<PAGE>
As filed with the Securities and Exchange Commission on November 26, 1997
REGISTRATION NO. 333-38383
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CABOT INDUSTRIAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)
TWO CENTER PLAZA, SUITE 200
BOSTON, MASSACHUSETTS 02108
(617) 723-0900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
ROBERT E. PATTERSON
PRESIDENT
CABOT INDUSTRIAL TRUST
TWO CENTER PLAZA, SUITE 200
BOSTON, MASSACHUSETTS 02108
(617) 723-0900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
JAMES R. WALTHER, ESQ.
MAYER, BROWN & PLATT GERALD S. TANENBAUM, ESQ.
CAHILL GORDON & REINDEL
350 SOUTH GRAND AVENUE 80 PINE STREET
LOS ANGELES, CALIFORNIA 90071-1503 NEW YORK, NEW YORK 10005
(213) 229-9597 (212) 701-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
----------------
If this Form is filed to register additional securities for an offering pur-
suant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier effec-
tive registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
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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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGIS- +
+TRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECU- +
+RITIES 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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
PROSPECTUS November 26, 1997
5,000,000 Shares
[COMPANY LOGO]
CABOT INDUSTRIAL TRUST
Common Shares of Beneficial Interest
(par value $.01 per share)
Cabot Industrial Trust (the "Company") is an internally managed, fully inte-
grated real estate company formed to continue and expand the national indus-
trial real estate business of Cabot Partners Limited Partnership ("Cabot Part-
ners") and its affiliates. Concurrently with the closing of this offering (the
"Offering"), the Company will acquire industrial properties owned by certain of
Cabot Partners' advisory clients and affiliates and certain other investors
(collectively, the "Contributing Investors"). The Company will be one of the
largest industrial real estate companies, with a portfolio of 127 industrial
buildings (the "Properties") located in 21 states throughout the United States
and containing approximately 19 million rentable square feet. At September 30,
1997, the Properties were approximately 94% leased to 217 tenants. The Company
expects to qualify for taxation as a real estate investment trust ("REIT") for
federal income tax purposes.
The common shares of beneficial interest, par value $.01 per share (the "Common
Shares"), offered hereby are being sold by the Company and will represent
approximately 12.5% of the common equity of the Company on a fully diluted
basis. The remaining 87.5% of the Company's fully diluted common equity will be
beneficially owned by officers and trustees of the Company (the "Trustees"),
the Contributing Investors and certain others in the form of Common Shares or
limited partnership interests (the "Units") in Cabot Industrial Properties,
L.P. (the "Operating Partnership") that, subject to certain limitations, will
be exchangeable on a one-for-one basis for Common Shares.
The Company expects to make regular quarterly cash distributions to its share-
holders, with the initial distribution expected to be at the quarterly rate of
$.325 per Common Share. See "Distribution Policy."
Prior to the Offering, there has been no public market for the Common Shares.
It is anticipated that the initial public offering price will be between $19.00
and $21.00 per Common Share. See "Underwriting" for a summary of factors that
will be considered in determining the initial public offering price. The Com-
pany intends to apply to list the Common Shares on the New York Stock Exchange
(the "NYSE").
SEE "RISK FACTORS AND INVESTMENT CONSIDERATIONS" BEGINNING ON PAGE 14 FOR
DESCRIPTIONS OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON SHARES,
INCLUDING:
. The market value of the Common Shares may exceed the aggregate fair market
value of the proportionate interest in the Company's portfolio of Properties
and other assets they represent;
. The Company's expected initial level of distributions is based on assumptions
which could prove incorrect or change over time;
. Limitation of share ownership to 9.8% of the outstanding shares of beneficial
interest, staggered elections of Trustees and other provisions which may
deter third parties from seeking to acquire the Company;
. Taxation of the Company as a corporation if it fails to qualify as a REIT and
the Company's lack of experience in operating as a REIT; and
. Industrial real estate investment risks, such as failure of tenants to make
lease payments, the effect of national and local economic and other consider-
ations on real estate values and environmental issues.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE
TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
</TABLE>
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(1)The Company and the Operating Partnership have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Secu-
rities Act of 1933, as amended. See "Underwriting."
(2)Before deducting expenses payable by the Company estimated at $6,000,000.
(3)The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 750,000
Common Shares on the same terms as set forth above, solely to cover over-allot-
ments, if any. If such over-allotment option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The Common Shares offered by this Prospectus are being offered by the Under-
writers, subject to prior sale, when as and if delivered to and accepted by the
Underwriters, and subject to approval of certain legal matters by Cahill Gordon
& Reindel, counsel for the Underwriters. It is expected that delivery of cer-
tificates representing the Common Shares will be made against payment therefor
on or about , 1998 at the offices of J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York.
J.P. MORGAN & CO.
GOLDMAN, SACHS & CO.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
, 1998
<PAGE>
[MAP SHOWING THE FIVE U.S. REGIONS
AND LOCATIONS OF PROPERTIES AND
PHOTOGRAPHS OF CERTAIN PROPERTIES]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES. SPECIF-
ICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY
BID FOR, AND PURCHASE, COMMON SHARES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
CAUTIONARY STATEMENT
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC PERFORMANCE, PLANS AND OBJEC-
TIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND PROJECTIONS OF REVENUE AND OTHER
FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMI-
NOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE,"
"BELIEVE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. THE CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION
"RISK FACTORS AND INVESTMENT CONSIDERATIONS" AND ELSEWHERE IN THIS PROSPECTUS
IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS.
No person has been authorized to give any information or to make any represen-
tations not contained in this Prospectus and, if given or made, such informa-
tion or representations must not be relied upon as having been authorized by
the Company or any Underwriter. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the Common Shares in any jurisdic-
tion 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 any implication that there has been no change in the
affairs of the Company subsequent to the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 1
The Company.................................. 1
Risk Factors and Investment
Considerations.............................. 2
Industrial Real Estate Business.............. 3
Business and Growth Strategies............... 4
Properties................................... 6
The Formation Transactions, Company
Acquisitions and the Offering............... 7
Structure of the Company..................... 8
Benefits to Related Parties.................. 9
The Offering................................. 10
Distributions................................ 10
Tax Status of the Company.................... 11
Summary Financial and Other Data............. 11
Risk Factors and Investment
Considerations................................ 14
Offering Price May Not Reflect Values
of the Properties........................... 14
Risk of Inability to Sustain
Distribution Level.......................... 14
Antitakeover Effects of Ownership
Limit, Staggered Board and Power to
Issue Additional Shares..................... 14
Tax Risks.................................... 15
Real Estate Investment Risks................. 16
Conflicts of Interest in the
Formation Transactions and the
Business of the Company..................... 19
Absence of Prior Public Market for
Common Shares............................... 20
Possible Adverse Effect of Market
Interest Rates on Price of Common
Shares...................................... 21
Possible Adverse Effect of Shares
Available for Future Sale on Price
of Common Shares............................ 21
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
ERISA Risks.................................... 21
Risks Associated with the Recent Acquisition
of New Properties; Lack of Operating
History..................................... 21
Real Estate Financing Risks.................. 22
Possible Changes in Policies Without
Shareholder Approval; No Limitation on
Debt........................................ 22
Dependence on Key Personnel.................. 22
Risks Associated with Reliance on Forward-
Looking Statements.......................... 22
Company........................................ 23
General...................................... 23
Industrial Real Estate Business.............. 25
Business Strategies.......................... 26
Growth Strategies............................ 26
Operations................................... 28
Third-Party Investment Management............ 29
Financial Strategies......................... 29
Use of Proceeds................................ 30
Distribution Policy............................ 31
Capitalization................................. 34
Dilution....................................... 35
Cabot Industrial Trust Pro Forma Condensed
Combined Financial Statements (Unaudited)..... 36
Selected Financial and Other Data.............. 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 48
General........................................ 48
Results of Operations.......................... 48
Existing Investors Property Group.............. 48
Cabot Partners................................. 50
Capital Resources and Liquidity................ 50
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Inflation........................... 51
Funds from Operations............... 52
Properties............................ 53
General............................. 53
Property Overview................... 54
Industrial Property Market
Information........................ 60
Tenant Information.................. 62
Lease Expirations--Portfolio Total.. 63
Tenant Improvements and Leasing
Commissions........................ 63
Recurring Capital Expenditures...... 63
Insurance........................... 64
Environmental Matters............... 64
Legal Proceedings................... 64
Policies with Respect to Certain
Activities........................... 65
Investment Policies................. 65
Financing Policies.................. 65
Conflict of Interest Policies....... 66
Working Capital Reserves............ 67
Management............................ 68
Trustees and Executive Officers..... 68
Board of Trustees................... 71
Committees of the Board of
Trustees........................... 71
Compensation of Trustees............ 71
Executive Compensation.............. 72
Employment Agreements............... 72
Long Term Incentive Plan............ 72
Savings Plan........................ 73
Indemnification..................... 74
Formation Transactions and the Company
Acquisitions......................... 75
Formation Transactions.............. 75
Company Acquisitions................ 76
Limitations on Representations and
Warranties......................... 76
Effects of the Formation
Transactions and the Offering...... 77
Contribution Amounts of the
Properties and Cabot Partners...... 77
Certain Relationships and
Transactions......................... 78
Benefits to Related Parties......... 78
Principal and Management
Shareholders......................... 79
Description of Shares of Beneficial
Interest............................. 81
General............................. 81
