operating Partnership but
not at exercise prices less than the fair market value of such securities
on the date of grant and for consideration (which may include services)
that in the judgment of the Independent Trustees has a market value less
than the value of such option on the date of grant. Options or warrants
issuable to the Managing Shareholder, the Trustees, any other member of the
Board or any of their respective Affiliates must not exceed an amount equal
to 10% of the outstanding Common Shares or other securities of the Trust or
of the Units or other securities of the Operating Partnership on the date
of grant of any options or warrants. (See Section 1.9(cc) of the
Declaration.)
o The payment by the Trust and the Operating Partnership of an interest in
the gain from the sale of their respective assets, for which full
consideration is not paid in cash or property of equivalent value, is
allowed provided the amount or percentage of such interest is reasonable.
Such an interest is considered reasonable if it does not exceed 15% of the
balance of such net proceeds remaining after payment to Shareholders or
Unitholders (as applicable), in the aggregate, of an amount equal to 100%
of the original issue price of their Shares or Units, plus an amount equal
to 6% of the original issue price of their Shares or Units, per annum
cumulative. For purposes of this calculation, the original issue price of
Shares and Units may be reduced by prior cash distributions to Shareholders
and Unitholders, as applicable. (See Section 1.9(ee) of the Declaration.)
Liability and Indemnification
Neither the Managing Shareholder, the Trustees, any other members of the
Board nor any of their respective Affiliates are liable to the Trust or to any
Shareholder for any loss suffered by the Trust which arises out of any action or
inaction of such person, if such person, in good faith, determines that such
course of conduct was in the Trust's best interest and such course of conduct
was within the scope of the Declaration and did not constitute negligence or
misconduct in the case of a person who is not an Independent Trustee, or gross
negligence or willful misconduct, in the case of any such person who is an
Independent Trustee. (See Section 3.5 of the Declaration.)
The Trust will indemnify the Managing Shareholder, the Independent
Trustees, any other member of the Board and each of its Affiliates and each of
their respective officers, directors, shareholders, partners, agents and
employees (provided such persons act within the scope of the Declaration)
against any loss, liability or damage (including costs of litigation and
attorneys' fees) incurred by such person arising out of or incidental to the
Offering and the management of the Trust's affairs within the scope of the
Declaration, unless such person's negligence or intentional or criminal
wrongdoing is involved. Notwithstanding the foregoing, the exculpatory
provisions do not include indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), unless (i) there has
been a successful adjudication on the merits of each claim involving alleged
securities law violations as to the particular indemnitee, (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnitee, or (iii) a court of competent jurisdiction
approves a
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settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In
addition, the exculpatory provisions do not include indemnification for
liabilities arising from or out of intentional or criminal wrongdoing. See
Section 3.7(b) of the Declaration of Trust. It is the position of the Securities
and Exchange Commission and certain state securities administrators that any
attempt to limit the liability of a Managing Shareholder or persons controlling
an issuer under the federal securities laws or state securities laws is contrary
to public policy and, therefore, is unenforceable. (See Sections 3.7 and 3.8 of
the Declaration.)
Assuming compliance with the Declaration and applicable formative and
qualifying requirements in Delaware and any other jurisdiction in which the
Trust conducts its business, a Shareholder will not be personally liable under
Delaware law for any obligations of the Trust, except for indemnification
liabilities arising from any misrepresentation made by him in the Investor
Subscription Documents submitted to the Trust. The Trust will, to the extent
practicable, endeavor to limit the liability of the Investors in each
jurisdiction in which the Trust operates. (See Section 3.4 of the Declaration.)
The law governing whether a jurisdiction other than Delaware will honor the
limitation of liability extended under Delaware law to the Investors is
uncertain. Many states have enacted legislation recognizing the limited
liability provisions of the Delaware business trust. In other states, there has
been no authoritative legislative or judicial determination as to whether the
limitation of liability would be honored. The Trust will make all equity
investments in properties through the Operating Partnership, a Delaware limited
partnership, which provides the Trust limited liability. Therefore, regardless
of the local treatment of business trusts, the Trust believes that the Investors
will not be subject to personal liability for property liabilities and that with
regard to the operation of the Trust itself the limitation of Investors'
liability under Delaware law will govern.
Under certain federal and state environmental laws of general application,
entities that own or operate properties contaminated with hazardous substances
may be liable for cleanup liabilities regardless of other limitations of
liability. The Trust is not aware of any case where such environmental
liabilities were imposed on non-management participants in a business trust. See
"THE TRUST - Regulations."
The Delaware Act does not contain any provision imposing liability on an
Investor for participation in the control of the Trust, although no Investor has
any rights to do so except through the rights to propose and vote on matters
described above. The Delaware Act does not require an Investor who receives
distributions that are made when the Trust is or would be rendered insolvent to
return those distributions under equitable principles enforced by courts. Under
Delaware decisions, a trust beneficiary who receives overpayments from a trust
is obligated to return those payments, with interest, subject to equitable
defenses. The application of these cases to beneficiaries of a business trust is
uncertain. The Declaration has been signed by the Corporate Trustee as of the
date of this Memorandum and the Managing Shareholder is the initial beneficiary.
BY SIGNING THE SUBSCRIPTION DOCUMENTS (EITHER IN PERSON OR BY THEIR
REPRESENTATIVES) AND OBLIGATING THEMSELVES TO PAY THE PRICE OF COMMON SHARES,
THE INVESTORS BECOME BOUND BY THE PROVISIONS OF THE DECLARATION AT THE TIMES
THEIR SUBSCRIPTIONS ARE ACCEPTED BY THE TRUST, EVEN THOUGH THEY DO NOT SIGN THE
DECLARATION.
Distributions
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. In order to maintain its
qualification as a REIT under the Code, the Trust must make annual distributions
to Shareholders of at least 95% of its taxable income, determined without regard
to the deduction for dividends paid and by excluding any net capital gains. For
taxable years beginning after August 5, 1997, the 1997 Act (1) expands the class
of excess noncash items that are excluded from the distribution requirement to
include income from the cancellation of indebtedness and (2) extends the
treatment of original issue discount and coupon interest as excess noncash items
to REITs, like the Trust, that use an accrual method of accounting. Under
certain circumstances, the Trust may be required to make distributions in excess
of cash flow available for distribution to meet such distribution requirements.
Shareholders will be entitled to receive any distributions declared on a pro
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rata basis for each outstanding class of Shares taking into account the relative
rights of priority of each class entitled to distributions. (See Section 6.7 of
the Declaration.)
The Trust is expected to adopt a distribution reinvestment program at the
initial meeting of the Board of the Trust scheduled for the second quarter of
1998. Upon the adoption of the plan, the Trust will provide material information
to Shareholders regarding the plan and the effect of reinvesting distributions
from the Trust, including the tax consequences thereof. The Trust will provide
Shareholders updated information at least annually. (See Section 2.8 of the
Declaration.)
Quarterly and Annual Reports
The Trust will provide each Investor with quarterly and annual reports as
described below at "REPORTS TO SHAREHOLDERS." (See also Section 5.3 of the
Declaration.)
Accounting
The accounting period of the Trust will end on December 31 of each year.
The Trust will utilize the accrual method of accounting for the Trust's
operations on the basis used in preparing the Trust's federal income tax returns
with such adjustments as may be in the Trust's best interest. (See Section 5.1
of the Declaration.)
Books and Records; Tax Information
The Trust will keep appropriate records relating to its activities. All
books, records and files of the Trust will be kept at its principal offices at
Cincinnati, Ohio or Wilmington, Delaware. An independent certified public
accounting firm will prepare the Trust's federal income tax returns as soon as
practicable after the conclusion of each year. The Trust will use its reasonable
best efforts to obtain the information for those returns as soon as possible and
to cause the resulting accounting and tax information to be transmitted to the
Shareholders as soon as possible after receipt from the accounting firm.
Investors have the right under the terms of the Declaration to obtain other
information about the Trust and may, at their expense, obtain a list of the
names and addresses of the Investors for proper Trust purposes. (See Sections
5.2, 5.3(c), and 6.4 of the Declaration.)
Governing Law
All provisions of the Declaration will be construed according to the laws
of the State of Delaware except as may otherwise be required by law in any other
state. (See Section 9.2 of the Declaration.)
Amendments and Voting Rights
The Managing Shareholder may amend the Declaration without notice to or
approval of the Investors for the following purposes: to cure ambiguities or
errors; to conform the Declaration to the description in this Prospectus; to
equitably resolve issues arising under the Declaration so long as similarly
situated Investors are not treated materially differently; to make other changes
that will not materially and adversely affect any Investor's interest; to
maintain the federal income tax status of the Trust as a REIT (unless the
Managing Shareholder determines that it is in the best interests of the
Shareholders to disqualify the Trust's REIT status and a majority of Common
Shares entitled to vote approve such determination); or to comply with law. (See
Section 9.6(a) of the Declaration.)
Other amendments to the Declaration may be proposed either by the Managing
Shareholder or holders of at least 10% of the Common Shares, either by calling a
meeting of the Shareholders or by soliciting written consents. The procedure for
such meetings or solicitations is found at Section 6.5 of the Declaration. Such
proposed amendments require the approval of a majority in interest of the
Shareholders entitled to vote given at a meeting of Shareholders or by written
consents. (See Section 9.6(b) of the Declaration.) Other voting rights of
Shareholders are described below at " - Meeting and Voting Rights."
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Dissolution of Trust
The term of the Trust will end on the earliest to occur of (a) December 31,
2098, (b) the vote of a majority in interest of the Shareholders, (c) the sale
of all or substantially all of the Trust's Property, (d) the withdrawal of the
Offering by the Managing Shareholder prior to the Termination Date of the
Offering, (e) any other event requiring dissolution by law. The Trust will wind
up its business after dissolution unless (i) any remaining Managing Shareholder
and a majority in interest of the Shareholders (calculated without regard to
Common Shares held by the Managing Shareholder) or (ii) if there is no remaining
Managing Shareholder or its Affiliates, a majority in interest of the
Shareholders, elects to continue the Trust. The Managing Shareholder (or in the
absence thereof, a liquidating trustee chosen by the Investors) will liquidate
the Trust's assets if it is not continued. (See Article 8 of the Declaration.)
Removal and Resignation of the Managing Shareholder
The holders of at least 10% of the Common Shares may propose the removal of
the Managing Shareholder, either by calling a meeting or soliciting consents in
accordance with the terms of the Declaration. Removal of the Managing
Shareholder requires either the affirmative vote of a majority of the Common
Shares (excluding Common Shares held by the Managing Shareholder which is the
subject of the vote or by its Affiliates) or the affirmative vote of a majority
of the Independent Trustees. The Shareholders entitled to vote thereon may
replace a removed Managing Shareholder or fill a vacancy by vote of a majority
in interest of such Shareholders. (See Section 7.11 of the Declaration.)
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. Upon the termination of the Trust Management
Agreement, the Managing Shareholder must cooperate with the Trust and take all
reasonable steps requested to assist the Board in making an orderly transition
of the management, administrative and advisory function. (See Section 7.3(d) of
the Declaration and Article VI of the Trust Management Agreement.)
Transferability of Shareholders' Interests
The Common Shares are freely transferable by the Shareholders, subject to
certain restrictions on transfer which the Managing Shareholder deems necessary
to comply with the REIT provisions of the Code. (See Section 2.5 and Article 2A
of the Declaration.) Such limitations are described at "CAPITAL STOCK OF THE
TRUST Restrictions on Ownership and Transfer."
Independent Activities
Provided that they comply with any fiduciary obligation to the Trust, the
Managing Shareholder and each Shareholder may engage in whatever activities they
choose, whether or not such activities are competitive with the Trust, without
any obligation to offer any interest in such activities to the Trust or to any
other Shareholders. (See Sections 6.2 and 7.9 of the Declaration.)
Power of Attorney
In the Declaration, the Shareholders acknowledge that the Managing
Shareholder has been granted an irrevocable power of attorney to execute and
file (i) all amendments, alterations or changes in the Declaration of the Trust
which comply with the terms of the Declaration; (ii) all other instruments which
the Managing Shareholder believes to be in the best interest of the Trust to
file; (iii) all certificates or other instruments necessary to qualify or
maintain the Trust as a REIT or as a business trust in which the Shareholders
have limited liability in the jurisdictions where the Trust may conduct
business; and (iv) all instruments necessary to effect a dissolution,
termination, liquidation or continuation of the Trust when such dissolution,
termination, liquidation, cancellation or continuation is called for under the
Declaration. (See Section 9.3 of the Declaration.)
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Meetings and Voting Rights
The Trust will conduct an annual meeting of Shareholders at which all
members of the Board (including all Independent Trustees) (except where the
Managing Shareholder and a Majority of the Shareholders entitled to vote on such
matter approve staggered elections for such positions, in which case only the
class up for election) will be elected or reelected and any other proper
business may be conducted. Each Common Share entitles the holder to one vote on
all matters requiring a vote of Shareholders, including the election of members
of the Board. The Shareholders meeting will be held upon reasonable notice and
within 30 days after the delivery of the Trust's annual report to Shareholders,
but in any event no later than the end of the sixth month following the end of
the prior full fiscal year. Special meetings of the Shareholders may be called
at any time, either by the Managing Shareholder, a majority of the Independent
Trustees, any officer of the Trust, or Shareholders who hold 10% or more of the
Common Shares then outstanding, for any matter on which such Shareholders may
vote. The Trust may not take any of the following actions without approval of
the holders of at least a majority of the Shares entitled to vote:
(1) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of the Trust's assets if not in the ordinary course of
operation of Trust Property or in connection with liquidation and dissolution.
(2) Merge or otherwise reorganize the Trust.
(3) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(4) Amend the Declaration; provided, however, the Declaration may be
amended by the Managing Shareholder without notice or approval of the
Shareholders for the following purposes: (i) to cure ambiguities or errors; (ii)
to conform the Declaration to the description in this Prospectus; (iii) to
equitably resolve issues arising under the Declaration so long as similarly
situated Shareholders are not treated differently; (iv) to make other changes
that will not materially and adversely affect any Shareholder's interest; (v) to
maintain the federal income tax status of the Trust (unless the Managing
Shareholder determines (with the concurrence of a Majority of the Shareholders
entitled to vote on such matter) that it is in the best interest of Shareholders
to change the Trust's tax status); and (vi) to comply with law. (See Sections
1.9(ff), 6.5, 6.6 and 7.3(b) of the Declaration.)
In addition to any other actions of the Trust requiring the approval of
Shareholders under the Declaration, a Majority of the Shareholders present in
person or by proxy at an annual meeting at which a quorum is present, may,
without the necessity for concurrence by the Board, vote to amend the
Declaration, terminate the Trust, and elect and/or remove one or more members of
the Board. (See Section 6.6(b) of the Declaration.)
Additional Offerings of Shares
There will be no mandatory assessments of Shareholders in respect of the
Common Shares or any additional Shares the Trust may issue in the future. To the
extent that the Board desires to obtain additional capital, the Trust may raise
such capital through additional public and private equity offerings, debt
financing, retention of cash flow (subject to satisfying the Trust's
distribution requirements under the REIT rules) or a combination of these
methods. The Trust may determine to issue securities senior to the Common
Shares, including Preferred Shares, debt securities, or Units of limited
partnership interest in the Operating Partnership (either of which may be
convertible into Common Shares or be accompanied by warrants to purchase Common
Shares). The Trust may also finance acquisitions of properties or interests in
properties through the exchange of properties or through the issuance of Shares
or debt securities or the issuance of Units of limited partnership interest in
the Operating Partnership in which it will conduct all of its real estate
operations. (See Article 2 of the Declaration.)
The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
the Operating Partnership, to refinance existing indebtedness or to finance
acquisitions or capital improvements of new properties. (See Section 1.8(a) of
the Declaration.)
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Temporary Investments
Pending the commitment of Trust funds for the purposes described in this
Prospectus, for distributions to Shareholders or for application of reserve
funds to their purposes, the Managing Shareholder has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest. (See Sections 1.2(a) and 5.5 of the Declaration.)
REPORTS TO SHAREHOLDERS
The Trust will keep each Investor currently advised as to activities of the
Trust by reports furnished at least quarterly. Each quarterly report will
contain a condensed statement of "cash flow from operations" for the year to
date as determined by the Managing Shareholder in conformity with generally
accepted accounting principles on a basis consistent with that of the annual
financial statements and showing its derivation from net income. (See Section
5.3(a) of the Declaration.)
Within 120 days after the end of each fiscal year following the completion
of the Offering, the Trust is required to prepare and mail to each Shareholder
as of a record date determined by the Managing Shareholder, an annual report
which includes the following:
(1) Financial statements prepared in accordance with generally accepted
accounting principles which are audited and reported on by the Trust's
independent certified public accountants;
(2) The ratio of the costs of raising capital during the period to the
capital raised;
(3) The aggregate amount of advisory fees and the aggregate amount of other
fees paid to the Managing Shareholder and any of its Affiliates during the
period by the Trust and including fees or charges paid to them by third parties
doing business with the Trust;
(4) The total operating expenses (as defined in Section 1.9(i) of the
Declaration), stated as a percentage of the book amount of the Trust's
investments and as a percentage of its net income;
(5) A report from the Independent Trustees that the policies being followed
by Trust are in the best interests of its Shareholders and the basis for such
determination; and
(6) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving the Trust, the Managing
Shareholder, the Trustees, any other members of the Board and any of their
respective Affiliates occurring in the year for which the annual report is made.
(See Section 5.3(b) of the Declaration.)
The Common Shares being sold in the Offering have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Trust does not
intend to register the Common Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") or list them on any securities exchange
immediately after the commencement of the Offering. The Trust has applied for
listing on the American Stock Exchange ("AMEX") of the Common Shares being
offered in this Offering and Common Shares into which Units are exchangeable and
expects to qualify for AMEX listing and register such Common Shares under the
Exchange Act in the third or fourth quarter of 1998. However, there can be no
assurance whether the Trust will qualify for such listing on AMEX or any other
stock exchange and, if so, of the timing of the effectiveness of any such
listing.
Although the Common Shares acquired by Investors in the Offering will be
freely tradable securities, there can be no assurance that an active trading
market will be established or maintained for the Common Shares.
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The Trust will be required to file periodic reports (Form 10-KSB or Form 10-K
annual reports, Form 10-QSB or Form 10-Q quarterly reports and Form 8-KSB or
Form 8-K current reports) under the Exchange Act for the fiscal year in which
its Securities Act registration statement becomes effective and for any
subsequent fiscal year in which it has more than 300 Shareholders in any such
year or it is otherwise required by applicable law to do so. The Trust is
expected to have at least 300 Shareholders after the completion of the Offering
and accordingly would be required to file such reports on a continuing basis.
CAPITAL STOCK OF THE TRUST
General
The Declaration authorizes the Trust to issue up to 25,000,000 Shares of
beneficial interest, no par value per Share, consisting of Common Shares and of
Preferred Shares of such classes with such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing Shareholder
may create and authorize from time to time in accordance with Delaware law and
the Declaration. Prior to the Offering there were no Shares outstanding. The
Trust is offering for sale up to 2,500,000 Common Shares in the Offering. If the
Exchange Offering is completed as contemplated, sellers of property interests
would receive up to 2,500,000 Units in the Operating Partnership which would be
exchangeable into 2,500,000 additional Common Shares.
The following description summarizes all material terms and provisions of
the Common Shares. The Common Shares when paid for and issued will be fully paid
and non-assessable. Each Common Share is equal in all respects to every other
Common Share and entitles the holder to one vote on all matters requiring a vote
of Shareholders, including the election of members of the Board. Holders of
Common Shares do not have the right to cumulate their votes in the election of
members of the Board, which means that the holders of a majority of the
outstanding Common Shares can elect all of the nominees for Board positions then
standing for election. Shareholders are entitled to such distributions as may be
declared from time to time by the Managing Shareholder out of funds legally
available therefor. Shareholders will be entitled to receive any distributions
declared by the Managing Shareholder on a pro rata basis for each outstanding
class of Shares taking into account the relative rights of priority of each
class entitled to distributions. Holders of Common Shares have no conversion,
redemption, preemptive or exchange rights to subscribe to any securities issued
by the Trust in the future. In the event of a liquidation, dissolution or
winding up of the affairs of the Trust, the Shareholders are entitled to share
ratably in the assets of the Trust remaining after provision for payment of all
liabilities to creditors and payment of liquidation preferences and accrued
dividends, if any, on any series of Preferred Shares that may have been issued.
Transfer Agent
The escrow agent for the Offering and the transfer agent and registrar for
the Common Shares will be American Stock Transfer & Trust Company, New York, New
York. The company will also hold in an escrow account the Units acquired by the
Original Investors in connection with the formation of the Trust and the
Operating Partnership as described at "THE TRUST - Formation Transactions."
Restrictions on Ownership and Transfer
The Trust's Declaration contains certain restrictions on the number of
Shares of the Trust that individual Shareholders may own. For the Trust to
qualify as a REIT under the Code, no more than 50% in value of its Shares may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a shorter taxable year. The
Shares must also be beneficially owned (other than during the first taxable
year) by 100 or more persons during at least 335 days of each taxable year or
during a proportionate part of a shorter taxable year. Because the Trust expects
to qualify as a REIT, the Declaration of the Trust contains restrictions on the
acquisition of Shares intended to ensure compliance with these requirements.
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Subject to certain exceptions specified in the Declaration, no Shareholder
(other than the Original Investors) may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 5.0% (the "Ownership Limit")
of the Trust's Shares. The Managing Shareholder (upon receipt of a ruling from
the Internal Revenue Service (the "Service") or an opinion of counsel or other
evidence satisfactory to the Managing Shareholder and upon such other conditions
as the Managing Shareholder may require) may in its discretion waive the
Ownership Limit depending on the then existing facts and circumstances
surrounding the proposed transfer, including without limitation, the identity of
the party requesting such waiver, the number and extent of Share ownership of
other Shareholders, the aggregate number of outstanding Shares and the extent of
any contractual restrictions (other than that contained in the Declaration of
Trust) on any Shareholders relating to transfer of their Shares. See Section
2A.12 of the Declaration of Trust. As a condition of such exemption, the
intended transferee must give written notice to the Trust of the proposed
transfer no later than the fifteenth day prior to any transfer which, if
consummated, would result in the intended transferee owning Shares in excess of
the Ownership Limit. The Managing Shareholder of the Trust may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT. Any transfer of the Shares that would (i) create a direct or indirect
ownership of the Shares in excess of the Ownership Limit, (ii) result in the
Shares being owned by fewer than 100 persons or (iii) result in the Trust being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the Shares. The
foregoing restrictions on transferability and ownership will not apply if the
Managing Shareholder determines, which determination must be approved by the
Shareholders, that it is no longer in the best interests of the Trust to attempt
to qualify, or to continue to qualify, as a REIT.
Any purported transfer of Shares that would result in a person owning
Shares in excess of the Ownership Limit or cause the Trust to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"), which will be
transferred by operation of law to the Trust as trustee for the exclusive
benefit of the person or persons to whom the Excess Shares are ultimately
transferred, until such time as the intended transferee retransfers the Excess
Shares. While these Excess Shares are held in trust, they will not be entitled
to vote or to share in any dividends or other distributions. Subject to the
Ownership Limit, the Excess Shares may be transferred by the intended transferee
to any person (if the Excess Shares would not be Excess Shares in the hands of
such person) at a price not to exceed the price paid by the intended transferee
(or, if no consideration was paid, fair market value), at which point the Excess
Shares will automatically be exchanged for the Shares to which the Excess Shares
are attributable. In addition, such Excess Shares held in trust are subject to
purchase by the Trust at a purchase price equal to the lesser of the price paid
for the Shares by the intended transferee (or, if no consideration was paid,
fair market value) as reflected in the last reported sales price reported on the
New York Stock Exchange ("NYSE") on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales price
of such Shares on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which such Shares may be
traded, or if not then traded over any exchange or quotation system, then the
market price of such Shares on the relevant date as determined in good faith by
the Managing Shareholder of the Trust.
From and after the intended transfer to the intended transferee of the
Excess Shares, the intended transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to such Shares
except the right to payment of the purchase price of the Shares on the
retransfer of Shares as provided above. Any dividend or distribution paid to a
proposed transferee on Excess Shares prior to the discovery by the Trust that
such Shares have been transferred in violation of the provisions of the Trust's
Declaration shall be repaid to the Trust upon demand. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Trust, to have acted as an
agent on behalf of the Trust in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Trust.
All certificates representing Shares will bear a legend referring to
the restrictions described above.
All persons who own, directly or by virtue of the attribution
provisions of the Code, more than 5.0% (or such other percentage between 1/2 of
1% and 5%, as provided in the rules and regulations promulgated under the
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Code) of the number or value of the outstanding Shares of the Trust must give a
written notice to the Trust by January 31 of each year. In addition, each
Shareholder shall upon demand be required to disclose to the Trust in writing
such information with respect to the direct, indirect and constructive ownership
of Shares as the Managing Shareholder deems reasonably necessary to comply with
the provisions of the Code applicable to a REIT, to comply with the requirements
of any taxing authority or governmental agency or to determine any such
compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
Shares might receive a premium for their Shares over the then prevailing market
price or which such holders might believe to be otherwise in their best
interest.
CAPITALIZATION
The following table sets forth the capitalization of the Trust on a pro
forma basis, assuming the completion of the sale of a minimum number of 50,000
Common Shares and a maximum number of 2,500,000 Common Shares being offered. The
subscription price for each Common Share being offered in the Offering is
$10.00, and is payable in full in cash upon subscription. For purposes of
determining capitalization, such amount has been calculated after deducting
commissions, fees, expenses and other costs of the Offering, estimated to be
approximately $1.00 per each Common Share, as set forth under "SOURCES AND USES
OF FUNDS," to be paid out of the proceeds of this Offering. The capitalization
of the Trust set forth below does not take into account any proposed
acquisitions of property interests by the Operating Partnership in exchange for
Units to be registered by the Trust in connection with the proposed Exchange
Offering and the subsequent exchange by Unitholders of such Units for Common
Shares. The Original Investors provided initial capitalization of the Operating
Partnership in the amount of $50,000 cash and other consideration. See "THE
TRUST."
<TABLE>
<CAPTION>
Minimum Common Shares Maximum Common Shares
Sold in Offering (50,000) Sold in Offering (2,500,000)
------------------------- ----------------------------
<S> <C> <C>
Shareholders' equity:
Common Shares $450,000 $22,500,000
-------- -----------
Total Capitalization $450,000 $22,500,000
</TABLE>
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TERMS OF THE OFFERING
The Trust is offering a maximum of 2,500,000 Common Shares of beneficial
interest in the Trust at $10.00 per Common Share ($25,000,000 in the aggregate)
which is payable in full upon subscription. See "CAPITAL STOCK OF THE TRUST" and
"CAPITALIZATION." As described below, funds received will be held in escrow
until the minimum number of Common Shares (50,000) is sold. All of the Common
Shares to be issued or sold by the Trust in the Offering will be tradable
without restriction under the Securities Act, but will be subject to certain
restrictions designed to permit the Trust to qualify and maintain its REIT
status under the Code for federal income tax purposes. See above at "THE TRUST -
Ownership of the Trust and the Operating Partnership" for a description of the
ownership of the Common Shares being offered hereby and the Units of limited
partnership interest in the Operating Partnership on a pro forma basis, assuming
that all or a portion of the Common Shares being offered are sold and the
proposed Exchange Offering is completed in whole or in part.
Each Investor will receive his beneficial interest in the Trust upon the
latest to occur of (i) acceptance of his Subscription Documents by the Managing
Shareholder, (ii) receipt and collection by the Trust of the purchase price of
the Common Shares subscribed for, and (iii) the Escrow Date (described below).
Each Investor will own a share of beneficial interests in the Trust attributable
to Common Shares in proportion to his respective ownership of Common Shares.
All proceeds from the sale of Common Shares in the Offering will be
required to be delivered to American Stock Transfer & Trust Company, which will
in turn deposit the proceeds in the name of the Trust in a separate segregated
interest-bearing escrow account at a commercial bank until the Escrow Date,
which is the later of the date on which (i) the Trust accepts the subscription
that results in the gross proceeds from the sale of Common Shares in the
Offering to exceed $500,000, and (ii) full cash payment for at least 50,000
Common Shares has been collected and deposited in the escrow account. The Escrow
Date may not be later than December 31, 1998. After the Escrow Date, the Trust's
funds, net of fees described in this Prospectus, will be maintained in the name
of the Trust, in one or more separate, segregated accounts at commercial banks
or in interim investments described at "INVESTMENT OBJECTIVES AND POLICIES."
As soon as funds have been released from the escrow account, they will be
used to pay selling commissions and fees to cover offering expenses. After
payment of these commissions and fees, the remaining funds released from the
escrow account will be contributed to the Operating Partnership to be used to
fund investments or to pay expenses other than those associated with the
Offering, as determined by the Trust in its discretion. See "THE TRUST - The
Operating Partnership."
The Common Shares will be offered and sold on a non-exclusive best efforts
basis through Sigma Financial Corporation (the "Dealer Manager"), a Michigan
corporation which is a member of the National Association of Securities Dealers,
Inc. ("NASD") and registered as a broker-dealer with the Securities and Exchange
Commission and with the appropriate authority of each state where offers of the
Common Shares will be made. Sigma Financial Corporation, which is not affiliated
with the Managing Shareholder or any of its Affiliates, has acted as dealer
manager for certain private offerings of limited partner interests in real
estate investment limited partnerships sponsored by Affiliates of the Managing
Shareholder and is expected to act as dealer manager in certain future programs
sponsored by Affiliates of the Managing Shareholder. The Dealer Manager may
select other NASD member firms as co-manager or selected broker-dealers to
participate in the Offering.
The Dealer Manager and participating broker-dealers will enter into a Best
Efforts Selling Agreement with the Trust pursuant to Appendix F of the Rules of
Fair Practice of the NASD. The Dealer Manager and participating broker-dealers
will receive selling commissions in an amount equal to 8% of the subscription
price for all Common Shares sold by them. See "SUMMARY OF THE TRUST AND USE OF
PROCEEDS." The Dealer Manager may reallocate a portion or all of its commission.
The selling commissions will be due and payable promptly after the latest to
occur of (i) acceptance by the Managing Shareholder of an Investor's
subscription, (ii) the receipt and collection by the Trust of the gross purchase
price of the Common Shares in question, and (iii) the Escrow Date. In addition,
the Dealer Manager will be entitled to receive a warrant ("Warrant") to acquire
a
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number of Common Shares in an amount equal to 8.5% of the number of Common
Shares sold in the Offering by it or participating broker-dealers selected by
it, at a purchase price equal to $13.00 per Common Share. The Warrant will be
exercisable for a period of four years following the first anniversary of the
grant of the Warrant. For a period of six years following the grant of the
Warrant, any registered holder of the Warrant or Common Shares issued upon
exercise of the Warrant may request that the Trust include such securities as
well as any Common Shares underlying any unexercised portion of the Warrant in
any registration statement that the Trust determines to file under the
Securities Act. Such registration would be at the Trust's expense, excluding
underwriter's compensation and expense allowance relating to the requesting
holder's securities to be registered and fees and expenses of such holder's
counsel.
Pursuant to the Best Efforts Selling Agreement, the Dealer Manager and
participating broker-dealers will not be obligated to purchase any Common
Shares, but will only be required to use their best efforts to sell Common
Shares to suitable offerees. The agreement may be terminated by either party in
certain circumstances. The Trust and the Dealer Manager have agreed to indemnify
each other against or to contribute to losses arising out of certain
liabilities, including liabilities arising under the Security Act. The Trust has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. Nevertheless, the parties may seek to enforce such
indemnification and rights to contribution which are expressly provided under
the agreement.
Under the agreement, the Manager Shareholder, the Dealer Manager and each
participating broker-dealer are required to make every reasonable effort to
determine that the purchase of Common Shares is a suitable and appropriate
investment for each Investor, based on information provided by the Investor
regarding the Investor's financial situation and investment objectives. The
Trust intends to exercise any legal remedies available to it, including a suit
for damages against an Investor, in the event any of the representations made by
the Investor in the Subscription Documents are inaccurate, and such inaccuracies
result in damages to the Trust or the Managing Shareholder or any Affiliates.
The Trust will pay to the Managing Shareholder a non-accountable fee in an
amount equal to 1% of the aggregate subscription price paid for Common Shares in
the Offering to cover distribution, due diligence and organizational expenses
associated with the formation of the Trust and the Operating Partnership and
with the Offering. To the extent the distribution, due diligence and
organizational expenses exceed 1% of gross proceeds of the Offering, those
expenses will not be reimbursed. The Trust will pay the Managing Shareholder a
non-accountable fee in an amount equal to 1% of the aggregate subscription price
paid for Common Shares in the Offering to cover legal, accounting and consulting
fees, printing, filing, recording, postage and other miscellaneous expenses
associated with the Offering. Any such expenses of the Managing Shareholder in
excess of the fee will be paid by the Managing Shareholder. The fees described
above will be payable at the same time that selling commissions are payable. See
"SOURCES AND USES OF FUNDS."
The Trust will also pay the Managing Shareholder a non-accountable
investment fee in an amount (up to $1,000,000) equal to 4% of the aggregate
subscription price paid for Common Shares in the Offering for its services and
expenses in investigating and evaluating investment opportunities for the Trust
and assisting the Trust in effecting its investments. Half of the investment fee
will be payable at the same time that selling commissions are payable and the
balance will be payable proportionately upon the consummation of each of the
Trust's investments based on the amount invested.
The Common Shares will be sold only to persons who represent in the
Subscription Documents at the time of purchase that they meet the suitability
standards described herein under the caption "INVESTOR SUITABILITY STANDARDS."
In order to subscribe for Common Shares, a purchaser must complete and execute a
Subscription Document, including an Investor Questionnaire and a Subscription
Agreement. A minimum purchase of 200 Common Shares is required for each
prospective Investor.
The Managing Shareholder has the right to reject subscriptions if the
Managing Shareholder based upon a review of all information obtained from a
prospective Shareholder (including the age, investment objectives, net worth,
financial situation and other investments of the prospective Shareholder, and
other pertinent factors)
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determines that such person's acquisition of Common Shares in connection with
the Initial Offering is not a suitable and appropriate investment for such
person because such person does not meet the minimum income and net worth
standards described above at "INVESTOR SUITABILITY STANDARDS;" can not
reasonably benefit from the Trust based on the prospective Shareholder's overall
investment objectives and portfolio structure; is not able to bear the economic
risk of the investment based on the prospective Shareholder's overall financial
situation; or does not have an apparent understanding of the material elements
of the proposed investment. In the event this Offering is over-subscribed, the
Managing Shareholder will allocate the number of Common Shares available for
sale on a "first come, first served" basis among suitable prospective
Shareholders. Prior to the Escrow Date, payments for the subscription price
should be made by check payable to the order of "American Stock Transfer & Trust
Company, Escrow Agent for Baron Capital Trust." After the Escrow Date has
occurred, payments for the subscription price should be made by check payable to
the order of "Baron Capital Trust." Payments received for rejected subscription
offers will be refunded promptly with any interest earned thereon. Each Investor
has the right to rescind his purchase and have all funds paid returned in full,
upon written notification to the Managing Shareholder received no later than
five days from the date the Investor subscribed to purchase Common Shares.
The termination date of the Offering (the "Termination Date") is scheduled
to be December 31, 1998 or an earlier or later date (no later than
________________, 1999) [the end of the eighteenth month following the
commencement of the Offering] determined by the Managing Shareholder as
specified below. The Managing Shareholder may in its sole discretion terminate
the Offering at any time before the scheduled Termination Date or extend the
scheduled Termination Date to any date or from date to date which is no later
than the earlier to occur of the date by which all 2,500,000 Common Shares being
offered have been sold (provided that the Escrow Date has occurred prior to such
rescheduled termination date) and ____________, 1999 [the end of the eighteenth
month following the commencement of the Offering].
The Managing Shareholder will have the right to withdraw the Offering of
Common Shares at any time prior to the Termination Date, in which case the Trust
will be immediately dissolved at the expense of the Managing Shareholder and all
subscription funds will be returned promptly to the subscribers. If the Managing
Shareholder withdraws the Offering, any person that has received fees or other
payments from the proceeds of the Offering will be required to return such fees
or payments to the Trust upon the demand of the Managing Shareholder.
The Common Shares being sold in the Offering have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Trust does not
intend to register the Common Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or list them on any securities exchange
immediately after the commencement of the Offering. The Trust has applied for
listing on the American Stock Exchange ("AMEX") of the Common Shares being
offered in this Offering and of the Common Shares into which Units to be offered
in the proposed Exchange Offering are exchangeable and expects to qualify for
AMEX listing and register such Common Shares under the Securities Exchange Act
of 1934, as amended, as early as the third or fourth quarter of 1998. However,
there can be no assurance whether the Trust will qualify for such listing on
AMEX or any other stock exchange and, if so, of the timing of the effectiveness
of any such listing.
The eligibility for listing or quotation privileges in respect of a
particular national securities exchange or over-the-counter market is based on
several factors, including without limitation the number of shareholders and
market makers, the bid price of the issuer's security, the number and market
value of outstanding securities owned by non-Affiliates of the issuer, total
assets of the issuer, and the amount of shareholders' equity in the issuer.
Although the Common Shares acquired by Investors in the Offering will be freely
tradable securities, there can be no assurance that an active trading market
will be established or maintained for the Common Shares. The Trust will be
required to file periodic reports (Form 10-KSB or Form 10-K annual reports, Form
10-QSB or Form 10-Q quarterly reports and Form 8-KSB or Form 8-K current
reports) under the Exchange Act for the fiscal year in which its Securities Act
registration statement becomes effective and for any subsequent fiscal year in
which it has more than 300 Shareholders in any such year or it is otherwise
required by applicable law to do so. The Trust is expected to have at least 300
Shareholders after the completion of the Offering and accordingly would be
required to file such reports on a continuing basis.
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OTHER INFORMATION
General
The Trust undertakes to make available to each prospective Investor or his
representative, or both, during the course of the Offering and prior to the
Investor's purchase of Common Shares, the opportunity to ask questions of and
receive answers from the Trust or any person acting on its behalf relating to
the terms and conditions of the Offering and the proposed Exchange Offering and
to obtain any additional information necessary to verify the accuracy of
information made available to such purchaser.
Prior to making an investment decision respecting the Common Shares, a
prospective Investor should carefully review and consider this entire Prospectus
and any Exhibits hereto. Prospective Investors are urged to make arrangements
with the Trust to inspect any books, records, contracts, or instruments referred
to in this Prospectus and other data relating thereto. The Trust is available to
discuss with prospective Investors any matter set forth in this Prospectus or
any other matter relating to the Common Shares, so that Investors and their
advisors, if any, may have available to them all information, financial and
otherwise, necessary to formulate a well-informed investment decision.
Authorized Sales Material
Sales material may be used in connection with the Offering of the Common
Shares only when accompanied or preceded by the delivery of this Prospectus.
Only sales material that indicates that it is distributed by the Trust or the
Dealer Manager may be distributed to prospective Investors. Currently, the Trust
and the Dealer Manager intend to distribute to prospective Investors (i) a sales
brochure or other written or graphic communications depicting certain
information regarding the Managing Shareholder, the Trust and the residential
real estate industry, and (ii) summaries of material aspects of properties which
become probable investments for the Trust during the offering period. In
addition, the Trust or the Dealer Manager may distribute a summary of the
Offering containing highlights or other summary information concerning the
Offering, information regarding the Managing Shareholder, the Trust, the
Operating Partnership or previous real estate investment programs sponsored by
Affiliates of the Managing Shareholder, or information regarding the residential
apartment real estate industry. All such additional sales material will be
signed by or otherwise identified as authorized by the Trust. Any other sales
material or information has not been authorized for use by the Trust or the
Dealer Manager and must be disregarded by Investors.
In certain jurisdictions, some or all of this sales material may not be
distributed pursuant to securities law requirements, and in all jurisdictions,
this Offering is made only by this Prospectus.
All authorized sales material will be consistent with this Prospectus, as
supplemented. Nevertheless, sales material by its nature does not purport to be
a complete description of this Offering and Investors must review this
Prospectus and supplements carefully for a complete description of the Offering.
Authorized sales material should not be considered to be the basis for the
Offering of Shares or an Investor's decision to purchase Common Shares. Sales
material is not a part of this Prospectus and is not incorporated by reference
into this Prospectus unless expressly stated in this Prospectus or supplements
hereto.
Financial Statements
The Trust, the Operating Partnership and the Managing Shareholder are newly
formed and as of the date of this Prospectus have neither acquired any
significant assets nor incurred any significant liabilities. The audited balance
sheets of the Trust, the Operating Partnership and the Managing Shareholder as
of December 31, 1997 have been included in Part II of the Form SB-2 registration
statement filed with the Commission in connection with this Offering. To date,
the Trust, the Operating Partnership and the Managing Shareholder have not
conducted material business operations.
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LITIGATION
There are no pending legal proceedings to which the Trust, the Operating
Partnership or the Managing Shareholder is a party which are material to the
operations of the Trust, and the Managing Shareholder has no knowledge that any
such legal proceedings are contemplated or threatened by any third party.
LEGAL MATTERS
The authority of the Trust to issue the Common Shares offered hereby is
being passed upon for the Managing Shareholder by Schoeman, Marsh & Updike, LLP,
New York, New York, counsel to the Managing Shareholder. Copies of the draft
opinion letter of counsel as to the Trust 's authority to issue the Common
Shares may be obtained by writing to the Managing Shareholder. Keating, Muething
& Klekamp, P.L.L., Cincinnati, Ohio, has passed on certain tax matters as
described under "FEDERAL INCOME TAX CONSIDERATIONS." Counsel to the Managing
Shareholder will not represent or advise the Trust or any prospective Investor
in connection with the Offering. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD
CONSULT THE INVESTOR'S OWN LEGAL, TAX AND INVESTMENT COUNSEL.
The representation of counsel to the Managing Shareholder has been limited
to matters specifically addressed to it. No Investor should assume that counsel
to the Managing Shareholder has in any manner investigated the merits of an
investment in the Common Shares, or undertaken any role other than assisting in,
and reviewing items specifically referred to it with regard to, the preparation
of this Prospectus and the issuance of the opinions referred to above. In
assisting in the preparation of this Prospectus, counsel to the Managing
Shareholder has relied upon the representations and statements of the Managing
Shareholder as to facts regarding the Managing Shareholder, the Trust, the
Operating Partnership and their respective Affiliates and the proposed
activities and has not independently verified such representations and
statements.
ADDITIONAL INFORMATION
The Trust is not a reporting company under the Securities Exchange Act of
1934, as amended. The Trust has filed with the Commission a Registration
Statement (of which this Prospectus is a part) on Form SB-2 under the Securities
Act with respect to the Common Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules hereto. For
further information regarding the Trust and the Common Shares offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules.
The Registration Statement, the exhibits and schedules forming a part
thereof filed by the Trust with the Commission can be inspected and copies
obtained from the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Trust will furnish its Shareholders with annual reports containing
financial statements audited by its independent certified public accountants and
with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.
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GLOSSARY
Whenever used in this Prospectus, the following terms shall have the
meanings set forth below, unless the context indicates otherwise. The singular
shall include the plural and the masculine gender shall include the feminine,
and vice versa, as the context requires. In addition, the term "person" and its
pronouns "he," "she," "him," and "her" as used in this Prospectus shall include
natural persons of the masculine and feminine gender and entities, including,
without limitation, corporations, partnerships, limited liability companies and
trusts, unless the context indicates otherwise.
"Admission Date" means the date that an Investor is admitted as an Investor
into the Trust. Unless a subscription is rejected, the Managing Shareholder will
admit a prospective Investor into the Trust on the later of the date on which
the Managing Shareholder of the Offering has received from the Investor (i)
payment in cash and (ii) properly executed and dated Subscription Documents.
"Affiliate" An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) Any person directly or indirectly owning, controlling or holding, with
power to vote 10% or more of the outstanding voting securities of such other
person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive officer,
director, trustee or general partner.
"Baron Advisors" means Baron Advisors, Inc., a Delaware corporation which
is the initial Managing Shareholder of the Trust.
"Baron Properties" means Baron Capital Properties, Inc., a Delaware
corporation which is the initial Corporate Trustee of the Trust, with its
principal place of business located at 1105 North Market Street, Wilmington,
Delaware 19899.
"Board" refers to the Managing Shareholder and the Independent Trustees,
acting together as the Board of the Trust in accordance with the terms of the
Declaration.
"Certificate" means the Certificate of Trust of the Trust, as amended from
time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Share" means a beneficial interest in the Trust designated as a
Common Share by the Trust in accordance with Sections 1.6 and 2.1 of the
Declaration.
"Corporate Trustee" means Baron Capital Properties, Inc., a Delaware
corporation which is the trustee of the Trust under the Declaration, and its
successors. The Corporate Trustee acts as legal holder of the Trust
95
<PAGE>
Property, subject to the terms of the Declaration. Its address is 1105 North
Market Street, Wilmington, Delaware 19899.
"Dealer Manager" refers to Sigma Financial Corporation, a Michigan
corporation which is the broker-dealer selected by the Managing Shareholder to
be the dealer manager of the Offering.
"Declaration" means the Amended and Restated Declaration of Trust for the
Trust made as of ________________, 1998 by the Corporate Trustee that
establishes the Trust and the rights and obligations of the Managing
Shareholder, the Trustees, other members of the Board of the Trust and the
Shareholders.
"Delaware Act" means the Delaware Business Trust Act, as amended, currently
codified as Chapter 38 of Title 12, Delaware Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Date" means the later to occur of the date on which the Trust (i)
accepts the subscription that results in the gross proceeds from Common Shares
sold in the Offering pursuant to this Prospectus to exceed $500,000, or (ii) has
deposited at least $500,000 in collected funds from the Offering in escrow under
the Declaration, provided, however, the Escrow Date may not be later than
December 31, 1998.
"Exchange Act" refers to the Securities Exchange Act of 1934, as amended,
and any rules and regulations promulgated thereunder.
"Exchange Offering" refers to the proposed offering of registered Units by
the Operating Partnership in exchange for property interests. See "THE TRUST."
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"Fiscal Period" means a quarter ending on March 31, June 30, September 30
or December 31 of each Fiscal Year.
"Fiscal Year" means a year ending on December 31. The Trust's first Fiscal
Year may begin after January 1 and consequently have a duration of less than 12
months. The Trust's last Fiscal Year may end before December 31 and consequently
have a duration of less than 12 months.
"Independent Trustee" means a Trustee of the Trust who meets certain
qualifications described herein at "MANAGEMENT - The Board of the Trust and
Trustees - Independent Trustees" who becomes an Independent Trustee of the Trust
under the terms of the Declaration. See Section 7.5 of Declaration of Trust -
Exhibit A hereto.
"Investors" means purchasers of Common Shares (which will include the
Managing Shareholder to the extent that it may acquire Common Shares in the
Offering for its own account) or of any other Shares which the Trust may issue
subsequent to the completion of the Offering.
"IRAs" means individual retirement accounts.
"IRS" or "Service" means the Internal Revenue Service.
"Junior Mortgage" refers to a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of one
96
<PAGE>
or more Mortgages and (ii) must be satisfied before such other charges or liens
(other than prior Mortgages) are entitled to participate in the proceeds of any
sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
"Limited Partner" or "Unitholder" means an owner of Units in the Operating
Partnership (which will include without limitation the Trust).
"Managing Shareholder" refers to Baron Advisors, Inc. or such substitute or
different Managing Shareholder as may subsequently be admitted to the Trust
pursuant to the terms of the Declaration, which will have all of the powers and
obligations of the Managing Shareholder to operate the Trust as described in
this Prospectus.