Common Shares....................... 81
Classification or Reclassification
of Common Shares or Preferred
Shares............................. 82
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Restrictions on Transfer............ 82
Certain Provisions of Maryland Law
and of the Company's Declaration
of Trust and Bylaws................ 85
Classification of the Board of
Trustees........................... 85
Vacancies .......................... 85
Removal of Trustees................. 85
Business Combinations............... 85
Control Share Acquisitions.......... 85
Shareholders' Meetings.............. 86
Annual Report....................... 86
Amendment........................... 86
Limitation of Liability and
Indemnification.................... 87
Operations.......................... 87
Termination of the Trust and
REIT Status........................ 87
Advance Notice of Trustee
Nominations and New Business....... 88
Possible Antitakeover Effect of
Certain Provisions of Maryland
Law and of the Declaration of
Trust and Bylaws................... 88
Maryland Asset Requirements......... 88
Shares Available for Future Sale...... 88
Partnership Agreement of Operating
Partnership ....................... 89
General............................. 89
Management.......................... 90
Indemnification..................... 90
Capital Contributions............... 91
Tax Matters......................... 91
Operations.......................... 91
Duties and Conflicts................ 91
Term................................ 91
Federal Income Tax Considerations..... 91
Taxation of the Company............. 92
Tax Aspects of the Company's
Investments in Partnerships........ 95
Taxation of Shareholders............ 96
Other Tax Considerations............ 98
ERISA Considerations.................. 99
General Fiduciary Considerations.... 99
Prohibited Transactions............. 99
Plan Assets Issues.................. 100
Underwriting.......................... 101
Legal Matters......................... 102
Experts............................... 102
Additional Information................ 103
Glossary.............................. 104
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), 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 OBLIGATIONS OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
The Company intends to furnish its shareholders with annual reports containing
audited consolidated financial statements and a report thereon by its indepen-
dent certified public accountants.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed infor-
mation and financial statements, including the notes thereto, appearing else-
where in this Prospectus. Unless otherwise indicated, the information contained
in this Prospectus assumes (i) the consummation of the transactions relating to
the formation of the Company and the acquisition of the Properties and certain
other assets described under the heading "The Formation Transactions" (the
"Formation Transactions"), (ii) the Underwriters' over-allotment option is not
exercised, and (iii) the initial public offering price (the "Offering Price")
is $20.00 per Common Share (the midpoint of the range set forth on the cover
page of this Prospectus). Unless the context otherwise requires, all references
in this Prospectus to (i) the "Company" means Cabot Industrial Trust and its
operating subsidiaries, including the Operating Partnership, of which the Com-
pany is the sole general partner, and Cabot Services, Inc., a Delaware corpora-
tion (the "Management Company"), (ii) "Cabot Partners" means Cabot Partners
Limited Partnership, and (iii) the "Contributing Investors" means those Cabot
Partners advisory clients who are contributing Properties (or where such cli-
ents hold title through another entity, such title holding entity), C-M Hold-
ings, L.P. ("C-M Holdings") and certain affiliated partnerships (collectively,
with C-M Holdings, the "C-M Property Partnerships") and certain other investors
who are contributing Properties in the Formation Transactions. All other capi-
talized terms used in this Prospectus have the meanings set forth in the Glos-
sary.
THE COMPANY
The Company is an internally managed, fully integrated real estate company
formed to continue and expand the national industrial real estate business of
Cabot Partners. Upon the consummation of the Formation Transactions and the
closing of the Offering, the Company will be one of the largest industrial real
estate companies, with a portfolio of 127 Properties located in 21 states
throughout the United States and containing approximately 19 million rentable
square feet. At September 30, 1997, the Properties were approximately 94%
leased to 217 tenants. As of November 18, 1997, no single tenant accounting for
more than 3.9% of the Company's total Annualized Base Rent. Approximately 96%
of the Company's Properties are located in the top 15% of the nation's 273
industrial markets as rated by Cognetics Real Estate, Inc., a nationally recog-
nized real estate research firm ("Cognetics"), on the basis of projected demand
for industrial property space.
The Company's goal is to be the preeminent national real estate company focused
on serving a broad spectrum of industrial space users in the country's prin-
cipal commercial markets. The Company owns and operates a diversified portfolio
of bulk distribution, multitenant distribution and "workspace" (light assembly
and flex/R&D) properties and has a significant market presence across the
United States, owning Properties in a total of 20 markets and owning Properties
with approximately one million or more rentable square feet in seven of such
markets. The Properties are within overnight trucking access (a 500-mile
radius) to 90% of the country's population. The Company believes that its geo-
graphic diversification and substantial presence in multiple markets is a stra-
tegic advantage that allows it to (i) serve industrial space users with mul-
tiple site and property type requirements, (ii) compete more effectively in its
chosen markets, and (iii) respond quickly to acquisition opportunities across
the country. The Company, through its investment in the Management Company,
will also continue Cabot Partners' industrial real estate investment management
business.
The Company's principal growth strategy is to acquire modern, high-quality
industrial properties in attractive submarkets within the markets it currently
serves. Cabot Partners completed the acquisition of approximately $251 million
and $191 million of industrial properties on behalf of its clients in 1995 and
1996, respectively. Cabot Partners expects to acquire a total of $275 million
of industrial properties on behalf of its clients in 1997, as of November 24,
1997 $223 million of such acquisitions have been completed and approximately
$52 million were under contract.
During 1997, Cabot Partners has negotiated the contribution to the Company in
the Formation Transactions of approximately $270 million of industrial proper-
ties not previously owned by its advisory clients. In addition, the Company has
a contract to purchase four Properties for an aggregate purchase price of
approximately $9.2 million (the "Company Acquisitions"). This Company
Acquisitions are expected to close shortly following the completion of the
Offering.
The senior management of the Company has an average of approximately 18 years
experience in the real estate industry and will beneficially own 4.2% of the
Company's fully diluted common equity upon the closing of the Offering. Members
of the Company's senior management have worked together since 1987 as the exec-
utive officers of Cabot Partners and Cabot, Cabot & Forbes Realty Advisors,
Inc. ("Cabot Advisors"). Cabot Advisors was founded in 1986 as an affiliate of
Cabot, Cabot & Forbes Company ("CC&F"), a nationwide real estate development,
investment, construction and management firm that pioneered the development of
large-scale planned industrial parks. Cabot Partners, a registered investment
advisor providing industrial real estate investment and management services to
public and private pension funds and others, was formed as a separate entity in
1990 to purchase the real estate advisory management business of Cabot Advi-
sors.
The Company is organized as a real estate investment trust under Maryland law
and expects to qualify as a REIT for federal income tax purposes.
1
<PAGE>
RISK FACTORS AND INVESTMENT CONSIDERATIONS
An investment in the Common Shares involves various risks and investment con-
siderations. Prospective investors should carefully consider the matters dis-
cussed under "Risk Factors and Investment Considerations" prior to making an
investment in the Company. Such risks and investment considerations include,
among others:
. The market value of the Common Shares may exceed the aggregate fair
market value of the proportionate interest in the Company's portfolio of
Properties and other assets they represent.
. The Company's expected initial level of distributions was determined on
the basis of a number of assumptions, any of which could prove incorrect
or become incorrect over time. No assurance can be given that the Company
will be able to sustain its expected initial level of distributions.
. The antitakeover effects of limiting actual or constructive ownership of
shares of the Company by a single person to 9.8% of the number of issued
and outstanding shares of beneficial interest of the Company or the total
equity value of such shares, subject to certain exceptions, the staggered
elections of Trustees and certain other provisions contained in the orga-
nizational documents of the Company and the Operating Partnership, each
of which may have the effect of delaying, deferring or preventing a
change in control of the Company or other transaction that might involve
a price for the Common Shares that exceeds their then current market
price or that may otherwise be considered by the Company's shareholders
to be desirable.
. Tax risks, including taxation of the Company as a corporation if it fails
to qualify as a REIT for federal income tax purposes and the resulting
decrease in cash that would be available for distribution, and the fact
that the Company's management lacks experience in operating in accordance
with the requirements for maintaining qualification as a REIT.
. Investment in and operation of commercial real estate generally involves
certain risks, including the failure of tenants to make lease payments,
the inability to renew or re-lease space upon the expiration of leases
(leases accounting for 13.2% of the Company's Annualized Base Rents are
scheduled to expire in 1998), the effect of national and local economic
and other conditions on real estate values, including effects associated
with cyclical weaknesses or demographic changes in real estate markets,
competition from other REITs and real estate investors seeking properties
of the types which the Company intends to acquire, costs relating to ren-
ovation and re-leasing costs, the impact on the Company's properties of
competition from other existing properties and from newly constructed
properties in future periods, environmental issues and changes in the
ability of the Company's properties to generate sufficient cash flow to
meet operating expenses (including possible future debt service require-
ments).
. The Company may constitute a "pension-held REIT" immediately after the
closing of the Offering. If this were to occur, certain types of
borrowings or other activities, if engaged in by the Company, would
result in a portion of the dividends received by any qualified pension
plan owning more than 10% in value of the Company's shares, being taxable
to such plan as unrelated business taxable income.
. Conflicts of interest between the Company, the Cabot Group Participants
(most of whom will serve as executive officers and Trustees of the Com-
pany) and the other Contributing Investors with respect to the Formation
Transactions and the ongoing business decisions regarding the Company,
which could result in decisions that do not fully reflect the interests
of all of the Company's shareholders.
. The absence of a prior market for the Common Shares, the lack of assur-
ance that an active trading market will develop or that Common Shares
will trade at or above the Offering Price, the potential negative effects
of rising interest rates on the market price of the Common Shares and the
effect of the availability of shares for future sale on the price of the
Common Shares.