"Managing Person" means any of the following: (a) Trust or Operating
Partnership officers, agents, or Affiliates; the Managing Shareholder; a
Trustee; any other member of the Board; Affiliates of the Managing Shareholder,
a Trustee and any other member of the Board and (b) any directors, officers or
agents of any organizations named in (a) above when acting for the Managing
Shareholder, a Trustee, any other member of the Board or any of their respective
Affiliates on behalf of the Trust.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"Mortgage Loan" refers to a note, bond or other evidence of indebtedness or
obligation which is secured or collateralized by a Mortgage.
"NASD" refers to the National Association of Securities Dealers, Inc.
"1997 Act" refers to the Taxpayer Relief Bill of 1997.
"Offering" means the offering of Common Shares of beneficial interest in
the Trust pursuant to and as described in this Prospectus.
"Operating Partnership" means Baron Capital Properties, L.P., a Delaware
limited partnership of which the Trust is the general partner and through which
the Trust's interests in residential apartment properties it acquires will be
held and real estate operations will be conducted.
"Operating Partnership Agreement" means the Agreement of Limited
Partnership of Baron Capital Properties, L.P.
"Original Investors" refer to Gregory K. McGrath and Robert S. Geiger, the
founders of the Trust and the Operating Partnership. See "THE TRUST - Formation
Transactions."
"Person" refers to any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"Plans" means employee benefit plans and IRAs.
"Preferred Share" refers to a share of beneficial interest with such
preferences and rights (in relation to other Shares authorized and issued by the
Trust) as the Managing Shareholder may designate under Section 2.1(c) of the
Declaration for sale or issuance subsequent to completion of the Offering.
"Property" means all real or personal property owned or acquired by the
Trust, which is expected to include but not be limited to (i) the land,
buildings and improvements comprising one or more existing residential apartment
properties in which the Trust may make an equity investment, and (ii) its rights
in connection with
97
<PAGE>
Mortgage Loans it may make or acquire which are secured by Mortgages on the
land, buildings and improvements comprising residential apartment properties.
See "INVESTMENT OBJECTIVES AND POLICIES."
"Prospectus" means this Prospectus of the Trust dated _______________,
1998, as the same may be amended or supplemented from time to time.
"Regulations" means the applicable Treasury Regulations promulgated or
proposed under the Code.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"Second Mortgage" means a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of a First Mortgage
and (ii) must be satisfied before such other charges or encumbrances (other than
the First Mortgage) are entitled to participate in the proceeds of any sale.
"Second Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Second Mortgage.
"Securities Act" means the Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.
"Senior Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"Senior Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Senior Mortgage.
"Service" or "IRS" means the Internal Revenue Service.
"Share" means a beneficial interest in the Trust which is either a Common
Share or a Preferred Share authorized for issuance and designated as such by the
Managing Shareholder in accordance with the Declaration.
"Shareholder" means an owner of Shares in the Trust.
"Subscription Documents" means the subscription documents which each
prospective Investor must fully complete, date and sign in order to subscribe
for Common Shares in the Offering. The Subscription Documents are comprised of
an Investor Questionnaire and Subscription Agreement.
"Termination Date" means the date upon which the Trust terminates the
Offering of Common Shares. The Termination Date is scheduled to be December 31,
1998 but may be an earlier date or later date (no later than ______________,
1999) [the end of the eighteenth month following the commencement of the
Offering] determined by the Managing Shareholder in accordance with the
Declaration which is no later than the date by which all 2,500,000 Common Shares
being offered have been sold provided that the Escrow Date has occurred by such
earlier or later termination date.
"Trust" means the issuer of the Common Shares being offered under this
Prospectus, Baron Capital Trust, a Delaware business trust created by the
Corporate Trustee and having a principal office at 7826 Cooper Road, Cincinnati,
Ohio 45242.
"Trustee" and "Trustees" "Trustee" means a person serving as a Corporate
Trustee or an Independent Trustee of the Trust; the term "Trustees" refers to
the Corporate Trustee and the Independent Trustees collectively.
"Trust Management Agreement" means the Trust Management Agreement dated as
of _______________, 1998 between the Trust and the Managing Shareholder, under
which the Managing
98
<PAGE>
Shareholder will perform certain management, administrative services and
investment advisory services for the Trust.
"Trust Property" means all property owned or acquired by the Trust or on
its behalf as part of the trust estate established under the Declaration.
"Unitholder" or "Limited Partner" means an owner of Units in the Operating
Partnership (which will include without limitation the Trust).
"Units" refer to units of limited partnership interest in the Operating
Partnership.
99
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE OF AFFILIATES
OF
MANAGING SHAREHOLDER
PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER
The following five tables set forth certain historical information relating
to the offerings of 24 prior limited partnerships sponsored and/or managed by
Affiliates of Baron Advisors, Inc. ("Baron Advisors"), the Managing Shareholder
of the Trust; compensation paid to the general partners of such partnerships and
their Affiliates in connection therewith; operating results of such
partnerships; sales of properties and results of completed programs. Each of the
prior partnerships has investment objectives similar to those of the Trust in
that the prior programs provided financing in respect of residential properties
for current income and capital appreciation (except in the case of mortgage
funds). Exhibit A is comprised of the following tables:
Table I Baron Advisors and Affiliates Experience in Raising and Investing
Funds
Table II Compensation to Baron Advisors Affiliates from Prior Funds
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Information set forth in such tables is given solely to enable a
prospective Investor to evaluate the experience of the Managing Shareholder and
its Affiliates and, in certain cases, to evaluate certain properties in which
the Trust may acquire an interest in connection with the proposed Exchange
Offering. See the "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER"
section of the Prospectus.
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
The following table summarizes the experience of Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., in organizing 24 investment
programs whose offerings closed in the most recent three years. The 24
programs have investment objectives similar to those of the Trust in that
the programs provided financing in respect of residential properties for
current income and capital appreciation (except in the case of a mortgage
fund).
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund VIII, Appreciation Fund
I, Ltd. (Baron Ltd. (Baron Capital I, Ltd. (Baron Capital
Capital IV, Inc., IV, Inc., general IV, Inc., general
general partner) partner) partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $940,000 $1,020,000 $ 840,000
Dollar amount raised:
(percent relative to 940,000 1,020,000 205,000
amount offered): (100%) (100%) (10%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 94,000 94,400 20,500
(10%) (9%) (9%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 846,000 849,600 184,500
(90%) (91%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 846,000 849,600 184,500
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 0 0
Percent leverage (mortgage financing
divided by total acquisition cost) 41% 47% 47%
Date offering began: 2/94 3/94 4/94
Length of offering (in months): 3 3 2
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 3 2
</TABLE>
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THIS OFFERING WILL EXPERIENCE
RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE TABLES ABOVE AND BELOW. INVESTORS SHOULD NOTE THAT
THE INVESTMENT OBJECTIVES OF ALL OF THE PARTNERSHIP DESCRIBED IN THE FOLLOWING
TABLES DIFFERED AT LEAST IN PART FROM THE INVESTMENT OBJECTIVES OF THE TRUST AND
THAT INVESTORS WILL NOT HAVE ANY INTEREST IN ANY OF THE PARTNERSHIPS AS A RESULT
OF THE ACQUISTION OF COMMON SHARES IN THE TRUST EXCEPT AS OTHERWISE INDICATED IN
THE PROSPECTUS.
I-1
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Clearwater First
Home Buyer Fund Home Buyer Time Homebuyer
V, Ltd. (Baron Mortgage Fund IV, Program, Ltd.
Capital XXIX, Inc., Ltd. (Baron Capital (Baron Capital XVI,
general partner) XXVIII, Inc., general Inc., general
partner) partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 $ 750,000
Dollar amount raised:
(percent relative to 500,000 500,000 750,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 50,000 45,000 77,500
(10%) (9%) (10%)
Cash reserve accounts: 25,000 0 0
Amount raised available for
investment (percentage): 425,000 430,000 672,500
(85%) (86%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 425,000 430,000 672,500
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 25,000 0
(6%)
Percent leverage (mortgage financing
divided by total acquisition cost) N/A N/A N/A
Date offering began: 1/96 6/96 3/96
Length of offering (in months): 4 5 7
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 4 6
</TABLE>
I-2
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Income Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture Fund I,
Ltd. (Baron Capital Apartments, Ltd. Ltd. (Baron Capital
XI, Inc., general (Baron Capital IX, XXVI, Inc., general
partner) Inc., general partner)
partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $1,150,000 $700,000 $ 900,000
Dollar amount raised:
(percent relative to 1,150,000 700,000 900,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 125,000 80,000 119,000
(11%) (11%) (13%)
Cash reserve accounts: 142,000 0 90,000
Amount raised available for
investment (percentage): 1,025,000 620,000 781,000
(89%) (89%) (87%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 825,500 580,000 601,000
of existing limited partners: (72%) (83%) (67%)
Investment fee: 57,500 40,000 90,000
(5%) (6%) (10%)
Percent leverage (mortgage financing
divided by total acquisition cost) 56% 71% 67%
Date offering began: 10/95 4/96 5/96
Length of offering (in months): 16 6 5
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 6 4 4
</TABLE>
I-3
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund, Investment Fund Investment Fund
Ltd. (Baron II, Ltd. VI, Ltd. (Baron
Capital XXXIII, (Baron Capital XXXI, Capital XXXI,
Inc., general Inc., general Inc., general
partner) partner) partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $1,200,000 $800,000 $ 1,200,000
Dollar amount raised:
(percent relative to 1,200,000 800,000 1,200,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 140,000 100,000 130,000
(12%) (13%) (11%)
Cash reserve accounts: 120,000 80,000 120,000
Amount raised available for
investment (percentage): 1,060,000 700,000 1,070,000
(88%) (87%) (89%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 796,000 524,000 806,000
of existing limited partners: (66%) (66%) (67%)
Investment fee: 144,000 96,000 144,000
(12%) (12%) (12%)
Percent leverage (mortgage financing
divided by total acquisition cost) 58% 71% 67%
Date offering began: 6/96 7/96 11/96
Length of offering (in months): 6 3 5
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 5 2 4
</TABLE>
I-4
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund, Ltd. Income Fund, Ltd. Income Fund II,
(Baron Capital II, (Baron Capital I, Ltd. (Baron Capital
Inc., general Inc., general IV, Inc., general
partner) partner) partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $807,000 $1,050,000 920,000
Dollar amount raised:
(percent relative to 807,000 1,050,000 920,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,700 115,000 102,000
(11%) (11%) (11%)
Cash reserve accounts: 0 165,500 199,000
Amount raised available for
investment (percentage): 716,300 935,000 818,000
(89%) (89%) (89%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 656,300 589,500 548,000
of existing limited partners: (92%) (63%) (67%)
Investment fee: 60,000 180,000 71,000
(12%) (19%) (9%)
Percent leverage (mortgage financing
divided by total acquisition cost) 70% 72% 70%
Date offering began: 11/94 12/94 1/95
Length of offering (in months): 6 8 6
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 7 4
</TABLE>
I-5
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital Florida Tax Credit
Income Partners, Income Fund III, Fund, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital
III, Inc., general VII, Inc., general VI, Inc., general
partner) partner) partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $800,000 $ 626,000
Dollar amount raised:
(percent relative to 800,000 800,000 626,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,000 90,000 80,000
(11%) (11%) (13%)
Cash reserve accounts: 143,000 121,000 0
Amount raised available for
investment (percentage): 710,000 710,000 546,000
(89%) (89%) (87%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 543,000 549,000 546,000
of existing limited partners: (76%) (77%) (100%)
Investment fee: 24,000 40,000 0
(4%) (6%) 0
Percent leverage (mortgage financing
divided by total acquisition cost) 62% 57% 61%
Date offering began: 8/95 6/95 6/95
Length of offering (in months): 3 5 11
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 4 9
</TABLE>
I-6
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
GSU Stadium Florida Capital Brevard Mortgage
Student Apartment Income Fund IV, Program, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital
X, Inc., general V, Inc., general XII, Inc., general
partner) partner) partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $1,000,000 $1,820,000 $ 575,000
Dollar amount raised:
(percent relative to 1,000,000 1,820,000 575,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 110,000 202,000 67,500
(11%) (11%) (12%)
Cash reserve accounts: 100,000 305,200 57,500
Amount raised available for
investment (percentage): 690,000 1,212,800 450,000
(69%) (67%) (78%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 690,000 1,212,800 450,000
of existing limited partners: (100%) (100%) (100%)
Investment fee: 100,000 100,000 0
(14%) (8%) 0
Percent leverage (mortgage financing
divided by total acquisition cost) 68% 72% 69%
Date offering began: 11/95 1/95 1/96
Length of offering (in months): 4 16 4
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 10 3
</TABLE>
I-7
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Baron First Time
Home Buyer Homebuyer Home Buyer
Mortgage Fund II, Mortgage Fund III, Mortgage Fund, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital VIII,
XV, Inc., general XXVII, Inc., general Inc., general
partner) partner) partner)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 500,000
Dollar amount raised:
(percent relative to 500,000 500,000 500,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 45,000 50,000 50,000
(9%) (10%) (10%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 455,000 450,000 450,000
(91%) (90%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 455,000 450,000 450,000
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 0 0
Percent leverage (mortgage financing
divided by total acquisition cost) N/A N/A N/A
Date offering began: 2/96 5/96 1/96
Length of offering (in months): 6 4 4
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 4 3 3
</TABLE>
I-8
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS
The following table summarizes the payments made to Affiliates of the
Managing Shareholder of the Trust, Baron Advisors, Inc., by 24 real estate
investment programs sponsored by Affiliates of the Managing Shareholder
from their inception through September 30, 1997. The prior programs have
investment objectives similar to those of the Trust in that the programs
provided financing in respect of residential properties for current income
and capital appreciation (except in the case of a mortgage fund).
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund Appreciation
I, Ltd. VIII, Ltd. Fund I, Ltd.
---------- ---------- ----------
<S> <C> <C> <C>
Date offering began: 2/94 3/94 4/94
Dollar amount raised: $940,000 $944,000 $205,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $ 94,000 $ 94,400 $ 20,500
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (79,008) $ (74,388) $ (4,496)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $28,085 $34,209 $12,223
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-1
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund, Income Fund, Income
Ltd. Ltd. Fund II, Ltd.
---------- ---------- ----------
<S> <C> <C> <C>
Date offering began: 11/94 9/94 1/95
Dollar amount raised: $807,000 $1,050,000 $920,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $90,700 $115,000 $ 102,000
Acquisiton fees: $60,000 $180,000 $71,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $(111,565) $(15,632) $ (78,314)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $44,773 $47,729 $36,059
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-2
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital Florida Tax
Income Partners, Income Fund III, Credit Fund,
Ltd. Ltd. Ltd.
---------- ---------- ----------
<S> <C> <C> <C>
Date offering began: 8/95 6/95 6/95
Dollar amount raised: $800,000 $800,000 $626,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $90,000 $90,000 $ 80,000
Acquisiton fees: $24,000 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (46,427) $ (52,447) $ (81,753)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $27,010 $19,276 $30,107
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-3
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Florida Captial GSU Student
Homebuyer Mortgage Income Fund IV, Stadium Apartments+H196,
Fund, Ltd. Ltd. Ltd.
---------- ---------- ----------
<S> <C> <C> <C>
Date offering began: 1/96 1/95 11/95
Dollar amount raised: $500,000 $1,820,000 $1,000,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $50,000 $202,000 $ 110,000
Acquisiton fees: 0 0 $100,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $18 $ (339,564) $ (25,382)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 $63,115 $35,980
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-4
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Brevard Mortgage Baron First Time Clearwater First
Program, Ltd. Homebuyer Time Home Buyer
Mortgage Fund II, Program, Ltd.
Ltd.
---------- ---------- ----------
<S> <C> <C> <C>
Date offering began: 1/96 2/96 3/96
Dollar amount raised: $575,000 $500,000 $750,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $67,500 $45,000 $ 77,500
Acquisiton fees: 0 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $ 10,679 $ (2,180) $ (26,566)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-5
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Baron First Time
Homebuyer Homebuyer Homebuyer Mortgage
Mortgage Fund III, Mortgage Fund V, Fund IV, Ltd.
Ltd. Ltd.
------------ ------------ ----------
<S> <C> <C> <C>
Date offering began: 5/96 1/96 6/96
Dollar amount raised: $500,000 $500,000 $500,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $50,500 $50,000 $ 45,000
Acquisiton fees: 0 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $629 $121 $117
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-6
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Income Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture
Ltd. Apartments, Ltd. Fund I, Ltd.
------------ ------------ ----------
<S> <C> <C> <C>
Date offering began: 10/95 4/96 5/96
Dollar amount raised: $1,150,000 $700,000 $900,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $125,500 $80,000 $ 119,000
Acquisiton fees: $57,500 $40,000 $90,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (113,561) $ (64,196) $ (51,421)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $24,687 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-7
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund, Investment Fund Investment
Ltd. II, Ltd. Fund VI, Ltd.
------------ ------------ ----------
<S> <C> <C> <C>
Date offering began: 6/96 7/96 11/96
Dollar amount raised: $1,200,000 $800,000 $1,200,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $140,000 $100,000 $ 130,000
Acquisiton fees: $144,000 $96,000 $144,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
September 30, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (48,201) $ (31,967) $ (43,428)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-8
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS
The following table includes operating results for the periods indicated of 24
programs sponsored by Affiliates of the Managing Shareholder of the Trust, Baron
Advisors, Inc. which closed in the most recent five years. The prior programs
have investment objectives similar to those of the Trust in that the programs
provided financing in respect of residential properties for current income and
capital appreciation (except in the case of a mortgage fund).
<TABLE>
<CAPTION>
Florida Capital Income Fund, Ltd.
---------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $277,330 $380,488 $377,296
Other: 0 0 3,670
Less:
Operating Expenses: (116,790) (178,791) (201,404)
Interest Expenses: (109,251) (159,163) (128,897)
Depreciation and Amortization: (57,009) (76,013) (69,441)
Other: Major Maintenance: 0 0 (40,663)
Net Income (Loss) - Tax Basis: (5,720) (33,479) (59,439)
Cash generated from operations: 51,289 42,534 6,332
Less: Cash distributions: 60,525 80,700 56,059
Cash generated after cash distributions: (9,236) (38,166) (49,727)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (7) (41) (73)
Cash distributions to investors: 75 100 69
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-1
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Capital Income Fund, Ltd.
---------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $135,111 $186,269 $165,493
Other: 0 0 47,756
Less:
Operating Expenses: (64,956) (75,227) (89,479)
Interest Expenses: (36,515) (49,964) (29,185)
Depreciation and Amortization: (38,142) (50,446) (49,641)
Major Maintenance Expense 0 0 (28,185)
Net Income (Loss) - Tax Basis: (4,502) 10,632 16,759
Cash generated from operations: 33,640 61,078 18,644
Less: Cash distributions: 0 82,500 94,000
Cash generated after cash distributions: 33,640 (21,422) (75,356)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (5) 11 17
Cash distributions to investors: 0 88 100
Annualized cash on cash yield
to investors: 0% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-2
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Realty Opportunity Income Fund VIII, Ltd.
-----------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $129,227 $200,396 $216,535
Other: 0 0 37,068
Less:
Operating Expenses: (71,997) (89,343) (98,705)
Interest Expenses: (43,154) (59,048) (38,897)
Depreciation and Amortization: (41,955) (55,941) (55,265)
Other: Major Maintenance: 0 0 (23,632)
Net Income (Loss) - Tax Basis: (27,879) (3,936) 37,104
Cash generated from operations: 14,076 52,005 55,301
Less: Cash distributions: 0 80,800 94,400
Cash generated after cash distributions: 14,076 (28,795) (39,099)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (30) (4) 39
Cash distributions to investors: 0 79 100
Annualized cash on cash yield
to investors: 0% 8% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-3
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Income Appreciation Fund I, Ltd.
----------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $44,337 $59,913 $69,986
Other: 0 0 8,944
Less:
Operating Expenses: (20,568) (26,417) (36,080)
Interest Expenses: (11,618) (15,898) (13,692)
Depreciation and Amortization: (12,129) (16,172) (10,878)
Other: Major Maintenance: 0 0 (9,754)
Net Income (Loss) - Tax Basis: 22 1,426 8,526
Cash generated from operations: 12,151 17,598 10,460
Less: Cash distributions: 0 19,375 20,500
Cash generated after cash distributions: 12,151 (1,777) (10,040)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 0 7 41
Cash distributions to investors: 0 95 100
Annualized cash on cash yield
to investors: 0 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-4
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Tampa Capital Income Fund, Ltd.
-------------------------------
1/1/96-12/31/96 1995
--------------- ----
<S> <C> <C>
Gross Revenues: $409,146 $404,384
Other: 0 0
Less:
Operating Expenses: (207,313) (213,327)
Interest Expenses: (131,405) (88,632)
Depreciation and Amortization: (77,185) (69,040)
Other: Major Maintenance: 0 (25,157)
Net Income (Loss) - Tax Basis: (6,757) 8,228
Cash generated from operations: 70,428 77,268
Less: Cash distributions: 105,000 58,328
Cash generated after cash distributions: (34,572) 18,940
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (6) 8
Cash distributions to investors: 100 56
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
In January, 1997 the partnership sold the asset acquired by it with the net
proceeds of its offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-5
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Capital Income Fund II, Ltd.
------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $252,324 $336,046 $355,612
Other: 0 0 3,084
Less:
Operating Expenses: (125,087) (163,389) (195,088)
Interest Expenses: (74,691) (130,820) (66,611)
Depreciation and Amortization: (58,878) (78,505) (76,341)
Other: Major Maintenance: 0 0 (43,168)
Net Income (Loss) - Tax Basis: (6,332) (36,668) (22,512)
Cash generated from operations: 52,546 41,837 50,745
Less: Cash distributions: 0 92,000 52,468
Cash generated after cash distributions: 52,546 (50,163) (1,723)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (7) (40) (24)
Cash distributions to investors: 0 100 57
Annualized cash on cash yield
to investors: 0 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-6
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Opportunity Income Partners, Ltd.
-----------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $165,415 $311,719 $207,207
Other: 0 0 9,634
Less:
Operating Expenses: (100,188) (149,572) (100,163)
Interest Expenses: (83,350) (78,273) (47,679)
Depreciation and Amortization: (35,529) (47,371) (24,532)
Other: Major Maintenance: 0 0 (8,649)
Net Income (Loss) - Tax Basis: (53,652) 36,503 35,818
Cash generated from operations: (18,123) 83,874 50,716
Less: Cash distributions: 60,000 77,441 3,390
Cash generated after cash distributions: (78,123) 6,433 47,326
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (67) 46 56
Cash distributions to investors: 75 97 4
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-7
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Captial Income Fund III, Ltd.
-------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $179,062 $236,335 $106,625
Other: 0 0 0
Less:
Operating Expenses: (80,121) (125,245) (54,323)
Interest Expenses: (50,705) (75,821) (12,597)
Depreciation and Amortization: (28,485) (37,979) (18,548)
Other: Major Maintenance: 0 0 (3,488)
Net Income (Loss) - Tax Basis: 19,751 (2,710) 17,669
Cash generated from operations: 48,236 35,269 36,217
Less: Cash distributions: 60,000 79,867 22,482
Cash generated after cash distributions: (11,764) (44,598) 13,735
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 25 (3) 22
Cash distributions to investors: 75 100 28
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-8
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Tax Credit Fund, Ltd.
-----------------------------
1/1/97 - 9/30/97 1/1/96 - 12/31/96 1995
---------------- ----------------- ----
<S> <C> <C> <C>
Gross Revenues: $204,022 $266,240 $274,862
Other: 0 0 0
Less:
Operating Expenses: (139,933) (172,489) (194,953)
Interest Expenses (63,804) (69,122) (99,684)
Depreciation and Amortization: (35,073) (47,236) (25,740)
Major Maintenance Expense (20,067) (13,149)
Net Income (Loss) - Tax Basis: (34,788) (42,674) (58,664)
Cash generated from operations: 285 4,562 (32,924)
Less: Cash distributions: 12,162 25,194 0
Cash generated after cash distributions: (11,877) (20,632) (32,924)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (56) (68) (53)
Cash distributions to investors: 100 40 0
Annualized cash on cash yield
to investors: 2% 4% 2%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-9
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron First Time Homebuyer Mortgage Fund, Ltd.
----------------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $45,000 $46,970
Other: 0
Less:
Operating Expenses: (742) (674)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 44,258 46,296
Cash generated from operations: 44,258 46,296
Less: Cash distributions: 45,000 45,536
Cash generated after cash distributions: (742) 760
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 89 93
Cash distributions to investors: 90 91
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-10
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Capital Income Fund IV, Ltd.
------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $563,455 $756,939 $422,209
Other: 0 0 9,640
Less:
Operating Expenses: (331,454) (441,760) (301,870)
Interest Expenses: (223,875) (312,704) (173,711)
Depreciation and Amortization: (102,987) (137,316) (120,000)
Other: Major Maintenance: 0 0 (1,750)
Net Income (Loss) - Tax Basis: (94,861) (134,841) (165,482)
Cash generated from operations: 8,126 2,475 (55,122)
Less: Cash distributions: 136,500 149,240 676
Cash generated after cash distributions: (128,374) (146,765) (55,798)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (52) (67) (9)
Cash distributions to investors: 75 75 3
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-11
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
GSU Stadium Student Apartments, Ltd.
------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $358,690 $449,730 $200,668
Other: 0 0
Less:
Operating Expenses: (175,677) (219,322) (106,361)
Interest Expenses: (94,217) (122,433) (50,645)
Depreciation and Amortization: (50,124) (66,830) (66,999)
Other: Major Maintenance: 0 (54,112) (46,277)
Net Income (Loss) - Tax Basis: 38,672 (12,967) (69,614)
Cash generated from operations: 88,796 53,863 (2,615)
Less: Cash distributions: 26,552 84,961 25,000
Cash generated after cash distributions: 62,244 (31,098) (27,615)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 39 (12) (1)
Cash distributions to investors: 27 8 3
Annualized cash on cash yield
to investors: 10% 10% 0
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 1
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-12
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Brevard Mortgage Program, Ltd.
------------------------------
1/1/97-9/30/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $16,100 $73,267
Other: 0 0
Less:
Operating Expenses: (117) (874)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 15,983 72,393
Cash generated from operations: 15,983 72,393
Less: Cash distributions: 43,125 34,572
Cash generated after cash distributions: (27,142) 37,821
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 28 126
Cash distributions to investors: 75 60
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-13
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron First Time Homebuyer Mortgage Fund II, Ltd.
-------------------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $45,000 $41,748
Other: 45 0
Less:
Operating Expenses: (743) (611)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 44,302 41,137
Cash generated from operations: 44,302 41,137
Less: Cash distributions: 45,000 42,619
Cash generated after cash distributions: (698) (1,482)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 89 82
Cash distributions to investors: 75 85
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-14
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Clearwater First Time Homebuyer Program, Ltd.
---------------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $37,500 $46,999
Other: 0 0
Less:
Operating Expenses: (95) (93)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 37,405 46,906
Cash generated from operations: 37,405 46,906
Less: Cash distributions: 67,500 43,377
Cash generated after cash distributions: (30,095) 3,529
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 50 62
Cash distributions to investors: 75 58
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-15
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron First Time Homebuyer Mortgage Fund III, Ltd.
--------------------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $45,000 $29,006
Other: 0 0
Less:
Operating Expenses: (123) (408)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 44,877 28,598
Cash generated from operations: 44,877 28,598
Less: Cash distributions: 45,000 27,846
Cash generated after cash distributions: (123) 752
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 91 57
Cash distributions to investors: 75 56
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-16
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron First Time Homebuyer Mortgage Fund V, Ltd.
------------------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $45,000 $26,198
Other: 0 0
Less:
Operating Expenses: (692) (245)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 44,308 25,953
Cash generated from operations: 44,308 25,953
Less: Cash distributions: 45,000 25,140
Cash generated after cash distributions: (692) 813
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 89 52
Cash distributions to investors: 75 50
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-17
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron First Time Homebyer Mortgage Fund IV, Ltd.
------------------------------------------------
1/1/97-9/30/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $45,000 $14,529
Other: 0 0
Less:
Operating Expenses: (135) (377)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 44,865 14,152
Cash generated from operations: 44,865 14,152
Less: Cash distributions: 45,000 13,900
Cash generated after cash distributions: (135) 252
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 90 28
Cash distributions to investors: 75 28
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-18
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Florida Income Growth Fund V, Ltd.
----------------------------------
1/1/97 - 9/30/97 1996
---------------- ----
<S> <C> <C>
Gross Revenues: $ 250,710 $ 305,289
Other: 0 0
Less:
Operating Expenses: (118,718) (187,679)
Interest Expenses: (79,560) (79,488)
Depreciation and Amortization: (42,285) (56,381)
Major Maintenance Expense 0 (27,704)
Net Income (Loss) - Tax Basis: 10,147 (45,963)
Cash generated from operations: 52,432 10,418
Less: Cash distributions: 86,250 77,039
Cash generated after cash distributions: (33,818) (66,621)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 9 (40)
Cash distributions to investors: 75 67
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-19
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Lamplight Court of Bellefontaine Apartments, Ltd.
-------------------------------------------------
1/1/97-9/30/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: $ 4,506 733
Other: 0 0
Less:
Operating Expenses: (112) (230)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 4,394 503
Cash generated from operations: 4,394 503
Less: Cash distributions: 52,500 16,593
Cash generated after cash distributions: (48,106) (16,090)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 6 7
Cash distributions to investors: 75 100
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, " cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-20
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron Strategic Vulture Fund I, Ltd.
------------------------------------
1/1/97-9/30/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: $ 27,634 $ 3,731
Other: 0 0
Less:
Operating Expenses: (144) (464)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 27,490 3,267
Cash generated from operations: 27,490 3,267
Less: Cash distributions: 67,500 14,044
Cash generated after cash distributions: (40,644) (10,777)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 4
Cash distributions to investors: 75 100
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-21
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron Strategic Investment Fund, Ltd.
-------------------------------------
1/1/97-9/30/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: $ 40,000 $ 2,479
Other: 1,768 0
Less:
Operating Expenses: (497) (403)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 41,271 2,076
Cash generated from operations: 41,271 2,076
Less: Cash distributions: 82,664 8,884
Cash generated after cash distributions: (41,393) (6,808)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 34 3
Cash distributions to investors: 75 11
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-22
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron Strategic Investment Fund II, Ltd.
----------------------------------------
1/1/97-9/30/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: $ 29,780 $ 1,666
Other: 0 0
Less:
Operating Expenses: (107) (364)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 29,673 1,302
Cash generated from operations: 29,673 1,302
Less: Cash distributions: 60,000 2,942
Cash generated after cash distributions: (30,327) (1,640)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 37 2
Cash distributions to investors: 75 36
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-23
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAM
<TABLE>
<CAPTION>
Baron Strategic Investment Fund VI, Ltd.
----------------------------------------
1/1/97-9/30/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: $ 8,050 $ 400
Other: 4310 0
Less:
Operating Expenses: (967) (218)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 11,393 182
Cash generated from operations: 11,393 182
Less: Cash distributions: 55,003 0
Cash generated after cash distributions: (43,610) 182
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 9 3
Cash distributions to investors: 46 0
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
"Annualized cash on cash yield to investors" is the yearly cash distributions
paid to investors as a percentage of their original capital contribution.
III-24
<PAGE>
Table IV- RESULTS OF COMPLETED PROGRAMS
The following table includes information relating to the financial results of
one program sponsored by an affiliate of the Managing Shareholder of the Trust,
Baron Advisors, Inc., which completed operations within the last five years. The
prior program had investment objectives similar to those of the Trust in that
the program provided financing in respect of residential properties for current
income and capital appreciation (except in the case of a mortgage fund).
<TABLE>
<CAPTION>
Tampa Capital Income Fund, Ltd.
-------------------------------
<S> <C>
Dollar Amount Raised: $1,050,000
Number of Properties Purchased: one
Date of Closing of Offering: 7/95
Date of Acquisition of Property: 12/94
Date of Sale of Property: 2/97
Tax and Distribution Data Per $1,000
Investment Through 1996:
Federal Income Tax Results:
Ordinary Income (loss):
from operations: 171 est.
from recapture: Not applicable
Capital Gain (loss): 138
Deferred Gain:
Capital: 138
Ordinary: Not applicable
Cash Distribution to Investors: 10%
Source (on GAAP basis):
Investment Income: $180,000
Return of capital: $900,000
Source (on cash basis):
Sales: $900,000
Refinancing: Not applicable
Operations: $180,000
Other: Not applicable
Receivable on Net Purchase Money Financing $295,000 (1)
</TABLE>
- -----------
(1) Portion of purchase price paid with promissory note payable in 36 equal
monthly payments including 9% annual interest rate.
IV-1
<PAGE>
TABLE V: SALES OR DISPOSAL OF PROPERTIES
The following table includes certain financial information concerning the sale
of a property within the most recent three years by an investment program
sponsored by an Affiliate of the Managing Shareholder.
<TABLE>
<CAPTION>
Tampa Capital Income Fund, Ltd.
-------------------------------
<S> <C>
Property: Lakewood Apartments
Date Acquired: 12/94
Date of Sale: 2/97
Selling Price, Net of Closing Costs and GAAP Adjustments: $2,795,000
Cash Received net of closing costs: $900,000
Mortgage Balance at time of sale: $1,500,000
Purchase money mortgage taken back by program: $295,000 (1)
Adjustments resulting from application of GAAP: Not applicable
Total $2,695,000 (2)
Cost of Properties Including Closing and Soft Costs:
Original Mortgage Financing: $1,500,000
Total acquisition cost, capital improvements,
closing and soft costs: $1,050,000 (3)
Total $2,550,000
Excess of Property Operating Cash Receipts
Over Cash Expenditures: $180,000 est.
</TABLE>
- -------------------
(1) Portion of purchase price paid with promissory note payable in 36 equal
monthly payments including 9% annual interest rate.
(2) The entire gain ($145,000) will be treated as a capital gain for tax
purposes.
(3) Does not include offering costs.
V-1
<PAGE>
OTHER PROGRAMS SPONSORED BY
AFFILIATES OF MANAGING SHAREHOLDER
<TABLE>
<CAPTION>
MAXIMUM
DATE CAPITAL
FORMED RAISE PARTNERSHIP NAME GENERAL PARTNER
- ------ ----- ---------------- ---------------
<S> <C> <C> <C>
10/22/96 1,000,000 Baron Strategic Investment Fund IV, Ltd. Baron Capital XVII, Inc.
06/25/96 750,000 Baron Income Property Mortgage Fund VI, Ltd. Baron Capital XXIX, Inc.
02/24/97 800,000 Baron Mortgage Development Fund XI, Ltd. Baron Capital XXXIII,
Inc.
07/22/96 310,000 Florida Tax Credit Fund II, Ltd. Baron Capital XXXIV, Inc.
10/18/96 700,000 Baron Mortgage Development Fund VII, Ltd. Baron Capital XXXVII,
Inc.
10/22/96 650,000 Baron Mortgage Development Fund VIII, Ltd. Baron Capital XXXVIII,
Inc.
10/23/96 1,200,000 Baron Strategic Investment Fund V, Ltd. Baron Capital XL, Inc.
11/19/96 1,900,000 Baron Strategic Investment Fund VII, Ltd. Baron Capital XLI, Inc.
12/17/96 800,000 Baron Development Fund IX, Ltd. Baron Capital XLII, Inc.
11/19/96 800,000 Baron Mortgage Development Fund X, Ltd. Baron Capital XLIII, Inc.
02/26/97 1,200,000 Baron Strategic Investment Fund VIII, Ltd. Baron Capital XLIV, Inc.
04/02/97 1,000,000 Baron Mortgage Development Fund XII, Ltd. Baron Capital XLVI, Inc.
03/31/97 1,000,000 Baron Mortgage Development Fund XIV, Ltd. Baron Capital XLVII, Inc.
05/23/97 700,000 Baron Mortgage Development Fund XV, Ltd. Baron Capital XLVIII,
Inc.
05/20/97 1,000,000 Baron First Mortgage Development Fund XVI, Ltd. Baron Capital LX, Inc.
05/22/97 1,000,000 Baron First Mortgage Development Fund XVII, Baron Capital LXI, Inc.
Ltd.
06/03/97 1,200,000 Baron Strategic Investment Fund IX, Ltd. Baron Capital LXII, Inc.
06/26/97 1,200,000 Baron Strategic Investment Fund X, Ltd. Baron Capital LXIV, Inc.
07/10/97 800,000 Baron Mortgage Development Fund XVIII, L.P. Baron Capital LXV, Inc.
09/15/97 1,000,000 Baron Mortgage Development Fund XIX, L.P. Baron Capital LXVI, Inc.
09/10/97 1,000,000 Baron Mortgage Development Fund XX, L.P. Baron Capital LXVII, Inc.
11/24/97 1,000,000 Baron Mortgage Development Fund XXI, L.P. Baron Capital LXVIII,
Inc.
11/26/97 1,000,000 Baron Mortgage Development Fund XXIII, L.P. Baron Capital LXX, Inc.
</TABLE>
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Trust or the Dealer Manager. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Shares in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Trust since the date hereof.
SUMMARY OF TABLE OF CONTENTS
Page
----
Investor Suitability Standards ..................................... 11
Summary of the Trust and Use of Proceeds .......................... 13
Summary of Risk Factors ............................................ 18
Tax Status of the Trust ............................................ 20
Compensation of the Managing Shareholder and
Affiliates ....................................................... 20
Conflicts of Interest .............................................. 24
Fiduciary Responsibility ........................................... 26
Risk Factors ....................................................... 27
Prior Performance of Affiliates of Managing
Shareholder ...................................................... 40
Management ......................................................... 48
The Trust .......................................................... 54
Investment Objectives and Policies ................................. 61
Proposed Real Estate Investments ................................... 65
Federal Income Tax Considerations .................................. 68
Summary of Declaration of Trust .................................... 77
Reports to Shareholders ............................................ 86
Capital Stock of the Trust ......................................... 87
Capitalization ..................................................... 89
Terms of the Offering .............................................. 90
Other Information .................................................. 93
Litigation ......................................................... 94
Legal Matters ...................................................... 94
Additional Information ............................................. 94
Glossary ........................................................... 95
Until _______, 1998 (90 days after the commencement of the Offering), all
dealers effecting transactions in the Common Shares, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
BARON CAPITAL TRUST
------------
2,500,000 Common Shares
Beneficial Interest
PROSPECTUS
________, 1998
------------
Sigma Financial Corporation
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under Section 3817 of the Delaware Business Trust Act, subject to such
standards and restrictions, if any, as are set forth in the governing instrument
of a Delaware business trust, a business trust shall have the power to indemnify
and hold harmless any trustee or beneficial owner or other person from and
against any and all claims and demands whatsoever, and the absence of such a
provision shall not be construed to deprive any trustee or beneficial owner or
other person of any right to indemnity which is otherwise available to such
person under the laws of Delaware.
Under Sections 3.7 and 3.8 of the Declaration of Trust for the Trust
("Registrant"), each of the Registrant's officers, agents, and Affiliates, the
Managing Shareholder, the Trustees, any other members of the Board of the Trust,
each Affiliate of the Managing Shareholder, a Trustee, other member of the
Board, and any directors, officers or agents of any of the foregoing when acting
for the Managing Shareholder, a Trustee, any other member of the Board or any of
their respective Affiliates on behalf of the Registrant (collectively, "Managing
Persons," and individually a "Managing Person") shall be indemnified out of the
assets of the Registrant against any losses, liabilities, judgments, expenses
and amounts paid in settlement of any claims sustained by him in connection with
the Registrant or claims by the Registrant, in right of the Registrant or by or
in right of any Shareholders of the Registrant, if the Managing Person, in good
faith, determined that its course of conduct was in the Registrant's best
interest, within the scope of the Declaration and did not constitute negligence
or misconduct in the case of any Managing Person who is not an Independent
Trustee and did not constitute gross negligence or willful misconduct in the
case of any Managing Person who is an Independent Trustee, and in addition, in
the case of Managing Persons other than the Managing Shareholder, Trustees and
other members of the Board, the indemnitees were acting within the scope of
authority validly delegated to them by the Managing Shareholder, Trustees or any
other members of the Board. In no case, however, will a Managing Person or any
broker-dealer be indemnified, or be advanced expenses for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws, unless (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (ii) those claims have been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the particular
indemnitee or (iii) a court of competent jurisdiction approves a settlement of
the claims against the particular indemnitee and finds that indemnification of
the settlement and the related costs should be made. In any claim for federal or
state securities law violations, the party seeking indemnification shall place
before the court the positions of the Securities and Exchange Commission and of
securities administrators of states in which securities of the Registrant were
offered or sold to the extent required by them with respect to the issue of
indemnification for securities law violations.
The following provisions apply to all rights of indemnification and
advances of expenses under the Declaration:
(a) Expenses, including attorneys' fees, incurred by a Managing Person in
defending any action, suit or proceeding may be paid by the Registrant in
advance of the final disposition of the action, suit or proceeding only if all
of the following conditions are satisfied:
(i) The action, suit or proceeding relates to acts or omissions with
respect to the performance of duties or services on behalf of the
Registrant;
II-1
<PAGE>
(ii) The action, suit or proceeding is initiated by a third party who
is not a Shareholder or it is initiated by a Shareholder acting in its
capacity as such and a court of competent jurisdiction specifically
approves such advancement; and
(iii) The Managing Person seeking advancement of expenses undertakes
to repay such amount, together with the applicable legal rate of interest
thereon, if it shall ultimately be determined that the Managing Person is
not entitled to be indemnified by the Registrant under the Declaration or
otherwise and if at least one of the following conditions is satisfied:
(1) The Managing Person provides appropriate security for the
undertaking;
(2) The Managing Person is insured against losses or expenses of
defense or settlement so that the advances may be recovered or
(3) Either a majority of the Independent Trustees who are not
parties to the action, suit or proceeding, or independent legal
counsel in a written opinion, determines, based upon a review of the
then readily available facts, that there is reason to believe that the
Managing Person will be found to be entitled to indemnification under
the terms and conditions of the Declaration.
The Best Efforts Selling Agreement filed as Exhibit 1.1 to this
Registration Statement provides for the reciprocal indemnification by the
underwriter of the Registrant, and its directors, officers and controlling
persons, and by the Registrant of the underwriter, and its directors, officers
and controlling persons, against certain liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The following table itemizes the expenses incurred by the Registrant
(excluding underwriting discounts and commissions) in connection with the
offering of the Common Shares being registered. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee and the
NASD fee.
II-2
<PAGE>
Item Amount
- ---- ------
SEC Registration Fee ............................................. $7,576
NASD Fee ......................................................... 1,500
Transfer Agent's and Registrar's Fee ............................. 2,500
Printing and Engraving Fees ...................................... 75,000
Legal Fees and Expenses (other than Blue Sky) .................... 125,000
Accounting Fees and Expenses ..................................... 30,000
Blue Sky Fees and Expenses (including fees of counsel) .......... 70,000
Insurance Premium for Officers'/Directors' Liability ............. 20,000
Sales Expenses (including presentations) ......................... 100,000
Miscellaneous Expenses ........................................... 50,000
--------
Total ............................. $481,576
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits.
A list of exhibits included as part of this Registration Statement is set
forth in the Index to Exhibits which immediately precedes such exhibits.
Item 28. Undertakings.
The Trust undertakes to do the following:
1. If the Trust is registering the securities under Rule 415 of the
Securities Act of 1933, as amended (the "Securities Act"), the Trust
will:
(a) File, during the period in which it offers or sell securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the Registration Statement; and
(iii)Include any additional or changed material information on
the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
II-3
<PAGE>
(c) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
2. The Trust will provide to the underwriter of the offering at the
closings specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
3. If the Registrant requests acceleration of the effective date of the
registration statement under Rule 461 under the Securities Act:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
4. If the Registrant relies on Rule 430A under the Securities Act, the
Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time the Commission declared it effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
5. The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period describing
each property not identified in the Prospectus at such time as there
arises a reasonable probability that such property will be acquired
and to consolidate all such stickers into a post-effective amendment
filed at least once every three months, with the information contained
in such amendment provided simultaneously to the existing
Shareholders. Each sticker supplement should disclose all compensation
and fees received by the Managing Shareholder and its affiliates in
connection with any such acquisition. The post-effective amendment
shall include audited financial statements meeting the requirements of
Rule 3-14 of Regulation S-X (or Rule 310 of Regulation S-B, if
applicable) only for properties acquired during the distribution
period.
II-4
<PAGE>
6. The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the
financial statements and any additional information required by Rule
3-14 of Regulation S-X (or Rule 310 of Regulation S-B, if applicable),
to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the
use of 10% or more (on a cumulative basis) of the net proceeds of the
offering and to provide the information contained in such report to
the Shareholders at least once each quarter after the distribution
period of the offering has ended.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Cincinnati, State of Ohio on February 2, 1998.
BARON CAPITAL TRUST
By: Baron Advisors, Inc.,
Managing Shareholder
By:/s/Gregory K. McGrath
------------------------
Gregory K. McGrath, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement was signed by the following person
in the capacity and on the date stated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/Gregory K. McGrath President of Baron Advisors, Inc.,
Gregory K. McGrath Managing Shareholder of Registrant February 2, 1998
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Document Description Page No.
- ------ -------------------- --------
<S> <C> <C>
1.1* Form of Best Efforts Selling Agreement, dated as of ________, 1998, --
between Sigma Financial Corporation and the Registrant
3.1** Certificate of Business Trust Registration of the Registrant --
3.2 Amended and Restated Declaration of Trust for the Registrant made as of
__________, 1998 158
3.3* Form of By-laws of the Registrant --
4.1* Form of Common Share Certificate --
5.1** Form of Opinion of Schoeman, Marsh & Updike, LLP as to legality of --
securities being registered
5.2 Form of Opinion of Keating, Muething & Klekamp P.L.L. on certain tax 207
matters
10.1 Form of Trust Management Agreement, dated as of _________, 1998, between
the Registrant and Baron Advisors, Inc. 211
10.2** Form of Escrow Agreement, dated as of ___________________, 1998, between --
the Registrant and Sigma Financial Corporation
10.3 Form of Indemnification Agreement among the Registrant, Baron Advisors, --
Inc., and the Registrant's Independent Trustees and officers (included
in Sections 3.6 and 3.7 of the Amended and Restated Declaration of Trust
attached hereto as Exhibit 3.2)
10.4** Form of Warrant Purchase Agreement, dated as of ____________, 1998, --
between the Registrant and Sigma Financial Corporation
10.5** Form of Subscription Documents --
10.6 Form of Agreement of Limited Partnership of Baron Capital Properties, 219
L.P. dated as of _____________, 1998
</TABLE>
- ---------------------
<PAGE>
<TABLE>
<S> <C> <C>
10.7 Form of Security Escrow Agreement dated as of __________, 1998 among 291
Gregory K. McGrath, Robert S. Geiger, Baron Capital Trust and American
Stock Transfer & Transfer Company
23.1** Consent of Schoeman, Marsh & Updike, LLP (included in the opinion filed --
as Exhibit 5.1 to this Registration Statement)
23.2 Consent of Keating, Muething & Klekamp, P.L.L. (included in the opinion --
filed as Exhibit 5.2 to this Registration Statement)
99.1** Consent of James H. Bownas to being named as prospective Independent --
Trustee of the Registrant
99.2 Consent of Peter M. Dickson to being named as prospective Independent 301
Trustee of the Registrant
99.3 Prior Performance Table VI: Acquisitions of Properties by Program 303
required under Guide 5 relating to preparation of registration
statements relating to interests in real estate limited partnerships.
</TABLE>
- -------
* To be filed by amendment
** Previously filed
EXHIBIT 3.2
AMENDED AND RESTATED
DECLARATION OF TRUST FOR THE REGISTRANT
MADE AS OF ______________, 1998
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
FOR
BARON CAPITAL TRUST
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Article and
Section
Number Heading Page
- ------ ------- ----
<S> <C>
Article 1 Organization and Powers............................................................ 1
1.1 Trust Estate; Name................................................................. 1
1.2 Purpose............................................................................ 2
1.3 Relationship among Shareholders; No Partnership.................................... 2
1.4 Organization Certificates.......................................................... 2
1.5 Principal Place of Business....................................................... 2
1.6 Admission of Shareholders.......................................................... 2
1.7 Duration of the Trust.............................................................. 4
1.8 Powers of the Trust................................................................ 4
1.9 Provisions, Restrictions and Prohibitions regarding Trust Operations............... 4
Article 2 Shares............................................................................. 12
2.1 Shares, Certificates of Beneficial Interest........................................ 12
2.2 Sale of Shares..................................................................... 13
2.3 Offering of Shares................................................................. 13
2.4 Treasury Shares.................................................................... 13
2.5 Transferability of Shares.......................................................... 14
2.6 Effect of Transfer of Shares or Death, Insolvency or Incapacity of Shareholders... 14
2.7 Repurchase of Shares............................................................... 14
2.8 Distribution Reinvestment Plan..................................................... 14
Article 2A Restriction on Transfer, Acquisition and Redemption of Shares...................... 14
2A.1 Definitions........................................................................ 14
"Beneficial Ownership"............................................................. 14
"Beneficiary"...................................................................... 14
"Debt"............................................................................. 15
"Equity Shares".................................................................... 15
"Excess Share Trust"............................................................... 15
"Existing Holder".................................................................. 15
"Existing Holder Limit"............................................................ 15
"Initial Public Offering".......................................................... 15
"Market Price"..................................................................... 15
"Ownership Limit".................................................................. 15
"Person"........................................................................... 15
"Purported Beneficial Transferee".................................................. 16
"Purported Record Transferee"...................................................... 16
"Restriction Termination Date"..................................................... 16
"Transfer"......................................................................... 16
"Units"............................................................................ 16
2A.2 Ownership Limitation............................................................... 16
2A.3 Excess Shares...................................................................... 17
2A.4 Prevention of Transfer............................................................. 17
2A.5 Notice to Trust.................................................................... 17
2A.6 Information for Trust.............................................................. 17
2A.7 Other Action by Board.............................................................. 18
2A.8 Ambiguities........................................................................ 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2A.9 Modification of Existing Holder Limits............................................. 18
2A.10 Increase or Decrease in Ownership Limit............................................ 18
2A.11 Limitations on Changes in Existing Holder and Ownership Limits..................... 19
2A.12 Waivers by Managing Shareholder.................................................... 19
2A.13 Legend............................................................................. 19
2A.14 Severability....................................................................... 19
2A.15 Trust for Excess Shares............................................................ 19
2A.16 No Distribution for Excess Shares.................................................. 20
2A.17 No Voting Rights for Excess Shares................................................. 20
2A.18 Non-Transferability of Excess Shares............................................... 20
2A.19 Call by Trust on Excess Shares..................................................... 20
Article 3 Liabilities........................................................................ 21
3.1 Liability and Obligations of Corporate Trustee..................................... 21
3.2 Liability and Obligations of Managing Shareholder, Independent Trustees,
and Other Members of the Board................................................... 21
3.3 Liability of Managing Shareholder, Independent Trustees and Other Members
of the Board to Third Parties.................................................... 21
3.4 Liability of Shareholders in General............................................... 21
3.5 Liability of Shareholders to the Trust, Managing Shareholder, Trustees, Members
of the Board and Other Shareholders.............................................. 22
3.6 Liability of Managing Persons to Trust and Shareholders............................ 22
3.7 Indemnification of Managing Persons................................................ 22
3.8 General Provisions................................................................. 22
3.9 Dealings with Trust................................................................ 23
Article 4 Payment of Trust Expenses.......................................................... 23
4.1 Selling Commissions................................................................ 23
4.2 Organization and Offering Expenses................................................. 24
4.3 Investment Fee..................................................................... 24
4.4 Property Management Fee............................................................ 24
4.5 Other Expenses..................................................................... 24
4.6 Payment and Recoupment of Fees..................................................... 25
Article 5 Accounting and Reports............................................................. 25
5.1 Elections.......................................................................... 25
5.2 Books and Records.................................................................. 25
5.3 Reports............................................................................ 25
5.4 Bank Accounts...................................................................... 26
5.5 Interim Assets..................................................................... 26
Article 6 Rights and Obligations of Shareholders............................................. 26
6.1 Participation in Management........................................................ 26
6.2 Rights to Engage in Other Ventures................................................. 27
6.3 Transferability of Shares.......................................................... 27
6.4 Information........................................................................ 27
6.5 Shareholders' Meetings............................................................. 28
6.6 Voting............................................................................. 29
6.7 Distributions...................................................................... 29
6.8 Notice of Non-liability............................................................ 30
Article 7 Powers, Duties and Limitations on Managing Shareholder, Board and
Independent Trustees............................................................. 30
7.1 Management of the Trust........................................................... 30
7.2 Acceptance of Subscriptions........................................................ 30
7.3 Specific Limitations............................................................... 30
7.4 Powers of Managing Shareholder..................................................... 31
7.5 Independent Trustees............................................................... 33
7.6 Board of the Trust................................................................. 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.7 Officers of Trust.................................................................. 35
7.8 Presumption of Power............................................................... 36
7.9 Obligations Not Exclusive.......................................................... 36
7.10 Rights to Deal with Affiliates.................................................... 36
7.11 Removal of Managing Shareholder.................................................... 36
Article 8 Dissolution, Termination and Liquidation........................................... 36
8.1 Dissolution........................................................................ 36
8.2 Continuation of the Trust.......................................................... 37
8.3 Obligations on Dissolution......................................................... 37
8.4 Liquidation Procedure.............................................................. 37
8.5 Liquidating Trustee................................................................ 37
8.6 Death, Insanity, Dissolution or Insolvency of Managing Shareholder, a Trustee
or a Shareholder................................................................. 38
8.7 Withdrawal of Offering............................................................. 38
Article 9 Miscellaneous...................................................................... 38
9.1 Notices............................................................................ 38
9.2 Delaware Laws Govern............................................................... 38
9.3 Power of Attorney................................................................. 38
9.4 Disclaimer......................................................................... 39
9.5 Corporate Trustee Resignation and Replacement...................................... 39
9.6 Amendment and Construction of Declaration.......................................... 39
9.7 Bonds and Accounting............................................................... 39
9.8 Binding Effect..................................................................... 39
9.9 Headings........................................................................... 40
9.10 Bylaws............................................................................. 40
9.11 Severability....................................................................... 40
Article 10 Definitions........................................................................ 40
</TABLE>
Exhibit
-------
A Shareholders' Names, Addresses and Share Ownership
iii
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
FOR
BARON CAPITAL TRUST
This AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration") is made
as of _________________, 1998, by BARON CAPITAL PROPERTIES, INC., a Delaware
corporation ("Baron Properties"), which, with its successors as trustees under
this Declaration, is referred to as the "Corporate Trustee," and BARON ADVISORS,
INC., the Managing Shareholder of the Trust, for the benefit of those persons
who are accepted as holders of shares of beneficial interest under this
Declaration.
WHEREAS, the Corporate Trustee wishes to organize the BARON CAPITAL TRUST
(the "Trust") as a business trust under the Delaware Business Trust Act, to
provide for the management of the Trust by Baron Advisors, Inc., a Delaware
corporation ("Baron Advisors," or "Managing Shareholder" when acting hereunder
in such capacity), and to provide for the sale of beneficial interests in the
Trust, the operation of the Trust and the rights of the Corporate Trustee, other
persons acting as trustees (together with the Corporate Trustee, the "Trustees")
and owners of beneficial interests;
WHEREAS, a Certificate of Trust (the "Certificate") was filed by the
Corporate Trustee on July 31, 1997 with the Secretary of State of Delaware to
evidence the existence of the Trust;
WHEREAS, the Corporate Trustee and the Managing Shareholder executed a
Declaration of Trust for the Trust as of August 31, 1997;
WHEREAS, the Corporate Trustee and the Managing Shareholder desire to amend
and restate the Declaration of Trust to include the terms and conditions set
forth herein;
WHEREAS, the Corporate Trustee and the Managing Shareholder desire that the
Trust qualify as a "real estate investment trust" ("REIT") under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, the Corporate Trustee declares that it constitutes and
appoints itself trustee of the sum of $10.00 owned by it, together with all
other property that it acquires under this Declaration as trustee, together with
the proceeds thereof, to hold, IN TRUST, to manage and dispose of for the
benefit of the holders, from time to time, of beneficial interests in the Trust,
subject to the provisions of this Declaration as follows. Capitalized terms used
in this Declaration shall have the respective meanings ascribed to them in
Article 10 hereof, and, in the absence of any such definition, shall have the
respective meanings ascribed to them in the Prospectus (as defined in Article
10) if defined therein, unless the context indicates otherwise. All references
to section numbers herein shall refer to section numbers of this Declaration
unless otherwise stated herein.
ARTICLE 1
ORGANIZATION AND POWERS
1.1 Trust Estate; Name. The Trust, comprised of the Trust estate created
under this Declaration and the business conducted hereunder, shall be designated
as "Baron Capital Trust," which name shall refer to the trust estate and to the
Corporate Trustee in its capacity as trustee of the trust estate but not in any
other capacity and which shall not refer to the officers, agents, other trustees
or beneficial owners of the Trust. To the extent possible,
<PAGE>
the Trustees shall conduct all business and execute all documents relating to
the Trust in the name of the Trust and not as trustees. The Trustees may conduct
the business of the Trust or hold its property under other names as necessary to
comply with law or to further the affairs of the Trust as it deems advisable in
their sole discretion. This Declaration, the Certificate and any other
documents, and any amendments of any of the foregoing, required by law or
appropriate, shall be recorded in all offices or jurisdictions where the Trust
shall determine such recording to be necessary or advisable for the conduct of
the business of the Trust.
1.2 Purpose. (a) The purpose of the Trust is to acquire equity interests in
and/or provide or acquire mortgage loans (including without limitation Junior
Mortgage Loans and First Mortgage Loans) secured by mortgages on existing
residential apartment properties located in the United States, and the
acquisition, ownership, management, operation, acquire by leasing, leasing to
others, improvement, administration and disposition of such types of real
property or any interest therein (the "Property") as the Trust may designate.
The Trust may invest its funds or participate in entities organized for the
purpose of acquiring, owning, managing, operating, acquire by leasing, leasing
to others, improving, administering or disposing of properties described in the
preceding sentence. The Trust shall have the power to perform any and all acts
and activities with respect to this general purpose that are customary or
incidental thereto including by way of illustration the acquisition, ownership,
management, operation, leasing, improvement, administration and disposition of
such properties or any interest therein as the Trust shall designate. Pending
the commitment of Trust funds to investments in such types of property,
distribution of Trust funds to Shareholders (as defined in Article 10) or
application of reserve funds to their purposes, the Trust shall have full
authority and discretion to utilize Trust funds as provided in Section 5.5. The
Trust shall have all the powers granted to real estate investment trusts
generally by the Code or any successor statute and shall have any other and
further powers as are not inconsistent with and are appropriate to promote and
attain the purposes of the Trust as set forth in this Declaration.
(b) The Trust may engage in real estate operations with others when, in the
judgment of the Trust, it is prudent and desirable under the circumstances. In
any such operations, the Trust may acquire, own, hold, manage, operate, acquire
by lease, lease to others, improve, administer and dispose of the types of
property described in the preceding paragraph, either as principal, agent,
partner, syndicate member, associate, joint venturer or otherwise and may invest
funds in any such business, and may do any and all things necessary or
incidental to the conduct of any such activities. Without limiting the
foregoing, the Trust may supply security for debt of properties or enter into
lease transactions or acquire goods and services for the benefit of a property.
1.3 Relationship among Shareholders; No Partnership. As among the Trust,
the Managing Shareholder, the Trustees, the Shareholders and the officers and
agents of the Trust, a trust and not a partnership is created by this
Declaration irrespective of whether any different status may be held to exist as
far as others are concerned for tax purposes or in any other respect. The
Shareholders hold only the relationship of trust beneficiaries to the Trustees
with only such rights as are conferred on them by this Declaration.
1.4 Organization Certificates. The parties hereto shall cause to be
executed and filed (a) the Certificate, (b) such certificates as may be required
by so-called "assumed name" laws in each jurisdiction in which the Trust has a
place of business, (c) all such other certificates, notices, statements or other
instruments required by law or appropriate for the formation and operation of a
Delaware business trust in all jurisdictions where the Trust may elect to do
business, and (d) any amendments of any of the foregoing required by law or
appropriate.
1.5 Principal Place of Business. The principal place of business of the
Trust shall be 7826 Cooper Road, Cincinnati, Ohio 45242 or such other place as
the Trust may from time to time designate by notice to all Shareholders. The
Trust's office in the State of Delaware and the principal place of business of
Baron Properties, the Corporate Trustee, are located at 1105 North Market
Street, Wilmington, Delaware 19899, or such other place as the Trust may
designate from time to time by notice to all Shareholders. The Trust may
maintain such other offices at such other places as the Trust may determine to
be in the best interests of the Trust.
1.6 Admission of Shareholders. (a) The Trust is authorized to offer for
sale in a public offering (the "Initial Offering") pursuant to the prospectus
(the "Prospectus") dated _____________, 1998, as it may be supplemented or
amended from time to time, at a purchase price of $10 per Share, up to 2,500,000
of the Shares
2
<PAGE>
authorized for issuance under Article 2 of this Declaration, and such Shares
sold shall be designated as Common Shares. The Trust shall have the unrestricted
right at all times prior to the Termination Date (as defined in Article 10) of
the Initial Offering to admit to the Trust such Shareholders as it may deem
advisable, provided the aggregate subscriptions received for the purchase of
Common Shares (as defined in Article 10) of the Shareholders and accepted by the
Trust do not exceed $25,000,000 immediately following the admission of such
Shareholders. After the Termination Date of the Initial Offering, any sale of
Shares (including Common Shares and Preferred Shares) by the Trust shall be
governed by Section 2. The Trust is also authorized to cause Baron Capital
Properties, L.P. (the "Operating Partnership"), its Affiliate through which it
will conduct its real estate operations, to register up to 2,500,000 units of
limited partnership interest ("Units") in the Operating Partnership to use to
acquire interests in residential apartment properties (consistent with the
Trust's investment objectives and policies) in connection with the proposed
Exchange Offering described in the Prospectus. In connection therewith, the
Trust is authorized to exchange unissued Common Shares (in addition to the
2,500,000 to be offered for sale in the Initial Offering) on a one for one basis
for Units tendered by holders of Units requesting such exchange.
(b) Each Shareholder who acquires Common Shares in the Initial Offering
shall execute Subscription Documents (as defined in Article 10) and pay the
purchase therefor to the Trust as subscribed by the Shareholder. Subject to the
acceptance thereof by the Trust, each Shareholder who executes Subscription
Documents shall be admitted to the Trust as an Shareholder. All funds received
from such subscriptions will be deposited in the Trust's name in an
interest-bearing escrow account at a commercial bank until the Escrow Date (as
defined in Article 10).
(c) If, by the close of business on December 31, 1998, at least 50,000
Common Shares (representing $500,000 of gross Initial Offering proceeds) have
not been sold or if the Trust withdraws the Initial Offering of Common Shares in
accordance with the terms of this Declaration, the Trust shall be immediately
dissolved at the expense of the Managing Shareholder and all subscription funds
shall be forthwith returned to the respective subscribers together with any
interest earned thereon. As soon after the Termination Date as practicable, the
Trust shall advise each Shareholder of the Termination Date and the aggregate
amount of proceeds raised by the Trust in the Initial Offering.
(d) The full cash price for Shares must be paid to the Trust at the time of
subscription.
(e) Shareholders who acquire Common Shares from the Trust in the Initial
Offering shall meet the following suitability standards prior to consummating
such acquisition:
(i) Minimum annual gross income of $45,000 and a minimum net worth
(determined exclusive of home, home furnishings, and automobiles) of
$45,000; or
(ii) Minimum net worth of $150,000 (determined exclusive of home, home
furnishings, and automobiles).
The Managing Shareholder and each participating broker-dealer selling Common
Shares in connection with the Initial Offering shall make every reasonable
effort to determine that the acquisition of Common Shares in the Initial
Offering is a suitable and appropriate investment for each Shareholder by
ascertaining that the prospective Shareholder meets the following
qualifications:
(i) Meets the minimum income and net worth standards set forth in this
Section 1.6;
(ii) Can reasonably benefit from the Trust based on the prospective
Shareholder's overall investment objectives and portfolio structure;
(iii) Is able to bear the economic risk of the investment based on the
prospective Shareholder's overall financial situation;
(iv) Has apparent understanding of the fundamental risks of the
investment; of the risk that the Shareholder may lose the entire
investment; of the lack of liquidity of Common Shares; of the
3
<PAGE>
restrictions on transferability of Common Shares as a result of the Trust's
status as a REIT for federal income tax purposes; of the background and
qualifications of the Managing Shareholder; and of the tax consequences of
the investment.
Such suitability determination will be made on the basis of all information
obtained from a prospective Shareholder, including at least the age, investment
objectives, net worth, financial situation and other investments of the
prospective Shareholder, and other pertinent factors. The Managing Shareholder
or the participating broker-dealer who sells the particular Common Shares shall
maintain records of the information used to make the suitability determination
for at least six years from the date of sale. The securities administrator of
any state in which the Trust may sell Common Shares in connection with the
Initial Offering may require minimum initial and subsequent cash investment
amounts.
1.7 Duration of the Trust. For all purposes, this Declaration, as it may be
amended or restated from time to time in accordance with its terms, shall be
effective until the Trust is terminated in accordance with Section 8.1.
1.8 Powers of the Trust. Without limiting any powers granted to the Trust
under this Declaration or applicable law, the Trust shall have the following
additional powers, subject to applicable law:
(a) To borrow money or to loan money and to pledge or mortgage any and all
Trust Property and to execute conveyances, mortgages, security agreements,
assignments and any other contract or agreement deemed proper and in furtherance
of the Trust's purposes and affecting it or any Trust Property (including
without limitation the Trust Management Agreement (as defined in Article 10));
provided, however, that the Trust shall not loan money to the Managing
Shareholder, the Trustees or any other Managing Person except as provided in
Section 1.9(z) below or to any wholly owned subsidiary of the Trust;
(b) To pay all indebtedness, taxes and assessments due or to be due with
regard to Trust Property and to give or receive notices, reports or other
communications arising out of or in connection with the Trust's business or
Trust Property;
(c) To collect all moneys due the Trust;
(d) To establish, maintain and supervise the deposit of funds or Trust
Property into, and the withdrawals of the same from, Trust bank accounts or
securities accounts;
(e) To employ accountants to prepare required tax returns and provide other
professional services and to pay their fees as a Trust expense;
(f) To make election to be treated as a REIT for federal income tax
purposes under Section 856 through 860 of the Code;
(g) To employ legal counsel for Trust purposes and to pay their fees and
expenses as a Trust expense; and
(h) To conduct the affairs of the Trust with the general objective of
achieving capital appreciation and distributable income from the Trust Property.
1.9 Provisions, Restrictions and Prohibitions regarding Trust Operations.
Notwithstanding anything to the contrary set forth in this Declaration, the
Trust, Operating Partnership, Managing Shareholder and Trustees, as the case may
be, shall conform to the following provisions, restrictions and prohibitions in
the operations of the Trust and the Operating Partnership:
(a) A majority of the Independent Trustees shall confirm that prior to the
completion of the Initial Offering and the proposed Exchange Offering, the
Original Investors have contributed to the Operating Partnership
4
<PAGE>
as an initial investment in the Operating Partnership cash in the total amount
of $50,000 and other consideration described in the Prospectus. In exchange for
such consideration, each Original Investor shall be entitled to receive Units
(exchangeable into an equivalent number of Common Shares, subject to a security
escrow agreement described in the Prospectus) in an amount equal to 19% of the
Units outstanding immediately following the completion of the Initial Offering
and the proposed Exchange Offering. The Units issuable to the Original Investors
and the Common Shares into which they are exchangeable shall be in addition to
the 2,500,000 Common Shares which the Trust is offering for sale in the Initial
Offering, the 2,500,000 Units to be registered by the Operating Partnership in
connection with proposed Exchange Offering, and the 2,500,000 additional Common
Shares into which the registered Units are exchangeable. To the extent the Units
issuable to the Original Investors are released from escrow in accordance with
the security escrow agreement referred to above, the Original Investors may
dispose of all or a portion of such Units or Common Shares in the same manner in
which other Unitholders or Shareholders may dispose of their Units or Common
Shares.
(b) At, or prior to, the initial meeting of the Board of the Trust, this
Declaration and the Operating Partnership Agreement shall be reviewed and
ratified by a majority vote of the Board and of the Independent Trustees.
(c) The Board shall establish written policies on investments and any
borrowing to be made by the Trust and Operating Partnership and monitor the
administrative procedures, investment operations and performance of the Trust,
Operating Partnership and the Managing Shareholder to ensure that such policies
are being carried out.
(d) The Board shall evaluate the performance of the Managing Shareholder
(and any successor Advisor of the Trust) prior to entering into or renewing a
management agreement (including without limitation the Trust Management
Agreement which is described in the Prospectus) relating to the administration
and management of the Trust (other than the initial term of the Trust Management
Agreement, which shall be deemed to have been approved by Shareholders who
acquire Common Shares in the Offering and by a majority of the Board and a
majority of the Independent Trustees). The criteria used in such evaluation
shall be reflected in the minutes of such Board meeting. Any such management
agreement shall not have a term of more than one year and shall be terminable by
a majority of the Independent Trustees or the Managing Shareholder (or any
successor Advisor, as the case may be) on at least 60 days prior written notice
without cause or penalty. Upon the termination of the Trust Management Agreement
or any other management agreement that may be entered into by the Trust and the
Managing Shareholder (or any successor Advisor), the Managing Shareholder or
other Advisor, as the case may be, shall cooperate with the Trust and take all
reasonable steps requested to assist the Board in making an orderly transition
of the advisory function. The Board shall determine that any successor to the
Managing Shareholder (or any successor Advisor) possesses sufficient
qualifications to perform the management, administrative and investment advisory
function for the Trust and justify the compensation provided for in the
applicable management agreement.
(e) A majority of the Board and a majority of the Independent Trustees
shall determine whether the conditions set forth in Section 3.7 have been fully
satisfied for indemnification or for advancement of Trust and Operating
Partnership funds for legal expenses and other costs incurred as a result of any
legal action for which indemnification is being sought in respect of the
Managing Shareholder, any Trustee, a broker-dealer, or any Affiliate of the
Managing Shareholder or a Trustee, provided, however, any party seeking
indemnification under Section 3.7 which is the Managing Shareholder, a Trustee
or an Affiliate of the Managing Shareholder or a Trustee shall not be eligible
to participate in making any such determination.
(f) The Independent Trustees shall determine, at least annually, that the
total fees and expenses of the Trust and the Operating Partnership are
reasonable in light of their investment performance, their net assets, their net
income, and the fees and expenses of other comparable unaffiliated REITs. Each
such determination shall be reflected in the minutes of the meeting of the
Board.
(g) The Independent Trustees shall determine that the Organization and
Offering Expenses (as defined below) (including the distribution, due diligence
and organizational fee specified in Section 4.2 of this Declaration) payable by
the Trust and the Operating Partnership in connection with the formation of the
Trust and
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the Operating Partnership and any offerings of Shares or Units is reasonable and
in no event exceeds an amount equal to 15% of the gross proceeds of the
particular offering. For purposes of this Declaration, the term "Organization
and Offering Expenses" means all expenses incurred by and to be paid from the
assets of the Trust and the Operating Partnership in connection with and in
preparing the Trust and the Operating Partnership for registration and
subsequently offering and distributing Shares and Units to the public,
including, but not limited to, total underwriting and brokerage discounts and
commissions (including any fees of the underwriters' attorneys payable by the
Trust or the Operating Partnership), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of transfer
agents, registrars, trustees, escrow holders, depositaries, experts, expenses of
qualification of the sale of the securities under Federal and State laws,
including taxes and fees, accountants' and attorneys' fees.
(h) The Independent Trustees shall determine that the total amount of any
Acquisition Fee (including the investment fee specified in Section 4.3 of this
Declaration) and Acquisition Expenses (as such terms are defined below) payable
by the Trust or the Operating Partnership is reasonable and in no event exceeds
an amount equal to six percent of the purchase price of the subject property, or
in the case of a mortgage loan made or acquired by the Trust or the Operating
Partnership, six percent of the funds advanced, unless a majority of the
"disinterested" members of the Board and a majority of the "disinterested"
Independent Trustees approve payment of an Acquisition Fee in excess of such
amounts based upon their determination that such excess fee is commercially
competitive, fair and reasonable to the Trust and the Operating Partnership. For
purposes of this Declaration, the term "Acquisition Fee" means the total of all
fees and commissions paid by any party to any other party in connection with
making or investing in Mortgage Loans or the purchase, development or
construction of property by the Trust or the Operating Partnership, including
any real estate commission, selection fee, development fee, construction fee,
non-recurring management fee, loan fees or points or any fee of a similar
nature, however designated, but excluding development fees and construction fees
paid to persons not affiliated with the Managing Shareholder in connection with
the actual development and construction of a project. For purposes of this
Declaration, the term "Acquisition Expenses" means all expenses related to the
selection and acquisition of properties, whether or not acquired, including, but
not limited to legal fees and expenses, travel and communications expenses,
costs of appraisals, nonrefundable option payment on property not acquired,
accounting fees and miscellaneous expenses. For purposes of this Declaration,
disinterested members of the Board and disinterested Independent Trustees with
respect to a particular transaction or matter concerning the Trust's or the
Operating Partnership's operations shall include those persons who have no other
interest in any such transaction or matter beyond their role on the Board or as
Independent Trustees.
(i) The Independent Trustees shall have the fiduciary responsibility of
limiting the Total Operating Expenses (as defined below) of each of the Trust
and the Operating Partnership in any fiscal year to the greater of (i) two
percent of their respective Average Invested Assets (as defined below) and (ii)
twenty-five percent of their respective Net Income (as defined below) for such
year unless the Independent Trustees make a finding that, based on such unusual
and non-recurring factors which they deem sufficient, a higher level of such
operating expenses is justified for such year. Any such finding and the reasons
in support thereof shall be reflected in the minutes of the meeting of the
Board. Within 60 days after the end of each fiscal year for which the Trust or
the Operating Partnership incurs operating expenses in excess of such amount,
the Trust shall send to the Shareholders and Unitholders written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees do not determine such excess expenses are
justified, the Managing Shareholder shall reimburse the Trust or the Operating
Partnership, as the case may be, at the end of such fiscal year the amount by
which the Total Operating Expenses paid or incurred by the Trust or the
Operating Partnership, respectively, exceed the limitations herein provided.
For purposes of this Declaration, "Total Operating Expenses" means the
aggregate expenses of every character paid or incurred by the Trust and the
Operating Partnership as determined under generally accepted accounting
principles, including the Managing Shareholder's (and any successor Advisor's)
fees, but excluding the following: (a) the expenses of raising capital such as
Organization and Initial Offering Expenses (defined above), legal, audit,
accounting, underwriting, brokerage, listing, registration and other fees,
printing and other such expenses, and tax incurred in connection with the
issuance, distribution, transfer, registration, and stock exchange
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listing, if any, of the Trust's Shares or the Operating Partnership's Units; (b)
interest payments; (c) taxes; (d) non-cash expenditures such as depreciation,
amortization and bad debt reserves; (e) incentive fees paid in compliance with
subsection (ee) below; (e) Acquisition Fees and Acquisition Expenses (defined
above), real estate commissions on resale of property and other expenses
connected with the acquisition, disposition, and ownership of real estate
interests, mortgage loans, or other property (such as the costs of foreclosure,
insurance premiums, legal services, maintenance, repair, and improvement of
property).
For purposes of this Declaration, "Average Invested Assets" means, for any
period, the average of the aggregate book value of the assets of each of the
Trust and the Operating Partnership invested, directly or indirectly, in equity
interests in and loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves computed by taking the average
of such values at the end of each month during such period.
For purposes of this Declaration, "Net Income" means, for any period, total
revenues applicable to such period, less the expenses applicable to such period
other than additions to reserves for depreciation or bad debts or other similar
non-cash reserves. If the Managing Shareholder receives an incentive fee paid in
compliance with subsection (ee) below, Net Income, for purposes of calculating
Total Operating Expenses in this subsection, shall exclude the gain from the
sale of the assets of the Trust or the Operating Partnership, as applicable.
(j) A majority of the Independent Trustees shall determine that the
conditions set forth in Section 4.5(b) for payment to the Managing Shareholder,
a Trustee, or any of their respective Affiliates of real estate commissions on
purchase or sale of a Trust or Operating Partnership Property have been fully
satisfied, that any such commission payable does not exceed a real estate
commission which is reasonable, customary and competitive in light of the size,
type and location of such property and in no event exceeds three percent of the
sale price, and that the amount of such commissions payable when added to the
commissions payable to unaffiliated real estate brokers does not exceed the
lesser of such competitive real estate commission or an amount equal to six
percent of the sale price.
(k) The Independent Trustees shall determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder (or
any successor Advisor) is reasonable in relation to the nature and quality of
services performed and that such compensation is within the limits prescribed in
subsection (f) above. The Independent Trustees shall also supervise the
performance of the Managing Shareholder (and any successor Advisor) and the
compensation payable to it by the Trust to determine that the terms and
conditions of the contract are being carried out. Each such determination shall
be based on the factors set forth below and all other factors the Independent
Trustees may deem relevant. The findings of the Independent Trustees on each of
such factors shall be recorded in the minutes of the meetings of the Board.
(i) The size of the management fee in relation to the size,
composition and profitability of the portfolio of the Trust and the
Operating Partnership.
(ii) The success of the Managing Shareholder in generating
opportunities that meet the investment objectives of the Trust.
(iii) The rates charged to other REITs and to investors other than
REITs by Advisors performing similar services.
(iv) Additional revenues realized by the Managing Shareholder and any
Affiliates through their relationship with the Trust and the Operating
Partnership, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether
paid by the Trust or the Operating Partnership or by others with whom the
Trust or the Operating Partnership does business.
(v) The quality and extent of service and advice furnished by the
Managing Shareholder.
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(vi) The performance of the investment portfolio of the Trust and the
Operating Partnership, including income, conservation or appreciation of
capital, frequency of problem investments, and competence in dealing with
distress situations.
(vii) The quality of the portfolio of the Trust and the Operating
Partnership in relationship to the investments generated by the Managing
Shareholder for its own account.
(l) Neither the Trust nor the Operating Partnership shall purchase property
or any equity interest in any entity which owns title to one or more properties
from the Managing Shareholder, a Trustee, or any of their respective Affiliates
unless a majority of the disinterested members of the Board and a majority of
the disinterested Independent Trustees review the proposed transaction and
determine that it is fair and reasonable to the Trust and the Operating
Partnership and that the purchase price to the Trust or the Operating
Partnership for such property or equity interest is no greater than the cost of
the property or equity interest to such proposed seller, or if the purchase
price to the Trust or the Operating Partnership is in excess of such cost, that
substantial justification for such excess exists and such excess is reasonable,
provided, however, in no event may the purchase price for the property or equity
interest exceed its current appraised value.
(m) Neither the Managing Shareholder, any Trustee, nor any of their
respective Affiliates shall acquire or lease any assets from the Trust or the
Operating Partnership unless a majority of the disinterested members of the
Board and a majority of the disinterested Independent Trustees determine that
the proposed transaction is fair and reasonable to the Trust and the Operating
Partnership.
(n) No loans may be made by the Trust or the Operating Partnership to the
Managing Shareholder, a Trustee or any of their respective Affiliates except as
provided in subsection (z) below or to any wholly owned subsidiary of the Trust
or the Operating Partnership.
(o) Neither the Trust nor the Operating Partnership may borrow money from
the Managing Shareholder, a Trustee, or any of their respective Affiliates
unless a majority of the disinterested members of the Board and a majority of
the disinterested Independent Trustees determine that such proposed transaction
is fair, competitive, and commercially reasonable and no less favorable to the
Trust and the Operating Partnership than loans between unaffiliated parties
under the same circumstances.
(p) Neither the Trust nor the Operating Partnership shall invest in joint
ventures with the Managing Shareholder, a Trustee, or any of their respective
Affiliates unless a majority of the disinterested members of the Board and a
majority of the disinterested Independent Trustees determine that such proposed
transaction is fair and reasonable to the Trust and the Operating Partnership
and on substantially the same terms and conditions as those received by other
joint venturers.
(q) Neither the Trust nor the Operating Partnership shall invest in equity
securities unless a majority of the disinterested members of the Board and a
majority of the disinterested Independent Trustees determine that such proposed
transaction is fair, competitive, and commercially reasonable.
(r) The Independent Trustees shall review the investment policies of the
Trust at least annually to determine that the policies being followed by the
Trust at any time are in the best interests of the Shareholders. Each such
determination and the basis therefor shall be reflected in the minutes of
meetings of the Board.
(s) In the event that the Trust or the Operating Partnership and one or
more other investment programs sponsored by the Managing Shareholder or an
Affiliate of the Managing Shareholder seek to acquire similar properties, the
Board (including the Independent Trustees) shall review the method described in
the Prospectus for allocating the acquisition of properties among the Trust or
the Operating Partnership, as applicable, and such other programs in order to
determine that such method is applied fairly to the Trust and the Operating
Partnership.
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(t) Any other transaction not described in this Section 1.9 between the
Trust or the Operating Partnership and the Managing Shareholder, a Trustee, or
any of their respective Affiliates shall require the determination of a majority
of the disinterested members of the Board and a majority of the disinterested
Independent Trustees that the proposed transaction is fair and reasonable to the
Trust and the Operating Partnership and on terms and conditions no less
favorable to the Trust and the Operating Partnership than those available from
unaffiliated parties.
(u) The consideration that the Trust and the Operating Partnership pays for
any property or for any equity interest in any entity owning title to one or
more properties shall be based on the fair market value of such property or
equity interest as determined by a majority of the Board, provided, however, in
cases in which a majority of the Independent Trustees in their sole discretion
determine, and in all cases in which the Trust or the Operating Partnership
proposes to acquire any property or equity interest in any entity owning title
to one or more properties from the Managing Shareholder, a Trustee, or any of
their respective Affiliates, such fair market value shall be determined by a
qualified independent appraiser selected by the Independent Trustees. In
addition, the Trust and the Operating Partnership shall not make an equity
investment in respect of any property where the amount invested plus the amount
of any existing indebtedness or refinancing indebtedness in respect of such
property exceeds the appraised value of the property.
(v) In connection with a proposed Roll-up (as defined below) involving the
assets of the Trust or the Operating Partnership, an appraisal of all such
assets shall be obtained from a qualified independent appraiser. If the
appraisal will be included in a prospectus to be used to offer the securities of
a Roll-up Entity (as defined below), the appraisal shall be filed with the
Commission and applicable states as an exhibit to the registration statement for
the offering. The appraisal shall be based on an evaluation of all relevant
information, shall indicate the value of such assets as of a date immediately
prior to the announcement of the proposed transaction, and shall assume an
orderly liquidation of such assets over a 12-month period. The terms of the
engagement of the independent appraiser shall clearly state that the engagement
is for the benefit of the Trust, the Operating Partnership, the Shareholders and
the Unitholders. A summary of the appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Shareholders and
Unitholders in connection with the proposed transaction.
In connection with a proposed Roll-up transaction involving such assets,
the sponsor of the transaction shall offer to Shareholders and Unitholders who
vote against the proposal the choice of:
(i) Accepting the securities of the Roll-up Entity offered in the proposed
transaction, or
(ii) One of the following:
(1) Remaining as Shareholders in the Trust or Unitholders of the
Operating Partnership, as applicable, and preserving their interests
therein on the same terms and conditions as existed previously; or
(2) Receiving cash in an amount equal to their respective pro rata
share of the appraised value of the Net Assets (as defined below) of
the Trust or the Operating Partnership, as applicable.
Neither the Trust nor the Operating Partnership shall participate in any
proposed Roll-up transaction:
(i) which would result in the Shareholders or the Unitholders having rights
in the Roll-up Entity that are less favorable than those provided for
Shareholders under this Declaration or Unitholders under the Operating
Partnership Agreement, respectively;
(ii) which includes provisions which would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the securities of the
Roll-up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-up Entity);
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(iii) which would limit the ability of a Shareholder or Unitholder to
exercise the voting rights of its securities of the Roll-up Entity on the basis
of the number of the Trust's Shares held by such Shareholder or the Operating
Partnership's Units held by such Unitholder..
(iv) in which the rights of access of the Shareholder or the Unitholders to
the records of the Roll-up Entity will be less favorable than those provided for
under this Declaration or the Operating Partnership, respectively; or
(v) in which any of the costs of the transaction would be borne by the
Trust or the Operating Partnership if the Roll-up transaction is not approved by
the Shareholders or the Unitholders, respectively.
For purposes of this Declaration, "Roll-up" means a transaction involving
the acquisition, merger, conversion, or consolidation either directly or
indirectly of the Trust or the Operating Partnership and the issuance of
securities of a Roll-up Entity. Such term does not include the following: (a) a
transaction involving securities of the Trust or the Operating Partnership that
have been for at least 12 months listed on a national securities exchange or
traded through the National Association of Securities Dealers Automated
Quotation National Market System; or (b) a transaction involving the conversion
to corporate, trust, or association form of only the Trust or the Operating
Partnership if, as a consequence of the transaction there will be no significant
adverse change in any of the following: (i) voting rights of the Shareholders or
Unitholders, as applicable; (ii) the term of existence of the Trust or the
Operating Partnership; (iii) compensation payable to the sponsor or advisor of
the Roll-up transaction; or (iv) the Trust's investment objectives. For purposes
of this Declaration, "Roll-Up Entity" means a partnership, real estate
investment trust, corporation, trust, or other entity that would be created or
would survive after the successful completion of a proposed Roll-up transaction.
For purposes of this Declaration, "Net Assets" means the total assets (other
than intangibles) at cost before deducting depreciation or other non-cash
reserves less total liabilities, calculated at least quarterly on a basis
consistently applied.
(w) The aggregate borrowings of each of the Trust and the Operating
Partnership, secured and unsecured, shall be reasonable in relation to their
respective Net Assets (defined above) and shall be reviewed at least quarterly
by the Board. The maximum amount of such borrowings in relation to such Net
Assets shall not exceed 300%, in the absence of a satisfactory showing that
higher level of borrowing is appropriate. Any borrowing in excess of such amount
shall require the approval of a majority of the Independent Trustees and be
disclosed to Shareholders and Unitholders in the next quarterly report of the
Trust, along with an explanation of the justification of such excess.
(x) Neither the Trust nor the Operating Partnership may invest more than
10% of its total assets in Unimproved Real Property (as defined below) or
mortgage loans on such type of property. For purposes of this Declaration,
"Unimproved Real Property" means the real property which has the following three
characteristics: (a) an equity interest in real property which was not acquired
for the purpose of producing rental or other operating income; (b) has no
development or construction in process on such land; and (c) no development or
construction on such land is planned in good faith to commence on such land
within one year.
(y) Neither the Trust nor the Operating Partnership may invest in
commodities or commodity future contracts, excluding future contracts used
solely for hedging purposes in connection with the Trust's and Operating
Partnership's ordinary business of investing in real estate assets and
mortgages.
(z) Neither the Trust nor the Operating Partnership may invest in or make
mortgage loans (other than loans insured or guaranteed by a government or
government agency) unless an appraisal is obtained concerning the underlying
properties. In cases in which a majority of the Independent Trustees in their
sole discretion determine, and in all cases in which the proposed transaction is
with the Managing Shareholder, a Trustee, or any of their respective Affiliates,
the appraisal must be obtained from a qualified independent appraiser. The
appraisal shall be maintained in the Trust's records for at least five years,
and shall be available for inspection and duplication by any Shareholder or
Unitholder at the Shareholder's or Unitholder's own expense. In addition to the
appraisal, the Trust and the Operating Partnership must also obtain a
mortgagee's or owner's title insurance policy or commitment as to
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the priority of the mortgage or the condition of the title. In addition, the
Managing Shareholder and the Board shall observe the following policies in
connection with investing in or making mortgage loans:
(i) The Trust and the Operating Partnership shall not invest in real
estate contracts of sale, otherwise known as land sale contracts, unless
such contracts are in recordable form and appropriately recorded in the
chain of title.
(ii) The Trust and the Operating Partnership shall not invest in or
make any mortgage loans, including construction loans, on any properties if
the aggregate amount of all mortgage loans outstanding on the properties,
including the loans of the Trust or the Operating Partnership, as
applicable, would exceed an amount equal to 80% of the estimated
replacement cost of the properties as determined by the Managing
Shareholder unless substantial justification exists because of the presence
of other underwriting criteria (such as the net worth of the borrower, the
credit rating of the borrower based on historical financial performance, or
collateral adequate to justify waiver from application of the foregoing
restriction) or of other factors (including without limitation, the
availability of loan insurance or guarantees from a government or
government agency, the existence of security for the loan in the form of a
pledge or assignment of other real estate or another real estate mortgage,
or the existence of an assignment of rents under leases where tenants have
demonstrated the ability to satisfy the terms of the leases). In applying
such restriction, the aggregate amount of all outstanding mortgage loans
shall include all interest (other than contingent participation in income
and/or appreciation in value of the mortgaged property) the current payment
of which may be deferred under the terms of such loans, to the extent that
deferred interest on each loan exceeds five percent per annum of the
principal balance of the loan.
(iii) The Trust and the Operating Partnership shall not make or invest
in any mortgage loans that are subordinate to any mortgage or equity
interest of the Managing Shareholder, Trustees or any of their respective
Affiliates.
(aa) Except as otherwise permitted by this Declaration and the Agreement of
Limited Partnership of the Operating Partnership, the Trust and the Operating
Partnership may not issue redeemable equity securities.
(bb) The Trust and the Operating Partnership may not issue debt securities
unless the historical debt service coverage (in the most recently completed
fiscal year) as adjusted for known changes is sufficient to properly service
such higher level of debt.
(cc) The Trust and the Operating Partnership may not issue options or
warrants to purchase Shares or Units to the Managing Shareholder, the Trustees
or any of their respective Affiliates except on the same terms as such options
or warrants are sold to the general public. The Trust and the Operating
Partnership may issue options or warrants to persons not so connected with the
Trust or the Operating Partnership but not at exercise prices less than the fair
market value of such Shares or Units on the date of grant and for consideration
(which may include services) that in the judgment of the Independent Trustees
has a market value less than the value of such option on the date of grant.
Options or warrants issuable to the Managing Shareholder, the Trustees or any of
their respective Affiliates shall not exceed an amount equal to 10% of the
outstanding Shares or of the Units on the date of grant of any options or
warrants.
(dd) The Trust and the Operating Partnership may not issue Shares or Units
on a deferred payment basis or other similar arrangement.
(ee) The payment by the Trust and the Operating Partnership of an interest
in the gain from the sale of their respective assets, for which full
consideration is not paid in cash or property of equivalent value, shall be
allowed provided the amount or percentage of such interest is reasonable. Such
an interest in gain from the sale of Trust or Operating Partnership assets shall
be considered presumptively reasonable if it does not exceed fifteen percent of
the balance of such net proceeds remaining after payment to Shareholders or
Unitholders, as applicable, in the aggregate, of an amount equal to the original
issue price of Shares or Units, plus an amount equal to six percent of the
original issue price of Shares or Units, per annum cumulative. For purposes of
this subsection, the
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calculation of the original issue price of Shares and the Units may be reduced
by prior cash distributions to Shareholders and Unitholders, as applicable. In
the case of multiple Trust Advisors (including the Managing Shareholder), such
Advisors and any of their respective Affiliates shall be allowed incentive fees
provided such fees are distributed by a proportional method reasonably designed
to reflect the value added to Trust and Operating Partnership assets by each
respective Advisor or any Affiliate.
(ff) The Managing Shareholder shall use its reasonable best efforts to
cause the Trust to qualify for federal income tax treatment as a REIT under
Sections 856 - 860 of the Code. In furtherance of the foregoing, the Managing
Shareholder shall use its reasonable best efforts to take such actions from time
to time as are necessary, and is authorized to take such actions as in its sole
judgment and discretion are desirable, to preserve the status of the Trust as a
REIT; provided, however, that if the Managing Shareholder determines, with the
affirmative vote of a Majority of Shareholders entitled to vote on such matter
approving the Managing Shareholder's determination, that it is no longer in the
best interests of the Trust to continue to have the Trust qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
ARTICLE 2
SHARES
2.1 Shares, Certificates of Beneficial Interest. (a) The units into which
the beneficial interest in the Trust shall be divided shall be designated as
Shares, with no par value per Share. Ownership of Shares shall be evidenced by
certificates in such form as shall be determined by the Managing Shareholder
from time to time in accordance with the law of the State of Delaware. The
owners of such Shares, who are the beneficiaries of the Trust, shall be
designated as Shareholders. The certificates shall be negotiable and title
thereto shall be transferred by assignment or delivery in all respects as a
stock certificate of a Delaware corporation. The Trust shall have authority to
issue an aggregate of 25,000,000 Shares. As specified in Section 1.6 of this
Declaration, the Trust will offer for sale in the Initial Offering up to
2,500,000 Shares designated as Common Shares at a purchase price per share of
$10. The consideration payable for the issuance of Shares other than those
offered in the Initial Offering shall be determined by the Managing Shareholder
and shall consist of money paid or property actually received. Shares shall not
be issued until the full amount of the consideration has been received by the
Trust. The Managing Shareholder may authorize Share dividends or Share splits.
All Shares issued hereunder shall be, when issued, fully paid, and no assessment
shall ever be made upon the Shareholders.
(b) The Shareholders shall have no legal title or interest in the property
of the Trust and no right to a partition thereof or to an accounting during the
continuance of the Trust but only to the rights expressly provided in this
Declaration.
(c) The Managing Shareholder may classify or reclassify any unissued Shares
from time to time by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the Shares in accordance
with any applicable law of the State of Delaware. The Managing Shareholder is
authorized to issue from the authorized but unissued Shares of the Trust,
additional Common Shares as well as Preferred Shares in one or more series and
to establish from time to time the number of Preferred Shares to be included in
each such series and to fix the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
series. Except for Preferred Shares so classified or reclassified and issued
hereunder, all other Shares shall be designated as Common Shares, each of which
Common Shares shall be equal in all respects to every other Common Share. Each
Common Share shall entitle the holder to one vote on all matters requiring a
vote of Shareholders, including the election of members of the Board of the
Trust. The authority of the Managing Shareholder with respect to each unissued
series of Preferred Shares shall include, but not be limited to, determination
of the following:
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(i) The number of Shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the Shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on Shares of that
series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, if any, and, if so, the terms of such voting
rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board shall
determine;
(v) Whether or not the Shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
Share payable in case of redemption, which amount may vary under different
conditions and at different redemption rates; provided however, that any
proposed issuance of Shares which are redeemable at the option of the
holder shall be approved by Shareholders holding a majority of the Trust's
outstanding Shares of all classes;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of Shares of that series, and, if so, the terms and amount of
such sinking fund;
(vii) The rights of the Shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Trust, and the relative rights of priority, if any, of payment of Shares of
that series;
(viii) Any other relative rights, preferences and limitations of that
series.