. One Contributing Investor has relied upon an exemption from the prohib-
ited transaction rules of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and section 4975 of the Internal Revenue Code
of 1986, as amended (the "Code"), in contributing Properties to the Com-
pany. The applicability of such exemption in certain circumstances
recently has been questioned by the Department of Labor. The Company has
received an opinion of counsel that such exemption applies to the Forma-
tion Transactions; however, such opinion is not binding on the Department
of Labor, the Internal Revenue Service (the "Service") or any court.
. The possibility that certain of the Properties, particularly newly
acquired Properties and properties acquired in the future, may fail to
perform as expected or may have characteristics or defects unknown to the
Company.
. As a result, among other things, of the annual income distribution
requirements applicable to REITs under the Code, the Company expects to
rely on borrowings and other external sources of financing to fund the
costs of new property acquisitions, capital expenditures and other items.
Accordingly, the Company will be subject to real estate financing risks,
including changes from period to period in the availability of such
financing, increased interest expense that may be incurred on variable
rate debt in rising interest rate markets and the risk that the Company's
cash flow may not be sufficient to cover both required debt service pay-
ments and distributions to shareholders at desired levels.
2
<PAGE>
. The Company's Board of Trustees (the "Board of Trustees") may change the
Company's investment, financing, distribution and other policies at any
time without shareholder approval.
. The Company is dependent on the efforts of its executive officers and the
loss of their services could have an adverse effect on the operations of
the Company.
. This Prospectus contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ signifi-
cantly from the results discussed in such forward-looking statements.
Factors that cause such differences include, but are not limited to, the
risks described under the "Risk Factors and Investment Considerations"
section of this Prospectus.
. The purchasers of Common Shares in the Offering will experience immediate
dilution of $1.25 per Common Share in the net tangible book value of the
Common Shares offered hereby based on the Offering Price.
INDUSTRIAL REAL ESTATE BUSINESS
Attractive Real Estate Sector
Industrial real estate has historically generated a high level of cash income
and attractive rates of return as compared with other types of real estate
investments. The Company believes that industrial properties tend to be less
costly to manage and require lower amounts of capital expenditures and tenant-
specific improvement costs. Such properties provide generic storage and work
space suitable for and adaptable to a broad range of tenants and uses. Indus-
trial properties also generally require relatively short development periods,
which enables better balancing of supply and demand for such properties and
reduces overbuilding risks.
Strong Demand
The Company believes that, at least for the near term, the demand for desir-
able, well-located industrial properties will continue and will support
increasing rents. Nationwide, the demand for distribution and workspace proper-
ties during the period from 1997 to 2002 is projected by Cognetics to increase
over existing levels by approximately 791 million square feet, consisting of
approximately 598 million square feet for distribution properties and approxi-
mately 193 million square feet for workspace properties. Continuing demand for
well-located, modern industrial properties is expected to increase due to (i)
increasing consumption on a per capita basis, coupled with population growth,
(ii) business' increasing need for efficient inventory management, (iii)
growing international trade, and (iv) the growing significance of smaller com-
panies (according to Cognetics, companies with fewer than 100 employees now
account for 47% of all jobs and are projected to account for 67% of all new
jobs projected to be created during the period from 1997 to 2002), which are
increasingly looking for efficient and flexible work space in well-located,
suburban industrial parks.
Industry Consolidation
The historically fragmented industrial real estate business is being reshaped
by strong pressures toward consolidation resulting from the substantial advan-
tages enjoyed by large, integrated and well-capitalized firms over local owners
and developers. These advantages include professional management, greater
access to public and private capital, economies of scale and greater opportuni-
ties to increase revenue by serving the changing needs of industrial tenants.
In addition, there is an increasing trend toward securitization of real estate
holdings as institutional real estate investors shift from direct private own-
ership to indirect public ownership of real estate. The Company believes that
both of these trends provide substantial opportunities for publicly held real
estate companies that have the managerial and financial resources to maintain
an active acquisition and development program.
Diverse Tenant Needs
Different types of industrial space users have significantly different property
and space requirements. Large national and major regional distributors gener-
ally require efficient, well-located bulk distribution properties. Smaller com-
panies generally demand more flexible work space, including light assembly
facilities and flex/R&D space. While these properties are generally more costly
to manage, the Company believes that such properties offer the prospect of
higher current returns because the users of such space are location sensitive
and less inclined to move if the properties they occupy are well located and
managed. Moreover, the Company believes that the continued employment growth
resulting from smaller companies will result in strong demand for these
workspace properties.
3
<PAGE>
BUSINESS AND GROWTH STRATEGIES
The Company's fundamental business objective is to maximize the total return to
its shareholders through growth in its cash available for distribution per
Common Share and in the value of its portfolio of industrial properties and
operations.
BUSINESS STRATEGIES
Leveraging Substantial National Market Presence
The Company's substantial presence in markets throughout the country positions
it well to market its industrial space to national companies with space
requirements in multiple locations. The Company will pursue a national tenant
marketing program emphasizing the advantages of dealing with a single source
for industrial space needs, as well as the quality and central locations of the
Company's properties. These advantages include greater efficiency of lease
negotiations and day-to-day property management matters, as well as better
understanding of the tenant's current needs and prospective space requirements.
Within each local market, having a substantial inventory of properties and sig-
nificant leasing activity increases the Company's visibility to prospective
tenants and enables the Company to establish strong relationships with leasing
brokers and other local market participants who serve as sources of information
and referrals of potential tenants. In addition, the Company has increased
opportunities to relocate tenants to one or more of its other properties as
their needs change.
Serving a Broad Spectrum of Tenants by Offering a Variety of Industrial
Property Types
Offering a variety of industrial property types and the Company's size enable
it to provide better service, on a more cost-efficient basis, to national cus-
tomers who often need workspace properties, in addition to distribution proper-
ties, for their local operations. At the same time, offering an array of prop-
erty types suitable for smaller companies enables the Company to capture a
larger share of the growth in its chosen industrial property markets by serving
a broader spectrum of companies in those markets. The Company believes that
smaller business establishments will form an important segment of its tenant
base. Business establishments with fewer than 100 employees are projected by
Cognetics to generate approximately 67% of the projected increased demand for
industrial property space during the period from 1997 to 2002.
GROWTH STRATEGIES
Acquisitions
The Company will seek to capitalize on its competitive advantages primarily by
acquiring additional modern, high-quality properties in attractive submarkets
within the major industrial markets that it currently serves.
The Company's acquisitions are based on extensive research in each targeted
market regarding (i) economic and demographic trends, (ii) supply of and demand
for industrial space in targeted submarkets, (iii) existing and potential
tenant space requirements, (iv) rent levels and trends, and (v) the physical
characteristics of buildings within the market. The Company's research also
involves physical site inspections and continuing contacts with leasing brokers
and other market participants. The results of the Company's research are com-
piled into a proprietary database covering each market and submarket in which
it has invested or that it has targeted. This database is updated periodically,
and contains computerized profiles, keyed to Company-prepared aerial maps, of
the Company's properties and each of the buildings deemed most competitive to
the Company's properties or attractive for acquisition. Each profile includes
information regarding the building's age, physical characteristics and current
tenant and lease information.
Upon the closing of the Offering, the Company expects to have approximately
$5.3 million of outstanding long-term debt, approximately $65.0 million of
available cash and a Debt-to-Total Market Capitalization Ratio of less than 1%.
The Company expects to be able to obtain borrowings on a timely basis that will
enable it to move quickly in completing proposed property acquisitions and
believes that its ability to do so will enhance its credibility with potential
property sellers. In addition, the Company's UPREIT structure, which will
enable it to acquire industrial properties on a non-cash basis by exchanging
Units in the Operating Partnership for such properties in a tax-deferred man-
ner, provides an attractive alternative to taxable cash sales for tax-paying
property owners.
4
<PAGE>
The Company's management has extensive knowledge of and, the Company believes,
a favorable reputation with public and private pension funds and other institu-
tional real estate investors as a result of Cabot Partners' focus on serving
such investors. The Company believes that it will benefit from its relation-
ships with these investors through further acquisitions as they increasingly
seek to securitize their direct real estate investments.
Internal Growth
The Company's primary internal growth strategy is to increase the cash flow
generated by the Properties, and from properties that it acquires in the
future, by renewing or replacing expiring leases with new leases at higher
rents and through rent increase provisions in its leases. In addition, the Com-
pany intends to work actively to (i) maintain its historically high occupancy
levels by retaining existing tenants (84% of the leases for the Properties and
89% of the leases for the Existing Investors Property Group, by square footage,
have been renewed over the past two years), thereby minimizing "down time" and
releasing costs, (ii) improve the occupancy levels of any newly acquired prop-
erties that have low occupancy levels, (iii) realize economies of scale from
the size of its portfolio of properties, and (iv) control costs.
Development
The Company's senior management has extensive real estate development experi-
ence, including experience derived from the industrial park development activi-
ties of CC&F. The Company is engaging its existing tenants in discussions about
future space needs and believes that financially attractive build-to-suit
opportunities from its tenant base may be available over time. The Company also
believes that in select target markets there are attractive opportunities for
new development with potentially greater returns than those available from the
purchase of existing stabilized properties, and it intends to pursue a develop-
ment program where such opportunities exist. In order to limit initial overhead
expenses, the Company intends to begin its development activities by engaging
local or regional builders with whom it has established strong relationships.
Thereafter, the Company intends to expand its in-house development staff as the
Company's development activities increase.