2.2 Sale of Shares. The Managing Shareholder, in its discretion, may from
time to time cause the Trust to issue or sell or contract to issue or sell
Shares, including Shares held in the treasury, to such party or parties and for
money or property actually received, as allowed by the laws of the State of
Delaware, at such time or times, and on such terms as the Managing Shareholder
may deem appropriate, subject to any prior approval of the Board and/or the
Independent Trustees whenever required under Section 1.9 of this Declaration. In
connection with any sale or issuance of Shares, the Managing Shareholder, in its
discretion, may provide for the sale or issuance of fractional Shares or may
provide for the sale or issuance of scrip for fractions of Shares and determine
the terms of such scrip including, without limiting the generality of the
foregoing, the time within which any such scrip must be surrendered in exchange
for Shares and the right, if any, of holders of scrip upon the expiration of the
time so fixed, the right, if any, to receive proportional distributions, and the
right, if any, to redeem scrip for cash, or the Managing Shareholder may, in its
discretion, or if it sees fit at the option of each holder, provide in lieu of
scrip for the adjustment of fractions in cash. The Shareholders shall have no
preemptive rights of any kind whatsoever (preemptive rights hereby defined as
including, but not limited to, the right to purchase or subscribe for or
otherwise acquire any Shares of the Trust of any class, whether now or hereafter
authorized, or any securities or obligations convertible into or exchangeable
for, or any right, warrant or option to purchase such Sharers whether or not
such Shares are issued and/or disposed of for cash, property, or other
consideration of any kind). Options or warrants issued by the Trust to purchase
Shares shall not be exercisable later than five years from the date of issuance
thereof.
2.3 Offering of Shares. The Managing Shareholder is authorized to cause to
be made from time to time offerings of the Shares of the Trust to the public at
public offering prices deemed appropriate. For this purpose, the Managing
Shareholder is authorized to enter into a contract with an underwriter or
distributing company (hereinafter referred to as the "Distributor"), which shall
be granted such commissions for its services as may be agreed upon by the
parties. Any such contract shall be for an initial term of not more than two
years, and thereafter terminable at will by the Managing Shareholder upon 60
days written notice to the Distributor. Such contract shall not be assignable by
the Distributor, without the written consent of the Trust.
2.4 Treasury Shares. The Trust may repurchase or otherwise acquire its own
Shares at the prevailing market price and for this purpose the Trust may create
and maintain such reserves as are deemed necessary and proper. Shares issued
hereunder and purchased or otherwise acquired for the account of the Trust
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shall not, so long as they belong to the Trust, either receive distributions
(except that they shall be entitled to receive distributions payable in Shares
of the Trust) or be voted at any meeting of the Shareholders. Such Shares may,
in the discretion of the Managing Shareholder, be held in the treasury and be
disposed of by the Managing Shareholder at such time or times, to such party or
parties, and for such consideration, as it may deem appropriate.
2.5 Transferability of Shares. (a) Except as otherwise provided in Article
2A and elsewhere in this Declaration, Shares in the Trust shall be transferable
in accordance with the procedure prescribed from time to time in the Trust
Bylaws. The persons in whose name the Shares are registered on the books of the
Trust shall be deemed the absolute owners thereof and, until a transfer is
effected on the books of the Trust, the Managing Shareholder shall not be
affected by any notice, actual or constructive, of any transfer. In the sole
discretion of the Trust, any person acquiring Shares pursuant to any of the
provisions of this Section 2.5 may be required to bear all costs and expenses
necessary to effect a transfer of such Shares. No sale or assignment of Shares
shall release the transferor from those liabilities to the Trust which survive
such assignment or sale as a matter of law or that are imposed under Section
3.4. No transfer of Shares, whether voluntary, involuntary or by operation of
law, shall entitle the transferor to demand or obtain immediate valuation,
accounting or payment of the transferred Shares.
(b) Any sale, issuance, redemption or transfer of Shares which would
operate to disqualify the Trust as a real estate investment trust for purposes
of Federal income tax, is null and void (unless the Managing Shareholder with
the concurrence of a Majority of the Shareholders, prior to such acquisition,
shall have determined that the disqualification of the Trust is advantageous to
Shareholders), and such transaction will be canceled when so determined in good
faith by the Managing Shareholder.
2.6 Effect of Transfer of Shares or Death, Insolvency or Incapacity of
Shareholders. Neither the transfer of Shares nor the death, insolvency or
incapacity of any Shareholder shall operate to dissolve or terminate the Trust,
nor shall it entitle any transferee, legal representative or other person to a
partition of the property of the Trust or to any accounting.
2.7 Repurchase of Shares. The Trust is not obligated to repurchase any
issued Shares unless it specifically agrees to do so in writing. The Trust may
elect to repurchase Shares if such repurchase does not impair the capital or
operations of the Trust and is effected in compliance with any applicable
federal or state securities laws or other applicable laws. The Managing
Shareholder (and any successor Advisor of the Trust), the Trustees, and any of
their respective Affiliates may not receive a fee in connection with any such
repurchase.
2.8 Distribution Reinvestment Plan. Any distribution reinvestment plan that
the Trust may adopt shall, at a minimum, provide that: (i) all material
information regarding the distribution to the Shareholders and the effect of
reinvesting such distribution, including the tax consequences thereof, shall be
provided to the Shareholders at least annually, and (ii) each participating
Shareholder shall have a reasonable opportunity to withdraw from the plan at
least annually after the receipt of such information.
ARTICLE 2A
RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES
2A.1 Definitions. For the purposes of this Article 2A, the following terms
shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Equity Shares by a Person
who would be treated as an owner of such Equity Shares under Section 542(a)(2)
of the Code either directly or constructively through the application of Section
544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial Owner," "Beneficially Owns," "Beneficially Own" and "Beneficially
Owned" shall have the correlative meanings.
"Beneficiary" shall mean the beneficiary of the Excess Share Trust as
determined pursuant to Section 2A.18.
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"Debt" shall mean indebtedness of (a) the Trust or (b) any partnership
formed or acquired by the Trust in which all or a portion of its real estate
assets might be held and its operations might be conducted.
"Equity Shares" shall mean Shares that are either Common Shares or
Preferred Shares.
"Excess Share Trust" shall mean the trust created pursuant to Section
2A.15.
"Existing Holder" shall mean (a) any Person who is, or would be upon the
exchange of Units, Debt or any other security of the Trust, the Beneficial Owner
of Common Shares and/or Preferred Shares in excess of the Ownership Limit both
upon and immediately after the closing of the Initial Public Offering, so long
as, but only so long as, such Person Beneficially Owns or would, upon exchange
of Units, Debt or any other security of the Trust, Beneficially Own Common
Shares and/or Preferred Shares in excess of the Ownership Limit and (b) any
Person to whom an Existing Holder Transfers, subject to the limitations provided
in this Article 2A, Beneficial Ownership of Common Shares and/or Preferred
Shares causing such transferee to Beneficially Own Common Shares and/or
Preferred Shares in excess of the Ownership Limit.
"Existing Holder Limit" (a) for any Existing Holder who is an Existing
Holder by virtue of clause (a) of the definition thereof, shall mean, initially,
the percentage of the outstanding Equity Shares Beneficially Owned, or which
would be Beneficially Owned upon the exchange of Units, Debt or any other
security of the Trust, by such Existing Holder upon and immediately after the
date of the closing of the Initial Public Offering, and, after any adjustment
pursuant to Section 2A.9, shall mean such percentage of the outstanding Equity
Shares as so adjusted, and (b) for any Existing Holder who becomes an Existing
Holder by virtue of clause (b) of the definition thereof, shall mean, initially,
the percentage of the outstanding Equity Shares Beneficially Owned by such
Existing Holder at the time that such Existing Holder becomes an Existing
Holder, but in no event shall such percentage be greater than the Existing
Holder Limit for the Existing Holder who Transferred Beneficial Ownership of the
Common Shares and/or Preferred Shares or, in the case of more than one
transferor, in no event shall such percentage be greater than the smallest
Existing Holder Limit of any transferring Existing Holder, and, after any
adjustment pursuant to Section 2A.9, shall mean such percentage of the
outstanding Equity Shares as so adjusted. From the date of the Initial Public
Offering and until the Restriction Termination Date, the Trust shall maintain
and, upon request, make available to each Existing Holder, a schedule which sets
forth the then current Existing Holder Limits for each Existing Holder.
"Initial Public Offering" shall mean the sale of Common Shares pursuant to
the Trust's first effective registration statement for such Common Shares filed
under the Securities Act of 1933, as amended.
"Market Price" shall mean the last reported sales price reported on the New
York Stock Exchange of Common Shares or Preferred Shares, as the case may be, on
the trading day immediately preceding the relevant date, or if not then traded
on the New York Stock Exchange, the last reported sales price of the Common
Shares or Preferred Shares, as the case may be, on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system over
or through which the Common Shares or Preferred Shares, as the case may be, may
be traded, or if not then traded over or through any exchange or quotation
system, then the market price of the Common Shares and/or Preferred Shares, as
the case may be, on the relevant date as determined in good faith by the
Managing Shareholder of the Trust.
"Ownership Limit" shall initially mean 5.0%, in number of shares or value,
of the outstanding Equity Shares of the Trust, and after any adjustment as set
forth in Section 2A.10, shall mean such greater percentage of the outstanding
Equity Shares as so adjusted. The number and value of the outstanding Equity
Shares of the Trust shall be determined by the Managing Shareholder in good
faith, which determination shall be conclusive for all purposes hereof.
"Person" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code),
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section
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509(a) of the Code, joint stock company or other entity; but does not include an
underwriter which participated in a public offering of the Common Shares and/or
Preferred Shares for a period of 25 days following the purchase by such
underwriter of the Common Shares and/or Preferred Shares.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer which results in Excess Shares as defined below in Section 2A.3, the
purported beneficial transferee for whom the Purported Record Transferee would
have acquired shares of Equity Shares, if such Transfer had been valid under
Section 2A.2.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Shares, the record holder of the Equity Shares
if such Transfer had been valid under Section 2A.2.
"Restriction Termination Date" shall mean the first day after the date of
the Initial Public Offering on which the Managing Shareholder determines, which
determination must be approved by the Shareholders, that it is no longer in the
best interests of the Trust to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Equity Shares (including (a) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Equity Shares, but
excluding the exchange of Units, Debt or any other security of the Trust for
Equity Shares and (c) any transfer or other disposition of any interest in
Equity Shares as a result of a change in the marital status of the holder
thereof), whether voluntary or involuntary, whether of record or beneficially
and whether by operation of law or otherwise. The terms "Transfers" and
"Transferred" shall have the correlative meanings.
"Units" shall mean units of limited partnership of any partnership formed
or acquired by the Trust in which all or a portion of the Trust's real estate
assets might be held and its operations might be conducted.
2A.2 Ownership Limitation.
(a) Except as provided in Section 2A.12, from the date of the Initial
Public Offering and until the Restriction Termination Date, no Person (other
than an Existing Holder) shall Beneficially Own Common Shares and/or Preferred
Shares in excess of the Ownership Limit and no Existing Holder shall
Beneficially Own Common Shares and/or Preferred Shares in excess of the Existing
Holder Limit for such Existing Holder.
(b) Except as provided in Sections 2A.9 and 2A.12, from the date of the
Initial Public Offering and until the Restriction Termination Date, any Transfer
that, if effective, would result in any Person (other than an Existing Holder)
Beneficially Owning Common Shares and/or Preferred Shares in excess of the
Ownership Limit shall be void ab initio as to the Transfer of such Common Shares
and/or Preferred Shares which would be otherwise Beneficially Owned by such
Person in excess of the Ownership Limit; and the intended transferee shall
acquire no rights in such Common Shares and/or Preferred Shares.
(c) Except as provided in Sections 2A.9 and 2A.12, from the date of the
Initial Public Offering and until the Restriction Termination Date, any Transfer
that, if effective, would result in any Existing Holder Beneficially Owning
Common Shares and/or Preferred Shares in excess of the applicable Existing
Holder Limit shall be void ab initio as to the Transfer of such Common Shares
and/or Preferred Shares which would be otherwise Beneficially Owned by such
Existing Holder in excess of the applicable Existing Holder Limit; and such
Existing Holder shall acquire no rights in such Common Shares and/or Preferred
Shares.
(d) Except as provided in Section 2A.12, from the date of the Initial
Public Offering and until the Restriction Termination Date, any Transfer that,
if effective, would result in the Common Shares and/or Preferred Shares being
beneficially owned (as provided in Section 856(a) of the Code) by less than 100
Persons (determined without reference to any rules of attribution) shall be void
ab initio as to the Transfer of such Common Shares and/or Preferred Shares which
would be otherwise beneficially owned (as provided in Section 856(a) of the
Code)
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by the transferee; and the intended transferee shall acquire no rights in such
Common Shares and/or Preferred Shares.
(e) From the date of the Initial Public Offering and until the Restriction
Termination Date, any Transfer that, if effective, would result in the Trust
being "closely held" within the meaning of Section 856(h) of the Code shall be
void ab initio as to the Transfer of the Common Shares and/or Preferred Shares
which would cause the Trust to be "closely held" within the meaning of Section
856(h) of the Code; and the intended transferee shall acquire no rights in such
Common Shares and/or Preferred Shares.
(f) Nothing contained in this Article 2A shall impair the settlement of
transactions entered into on the facilities of the New York Stock Exchange.
2A.3 Excess Shares.
(a) If, notwithstanding the other provisions contained in this Article 2A,
at any time after the date of the Initial Public Offering and until the
Restriction Termination Date, there is a purported Transfer or other change in
the capital structure of the Trust (except for a change resulting from the
exchange of Units for Equity Shares) such that any Person would Beneficially Own
Common Shares and/or Preferred Shares in excess of the applicable Ownership
Limit or Existing Holder Limit, then, except as otherwise provided in Sections
2A.9 and 2A.12, such Common Shares and/or Preferred Shares in excess of such
Ownership Limit or Existing Holder Limit (rounded up to the nearest whole share)
shall constitute "Excess Shares" and be treated as provided in this Article 2A.
Such designation and treatment shall be effective as of the close of business on
the business day prior to the date of the purported Transfer or change in
capital structure (except for a change resulting from the exchange of Units for
Equity Shares).
(b) If, notwithstanding the other provisions contained in this Article 2A,
at any time after the date of the Initial Public Offering and until the
Restriction Termination Date, there is a purported Transfer or other change in
the capital structure of the Trust (except for a change resulting from the
exchange of Units for Equity Shares) which, if effective, would cause the Trust
to become "closely held" within the meaning of Section 856(h) of the Code, then
the Common Shares and/or Preferred Shares being Transferred which would cause
the Trust to be "closely held" within the meaning of Section 856(h) of the Code
(rounded up to the nearest whole share) shall constitute Excess Shares and be
treated as provided in this Article 2A. Such designation and treatment shall be
effective as of the close of business on the business day prior to the date of
the purported Transfer or change in capital structure (except for a change
resulting from the exchange of Units for Equity Shares).
2A.4 Prevention of Transfer. If the Managing Shareholder or its designee
shall at any time determine in good faith that a Transfer has taken place in
violation of Section 2A.2 or that a Person intends to acquire or has attempted
to acquire beneficial ownership (determined without reference to any rules of
attribution) or Beneficial Ownership of any Shares of the Trust in violation of
Section 2A.2, the Managing Shareholder or its designee shall take such action as
it deems advisable to refuse to give effect to or to prevent such transfer,
including, but not limited to, refusing to give effect to such Transfer on the
books of the Trust or instituting proceedings to enjoin such Transfer; provided,
however, that any Transfers or attempted Transfers in violation of Sections
2A.2(b), 2(c), 2(d) and 2(e) shall automatically result in the designation and
treatment described in Section 2A.3, irrespective of any action (or non-action)
by the Managing Shareholder.
2A.5 Notice to Trust. Any Person who acquires or attempts to acquire Equity
Shares in violation of Section 2A.2, or any Person who is a transferee such that
Excess Shares results under Section 2A.3, shall immediately give written notice
or, in the event of a proposed or attempted Transfer, give at least 15 days
prior written notice to the Trust of such event and shall provide to the Trust
such other information as the Trust may request in order to determine the
effect, if any, of such Transfer or attempted Transfer on the Trust's status as
a REIT.
2A.6 Information for Trust. From the date of the Initial Public Offering
and until the Restriction Termination Date:
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(a) every Beneficial Owner of more than 5.0% (or such other percentage,
between 1/2 of 1% and 5.0%, as provided in the income tax regulations
promulgated under the Code) of the number or value of outstanding Equity Shares
of the Trust shall, within 30 days after January 1 of each year, give written
notice to the Trust stating the name and address of such Beneficial Owner, the
number of Shares Beneficially Owned, and a description of how such Shares are
held. Each such Beneficial Owner shall provide to the Trust such additional
information as the Trust may reasonably request in order to determine the
effect, if any, of such Beneficial Ownership on the Trust's status as a REIT.
(b) each Person who is a Beneficial Owner of Common Shares and/or Preferred
Shares and each Person (including the Shareholder of record) who is holding
Common Shares and/or Preferred Shares for a Beneficial Owner shall provide to
the Trust in writing such information with respect to direct, indirect and
constructive ownership of Shares as the Managing Shareholder deems reasonably
necessary to comply with the provisions of the Code applicable to a REIT, to
determine the Trust's status as a REIT, to comply with the requirements of any
taxing authority or governmental agency or to determine any such compliance.
2A.7 Other Action by Board. Subject to clause (f) of Section 2A.2, nothing
contained in this Article 2A shall limit the authority of the Managing
Shareholder to take such other action as it deems necessary or advisable to
protect the Trust and the interests of its Shareholders by preservation of the
Trust's status as a REIT.
2A.8 Ambiguities. In the case of an ambiguity in the application of any of
the provisions of this Article 2A, including any definition contained in Section
2A.1, the Managing Shareholder shall have the power to determine the application
of the provisions of this Article 2A with respect to any situation based on the
facts known to it.
2A.9 Modification of Existing Holder Limits. The Existing Holder Limits may
be modified as follows:
(a) Subject to the limitations provided in Section 2A.11, the Managing
Shareholder of the Trust may grant options which result in Beneficial Ownership
of Common Shares and/or Preferred Shares by an Existing Holder pursuant to an
option plan approved by the Managing Shareholder, the Board of the Trust and/or
the Shareholders of the Trust. Any such grant shall increase the Existing Holder
Limit for the affected Existing Holder to the maximum extent possible under
Section 2A.11 to permit the Beneficial Ownership of the Common Shares and/or
Preferred Shares issuable upon the exercise of such option.
(b) Subject to the limitations provided in Section 2A.11, an Existing
Holder may elect to participate in a dividend reinvestment plan approved by the
Managing Shareholder or the Board of the Trust which results in Beneficial
Ownership of Common Shares and/or Preferred Shares by such participating
Existing Holder and any comparable reinvestment plan of any partnership formed
or acquired by the Trust in which all or a portion of its real estate assets
might be held and its operations might be conducted, wherein those Existing
Holders holding Units are entitled to purchase additional Units. Any such
participation shall increase the Existing Holder Limit for the affected Existing
Holder to the maximum extent possible under Section 2A.11 to permit Beneficial
Ownership of the Common Shares and/or Preferred Shares acquired as a result of
such participation.
(c) The Managing Shareholder will reduce the Existing Holder Limit for any
Existing Holder after any Transfer permitted in this Article 2A by such Existing
Holder by the percentage of the outstanding Equity Shares so Transferred or
after the lapse (without exercise) of an option described in Section 2A.9(a) by
the percentage of the Equity Shares that the option, if exercised, would have
represented, but in either case no Existing Holder Limit shall be reduced to a
percentage which is less than the Ownership Limit.
2A.10 Increase or Decrease in Ownership Limit. Subject to the limitations
provided in Section 1.2 or Section 2A.11, the Managing Shareholder may from time
to time increase or decrease the Ownership Limit; provided, however, that any
decrease may only be made prospectively as to subsequent holders (other than a
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decrease as a result of a retroactive change in existing law, in which case such
decrease shall be effective immediately).
2A.11 Limitations on Changes in Existing Holder and Ownership Limits.
(a) Neither the Ownership Limit nor any Existing Holder Limit may be
increased (nor may any additional Existing Holder Limit be created) if, after
giving effect to such increase (or creation), five Beneficial Owners of Common
Shares (including all of the then Existing Holders) could Beneficially Own, in
the aggregate, more than 50% in number or value of the outstanding Equity
Shares.
(b) Prior to the modification of any Ownership Limit or Existing Holder
Limit pursuant to Sections 2A.9 or 2A.10, the Managing Shareholder may require
such opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT.
(c) No Existing Holder Limit shall be reduced to a percentage which is less
than the Ownership Limit.
2A.12 Waivers by Managing Shareholder. The Managing Shareholder, upon
receipt of a ruling from the Internal Revenue Service or an opinion of counsel
or other evidence satisfactory to the Managing Shareholder and upon at least 15
days written notice from a transferee prior to the proposed Transfer which, if
consummated, would result in the intended transferee owning shares in excess of
Ownership Limit or Existing Holder Limit, as the case may be, and upon such
other conditions as the Managing Shareholder may direct, may in its discretion
waive the Ownership Limit or the Existing Holder Limit, as the case may be, with
respect to such transferee depending on the then existing facts and
circumstances surrounding the proposed transfer, including without limitation,
the identity and extent of ownership of Shares of the party requesting such
waiver, the number and extent of Share ownership of other Shareholders and the
aggregate number of outstanding Shares, and the extent of any contractual
restrictions (other than that contained in this Declaration) on any Shareholders
relating to transfer of their Shares.
2A.13 Legend. Each certificate for Common Shares and/or Preferred Shares
shall bear substantially the following legend:
The securities represented by this certificate are subject
to restrictions on transfer for the purpose of the Trust's
maintenance of its status as a real estate investment trust
under the Internal Revenue Code of 1986, as amended. Except
as otherwise provided pursuant to the Declaration of Trust
for the Trust, no Person may Beneficially Own Shares of
Common Shares and/or Preferred Shares in excess of 5.0% (or
such greater percentage as may be determined by the Managing
Shareholder of the Trust) of the number or value of the
outstanding Equity Shares of the Trust (unless such Person
is an Existing Holder). Any Person who attempts or proposes
to Beneficially Own Common Shares and/or Preferred Shares in
excess of the above limitations must notify the Trust in
writing at least 15 days prior to such proposed or attempted
Transfer. All capitalized terms in this legend have the
meanings defined in the Declaration of Trust for the Trust,
a copy of which, including the restrictions on transfer,
will be sent without charge to each Shareholder who so
requests. If the restrictions on transfer are violated, the
securities represented hereby will be designated and treated
as Excess Shares which will be held in trust by the Trust.
2A.14 Severability. If any provision of this Article 2A or any application
of any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of the
remaining provisions shall be affected only to the extent necessary to comply
with the determination of such court.
2A.15 Trust for Excess Shares. Upon any purported Transfer that results in
Excess Shares pursuant to Section 2A.3, such Excess Shares shall be deemed to
have been transferred to the Trust, as trustee of an "Excess
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Share Trust" for the benefit of such Beneficiary or Beneficiaries to whom an
interest in such Excess Shares may later be transferred pursuant to Section
2A.18. Excess Shares so held in trust shall be issued and outstanding Shares of
the Trust. The Purported Record Transferee shall have no rights in such Excess
Shares except the right to designate a Beneficiary of an interest in the Excess
Share Trust (representing the number of shares of Excess Shares held by the
Trust attributable to a purported Transfer that resulted in the Excess Shares)
upon the terms specified in Section 2A.18. The Purported Beneficial Transferee
shall have no rights in such Excess Shares except as provided in Section 2A.18.
2A.16 No Distributions for Excess Shares. Excess Shares shall not be
entitled to any distributions (whether as dividends or as distributions upon
liquidation, dissolution or winding up). Any dividend or distribution paid prior
to the discovery by the Trust that the Common Shares and/or Preferred Shares
have been Transferred so as to be deemed Excess Shares shall be repaid to the
Trust upon demand.
2A.17 No Voting Rights for Excess Shares. The holders of Excess Shares
shall not be entitled to vote on any matter.
2A.18 Non-Transferability of Excess Shares. Excess Shares in the Excess
Share Trust shall not be transferable. The Purported Record Transferee may
freely designate a Beneficiary of an interest in the Excess Share Trust
(representing the number of Excess Shares held by the Trust attributable to a
purported Transfer that resulted in the Excess Shares), if (a) the Excess Shares
held in the Excess Share Trust would not be Excess Shares in the hands of such
Beneficiary and (b) the Purported Beneficial Transferee does not receive a price
for designating such Beneficiary that reflects a price per share for such Excess
Shares that exceeds (i) the price per share such Purported Beneficial Transferee
paid for the Common Shares and/or Preferred Shares, as the case may be, in the
purported Transfer that resulted in the Excess Shares, or (ii) if the Purported
Beneficial Transferee did not give value for such Excess Shares (through a gift,
devise or other transaction), a price per share equal to the Market Price for
the Excess Shares on the date of the purported Transfer that resulted in the
Excess Shares. Upon such transfer of an interest in the Excess Share Trust, the
corresponding Excess Shares in the Excess Share Trust shall be automatically
exchanged for an equal number of Common Shares and/or Preferred Shares, as
applicable, and such Common Shares and/or Preferred Shares, as applicable, shall
be transferred of record to the transferee of the interest in the Excess Share
Trust if such Common Shares and/or Preferred Shares, as applicable, would not be
Excess Shares in the hands of such transferee. Prior to any transfer of any
interest in the Excess Share Trust, the Purported Record Transferee must give
advance notice to the Trust of the intended transfer and the Trust must have
waived in writing its purchase rights under Section 2A.19.
Notwithstanding the foregoing, if a Purported Beneficial Transferee
receives a price for designating a Beneficiary of an interest in the Excess
Share Trust that exceeds the amounts allowable under this Section 2A.18, such
Purported Beneficial Transferee shall pay, or cause such Beneficiary to pay,
such excess to the Trust.
If any of the foregoing restrictions on transfer of Excess Shares are
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Trust, to have acted as an agent of the Trust in acquiring such Excess
Shares and to hold such Excess Shares on behalf of the Trust.
2A.19 Call by Trust on Excess Shares. Excess Shares shall be deemed to have
been offered for sale to the Trust, or its designee, at a price per share equal
to the lesser of (a) the price per share in the transaction that created such
Excess Shares (or, in the case of a devise, gift or other transaction in which
no value was given for such Excess Shares, the Market Price at the time of such
devise, gift or other transaction) and (b) the Market Price of the Common Shares
and/or Preferred Shares to which such Excess Shares relates on the date the
Trust, or its designee, accepts such offer. The Trust shall have the right to
accept such offer for a period of 90 days after the later of (x) the date of the
Transfer which resulted in such Excess Shares and (y) the date the Managing
Shareholder determines in good faith that a Transfer resulting in Excess Shares
has occurred, if the Trust does not receive a notice of such Transfer pursuant
to Section 2A.5 but in no event later than a permitted Transfer pursuant to and
in compliance with the terms of Section 2A.18.
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ARTICLE 3
LIABILITIES
3.1 Liability and Obligations of Corporate Trustee. (a) To the fullest
extent permitted by the Delaware Act, the Corporate Trustee in its capacity as a
trustee of the Trust shall not be personally liable to any person other than the
Trust and its Shareholders for any act or omission of the Trustees or the Trust,
or any obligation of the Trust or the Trustees. The trust estate shall be
directly liable for the payment or satisfaction of all obligations and
liabilities of the Trust incurred by the Trustees and the officers and agents of
the Trust within their authority.
(b) The Corporate Trustee, as trustee, may be made party to any action,
suit or proceeding to enforce any obligation, liability or right of the Trust,
but it shall not solely on account thereof be liable separate from the Trust and
it shall be a party in that case only insofar as may be necessary to enable such
obligation or liability to be enforced against the trust estate. The Corporate
Trustee shall not exercise any management or administrative powers in respect of
the Trust except at the direction of the Managing Shareholder or the Board.
3.2 Liability and Obligations of Managing Shareholder, Independent
Trustees, and other Members of the Board in General. (a) As permitted by Section
3808 of the Delaware Act, the Managing Shareholder, Independent Trustees and any
other members of the Board shall not hold title to or have any legal or
possessory interest in any Trust Property. It shall not be necessary or
effective for any of the Managing Shareholders, Independent Trustees or any
other member of the Board to be made a party to any action, suit or proceeding
to enforce any obligation, liability or right of the Trust.
(b) In performing their responsibilities under this Declaration, the
Managing Shareholder, Independent Trustees and any other members of the Board of
the Trust shall be under a fiduciary duty and obligation to act in the best
interests of the Trust, including the safekeeping and use of all Trust funds and
assets for which they are responsible under this Declaration. In interpreting
the scope of this obligation, the Managing Shareholder, Independent Trustees and
other members of the Board will have the responsibilities of and will be
entitled to the defenses of directors of a Delaware corporation.
3.3 Liability of Managing Shareholder, Independent Trustees and other
Members of the Board to Third Parties. The Managing Shareholder, Independent
Trustees and any other members of the Board of the Trust shall have no rights of
indemnity or exoneration against any Shareholder individually with regard to any
liability or obligation of the Trust; but, as hereinafter provided, the Managing
Shareholder, Independent Trustees and any other members of the Board may satisfy
any claims they have against the Trust out of the Trust assets. Neither the
Managing Shareholder, Independent Trustees nor any other members of the Board
shall be liable for any act or neglect of any person or firm with respect to the
performance of any duty, service or act which has been delegated to such person
or firm by the Managing Shareholder, Independent Trustees or any other members
of the Board, as the case may be, pursuant to authority contained in this
Declaration; the Managing Shareholder, Independent Trustees and any other member
of the Board shall, however, use good faith in selecting and appointing agents
or representatives to whom authority to act on behalf of the Trust is delegated.
Neither the Managing Shareholder, Independent Trustees nor any other member of
the Board shall be individually liable for any obligation or liability incurred
by or on behalf of the Trust or by the Managing Shareholder, Independent
Trustees or any other member of the Board for the benefit and on behalf of the
Trust.
3.4 Liability of Shareholders in General. No Shareholder in his capacity as
an Shareholder shall have any liability for the debts and obligations of the
Trust in any amount beyond the unpaid amount, if any, of the subscriptions for
the purchase of Shares made by him in the Initial Offering or any subsequent
offerings of the Trust. Each Shareholder shall have the same limitation on his
liability for the Trust's debts and obligations as a stockholder of a Delaware
corporation has for debts and obligations of the corporation. Each written
contract to which the Trust is a party shall include a provision that the
Shareholders shall not be personally liable thereon.
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3.5 Liability of Shareholders to the Trust, Managing Shareholder, Trustees,
Members of the Board and Other Shareholders. No Shareholder in his capacity as a
Shareholder shall be liable, responsible or accountable in damages or otherwise
to the Trust, the Managing Shareholder, the Trustees, any other members of the
Board or any other Shareholders for any claim, demand, liability, cost, damage
and cause of action of any nature whatsoever that arises out of or that is
incidental to the management of the Trust's affairs.
3.6 Liability of Managing Persons to Trust and Shareholders. (a) No
Managing Person (as defined in Section 10) shall have liability to the Trust or
to any other Shareholder for any loss suffered by the Trust that arises out of
any action or inaction of the Managing Person if the Managing Person, in good
faith, determined that such course of conduct was in the Trust's best interest
and such course of conduct was within the scope of this Declaration and did not
constitute (i) negligence or misconduct in the case of any Managing Person who
is a Trustee (excluding the Independent Trustees), Managing Shareholder or an
Affiliate of such Trustee or Managing Shareholder or (ii) gross negligence or
willful misconduct in the case of any Managing Person who is an Independent
Trustee.
(b) No act of the Trust shall be affected or invalidated by the fact that a
Managing Person may be a party to or has an interest in any contract or
transaction of the Trust if the interest of the Managing Person has been
disclosed or is known to the Shareholders or such contract or transaction is at
prevailing rates or is on terms at least as favorable to the Trust as those
available from persons who are not Managing Persons.
3.7 Indemnification of Managing Persons. (a) Each Managing Person shall be
indemnified out of the Trust Property against any losses, liabilities,
judgments, expenses and amounts paid in settlement of any claims sustained by
him in connection with the Trust or claims by the Trust, in right of the Trust
or by or in right of any Shareholders, if the Managing Person would not be
liable under the standards of Section 3.6 and, in the case of Managing Persons
other than the Managing Shareholder, Trustees and other members of the Board,
the indemnitees were acting within the scope of authority validly delegated to
them by the Managing Shareholder, Trustees or any other members of the Board.
The termination of any action, suit or proceeding by judgment, order or
settlement shall not, of itself, create a presumption that the Managing Person
charged did not act in good faith and in a manner that he reasonably believed
was in the Trust's best interests. To the extent that any Managing Person is
successful on the merits or otherwise in defense of any action, suit or
proceeding or in defense of any claim, issue or matter therein, the Trust shall
indemnify that Managing Person against the expenses, including attorneys' fees,
actually and reasonably incurred by him in connection therewith.
(b) Notwithstanding the foregoing, no Managing Person nor any broker-dealer
shall be indemnified, nor shall expenses be advanced on its behalf, for any
losses, liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws, unless (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee, or (ii) those claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee or (iii) a court of competent jurisdiction approves
a settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In any
claim for federal or state securities law violations, the party seeking
indemnification shall place before the court the positions of the Securities and
Exchange Commission and of securities administrators of states in which
securities of the Trust were offered or sold to the extent required by them with
respect to the issue of indemnification for securities law violations.
(c) The Trust shall not incur the cost of that portion of any insurance,
other than public liability insurance, that insures any person against any
liability for which indemnification hereunder is prohibited.
3.8 General Provisions. The following provisions shall apply to all rights
of indemnification and advances of expenses under this Declaration and all
liabilities described in this Article 3:
(a) Expenses, including attorneys' fees, incurred by a Managing Person in
defending any action, suit or proceeding may be paid by the Trust in advance of
the final disposition of the action, suit or proceeding only if all of the
following conditions are satisfied:
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(i) The action, suit or proceeding relates to acts or omissions with
respect to the performance of duties or services on behalf of the Trust;
(ii) The action, suit or proceeding is initiated by a third party who
is not a Shareholder or it is initiated by a Shareholder acting in its
capacity as such and a court of competent jurisdiction specifically
approves such advancement; and
(iii) The Managing Person seeking advancement of expenses undertakes
to repay such amount, together with the applicable legal rate of interest
thereon, if it shall ultimately be determined that the Managing Person is
not entitled to be indemnified by the Trust under this Declaration or
otherwise and if at least one of the following conditions is satisfied:
(1) The Managing Person provides appropriate security for the
undertaking;
(2) The Managing Person is insured against losses or expenses of
defense or settlement so that the advances may be recovered or
(3) Either a majority of the Independent Trustees who are not
parties to the action, suit or proceeding, or independent legal
counsel in a written opinion, determines, based upon a review of the
then readily available facts, that there is reason to believe that the
Managing Person will be found to be entitled to indemnification under
Section 3.7. In so doing, it shall not be necessary to employ hearing
or trial-like procedures.
(b) Rights to indemnification and advances of expenses under this
Declaration are not exclusive of any other rights to indemnification or advances
to which a Managing Person may be entitled, both as to action in a
representative capacity or as to action in another capacity taken while
representing another.
(c) Each Managing Person shall be entitled to rely upon the opinion or
advice of or any statement or computation by any counsel, engineer, accountant,
investment banker or other person retained by such Managing Person or the Trust
which he believes to be within such person's professional or expert competence.
In so doing, he will be deemed to be acting in good faith and with the requisite
degree of care unless he has actual knowledge concerning the matter in question
that would cause such reliance to be unwarranted.
3.9 Dealings with Trust. With regard to all rights of the Trust and all
actions to be taken on its behalf, the Trust and not the Trustees, nor the
Managing Shareholder, the Board or its members, the Trust's officers and agents,
or the Shareholders shall be the principal and the Trust shall be entitled as
such to the extent permitted by law to enforce the same, collect damages and
take all other action. All agreements, obligations and actions of the Trust
shall be executed or taken in the name of the Trust, by an appropriate nominee,
or by the Corporate Trustee as trustee but not in its individual capacity. Money
may be paid and property delivered to any duly authorized officer or agent of
the Trust who may receipt therefor in the name of the Trust and no person
dealing in good faith thereby shall be bound to see to the application of any
moneys so paid or property so delivered. No entity whose securities are held by
the Trust shall be affected by notice of such fact or be bound to see to the
execution of the Trust or to ascertain whether any transfer of its securities by
or to the Trust or the Corporate Trustee is authorized.
ARTICLE 4
PAYMENT OF TRUST EXPENSES
4.1 Selling Commissions. The Trust shall be authorized to pay out of Trust
Property to the Dealer Manager (as defined in Section 10)or to any broker-dealer
selected by the Trust or the Dealer Manager who effects the sale of one or more
whole or fractional Shares (including Common Shares in the Initial Offering),
cash selling commissions in an aggregate amount equal to up to eight percent of
the gross proceeds from the sale of Share as
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determined by the Managing Shareholder. Such commissions payable in respect of
sales of Common Shares in the Initial Offering shall be due and payable promptly
after the later to occur of (i) acceptance by the Trust of an Shareholder's
subscription, (ii) the Escrow Date or (iii) the receipt by the Trust of the
gross purchase price for the Shares. Such commissions in respect of additional
sales of Shares by the Trust subsequent to completion of the Initial Offering
shall be due and payable upon the later of such date on which purchase proceeds
are accepted and collected by the Trust or the fulfillment of any applicable
escrow conditions.
4.2 Organization and Offering Expenses. (a) The Trust shall be authorized
to pay a fee to the Managing Shareholder to cover Organization and Offering
Expenses (as defined in Section 1.9(g)) which conform with Section 1.9(g) in
connection with any offering of Shares.
(b) The Trust shall be authorized to pay to the Managing Shareholder out of
Trust Property a non-accountable fee in an amount equal to one percent of gross
proceeds from the sale of Common Shares in the Initial Offering to cover
distribution, due diligence and organizational expenses relating to formation of
the Trust and the Initial Offering and a non-accountable fee in an amount equal
to one percent of gross proceeds from the sale of Common Shares in the Initial
Offering to cover legal, accounting, consulting and recording fees, printing,
filing, postage and other miscellaneous costs associated with the Offering.
These fees shall be payable at the same time that selling commissions are
payable. To the extent that the amount of the expenses covered by the respective
fee exceeds the amount payable, those expenses will be payable by the Managing
Shareholder.
4.3 Investment Fee. The Trust shall be authorized to pay to the Managing
Shareholder out of Trust Property an investment fee in an amount equal to four
percent of the gross proceeds from the sale of Common Shares in the Initial
Offering and from each subsequent offering of Shares. The investment fee payable
in respect of sales of Common Shares in the Initial Offering in 1998 is to
compensate for the services of the Managing Shareholder in investigating and
evaluating real estate investment opportunities and effecting transactions for
investing the net sale proceeds of the Initial Offering through 1998, and the
investment fee payable in a later year is for those services rendered in that
year. One-half of the investment fee payable in respect of investment of net
proceeds from the Initial Offering shall be payable on the Escrow Date as to
Common Shares purchased through that date and on each date thereafter on which
the Trust receives and collects full payment for additional accepted
subscriptions for Common Shares in connection with the Offering, and the balance
of the fee shall be payable proportionately upon the consummation of each of the
Trust's real estate investments based on the amount invested. In addition, the
Trust shall be authorized to pay to the Managing Shareholder an investment fee
in an amount equal to four percent of gross proceeds received by the Trust in
connection with offers and sales of Shares pursuant to Article 2.2 or 2.3, for
similar services rendered by the Managing Shareholder during the year in which
such funds are received by the Trust. One-half of the fee in respect of services
performed by the Managing Shareholder during any year in which such additional
funds are received by the Trust shall be payable upon the later of each date on
which payment is accepted and collected by the Trust or the fulfillment of any
applicable escrow conditions, and the balance shall be payable proportionately
upon the consummation of each of the Trust's real estate investments based on
the amount of such funds invested.
4.4 Property Management Fee. The Trust shall be authorized to pay to
Brentwood Management, LLC ("Brentwood"), an Affiliate of the Managing
Shareholder, or any other Affiliate of the Managing Shareholder a fee in an
amount equal to five percent of collected rental income from residential
apartment property for which Brentwood (or such other Affiliate) performs
management services plus a monthly bookkeeping fee of $325. Such property
manager may also earn an additional performance fee of $2.00 per residential
unit per month if greater than 96% of gross potential rents are collected.
4.5 Other Expenses. (a) The Trust shall be authorized to reimburse the
Managing Shareholder for all other actual and necessary direct expenses paid or
incurred in connection with the operation of the Trust, including but not
limited to accounting, legal and consulting fees, to the extent that those
expenses were incurred by the Managing Shareholder in carrying out
responsibilities assigned to it by this Declaration, were consistent with this
Declaration and do not constitute payment of expenses covered by other fees
payable under this Declaration. The Trust shall reimburse the Corporate Trustee
for all actual and necessary expenses paid or incurred in connection with the
operation of the Trust, including the Trust's allocable share of the Corporate
Trustee's overhead.
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(b) In respect of the acquisition or disposition of all or a portion of the
investments that the Trust may make in properties, the Trust may be required to
or may find it most advantageous to engage a broker or similar adviser and to
pay a brokerage fee to the broker or other persons responsible for bringing the
acquisition or disposition opportunity to the Trust's attention or for
investigating, evaluating or negotiating the acquisition or disposition of the
Trust's interest therein. Where permitted, if the Managing Shareholder or an
Affiliate performs those services in respect of an investment acquisition or
disposition opportunity for the Trust relating to a particular property, the
Managing Shareholder or Affiliate so providing those services shall be entitled
to receive a brokerage fee from the Trust which conforms with the limitations
set forth in Section 1.9(j) of this Declaration. In certain cases, the Trust may
acquire one or more First Mortgage Loans or Junior Mortgage Loans or accounts
receivable from existing creditors of such obligations or title to a particular
property or an equity interest in the entity which owns title to a particular
property at a discount to the appraised value of such property or equity
interest determined at the time of such acquisition. In that event, the Managing
Shareholder or an Affiliate shall be authorized to receive compensation, if
available, from the seller of such debt, title or equity interest in an amount
which does not exceed in the aggregate in all such cases, five percent of the
gross proceeds raised in the Offering.
(c) As compensation for the Managing Shareholder's performance under the
Trust Management Agreement, the Trust shall pay the Managing Shareholder a
management fee, pay expenses of the Trust and reimburse the Managing Shareholder
for Trust expenses paid by the Managing Shareholder, all in accordance with the
terms of the agreement.
4.6 Payment and Recoupment of Fees. As soon as proceeds from the Initial
Offering have been released to the Trust from the escrow account referred to in
Section 1.6, they may be used to pay the fees and expenses referred to in
Sections 4.1, 4.2, 4.3, and 4.4 then due. If the Managing Shareholder withdraws
the Initial Offering under the terms of this Declaration, any person that has
received payments from the proceeds of the Initial Offering shall return such
payments to the Trust upon demand by the Managing Shareholder.
ARTICLE 5
ACCOUNTING AND REPORTS
5.1 Elections. The Trust shall elect the calendar year as its fiscal year.
The Trust shall adopt the accrual method of accounting or such other method of
accounting as the Trust shall determine. The Trust shall elect to be taxed as a
REIT, unless the Board determines that it is in the best interest of the
Shareholders as a group that the Trust terminate its status as a REIT and a
Majority of the Shareholders entitled to vote, at a Shareholders' meeting duly
convened under the terms and conditions of this Declaration, votes to cause the
Trust to terminate its REIT status.
5.2 Books and Records. The Trust's books and records shall be kept at the
principal place of business of the Trust and shall be maintained on the basis
utilized in preparing the Trust's federal income tax return with such
adjustments in accounting as the Trust determines would be in the best interests
of the Trust.
5.3 Reports.
(a) Quarterly. The Trust will keep each Shareholder currently advised as to
activities of the Trust by reports furnished at least quarterly. Each quarterly
report will contain a condensed statement of "cash flow from operations" for the
year to date as determined by the Managing Shareholder in conformity with
generally accepted accounting principles on a basis consistent with that of the
annual financial statements and showing its derivation from net income.
(b) Annual. Within 120 days after the end of each fiscal year following the
completion of the Initial Offering, the Trust shall cause to be prepared and
mailed or delivered to each Shareholder as of a record date determined by the
Managing Shareholder, an annual report which shall include the following:
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(i) Financial statements prepared in accordance with generally
accepted accounting principles which are audited and reported on by
independent certified public accountants selected by the Trust;
(ii) The ratio of the costs of raising capital during the period to
the capital raised;
(iii) The aggregate amount of management fees and the aggregate amount
of other fees paid to the Managing Shareholder and any of its Affiliates
during the period by the Trust and including fees or charges paid to them
by third parties doing business with the Trust;
(iv) The Total Operating Expenses (as defined in Section 1.9(i)) of
the Trust, stated as a percentage of Average Invested Assets (as defined in
Section 1.9(i)) and as a percentage of its Net Income (as defined in
Section 1.9(i));
(v) A report from the Independent Trustees that the policies being
followed by the Trust are in the best interests of its Shareholders and the
basis for such determination; and
(vi) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving the Trust, Managing
Shareholder, Trustees, any other members of the Board and any of their
respective Affiliates occurring in the year for which the annual report is
made.
Independent Trustees shall examine and comment in the report on the fairness of
the transactions referred to in item (iv) above. The Board, including the
Independent Trustees, shall be required to take reasonable steps to insure that
the requirements set forth in this Section 5.3 are met.
(c) Tax. An independent certified public accounting firm selected by the
Trust will prepare the Trust's federal income tax return as soon as practicable
after the conclusion of each year and each Shareholder will be furnished, at
that time, with the necessary accounting information for each Shareholder to
take into account and report separately such Shareholder's distributive share of
the income and deductions of the Trust. The Trust will use its reasonable best
efforts to obtain the information necessary for the accounting firm as soon as
practicable and to transmit the resulting accounting and tax information to the
Shareholders as soon as possible after receipt from the accounting firm.
5.4 Bank Accounts. The Trust shall maintain separate segregated accounts in
its name at one or more commercial banks, and the cash funds of the Trust shall
be kept in any of those accounts as determined by the Trust.
5.5 Interim Assets. The Trust may purchase, to the extent the Trust's funds
are not otherwise committed to real estate transactions or required for other
purposes, either or both of the following:
(a) Obligations of banks or savings and loan associations that either (i)
have assets in excess of $5 billion or (ii) are insured in their entirety by
agencies of the United States government; and
(b) Obligations of or guaranteed by the United States government or its
agencies.
ARTICLE 6
RIGHTS AND OBLIGATIONS OF SHAREHOLDERS
6.1 Participation in Management. No Shareholder (other than the Managing
Shareholder, a Trustee or any other member of the Board acting in his or its
management capacity) shall have the right, power, authority or responsibility to
participate in the ordinary and routine management of the Trust's affairs or to
bind the Trust in any manner.
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6.2 Rights to Engage in Other Ventures. No Shareholder or any officer,
director, shareholder, member or other person holding a legal or beneficial
interest in any Shareholder shall, by virtue of his ownership of a direct or
indirect interest in the Trust, be in any way prohibited from or restricted in
engaging in, or possessing an interest in, any other business venture of a like
or similar nature including any venture involving the residential real estate
industry.
6.3 Transferability of Shares. Shares in the Trust shall be transferable in
accordance with Section 2.5, subject to certain limitations set forth in Article
2A.
6.4 Information. Each Shareholder's rights to obtain information from the
Trust from time to time are set forth in this Section.
(a) In addition to information provided under Section 5.3, each Shareholder
shall be provided on request with the following:
(1) True and full information regarding the status of the Trust's
business and financial condition;
(2) Promptly after becoming available, a copy of the Trust's federal,
state and local income tax returns or information returns for the preceding
year and prior years to the extent reasonably available;
(3) A copy of the Certificate and this Declaration and all amendments
thereto and restatements thereof;
(4) True and full information regarding the amount of cash and a
description and statement of the agreed value of any other property or
services contributed by each Shareholder and which any Shareholder has
agreed to contribute in the future, and the date on which each current
Shareholder acquired his Shares; and
(5) Such other information regarding the Trust's affairs as is just
and reasonable.
(b) Upon prior written demand stating a proper Trust purpose, any
Shareholder and any representative thereof specifically designated as such in
writing shall be permitted reasonable access to records of the Trust at all
reasonable times, and may inspect and copy any of them. Inspection of the
Trust's books and records by the securities administrator of any state in which
the Trust offers and sells Shares shall be provided upon reasonable notice and
during normal business hours.
(c) The Trust shall maintain as part of the books and records of the Trust
an alphabetical list of the names, addresses, and telephone numbers of the
Shareholders along with the number of Shares held by each of them (the
"Shareholder List") and, upon receipt of prior written demand stating a proper
Trust purpose, make it reasonably available for inspection at the home office of
the Trust by any Shareholder or his representative specifically designated as
such in writing. The Trust shall update the Shareholder List at least quarterly
to reflect changes in the information contained therein. Alternatively, the
Trust may mail a copy of the Shareholder List to any Shareholder requesting it
for a proper Trust purpose specified in writing. The Trust may charge a
reasonable fee for such copy.
(d) The Trust shall establish reasonable standards governing without
limitation the information and documents to be furnished and the time and the
location, if appropriate, of furnishing that information and documents. Costs of
providing information and documents shall be borne by the requesting Shareholder
except for de minimis amounts consistent with the Trust's ordinary practices.
The Trust shall be entitled to reimbursement for its direct, out-of-pocket
expenses incurred in declining unreasonable requests (in whole or in part) for
information.
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(e) The Trust may keep confidential from Shareholders for such period of
time as it deems reasonable any information that it reasonably believes to be in
the nature of trade secrets or other information that the Trust in good faith
believes would not be in the best interests of the Trust to disclose or that
could damage the Trust or its business or that the Trust is required by law or
by agreement with a third party to keep confidential.
(f) The Trust may keep its records in other than written form if capable of
conversion into written form within a reasonable time.
(g) All demands or requests for information under this Section shall be
solely for a proper Trust purpose reasonably related to the Shareholder's
interest in the Trust. All requests or demands for information under this
Section shall be in writing and shall state the purpose of the demand; the
Trust's acceptance of oral requests shall not waive or limit the scope of this
provision. Any action to enforce rights under this Section may be brought in the
Delaware Court of Chancery, subject to Section 9.4.
6.5 Shareholders' Meetings. (a) There shall be an annual meeting of the
Shareholders at such time and place, either within or without the State of
Delaware, as the Managing Shareholder shall prescribe, at which all members of
the Board (including all Independent Trustees) (except in the case of staggered
elections which have been approved by the Managing Shareholder and a Majority of
the Shareholders entitled to vote, in which case, only the class up for election
or reelection) shall be elected or reelected and any other proper business may
be conducted. The annual meeting of Shareholders shall be held upon reasonable
notice and within a reasonable period (not less than 30 days) following delivery
of the annual report specified in Section 5.3(b), but in any event such meeting
must be held within six months after the end of each full fiscal year. Special
meetings of Shareholders may be called by the Managing Shareholder, a majority
of the members of the Board, a majority of the Independent Trustees, or by any
officer of the Trust, and shall be called upon the written request of
Shareholders holding in the aggregate not less than ten percent of the
outstanding Shares of the Trust entitled to vote at such meeting in the manner
provided in the Bylaws. Unless requested by the Shareholders entitled to cast a
majority of all votes entitled to be cast at such meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any special meeting of the Shareholders held during the
preceding 12 months. If there shall be no Managing Shareholder and no remaining
members of the Board, the officers of the Trust shall promptly call a special
meeting of the Shareholders for the election of successor members of the Board.
Written or printed notice stating the place, date and hour of the Shareholders'
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than 10 nor more than 60 days
before the day of the meeting either personally or by mail, by or at the
direction of the Managing Shareholder or any officer or person calling the
meeting, to each Shareholder of record entitled to vote at such meeting. No
other business than that which is stated in the call for a special meeting shall
be considered at such meeting.
(b) A majority of the outstanding Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at any such meeting.
Whenever any action is to be taken by the Shareholders, it shall, except as
otherwise authorized by law or this Declaration or the Bylaws, be authorized by
a majority of the votes cast at a meeting of Shareholders by holders of Shares
entitled to vote thereon.
(c) At the discretion of the Managing Shareholder or Shareholders holding
ten percent or more of the outstanding Shares entitled to vote on a particular
matter, as the case may be, any consent required by this Declaration or any vote
or action by the Shareholders or any subgroup thereof may be effected without a
meeting by a consent or consents in writing signed by the persons required to
give such consent, to vote or to take action. The Managing Shareholder may
solicit consents or Shareholders holding ten percent or more of the outstanding
Shares entitled to vote on the matter may demand a solicitation of consents by
giving notice to the Trust stating the purpose of the consent and including a
form of consent. The Trust shall effect a solicitation of consents by giving all
Shareholders entitled to vote a notice of solicitation stating the purpose of
the consent, a form of consent and the date on which the consents are to be
tabulated, which shall be not less than 15 days nor more than 45 days after the
Trust transmits the notice of solicitation for consents. If Shareholders holding
ten percent or more of the outstanding Shares entitled to vote on the matter
demand a solicitation, the Trust shall transmit the notice of solicitation not
later than 20 days after receipt of the demand.
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(d) To the extent not inconsistent with this Declaration, Delaware law
governing stockholders' meetings, proxies and consents for corporations shall
apply as to the procedure, validity and use of meetings, proxies and consents.
Any Shareholder may waive notice of or attendance at any meeting or notice of
any consent, whether before or after any action is taken. The date on which the
Trust transmits the notice of meeting or notice soliciting consents shall be the
record date for determining the right to vote or consent.
6.6 Voting. (a) At each meeting of the Shareholders, each Shareholder
entitled to vote shall have the right to vote, in person or by proxy, the number
of Shares of the Trust owned by him upon each matter upon which the vote of the
Shareholders is taken. In any election in which more than one vacancy on the
Board is to be filled, each Shareholder may vote the number of Shares of the
Trust owned by him for each such vacancy to be filled. There shall be no right
of cumulative voting. Each outstanding Common Share shall be entitled to one
vote on each matter submitted to a vote at a meeting of Shareholders except (a)
to the extent that this Declaration (to the extent permitted by Delaware law)
limits or denies voting rights to the holders of the Shares of any class or
series, or (b) as otherwise provided by Delaware law. Preferred Shares shall
have such voting rights as the Managing Shareholder may designate in accordance
with Section 2.1(c).
(b) In addition to any other actions of the Trust requiring the approval of
Shareholders under this Declaration (including without limitation Section
7.3(b), a Majority of the Shareholders present in person or by proxy at an
annual meeting at which a quorum is present, may, without the necessity for
concurrence by the Board, vote to amend this Declaration, terminate the Trust,
and elect and/or remove one or more members of the Board.
6.7 Distributions. (a) The Managing Shareholder may from time to time
declare and pay to Shareholders such dividends or distributions in cash,
property or other assets of the Trust or in Shares or from any other source as
the Managing Shareholder in its discretion shall determine. Any such dividends
and distributions shall be made to Shareholders on a pro rata basis for each
class of Shares taking into account the relative rights of priority of each
class of Shares entitled thereto. The Managing Shareholder shall endeavor to
declare and pay such dividends and distributions as shall be necessary for the
Trust to qualify as a REIT under the Code (so long as such qualification, in the
opinion of the Managing Shareholder, is in the best interests of the
Shareholders); however, Shareholders shall have no right to any dividend or
distribution unless and until declared by the Managing Shareholder. The exercise
of the powers and rights of the Managing Shareholder pursuant to this Section
shall be subject to the provisions of any class or series of Shares at the time
outstanding. The receipt by any person in whose name any Shares are registered
on the records of the Trust or by his duly authorized agent shall be a
sufficient discharge for all dividends or distributions payable or deliverable
in respect of such Shares and from all liability to see to the application
thereof.
(b) Distributions in Kind. (i) The Trust may make distributions in kind of
any asset of the Trust only if the distribution in kind is comprised of (1)
readily marketable securities, (2) beneficial interests in a liquidating trust
established for the dissolution of the Trust and the liquidation of its assets
in accordance with the terms and conditions of this Declaration, or (3) other
property, in which case the Managing Shareholder must advise each Shareholder of
the risks associated with direct ownership of such other property; offer each
Shareholder the election of receiving the property; and distribute the property
only to those Shareholders who accept the Managing Shareholder's offer.
(ii) If the Trust elects to make distribution in kind of any of its assets,
the Managing Shareholder shall give notice of the Trust's election to each
Shareholder, specifying the nature and value of all such assets to be
distributed in kind, the deadline for giving notice of refusal to accept a
distribution in kind and to the extent advisable, the estimated time necessary
for the Trust to liquidate assets if those assets are not distributed and other
information as required. In making such election, the Trust shall not
arbitrarily value assets to be distributed in kind nor shall it specify assets
to be distributed in kind in such a manner as to unreasonably advantage or
disadvantage any Shareholder. A Shareholder may refuse to accept a distribution
in kind by giving written notice to the Trust not later than 30 days after the
effective date of the Trust's notice of distribution. If a Shareholder refuses
distribution in kind, the Trust shall retain in the Trust's name the portion of
the assets which were to be distributed in kind and which were to be allocated
to the refusing Shareholder (the "Retained Assets") and shall liquidate the
Retained Assets in accordance with this Declaration. Upon liquidation of the
Retained Assets, the sum realized shall be
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distributed to the Shareholder refusing distribution in kind in full discharge
of the Trust's obligation to distribute the Retained Assets.
6.8 Notice of Non-liability. The Managing Shareholder shall use every
reasonable means to assure that all persons having dealings with the Trust shall
be informed that the private property of the Shareholders, the Managing
Shareholder, the Trustees, and any other members of the Board shall not be
subject to claims against and obligations of the Trust to any extent whatever.
The Trustee shall cause to be inserted in every written agreement, undertaking
or obligation made or issued on behalf of the Trust, an appropriate provision to
the effect that the Shareholders, the Managing Shareholder, the Trustees and any
other members of the Board shall not be personally liable thereunder, and that
all parties concerned shall look solely to the Trust Property for the
satisfaction of any claim thereunder, and appropriate reference shall be made to
this Declaration. The omission of such a provision from any such agreement,
undertaking or obligation, or the failure to use any other means of giving such
notice, shall not, however, render the Shareholders, the Managing Shareholder,
the Trustees or any other members of the Board personally liable.
ARTICLE 7
POWERS, DUTIES AND LIMITATIONS ON MANAGING SHAREHOLDER, BOARD
AND INDEPENDENT TRUSTEES
7.1 Management of the Trust. The Managing Shareholder shall have full,
exclusive and complete discretion in the management and control of the Trust,
except as otherwise provided herein. The Managing Shareholder agrees to manage
and control the affairs of the Trust to the best of its ability and to conduct
the operations contemplated under this Declaration in a careful and prudent
manner and in accordance with good industry practice. The Managing Shareholder
may bind the Trust.
7.2 Acceptance of Subscriptions. The Managing Shareholder shall not cause
the Trust to accept any subscription for Common Shares in connection with the
Initial Offering except as provided Section 1.6.
7.3 Specific Limitations. (a) The Managing Shareholder shall not take any
of the following actions:
(1) Any act in contravention of this Declaration or the Certificate;
(2) Any act that would make it impossible to carry on the Trust's
ordinary business;
(3) Effecting a confession of judgment against the Trust in an amount
exceeding 10% of the aggregate Capital Contributions;
(4) Causing the dissolution or termination of the Trust prior to the
expiration of its term, except as provided under Article 8;
(5) Possessing Trust Property or assigning rights in specific Trust
Property for other than a Trust purpose; or
(6) Constituting any other person as a Managing Shareholder, except as
provided in Article 8.
(b) The Managing Shareholder shall not cause the Trust to take any of the
following actions without the approval of a Majority of the Shareholders given
at a duly convened Shareholders' meeting at which a quorum is present or by
written consent:
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(i) Amend this Declaration except as otherwise specified in this
Declaration and except for amendments which do not adversely affect the
rights, preferences and privileges of Shareholders, including amendments to
provisions relating to qualifications of the Trustees and members of the
Board, fiduciary duty, liability and indemnification, conflicts of
interest, investment policies or investment restrictions.
(ii) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of the Trust's assets if not in the ordinary course of
operation of Trust Property or in connection with liquidation and
dissolution.
(iii) Merge or otherwise reorganize the Trust.
(iv) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(c) The Trustees, the Trust and the Trust's agents shall not take any
action that is prohibited to the Managing Shareholder by this or any other
provision of this Declaration and shall take all actions necessary or advisable
to carry out actions specified in this Section that are approved as specified
herein.
(d) The Managing Shareholder (or any successor Advisor of the Trust), a
majority of the Independent Trustees, or a Majority of the Shareholders (by
voting at an annual or special meeting at which a quorum is present, without the
necessity for concurrence by the Board) may terminate the Trust Management
Agreement (or subsequent management, administrative and investment advisory
agreement), and the Managing Shareholder (or any successor Advisor) may resign
as Managing Shareholder (or Advisor) of the Trust in accordance with the terms
and conditions of Section 1.9(d) and, if not inconsistent with the Section
1.9(d), the terms and conditions of the Trust Management Agreement (or any
subsequent agreement) entered into by the Managing Shareholder (or any successor
Advisor) and the Trust.
7.4 Powers of Managing Shareholder. The Managing Shareholder shall have
all the powers necessary, convenient or appropriate to effectuate the purposes
of the Trust and may take any action which it deems necessary or desirable and
proper to carry out such purposes, except as otherwise provided in this
Declaration. Any determination of the purposes of the Trust made by the Managing
Shareholder in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of the grant of powers to
the Managing Shareholder. In addition to the powers and duties otherwise
provided in this Declaration, the Managing Shareholder has the following powers
and duties, subject to (i) the supervision and review by the Board under Section
7.5; (ii) the obligations and prior approval rights of the Board and/or
Independent Trustees set forth in Section 1.9 and elsewhere in this Declaration;
and (iii) any other limitations, restrictions or other provisions set forth
herein, including without limitation, Section 1.9:
(a) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, and to acquire, sell, mortgage, own,
acquire on lease, hold, manage, operate, lease to others, improve, option,
exchange, release, and partition real estate interests of every nature,
including freehold, leasehold, mortgage, ground rent and other interests
therein, and to erect, construct, alter, repair, demolish or otherwise change
buildings and structures of every nature.
(b) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, option, sell and exchange stocks, bonds,
notes, certificates of indebtedness and securities of every nature.
(c) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, acquire, sell, mortgage, own, acquire on
lease, hold, manage, improve, lease to others, option and exchange personal
property of every nature.
(d) To hold legal title to Trust Property in the name of the Trust, or in
the name of one or more of the Trustees for the Trust, or of any other person as
nominee for the Trust, without disclosure of the interest of the Trust therein.
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(e) To borrow money for the purposes of the Trust (including without
limitation the payment of dividends to Shareholders, working capital, property
acquisitions, refinancings of existing indebtedness and acquisitions of
additional interests in any partnership formed or acquired by the Trust in which
all or a portion of the Trust's real estate assets might be held and its
operations might be conducted) and to give notes or other negotiable or
nonnegotiable instruments of the Trust therefor; to enter into other obligations
or guarantee the obligations of others on behalf of and for the purposes of the
Trust; and to mortgage or pledge or cause to be mortgaged or pledged real and
personal property of the Trust to secure such notes, debentures, bonds,
instruments or other obligations.
(f) To lend money on behalf of the Trust and to invest the funds of the
Trust.
(g) To create reserve funds for such purposes as it deems advisable.
(h) To deposit funds of the Trust in banks and other depositories without
regard to whether such accounts will draw interest.
(i) To pay taxes and assessments imposed upon or chargeable against the
Trust, the Managing Shareholder or the Trustees by virtue of or arising out of
the existence, property, business or activities of the Trust.
(j) To purchase, issue, sell or exchange Shares of the Trust as provided in
Article 2 hereof.
(k) To exercise with respect to Trust Property, all options, privileges and
rights, whether to vote, assent, subscribe or convert, or of any other nature;
to grant proxies; and to participate in and accept securities issued under any
voting trust agreement.
(l) To participate in any reorganization, readjustment, consolidation,
merger, dissolution, sale or purchase of assets, lease, or similar proceedings
of any corporation, partnership or other organization in which the Trust shall
have an interest and in connection therewith to delegate discretionary powers to
any reorganization, protective or similar committee and to pay assessments and
other expenses in connection therewith.
(m) To engage or employ agents, representatives and employees of any
nature, or independent contractors, including, without limiting the generality
of the foregoing, transfer agents for the transfer of Shares in the Trust,
registrars, underwriters for the sale of Shares in the Trust, independent
certified public accountants, attorneys at law, appraisers, and real estate
agents and brokers; and to delegate to one or more Trustees, agents,
representatives, employees, independent contractors or other persons such powers
and duties as the Managing Shareholder deems appropriate.
(n) To determine conclusively the allocation between capital and income of
the receipts, holdings, expenses and disbursements of the Trust, regardless of
the allocation which might be considered appropriate in the absence of this
provision.
(o) To determine conclusively the value from time to time and to re-value
the real estate, securities and other property of the Trust by means of
independent appraisals.
(p) To compromise or settle claims, questions, disputes and controversies
by, against or affecting the Trust.
(q) To solicit proxies of the Shareholders.
(r) To adopt a fiscal year for the Trust and to change such fiscal year.
(s) To adopt and use a seal.
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(t) To merge the Trust with or into any other trust or corporation in
accordance with the laws of the State of Delaware and any other applicable law.
(u) To deal with the Trust Property in every way, including joint ventures,
partnerships and any other combinations or associations, that it would be lawful
for an individual to deal with the same, whether similar to or different from
the ways herein and hereinabove specified.
(v) To determine whether or not, at any time or from time to time, to
attempt to cause the Trust to qualify for taxation as a REIT.
(w) To make, adopt, amend or repeal Bylaws containing provisions relating
to the business of the Trust, the conduct of its affairs, its rights or powers
and the rights or powers of the Managing Shareholder and the Trust's
Shareholders, Trustees or officers not inconsistent with applicable law or this
Declaration.
(x) To direct or supervise the Corporate Trustee, the Trust and the Trust's
agents in the exercise of any action relating to the Trust's affairs, including
without limitation the powers described in Section 1.8.
(y) To take the actions specified in Section 7.3 if the approvals specified
therein are obtained.
(z) To amend this Declaration as specified in Section 9.8(a) or other
provisions of this Declaration.
(aa) To lend money to the Trust in accordance with Section 1.9(o).
(bb) To terminate the Initial Offering at any time prior to the Termination
Date, provided that the Escrow Date has occurred.
(cc) To withdraw the Initial Offering at any time as provided in Section
1.6.
(dd) To acquire on behalf of the Trust such assets or properties, real or
personal, including without limitation residential properties, undeveloped land,
stocks, bonds, notes, partnership interests and other securities, as the
Managing Shareholder in its sole discretion deems necessary or appropriate for
the conduct of the Trust's business and to sell, exchange, distribute to
Shareholders in kind or otherwise dispose of any part of the Trust Property in
the ordinary course of the operation of the Trust Property.
(ee) To take such steps as may be necessary to cause any partnership formed
or acquired by the Trust in which all or a portion of the Trust's real estate
assets might be held and its operations might be conducted, to distribute to its
partners an amount sufficient to permit the Trust to meet the annual
distribution requirements of the REIT provisions of the Code.
(ff) To do all such other acts and things as are incident to any of the
foregoing and to exercise all powers which are necessary or useful to carry on
the business of the Trust, to promote any of the purposes of the Trust, and to
carry out the provisions of this Declaration.
7.5 Independent Trustees. (a) There shall be at least two Independent
Trustees of the Trust at all times. The Independent Trustees shall have such
responsibilities and rights as are prescribed in this Declaration. The number of
Independent Trustees may be increased (but to not more than five) or decreased
(but to not fewer than two) from time to time by action of a majority of the
Managing Shareholder and the Independent Trustees, acting together
(collectively, the "Board").
(b) To qualify to serve the Trust as an Independent Trustee, a person may
not be "associated" (as such term is defined below) or have been "associated"
within the last two years, directly or indirectly, with the Managing Shareholder
(or any successor Advisor to the Trust). A person is deemed to be associated
with the Managing Shareholder if he (i) owns an interest in, is employed by, or
is an officer, director or trustee of the Managing Shareholder or any of its
Affiliates; (ii) performs services, other than as a Trustee, for the Trust;
(iii) is a Trustee for
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more than three REITs organized or advised by the Managing Shareholder; or (iv)
has any "material business or professional relationship" with the Managing
Shareholder or any of its Affiliates. For purposes of determining whether there
exists such a material business or professional relationship, the gross revenue
derived by the prospective Independent Trustee from the Managing Shareholder and
its Affiliates is deemed to be material per se if it exceeds five percent of the
prospective Independent Trustee's (i) annual gross revenue, derived from all
sources, during either of the last two years, or (ii) net worth, on a fair
market value basis. For purposes of determining the qualification of a person to
serve the Trust as an Independent Trustee, an indirect relationship shall
include circumstances in which any spouse, parent, child, sibling, mother- or
father-in-law, son- or daughter-in-law, or brother- or sister-in-law of a
prospective Independent Trustee is or has been associated with the Trust, the
Managing Shareholder (or any successor Advisor of the Trust) or any of the
Managing Shareholder's (or successor Advisor's) Affiliates.
(c) The term of each Independent Trustee shall be one year (subject to a
shorter term in the case of an Independent Trustee who resigns, dies or is
incapacitated or removed prior to the end of the term or was elected to replace
a vacancy). Each Independent Trustee (other than one who is elected to fill the
unexpired term of another Independent Trustee) shall be elected by a vote of the
Shareholders. Any person may serve an unlimited number of terms. Vacancies
created in the authorized number of Independent Trustees prior to the end of a
term shall be filled by a majority of the remaining Board members. If, in such
case, no member of the Board remains, the Managing Shareholder shall call a
special meeting of Shareholders for the purpose of electing Independent Trustees
to fill such vacancy within 90 days after the last vacancy occurs. The
Independent Trustees shall nominate replacements for vacancies created in the
authorized number of Independent Trustees prior to the end of a term.
(d) The Independent Trustees shall supervise and review, in accordance with
the terms and conditions of this Declaration, the actions of the Managing
Shareholder in managing the Trust and shall have the right to require action by
the Managing Shareholder to the extent necessary to carry out the fiduciary
duties of the Independent Trustees. Except as expressly authorized by this
Declaration, the Independent Trustees shall not have any management,
administrative or investment advisory powers over the Trust or the Trust
Property. The Independent Trustees shall not take any action except at a meeting
of the Board or by unanimous written consent of the Independent Trustees and the
Managing Shareholder.
(e) Any Independent Trustee may resign if he gives notice to the Trust of
his intent to resign and cooperates fully with any successor Independent Trustee
appointed under this Section 7.5. Such resignation shall be effective on the
designation of the successor Independent Trustee.
(f) Any Independent Trustee may be removed (x) for cause by the action of
at least two-thirds of the remaining members of the Board or (y) by action of
the holders of at least two-thirds of the Common Shares. Removal of an
Independent Trustee shall not affect the validity of any actions taken prior to
the date of removal.
7.6 Board of the Trust. (a) The Trust shall have a Board of the Trust which
shall have such responsibilities and rights as shall be prescribed in this
Declaration. There shall be at least three members of the Board at all times.
The number of members of the Board may be increased (but to not more than nine)
or decreased (but to not fewer than three) from time to time by action of a
majority of the members of the Board. At all times a majority of the members of
the Board shall be Independent Trustees. No person shall qualify as a member of
the Board until he shall have agreed in writing to be bound by this Declaration.
Each member of the Board shall have had at least three years of relevant
experience demonstrating the knowledge and experience required to successfully
acquire and manage the type of assets to be acquired by the Trust. At least one
of the Independent Trustees must have at least three years of relevant real
estate experience. The term of each member of the Board shall be one year
(subject to a shorter term in the case of a member who resigns, dies, is
incapacitated or removed prior to the end of the term, or was elected to replace
a vacancy). Each member of the Board (other than one who is elected to fill the
unexpired term of another member) shall be elected by a vote of the
Shareholders. Each member of the Board may serve an unlimited number of terms.
Vacancies created in the authorized number of Board members prior to the end of
a term shall be filled by a majority of the remaining Board members. If, in such
case, no member of the Board remains, the Managing Shareholder shall call a
special meeting of Shareholders for the purpose of electing members
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to fill such vacancies within 90 days after the last vacancy occurs. The
Independent Trustees shall nominate replacements for vacancies created in the
authorized number of members of the Board prior to the end of a term.
(b) The Board shall supervise and review, in accordance with the terms and
conditions of this Declaration, the actions of the Managing Shareholder in
managing the Trust and shall have the right to require action by the Managing
Shareholder to the extent necessary to carry out the fiduciary duties of the
Board's members. The Board may establish such committees they deem appropriate,
provided, the majority of the members of any such committee are Independent
Trustees.
(c) The Board shall meet at least annually on the call of the Managing
Shareholder and at such other times as determined by the Board. Except to the
extent conflicting with the Delaware Act or this Declaration, the law of
Delaware governing meetings of directors of corporations shall govern meetings,
voting and consents by the members of the Board. The Managing Shareholder may be
represented for any purpose by any of its officers.
(d) As compensation for services rendered to the Trust, each Independent
Trustee and each other member of the Board who is not affiliated or associated
with the Trust or the Managing Shareholder or any of its Affiliates shall be
paid by the Trust the sum of $5,000 annually in quarterly installments and shall
be reimbursed for all reasonable out-of-pocket expenses relating to attendance
at meetings or otherwise performing his duties hereunder. The Board may review
annually the compensation payable to the Independent Trustees and such other
members of the Board and may increase or decrease it as the Board sees
reasonable. No compensation for consulting services shall be paid to Independent
Trustees or such other members of the Board without prior Board approval. No
compensation shall be payable by the Trust to other Managing Persons for their
services except as specified by this Declaration, under a management agreement
or other agreement approved under the terms and conditions of this Declaration
or indirectly as an officer, director, stockholder or employee of the Managing
Shareholder or other Managing Person otherwise entitled to receive compensation
hereunder.
(e) Any member of the Board may resign if he gives notice to the Trust of
his intent to resign and cooperates fully with any successor member appointed
under this Section 7.5. Any such resignation shall be effective on the
designation of the successor member.
(f) Any member of the Board may be removed (x) for cause by the action of
at least two-thirds of the remaining members of the Board or (y) by action of
the holders of at least two-thirds of the Common Shares. Removal of any member
shall not affect the validity of any actions of the Board taken prior to the
date of removal.
7.7 Officers of Trust. (a) The Managing Shareholder shall appoint a Chief
Executive Officer, President, Chief Operating Officer, one or more Vice
Presidents as designated by the Managing Shareholder, a Secretary and such other
officers and agents of the Trust as the Managing Shareholder may from time to
time consider appropriate, none of whom need be a Shareholder. Except as
otherwise prescribed by the Managing Shareholder or in this Declaration or the
Bylaws of the Trust, each officer shall have the powers and duties usually
appertaining to a similar officer of a Delaware corporation under the direction
of the Managing Shareholder and shall hold office during the pleasure of the
Managing Shareholder. Any two or more offices may be held by the same person.
Any officer may resign by delivering a written resignation to the Managing
Shareholder and such resignation shall take effect upon delivery or as specified
therein.
(b) All conveyances of real property or any interest therein by the Trust
may be made by the Corporate Trustee, which shall execute on behalf of the Trust
any instruments necessary to effect the conveyance. A certificate of the
Secretary of the Trust stating compliance with this Section 7.7(b) shall be
conclusive in favor of any person relying thereon.
(c) All other documents, agreements, instruments and certificates that are
to be made, executed or endorsed on behalf of the Trust shall be made, executed
or endorsed by such officers or persons as the Managing Shareholder shall from
time to time authorize and such authority may be general or confined to specific
instances. In the absence of other provisions, the President is authorized to
execute any document, to take any action on behalf
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of the Trust under this Section 7.7(c), and to authorize other officers to
execute confirmatory documents or certificates.
7.8 Presumption of Power. The execution by the Corporate Trustee, the
Managing Shareholder or the officers on behalf of the Trust of leases,
assignments, conveyances, contracts or agreements of any kind whatsoever shall
be sufficient to bind the Trust. No person dealing with the Managing Shareholder
or the Trust's officers shall be required to determine their authority to make
or execute any undertaking on behalf of the Trust, nor to determine any fact or
circumstances bearing upon the existence of their authority nor to see the
application or distributions of revenues or proceeds derived therefrom, unless
and until such person has received written notice to the contrary.
7.9 Obligations Not Exclusive. The Managing Shareholder, Trustees and any
other members of the Board shall be required to devote only such part of their
time as is reasonably needed to manage the business of the Trust, it being
understood that they have and shall have other business interests and therefore
shall not be required to devote their time exclusively to the Trust. The
Managing Shareholder, Trustees and any other members of the Board shall in no
way be prohibited from or restricted in engaging in, or possessing an interest
in, any other business venture of a like or similar nature including any venture
involving the residential real estate industry. Nothing in this Section 7.9
shall relieve the Managing Shareholder, Trustees or any other members of the
Board of other fiduciary obligations to the Shareholders, except as limited in
Article 3. Notwithstanding anything to the contrary contained in this Article or
elsewhere in this Declaration, the Managing Shareholder shall have no duty to
take any affirmative action with respect to management of the Trust business or
the Trust Property which might require the expenditure of moneys by the Trust or
the Managing Shareholder unless the Trust is then possessed of such moneys
available for the proposed expenditure. Under no circumstances shall the
Managing Shareholder be required to expend its own funds in connection with the
day to day operation of Trust business.
7.10 Right to Deal with Affiliates. No act of the Trust shall be affected
or invalidated by the fact that a Managing Person may be a party to or have an
interest in any contract or transaction of the Trust, provided that (i) such
arrangement involving the Managing Person conforms with any applicable
provisions of Section 1.9, and (ii) the fact of the Managing Person's interest
shall be disclosed or shall have been known to the Shareholders or the contract
or transaction is at prevailing rates or on terms at least as favorable to the
Trust as those available from persons who are not Managing Persons.
7.11 Removal of Managing Shareholder. The holders of at least ten percent
of the Common Shares may propose the removal of the Managing Shareholder (or any
successor Advisor of the Trust), either by calling a meeting or soliciting
consents in accordance with the terms of this Declaration. On the affirmative
vote of a Majority of the Shareholders entitled to vote (excluding Common Shares
held by the Managing Shareholder that is the subject of the vote or by its
Affiliates), such Managing Shareholder shall be removed. A majority of the
Independent Trustees may also remove the Managing Shareholder. In the event of
any such removal or the death, dissolution, resignation, insolvency, bankruptcy
or other legal incapacity of the Managing Shareholder or any other event which
would legally disqualify the Managing Shareholder from acting hereunder, the
former Managing Shareholder shall not be entitled to any uncollected fees
specified in Article 4 to the extent not accrued before the date of such removal
or other incapacity.
ARTICLE 8
DISSOLUTION, TERMINATION AND LIQUIDATION
8.1 Dissolution. The Trust shall be dissolved promptly if prior to the
Termination Date of the Initial Offering the Managing Shareholder decides to
withdraw the Initial Offering in accordance with Section 7.4(cc). On or after
the Termination Date, the Trust shall be dissolved and its business shall be
wound up upon the earliest to occur of the following events, unless the
provisions of Section 8.2 are elected:
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(a) December 31, 2098;
(b) The sale of all or substantially all of the Trust Property in one
transaction or in a series of related transactions;
(c) The vote of a Majority of Shareholders; or
(d) The occurrence of any other event which, by law, would require the
Trust to be dissolved.
8.2 Continuation of the Trust. Upon the occurrence of any event of
dissolution described in Sections 8.1(a) through (c), the Trust shall be
dissolved and wound up unless (i) the Managing Shareholder and a Majority of the
Shareholders (calculated without regard to Common Shares owned by the Managing
Shareholder or its Affiliates) within 90 days after the occurrence of any such
event of dissolution elect to continue the Trust or, (ii) if there is no
remaining Managing Shareholder, within 90 days after the occurrence of any such
event of dissolution, a Majority of the Shareholders shall elect, in writing,
that the Trust shall be continued on the terms and conditions herein contained
and shall designate one or more persons willing to be substituted as a Managing
Shareholder or Managing Shareholders. In the event there is no remaining
Managing Shareholder and a Majority of the Shareholders elect to continue the
Trust, it shall be continued with the new Managing Shareholder or Managing
Shareholders who shall succeed to and assume all of the powers, privileges and
obligations of the previous Managing Shareholder or Managing Shareholders
hereunder.
8.3 Obligations on Dissolution. The dissolution of the Trust shall not
release any of the parties hereto from their contractual obligations under this
Declaration.
8.4 Liquidation Procedure. Upon dissolution of the Trust for any reason:
(a) A reasonable time shall be allowed for the orderly liquidation of the
assets of the Trust and the discharge of liabilities to creditors so as to
enable the Trust to minimize the losses normally attendant to a liquidation;
(b) The Shareholders shall continue to receive dividends or distributions
as may be declared by the Managing Shareholder; and
(c) The Managing Shareholder (or in its absence, any other liquidating
trustee appointed under Section 8.5) shall proceed to liquidate the Trust
Properties to the extent that they have not already been reduced to cash unless
the Managing Shareholder (or other liquidating trustee) elects to make
distributions in kind to the extent and in the manner provided herein, and such
net cash proceeds, if any, and property in kind, shall be applied and
distributed to the Shareholders on a pro rata basis for each class of Shares
taking into account the relative rights of priority of each class.
8.5 Liquidating Trustee. (a) If the dissolution of the Trust is caused by
circumstances under which no Managing Shareholder shall be acting as a Managing
Shareholder or if all liquidating Managing Shareholders are unable or refuse to
act, a majority of the Board shall appoint a liquidating trustee who shall
proceed to wind up the business affairs of the Trust. The liquidating trustee
shall have no liability to the Trust or to any Shareholder for any loss suffered
by the Trust which arises out of any action or inaction of the liquidating
trustee if the liquidating trustee, in good faith, determined that such course
of conduct was in the best interests of the Shareholders and such course of
conduct did not constitute negligence or misconduct of the liquidating trustee.
The liquidating trustee shall be indemnified by the Trust against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with the Trust, provided that the same were not
the result of negligence or misconduct of the liquidating trustee.
(b) Notwithstanding the above, the liquidating trustee shall not be
indemnified and no expenses shall be advanced on its behalf for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
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<PAGE>
or state securities laws, unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (3) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee.
(c) In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission and of any applicable state
securities administrators, if required, with respect to the issue of
indemnification for securities law violations.
(d) The Trust shall not incur the cost of that portion of any insurance,
other than public liability insurance, which insures any party against any
liability the indemnification of which is herein prohibited.
8.6 Death, Insanity, Dissolution or Insolvency of Managing Shareholder, a
Trustee or a Shareholder. The death, insanity, dissolution, winding up,
insolvency, bankruptcy, receivership or other legal termination of the Managing
Shareholder, a Trustee, a member of the Board or a Shareholder shall have no
effect on the life of the Trust and the Trust shall not be dissolved thereby.
8.7 Withdrawal of Offering. Dissolution of the Trust resulting from
withdrawal of the Initial Offering is governed by Section 1.6(c) and Section
7.4(cc).
ARTICLE 9
MISCELLANEOUS
9.1 Notices. Notices or instruments of any kind which may be or are
required to be given hereunder by any person to another shall be in writing and
deposited in the United States Mail, first class, certified or registered or
overnight mail by a nationally recognized mail service, postage prepaid,
addressed to the respective person at the address appearing in the records of
the Trust. Any Shareholder may change his address by giving notice in writing,
stating his new address, to the Trust. Any notice shall be deemed to have been
given effective as of 72 hours, excluding Saturdays, Sundays and holidays, after
the depositing of such notice in an official United States Mail receptacle and
as of the next business day after depositing of such notice with any such
overnight mail service. Notice to the Trust may be addressed to its principal
office.
9.2 Delaware Laws Govern. This Declaration shall be governed and construed
in accordance with the laws of the State of Delaware, and venue for any
litigation between or against any of the parties hereto may be maintained in New
Castle County, Delaware.
9.3 Power of Attorney. Each Shareholder irrevocably constitutes and
appoints the Managing Shareholder as his true and lawful attorney-in-fact and
agent to effectuate and to act in his name, place and stead, in effectuating the
purposes of the Trust including the execution, verification, acknowledgment,
delivery, filing and recording of this Declaration as well as all authorized
amendments thereto and hereto, all assumed name and doing business certificates,
documents, bills of sale, assignments and other instruments of conveyances,
leases, contracts, loan documents and counterparts thereof; and all other
documents which may be required to effect a continuation of the Trust and which
the Trust deems necessary or reasonably appropriate, including documents
required to be executed in order to correct typographical errors in documents
previously executed by such Shareholder, documents required to maintain the
federal tax status of the Trust (unless the Managing Shareholder determines that
it is in the best interests of Shareholders to change the Trust's tax status and
a Majority of the Shareholders concur) and all conveyances and other instruments
or other certificates necessary or appropriate to effect an authorized
dissolution and liquidation of the Trust. The power of attorney granted herein
shall be deemed to be coupled with an interest, shall be irrevocable and shall
survive the death, incompetency or legal disability of an Shareholder.
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9.4 Disclaimer. In forming this Trust, all Shareholders recognize that the
residential apartment real estate business is highly speculative and that
neither the Trust nor the Managing Shareholder, any Trustee, any other member of
the Board, or any other Managing Person makes any guaranty or representation to
any Shareholder as to the probability or amount of gain or loss from the conduct
of Trust business.
9.5 Corporate Trustee Resignation and Replacement. The Managing Shareholder
may increase or decrease the number of Corporate Trustees so long as there is at
least one Corporate Trustee which meets the requirements of Section 3807 of the
Delaware Act. A Corporate Trustee may resign by delivering a written resignation
to the Managing Shareholder not less than 60 days prior to the effective date of
the resignation. The Managing Shareholder may remove a Corporate Trustee at any
time, provided that if there is no incumbent, at least one new Corporate Trustee
is concurrently appointed. In the event of the absence, death, resignation,
removal, dissolution, insolvency, bankruptcy or legal incapacity of a Corporate
Trustee or if an additional Corporate Trustee is to be appointed, the Managing
Shareholder shall appoint the Corporate Trustee in writing and shall
subsequently give notice to the Shareholders, although such notice is not
necessary to the validity of the appointment. A Corporate Trustee so appointed
shall qualify by filing his written acceptance at the Trust's principal place of
business. If there are multiple Corporate Trustees, each is vested with an
undivided interest in the trust estate and may exercise all powers vested in the
Corporate Trustee as directed by the Managing Shareholder.
9.6 Amendment and Construction of Declaration. (a) This Declaration may be
amended by the Managing Shareholder, without notice to or the approval of the
Shareholders, from time to time for the following purposes: (1) to cure any
ambiguity, formal defect or omission or to correct or supplement any provision
herein that may be inconsistent with any other provision contained herein or in
the Prospectus or to effect any amendment without notice to or approval by
Shareholders as specified in other provisions of this Declaration; (2) to make
such other changes or provisions in regard to matters or questions arising under
this Declaration that will not materially and adversely affect the interest of
any Shareholder; (3) to otherwise equitably resolve issues arising under the
Prospectus or this Declaration so long as similarly situated Shareholders are
not treated materially differently; (4) to maintain the federal tax status of
the Trust (unless the Managing Shareholder determines that it is in the best
interests of Shareholders to change the Trust's tax status and a Majority of the
Shareholders concur); and (5) to comply with law.
(b) Other amendments to this Declaration may be proposed by either the
Managing Shareholder or Shareholders owning 10% or more of the outstanding
Shares entitled to vote, in each case by calling a meeting of Shareholders or
requesting consents under Section 9.2(b) and specifying the text of the
amendment and the reasons therefor. Unless otherwise provided herein, all
amendments must be approved by the holders of a Majority of the outstanding
Shares entitled to vote (calculated without regard to Shares owned by the
Managing Shareholder and its Affiliates), and, if the terms of a series of
Shares so require, by the vote of the holders of such class, series or group
specified therein.
(c) The Managing Shareholder has power to construe this Declaration and to
act upon any such construction. Its construction of the same and any action
taken pursuant thereto by the Trust or a Managing Person in good faith shall be
final and conclusive.
9.7 Bonds and Accounting. The Trustees and other Managing Persons shall not
be required to give bond or otherwise post security for the performance of their
duties and the Trust waives all provisions of law requiring or permitting the
same. No person shall be entitled at any time to require the Trust, Managing
Shareholder, Trustees, any other member of the Board or any Shareholder to
submit to a judicial or other accounting or otherwise elect any judicial,
administrative or executive supervisory proceeding applicable to non-business
trusts.
9.8 Binding Effect. This Declaration shall be binding upon and shall inure
to the benefit of the Shareholders (and their spouses if the Shares of such
Shareholders shall be community property) as well as their respective heirs,
legal representatives, successors and assigns. This Declaration constitutes the
entire agreement among the Trust, the Trustees and the Shareholders with respect
to the formation and operation of the Trust, other
39
<PAGE>
than the Subscription Agreement entered into between the Trust and each
Shareholder and the Trust Management Agreement.
9.9 Headings. Headings of Articles and Sections used herein are for
descriptive purposes only and shall not control or alter the meaning of this
Declaration as set forth in the text.
9.10 Bylaws. The Bylaws of the Trust may be altered, amended or repealed,
and new Bylaws may be adopted, at any meeting of the Board by a majority of the
Board, subject to repeal or change by action of the Shareholders entitled to
vote thereon.
9.11 Severability. If any provision of this Declaration shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other provision of this Declaration, and the Declaration shall be carried
out, if possible, as if such invalid or unenforceable provision were not
contained therein.
ARTICLE 10
DEFINITIONS
The following terms, whenever used herein, shall have the meanings assigned
to them in this Article 10 unless the context indicates otherwise. References to
sections and articles without further qualification denote sections and articles
of this Declaration. The singular shall include the plural and the masculine
gender shall include the feminine, and vice versa, as the context requires, and
the terms "person" and "he" and their derivations whenever used herein shall
include natural persons and entities, including, without limitation,
corporations, partnerships and trusts, unless the context indicates otherwise.
"Advisor" - Any Person (including the Managing Shareholder) responsible for
directing or performing the day-to-day business affairs of a real estate
investment trust.
"Affiliate" - An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) Any person directly or indirectly owning, controlling or holding,
with power to vote 10% or more of the outstanding voting securities of such
other person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive officer,
director, trustee or general partner.
"Baron Advisors" - Baron Advisors, Inc., a Delaware corporation which is
the initial Managing Shareholder of the Trust.
"Baron Properties" - Baron Capital Properties, Inc., a Delaware corporation
having its principal office at 1105 North Market Street, Wilmington, Delaware
19899, which is the initial Corporate Trustee.
"Board" - The Managing Shareholder and the Independent Trustees, acting
together as the Board of the Trust in accordance with the terms hereof.
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"Brentwood" means Brentwood Management, LLC, an Ohio limited liability
company affiliated with the Managing Shareholder which is expected to manage
properties in which the Trust may invest.
"Certificate" - The Certificate of Trust for the Trust, as amended from
time to time.
"Code" - The Internal Revenue Code of 1986, as amended from time to time,
and any rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Share" - A share of beneficial interest in the Trust designated as
a Common Share by the Trust in accordance with Section 2.1 of this Declaration.
"Corporate Trustee"- Baron Properties or its successors as Corporate
Trustee, which acts as legal title holder of the Trust Property, subject to the
terms of this Declaration.
"Dealer Manager" - Sigma Financial Corporation, a Michigan corporation,
with its principal place of business at 4261 Park Road, Ann Arbor, Michigan
48103.
"Declaration" - This Amended and Restated Declaration of Trust, as amended
from time to time.
"Delaware Act" - The Delaware Business Trust Act, as amended from time to
time (currently codified as title 12, chapter 38 of the Delaware Code).
"Exchange Offering" refers to the proposed offering of Units by the
Operating Partnership in exchange for property interests as contemplated in the
Prospectus.
"Escrow Date" - The later to occur of the dates on which the Trust (i)
accepts the subscription that results in the gross proceeds from the Initial
Offering to exceed $500,000, and (ii) deposits at least $250,000 in collected
funds in escrow under Section 1.6(b), provided, however, the Escrow Date shall
not be later than December 31, 1998.
"Exchange Act" refers to the federal Securities Exchange Act of 1934, as
amended.
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"Independent Trustee" - Any individual meeting certain qualifications under
Section 7.5(b) who becomes an Independent Trustee of the Trust under the terms
of this Declaration.
"Initial Offering" - The initial public offering and sale of up to
2,500,000 Common Shares by the Trust pursuant to the Prospectus.
"Junior Mortgage" refers to a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of one or more
Mortgages and (ii) must be satisfied before such other charges or liens (other
than prior Mortgages) are entitled to participate in the proceeds of any sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
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"Majority" - Unless otherwise specified herein, when used with respect to
any consent to be given or decision to be made or action to be taken by the
Shareholders or group of Shareholders entitled to vote on a particular matter, a
majority in interest of all the then current Shareholders or members of the
group entitled to vote.
"Managing Person" - Any of the following: (a) Trust officers, agents, or
Affiliates, the Managing Shareholder, the Trustees, any other members of the
Board, Affiliates of the Managing Shareholder, a Trustee, or any other member of
the Board, and (b) any directors, officers or agents of any organizations named
in (a) above when acting for a Trustee, the Managing Shareholder, any other
member of the Board or any of their Affiliates on behalf of the Trust.
"Managing Shareholder" - Baron Advisors and any substitute or different
Managing Shareholder as may subsequently be created under the terms of this
Declaration.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"Mortgage Loan" refers to a note, bond or other evidence of indebtedness or
obligation which is secured or collateralized by a Mortgage.
"Operating Partnership" refers to Baron Capital Properties, L.P., a
Delaware limited partnership which will conduct all the Trust's real estate
operations and hold all property interests acquired by the Trust. The Trust is
the general partner of the Operating Partnership and by virtue of the
acquisition of Units in the Operating Partnership will own an economic interest
therein.