FINANCIAL STRATEGIES
The Company's financial strategy is to minimize its cost of capital by main-
taining adequate working capital and conservative debt levels. The Company
estimates that approximately $65.0 million of the proceeds from the Offering
will be available for general corporate purposes, including acquisitions and
working capital, after payment of offering and formation expenses and the use
of approximately $13.4 million of net proceeds to repay certain outstanding
indebtedness based on amounts outstanding as of September 30, 1997. The Company
is currently negotiating with several financial institutions the establishment
of a $325 million revolving credit facility (the "Acquisition Facility") to be
used primarily for property acquisitions and expects the facility to be in
place upon the closing of the Offering. The Company intends to operate with a
Debt-to-Total Market Capitalization Ratio that generally will not exceed 40%,
although the Company's Declaration of Trust and Bylaws do not impose any limit
on the incurrence of debt.
The Company believes that the size and diversity of its portfolio of Properties
will provide it access to the public debt and equity markets which are not gen-
erally available to smaller, less diversified property owners. The Company also
believes that its "UPREIT" structure (i.e., ownership of properties through the
Operating Partnership) will enable it to acquire industrial properties in
exchange for Units in the Operating Partnership, thereby reducing its need to
incur indebtedness to support future acquisitions.
5
<PAGE>
PROPERTIES
Upon the closing of the Offering, the Company will own a portfolio of 127 Prop-
erties having an aggregate of approximately 19 million rentable square feet,
approximately 94% of which space was leased to 217 tenants at September 30,
1997. The Company categorizes its properties into three types: bulk distribu-
tion properties, multitenant distribution properties and workspace properties.
See "Properties--General."
The following tables provide information regarding the Properties as of Sep-
tember 30, 1997.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------ ----------------------------------
PER LEASED
NUMBER OF SQUARE PERCENT
PROPERTY TYPE BY REGION PROPERTIES NUMBER % OF TOTAL AMOUNT % OF TOTAL FOOT LEASED
- ----------------------- ---------- ---------- ---------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BULK DISTRIBUTION
PROPERTIES:
West................... 11 2,269,146 12.1% $ 5,975,083 9.1% $3.06 86.0%
Southwest.............. 2 346,200 1.8 839,712 1.3 3.45 70.4
Midwest................ 16 3,872,086 20.6 11,295,226 17.3 3.01 97.0
Southeast.............. 4 1,029,247 5.5 2,648,415 4.1 3.15 81.7
Northeast.............. 7 1,661,862 8.8 6,552,939 10.0 3.94 100.0
---------- ---------- ---------- ----------- ---------- ---------- -------
Subtotal/weighted aver-
age................... 40 9,178,541 48.8% $27,311,375 41.8% $3.23 92.1%
---------- ---------- ---------- ----------- ---------- ---------- -------
MULTITENANT DISTRIBUTION
PROPERTIES:
West................... 4 831,626 4.4% $ 3,002,560 4.6% $3.61 100.0%
Southwest.............. 3 385,135 2.1 1,163,982 1.8 3.02 100.0
Midwest................ 13 2,159,560 11.5 7,771,102 11.9 3.93 91.7
Southeast.............. 7 1,274,745 6.8 4,070,073 6.2 3.39 94.2
Northeast.............. 11 2,065,503 11.0 7,998,906 12.2 3.87 100.0
---------- ---------- ---------- ----------- ---------- ---------- -------
Subtotal/weighted aver-
age................... 38 6,716,569 35.8% $24,006,623 36.7% $3.71 96.2%
---------- ---------- ---------- ----------- ---------- ---------- -------
WORKSPACE PROPERTIES:
West................... 27 1,255,306 6.7% $ 6,260,192 9.6% $5.04 99.0%
Southwest.............. 1 56,535 0.3 325,044 0.5 5.75 100.0
Midwest................ 3 283,505 1.5 1,133,228 1.7 4.91 81.4
Southeast.............. 7 627,360 3.3 2,562,024 3.9 4.32 94.6
Northeast.............. 11 665,892 3.6 3,790,400 5.8 5.88 96.8
---------- ---------- ---------- ----------- ---------- ---------- -------
Subtotal/weighted aver-
age................... 49 2,888,598 15.4% $14,070,888 21.5% $5.08 95.8%
---------- ---------- ---------- ----------- ---------- ---------- -------
TOTAL/WEIGHTED AVERAGE.. 127 18,783,708 100.0% $65,388,886 100.0% $3.70 94.2%
========== ========== ========== =========== ========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------ ----------------------------------
PER LEASED
NUMBER OF SQUARE PERCENT
PROPERTIES BY REGION PROPERTIES NUMBER % OF TOTAL AMOUNT % OF TOTAL FOOT LEASED
- -------------------- ---------- ---------- ---------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
West................... 42 4,356,078 23.2% $15,237,835 23.3% $3.78 92.4%
Southwest.............. 6 787,870 4.2 2,328,738 3.6 3.40 87.0
Midwest................ 32 6,315,151 33.6 20,199,556 30.8 3.38 94.5
Southeast.............. 18 2,931,352 15.6 9,280,512 14.2 3.52 89.9
Northeast.............. 29 4,393,257 23.4 18,342,245 28.1 4.20 99.5
---------- ---------- ---------- ----------- ---------- ---------- -------
TOTAL/WEIGHTED AVERAGE.. 127 18,783,708 100.0% $65,388,886 100.0% $3.70 94.2%
========== ========== ========== =========== ========== ========== =======
</TABLE>
- -------
(1) "Annualized Net Rent" means annualized monthly Net Rent from leases in
effect as of September 30, 1997. "Net Rent" means contractual rent, excluding
any reimbursements for real estate taxes or operating expenses.
6
<PAGE>
THE FORMATION TRANSACTIONS, COMPANY ACQUISITIONS AND THE OFFERING
Cabot Partners and the Contributing Investors are undertaking the Formation
Transactions for the purpose of organizing the Company and the Operating Part-
nership in preparation for the Offering and to transfer the Properties and
Cabot Partners' real estate advisory and management business to the Operating
Partnership in a tax-efficient manner. Upon completion of the Formation Trans-
actions, (i) the Properties and Cabot Partners' operating assets, other than
certain assets relating to Cabot Partners' advisory and management business,
will be held by the Operating Partnership, of which the Company will be the
sole general partner, and (ii) the assets of Cabot Partners' advisory and man-
agement business relating to industrial properties that are not being contrib-
uted pursuant to the Formation Transactions will be held by, and such business
will be conducted through, the Management Company.
The Formation Transactions and the Company Acquisitions have been and will be
effected as follows:
. The Company has been organized by Cabot Partners as a real estate investment
trust under Maryland law.
. The Operating Partnership has been formed as a limited partnership under
Delaware law, with the Company as its sole general partner.
. The Properties described in this Prospectus include both Properties that
are being contributed to the Operating Partnership by the Contributing
Investors (or to the Company for transfer to the Operating Partnership) and
the Properties expected to be purchased by the Operating Partnership at or
shortly after the closing of the Offering (referred to herein as the "Com-
pany Acquisitions"). The Contributing Investors include certain of the
existing advisory clients of Cabot Partners or their holding entities col-
lectively (referred to herein as the "Existing Investors") and certain
other industrial real estate investors or their holding entities.
. The Properties that will be contributed to the Company in the Formation
Transactions include both previously owned Properties of the Existing
Investors that have been managed by Cabot Partners and are referred to in
the historical and pro forma financial statements included in this Pro-
spectus as the "Existing Investors Property Group," additional Properties
recently acquired or being acquired by Cabot Partners on behalf of the
Existing Investors, and Properties owned by the other Contributing Invest-
ors.
. Cabot Partners will contribute its real estate advisory and management
business and related assets, including its investment advisory and manage-
ment contracts with certain of its advisory clients (the "Advisory Con-
tracts") relating to industrial properties that are not being contributed
in the Formation Transactions, to the Operating Partnership or the Manage-
ment Company concurrently with the closing of the Offering. The Operating
Partnership will own 100% of the non-voting preferred stock of the Manage-
ment Company, representing 95% of the economic interest in the Management
Company. Ferdinand Colloredo-Mansfeld, the Company's Chief Executive Offi-
cer, will own 100% of the voting common stock of the Management Company,
representing 5% of the economic interest in the Management Company.
. The Contributions of Properties and other assets by the Contributing
Investors and Cabot Partners will be made in exchange for Units in the
Operating Partnership that may, subject to certain limitations and excep-
tions, be exchanged for Common Shares or, in certain cases, will be made in
exchange for Common Shares.
. As a result of the Formation Transactions, and giving effect to the pro-
posed issuance and sale of Common Shares in the Offering, the Contributing
Investors and Cabot Partners will become equity investors in the Company
and the Operating Partnership. The Contributing Investors will hold an
aggregate of 23,767,234 Units and 9,233,080 Common Shares and Cabot Part-
ners will hold an aggregate of 1,874,686 Units. Such ownership by the Con-
tributing Investors and Cabot Partners will represent approximately 82.8%
and 4.7%, respectively, of the fully diluted common equity of the Company.
Purchasers of Common Shares in the Offering will own the remaining 12.5% of
the fully diluted common equity of the Company.
. The Company will contribute the net proceeds of the Offering received by it
to the Operating Partnership in exchange for the number of general partner-
ship interests ("GP Units") in the Operating Partnership that equals the
number of Common Shares sold in the Offering. As a result of such contribu-
tion and its receipt of Units in connection with the Formation Transac-
tions, the Company will hold a 35.7% general partnership interest (before
exchange of Units) in the Operating Partnership and will be an indirect
owner of the contributed Properties and other assets through and to the
extent of such general partnership interest.
7
<PAGE>
STRUCTURE OF THE COMPANY
The following chart illustrates the structure of the Company and the beneficial
ownership of the Company, the Operating Partnership and the Management Company
after the consummation of the Formation Transactions and the closing of the
Offering. See "Formation Transactions."
THE COMPANY
<TABLE>
<CAPTION>
---------------------
PERCENT PERCENT
OF COMMON OF COMMON
SHARES SHARES
BEFORE AFTER
EXCHANGE EXCHANGE
OWNER OF UNITS OF UNITS
----- ---------- ---------
<S> <C> <C>
Public Investors.................................. 35.1% 12.5%
Contributing Investors(1)......................... 64.9% 82.7%
Management(2)..................................... -- 4.8%
</TABLE>
THE OPERATING PARTNERSHIP
<TABLE>
<CAPTION>
---------------------
OWNERSHIP OWNERSHIP
INTEREST INTEREST
BEFORE AFTER
EXCHANGE EXCHANGE
OWNER OF UNITS OF UNITS
----- ---------- ---------
<S> <C> <C>
Company........................................... 35.7% 100%
Contributing Investors(1)......................... 59.5% --
Management(2)..................................... 4.8% --
</TABLE>
THE MANAGEMENT COMPANY
<TABLE>
<CAPTION>
--------------------------------
VOTING NON-VOTING TOTAL
COMMON PREFERRED ECONOMIC
OWNER STOCK STOCK INTEREST
----- --------- ---------- ---------
<S> <C> <C> <C>
Operating Partnership(3)............... -- 100% 95%
Ferdinand Colloredo-Mansfeld........... 100% -- 5%
</TABLE>
(1) Includes each of the Contributing Investors other than the C-M Property
Partnerships and, for purposes of this presentation, those holders of interests
in Cabot Partners who are not officers or Trustees of the Company or the Man-
agement Company. The C-M Property Partnerships are owned by Ferdinand
Colloredo-Mansfeld, who is the Company's Chief Executive Officer, and members
of his immediate family. The ownership interests in the Company attributable to
the C-M Property Partnerships are included under "Management." See Note (2)
below. Each of the Contributing Investors will receive Units or Common Shares
in the Formation Transactions in exchange for their interests in the Proper-
ties. See "Formation Transactions."
(2) Includes certain officers and Trustees and members of their immediate fami-
lies who will receive or beneficially own Units in exchange for their interests
in Cabot Partners and/or the C-M Property Partnerships which are being contrib-
uted in the Formation Transactions. See "Formation Transactions."
(3) As a result of the Operating Partnership's ownership of non-voting pre-
ferred stock of the Management Company, the Company, through the Operating
Partnership, expects to receive most of the after-tax economic benefits of the
Management Company. See "The Company--Third-Party Investment Management."
8
<PAGE>
BENEFITS TO RELATED PARTIES
Certain of the officers and Trustees of the Company and members of their imme-
diate families who are contributing their interests in Cabot Partners and/or
the C-M Property Partnerships (the partnership interests of the C-M Property
Partnerships are beneficially owned by Ferdinand Colloredo-Mansfeld, the
Company's Chief Executive Officer, and members of his immediate family) (col-
lectively, the "Cabot Group Participants") and the Contributing Investors who
are contributing their interests in the Properties will realize certain bene-
fits as a result of the Offering and the Formation Transactions, including the
following:
RECEIPT OF UNITS BY THE CABOT GROUP PARTICIPANTS AND THE CONTRIBUTING INVESTORS
The Cabot Group Participants will receive a total of 484,195 Units and
1,422,542 Units in the Formation Transactions in exchange for their interests
in the C-M Property Partnerships and Cabot Partners, respectively. These Units
(representing approximately 4.8% of the common equity of the Company on a fully
diluted basis) will have a total value of approximately $38.1 million based on
the Offering Price, compared to the aggregate pro forma net tangible book value
of the assets contributed to the Operating Partnership by the Cabot Group Par-
ticipants of approximately $9.8 million as of September 30, 1997. The Company
believes that the net tangible book value of the individual assets contributed
to the Operating Partnership by the Cabot Group Participants (which reflects
the historical cost of such assets less accumulated depreciation and amortiza-
tion) is less than the aggregate current market value of such assets. At any
time after two years following the Closing Date, any of the Cabot Group Partic-
ipants holding Units may, in accordance with the Operating Partnership Agree-
ment, exchange all or a portion of such Units for Common Shares on a one-for-
one basis or, at the election of the Company, the cash equivalent thereof.
The Contributing Investors (not including the C-M Property Partnerships, but
including partners of Cabot Partners who are not Cabot Group Participants) will
receive a total of 23,735,183 Units and 9,233,080 Common Shares in exchange for
their interests in the Properties in connection with the Formation Transac-
tions. These Units and Common Shares (representing approximately 82.7% of the
common equity of the Company on a fully diluted basis upon the closing of the
Offering) will have a total value of approximately $659.4 million based on the
Offering Price, compared to the aggregate net tangible book value of the assets
contributed to the Company by such Contributing Investors of approximately
$650.3 million. The Company believes that the net tangible book value of the
individual assets contributed to the Company by such Contributing Investors
(which reflects the historical cost of such assets less accumulated deprecia-
tion) is less than the aggregate current market value of such assets. At any
time after one year following the Closing Date, any of such Contributing
Investors holding Units may, in accordance with the Operating Partnership
Agreement, exchange all or a portion of such Units for Common Shares on a one-
for-one basis or, at the election of the Company, the cash equivalent thereof.
The Company currently expects that it will not elect to pay cash for Units in
connection with any such exchange request, but instead will issue Common Shares
in exchange for such Units. The receipt and retention of the Units in exchange
for contributed assets may provide the Cabot Group Participants and certain of
the Contributing Investors with continued deferral of the taxable gain associ-
ated with dispositions of those assets.
INCREASE IN NET TANGIBLE INVESTMENT
The Cabot Group Participants and the Contributing Investors (not including the
C-M Property Partnerships, but including partners of Cabot Partners who are not
Cabot Group Participants), on a pro forma basis as of September 30, 1997, will
realize an immediate increase of $28.4 million and $9.0 million, respectively,
in the net tangible book value of their respective original investments in the
Company. This increase is derived from the difference between (i) the net tan-
gible book value of the respective Properties and assets being contributed by
them in the Formation Transactions and (ii) the 1,906,737 Units to be received
as consideration by the Cabot Group Participants and the 23,735,183 Units and
9,233,080 Common Shares to be received as consideration by such Contributing
Investors, respectively, each valued at the Offering Price. See "Dilution."
REPAYMENT OF DEBT
Approximately $18.7 million of indebtedness (based on amounts outstanding as of
September 30, 1997) secured by the Properties to be contributed by the C-M
Property Partnerships (which are owned by certain of the Cabot Group Partici-
pants) will be assumed by the Operating Partnership and approximately $13.4
million of such indebtedness (based on amounts outstanding as of September 30,
1997) will be repaid from the proceeds of the Offering.
OPTIONS GRANTED
The Company will grant options to purchase an aggregate of Units that
will be convertible into an equal number of Common Shares under the Company's
Long Term Incentive Plan at the Offering Price to officers and Trustees of the
Company, subject to certain vesting requirements. See "Management--Long Term
Incentive Plan."
9
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
COMMON SHARES OFFERED........................ 5,000,000 (1)
COMMON SHARES TO BE OUTSTANDING AFTER THE
OFFERING.................................... 39,875,000(1)(2)
USE OF PROCEEDS.............................. The proceeds to the Company from the Offering,
after deducting the underwriting discount and
estimated expenses of the Offering and of the
Formation Transactions, are estimated to be
approximately $87.5 million (approximately
$101.5 million if the Underwriters' over-
allotment option is exercised in full).
Approximately $9.2 million and $13.4 million of
such net proceeds will be used to fund the
Company Acquisitions and to repay indebtedness
secured by certain of the Properties,
respectively, with the balance to be used for
general purposes, including acquisitions of
additional properties.
NYSE SYMBOL..................................
</TABLE>
- -------
(1) Excludes 750,000 Common Shares issuable upon exercise of the Underwriters'
over-allotment option.
(2) Includes 25,641,920 Common Shares that may be issued upon exchange of
Units. See "Formation Transactions." Excludes Common Shares reserved for
issuance upon exercise of options to be granted pursuant to the Company's Long
Term Incentive Plan effective upon the closing of the Offering.
DISTRIBUTIONS
The Company intends to make regular quarterly cash distributions to its share-
holders, commencing with a pro rata distribution for the period from the com-
pletion of the Offering through March 31, 1998, based upon a quarterly distri-
bution of $.325 per Common Share. On an annualized basis, this would be $1.30
per Common Share (or an annual distribution rate of 6.5% based on the Offering
Price). The Company does not expect to change its estimated initial distribu-
tion per Common Share if the Underwriters' over-allotment option is exercised.
The Company intends to maintain its initial distribution rate through at least
the remainder of 1998 unless actual results of operations, economic conditions
or other factors differ materially from the assumptions used in calculating the
estimate of its cash available for distribution. Based on the Company's esti-
mated results of operations for the twelve months ending December 31, 1998, the
Company estimates that approximately % of the anticipated initial annual
distribution to shareholders will represent a return of capital for federal
income tax purposes and that the Company will be required to distribute $
million or $ per Common Share with respect to such twelve-month period in
order to maintain its status as a REIT. If future taxable income increases
above or decreases below the estimated taxable income for the twelve months
following the closing of the Offering, the percentage of the anticipated ini-
tial annual distribution representing a return of capital will decrease or
increase, respectively. See "Distribution Policy" for the calculation of esti-
mated pro forma cash available for distribution and related assumptions. Future
distributions by the Company will be at the discretion of the Board of Trustees
and will depend on the actual cash available for distribution, the Company's
financial condition and capital requirements, the annual distribution require-
ments under the REIT provisions of the Code (see "Federal Income Tax Considera-
tions--Taxation of the Company--Annual Distribution Requirements") and such
other factors as the Board of Trustees deems relevant. See "Risk Factors and
Investment Considerations--Possible Changes in Policies Without Shareholder
Approval; No Limitation on Debt."