"Original Investors" refers to Gregory K. McGrath and Robert S. Geiger, the
founders of the Trust and the Operating Partnership.
"Person" - Any natural person, partnership, corporation, association,
trust, limited liability company or other legal entity.
"Preferred Share" - A share of beneficial interest with such preferences
and rights (in relation to other Shares authorized and issued by the Trust) as
the Managing Shareholder may designate under Section 2.1(c) of this Declaration
for sale or issuance subsequent to completion of the Initial Offering.
"Prospectus" refers to the Prospectus dated _____________, 1998, as
supplemented and amended from time to time, pursuant to which the Trust will
offer the Common Shares for sale to the public.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"Second Mortgage" means a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of a First Mortgage
and (ii) must be satisfied before such other charges or encumbrances (other than
the First Mortgage) are entitled to participate in the proceeds of any sale.
"Second Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Second Mortgage.
"Securities Act" - The federal Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.
"Share" - A share of beneficial interest in the Trust which is either a
Common Share or a Preferred Share authorized for issuance and designated as such
by the Managing Shareholder in accordance with Section 2.1(c) of this
Declaration.
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"Shareholder" - An owner of Shares (which will include the Managing
Shareholder to the extent it acquires Shares).
"Subscription Documents" - The form of subscription documents which each
prospective Shareholder must execute in order to subscribe for Common Shares in
the Initial Offering.
"Termination Date" - The date the Initial Offering terminates, which date
shall be December 31, 1998, or an earlier or later date determined by the Trust
in its discretion as follows:
(a) The Trust may designate any date prior to December 31, 1998 as the
Termination Date if the Escrow Date has occurred prior to such date;
(b) The Trust from time to time may designate any date after December 31,
1998, but no later than __________________ [the end of the eighteenth month
following the commencement of the Initial Offering] as the Termination Date if
the Escrow Date has occurred prior to the extension of the Termination Date; and
(c) If the Trust elects to withdraw the Initial Offering of Common Shares
under this Declaration, the Termination Date shall be the date of that election.
"Trust" - Baron Capital Trust, a Delaware business trust which is the
issuer of Shares of the Trust.
"Trustee" and "Trustees"- "Trustee" means a person serving as a Corporate
Trustee or an Independent Trustee of the Trust under this Declaration; the term
"Trustees" refers to the Corporate Trustee and the Independent Trustees
collectively.
"Trust Management Agreement" - The Trust Management Agreement dated as of
_____________ __, 1998 between the Trust and the Managing Shareholder under
which the Managing Shareholder will perform certain management, administrative
and investment advisory services for the Trust as described in the Prospectus.
"Trust Property" - All real and personal property owned or acquired by the
Corporate Trustee as part of the trust estate under this Declaration, which is
expected to include but not be limited to (i) the land, buildings and
improvements comprising one or more existing residential apartment properties in
which the Trust may make an equity investment, and (ii) its rights in connection
with Mortgage Loans it may acquire or make which are secured by Mortgages on the
land, buildings and improvements comprising residential apartment properties.
"Units" refers to units of limited partnership interest in the Operating
Partnership.
IN WITNESS WHEREOF, the undersigned have signed this Declaration as of the
date first above written.
BARON CAPITAL PROPERTIES, INC.,
Grantor and Corporate Trustee
By:
-----------------------------
Gregory K. McGrath, President
BARON ADVISORS, INC.,
Managing Shareholder
By:
-----------------------------
Gregory K. McGrath, President
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EXHIBIT A
Shareholder Name Address Number of Shares
---------------- ------- ----------------
Owned and Class
---------------
44
EXHIBIT 5.2
FORM OF OPINION OF
KEATING, MUETHING & KLEKAMP P.L.L.
ON CERTAIN TAX MATTERS
<PAGE>
DRAFT 1-10-98
FACSIMILE (513) 579-6457
________________, 1998
Direct Dial: (513) 579-6465
E-Mail: [email protected]
Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
Ladies and Gentlemen:
We have acted as special tax counsel for Baron Capital Trust, a Delaware
business trust (the "Trust") and [Baron Advisors, Inc, a Delaware corporation
("Baron Advisors")] in connection with the proposed public offering by the Trust
of its Common Shares (the "Shares"). You have requested our opinions as to the
qualification of the Trust as a real estate investment trust ("REIT") for
federal income tax purposes and the accuracy of certain tax disclosures made in
the Trust's Prospectus.
In connection with the opinions expressed herein, we have reviewed: (i) the
Registration Statement on Form SB-2, Registration No. 333-35063, and the
Prospectus constituting a part thereof, dated ___________, relating to the
issuance of up to $25 million aggregate public offering price of Common Shares
of the Trust.
In rendering our opinions, we have also reviewed and relied upon the
representations of an officer of the Trust made to us pursuant to an Officer's
Certificate of even date herewith and such other documents as we have considered
necessary or appropriate in rendering the opinions expressed herein.
In our review of the foregoing documents, we have assumed, with your
consent, the accuracy of all information set forth in such documents, the
genuineness of all signatures on the documents which we have reviewed, the
conformity with the originals (and the authenticity of such originals) of all
documents submitted to us as copies and the legal existence of the Trust. We
have also assumed that the Trust will not elect to be treated as a REIT for any
taxable year beginning prior to January 1, 1998. Our opinions are conditioned on
the accuracy of the factual statements made in the documents, and on timely and
full compliance with the terms of the documents by all relevant parties
<PAGE>
Page 2
to such documents. It should be emphasized that although we have no reason to
believe that these representations and assumptions are not true, we have not
independently attempted to verify them. Any modification of the facts and
assumptions underlying these representations may require modification of the
opinions expressed herein.
It must also be emphasized that our opinions are rendered under existing
federal statutes, regulations, rulings, judicial decisions, and interpretations
thereof. Specifically, our opinions are based upon existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), together with existing,
proposed, and temporary regulations promulgated under the Code. We caution that
the tax law, or the judicial and administrative interpretations thereof, may
change in such a manner as to make the conclusions expressed herein no longer
accurate.
Subject to the assumptions, qualifications and conditions set forth herein,
it is our opinion that:
(1) Upon organization of the Trust in accordance with the terms of the
Prospectus, the Trust will be organized in conformity with the
requirements for qualification as a REIT, and the Trust's proposed
method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code.
(2) The information in the Prospectus under the caption "FEDERAL INCOME
TAX CONSIDERATIONS" fairly summarizes the federal income tax
considerations that are likely to be material to a holder of the
Common Shares of the Trust.
This opinion is limited solely to matters of federal tax law discussed
herein. Moreover, the Trust's qualification and taxation as a REIT depends upon
its ability to meet, through actual operating results, requirements under the
Code regarding income, assets, distributions and diversity of share ownership.
Because the Trust's satisfaction of these requirements will depend upon future
events, no assurance can be given that the actual results of its operation for
any one taxable year will satisfy the tests necessary to qualify as or be taxed
as a REIT under the Code.
This opinion is subject to the qualifications and restrictions noted herein
and is based upon our understanding of the material facts as stated herein. This
opinion is expressed as of the date hereof and we disclaim any undertaking to
advise you of any subsequent changes to the facts stated or assumed herein, or
any subsequent changes in applicable law.
This opinion is rendered solely for use in connection with the Registration
Statement. We hereby consent to the filing of this opinion as Exhibit __ to the
Registration Statement and to all references to our name in the Prospectus. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules or regulations of the Securities and Exchange Commission
thereunder. This
<PAGE>
Page 3
opinion may not be used by any other person or for any other purpose without our
prior express written consent.
Sincerely,
KEATING, MUETHING & KLEKAMP P.L.L.
BY:________________________________
Joseph P. Mellen
EXHIBIT 10.1
FORM OF TRUST MANAGEMENT AGREEMENT,
DATED AS OF _________, 1998, BETWEEN
THE REGISTRANT AND BARON ADVISORS, INC.
<PAGE>
FORM OF
TRUST MANAGEMENT AGREEMENT
AGREEMENT made as of the ______ day of ______________, 1998 by and between
BARON CAPITAL TRUST, a Delaware business trust (the "Trust"), and BARON
ADVISORS, INC., a Delaware corporation (hereinafter referred to as the
"Management Company").
W I T N E S S E T H:
WHEREAS, the Trust is a business trust organized under the Delaware
Business Trust Act, as amended, which intends to elect to be taxed as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, the Management Company is the managing shareholder of the Trust
and will engage principally in rendering management, administrative and
investment advisory services to the Trust; and
WHEREAS, the Trust desires to retain the Management Company to render
management, administrative and certain investment advisory services to the Trust
in the manner and on the terms hereinafter set forth; and
WHEREAS, the Management Company is willing to provide management,
administrative and investment advisory services to the Trust on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Management Company hereby agree as
follows:
ARTICLE I
Duties of the Management Company
The Trust hereby employs the Management Company to furnish, or arrange for
Affiliates (defined in Article VIII) of the Management Company to furnish, the
management, administrative and investment advisory services described below for
the period and on the terms and conditions set forth in this Agreement, subject
to the general supervision and review by the Board of the Trust and/or a
majority of the Independent Trustees of the Trust and the prior approval of the
Board and/or a majority of the Independent Trustees in respect of certain
actions of the Trust as set forth in the Amended and Restated Declaration of
Trust ("the Declaration") for the Trust dated as of __________, 1998. The
initial Board of the Trust consists of the Management Company and two
Independent Trustees appointed pursuant to the terms and conditions of the
Declaration. The Management Company hereby accepts such employment and agrees
during such period, at its own expense, to render, or arrange for the rendering
of, such services and to assume the obligations herein set forth for the
compensation provided for herein.
<PAGE>
(a) Management and Administrative Services. The Management Company shall
perform (or arrange for the performance of) the management and administrative
services necessary for the operation of the Trust, including providing
managerial assistance to Baron Capital Properties, L.P. (the "Operating
Partnership"), an affiliate of the Trust, and other companies which may be owned
directly or indirectly by the Trust through which the Trust may conduct its real
estate operations and such other services related to residential apartment
properties in which the Trust may invest (as specified in the Declaration), as
shall be necessary for the operation of the Trust. The Management Company shall
also perform services related to administering the accounts and handling
relations with all holders of beneficial interests in the Trust. The Management
Company shall provide the Trust with office space, equipment and facilities and
such other services as the Management Company shall from time to time determine
to be necessary or useful to perform its obligations under this Agreement. The
Management Company shall also, on behalf of the Trust, conduct relations with
custodians, depositories, transfer agents, other shareholder service agents,
accountants, attorneys, underwriters, brokers and dealers, corporate
fiduciaries, insurers, banks and such other persons in any such other capacity
deemed to be necessary or desirable. The Management Company shall report to the
Board as to its performance of obligations hereunder and shall furnish advice
and recommendations with respect to such other aspects of the business and
affairs of the Trust as the Management Company shall determine to be desirable.
(b) Investment Advisory Services. Pursuant to the Declaration, the
Management Company in its capacity as the Managing Shareholder of the Trust is
responsible for providing investment advisory services in connection with real
estate investments the Trust may make and in connection with the money market
securities or other non-real estate investments held by the Trust (such
investments being referred to herein collectively as the "Investments"). The
Management Company shall also provide the Trust with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the Investments, and shall advise the Board of the
investment program for the Investments and shall determine from time to time
which Investments shall be purchased, sold or exchanged and what portion of the
Trust's assets shall be held in the various money market securities or cash,
subject always to any provisions, restrictions and limitations set forth in the
Declaration, as amended from time to time, the provisions of the Code relating
to REITs, and the Trust's investment objectives, investment policies and
investment restrictions. The Management Company shall also make determinations
with respect to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Trust's Investments
shall be exercised, subject to the restrictions set forth in the immediately
preceding sentence. The Management Company shall take, on behalf of the Trust,
all actions which it deems necessary to implement its investment policies.
Subject to applicable law, the Management Company may select brokers or dealers
which are its Affiliates to effect the purchase or sale of Investments. The
Management Company, in its sole discretion, may engage professionals,
consultants and other persons whose expertise or qualifications may assist the
Management
2
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Company or the Trust in connection with the Trust's business and may treat the
costs and expenses so incurred as a Trust expense.
ARTICLE II
Allocation of Charges and Expenses
(a) The Management Company. The Management Company assumes and shall pay
the expense for maintaining the staff and personnel necessary to perform its
obligations under this Agreement and shall at its own expense, provide the Trust
with office space, facilities, equipment and personnel necessary to carry out
its obligations hereunder. The Management Company will bear the administrative
and service expenses associated with the management services it is to provide
for the Investments of the Trust pursuant to the terms of this Agreement.
(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not expressly assumed by the Management Company
under this Agreement, including, without limitation: expenses of all
transactions involving the Trust, including without limitation, transactions
relating to the acquisition, leasing and disposition of properties, whether
consummated or not; valuation costs; expenses of printing reports and other
documents distributed to the Securities and Exchange Commission and holders of
beneficial interests, fees payable to the Securities and Exchange Commission,
state securities regulatory agencies and other regulatory agencies; interest;
taxes; fees and actual out-of-pocket expenses of the Independent Trustees; fees
for legal, auditing and consulting services; litigation expenses; costs of
printing proxies and other expenses related to meetings of holders of beneficial
interest; postage and other expenses properly payable by the Trust.
ARTICLE III
Compensation of the Management Company
(a) Management Fee. For the services rendered, the facilities furnished and
the expenses assumed by the Management Company under this Agreement, the Trust
shall pay to the Management Company annual compensation in an amount equal to
the sum of (i) 1% of the gross proceeds from the sale by the Trust of Common
Shares in the Trust's initial offering ("Initial Offering") pursuant to the
Prospectus dated _____________, 1998, and (ii) 1% of the initial stock price for
each unit of limited partnership interest ("Unit") in the Operating Partnership
issued in connection with the proposed Exchange Offering of Units (the "Exchange
Offering") as contemplated in the Prospectus. Except as provided below, such
compensation shall be payable in cash in equal monthly payments in advance. To
the extent that the Trust does not have funds in an amount sufficient to pay the
management fee, the Trust will accrue such fee as a liability and pay the
accrued fee at such time as it has sufficient funds available to it. Interest on
the amount of the accrued fee will be assessed at the annual rate of 10%.
Notwithstanding the foregoing, the Management Company may in its sole discretion
elect to take
3
<PAGE>
such compensation in an equivalent amount of authorized and unissued Common
Shares of the Trust or Units in the Operating Partnership as may be determined
by the Compensation Committee of the Board of the Trust.
(b) Other Fees. In connection with the Initial Offering and the Exchange
Offering, the Management Company shall be entitled to receive the fees provided
for in Section 4.2 of the Declaration and permitted under the Agreement of
Limited Partnership of the Operating Partnership (the "Partnership Agreement"),
as applicable. In connection with any offering of shares of beneficial interest
in the Trust ("Shares") (other than the Initial Offering) and offering of Units
in the Operating Partnership, the Management Company shall be entitled to
receive market-based fees based on the amount of gross proceeds received by the
Trust or the Operating Partnership, as the case may be, in connection with such
offerings to defray organizational, distribution and offering expenses incurred
in the offer and sale of the Shares and to cover legal, accounting, consulting
and recording fees, printing, filing, postage and other miscellaneous costs
associated with such offerings. The Management Company is also entitled to
receive an investment fee in an amount equal to 4% of the aggregate subscription
price received by the Trust for Shares purchased in connection with the Initial
Offering and any subsequent offerings for the Management Company's services in
investigating and evaluating investment opportunities and assisting the Trust in
consummating its investments. The Trust will reimburse Baron Capital Properties,
Inc., the corporate trustee of the Trust, for all actual and necessary expenses
paid or incurred in connection with the operation of the Trust, including the
Trust's allocable share of the corporate trustee's overhead. The foregoing fees
and expenses are to be paid pursuant to the provisions of the Declaration and
the Partnership Agreement, as applicable, and are subject to any provisions,
restrictions or limitations set forth therein.
(c) Expense Limitations. In the event the operating expenses of the Trust,
including amounts payable to the Management Company pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed any expense limitations applicable to the Trust imposed by the
Declaration or applicable state securities laws or regulations, as such
limitations may be raised or lowered from time to time, the Management Company
shall reduce its management fee hereunder by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse the Trust in
the amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
portfolio transaction costs and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Trust. Whenever the
expenses of the Trust exceed a pro rata portion of the applicable annual expense
limitations, the estimated amount of reimbursement under such limitations shall
be applicable as an offset against the monthly payment of the fee due to the
Management Company. Should two or more such expense limitations be applicable as
at the end of the last business day of the month, that expense limitation which
results in the largest reduction in the Management Company's management fee
shall be applicable.
4
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ARTICLE IV
Limitation of Liability of the Management Company
(a) As more fully described in Article 3.7 of the Declaration, the
Management Company shall not be liable for any loss suffered by the Trust or the
Operating Partnership (or other company which may be directly or indirectly
owned by the Trust through which the Trust may conduct its real estate
operations) that arises out of any action or inaction of the Trust or the
Operating Partnership (or any such other company), any Trust or Operating
Partnership (or any such other company) officers, agents or Affiliates, the
Management Company, the Trustees of the Trust (comprised of the Independent
Trustees and the corporate trustee), any other members of the Board of the Trust
or any Affiliate of the Management Company, a Trustee, any other member of the
Board or any director, officer or agent of those entities (collectively,
"Managing Persons" and individually, a "Managing Person") or out of any error of
judgment or mistake of law, if the Managing Person responsible, in good faith,
determined that such course of conduct was in the best interest of the Trust or
the Operating Partnership (or any such other company) and such course of conduct
was within the scope of this Management Agreement or the Declaration and did not
constitute negligence or misconduct of the Managing Persons involved.
(b) Indemnification. The provisions of Section 3.7 of the Declaration are
hereby incorporated by reference into this Management Agreement and are
expressly approved by the Board of the Trust. The Management Company shall be
entitled to indemnification hereunder in each instance where the "Managing
Shareholder" is entitled to indemnification under said Section 3.7.
ARTICLE V
Activities of the Management Company
The services of the Management Company of the Trust to be performed under
this Management Agreement are not deemed to be exclusive, the Management Company
being free to render services to others. It is understood that Trustees, other
members of the Board, Affiliates of the Trust (other than the Independent
Trustees) and holders of beneficial interest of the Trust or of partnership
interest in the Operating Partnership are or may become interested in the
Management Company as directors, officers, employees or shareholders of the
Management Company or otherwise and that the Management Company or its
directors, officers, employees or shareholders are or may become interested in
the Trust or the Operating Partnership as Trustees (other than as an Independent
Trustee), holders of beneficial interests or partnership interests or otherwise.
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ARTICLE VI
Duration and Termination of this Contract
This Agreement shall become effective as of the date first above written
and shall remain in force until the first anniversary thereof, and thereafter,
but only so long as such continuance is specifically approved at least annually
by (i) the Board of the Trust or the vote of a majority of the outstanding
voting securities of the Trust and (ii) a majority of the Independent Trustees
of the Trust who are not parties to this Agreement or interested persons of any
such party, by a vote cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Trustees of the Trust, by vote
of a majority of the outstanding voting securities of the Trust, or by the
Management Company, on at least 60 days' prior written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Board of the Trust or the vote of a majority of
the holders of outstanding voting securities of the Trust and (ii) a majority of
the Independent Trustees of the Trust, by a vote cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities,"
"Affiliate" and "affiliated person" when used in this Agreement, shall have the
respective meanings specified in the Securities Act of 1933, as amended, and the
rules thereunder.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with the laws of the State
of New York without regard to the conflicts of law provisions thereof.
6
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ARTICLE X
Notice of Non-liability
Under the Delaware Business Trust Act and Sections 3.3 and 3.4 of the
Declaration, neither the Shareholders, the Trustees nor any other members of the
Board of the Trust shall be personally liable hereunder, and the Management
Company shall look solely to the Trust property for the satisfaction of any
claim hereunder against the Trust.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
BARON CAPITAL TRUST
By: ____________________
Gregory K. McGrath
Chief Executive Officer
BARON ADVISORS, INC.
By: ____________________
Gregory K. McGrath
President
7
EXHIBIT 10.6
FORM OF AGREEMENT OF LIMITED PARTNERSHIP
OF
BARON CAPITAL PROPERTIES, L.P.
DATED AS OF ____________________, 1998
<PAGE>
Exhibit 10.6
AGREEMENT OF LIMITED PARTNERSHIP
OF
BARON CAPITAL PROPERTIES, L.P.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
ARTICLE I -- DEFINED TERMS...................................................................1
"Act"...................................................................................1
"Additional Limited Partner"............................................................1
"Adjusted Capital Account"..............................................................1
"Adjusted Capital Account Deficit"......................................................2
"Adjusted Property".....................................................................2
"Affiliate".............................................................................2
"Agreed Value"..........................................................................2
"Agreement".............................................................................2
"Assignee"..............................................................................2
"Available Cash"........................................................................2
"Bankruptcy"............................................................................3
"Book-Tax Disparities"..................................................................3
"Business Day"..........................................................................4
"Capital Account".......................................................................4
"Capital Contribution"..................................................................4
"Carrying Value"........................................................................4
"Certificate"...........................................................................4
"Code"..................................................................................4
"Common Share Rights"...................................................................4
"Common Shares".........................................................................4
"Consent"...............................................................................4
"Contributed Property"..................................................................4
"Conversion Right"......................................................................5
"Converting Partner"....................................................................5
"Debt"..................................................................................5
"Declaration of Trust"..................................................................5
"Depreciation"..........................................................................5
"Events of Dissolution".................................................................5
"General Partner".......................................................................5
"General Partnership Interest"..........................................................6
"IRS"...................................................................................6
"Immediate Family"......................................................................6
"Incapacity"............................................................................6
"Indemnitee"............................................................................6
"Initial Limited Partner"...............................................................6
"Limited Partner".......................................................................6
"Limited Partnership Interest"..........................................................6
"Liquidating Transaction"...............................................................6
"Liquidator"............................................................................7
ii
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"Net Income"............................................................................7
"Net Loss"..............................................................................7
"New Securities"........................................................................7
"Nonrecourse Built-in Gain".............................................................7
"Nonrecourse Deductions"................................................................7
"Nonrecourse Liability".................................................................7
"Notice of Conversion"..................................................................7
"Option Plans"..........................................................................8
"Partner"...............................................................................8
"Partner Minimum Gain"..................................................................8
"Partner Nonrecourse Debt"..............................................................8
"Partner Nonrecourse Deductions"........................................................8
"Partnership"...........................................................................8
"Partnership Interest"..................................................................8
"Partnership Minimum Gain"..............................................................8
"Partnership Record Date"...............................................................8
"Partnership Unit" or "Unit"............................................................8
"Partnership Year"......................................................................9
"Percentage Interest"...................................................................9
"Person"................................................................................9
"Preferred Shares"......................................................................9
"Recapture Income"......................................................................9
"Redemption Amount".....................................................................9
"Regulations"...........................................................................9
"REIT"..................................................................................9
"Residual Gain" or "Residual Loss"......................................................9
"704(c) Value"..........................................................................9
"Specified Conversion Date".............................................................10
"Subsidiary"...........................................................................10
"Substituted Limited Partner"...........................................................10
"Transaction"...........................................................................10
"Unit Adjustment Factor"................................................................10
"Unrealized Gain".......................................................................10
"Unrealized Loss".......................................................................10
"Valuation Date"........................................................................11
"Value".................................................................................11
ARTICLE II -- ORGANIZATIONAL MATTERS.........................................................11
Section 2.1 Organization and Formation; Application of Act.......................11
(a) Organization and Formation of Partnership....................11
(b) Application of Act...........................................11
Section 2.2 Name.................................................................12
Section 2.3 Registered Office and Agent; Principal Office........................12
Section 2.4 Term.................................................................12
</TABLE>
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ARTICLE III -- PURPOSE.......................................................................12
Section 3.1 Purpose and Business.................................................12
Section 3.2 Powers...............................................................13
ARTICLE IV -- CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
CAPITAL ACCOUNTS.............................................................................13
Section 4.1 Capital Contributions of the Partners................................13
(a) Initial Capital Contributions................................13
(b) Additional Capital Contributions.............................13
(c) Return of Capital Contributions..............................14
(d) Liability of Limited Partners................................14
Section 4.2 Issuances of Additional Partnership Interests........................14
(a) Issuance to Other than the General Partner...................14
(b) Issuance to the General Partner..............................15
(c) Issuance of Additional Common Shares or
Preferred Shares.............................................15
(d) Issuance Pursuant to Option Plans............................16
(e) Conversion of Units..........................................17
Section 4.3 No Preemptive Rights.................................................18
Section 4.4 Capital Accounts of the Partners.....................................18
(a) General......................................................18
(b) Income, Gains, Deductions and Losses.........................18
(c) Transfers of Partnership Units...............................19
(d) Unrealized Gains and Losses..................................19
(e) Modification by General Partner..............................19
ARTICLE V -- DISTRIBUTIONS...................................................................20
Section 5.1 Requirement and Characterization of Distributions....................20
Section 5.2 Amounts Withheld.....................................................21
Section 5.3 Distributions Upon Liquidation.......................................21
ARTICLE VI -- ALLOCATIONS....................................................................21
Section 6.1 Allocations For Capital Account Purposes Other than the Taxable
Year of Liquidation..................................................21
(a) Net Income.................................................21
(b) Net Losses.................................................21
(c) Nonrecourse Liabilities....................................21
(d) Gains......................................................21
Section 6.2 Allocations for Capital Account Purposes in the Taxable
Year of Liquidation..................................................22
Section 6.3 Special Allocation Rules.............................................22
(a) Minimum Gain Chargeback......................................22
(b) Partner Minimum Gain Chargeback..............................22
(c) Qualified Income Offset......................................23
</TABLE>
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<TABLE>
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(d) Nonrecourse Deductions.......................................23
(e) Partner Nonrecourse Deductions...............................23
(f) Code Section 754 Adjustments.................................23
Section 6.4 Allocations for Tax Purposes.........................................24
(a) General......................................................24
(b) To Eliminate Book-Tax Disparities............................24
(c) Power of General Partner to Elect Method.....................25
ARTICLE VII -- MANAGEMENT AND OPERATION OF BUSINESS..........................................25
Section 7.1 Management...........................................................25
(a) Powers of General Partner....................................25
(b) No Approval Required for Above Powers........................27
(c) Insurance....................................................28
(d) Working Capital Reserves.....................................28
(e) No Obligation to Consider Tax Consequences to Limited
Partners ....................................................28
Section 7.2 Certificate of Limited Partnership...................................28
Section 7.3 Restrictions on General Partner's Authority..........................28
Section 7.4 Responsibility for Expenses..........................................29
(a) No Compensation..............................................29
(b) Responsibility for Ownership and Operation Expenses..........29
(c) Responsibility for Organization Expenses.....................29
Section 7.5 Outside Activities of the General Partner............................29
(a) General......................................................29
(b) Purchase of Shares of Beneficial Interest....................30
Section 7.6 Contracts with Affiliates............................................30
(a) Loans........................................................30
(b) Transfers of Assets..........................................30
(c) Contracts With General Partner...............................30
(d) Employee Benefit Plans.......................................30
Section 7.7 Indemnification......................................................31
(a) General......................................................31
(b) In Advance of Final Disposition..............................31
(c) Non-Exclusive Section........................................31
(d) Insurance....................................................31
(e) Employee Benefit Plans.......................................32
(f) No Personal Liability for Limited Partners...................32
(g) Interested Transactions......................................32
(h) Binding Effect...............................................32
Section 7.8 Liability of the General Partner.....................................32
(a) General......................................................32
(b) No Obligation to Consider Interests of Limited Partners......32
(c) Acts of Agents...............................................33
(d) Effect of Amendment..........................................33
</TABLE>
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(e) Limitation of Liability of Shareholders and Officers of
the General Partner .........................................33
Section 7.9 Other Matters Concerning the General Partner.........................33
(a) Reliance on Documents........................................33
(b) Reliance on Consultants and Advisers.........................34
(c) Action Through Officers and Attorneys........................34
(d) Actions to Maintain REIT Status or Avoid Taxation
of General Partner...........................................34
Section 7.10 Title to Partnership Assets..........................................34
Section 7.11 Reliance by Third Parties............................................35
ARTICLE VIII -- RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS...................................35
Section 8.1 Limitation of Liability..............................................35
Section 8.2 Management of Business...............................................36
Section 8.3 Outside Activities of Limited Partners...............................36
Section 8.4 Priority Among Partners..............................................36
Section 8.5 Rights of Limited Partners Relating to the Partnership...............36
(a) Copies of Business Records...................................36
(b) Notification of Changes in Unit Adjustment Factor............37
(c) Confidential Information.....................................37
(d) Debt Allocation..............................................37
Section 8.6 Redemption Right.....................................................38
(a) General......................................................38
(b) Where Delivery of Shares of Beneficial Interest Prohibited...38
Section 8.7 Notice for Certain Transactions......................................38
ARTICLE IX -- BOOKS, RECORDS, ACCOUNTING AND REPORTS.........................................39
Section 9.1 Records and Accounting...............................................39
Section 9.2 Fiscal Year..........................................................39
Section 9.3 Reports..............................................................39
(a) Annual Reports...............................................39
(b) Quarterly Reports............................................39
ARTICLE X -- TAX MATTERS.....................................................................40
Section 10.1 Preparation of Tax Returns...........................................40
Section 10.2 Tax Elections........................................................40
Section 10.3 Tax Matters Partner..................................................40
(a) General......................................................40
(b) Powers.......................................................40
(c) Reimbursement................................................41
Section 10.4 Organizational Expenses..............................................41
Section 10.5 Withholding..........................................................42
</TABLE>
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ARTICLE XI -- TRANSFERS AND WITHDRAWALS......................................................43
Section 11.1 Transfer.............................................................43
(a) Definition...................................................43
(b) Requirements.................................................43
Section 11.2 Transfer of General Partner's Partnership Interest...................43
(a) General......................................................43
(b) Transfer to Partnership or Holder of Common Shares...........43
(c) Transfer in Connection With Reclassification,
Recapitalization, or Business Combination Involving
General Partner..............................................43
(d) Merger Involving General Partner Where Surviving Entity's
Assets Contributed to Partnership............................44
Section 11.3 Limited Partners' Rights to Transfer.................................44
(a) General......................................................44
(b) Incapacitated Limited Partners...............................44
(c) Transfers Contrary to Securities Laws........................44
(d) Transfers Resulting in Corporation Status; Transfers
through Established Securities or Secondary Markets..........45
(e) Transfers to Holders of Nonrecourse Liabilities..............46
Section 11.4 Substituted Limited Partners.........................................46
(a) Consent of General Partner Required..........................46
(b) Rights and Duties of Substituted Limited Partners............46
(c) Amendment of Exhibit A.......................................46
Section 11.5 Assignees............................................................47
Section 11.6 General Provisions...................................................47
(a) Withdrawal of Limited Partner................................47
(b) Transfer of All Partnership Units by Limited Partner.........47
(c) Timing of Transfers..........................................47
(d) Allocation When Transfer Occurs..............................47
ARTICLE XII -- ADMISSION OF PARTNERS.........................................................48
Section 12.1 Admission of Successor General Partner...............................48
Section 12.2 Admission of Additional Limited Partners.............................48
(a) General......................................................48
(b) Consent of General Partner Required..........................48
Section 12.3 Amendment of Agreement and Certificate...............................48
ARTICLE XIII -- DISSOLUTION AND LIQUIDATION..................................................49
Section 13.1 Dissolution..........................................................49
(a) Expiration of Term...........................................49
(b) Withdrawal of General Partner................................49
(c) Dissolution Prior to 2097....................................49
</TABLE>
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(d) Judicial Dissolution Decree..................................49
(e) Sale of Partnership's Assets.................................49
(f) Merger.......................................................49
(g) Bankruptcy or Insolvency of General Partner..................49
(h) Readjustment, etc............................................50
Section 13.2 Winding Up...........................................................50
(a) General......................................................50
(b) Where Immediate Sale of Partnership's Assets Impractical.....51
Section 13.3 Compliance with Timing Requirements of Regulations; Allowance for
Contingent or Unforeseen Liabilities or Obligations..................51
(a) Liquidation..................................................51
(b) Deficit Balance of General Partner...........................52
Section 13.4 Deemed Distribution and Recontribution...............................52
Section 13.5 Rights of Limited Partners...........................................52
Section 13.6 Notice of Dissolution................................................52
Section 13.7 Cancellation of Certificate of Limited Partnership...................53
Section 13.8 Reasonable Time for Winding-Up.......................................53
ARTICLE XIV -- AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..................................53
Section 14.1 Amendments...........................................................53
(a) General......................................................53
(b) General Partner's Power to Amend.............................53
(c) Consent of Adversely Affected Partner Required...............54
(d) When Consent of Majority of Limited Partnership Interests
Required ....................................................54
Section 14.2 Meetings of the Partners.............................................54
(a) General......................................................54
(b) Informal Action..............................................55
(c) Proxies......................................................55
(d) Conduct of Meeting...........................................55
ARTICLE XV -- GENERAL PROVISIONS.............................................................55
Section 15.1 Addresses and Notice.................................................55
Section 15.2 Titles and Captions..................................................56
Section 15.3 Pronouns and Plurals.................................................56
Section 15.4 Further Action.......................................................56
Section 15.5 Binding Effect.......................................................56
Section 15.6 Waiver of Partition..................................................56
Section 15.7 Entire Agreement.....................................................56
Section 15.8 Securities Law Provisions............................................56
Section 15.9 Remedies Not Exclusive...............................................56
Section 15.10 Time.................................................................56
Section 15.11 Creditors............................................................56
</TABLE>
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Section 15.12 Waiver...............................................................57
Section 15.13 Execution Counterparts...............................................57
Section 15.14 Applicable Law.......................................................57
Section 15.15 Invalidity of Provisions.............................................57
ARTICLE XVI -- POWER OF ATTORNEY.............................................................57
Section 16.1 Power of Attorney....................................................57
(a) Scope........................................................57
(b) Irrevocability...............................................58
EXHIBIT A -- PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS..............................A-1
EXHIBIT B -- VALUE OF CONTRIBUTED PROPERTY..................................................B-1
EXHIBIT C -- NOTICE OF CONVERSION...........................................................C-1
EXHIBIT D -- FORM OF UNIT CERTIFICATE.......................................................D-1
</TABLE>
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<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
BARON CAPITAL PROPERTIES, L.P.
This AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement"), dated as of
__________, 1998, of Baron Capital Properties, L.P. (the "Partnership") is
entered into by and among Baron Capital Trust, a Delaware business trust, as
General Partner (the "General Partner"), and the Persons (as defined herein)
identified as "Limited Partners" on Exhibit A, as the Limited Partners (as
defined herein), together with any other Persons who become Partners (as defined
herein) in the Partnership as provided herein;
WHEREAS, the Partners desire to form a limited partnership under the Act
(as hereinafter defined) and to set forth their respective rights and duties
relating to the Partnership on the terms as provided herein.
NOW, THEREFORE, in consideration of the premises, the mutual promises and
agreements herein made, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Partners hereby agree as
follows:
ARTICLE I
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 it may
be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.2 and who is shown as such on the books
and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Partnership Year (a) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (b)
decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
<PAGE>
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 4.4.
"Affiliate" means, with respect to any Person, (a) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(b) any Person directly or indirectly owning or controlling 10 percent or more
of the outstanding voting interests of such Person, (c) any Person as to which
such Person directly or indirectly owns or controls 10 percent or more of the
voting interests, or (d) any officer, director, general partner or trustee of
such Person or any Person referred to in clauses (a), (b) and (c) above. As used
herein "control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"Agreed Value" means (a) in the case of any Contributed Property set forth
on Exhibit B and as of the time of its contribution to the Partnership, the
Agreed Value of such property as set forth on Exhibit B; (b) in the case of any
Contributed Property not set forth on Exhibit B and as of the time of its
contribution to the Partnership, the 704(c) Value of such property or other
consideration, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed, and (c)
in the case of any property distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"Agreement" means this Agreement of Limited Partnership and all Exhibits
attached hereto, as the same may be amended, supplemented or restated from time
to time.
"Assignee" means a Person to whom one or more Partnership Units have been
transferred but who has not been admitted as a Substituted Limited Partner, and
who has the rights set forth in Section 11.5.
"Available Cash" means, with respect to any period for which such
calculation is being made, (a) all cash revenues and funds received by the
Partnership from whatever source (excluding the proceeds of any Capital
Contribution to the Partnership pursuant to Section 4.1) plus the amount of any
reduction (including, without limitation, a reduction resulting because the
General Partner determines such amounts are no longer necessary) in reserves of
the Partnership, which reserves are referred to in clause (b)(iv) below;
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(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made during such
period by the Partnership,
(ii) all cash expenditures (including capital expenditures) made by
the Partnership during such period,
(iii) investments in any entity (including loans made thereto) to the
extent that such investments are not otherwise described in clauses (b)(i)
or (ii), and
(iv) the amount of any increase in reserves established during such
period which the General Partner determines are necessary or appropriate in
its sole and absolute discretion.
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.
"Bankruptcy" as to any Person, shall be deemed to have occurred when (i)
such Person commences a voluntary proceeding seeking liquidation, reorganization
or other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) such Person 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 such Person,
(iii) such Person executes and delivers a general assignment for the benefit of
such Person's creditors, (iv) such Person files an answer or other pleading
admitting or failing to contest the material allegations of a petition filed
against such Person in any proceeding of the nature described in clause (ii)
above, (v) such Person seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator for such Person or for all or any substantial
part of such Person's properties, (vi) any proceeding seeking liquidation,
reorganization or other relief under any bankruptcy, insolvency or other similar
law now or hereafter in effect has not been dismissed within 120 days after the
commencement thereof, (vii) the appointment without such Person's consent or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within 90 days of such appointment, or (viii) an appointment referred to in
clause (vii) is not vacated within 90 days after the expiration of any such
stay.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for Federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted
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Property will be reflected by the difference between such Partner's Capital
Account balance as maintained pursuant to Section 4.4 and the hypothetical
balance of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with Federal income tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"Capital Account" means the capital account maintained by the Partnership
for each Partner pursuant to Section 4.4.
"Capital Contribution" means, with respect to each Partner, the total
amount of cash, cash equivalents and the Agreed Value of Contributed Property
which such Partner contributes or is deemed to contribute to the Partnership
pursuant to Section 4.1 or 4.2.
"Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property charged to the Partners' Capital Accounts and (b) with respect to any
other Partnership property, the adjusted basis of such property for Federal
income tax purposes, all as of the time of determination. The Carrying Value of
any property shall be adjusted from time to time in accordance with Section
4.4(d), and to reflect changes, additions or other adjustments to the Carrying
Value for dispositions and acquisitions of Partnership properties, as deemed
appropriate by the General Partner.
"Certificate" means the Certificate of Limited Partnership relating to the
Partnership filed in the office of the Secretary of State of the State of
Delaware, 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. Any reference
herein to a specific section or sections of the Code shall be deemed to include
a reference to any corresponding provision of future law.
"Common Share Rights" has the meaning set forth in Section 4.2(e).
"Common Shares" means the common shares of beneficial interest, no par
value per share, of the General Partner.
"Consent" means the consent or approval of a proposed action by a Partner
given in accordance with Section 14.1.
"Contributed Property" means each property or other asset (but excluding
cash and cash equivalents), in such form as may be permitted by the Act
contributed or deemed contributed to the Partnership. Once the Carrying Value of
a Contributed
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Property is adjusted pursuant to Section 4.4, such property shall no longer
constitute a Contributed Property, but shall be deemed an Adjusted Property for
purposes of Section 4.4.
"Conversion Right" has the meaning set forth in Section 4.2(e)(1).
"Converting Partner" has the meaning set forth in Section 4.2(e)(1).
"Debt" means, as to any Person, as of any date of determination, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (b) all amounts owed by such Person
to banks or other Persons in respect of reimbursement obligations under letters
of credit, surety bonds and other similar instruments guaranteeing payment or
other performance of obligations by such Person, (c) all indebtedness for
borrowed money or for the deferred purchase price of property or services
secured by any lien on any property owned by such Person, to the extent
attributable to such Person's interest in such property, even though such Person
has not assumed or become liable for the payment thereof, (d) lease obligations
of such Person which, in accordance with generally accepted accounting
principles, should be capitalized and (e) all guarantees and other contingent
obligations of such Person with respect to Debt of others.
"Declaration of Trust" means the Declaration of Trust of the General
Partner filed with the Secretary of State of the State of Delaware, as the same
may be amended, supplemented or restated from time to time.
"Depreciation" means for each fiscal year or other period, an amount equal
to the Federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Carrying Value of an asset differs from its adjusted basis
for Federal income tax purposes at the beginning of such year or other period,
Depreciation shall be an amount which bears the same ratio to such beginning
Carrying Value as the Federal income tax depreciation, amortization, or other
cost recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the Federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Carrying
Value using any reasonable method selected by the General Partner.
"Events of Dissolution" has the meaning set forth in Section 13.1.
"General Partner" means Baron Capital Trust, a Delaware business trust, and
its successors as a general partner of the Partnership in accordance with the
terms of this Agreement.
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"General Partnership Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest and includes any and all
benefits to which the General Partner may be entitled and all obligations of the
General Partner hereunder. A General Partnership Interest may be expressed as a
number of Partnership Units.
"IRS" means the Internal Revenue Service, which is charged with
administering the internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person, such natural
Person's spouse, parents, descendants, nephews, nieces, brothers, and sisters.
"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's affairs, (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 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.
"Indemnitee" means (a) any Person made a party to a proceeding by reason of
his status as (i) the General Partner (including as a guarantor of any
Partnership Debt) or (ii) an officer of the Partnership or a trustee, officer or
member of the Board of the General Partner, and (b) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion.
"Initial Limited Partner" means Gregory K. McGrath.
"Limited Partner" means any Person named as a Limited Partner on Exhibit A,
as such Exhibit may be amended from time to time, including any Substituted
Limited Partner or Additional Limited Partner, in such Person's capacity as a
Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest held by a
Limited Partner representing a fractional part of the Partnership Interests of
all Limited Partners and includes any and all benefits to which such Limited
Partner may be entitled and all obligations of such Limited Partner hereunder. A
Limited Partnership Interest may be expressed as a number of Partnership Units.
"Liquidating 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,
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taken together, results in the sale or other disposition of all or substantially
all of the assets of the Partnership.
"Liquidator" has the meaning set forth in Section 13.2.
"Net Income" means for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 4.4. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Sections 6.3 and 6.4, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 4.4. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Loss is subjected to the special
allocation rules in Sections 6.3 and 6.4, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such item.
"New Securities" has the meaning set forth in Section 4.2(c).
"1933 Act" has the meaning set forth in Section 11.3(c).
"1934 Act" has the meaning set forth in Section 8.5(a)(1).
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 6.4(b) if such properties
were disposed of in a taxable transaction in full satisfaction of such
liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Notice of Conversion" means a Notice of Conversion substantially in the
form of Exhibit C.
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"Option Plans" means the option plans for Common Shares or Units, as the
case may be, restricted share plans or employee benefit plans established by, or
for the benefit of the employees of, the General Partner, the Partnership or any
other Subsidiary.
"Partner" means individually, the General Partner or a Limited Partner, and
"Partners" means collectively, the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section
1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined
in accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means Baron Capital Properties, L.P., the limited partnership
formed under the Act and pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
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
Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Partnership Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash 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 shareholders of some or all of its
portion of such distribution, and also means any record date established by the
General Partner in connection with any vote or consent of the Limited Partners
pursuant to this Agreement.
"Partnership Unit" or "Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2,
in such number as set forth on Exhibit A, as such Exhibit may be amended from
time to time. The
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ownership of Partnership Units may be evidenced by the form of non-transferable,
non-negotiable certificate for units substantially in the form of Exhibit D.
"Partnership Year" means the fiscal year of the Partnership, which shall be
the calendar year.
"Percentage Interest" means, as to any Partner, its interest in the
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified on Exhibit A, as such Exhibit may be amended from time to time.
"Person" means an individual or a corporation, partnership, limited
liability company, trust, unincorporated organization, association or other
entity.
"Preferred Shares" has the meaning set forth in Section 4.2(c).
"Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Redemption Amount" means an amount of cash per Partnership Unit equal to
the Value on the Valuation Date of the Common Shares that the Partner being
redeemed would have been entitled to receive under Section 4.2(e).
"Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"REIT" means a real estate investment trust as defined under Section 856 of
the Code.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for Federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 6.4(b)(1)(i) or 6.4(b)(2)(i) to eliminate Book-Tax
Disparities.
"704(c) Value" of any Contributed Property means the value of
such property as set forth on Exhibit B, or if no value is set forth on Exhibit
B, the fair market value of such property or other consideration at the time of
contribution as determined by the General Partner using such reasonable method
of valuation as it may adopt. Subject to Section 4.4, the General Partner shall
use such method as it deems reasonable and
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appropriate to allocate the aggregate of the 704(c) Value of Contributed
Properties among each separate property on a basis proportional to its fair
market value.
"Shares of Beneficial Interest" means the shares of beneficial interest, no
par value per share, of the General Partner, including the Common Shares and the
Preferred Shares.
"Specified Conversion Date" means the tenth Business Day after receipt by
the General Partner of a Notice of Conversion.
"Subsidiary" means, with respect to any Person, any corporation 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.
"Transaction" has the meaning set forth in Section 11.2(c).
"Unit Adjustment Factor" means the factor applied for converting
Partnership Units to Common Shares, which shall initially be 1.0; provided,
however, that in the event that the General Partner (a) declares or pays a
dividend on its outstanding Common Shares in Common Shares or makes a
distribution to all holders of its outstanding Common Shares in Common Shares,
(b) subdivides its outstanding Common Shares, or (c) combines its outstanding
Common Shares into a smaller number of Common Shares, the Unit Adjustment Factor
shall be adjusted by multiplying the Unit Adjustment Factor by a fraction, the
numerator of which shall be the number of Common Shares issued and outstanding
on the record date (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and the denominator of
which shall be the actual number of Common Shares (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, subdivision or combination. Any adjustment to the Unit Adjustment
Factor shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property (as determined under Section 4.4) as of such date, over
(b) the Carrying Value of such property (prior to any adjustment to be made
pursuant to Section 4.4) as of such date.
"Unrealized Loss" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such property (prior to any adjustment to be made pursuant to Section 4.4) as
of such date,
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over (b) the fair market value of such property (as determined under Section
4.4) as of such date.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Conversion or, if such date is not a Business Day, the first Business
Day thereafter.
"Value" means, with respect to a Common Share, the average of the daily
market price for the 10 consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be: (a) if the
Common Shares are listed or admitted to trading on any securities exchange or
the NASDAQ-National Market System, the closing price, regular way, on such day,
or if no such sale takes place on such day, the average of the closing bid and
asked prices on such day; (b) if the Common Shares are not listed or admitted to
trading on any securities exchange or the NASDAQ-National Market System, the
last reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the General Partner; or (c) if the
Common Shares are not listed or admitted to trading on any securities exchange
or the NASDAQ-National Market System and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than 10 days prior to the date in question) for
which prices have been so reported; provided, however, that if there are no bid
and asked prices reported during the 10 days prior to the date in question, the
Value of the Common Shares shall be determined by the General Partner acting in
good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event a holder of
Common Shares would be entitled to receive Common Share Rights, then the Value
of such Common Share Rights shall be determined by the General Partner acting in
good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization and Formation; Application of Act.
(a) Organization and Formation of Partnership. The General Partner and the
Initial Limited Partner do hereby form the Partnership as a limited partnership
according to all of the terms and provisions of this Agreement and otherwise in
accordance with the Act. The General Partner is the sole general partner and the
Initial Limited Partner is the sole limited partner of the Partnership.