10
<PAGE>
TAX STATUS OF THE COMPANY
The Company intends to qualify and will elect to be taxed as a REIT under Sec-
tions 856 through 860 of the Code, commencing with its short taxable year
ending December 31, 1998. If the Company qualifies for taxation as a REIT, the
Company generally will not be subject to federal income tax on its taxable
income that is distributed to its shareholders. A REIT is subject to a number
of organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its annual taxable income (excluding net
capital gain). The Company does not intend to request a ruling from the Service
as to its REIT status. The Company has received an opinion of its legal counsel
that the Company will qualify to be taxed as a REIT under the Code, which
opinion is based on certain assumptions and representations and will not be
binding on the Service or any court. Even if the Company qualifies for taxation
as a REIT, the Company may be subject to certain federal, state and local taxes
on its income and property. Failure to qualify as a REIT would subject the Com-
pany to tax (including any applicable minimum tax) on its taxable income at
regular corporate rates, and distributions to the Company's shareholders in any
such year would not be deductible by the Company. See "Risk Factors and Invest-
ment Considerations--Tax Risks" and "--Antitakeover Effect of Ownership Limit,
Staggered Board and Power to Issue Additional Shares" and "Federal Income Tax
Considerations--Taxation of the Company."
SUMMARY FINANCIAL AND OTHER DATA
Set forth below are (i) summary historical financial and other data for (A) the
Properties that were managed by Cabot Partners as of September 30, 1997 for the
Contributing Investors (such Contributing Investors are hereinafter referred to
as the "Existing Investors" and such Properties (including the related assets
and liabilities) are hereinafter referred to as the "Existing Investors Prop-
erty Group"), and (B) the real estate advisory business of Cabot Partners, and
(ii) summary financial and other data for the Company on a pro forma basis.
The summary financial data presented below as of and for the years ended
December 31, 1996, 1995 and 1994 have been derived from the Existing Investors
Property Group Combined Financial Statements and the Cabot Partners Financial
Statements, each of which has been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports included elsewhere in this
Prospectus. This information should be read in conjunction with such financial
statements and the notes thereto included elsewhere in this Prospectus. The
summary financial data presented below as of and for the years ended December
31, 1993 and 1992 for Cabot Partners are derived from the Cabot Partners Finan-
cial Statements and the notes thereto not included in this Prospectus which
have been audited by Arthur Andersen LLP. The summary financial data presented
below as of and for the years ended December 31, 1993 and 1992 for the Existing
Investors Property Group and as of and for the nine months ended September 30,
1997 and 1996 for both Cabot Partners and the Existing Investors Property Group
have not been audited but, in the opinion of management, include all adjust-
ments (consisting only of normal recurring accruals) necessary to present
fairly such information in accordance with generally accepted accounting prin-
ciples ("GAAP") applied on a consistent basis. The results of operations for
the nine months ended September 30, 1997 are not necessarily indicative of
results for the entire year. Other Data (including Property data) for all
periods and dates presented are unaudited and are derived from the financial
and other records of Cabot Partners.
The summary pro forma financial data presented below has been derived from the
pro forma combined consolidated balance sheet as of September 30, 1997 has been
prepared to reflect (i) the contribution to the Company of (A) the Existing
Investors Property Group, (B) the Properties owned by those Contributing
Investors that were not advisory clients of Cabot Partners at or prior to Sep-
tember 30, 1997 (the "New Investors Property Group"), and (C) the Properties
acquired or to be acquired after September 30, 1997 by Cabot Partners on behalf
of the Existing Investors (the "Additional Acquisitions"), (ii) the other For-
mation Transactions, (iii) the Company Acquisitions, (iv) the Offering and the
use of a portion of the net proceeds therefrom to repay indebtedness, and (v)
certain other adjustments, as if each of such contributions, transactions and
adjustments had occurred on September 30, 1997. The pro forma condensed com-
bined operating and other data for the nine months ended September 30, 1997 and
the year ended December 31, 1996 have been prepared to reflect (i) the contri-
bution to the Company of (A) the Existing Investors Property Group, (B) the
Additional Acquisitions, (C) the New Investors Property Group, and (D) the
Properties acquired during the year ended December 31, 1996 and during the nine
months ended September 30, 1997, (ii) the other Formation Transactions, (iii)
the Company Acquisitions, (iv) the use of a portion of the net proceeds of the
Offering to repay indebtedness, and (v) certain other adjustments, as if each
of such contributions, transactions and adjustments had occurred on January 1,
1996.
11
<PAGE>
In the opinion of management, the pro forma combined consolidated financial
statements include all adjustments necessary to reflect the effects of the
foregoing transactions and adjustments. The pro forma statements are unaudited
and are not necessarily indicative of what the financial position would have
been or the combined results that would have been obtained if the transactions
and adjustments reflected therein had been consummated on the dates indicated,
or on any particular date in the future, nor do they purport to represent the
financial position, results of operations or changes in cash flows as of any
future date or for any future period.
CABOT INDUSTRIAL TRUST
SUMMARY FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------ ----------------------------------------------------------
COMPANY EXISTING INVESTORS COMPANY
PRO FORMA PROPERTY GROUP (1) PRO FORMA EXISTING INVESTORS PROPERTY GROUP (1)
--------- -------------------- --------- ------------------------------------------------
In thousands, 1997 1997 1996 1996 1996 1995 1994 1993 1992
except per share data --------- --------- --------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 61,016 $ 28,736 $ 26,138 $80,670 $ 35,180 $ 28,794 $ 28,209 $ 25,252 $ 21,904
Real estate tax expense 7,061 4,005 3,649 9,524 5,037 3,979 3,769 5,144 2,772
Property operating
expenses 4,985 3,284 3,003 7,176 4,323 3,357 3,063 3,227 2,940
General and administra-
tive expenses 2,641 -- -- 3,419 -- -- -- -- --
Interest expense 326 1,399 1,430 449 1,931 2,097 2,082 2,013 2,292
Depreciation and amorti-
zation expense 14,111 6,473 5,864 19,302 7,966 7,118 6,606 6,111 5,441
--------- --------- --------- --------- -------- -------- -------- -------- --------
Operating income 31,892 13,575 12,192 40,800 15,923 12,243 12,689 8,757 8,459
Gain on sale of proper-
ties -- -- -- -- -- -- 186 -- --
--------- --------- --------- --------- -------- -------- -------- -------- --------
Net income $ 31,892 $ 13,575 $ 12,192 $40,800 $ 15,923 $ 12,243 $ 12,875 $ 8,757 $ 8,459
========= ========= ========= ========= ======== ======== ======== ======== ========
Pro forma net income per
Common Share (2) $ 0.80 $ 1.02
========= =========
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
------------------------------ ------------------------------------------------
COMPANY EXISTING INVESTORS
PRO FORMA PROPERTY GROUP (1) EXISTING INVESTORS PROPERTY GROUP (1)
--------- -------------------- ------------------------------------------------
1997 1997 1996 1996 1995 1994 1993 1992
In thousands --------- --------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental properties
(before accumulated
depreciation) $678,002 $ 358,498 $ 323,639 $336,836 $301,059 $250,387 $255,050 $240,358
Rental properties, net 678,002 320,956 291,226 304,308 274,629 229,451 237,101 227,149
Total assets 752,894 334,569 308,237 318,732 289,337 241,026 247,615 236,457
Mortgage debt 5,302 18,655 19,496 19,292 20,083 20,608 20,550 20,550
Limited Partners
interest in Operating
Partnership 475,421 -- -- -- -- -- -- --
Shareholders'/Owners'
equity 272,162 307,501 281,267 291,286 261,629 213,203 220,621 211,897
------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------------ ----------------------------------------------------------
COMPANY EXISTING INVESTORS COMPANY
In thousands, PRO FORMA PROPERTY GROUP (1) PRO FORMA EXISTING INVESTORS PROPERTY GROUP (1)
except number of --------- -------------------- --------- ------------------------------------------------
properties and 1997 1997 1996 1996 1996 1995 1994 1993 1992
percentages --------- --------- --------- --------- -------- -------- -------- -------- --------
OTHER DATA:
EBITDA (3) $ 46,329 $ 21,447 $ 19,486 $60,551 $ 25,820 $ 21,458 $ 21,377 $ 16,881 $ 16,192
Funds From Operations
(4) 46,003 19,988 18,012 60,102 23,809 19,298 19,193 14,764 13,855
Cash flows provided by
(used in):
Operating activities 19,497 16,525 25,695 19,401 17,552 17,471 14,123
Investing activities (22,818) (24,825) (39,074) (53,868) 2,037 (17,393) (9,980)
Financing activities 2,038 7,068 13,204 35,680 (19,596) (278) (6,216)
Total rentable square
footage of properties
at end of period 18,784 9,529 8,547 9,069 7,879 6,253 6,644 6,100
Number of properties at
end of period 127 72 64 67 61 53 57 53
Occupancy rate at end of
period 94% 93% 97% 92% 99% 90% 90% 86%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CABOT PARTNERS (5)
- ------------------
--------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
In thousands --------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 6,818 $ 5,743 $ 7,908 $ 6,516 $ 4,159 $ 4,088 $ 3,618
General and administra-
tive expenses 4,899 4,362 5,888 5,069 4,267 4,074 3,992
Depreciation and amorti-
zation expense 732 315 419 453 474 480 480
Net income (loss) 1,203 1,050 1,594 1,057 (536) (428) (806)
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER
30, AS OF DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
In thousands --------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 5,608 $ 5,925 $ 6,075 $ 5,628 $ 4,300 $ 4,923 $ 5,412
Total liabilities 884 878 485 563 292 379 440
Total partners' capital 4,724 5,047 5,590 5,065 4,008 4,544 4,972
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
In thousands --------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash flows provided by
(used in):
Operating activities $ 1,908 $ 875 $ 1,283 $ 1,351 $ (12) $ (173) $ (269)
Investing activities 41 (37) 113 (6) 40 25 5
Financing activities (2,069) (1,069) (1,069) -- -- -- --
Assets under manage-
ment (6) 1,070,000 941,000 979,000 778,000 515,000 472,000 442,000
</TABLE>
- -------
(1) Represents historical combined financial and other data for the Existing
Investors Property Group for the periods indicated. See Note (1) to Combined
Financial Statements of the Existing Investors Property Group.
(2) Pro forma net income per Common Share equals the pro forma net income
divided by 39,875,000 issued and outstanding Common Shares (assuming the
exchange of all issued and outstanding Units into Common Shares).
(3) EBITDA is computed as operating income before gain on sale of properties
plus interest expense, income taxes, depreciation and amortization. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measure of assessing the operating performance of an
equity REIT because, together with net income and cash flows, EBITDA provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such as
revenues, property operating expenses, real estate taxes and general and admin-
istrative expenses should be considered. See "Management's Discussion and Anal-
ysis of Financial Condition and Results of Operations." Excluded from EBITDA
are financing costs such as interest, as well as depreciation and amortization,
each of which can significantly affect a REIT's results of operations and
liquidity and should be considered in evaluating a REIT's operating perfor-
mance. Further, EBITDA does not represent net income or cash flows from operat-
ing, financing and investing activities as defined by GAAP and does not neces-
sarily indicate that cash flows will be sufficient to fund cash needs. It
should not be considered as an alternative to net income as an indicator of a
REIT's operating performance or to cash flows as a measure of liquidity.
(4) Funds from Operations ("FFO") represents net income before minority inter-
ests and extraordinary items, adjusted for depreciation on real property and
amortization of tenant improvements costs and lease commissions, gains from the
sale of properties. In addition to cash flow and net income, management gener-
ally considers FFO to be one additional measure of the performance of an equity
REIT because, together with net income and cash flows, FFO provides investors
with an additional basis to evaluate the ability of a REIT to incur and service
debt and to fund acquisitions and other capital expenditures. However, FFO does
not measure whether cash flow is sufficient to fund all of an entity's cash
needs including principal amortization, capital improvements and distributions
to stockholders. FFO also does not represent cash generated from operating,
investing or financing activities as determined in accordance with GAAP. It
should not be considered as an alternative to net income as an indicator of a
REIT's operating performance or to cash flows as a measure of liquidity. Fur-
ther, FFO as disclosed by other REITs may not be comparable to the Company's
calculation of FFO. The Company calculates FFO in accordance with the White
Paper on Funds from Operations approved by the Board of Governors of NAREIT in
March 1995 (the "White Paper").
(5) Represents the historical financial and other data of Cabot Partners for
periods prior to the Formation Transactions.
(6) Based on the estimated fair market value of such assets as of the dates
indicated.
13
<PAGE>
RISK FACTORS AND INVESTMENT CONSIDERATIONS
An investment in the Common Shares involves various risks and considerations.
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
making a decision to purchase Common Shares in the Offering.
OFFERING PRICE MAY NOT REFLECT VALUES OF THE PROPERTIES
The value of the Company and the Offering Price have not been determined on
the basis of valuations of the fair market value of the Properties or other
assets, although third-party estimates of derived contribution values were
obtained in August and September 1997 solely to assist Cabot Partners and the
Contributing Investors in determining the relative ownership interests in the
Company to be received by such parties in the Formation Transactions. Rather,
the focus of the valuation of the Company in connection with the negotiation
of the Offering Price between the Company and the Representatives of the
Underwriters has been based on pro forma adjusted FFO, estimated cash avail-
able for distribution, the Company's potential for growth, multiples of pub-
licly traded REITs and the other factors set forth under "Underwriting." Man-
agement believes it is appropriate to value the Company as an ongoing busi-
ness, rather than with a view to values that could be obtained from a liquida-
tion of the Company or of individual assets owned by the Company. Accordingly,
the aggregate market value of the Common Shares offered hereby may exceed the
aggregate fair market value of the proportionate interest in the Properties
and other assets they represent.
RISK OF INABILITY TO SUSTAIN DISTRIBUTION LEVEL
The Company's initial intended distribution level for 1998 is based on a
number of assumptions, including assumptions relating to future operations of
the Company. These assumptions concern, among other matters, continued prop-
erty occupancy and profitability of tenants, the amount of future capital
expenditures and expenses relating to the Company's properties, the level of
leasing activity and future rental rates, the strength of the industrial real
estate market, competition, the costs of compliance with environmental and
other laws, the amount of uninsured losses and decisions by the Company to
reinvest rather than distribute cash available for distribution. The Company
currently expects to maintain its initial distribution level throughout 1998.
A number of the assumptions described above, however, are beyond the control
of the Company. Accordingly, no assurance can be given that the Company will
be able to maintain its initial distribution level beyond such date.
ANTITAKEOVER EFFECTS OF OWNERSHIP LIMIT, STAGGERED BOARD AND POWER TO ISSUE
ADDITIONAL SHARES
Potential Effects of Ownership Limitation. For the Company to maintain its
qualification as a REIT under the Code, not more than 50% in value of the out-
standing shares of beneficial interest of the Company may be owned, directly
or indirectly, by five or fewer persons (defined in the Code to include cer-
tain entities) at any time during the last half of any taxable year other than
the first taxable year for which the election to be treated as a REIT has been
made. See "Federal Income Tax Considerations--Taxation of the Company." For
this purpose, among others, the Company's Declaration of Trust authorizes the
Trustees, subject to certain exceptions, to take such actions as may be neces-
sary or desirable to preserve its qualification as a REIT and to limit any
person to direct or indirect ownership of no more than (i) 9.8% of the
Company's number of issued and outstanding shares of beneficial interest, or
(ii) 9.8% of the total equity value of such shares of beneficial interest (the
"Ownership Limit"). The Company's Board of Trustees, upon receipt of a ruling
from the Service, an opinion of counsel or other evidence satisfactory to the
Board, and upon such other conditions as the Board may establish, may exempt a
proposed transferee from the Ownership Limit. However, the Board may not grant
an exemption from the Ownership Limit to any proposed transferee whose owner-
ship, direct or indirect, of shares of beneficial interest of the Company in
excess of the Ownership Limit would result in the termination of the Company's
status as a REIT. A transfer of shares in violation of the above limits may be
void under certain circumstances. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer." The foregoing restrictions on transfera-
bility and ownership will continue to apply until the Board of Trustees deter-
mines that it is no longer in the best interests of the Company to attempt to
qualify, or to continue to qualify, as a REIT. The Ownership Limit may have
the effect of delaying, deferring or preventing a transaction or a change in
control of the Company that might involve a premium over the then prevailing
market price for the Common Shares or otherwise be in the best interest of the
shareholders. See "Description of Shares of Beneficial Interest--Restrictions
on Transfer."
14
<PAGE>
Potential Effects of Staggered Elections of Trustees. The Company's Board of
Trustees is divided into three classes. The initial terms of the first, second
and third classes will expire in 1998, 1999 and 2000, respectively. Beginning
in 1998, Trustees of each class will be chosen for three-year terms upon the
expiration of their current terms and one class of Trustees will be elected by
the shareholders each year. The staggered terms of the Trustees may reduce the
possibility of a tender offer or an attempt to change control of the Company,
even though a tender offer or change in control might be considered by the
shareholders to be desirable. See "Certain Provisions of Maryland Law and of
the Company's Declaration of Trust and Bylaws--Classification of the Board of
Trustees."
Potential Effects of Issuance of Additional Shares, Other Matters. The
Company's Declaration of Trust authorizes the Board of Trustees to (i) amend
the Declaration of Trust in order to increase or decrease the aggregate number
of shares of beneficial interest of any class, including Common Shares, that
the Company has the authority to issue, without shareholder approval, (ii)
cause the Company to issue additional authorized but unissued shares of benefi-
cial interest, and (iii) classify or reclassify any unissued Common Shares and
Preferred Shares and to set the preferences, rights and other terms of such
shares. See "Description of Shares of Beneficial Interest." Although the Board
of Trustees has no intention to do so at the present time, it will be autho-
rized pursuant to these provisions to establish a class or series of shares of
beneficial interest that could, depending on the terms of such series, delay,
defer or prevent a transaction or a change in control of the Company that might
involve a price for the Common Shares or other attributes that the shareholders
may consider to be desirable. The Declaration of Trust and Bylaws of the Com-
pany also contain other provisions that may have the effect of delaying, defer-
ring or preventing a transaction or a change in control of the Company that
might involve a price for the Common Shares or other attributes that the share-
holders may consider to be desirable. See "Certain Provisions of Maryland Law
and of the Company's Declaration of Trust and Bylaws--Removal of Trustees," "--
Control Share Acquisitions" and "--Advance Notice of Trustee Nominations and
New Business." The Company also may cause the Operating Partnership to offer
additional Units in exchange for property or otherwise. Under Maryland law,
existing shareholders will have no preemptive right to acquire any such equity
securities, and any such issuance of equity securities could result in dilution
of an existing shareholder's investment in the Company.