(b) Application of Act. The Partnership is a limited partnership subject to
the provisions of the Act and the terms and conditions set forth in this
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Agreement. 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. No Partner has any interest in any
Partnership property, and the Partnership Interest of each Partner shall be
personal property for all purposes.
Section 2.2 Name. The name of the Partnership is Baron Capital Properties,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.",
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners; provided, however, that the name of the Partnership may
not be changed to include the name of any Limited Partner without the written
consent of that Limited Partner.
Section 2.3 Registered Office and Agent; Principal Office. The address of
the registered office of the Partnership in the State of Delaware is located c/o
Corporation Service Company, 1013 Centre Road, City of Wilmington 19805, County
of New Castle, and the registered agent for service of process on the
Partnership in the State of Delaware at such registered office is Corporation
Service Company. The principal office of the Partnership is located at 7826
Cooper Road, Cincinnati, Ohio, 45242, or such other place as the General Partner
may from time to time designate by notice to the Limited Partners. The
Partnership may maintain offices at such other place or places within or outside
the State of Delaware as the General Partner deems advisable.
Section 2.4 Term. The term of the Partnership commenced, and shall continue
until December 31, 2098 unless it is dissolved sooner pursuant to the provisions
of Article XIII or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the business to
be conducted by the Partnership is (a) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Act, (b)
to enter into any partnership, joint venture or other similar arrangement to
engage in any of the foregoing or the ownership of interests in any entity
engaged in any of the foregoing and (c) to do anything necessary or incidental
to the foregoing; provided, however, that each of the foregoing clauses (a), (b)
and (c) shall be limited 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
provides notice to the Partnership that it intends to cease or has ceased to
qualify as a REIT.
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Section 3.2 Powers. The Partnership is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership; provided, however,
that the Partnership shall not take, or refrain from taking, any action which,
in the judgment of the General Partner, in its sole and absolute discretion, (a)
could adversely affect the ability of the General Partner to continue to qualify
as a REIT, (b) could subject the General Partner to any additional taxes under
Section 857 or Section 4981 of the Code, or (c) could violate any law or
regulation of any governmental body or agency having jurisdiction over the
General Partner or its securities, unless such action (or inaction) shall have
been specifically consented to by the General Partner in writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
CAPITAL ACCOUNTS
Section 4.1 Capital Contributions of the Partners.
(a) Initial Capital Contributions. At the time of the execution of this
Agreement, the Partners shall make or shall have made the Capital Contributions
set forth in Exhibit A to this Agreement. The Partners shall own Partnership
Units in the amounts set forth on Exhibit A and shall have a Percentage Interest
in the Partnership as set forth on Exhibit A, which Percentage Interest shall be
adjusted on Exhibit A from time to time by the General Partner to the extent
necessary to reflect accurately redemptions, conversions, Capital Contributions,
the issuance of additional Partnership Units, or similar events having an effect
on a Partner's Percentage Interest. A number of Partnership Units held by the
General Partner equal to 1% of the outstanding Partnership Units shall at all
times be deemed to be General Partner units and shall constitute the General
Partnership Interest and the remaining Partnership Units held by the General
Partner shall be deemed to be Limited Partner units and shall constitute a
portion of the Limited Partnership Interest.
(b) Additional Capital Contributions.
(1) No Partner shall be assessed or, except as provided for in
Sections 4.1(b)(2) and 13.3(b) below and except for any such amounts which
a Limited Partner may be obligated to repay under Section 10.5, be required
to contribute additional funds or other property to the Partnership. Any
additional funds or other property required by the Partnership, as
determined by the General Partner in its sole discretion, may, at the
option of the General Partner and without an obligation to do so (except as
provided for in Section 4.1(b)(2) and Section 13.3(b) below), be
contributed by the General Partner as additional Capital Contributions. If
and as the General Partner or any other Partner makes additional Capital
Contributions to the Partnership, each such Partner shall receive
additional Partnership Units as provided for in Section 4.2.
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(2) Except to the extent provided in Section 7.5 below relating to
interests in Partnership properties held directly by the Partnership or
through Subsidiaries, the net proceeds of any and all funds raised by or
through the General Partner through the issuance of additional shares of
the General Partner (whether Common Shares or Preferred Shares) shall be
contributed to the Partnership as additional Capital Contributions, and in
such event the General Partner shall be issued additional Partnership Units
pursuant to Section 4.2 below.
(c) Return of Capital Contributions. Except as otherwise expressly provided
herein, the Capital Contribution of each Limited Partner will be returned to
that Partner only in the manner and to the extent provided in Article V and
Article XIII hereof, and no Partner may withdraw from the Partnership or
otherwise have any right to demand or receive the return of its Capital
Contribution to the Partnership (as such), except as specifically provided
herein. Under circumstances requiring a return of any Capital Contribution, no
Partner shall have the right to receive property other than cash, except as
specifically provided herein. No Partner shall be entitled to interest on any
Capital Contribution or Capital Account notwithstanding any disproportion
therein as between the Partners. Except as specifically provided herein, the
General Partner shall not be liable for the return of any portion of the Capital
Contribution of any Limited Partner, and the return of such Capital
Contributions shall be made solely from Partnership assets.
(d) Liability of Limited Partners. No Limited Partner shall have any
further personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Partnership, nor shall any Limited Partner
be personally liable for any obligations of the Partnership, except as otherwise
provided in this Article IV or in the Act. No Limited Partner shall be required
to make any contributions to the capital of the Partnership other than its
Capital Contribution.
Section 4.2 Issuances of Additional Partnership Interests.
(a) Issuance to Other than the General Partner. The General Partner is
hereby authorized to cause the Partnership to issue such additional Partnership
Interests in the form of Partnership Units for any Partnership purpose at any
time or from time to time, to the Partners (other than issuances to the General
Partner, which issuances are governed by Section 4.2(b)) or to other Persons for
such consideration and on such terms and conditions as shall be established by
the General Partner in its sole and absolute discretion, all without the
approval of any Limited Partners except to the extent provided herein; provided,
however, that the Partnership also may from time to time issue to third parties
additional Partnership Interests (other than any such issuance to the General
Partner which is governed by Sections 4.2(b) and 4.2(c)) in one or more classes,
or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties senior to Limited
Partnership Interests, as may be set forth in exhibits attached hereto from time
to time, subject to Delaware law, including, without limitation, with
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respect to (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests, (ii)
the right of each such class or series of Partnership Interests to share in
Partnership distributions, and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership.
(b) Issuance to the General Partner. The Partnership also may from time to
time issue to the General Partner additional Partnership Units or other
Partnership Interests in one or more classes, or one or more series of any of
such classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties, including rights, powers
and duties senior to Limited Partnership Interests, as may be set forth in
exhibits attached hereto from time to time, all as shall be determined by the
General Partner, subject to Delaware law, including, without limitation, with
respect to (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests, (ii)
the right of each such class or series of Partnership Interests to share in
Partnership distributions, and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
provided, however, that (x) the additional Partnership Interests are issued in
connection with an issuance of shares of the General Partner, which shares have
designations, preferences and other rights, all such that the economic interests
are substantially similar to the designations, preferences and other rights of
the additional Partnership Interests issued to the General Partner in accordance
with this Section 4.2(b), and (y) the General Partner shall make a Capital
Contribution to the Partnership (1) in an amount equal to the net proceeds
raised in connection with the issuance of such shares of the General Partner in
the event such shares are sold for cash or cash equivalents or (2) in the form
of the property received in consideration for such shares, in the event such
shares are issued in consideration for other property.
(c) Issuance of Additional Common Shares or Preferred Shares. The General
Partner is explicitly authorized to issue additional Common Shares or preferred
shares of beneficial interest of the General Partner ("Preferred Shares"), or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase Common Shares or Preferred Shares ("New
Securities") and in connection therewith, as further provided in Section 4.2(b)
above, (i) the General Partner shall cause the Partnership to issue to the
General Partner Partnership Interests or rights, options, warrants or
convertible or exchangeable securities of the Partnership having designations,
preferences and other rights, as may be set forth on exhibits attached hereto
from time to time, all such that the economic interests are substantially
similar to those of the New Securities, and (ii) the General Partner shall
contribute the net proceeds from, or the property received in consideration for,
the issuance of such New Securities and from the exercise of rights contained in
such New Securities to the Partnership. In connection with the issuance of
Partnership Interests which are substantially similar to New Securities, the
General Partner is authorized to modify or amend the distributions or
allocations hereunder solely to the extent necessary to give effect to the
designations, preferences and other rights pertaining to such Partnership
Interests.
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(d) Issuance Pursuant to Option Plans.
(1) Upon the exercise of an option granted by the General Partner for
Common Shares, the General Partner shall cause the Partnership to issue to
the General Partner one Partnership Unit for each Common Share acquired
upon such exercise pursuant to the Option Plans, and the General Partner
shall contribute to the Partnership the net proceeds received upon such
exercise (it being understood that the General Partner may issue Common
Shares in connection with the Option Plans without receiving a specified
amount of proceeds and that the issuance of such Common Shares shall
nonetheless entitle the General Partner to additional Partnership Units).
(2) The General Partner shall cause the Partnership to issue
Partnership Units to employees of the Partnership upon the exercise by any
such employees of an option to acquire Partnership Units granted by the
Partnership pursuant to the Option Plans in accordance with the terms of
the Option Plans. Partnership Units so issued shall represent Limited
Partnership Interests.
(3) The General Partner shall cause the Partnership to issue
Partnership Units to any Subsidiary upon the exercise by an employee of
such Subsidiary of an option to acquire Partnership Units granted by such
Subsidiary pursuant to the Option Plans, and such Subsidiary shall transfer
to the Partnership the price per Partnership Unit required by the Option
Plans to be paid by Subsidiaries. Partnership Units issued to any such
Subsidiary shall represent Limited Partnership Interests.
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(e) Conversion of Units.
(1) Subject to the further provisions of this Section 4.2(e) and the
provisions of Section 8.6, the General Partner hereby grants to each
Limited Partner the right (the "Conversion Right") to exchange any or all
of the Partnership Units held by that Partner for Common Shares, with one
Partnership Unit being exchangeable for one Common Share; provided,
however, that in the event the General Partner issues to all holders of
Common Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase Common
Shares, or any other securities or property (collectively, the "Common
Share Rights") then (except to the extent such rights have already been
reflected in an adjustment to the Unit Adjustment Factor as provided in
Section 4.2(e)(2) below) the Converting Partner shall also be entitled to
receive such Common Share Rights that a holder of that number of Common
Shares would be entitled to receive. The Conversion Right may be exercised
by a Limited Partner (a "Converting Partner") at any time and from time to
time by delivering a Notice of Conversion to the General Partner not less
than 10 days prior to such exchange. The General Partner shall at all times
reserve and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the exchange of Partnership
Units for Common Shares, such number of Common Shares as shall from time to
time be sufficient to effect the conversion of all outstanding Partnership
Units not owned by the General Partner. No Limited Partner shall, solely by
virtue of being the holder of one or more Partnership Units, be deemed to
be a shareholder of or have any other interest in the General Partner.
(2) In the event of any change in the Unit Adjustment Factor, the
number of Partnership Units held by each Partner shall be proportionately
adjusted by multiplying the number of Partnership Units held by such
Partner immediately prior to the change in the Unit Adjustment Factor by
the new Unit Adjustment Factor; the intent of this provision is that one
Partnership Unit remains exchangeable for one Common Share without
dilution. In the event the General Partner issues any Common Shares in
exchange for Partnership Units pursuant to this Section 4.2(e), any such
Partnership Units so acquired by the General Partner shall immediately
thereafter be canceled by the Partnership and the Partnership shall issue
to the General Partner new Partnership Units pursuant to Section 4.2(c).
Each Converting Partner agrees to execute such documents as the General
Partner may reasonably require in connection with the issuance of Common
Shares upon exercise of the Conversion Right. Notwithstanding the foregoing
provisions of this Section 4.2(e), a Limited Partner shall not have the
right to exchange Partnership Units for Common Shares if (i) in the opinion
of counsel for the General Partner, the General Partner would, as a result
thereof, no longer qualify (or there is a material risk the General Partner
no longer would qualify) as a REIT; or (ii) such exchange would in the
opinion of counsel for the General Partner, constitute or be more likely
than not to constitute a violation of applicable securities laws.
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Section 4.3 No Preemptive Rights. Except as specifically provided in this
Agreement, no Person shall have any preemptive, preferential or other similar
right with respect to (a) additional Capital Contributions or loans to the
Partnership, or (b) issuance or sale of any Partnership Units.
Section 4.4 Capital Accounts of the Partners.
(a) General. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (a) the amount of
all Capital Contributions made by such Partner to the Partnership pursuant to
this Agreement and (b) all items of Partnership income and gain (including
income and gain exempt from tax) computed in accordance with Section 4.4(b)
hereof and allocated to such Partner pursuant to Sections 6.1 through 6.3 of the
Agreement, and decreased by (i) the amount of cash or Agreed Value of all actual
and deemed distributions of cash or property made to such Partner pursuant to
this Agreement and (ii) all items of Partnership deduction and loss computed in
accordance with Section 4.4(b) hereof and allocated to such Partner pursuant to
Sections 6.1 through 6.3 of the Agreement.
(b) Income, Gains, Deductions and Losses. For purposes of computing the
amount of any item of income, gain, loss or deduction to be reflected in the
Partners' Capital Accounts, unless otherwise specified in this Agreement, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for Federal income tax
purposes determined in accordance with Section 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)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership.
(2) The computation of all items of income, gain, loss and deduction
shall be made without regard to the fact that items described in Sections
705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable in gross income
or are neither currently deductible nor capitalized for Federal income tax
purposes.
(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
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(4) In lieu of the depreciation, amortization, and other cash recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership asset is
adjusted pursuant to Section 4.4(d) hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the disposition
of such asset.
(6) Any items specially allocated under Section 6.4 hereof shall not
be taken into account.
(c) Transfers of Partnership Units. A transferee of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor.
(d) Unrealized Gains and Losses.
(1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 4.4(d)(2), the Carrying
Values of all Partnership assets shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as of the times of the adjustments provided in
Section 4.4(d)(2) hereof, as if such Unrealized Gain or Unrealized Loss had
been recognized on an actual sale of each such property and allocated
pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (i)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (ii) immediately prior to the distribution by
the Partnership to a Partner of more than a de minimis amount of Property
as attributable consideration for an interest in the Partnership; and (iii)
immediately prior to the liquidation of the Partnership or the General
Partner's interest in the Partnership within the meaning of Regulations
Section 1.704-l(b)(2)(ii)(g); provided, however, that adjustments pursuant
to clauses (a) and (b) above shall be made only if the General Partner
reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the
Carrying Values of Partnership assets distributed in kind shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the time any such asset is
distributed.
(4) In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the General
Partner using such reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to Article XIII of this
Agreement, be determined and allocated by the Liquidator using such
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reasonable methods of valuation as it may adopt. The General Partner, or
the Liquidator, as the case may be, shall allocate such aggregate value
among the assets of the Partnership (in such manner as it determines in its
sole and absolute discretion to arrive at a fair market value for
individual properties).
(e) Modification by General Partner. The provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership, the General Partner, or any
Limited Partners) are computed in order to comply with such Regulations, the
General Partner may make such modification; provided, however, that it will not
have a material effect on the amounts distributable to any Person pursuant to
Article XIII of this Agreement upon the liquidation of the Partnership. The
General Partner also shall (a) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (b) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. The General
Partner shall distribute not less frequently than quarterly an amount equal to
100% of Available Cash (other than amounts treated as net capital gains as
defined in Code Section 857(b)(3), which the General Partner shall distribute,
in whole or in part, or not distribute, in the General Partner's sole and
absolute discretion) generated by the Partnership during such quarter to the
Partners who are Partners on the Partnership Record Date with respect to such
quarter (i) first, with respect to any class of Partnership Interests issued
pursuant to Sections 4.2(a) and 4.2(b) which are entitled to a preference over
Partnership Units on the distribution of Available Cash (and within and among
such classes, in order of the preferences designated therein and pro rata among
any such classes), and (ii) thereafter, in accordance with their respective
Percentage Interests on such Partnership Record Date; provided, however, that in
no event may a Partner receive a distribution of Available Cash with respect to
a Unit if such Partner is entitled to receive a dividend from the General
Partner which is derived from a distribution of Available Cash to the General
Partner with respect to a Common Share for which such Unit has been redeemed or
exchanged.
Section 5.2 Amounts Withheld. All amounts withheld pursuant to the Code or
any provisions of any state or local tax law and Section 10.5 hereof with
respect to any allocation, payment or distribution to the General Partner, or
any Limited Partners or
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Assignees shall be treated as amounts distributed to the General Partner or such
Limited Partners, or Assignees pursuant to Section 5.1 for all purposes under
this Agreement.
Section 5.3 Distributions Upon Liquidation. Proceeds from a Liquidating
Transaction shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes Other than the Taxable
Year of Liquidation. For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the Partnership's items
of income, gain, loss and deduction (computed in accordance with Section 4.4
hereof) shall be allocated among the Partners for each taxable year (or portion
thereof) as provided herein below:
(a) Net Income. After giving effect to the special allocations set
forth in Sections 6.2 and 6.3 below, Net Income shall be allocated (i)
first, to the General Partner to the extent that, on a cumulative basis,
Net Losses previously allocated to the General Partner pursuant to the last
sentence of Section 6.1(b) exceed Net Income previously allocated to the
General Partner pursuant to this Section 6.1(a), and (ii) thereafter, Net
Income shall be allocated to the Partners in accordance with their
respective Percentage Interests.
(b) Net Losses. After giving effect to the special allocations set
forth in Sections 6.2 and 6.3 below, Net Losses shall be allocated to the
Partners in accordance with their respective Percentage Interests;
provided, however, that Net Losses shall not be allocated to any Limited
Partner pursuant to this Section 6.1(b) to the extent that such allocation
would cause such Limited Partner to have an Adjusted Capital Account
Deficit at the end of such taxable year (or increase any existing Adjusted
Capital Account Deficit). All Net Losses in excess of the limitations set
forth in the preceding sentence of this Section 6.1(b) shall be allocated
to the General Partner.
(c) Nonrecourse Liabilities. For purposes of Regulations Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum
Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(d) Gains. Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall to the extent possible,
after taking into account other required allocations of gain pursuant to
Section 6.3 below, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving
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rise to the treatment of such gains as Recapture Income, all in such a
manner consistent with Regulation Section 1.1245-1.
Section 6.2 Allocations for Capital Account Purposes in the Taxable Year of
Liquidation. Subject to Section 6.3, the Net Income and Net Loss of the
Partnership for the taxable year of liquidation of the Partnership shall be
allocated prior to the final liquidating distributions of the Partnership and
shall be allocated first to eliminate all negative balances in any Partner's
Adjusted Capital Account Deficit and then, to the extent possible, in a manner
such that the Capital Accounts of the Partners immediately prior to such final
liquidating distributions are equal to the amount which would have been
distributable to the Partners under Section 5.1 if such distributions were to be
governed by Section 5.1. Notwithstanding the preceding sentence, actual
distributions made subsequent to the allocations under this Section 6.2 shall be
made pursuant to Section 5.3.
Section 6.3 Special Allocation Rules. Notwithstanding any other provision
of this Agreement, the following special allocations shall be made in the
following order:
(a) Minimum Gain Chargeback. Notwithstanding any other provisions of
Article VI, if there is a net decrease in Partnership Minimum Gain during
any Partnership Year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). This Section 6.3(a)
is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 6.3(a)
only, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of this Agreement
with respect to such fiscal year and without regard to any decrease in
Partner Minimum Gain during such fiscal year.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Article VI (except Section 6.2 hereof), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Partnership fiscal year, each Partner who has a share of the
Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in
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accordance with Regulations Section 1.704-2(i)(4). This Section 6.3(b) is
intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
Solely for purposes of this Section 6.3(b), each Partner's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant
to Article VI of this Agreement with respect to such fiscal year, other
than allocations pursuant to Section 6.3(a) hereof.
(c) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations
required under Sections 6.3(a) and 6.3(b) hereof, such Partner has an
Adjusted Capital Account Deficit, items of Partnership income and gain
shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, its
Adjusted Capital Account Deficit created by such adjustments, allocations
or distributions as quickly as possible.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Regulations promulgated under Section 704(b) of the Code, the General
Partner is authorized, upon notice to the Limited Partners, to revise the
prescribed ratio to the numerically closest ratio which does satisfy such
requirements.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any fiscal year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Regulations Section 1.704-2(i)(2).
(f) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), 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 item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Regulations.
Section 6.4 Allocations for Tax Purposes.
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(a) General. Except as otherwise provided in this Section 6.4, for Federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Sections 6.1 and
6.3 of this Agreement.
(b) To Eliminate Book-Tax Disparities. In an attempt to eliminate Book-Tax
Disparities attributable to a Contributed Property or Adjusted Property, items
of income, gain, loss, and deduction shall be allocated for Federal income tax
purposes among the Partners as follows:
(1) (i) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners consistent with the
principles of Section 704(c) of the Code in a manner that takes into
account the variation between the 704(c) Value of such property and its
adjusted basis at the time of contribution, and (ii) any item of Residual
Gain or Residual Loss attributable to a Contributed Property shall be
allocated among the Partners in the same manner as its correlative item of
"book" gain or loss is allocated pursuant to Sections 6.1 and 6.3 of this
Agreement.
(2) (i) In the case of an Adjusted Property, such items shall (A)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code in a manner to take into account
the Unrealized Gain or Unrealized Loss attributable to such property and
the allocations thereof pursuant to Section 4.4 and (B) second, in the
event such property was originally a Contributed Property, be allocated
among the Partners in a manner consistent with Section 6.4(b)(1)(i), and
(ii) any item of Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to Sections
6.1 and 6.4 of this Agreement.
(3) All other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their correlative item
of "book" gain or loss is allocated pursuant to Sections 6.1 and 6.3 of
this Agreement.
(c) Power of General Partner to Elect Method. To the extent Treasury
Regulations promulgated pursuant to Section 704(c) of the Code permit a
partnership to utilize alternative methods to eliminate the disparities between
the agreed value of property and its adjusted basis, the General Partner shall
have the authority to elect the method to be used by the Partnership and such
election shall be binding on all Partners.
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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.
(a) Powers of General Partner. Except as otherwise expressly provided in
this Agreement, all management powers over the business and affairs of the
Partnership are exclusively vested in the General Partner, and no Limited
Partner shall have any right to participate in or exercise control or management
power over the business and affairs of the Partnership. Notwithstanding anything
to the contrary in this Agreement, the General Partner may not be removed by the
Limited Partners with or without cause. 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, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof including, without limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans and borrowing
money to permit the Partnership to make distributions to its Partners in
such amounts as will permit the General Partner (so long as the General
Partner qualifies as a REIT) to avoid the payment of any Federal income tax
(including, for this purpose, any excise tax pursuant to Section 4981 of
the Code) and to make distributions to its shareholders sufficient to
permit the General Partner to maintain REIT status), the assumption or
guarantee of, or other contracting for, indebtedness and other liabilities,
the issuance of evidences of indebtedness (including the securing of same
by mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations it deems
necessary for the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(3) the acquisition, disposition, sale, conveyance, mortgage, pledge,
encumbrance, hypothecation, contribution or exchange of any assets of the
Partnership or the merger or other combination of the Partnership with or
into another entity on such terms as the General Partner deems proper;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit including, without limitation, the
financing of the conduct of the operations of the General Partner, the
Partnership or any of
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the Partnership's Subsidiaries, the lending of funds to other Persons
(including the Partnership's Subsidiaries) and the repayment of obligations
of the Partnership and its Subsidiaries and any other Person in which it
has an equity investment and the making of capital contributions to its
Subsidiaries, the holding of any real, personal and mixed property of the
Partnership in the name of the Partnership or in the name of a nominee or
trustee (subject to Section 7.10), the creation, by grant or otherwise, of
easements or servitudes, and the performance of any and all acts necessary
or appropriate to the operation of the Partnership assets including, but
not limited to, applications for rezoning, objections to rezoning,
constructing, altering, improving, repairing, renovating, rehabilitating,
razing, demolishing or condemning any improvements or property of the
Partnership;
(5) the negotiation, execution, and performance of any contracts,
conveyances or other instruments (including with Affiliates of the
Partnership to the extent provided in Section 7.6) 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, without limitation, the execution and delivery of
leases on behalf of or in the name of the Partnership (including the lease
of Partnership property for any purpose and without limit as to the term
thereof, whether or not such term (including renewal terms) shall extend
beyond the date of termination of the Partnership and whether or not the
portion so leased is to be occupied by the lessee or, in turn, subleased in
whole or in part to others);
(6) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other
instruments, and the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(7) the selection and dismissal of employees of the Partnership or the
General Partner (including, without limitation, employees having titles
such as "president," "vice president," "secretary" and "treasurer"), and
the engagement and dismissal of agents, outside attorneys, accountants,
engineers, appraisers, consultants, contractors and other professionals on
behalf of the General Partner or the Partnership and the determination of
their compensation and other terms of employment or hiring;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(9) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general partnerships,
joint ventures or other relationships that it deems desirable (including,
without limitation, the acquisition of interests in, and the contribution
of property to, its
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Subsidiaries and any other Person in which it has an equity investment from
time to time);
(10) the control of any matters affecting the rights and obligations
of the Partnership, including the conduct of litigation and the incurring
of legal expense and the settlement of claims and litigation, and the
indemnification of any Person against liabilities and contingencies to the
extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any
other Person (including, without limitation, the contribution or loan of
funds by the Partnership to such Persons);
(12) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as
it may adopt;
(13) the execution, acknowledgment and delivery of any and all
documents and instruments to effectuate any or all of the foregoing; and
(14) the issuance of Partnership Units to any Subsidiary which may be
necessary for such Subsidiary to satisfy such Subsidiary's obligations
under the Option Plans, in exchange for the transfer to the Partnership by
such Subsidiary of the price per Partnership Unit required by the Option
Plans to be paid by Subsidiaries.
(b) No Approval Required for Above Powers. Except as expressly provided in
this Agreement, each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation. The execution, delivery or
performance by the General Partner or the Partnership of any agreement
authorized or permitted under this Agreement shall not constitute a breach by
the General Partner of any duty that the General Partner may owe the Partnership
or the Limited Partners or any other Persons under this Agreement or of any duty
stated or implied by law or equity.
(c) Insurance. At all times from and after the date hereof, the General
Partner may cause the Partnership to obtain and maintain casualty, liability and
other insurance on the properties of the Partnership and liability insurance for
the Indemnitees hereunder. The right to procure such insurance on behalf of the
Indemnities shall in no way mitigate or otherwise affect the right of any such
Indemnitee to indemnification under Section 7.7.
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(d) Working Capital Reserves. At all times from and after the date hereof,
the General Partner may cause the Partnership to establish and maintain working
capital reserves in such amounts as the General Partner, in its sole and
absolute discretion, deems appropriate and reasonable from time to time.
(e) No Obligation to Consider Tax Consequences to Limited Partners. 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 by it. The General Partner and the Partnership shall
not have liability to a Limited Partner under any circumstances as a result of
an income tax liability incurred by such Limited Partner as a result of an
action (or inaction) by the General Partner pursuant to its authority under this
Agreement.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other jurisdiction
in which the Partnership may elect to do business or own property. Subject to
the terms of Section 8.5(a)(4) hereof, the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate,
as it may be amended or restated from time to time, to any Limited Partner. The
General Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in the State of Delaware and any other jurisdiction in which the
Partnership may elect to do business or own property.
Section 7.3 Restrictions on General Partner's Authority. The General
Partner may not, without the written Consent of all of the Limited Partners,
take any action in contravention of this Agreement including, without
limitation:
(a) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement (provided that this restriction shall not be deemed to restrict
the sale, lease, transfer or disposition of all or substantially all of the
Partnership's assets as may otherwise be provided herein);
(b) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
(c) admit a Person as a Partner, except as otherwise provided in this
Agreement; or
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(d) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability except as
provided herein or under the Act.
Section 7.4 Responsibility for Expenses.
(a) No Compensation. Except as provided in this Section 7.4 and elsewhere
in this Agreement (including the provisions of Articles V and VI 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) Responsibility for Ownership and Operation Expenses. The Partnership
shall be responsible for and shall pay all expenses relating to the
Partnership's ownership of its assets, and the operation of, or for the benefit
of, the Partnership, and the General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses it incurs relating to the Partnership's
ownership of its assets and the operation of, or for the benefit of, the
Partnership; provided, however, that the amount of any such reimbursement shall
be reduced by any interest or other amounts earned by the General Partner with
respect to bank accounts or other instruments held by it as permitted in Section
7.5(a). Such reimbursements shall be in addition to any reimbursement to the
General Partner as a result of indemnification pursuant to Section 7.7 hereof.
(c) Responsibility for Organization Expenses. The Partnership shall be
responsible for and shall pay all expenses incurred relating to the organization
of the Partnership.
Section 7.5 Outside Activities of the General Partner.
(a) General. The General Partner shall not directly or indirectly enter
into or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner or
Limited Partner and the management of the business of the Partnership, and such
activities as are incidental thereto. The General Partner shall not incur any
Debt other than that for which it may be liable in its capacity as General
Partner of the Partnership (and other than any guarantee of Partnership Debt).
The General Partner shall not own any assets other than Partnership Interests
(except for certain interests in Partnership properties held directly by the
General Partner or which have been caused by the General Partner to be
contributed to or purchased by Subsidiaries (including qualified REIT
subsidiaries, as defined in Section 856(i) of the Code, of the General Partner),
which interests shall not exceed 1% of the aggregate economic interests of any
property) and other than such bank accounts or similar instruments as it deems
necessary to carry out its responsibilities contemplated under this Agreement
and the Declaration of Trust. The General Partner and Affiliates of the General
Partner may acquire Limited Partnership Interests and shall be entitled to
exercise all rights of a Limited Partner relating to such Limited Partnership
Interests.
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(b) Purchase of Shares of Beneficial Interest. In the event the General
Partner exercises its rights under Section 2.5 of the Declaration of Trust to
purchase Shares of Beneficial Interest, then the General Partner shall cause the
Partnership to purchase from it an equal number of Partnership Units (after
application of the Unit Adjustment Factor) on the same terms that the General
Partner purchased such Shares of Beneficial Interest.
Section 7.6 Contracts with Affiliates.
(a) Loans. The General Partner may cause the Partnership to lend or
contribute to its Subsidiaries or other Persons in which it has an equity
investment, and such Persons may borrow funds from the Partnership, on terms and
conditions established in the sole and absolute discretion of the General
Partner. The foregoing authority shall not create any right or benefit in favor
of any Subsidiary or any other Person.
(b) Transfers of Assets. Except as provided in Section 7.5(a), the General
Partner may cause the Partnership to transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law.
(c) Contracts with General Partner. 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 on
terms that are fair and reasonable and in accordance with the terms and
conditions of the Declaration of Trust.
(d) Employee Benefit Plans. 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 General Partner and the Partnership employee benefit
plans funded by the Partnership for the benefit of employees of the General
Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of
any of them in respect of services performed, directly or indirectly, for the
benefit of the Partnership, the General Partner, or any of the Partnership's
Subsidiaries, including any such plan which requires the Partnership, the
General Partner or any of the Partnership's Subsidiaries to issue or transfer
Partnership Units to employees.
Section 7.7 Indemnification.
(a) General. The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees and expenses), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the operations
of the Partnership as set forth in this Agreement
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in which any Indemnitee may be involved, or is threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or omission of
the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 7.7(a). Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership.
(b) In Advance of Final Disposition. Reasonable expenses incurred by an
Indemnitee who is a party to a proceeding may be paid or reimbursed by the
Partnership in advance of the final disposition of the proceeding upon receipt
by the Partnership of (a) a written affirmation by the Indemnitee of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 7.7 has been
met, and (b) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
(c) Non-Exclusive Section. The indemnification provided by this Section 7.7
shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity.
(d) Insurance. The Partnership may purchase and maintain insurance, on
behalf of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by 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. The right
to procure such insurance on behalf of the Indemnitees shall in no way mitigate
or otherwise affect the right of any Indemnities to indemnification under this
Section 7.7.
(e) Employee Benefit Plans. For purposes of this Section 7.7, the
Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan; excise taxes
assessed on an Indemnitee with respect to an employee benefit plan pursuant to
applicable law shall constitute fines within the meaning of Section 7.7(a); and
actions taken or omitted by the Indemnitee with respect to an
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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) No Personal Liability for Limited Partners. In no event may an
Indemnitee subject the Limited Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
(g) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
(h) Binding Effect. The provisions of this Section 7.7 are for the benefit
of the Indemnitees, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights for the benefit of any other Persons.
Section 7.8 Liability of the General Partner.
(a) General. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner 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 of any act or omission, unless (i)
the General Partner actually received an improper benefit in money, property or
services (in which case, such liability shall be for the amount of the benefit
in money, property or services actually received), or (ii) the General Partner's
action or failure to act was the result of active and deliberate dishonesty and
was material to the cause of action being adjudicated.
(b) No Obligation to Consider Interests of Limited Partners. The Limited
Partners expressly acknowledge that the General Partner is acting on behalf of
the Partnership and the General Partner's shareholders collectively, that the
General Partner is under no obligation to consider the separate interests 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 which the General Partner has undertaken in good
faith on behalf of the Partnership, 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,
unless (i) the General Partner actually received an improper benefit in money,
property or services (in which case, such liability shall be for the amount of
the benefit in money, property or services actually received), or (ii) the
General Partner's action or failure to act was the result of active and
deliberate dishonesty and was material to the cause of action being adjudicated.
(c) Acts of Agents. 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
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powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
(d) Effect of Amendment. Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective only and shall not in
any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
(e) Limitation of Liability of Shareholders, Officers and Members of the
Board of the General Partner. ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE
GENERAL PARTNER WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY
OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY OTHER
INSTRUMENT, TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY SHALL BE SATISFIED,
IF AT ALL, OUT OF THE GENERAL PARTNER'S ASSETS ONLY. NO SUCH OBLIGATION OR
LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT
THEREOF BE HAD TO, THE PROPERTY OF ANY OF ITS SHAREHOLDERS, TRUSTEES, MEMBERS OF
ITS BOARD, OFFICERS, EMPLOYEES OR AGENTS, REGARDLESS OF WHETHER SUCH OBLIGATION
OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE.
Section 7.9 Other Matters Concerning the General Partner.
(a) Reliance on Documents. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
(b) Reliance on Consultants and Advisers. The General Partner may consult
with legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisers selected by it, and any act taken or
omitted to be taken in reliance upon the opinion of such Persons as to matters
which such General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
(c) Action Through Officers and Attorneys. The General Partner shall have
the right, in respect of any of its powers or obligations hereunder, to act
through any
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of its duly authorized officers, members of its Board and a duly appointed
attorney or attorneys-in-fact. Each such attorney shall, to the extent provided
by the General Partner in the power of attorney, have full power and authority
to do and perform all and every act and duty which is permitted or required to
be done by the General Partner hereunder.
(d) Actions to Maintain REIT Status or Avoid Taxation of General Partner.
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.
Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby covenants, declares and warrants that any Partnership
assets as to 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
or such nominee or Affiliate for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies which may
be available against such Person to contest, negate or disaffirm any action of
the General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution
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and delivery of such certificate, document or instrument, this Agreement was in
full force and effect, (b) 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 (c) 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 VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement,
including Section 10.5 hereof, or under the Act.
Section 8.2 Management of Business. No Limited Partner or Assignee (other
than the General Partner, any of its Affiliates or any officer, director, member
of the Board, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such) shall take
part in the 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. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, member of the Board, 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.
Section 8.3 Outside Activities of Limited Partners. Subject to any
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary, the following rights shall govern
outside activities of Limited Partners: (a) 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 in direct competition with 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, other than the General Partner, 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; (d) the fact that a Limited Partner may encounter
opportunities to purchase, otherwise
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acquire, lease, sell or otherwise dispose of real or personal property and may
take advantage of such opportunities himself or introduce such opportunities to
entities in which it has or has not any interest, shall not subject such Partner
to liability to the Partnership or any of the other Partners on account of the
lost opportunity; and (e) except as otherwise specifically provided herein,
nothing contained in this Agreement shall be deemed to prohibit a Limited
Partner or any Affiliate of a Limited Partner from dealing, or otherwise
engaging in business, with Persons transacting business with the Partnership or
from providing services relating to the purchase, sale, rental, management or
operation of real or personal property (including real estate brokerage
services) and receiving compensation therefor, from any Persons who have
transacted business with the Partnership or other third parties.
Section 8.4 Priority Among Partners. No Partner (Limited or General) or
Assignee shall have priority over any other Partner (Limited or General) or
Assignee either as to the return of Capital Contributions or except as otherwise
expressly provided in this Agreement, as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
(a) Copies of Business Records. In addition to other rights provided by
this Agreement or by the Act, and except as limited by Section 8.5(c) hereof,
each Limited Partner shall have the right, for a purpose reasonably related to
such Limited Partner's interest as a limited partner in the Partnership, upon
written demand with a statement of the purpose of such demand and at such
Limited Partner's own expense:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the Securities and Exchange Commission by the General Partner
pursuant to the Securities Exchange Act of 1934, as amended (the "1934
Act");
(2) to obtain a copy of the Partnership's Federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments
thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to contribute
in the future, and the date on which each became a partner.
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(b) Notification of Changes in Unit Adjustment Factor. The Partnership
shall notify each Limited Partner in writing of any change made to the Unit
Adjustment Factor within 10 Business Days of the date such change becomes
effective.
(c) Confidential Information. 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 Partnership information that (i)
the General Partner believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or (ii) the Partnership is
required by law or by agreements with unaffiliated third parties to keep
confidential.
(d) Debt Allocation. The General Partner may allow any Limited Partner to
guarantee on a "bottom dollar basis," an amount of indebtedness of the
Partnership or any successor thereto, as is necessary from time to time to
provide an allocation of debt to such Limited Partner equal to the amount of
debt then required to be allocated to such Limited Partner to enable such
Limited Partner to avoid recognizing gain pursuant to Section 731(a)(1) of the
Code as a result of a deemed distribution of money to such Limited Partner
pursuant to Section 752(b) of the Code.
Section 8.6 Redemption Right.
(a) General. Notwithstanding the provisions of Section 4.2(e), the General
Partner may satisfy the Conversion Right exercised by a Converting Partner set
forth in a Notice of Conversion by paying to such Converting Partner the
Redemption Amount on the Specified Conversion Date, whereupon the General
Partner shall acquire the Partnership Units to be exchanged by such Converting
Partner and shall be treated for all purposes of this Agreement as the owner of
such Partnership Units. The General Partner may elect to pay the Redemption
Amount for Partnership Units only upon a receipt of a Notice of Conversion. In
the event the General Partner shall exercise its right to satisfy the Conversion
Right in the manner described in this Section 8.6(a), the Partnership shall have
no obligation to pay any amount to the Converting Partner with respect to such
Converting Partner's exercise of the Conversion Right, and each of the
Converting Partner, the Partnership, and the General Partner shall treat the
transaction between the General Partner and the Converting Partner as a sale of
the Converting Partner's Partnership Units to the General Partner for Federal
income tax purposes. Each Converting Partner which the General Partner has
elected to pay the Redemption Amount agrees to execute such documents as the
General Partner may reasonably require in connection with the payment of the
Redemption Amount.
(b) Where Delivery of Shares of Beneficial Interest Prohibited.
Notwithstanding the provisions of Section 4.2(e) and Section 8.6(a), a Partner
shall not be entitled to exercise the Conversion Right pursuant to Section
4.2(e) if the delivery of Shares of Beneficial Interest to such Partner on the
Specified Conversion Date would be prohibited under the Declaration of Trust.
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Section 8.7 Notice for Certain Transactions. In the event of (a) a
dissolution or liquidation of the Partnership or the General Partner, (b) a
merger, consolidation or combination of the Partnership or the General Partner
with or into another Person (including the events set forth in Sections 11.2(c)
and 11.2(d)), (c) the sale of all or substantially all of the assets of the
Partnership or the General Partner, or (d) the transfer by the General Partner
of all or any part of its interest in the Partnership, the General Partner shall
give written notice thereof to each Limited Partner at least 20 Business Days
prior to the effective date or, to the extent applicable, record date of such
transaction, whichever comes first.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting. The General Partner shall keep or cause
to be kept at the principal office of the Partnership appropriate books and
records with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micrographics or any other information
storage device; provided, however, that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained for financial purposes on
an accrual basis in accordance with generally accepted accounting principles and
for tax reporting purposes on the accrual basis.
Section 9.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
Section 9.3 Reports.
(a) Annual Reports. As soon as practicable, but in no event later than 120
days after the close of each Partnership Year, 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 solely on a consolidated basis
with the General Partner, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of qualified independent public accountants
selected by the General Partner.
(b) Quarterly Reports. As soon as practicable, but in no event later than
60 days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner as of the last day of the calendar quarter, a report containing
unaudited financial statements of the
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Partnership, or of the General Partner, if such statements are prepared solely
on a consolidated basis with the General Partner, and such other information as
may be required by applicable law or regulation, or as the General Partner
determines to be appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall arrange
for the preparation and timely filing of all returns of Partnership income,
gains, deductions, losses and other items required of the Partnership for
Federal and state income tax purposes and shall use all reasonable efforts to
furnish, within 90 days of the close of each taxable year, the tax information
reasonably required by the General Partner and the Limited Partners for Federal
and state income tax reporting purposes.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code including, without limitation,
the election under Section 754 of the Code in accordance with applicable
regulations thereunder. The General Partner shall have the right to seek to
revoke any such election (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.
Section 10.3 Tax Matters Partner.
(a) General. The General Partner shall be the "tax matters partner" of the
Partnership for Federal income tax purposes. Pursuant to Section 6223(c) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address and profit interest of each of the
Limited Partners; provided, however, that such information is provided to the
Partnership by the Limited Partners. The Limited Partners shall provide such
information to the Partnership as the General Partner shall reasonably request.
(b) Powers. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax
purposes (such administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners, except that
such settlement agreement shall not bind any Partner (a) who (within the
time prescribed pursuant to the Code and Regulations) files a statement
with the IRS providing that the tax matters partner shall not have the
authority to enter into a settlement agreement on behalf of such Partner or
(b)
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who is a "notice partner" (as defined in Section 6231 of the Code) or a
member of a "notice group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment at
the Partnership level of any item required to be taken into account by a
partner for tax purposes (a "final adjustment") is mailed or otherwise
given to the tax matters partner, to seek judicial review of such final
adjustment, including the filing of a petition for readjustment with the
Tax Court or the United States Claims Court, or the filing of a complaint
for refund with the District Court of the United States for the district in
which the Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS at
any time and, if any part of such request is not allowed by the IRS, to
file an appropriate pleading (petition, complaint or other document) for
judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken
into account by a Partner for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review proceeding
to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner, and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
(c) Reimbursement. The tax matters partner shall receive no compensation
for its services. All third-party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging an accounting firm and a law firm to assist the
tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable.
Section 10.4 Organizational Expenses. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a
60-month period as provided in Section 709 of the Code.
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Section 10.5 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of Federal, state, local, or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Section 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to a Limited
Partner shall constitute a loan by the Partnership to such Limited Partner,
which loan shall be repaid by such Limited Partner within 15 days after notice
from the General Partner that such payment must be made unless (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. Any amounts withheld pursuant to the foregoing clauses (a)
or (b) shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right to receive distributions). Any amounts payable by a
Limited Partner hereunder shall bear interest at the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in the Wall Street Journal, plus four percentage points (but not
higher than the maximum lawful rate) from the date such amount is due (i.e., 15
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
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ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
(a) Definition. The term "transfer," when used in this Article XI with
respect to a Partnership Unit, shall be deemed to refer to a transaction by
which the General Partner purports to assign its General Partnership Interest to
another Person or by which a Limited Partner purports to assign its Limited
Partnership Interest to another Person, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition
by law or otherwise. The term "transfer" when used in this Article XI does not
include any Conversion of Partnership Units by a Limited Partner pursuant to
Section 4.2(e) or acquisition of Partnership Units from a Limited Partner by the
General Partner pursuant to Section 8.6(a).
(b) Requirements. No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article XI. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article XI shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interest.
(a) General. The General Partner may not transfer any of its General
Partnership Interest or withdraw as General Partner except as provided in
Section 11.2(b) or in connection with a transaction described in Section
11.2(c).
(b) Transfer to Partnership or Holder of Common Shares. The General Partner
may transfer Partnership Interests held by it to the Partnership in accordance
with Section 7.5(b) hereof.
(c) Transfer in Connection With Reclassification, Recapitalization, or
Business Combination Involving General Partner. 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 recapitalization or
change of outstanding Common Shares (other than a change in par value, or from
par value to no par value, or as a result of a subdivision or combination as
described in the definition of "Unit Adjustment Factor") ("Transaction"), unless
(i) under the terms of the Transaction, Limited Partners will not engage in a
sale or exchange for Federal income tax purposes of their Partnership Units, or
(ii) as a result of such Transaction all Limited Partners either will receive,
or will have the right to receive, for each Partnership Unit (after application
of the Unit Adjustment Factor and without taking into account any tax
considerations) an amount of cash, securities, or other property equal to,
without taking into account any tax considerations,
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the greatest amount of cash, securities or other property paid to a holder of
one Common Share in consideration of one Common Share at any time during the
period from and after the date on which the Transaction is consummated;
provided, however, that if, in connection with the Transaction, a purchase,
tender or exchange offer shall have been made to and accepted by the holders of
more than 50 percent of the outstanding Common Shares, the holders of
Partnership Units shall receive the greatest amount of cash, securities, or
other property which a Limited Partner would have received had it exercised the
Conversion Right and received Common Shares in exchange for its Partnership
Units immediately prior to the expiration of such purchase, tender or exchange
offer.
(d) Merger Involving General Partner Where Surviving Entity's Assets
Contributed to Partnership. Notwithstanding Section 11.2(c), the General Partner
may merge with another entity if, under the terms of the transaction, Limited
Partners will not engage in a sale or exchange for Federal income tax purposes
and immediately after such merger substantially all of the assets of the
surviving entity, other than Partnership Units held by the General Partner, are
contributed to the Partnership as a Capital Contribution in exchange for
Partnership Units with a fair market value equal to the 704(c) Value of the
assets so contributed.
Section 11.3 Limited Partners' Rights to Transfer.
(a) General. Subject to the remaining provisions of this Section 11.3 as
well as Section 11.4, a Limited Partner may transfer all or any portion of his
Partnership Interest, or any of such Limited Partner's rights as a Limited
Partner, without the prior written consent of the General Partner. In order to
effect such transfer, the Limited Partner must deliver to the General Partner a
duly executed copy of the instrument making such transfer and such instrument
must evidence the written acceptance by the assignee of all of the terms and
conditions of this Agreement and represent that such assignment was made in
accordance with all applicable laws and regulations.
(b) Incapacitated Limited Partners. If a Limited Partner is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of his or its interest in the Partnership. The Incapacity of a Limited Partner,
in and of itself, shall not dissolve or terminate the Partnership.
(c) Transfers Contrary to Securities Laws. The General Partner may prohibit
any transfer otherwise permitted under this Section 11.3 by a Limited Partner of
its Partnership 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 (the "1933 Act"), or would otherwise violate
any Federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units.
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(d) Transfers Resulting in Corporation Status; Transfers Through
Established Securities or Secondary Markets. No transfer by a Limited Partner of
his Partnership Units (or any economic or other interest, right or attribute
therein) may be made to any Person if (i) in the opinion of legal counsel for
the Partnership, it would result in the Partnership being treated as an
association taxable as a corporation, or (ii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code.
Notwithstanding anything to the contrary in this Agreement, (x) no interests in
the Partnership shall be issued in a transaction that is (or transactions that
are) registered or required to be registered under the 1933 Act, and to the
extent such interests were not required to be registered under the 1933 Act by
reason of Regulation S (17 CFR 230.901 through 230.904) or any successor
thereto, such issuances would not have been required to be registered under the
1933 Act if the interests so offered or sold had been offered and sold within
the United States, and (y) any admission (or purported admission) of a Partner
and any transfer or assignment (or purported transfer or assignment) of all or
part of a Partner's interest (or any interest or right or attribute therein) in
the Partnership, whether to another Partner or to a third party, shall not be
effective, and any such transfer or assignment (or purported transfer or
assignment) shall be void ab initio, and no person shall otherwise become a
Partner if at the time of such transfer or assignment (or purported transfer or
assignment) any interest in the Partnership (or economic interest therein) is
traded on an established securities market or readily tradeable on a secondary
market or the substantial equivalent thereof. For purposes of the preceding
sentence and clause (ii) above, an established securities market is a national
securities exchange that is either registered under Section 6 of the 1934 Act or
exempt from registration because of the limited volume of transactions, a
foreign securities exchange that, under the law of the jurisdiction where it is
organized, satisfies regulatory requirements that are analogous to the
regulatory requirements of the 1934 Act, a regional or local exchange, or an
interdealer quotation system that regularly disseminates firm buy or sell
quotations by identified brokers or dealers by electronic means or otherwise.
For purposes of such clause (A) and clause (ii) above, interests in the
Partnership (or interests therein) are readily tradeable on a secondary market
or the substantial equivalent thereof if (i) interests in the Partnership (or
interests therein) are regularly quoted by any person, such as a broker or
dealer, making a market in the interests; (ii) any person regularly makes
available to the public (including customers or subscribers) bid or offer quotes
with respect to interests in the Partnership (or interests therein) and stands
ready to effect buy or sell transactions at the quoted prices for itself or on
behalf of others; (iii) the holder of an interest in the Partnership has a
readily available, regular, and ongoing opportunity to sell or exchange such
interest (or interests therein) through a public means of obtaining or providing
information of offers to buy, sell, or exchange such interests; or (iv)
prospective buyers and sellers otherwise have the opportunity to buy, sell, or
exchange interests in the Partnership (or interests therein) in a time frame and
with the regularity and continuity that is comparable to that described in
clauses (i), (ii) and (iii) of this sentence. Notwithstanding anything to the
contrary in this Section 11.3(d), the exercise of the Conversion Right by a
Limited Partner will not be subject to the restrictions set forth in this
Section 11.3(d).
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(e) Transfers to Holders of Nonrecourse Liabilities. No transfer or pledge
of any Partnership Units may be made to a lender to the Partnership or any
Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership whose loan constitutes a
Nonrecourse Liability without the consent of the General Partner, in its sole
and absolute discretion, provided that as a condition to such consent the lender
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Redemption Amount any Partnership
Units in which a security interest is held simultaneously with the time at which
such lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
Section 11.4 Substituted Limited Partners.
(a) Consent of General Partner Required. A Limited Partner shall have the
right in its discretion to substitute a transferee as a Limited Partner in his
place, in which event such substitution shall occur if the Limited Partner so
provides; provided, however, that any transferee desiring to become a
Substituted Limited Partner must furnish to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Article XVI 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 a Substituted Limited Partner.
(b) Rights and Duties of Substituted Limited Partners. A transferee who has
been admitted as a Substituted Limited Partner in accordance with this Article
XI shall have all the rights and powers and be subject to all the restrictions
and liabilities of a Limited Partner under this Agreement.
(c) Amendment of Exhibit A. Upon the admission of a Substituted Limited
Partner, the General Partner shall amend Exhibit A to reflect the name, address,
number of Partnership Units, and Percentage Interest of such Substituted Limited
Partner and to eliminate or adjust, if necessary, the name, address and interest
of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees. If a Limited Partner, in its sole and absolute
discretion, does not provide for the admission of any permitted transferee under
Section 11.4(a) as a Substituted Limited Partner, as described in Section 11.4,
such transferee shall be considered an Assignee for purposes of this Agreement.
An Assignee shall be entitled to all the rights of an assignee of a limited
partnership interest under the Act, including the right to receive distributions
from the Partnership and the share of Net Income, Net Losses, gain, loss and
Recapture Income attributable to the Partnership Units assigned to such
transferee, but shall not be deemed to be a holder of Partnership Units for any
other purpose under this Agreement, and shall not be entitled to vote such
Partnership Units in any matter presented to the Limited Partners for a vote
(such Partnership Units being
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deemed to have been voted on such matter in the same proportion as all
Partnership Units held by Limited Partners are voted). In the event any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article XI to the
same extent and in the same manner as any Limited Partner desiring to make an
assignment of Partnership Units.
Section 11.6 General Provisions.
(a) Withdrawal of Limited Partner. No Limited Partner may withdraw from the
Partnership other than as a result of a permitted transfer of all of such
Limited Partner's Partnership Units in accordance with this Article XI or
pursuant to Conversion of all of its Partnership Units under Section 4.2(e) or
the redemption of its Partnership Units under Section 8.6(a).
(b) Transfer of All Partnership Units by Limited Partner. Any Limited
Partner who shall transfer all of his Partnership Units in a transfer permitted
pursuant to this Article XI or pursuant to the Conversion Rights of all of its
Partnership Units under Section 4.2(e) or pursuant to redemption of all of its
Partnership Units under Section 8.6(a) shall cease to be a Limited Partner.
(c) Timing of Transfers. Transfers pursuant to this Article XI may only be
made on the first day of a fiscal quarter of the Partnership, unless the General
Partner otherwise agrees.
(d) Allocation When Transfer Occurs. If any Partnership Interest is
transferred during any quarterly segment of the Partnership's fiscal year in
compliance with the provisions of this Article XI or converted pursuant to
Section 4.2(e) or redeemed pursuant to Section 8.6(a), Net Income, Net Losses,
each item thereof and all other items attributable to such interest for such
fiscal year shall be divided and allocated between the transferor Partner and
the transferee Partner by taking into account their varying interests during the
fiscal year in accordance with Section 706(d) of the Code, based on the portion
of the year for which the transferor Partner and the transferee Partner were
Partners. Solely for purposes of making such allocations, each of such items for
the calendar month in which the transfer or redemption occurs shall be allocated
to the Person who is a Partner as of midnight on the last day of said month. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such transfer or redemption shall be made to the
transferor Partner, and all distributions of Available Cash with Partnership
Record Dates thereafter shall be made to the transferee Partner.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all of
the General Partner's General Partnership Interest pursuant to Section 11.2
hereof who is proposed to be admitted as a successor General Partner shall be
admitted to the
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Partnership as the General Partner, effective upon such transfer. Any such
transferee shall carry on the business of the Partnership without dissolution.
In each case, the admission shall be subject to the successor General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners.
(a) General. A Person who makes a Capital Contribution to the Partnership
in accordance with this Agreement or who exercises an option to receive
Partnership Units shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney granted
in Article XVI 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) Consent of General Partner Required. Notwithstanding anything to the
contrary in this Section 12.2, no Person shall be admitted as an Additional
Limited Partner without the consent of the General Partner, which consent may be
given or withheld in the General Partner's sole and absolute discretion. The
admission of any Person as an Additional Limited Partner shall become effective
on the date 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.
Section 12.3 Amendment of Agreement and Certificate. 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 predictable 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 Article XVI hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. The Partnership shall dissolve, and its affairs shall be wound
up, upon the first to occur of any of the following ("Events of Dissolution"):
(a) Expiration of Term--the expiration of its term as provided in
Section 2.5;
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(b) Withdrawal of General Partner--an event of withdrawal of the
General Partner, as defined in the Act, unless, within 90 days after the
withdrawal a majority in interest of all 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 substitute General Partner;
(c) Dissolution Prior to 2098--from and after the date of this
Agreement through December 31, 2098, with the Consent of a majority of the
Percentage Interests of the Limited Partners, an election to dissolve the
Partnership made by the General Partner, in its sole and absolute
discretion;
(d) Judicial Dissolution Decree--entry of a decree of judicial
dissolution of the Partnership pursuant to the provisions of the Act;
(e) Sale of Partnership's Assets--the sale or disposition of all or
substantially all of the assets and properties of the Partnership;
(f) Merger--the merger or other combination of the Partnership with or
into another entity;
(g) Bankruptcy or Insolvency of General Partner--the General Partner
(1) makes an assignment for the benefit of creditors;
(2) files a voluntary petition in bankruptcy;
(3) is adjudged a bankrupt or insolvent, or has entered against
it an order for relief in any bankruptcy or insolvency proceeding;
(4) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation;
(5) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature; or
(6) seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of the General Partner or of all or
any substantial part of its properties; or
(h) Readjustment, etc. One hundred and twenty (120) days after the
commencement of any proceeding against the General Partner seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or
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similar relief under any statute, law or regulation, the proceeding has not
been dismissed, or if within 90 days after the appointment without the
General Partner's consent or acquiescence of a trustee, receiver or
liquidator of the General Partner or of all or any substantial part of its
properties, the appointment is not vacated or stayed, or within 90 days
after the expiration of any such stay, the appointment is not vacated.
Section 13.2 Winding Up.
(a) General. Upon the occurrence of an Event of Dissolution, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom shall be applied and distributed in the following
order:
(1) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the Partners, pro rata in accordance with amounts
owed to each such Partner; and
(3) The balance, if any, to the General Partner and Limited Partners
in accordance with their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
(b) Where Immediate Sale of Partnership's Assets Impractical.
Notwithstanding the provisions of Section 13.2(a) hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) or,
with the Consent of the Partners holding a majority of the Partnership Units,
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2(a) hereof,
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undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of Regulations; Allowance
for Contingent or Unforeseen Liabilities or Obligations.
(a) Liquidation. Notwithstanding anything to the contrary in this
Agreement, in the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article XIII to the General Partner and Limited Partners who have
positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2) (including any timing requirements therein). In the
discretion of the General Partner, a pro rata portion of the distributions that
would otherwise be made to the General Partner and Limited Partners pursuant to
this Article XIII may be: (i) distributed to a liquidating trust established for
the benefit of the General Partner and Limited Partners for the purposes of
liquidating Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of the
Partnership or of the General Partner arising out of or in connection with the
Partnership (the assets of any such trust shall be distributed to the General
Partner and Limited Partners from time to time, in the reasonable discretion of
the General Partner, 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 (ii) withheld to
provide a reasonable reserve for Partnership liabilities (contingent or
otherwise) and to reflect the unrealized portion of any installment obligations
owed to the Partnership, provided that such withheld amounts shall be
distributed to the General Partner and Limited Partners as soon as practicable.
(b) Deficit Balance of General Partner. Notwithstanding anything to the
contrary in this Agreement, (i) if the General Partner has a deficit balance in
its Capital Account following the liquidation (within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g)) of its interest in the Partnership, as determined
after taking into account all Capital Account adjustments for the Partnership
taxable year during which such liquidation occurs (other than any adjustment for
a capital contribution of the General Partner made pursuant to this sentence),
the General Partner shall make a capital contribution to the Partnership in an
amount equal to such deficit balance by the end of the Partnership taxable year
during which such liquidation occurs (or, if later, within 90 days after date of
such liquidation); and (ii) such capital contribution made pursuant to clause
(i) of this Section 13.3(b) shall be distributed or utilized as provided in
Section 13.3 or 13.4.
50
<PAGE>
Section 13.4 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article XIII (but subject to Section 13.3(b)), in the
event the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Event of Dissolution has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Property in
kind to the General Partner and Limited Partners, who shall be deemed to have
assumed and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
General Partner and Limited Partners shall be deemed to have recontributed the
Partnership property in kind to the Partnership, which shall be deemed to have
assumed and taken such property subject to all such liabilities.
Section 13.5 Rights of Limited Partners. Except as specifically provided in
this Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of his Capital Contribution and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as specifically provided in this Agreement, no Limited Partner shall have
priority over any other Limited Partner as to the return of his Capital
Contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution. In the event an Event of Dissolution or
an event occurs that would, but for provisions of Section 13.1, result in a
dissolution of the Partnership, the General Partner shall, within 30 days
thereafter, provide written notice thereof to each of the Partners and to all
other parties with whom the Partnership regularly conducts business (as
determined in the discretion of the General Partner) and shall publish notice
thereof in a newspaper of general circulation in each place in which the
Partnership regularly conducts business (as determined in the discretion of the
General Partner).
Section 13.7 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership as provided in Section 13.2
hereof, the Partnership shall be terminated and the Certificate and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
51
<PAGE>
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments.
(a) General. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partners holding 25 percent or more of the Partnership
Interests. Following such proposal, the General Partner shall submit any
proposed amendment to the Limited Partners. 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.
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 a
majority of the Percentage Interests of the Limited Partners.
(b) General Partner's Power to Amend. 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:
(1) to add to the obligations of the General Partner or surrender for
the benefit of the Limited Partners any right or power granted to the
General Partner or any Affiliate of the General Partner;
(2) to reflect the admission, substitution, termination, or withdrawal
of Partners in accordance with this Agreement;
(3) to set forth the rights, powers, duties, and preferences of the
holders of any additional Partnership Interests issued pursuant to Section
4.2(b) hereof;
(4) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, 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
(5) 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.
The General Partner will provide notice to the Limited Partners when any
action under this Section 14.1(b) is taken.
52
<PAGE>
(c) Consent of Adversely Affected Partner Required. Notwithstanding Section
14.1(a) and Section 14.1(b) hereof, this Agreement shall not be amended without
the Consent of each Partner adversely affected if such amendment would (i)
convert a Limited Partner's interest in the Partnership into a general partner's
interest, (ii) modify the limited liability of a Limited Partner, (iii) alter
rights of the Partner to receive distributions pursuant to Article V, or the
allocations specified in Article VI (except as permitted pursuant to Section 4.2
and Section 14.1(b)(3) hereof), (iv) alter or modify the Conversion Right or the
Redemption Amount as set forth in Sections 4.2(e), 8.6 and 11.2(b), and related
definitions hereof, (v) cause the termination of the Partnership prior to the
time set forth in Section 13.1, (vi) amend this Section 14.1(c) or (vii) amend
Article VI or any definition used therein that would have the effect of causing
the allocations in Article VI to fail to comply with the requirements of Section
514(c)(9)(E) of the Code. Further, no amendment may alter the restrictions on
the General Partner's authority set forth in Section 7.3 without the Consent
specified in that section.
(d) When Consent of Majority of Limited Partnership Interests Required.
Notwithstanding Section 14.1(a) hereof, the General Partner shall not amend
Section 4.2(b), the second sentence of Section 7.1(a), Sections 7.5, 7.6, 7.8,
11.2, 13.1(c), this Section 14.1(d) or Section 14.2 without the Consent of
two-thirds of the Percentage Interests of the Limited Partners.
Section 14.2 Meetings of the Partners.
(a) General. 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. The
call shall state the nature of the business to be transacted. Notice of any such
meeting shall be given to all Partners not less than seven days nor more than 30
days prior to the date of such meeting. Partners may vote in person or by proxy
at such meeting. Whenever the vote or Consent of Partners is permitted or
required under this Agreement, such vote or Consent may be given at a meeting of
Partners or may be given in accordance with the procedure prescribed in Section
14.1 hereof. Except as otherwise expressly provided in this Agreement, the
Consent of holders of a majority of the Percentage Interests shall control.
(b) Informal Action. 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). 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). Such Consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
53
<PAGE>
(c) Proxies. Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of 11 months from
the date thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Limited Partner executing it.
(d) Conduct of Meeting. Each meeting of Partners shall be conducted by the
General Partner or such other Person as the General Partner may appoint pursuant
to such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. All notices and demands under this
Agreement shall be in writing, and may be either delivered personally (which
shall include deliveries by courier), by telefax, telex or other wire
transmission (with request for assurance of receipt in a manner appropriate with
respect to communications of that type, provided that a confirmation copy is
concurrently sent by a nationally recognized express courier for overnight
delivery) or mailed, postage prepaid, by certified or registered mail, return
receipt requested, directed to the parties at their respective addresses set
forth on Exhibit A, as it may be amended from time to time, and, if to the
Partnership, such notices and demands sent in the aforesaid manner must be
delivered at its principal place of business set forth above. Unless delivered
personally or by telefax, telex or other wire transmission as above (which shall
be effective on the date of such delivery or transmission), any notice shall be
deemed to have been made three (3) days following the date so mailed. Any party
hereto may designate a different address to which notices and demands shall
thereafter be directed by written notice given in the same manner and directed
to the Partnership at its office hereinabove set forth.
Section 15.2 Titles and Captions. All article or section titles or captions
in this Agreement are for convenience only. They shall not be deemed part of
this Agreement and in no way define, limit, extend or describe the scope or
intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
54
<PAGE>
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
Section 15.6 Waiver of Partition. The Partners hereby agree that the
Partnership properties are not and will not be suitable for partition.
Accordingly, each of the Partners hereby irrevocably waives any and all rights
(if any) that it may have to maintain any action for partition of any of the
Partnership properties.
Section 15.7 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters contained herein; it
supersedes any prior agreements or understandings among them and it may not be
modified or amended in any manner other than pursuant to Article XIV.
Section 15.8 Remedies Not Exclusive. Any remedies herein contained for
breaches of obligations hereunder shall not be deemed to be exclusive and shall
not impair the right of any party to exercise any other right or remedy, whether
for damages, injunction or otherwise.
Section 15.9 Time. Time is of the essence of this Agreement.
Section 15.10 Creditors. None of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.11 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.
Section 15.12 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
Section 15.13 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
55
<PAGE>
Section 15.14 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.
ARTICLE XVI
POWER OF ATTORNEY
Section 16.1 Power of Attorney.
(a) Scope. Each Limited Partner and each Assignee constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, publish, 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 conduct business or own property; (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; (c) all conveyances and other instruments or
documents that the General Partner 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 XI, XII or XIII hereof or the Capital Contribution of
any Partner; and (e) all certificates, documents and other instruments
relating to the determination of the rights, preferences and privileges of
Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner, 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, to effectuate the
terms or intent of this Agreement.
56
<PAGE>
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article XIV hereof or
as may be otherwise expressly provided for in this Agreement.
(b) Irrevocability. 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
to act as contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive and not be affected by the
subsequent Incapacity of any Limited Partner or Assignee and the transfer of all
or any portion of such Limited Partner's or Assignee's Partnership Units and
shall extend to such Limited Partner's or Assignee's heirs, successors, assigns
and personal representatives. Each such Limited Partner or Assignee hereby
agrees to be bound by any representation made by the General Partner, acting in
good faith pursuant to such power of attorney; and each such Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner, taken in good faith under
such power of attorney. Each Limited Partner or Assignee shall execute and
deliver to the General Partner or the Liquidator, within 15 days after receipt
of the General Partner'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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
Baron Capital Trust
By:
--------------------------------
Gregory K. McGrath
Chief Executive Officer
INITIAL LIMITED PARTNER:
------------------------------------
Gregory K. McGrath
57
<PAGE>
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Name and Address Agreed Value of Partnership
of Partner Contributed Property Units Percentage Interest
- ---------- -------------------- ----- -------------------
<S> <C> <C> <C>
General Partner:
Baron Capital Trust
Limited Partners:
Gregory K. McGrath
Robert S. Geiger
Baron Capital Trust
[Participants in Proposed Exchange
Offering]
</TABLE>
58
<PAGE>
EXHIBIT B
VALUE OF CONTRIBUTED PROPERTY
Underlying Property Basis Agreed Value
- ------------------- ----- ------------
59
<PAGE>
EXHIBIT C
NOTICE OF CONVERSION
The undersigned hereby irrevocably (a) elects to exercise the Conversion
Right set forth in the Agreement of Limited Partnership of Baron Capital
Properties, L.P. (the "Partnership Agreement") (capitalized terms used and not
otherwise defined herein shall have the meanings assigned to such terms in the
Partnership Agreement), with respect to an aggregate of Partnership Units, (b)
surrenders such Partnership Units and all right, title and interest therein, and
(c) directs that the Common Shares (or applicable Redemption Amount if so
determined by the General Partner) deliverable upon exercise of the Conversion
Right be delivered to the address specified below, and if Common Shares are to
be delivered, such Common Shares be registered or placed in the name(s) and at
the address(es) specified below.
Dated: Name of Limited Partner:
-------------------------
------------------------------
(Signature of Limited Partner)
------------------------------
(Street Address)
-----------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
------------------------------
If Common Shares are to be issued, issue to: ------------------------------
Please insert social security or identifying
number: ------------------------------
C-1
<PAGE>
EXHIBIT D
FORM OF UNIT CERTIFICATE
Attached
C-2
<PAGE>
================================================================================
NON-NEGOTIABLE, NON-TRANSFERABLE, NON-ASSIGNABLE
BARON CAPITAL PROPERTIES, L.P.
The undersigned hereby acknowledges that Units in Baron Capital Properties,
L.P. (the "Partnership"), organized under the Revised Uniform Limited
Partnership Act of the State of Delaware, are registered on the records of said
Partnership in the amount and in the name set forth below:
Certificate Social Security or Taxpayer Number and
Number Name and Address Identification Number Class of Units
- ------ ---------------- --------------------- --------------
This document has been issued solely to evidence that the above number of
Units stands in the name of such holder of Units, as of the date appearing
hereon, in the Partnership's Agreement of Limited Partnership, as amended (the
"Partnership Agreement"), pursuant to Article IV of the Partnership Agreement,
and does not grant or carry with it any rights to the income, profits or assets
of the Partnership, such rights being derived solely from the Partnership
Agreement. This document is NON-NEGOTIABLE, NON-TRANSFERABLE and NON-ASSIGNABLE.
Assignment of Units can only be accomplished in accordance with the procedure
set forth in the Partnership Agreement, and such assignment is subject to
certain limitation contained in Articles IV and XI of the Partnership Agreement,
including a provision that the substitution of any assignee of Units as a
Limited Partner of the Partnership shall be subject to the consent of the
General Partner, which consent may be granted or withheld in its sole
discretion. Subject to Section 8.6 of the Partnership Agreement, a holder of
Units has the right to exchange Units for Common Shares of the General Partner
as provided in Section 4.2 of the Partnership Agreement. THIS DOCUMENT IS NOT A
SECURITY UNDER THE APPLICABLE PROVISIONS OF THE UNIFORM COMMERCIAL CODE, AND
NEGOTIATION, TRANSFER OR ASSIGNMENT OF INTERESTS CANNOT BE ACCOMPLISHED BY ANY
ATTEMPT TO NEGOTIATE, TRANSFER OR ASSIGN THIS DOCUMENT. Copies of the
Partnership Agreement may be obtained from the General Partner by contacting
Baron Capital Trust, 7826 Cooper Road, Cincinnati, Ohio, Attention: Secretary.
Terms used herein have the meanings ascribed to such terms in the Partnership
Agreement.
[THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED
ABSENT REGISTRATION THEREUNDER OR EXEMPTION THEREFROM.]
Date: ________________ , 199_ /s/ Gregory K. McGrath
-----------------------------------
Chief Executive Officer
Baron Capital Trust
EXHIBIT 10.7
FORM OF SECURITY ESCROW AGREEMENT
DATED AS OF _________, 1998
AMONG GREGORY K. MCGRATH, ROBERT S. GEIGER,
THE REGISTRANT AND THE ESCROW AGENT
<PAGE>
EXHIBIT 10.7
FORM OF
SECURITY ESCROW AGREEMENT
THIS ESCROW AGREEMENT made and entered into this _______ day of
______________, 1998, among Gregory K. McGrath and Robert S. Geiger (herein
referred to individually as a "Security Holder" and collectively as the
"Security Holders"), Baron Capital Trust (the "Trust"), and American Stock
Transfer & Trust Company (the "Escrow Agent").
WITNESSETH THAT:
A. Each Security Holder is owner of the number of units of limited
partnership interest ("Units") in Baron Capital Properties, L.P. (the
"Partnership"), an affiliate of the Trust, listed opposite his name on Exhibit A
attached hereto which he acquired in exchange for his initial capital
contribution to the Partnership and other consideration.
B. The Trust has applied to the Securities and Exchange Commission (the
"Commission") for registration of 2,500,000 Common Shares of the Trust pursuant
to a Form SB-2 Registration Statement in connection with a proposed public
offering of Common Shares for cash (the "Offering") and for registration of
2,500,000 Units in the Partnership (which Units may be exchanged for an
equivalent number of Common Shares as described in the Prospectus contained in
the Form SB-2 Registration Statement), pursuant to a Form S-4 Registration
Statement in connection with a proposed public exchange offering of Units (the
"Exchange Offering"). As a condition of such registrations, the Security
Holders, the Escrow Agent, and the Trust agree to be bound by this Agreement.
C. Each Security Holder has deposited the Units listed opposite his name on
Exhibit A or documents evidencing the ownership of the Units listed on Exhibit A
with the Escrow Agent, and the Escrow Agent hereby acknowledges receipt thereof.
Such Units and/or the documents evidencing the ownership of such Units are
herein collectively referred to as "Escrowed Shares."
NOW THEREFORE, the parties hereto agree as follows:
1. Deposit of Certificates. Simultaneously with the execution of this
Agreement, each Security Holder has deposited with the Escrow Agent, and the
Escrow Agent hereby acknowledges receipt of, the certificates or documents
evidencing the ownership of Units listed on Exhibit A, representing 9.5% of the
Units in the Partnership to be outstanding upon the completion of the Offering
and the Exchange Offering. At the written request of the Trust, the Escrow Agent
shall make available to the Trust and the Securities Holders, such documents as
are necessary to exercise the foregoing rights.
<PAGE>
2. Term. The term of this Agreement and of the escrow provided herein shall
commence on the date that the Offering is declared effective by the Commission.
The certificates or documents evidencing the securities are to be deposited with
the Escrow Agent and are to be held until their release pursuant to paragraph 3
of this Agreement.
3. Release of Shares. The Escrowed Shares owned by each Security Holder
shall be released to such Security Holder as follows:
a. 25% of the Escrowed Shares shall be released from escrow on the sixth,
seventh, eighth, and ninth anniversary dates of the effectiveness of
the Offering; or
b. 100% of the Escrowed Shares shall be released from escrow after the
Trust has had annual net earnings per share according to generally
accepted accounting principles ("GAAP") equal to at least 5% of the
public offering price (after taxes and excluding extraordinary items)
for any two consecutive fiscal years following the date of
effectiveness of the Offering; or
c. 100% of the Escrowed Shares shall be released from escrow after the
Trust has had average annual net earnings per share according to GAAP
(after taxes and excluding extraordinary items) equal to at least 5%
of the public offering price, for any five consecutive fiscal years
following the date of effectiveness of the Offering; or
d. 100% of the Escrowed Shares shall be released from escrow after the
Trust's Common Shares have traded on a national stock exchange at a
price equal to at least 175% of the initial public offering price for
at least 90 consecutive trading days following the first anniversary
of the date of effectiveness of the Offering.
4. Documentation to Escrow Agent Regarding Release of Escrowed Shares. A
request for termination of the escrow, based on the satisfaction of either
paragraph 3.a, 3.b, 3.c or 3.d above, shall be forwarded by each Security Holder
to the Escrow Agent. A request for termination of the escrow based upon
paragraph 3.b or 3.c. shall be accompanied by an earnings per share calculation
audited and reported on by an independent certified public accountant retained
by the Trust. A request for termination of the escrow based upon paragraph 3.d
shall be accompanied by evidence of the stock price conditions provided therein.
5. Terminated or Partial Offering. The foregoing notwithstanding, the
Escrowed Shares will be released by the Escrow Agent:
2
<PAGE>
a. If the Offering and the Exchange Offering have been terminated and no
securities were sold or exchanged thereunder; or
b. If the Offering is terminated without sale of the minimum offering
amount required to complete the Offering and all proceeds have been
returned to investors in such offering.
6. Restriction on Transfer. The Escrowed Shares may be transferred by will,
or pursuant to the laws of descent and distribution, or through appropriate
legal proceedings, but in all cases the Escrowed Shares shall remain in escrow
and subject to the terms of this Agreement until released pursuant to paragraph
3 above. Upon the death of the holder of any Escrowed Shares, the Escrowed
Shares of the deceased holder may be hypothecated, subject to all of the terms
of this Agreement, to the extent necessary to pay the expenses of the estate.
The Escrowed Shares in escrow may be transferred by gift to family members,
provided that the Escrowed Shares shall remain subject to the terms of this
Agreement. The Escrowed Shares may not be pledged to secure a debt except as
noted above.
7. Voting Power. The Security Holders shall be entitled to exercise all
voting rights in respect of the Escrowed Shares to which the non-escrowed Units
are entitled.
8. Dividends. Any dividends paid on the Escrowed Shares while they are held
in escrow hereunder shall be paid to the Escrow Agent by checks of the
Partnership made payable to the Escrow Agent with a notation of this Agreement
thereon, and any such dividends shall be held pursuant to the terms of this
Agreement. The Escrow Agent shall treat such dividends as assets of the
Partnership, available for distribution under the terms of paragraph 11 below,
except as provided herein. The Escrow Agent shall place the dividends in an
interest-bearing account. The dividends and the interest earned thereon (less
the amount of any fees payable to the Escrow Agent under paragraph 13 below)
will be disbursed in proportion to the number of Escrowed Shares released from
the escrow at the time the Escrowed Shares are released pursuant to paragraph 3
above.
9. Stock Dividends or Splits. Stock dividends on, and shares resulting from
stock splits of, the Escrowed Shares shall be delivered to the Escrow Agent and
shall be held pursuant to this Agreement as if they were original shares of
Escrowed Shares deposited hereunder. In the event of any stock dividend, stock
split or recapitalization of the Partnership, the per share requirements set
forth in paragraph 3 hereof shall be adjusted appropriately.
10. Additional Shares. Upon the exercise by a Security Holder of his
conversion rights, warrants or options to acquire additional Units in the
Partnership pursuant to the documents listed on Exhibit A, the additional Units
received from the exercise of such warrants or options shall forthwith be
deposited in escrow with the Escrow Agent and shall be subject to the terms and
conditions of this Agreement.
3
<PAGE>
11. Dissolution Preference. Each Security Holder agrees that in the event
of dissolution, liquidation, merger, consolidation, sale of assets, exchange, or
any transaction or proceeding that results in the distribution of the assets of
the Partnership, the Security Holder hereby waives all his right, title,
interest and participation in the assets of the Partnership until the holders of
all non-escrowed Units have been paid, or have had irrevocably set aside for
them an amount equal to 100% of the initial public offering price per Common
Share, adjusted for stock splits and stock dividends. Thereafter, the Escrowed
Shares shall be entitled to receive an amount per Unit equal to 100% paid to, or
set aside for, the non-escrowed Units. Thereafter, the Security Holder shall
participate on a pro rata basis with all Unitholders of the Partnership.
Mergers, consolidations, or reorganizations may proceed on terms and conditions
different than those stated above if the holders of at least of a majority of
Units, other than the Security Holders, approve the terms and conditions by vote
at a meeting held for such purpose.
12. Reliance by Escrow Agent. The Escrow Agent may conclusively rely on,
and shall be protected, when its acts in good faith upon, any statement,
certificate, notice, request, consent, order or other document which it believes
to be genuine and signed by the proper party. The Escrow Agent shall have no
duty or liability to verify any such statement, certificate, notice, request,
consent, order or other document and its sole responsibility shall be to act
only as expressly set forth in this Agreement. The Escrow Agent shall be under
no obligation to institute or defend any action, suit or proceeding in
connection with this Agreement unless it is indemnified to its reasonable
satisfaction. The Escrow Agent may consult counsel with respect to any question
arising under this Agreement and the Escrow Agent shall not be liable for any
action taken, or omitted, in good faith upon advice of counsel. In performing
any of its duties hereunder, the Escrow Agent shall not incur any liability to
anyone for any damages, losses or expenses except those which arise out of the
Escrow Agent's willful default or negligence, and it shall accordingly not incur
any such liability with respect to: (i) any action taken or omitted in good
faith upon advice of its counsel or counsel of the Trust given with respect to
any questions relating to the duties and responsibility of the Escrow Agent
under this Agreement, or (ii) any action taken or omitted in reliance upon any
instrument, including written advice provided for herein, not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth and accuracy of any information contained therein, which the Escrow
Agent shall in good faith believe to be genuine, to have been signed or
presented by a proper person or persons, and to conform with the provisions of
this Agreement. All Escrowed Shares and funds held pursuant to this Agreement
shall constitute trust property. The Escrow Agent shall not be liable for any
interest on the Escrowed Shares.
13. Compensation to Escrow Agent. The Escrow Agent shall be entitled to
receive from the Trust reasonable compensation for its services as set forth in
Exhibit B attached hereto. In the event that the Escrow Agent renders any
additional services not provided for herein, or if any controversy arises
hereunder, or if the Escrow Agent is made a party to, or intervenes in any
action, suit or proceeding pertaining to this Agreement, it shall be entitled to
receive from the Security Holders or at the option of the Escrow Agent, the
Trust, reasonable compensation for such additional services. Upon notice to the
Security Holders, the Escrow Agent may deduct its
4
<PAGE>
compensation from any cash dividends or distributions held pursuant to paragraph
8 above.
14. Qualification and Independence of Escrow Agent. The Trust and each of
the Security Holders hereby represent that a complete list of its respective
officers and members of the Board of the Board is attached hereto as Exhibit C.
Based thereon, the Escrow Agent hereby represents and warrants that it is not
affiliated with the Trust, the Security Holders or any of their respective
officers or directors.
15. Indemnification. The Trust and each Security Holder agrees to hold the
Escrow Agent harmless from, and indemnify the Escrow Agent for, any and all
costs of investigation or claims, costs, expenses, reasonable attorney fees or
other liabilities or disbursements arising out of any administrative
investigation or proceeding or any litigation, commenced or threatened, relating
to this Agreement, including without limitation, the implementation of this
Agreement, the distribution of stock or funds, the investment of funds, the
interpretation of this Agreement or similar matters, provided that the Escrow
Agent shall not be indemnified for any costs of investigation or claims, costs,
expenses, attorney fees or other liability arising from its bad faith or
negligence or that of any of its employees, officers, directors or agents.
16. Scope. This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto, their heirs, successors and assigns.
17. Termination. Except for the indemnification provisions of paragraph 15
above, which shall survive in any event, this Agreement shall terminate in its
entirety when all the Escrowed Shares have been released as provided in
paragraph 3 above.
18. Substitute Escrow Agent. The Escrow Agent may, upon not less than 60
days prior written notice to the Trust and the Security Holders, resign as the
Escrow Agent. The Trust and the Security Holders shall, before the effective
date of the Escrow Agent's resignation, enter into a new identical Escrow
Agreement with a substitute Escrow Agent. If the Trust and the Security Holders
fail to enter into a new Escrow Agreement and appoint a successor Escrow Agent
within 60 days after the Escrow Agent has given notice of its resignation, the
Escrow Agent then serving under this Agreement shall retain the Escrowed Shares
in escrow until a new, identical Escrow Agreement has been executed and a
successor Escrow Agent has been appointed. The Escrow Agent shall not be liable
for such retention of the Escrowed Shares in escrow.
19. Notice of Non-liability. Under the Delaware Business Trust Act and
Sections 3.3 and 3.4 of the Declaration, neither the Shareholders, the Trustees
nor any other members of the Board of theTrust shall be personally liable
hereunder, and the Security Holders and the Escrow Agent shall look solely to
the Trust's property for the satisfaction of any claims hereunder against the
Trust.
5
<PAGE>
IN WITNESS WHEREOF, the Security Holders, the Trust and the Escrow Agent
have entered into this Agreement as of the date first above written, in multiple
counterparts, each of which shall be considered an original.
SECURITY HOLDERS:
_______________________________
Gregory K. McGrath
_______________________________
Robert S. Geiger
TRUST:
BARON CAPITAL TRUST
By:___________________________
Gregory K. McGrath
Chief Executive Officer
ESCROW AGENT:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:___________________________
Title
6
<PAGE>
EXHIBIT A
Name of Security Holder Number of Units Owned
- ----------------------- ---------------------
Gregory K. McGrath A number of Units equal to 9.5% outstanding
following the Offering and the Exchange Offering
Robert S. Geiger A number of Units equal to 9.5% outstanding
following the Offering and the Exchange Offering
<PAGE>
EXHIBIT B
COMPENSATION OF ESCROW AGENT
[to be completed]
<PAGE>
EXHIBIT C
LIST OF OFFICERS AND MEMBERS OF THE BOARD OF THE TRUST
Name of Officer and
Member of the Board Position
- ------------------- --------
Gregory K. McGrath Chief Executive Officer
Robert S. Geiger Chief Operating Officer
Baron Advisors, Inc. Member of the Board
James H. Bownas Member of the Board
Peter M. Dickson Member of the Board
General Partner
================================================================================
C-3
January 12, 1998
EXHIBIT 99.2
CONSENT OF JAMES M. DICKSON TO BEING NAMED
AS PROSPECTIVE INDEPENDENT TRUSTEE
OF THE REGISTRANT
<PAGE>
January 12, 1998
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: Baron Capital Trust SB-2 Registration
Consent of Inclusion in Registration
Statement of Independent Trustee Reference
------------------------------------------
Dear Sir or Madame:
I hereby consent to the use of my name in the above-referenced matter and
to all references to me included in or made a part of the Prospectus and
Registration Statement for the sale of up to 2,500,000 shares of beneficial
interest in the Trust.
Very truly yours,
/s/ Peter M. Dickson
---------------------------
Peter M. Dickson
EXHIBIT 99.3
PRIOR PERFORMANCE TABLE VI:
ACQUISITIONS OF PROPERTIES BY PROGRAMS
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
The following table includes information concerning the acquisition of property
interests by 24 prior programs sponsored by Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., in the most recent three years.
The prior programs have investment objectives similar to those of the Trust in
that the programs provided financing in respect of residential properties for
current income and capital appreciation (other than the mortgage funds).
Florida Income Advantage Fund I, Ltd.
-------------------------------------
Name, location, type of Phase III
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 26 Units
square feet of units: 30,654 total square feet
Date investment made: 2/94
Principal amount of mortgage
financing existing at date of
investment: $625,000
Contract Investment Price (1): $846,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $846,000
Realty Opportunity Income Fund VIII, Ltd.
-----------------------------------------
Name, location, type of Phase II
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 30 Units
square feet of units: 38,802 total square feet
Date investment made: 3/94
Principal amount of mortgage
financing existing at date of
investment: $784,000
Contract Investment Price (1): $849,600
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $849,600
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-1
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Income Appreciation Fund I, Ltd.
----------------------------------------
Name, location, type of Phase IV
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 8 Units
square feet of units: 9,800 total square feet
Date investment made: 4/94
Principal amount of mortgage
financing existing at date of
investment: $173,000
Contract Investment Price (1): $184,500
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $184,500
Florida Capital Income Fund, Ltd.
---------------------------------
Name, location, type of
property: Eagle Lake Apartments
Port Orange, Florida
Residential Apartment Community
Number of units and total 77 units
square feet of units: 45,504 total square feet
Date investment made: 11/94
Principal amount of mortgage
financing existing at date of
investment: $1,443,000
Contract Investment Price (1): $656,300
Cash Reserve: $0
Acquisition Fee: $60,000
Total Investment Cost: $716,300
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-2
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Tampa Capital Income Fund, Ltd,
-------------------------------
Name, location, type of
property: Lakewood Apartments
Brandon, Florida
Residential Apartment Community
Number of units and total 83 Units
square feet of units: 44,928 total square feet
Date investment made: 12/94
Principal amount of mortgage
financing existing at date of
investment: $1,500,000
Contract Investment Price (1): $589,500
Cash Reserve: $165,500
Acquisition Fee: $180,000
Total Investment Cost: $935,000
Florida Capital Income Fund II, Ltd.
------------------------------------
Name, location, type of Phase I
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 52 Units
square feet of units: 62,696 total square feet
Date investment made: 1/95
Principal amount of mortgage
financing existing at date of
investment: $1,343,000
Contract Investment Price (1): $548,000
Cash Reserve: $199,000
Acquisition Fee: $71,000
Total Investment Cost: $818,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-3
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Opportunity Income Partners, Ltd.
-----------------------------------------
Name, location, type of
property: Camellia Court Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 60 Units
square feet of units: 34,848 total square feet
Date investment made: 3/95
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $543,000
Cash Reserve: $143,000
Acquisition Fee: $24,000
Total Investment Cost: $710,000
Florida Capital Income Fund III, Ltd.
-------------------------------------
Name, location, type of
property: Bridgepoint Apartments
Jacksonville, Florida
Residential Apartment Community
Number of units and total 48 Units
square feet of units: 27,360 total square feet
Date investment made: 7/95
Principal amount of mortgage
financing existing at date of
investment: $700,000
Contract Investment Price (1): $549,000
Cash Reserve: $121,000
Acquisition Fee: $40,000
Total Investment Cost: $710,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-4
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Tax Credit Fund, Ltd.
-----------------------------
Name, location, type of
property: Spring Glade Apartments
Tampa, Florida
Residential Apartment Community
Number of units and total 78 Units
square feet of units: 42,912 total square feet
Date investment made: 6/95
Principal amount of mortgage
financing existing at date of
investment: $564,000
Contract Investment Price (1): $564,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $546,000
Baron First Time Homebuyer Mortgage Fund, Ltd.
----------------------------------------------
Name, location, type of
property: Pleasant Grove
Louisville, Kentucky
Residential Community
Number of units and total 39 Units
square feet of units: 54,600 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-5
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Capital Income Fund IV, Ltd.
------------------------------------
Name, location, type of
property: Glen Lake Apartments
St. Petersburg, Florida
Residential Apartment Community
Number of units and total 144 Units
square feet of units: 79,200 total square feet
Date investment made: 5/94
Principal amount of mortgage
financing existing at date of
investment: $2,812,500
Contract Investment Price (1): $1,820,000
Cash Reserve: $305,200
Acquisition Fee: $100,100
Total Investment Cost: $1,414,700
GSU Stadium Student Apartments, Ltd.
------------------------------------
Name, location, type of
property: Stadium Club Apartments
Statesboro, Georgia
Student Residential Apartment
Community
Number of units and total 60 Units
square feet of units: 51,624 total square feet
Date investment made: 11/95
Principal amount of mortgage
financing existing at date of
investment: $1,372,000
Contract Investment Price (1): $1,000,000
Cash Reserve: $100,000
Acquisition Fee: $100,000
Total Investment Cost: $800,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-6
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Brevard Mortgage Program, Ltd.
------------------------------
Name, location, type of
property: Meadowdale Apartments
Melbourne, Florida
Residential Apartment Community
Number of units and total 64 Units
square feet of units: 39,168 total square feet
Date investment made: 12/95
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $575,000
Cash Reserve: $57,500
Acquisition Fee: $0
Total Investment Cost: $517,500
Baron First Time Homebuyer Mortgage Fund II, Ltd.
-------------------------------------------------
Name, location, type of
property: East Bay Village
Louisville, Kentucky
Residential Community
Number of units and total 54 Units
square feet of units: 75,600 total square feet
Date investment made: 2/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-7
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Clearwater First Time Homebuyer Program, Ltd.
---------------------------------------------
Name, location, type of
property: Palm Bay Condominiums
Seminole, Florida
Residential Condominium
Community
Number of units and total 195 Units
square feet of units: 165,750 total square feet
Date investment made: 3/96
Principal amount of mortgage
financing existing at date of
investment: $672,500
Contract Investment Price (1): $672,500
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $672,500
Baron First Time Homebuyer Mortgage Fund III, Ltd.
--------------------------------------------------
Name, location, type of
property: Independence Condominium
Independence, Kentucky
Residential Condominium
Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 5/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-8
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron First Time Homebuyer Mortgage Fund V, Ltd.
------------------------------------------------
Name, location, type of
property: Independence Condominiums
Independence, Kentucky
Residential Condominium
Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $25,000
Acquisition Fee: $0
Total Investment Cost: $500,000
Baron First Time Homebuyer Mortgage Fund IV, Ltd.
-------------------------------------------------
Name, location, type of
property: Villas at Meadowview
Louisville, Kentucky
Residential Community
Number of units and total 84 Units
square feet of units: 88,200 total square feet
Date investment made: 6/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-9
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Income Growth Fund V, Ltd.
----------------------------------
Name, location, type of
property: Blossom Corners Apartments
Orlando, Florida
Residential Apartments
Community
Number of units and total 70 Units
square feet of units: 37,728 total square feet
Date investment made: 4/96
Principal amount of mortgage
financing existing at date of
investment: $1,050,000
Contract Investment Price (1): $825,500
Cash Reserve: $142,000
Acquisition Fee: $57,500
Total Investment Cost: $1,875,500
Lamplight Court of Bellefontaine Apartments, Ltd.
-------------------------------------------------
Name, location, type of
property: Lamplight Court Apartments
Bellefontaine, Ohio
Residential Apartment Community
Number of units and total 80 Units
square feet of units: 46,944 total square feet
Date investment made: 7/96
Principal amount of mortgage
financing existing at date of
investment: $1,400,000
Contract Investment Price (1): $580,000
Cash Reserve: $0
Acquisition Fee: $40,000
Total Investment Cost: $1,980,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-10
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Vulture Fund I, Ltd.
------------------------------------
Name, location, type of
property: Curiosity Creek Apartments
Tampa, Florida
Residential Apartment Community
Number of units and total 81 Units
square feet of units: 44,064 total square feet
Date investment made: 10/96
Principal amount of mortgage
financing existing at date of
investment: $1,200,000
Contract Investment Price (1): $601,000
Cash Reserve: $90,000
Acquisition Fee: $90,000
Total Investment Cost: $1,801,000
Baron Strategic Investment Fund, Ltd.
-------------------------------------
Name, location, type of
property: Blossom Corners II Apartments
Orlando, Florida
Residential Apartment Community
Number of units and total 68 Units
square feet of units: 36,576 total square feet
Date investment made: 10/96
Principal amount of mortgage
financing existing at date of
investment: $1,000,000
Contract Investment Price (1): $796,000
Cash Reserve: $120,000
Acquisition Fee: $144,000
Total Investment Cost: $1,796,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-11
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Investment Fund II, Ltd.
----------------------------------------
Name, location, type of
property: Gaslight Apartments
Anderson, Indiana
Residential Apartment Community
Number of units and total 72 Units
square feet of units: 42,720 total square feet
Date investment made: 11/96
Principal amount of mortgage
financing existing at date of
investment: $1,254,307
Contract Investment Price (1): $524,000
Cash Reserve: $80,000
Acquisition Fee: $96,000
Total Investment Cost: $1,778,307
Baron Strategic Investment Fund VI, Ltd.
----------------------------------------
Name, location, type of
property: Pine View Apartments
Orlando, Florida
Residential Apartment Community
Number of units and total 91 Units
square feet of units: Approximately 50,000 total
square feet
Date investment made: 5/97
Principal amount of mortgage
financing existing at date of
investment: $1,620,000
Contract Investment Price (1): $806,000
Cash Reserve: $120,000
Acquisition Fee: $144,000
Total Investment Cost: $806,000
- -------------------------------------------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-12