TAX RISKS
Failure to Qualify as a REIT; Lack of Management Experience in Maintaining
Qualification as a REIT. The Company intends to operate so as to qualify as a
REIT for federal income tax purposes. The Company has not requested, and does
not expect to request, a ruling from the Service that it qualifies as a REIT.
The Company has received an opinion of its legal counsel that, based on certain
assumptions and representations, it so qualifies. Investors should be aware,
however, that opinions of counsel are not binding on the Service or any court.
The REIT qualification opinion only represents the view of counsel to the Com-
pany based on such counsel's review and analysis of existing law, which
includes no controlling precedent. Furthermore, both the validity of the
opinion and the qualification of the Company as a REIT will depend on the
Company's continuing ability to meet various requirements concerning, among
other things, the ownership of its outstanding stock, the nature of its assets,
the sources of its income and the amount of its distributions to its sharehold-
ers. Because management of the Company has no history of operating so as to
qualify as a REIT, there can be no assurance that the Company will do so suc-
cessfully. See "Federal Income Tax Considerations--Taxation of the Company."
If the Company were to fail to qualify as a REIT for any taxable year, the Com-
pany would not be allowed a deduction for distributions to its shareholders in
computing its taxable income and would be subject to federal income tax (in-
cluding any applicable minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under certain Code provisions, the Company
also would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost. As a result, cash
available for distribution would be reduced for each of the years involved.
Although management intends to operate the Company in a manner designed to meet
the REIT qualification requirements, it is possible that future economic, mar-
ket, legal, tax or other considerations may cause the Board of Trustees to
revoke the REIT election. See "Federal Income Tax Considerations."
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be sub-
ject to certain state and local taxes on its income and property, and may be
subject to certain federal taxes. See "Federal Income Tax Considerations--Taxa-
tion of the Company." In addition, the net taxable income, if any, from activi-
ties conducted through the Management Company will be subject to federal and
state income tax.
REIT Minimum Distribution Requirements; Possible Incurrence of Additional
Debt. In order to qualify as a REIT, the Company generally will be required
each year to distribute to its shareholders at least 95% of its net taxable
income (excluding any net capital gain). In addition, the Company will be sub-
ject to a 4% nondeductible excise tax on the amount,
15
<PAGE>
if any, by which certain distributions paid by it with respect to any calendar
year are less than the sum of (i) 85% of its ordinary income for that year,
(ii) 95% of its capital gain net income for that year, and (iii) 100% of its
undistributed taxable income from prior years. The Company intends to make dis-
tributions to its shareholders to comply with the 95% distribution requirement
and to avoid the nondeductible excise tax. The Company's income will consist
primarily of its share of the income of the Operating Partnership, and the cash
available for distribution by the Company to its shareholders will consist of
its share of cash distributions from the Operating Partnership. Differences in
timing between (i) the actual receipt of income and actual payment of deduct-
ible expenses, and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company could require the Company
to borrow funds on a short-term basis to meet the 95% distribution requirement
and to avoid the nondeductible excise tax.
Pension-Held REIT. The Company may constitute a "pension-held REIT" immediately
after the closing of Offering or may become one as a result of subsequent
market purchases of Common Shares by pension funds after the closing of the
Offering . If the Company becomes a pension-held REIT, certain types of
borrowings or other activities, if engaged in by the Company, would result in a
portion of dividends received by any qualified pension plan owning more than
10% in value of the Company's shares, being taxable to such plan as unrelated
business taxable income.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of rental income earned and capital appreciation gen-
erated, as well as property operating and other expenses incurred. If the
Company's properties do not generate revenues sufficient to meet operating
expenses, including debt service, tenant improvements, leasing commissions and
other capital expenditures, the Company may have to borrow additional amounts
to cover fixed costs, and the Company's cash flow and ability to make distribu-
tions to its shareholders may be adversely affected.
The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including (i) the national, state and local
economic climate and real estate conditions (such as oversupply of or reduced
demand for space and changes in market rental rates), (ii) the perceptions of
prospective tenants of the attractiveness, convenience and safety of the
Company's properties, (iii) the ability of the Company to provide adequate man-
agement, maintenance and insurance, (iv) the ability to collect all rent from
tenants on a timely basis, (v) the expense of periodically renovating,
repairing and reletting spaces, and (vi) increasing operating costs (including
real estate taxes and utilities) to the extent that such increased costs cannot
be passed through to tenants. Certain significant costs associated with invest-
ments in real estate (such as mortgage payments, real estate taxes, insurance
and maintenance costs) generally are not reduced when circumstances cause a
reduction in rental revenues from the property and vacancies result in loss of
the ability to receive tenant reimbursements of operating costs customarily
borne by industrial real estate tenants. In addition, real estate values and
income from properties are also affected by such factors as compliance with
laws applicable to real property, including environmental and tax laws,
interest rate levels and the availability of financing. Furthermore, the amount
of available rentable square feet of commercial property is often affected by
market conditions and may therefore fluctuate over time.
Tenant Defaults and Bankruptcy. A significant portion of the Company's income
will be derived from rental income from its properties. The Company's distrib-
utable cash flow and ability to make expected distributions to shareholders
would be adversely affected if a significant number of its tenants failed to
meet their lease obligations. Tenants may seek the protection of the bankruptcy
laws, which could result in delays in rental payments or in the rejection and
termination of such tenant's lease and thereby cause a reduction in the
Company's cash flow and the amounts available for distribution to its share-
holders. No assurance can be given that tenants will not file for bankruptcy
protection in the future or, if any tenants file, that they will affirm their
leases and continue to make rental payments in a timely manner. In addition, a
tenant from time to time may experience a downturn in its business which may
weaken its financial condition and result in the failure to make rental pay-
ments when due. If tenant leases are not affirmed following bankruptcy or if a
tenant's financial condition weakens, the Company's cash flow and the amounts
available for distribution to its shareholders may be adversely affected.
Operating Risks. The Company's properties will be subject to operating risks
common to commercial real estate in general, any and all of which may adversely
affect occupancy and rental rates. Such properties will be subject to increases
in operating expenses such as cleaning, electricity, heating, ventilation and
air conditioning and maintenance, insurance and administrative costs, and other
general costs associated with security, landscaping, repairs and maintenance.
While the Company's current tenants generally are obligated to pay a portion of
these escalating costs, there can be no assurance that tenants will agree to
pay all or a portion of such costs upon renewal or that new tenants will agree
to pay such costs. If operating expenses increase, the local rental market may
limit the extent to which rents may be increased to meet
16
<PAGE>
increased expenses without decreasing occupancy rates. Although the Company
intends to implement cost-saving incentive measures at its properties, the
Company's ability to make distributions to shareholders could be adversely
affected if operating expenses increase without a corresponding increase in
revenues, including tenant reimbursements of operating costs.
Risks of Non-Renewal of Leases and Vacancies. The Company will be subject to
the risk that upon expiration of leases for space located in its properties,
the leases may not be renewed, the space may not be relet or the terms of
renewal or reletting (including the cost of required renovations) may be less
favorable than expiring lease terms. Leases accounting for approximately 13.2%
of the Company's Annualized Base Rent will expire in 1998. The Company has
established annual reserves for renovation and reletting expenses, which take
into consideration its views of both the current and expected business condi-
tions in the appropriate markets, but no assurance can be given that these
reserves will be sufficient to cover such expenses. If the Company were unable
to promptly relet or renew the leases for all or a substantial portion of the
Company's space, if the rental rates upon such renewal or reletting were sig-
nificantly lower than expected rates or if its reserves for these purposes
proved inadequate, then the Company's cash flow and ability to make expected
distributions to shareholders may be adversely affected.
Competition; Risk of Not Meeting Targeted Level of Leasing Activity, Acquisi-
tions and Development. Numerous industrial properties compete with the Proper-
ties in attracting tenants to lease space and additional properties can be
expected to be built in the markets in which the Company's properties are
located. The number and quality of competitive industrial properties in a par-
ticular area will have a material effect on the Company's ability to lease
space at the Properties or at newly acquired properties and on the rents
charged. Some of these competing properties may be newer or better located than
the Company's properties. In addition, the industrial real estate market has
become highly competitive. There are a significant number of buyers of indus-
trial property, including other publicly traded industrial REITs, many of which
have significant financial resources. This has resulted in increased competi-
tion in acquiring attractive industrial properties. See "--Real Estate Invest-
ment Risks--Risks Associated with Acquisition, Development and Construction
Activities." Accordingly, it is possible that the Company may not be able to
meet its targeted level of property acquisitions and developments due to such
competition or other factors which may have an adverse effect on the Company's
expected growth in FFO.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was respon-
sible for, the presence of such hazardous or toxic substances. In addition, the
presence of hazardous or toxic substances, or the failure to remediate such
property properly, may adversely affect the owner's ability to borrow using
such real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of hazardous substances at the disposal or treatment
facility, whether or not such facility is or ever was owned or operated by such
person. Certain environmental laws and common law principles could be used to
impose liability for release of and exposure to hazardous substances, including
asbestos-containing materials ("ACMs"), into the air, and third parties may
seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released haz-
ardous substances, including ACMs. As the owner of real properties, the Company
may be potentially liable for any such costs. Environmental site assessment
reports ("ESAs") were obtained in connection with the initial acquisition of
the Properties by the Contributing Investors, for those Properties managed by
Cabot Partners as of September 30, 1997, and, for all other Properties, in con-
nection with their contribution to the Company in the Formation Transactions.
The earliest of such ESAs were obtained in 1988 and ESAs on approximately 40%
of the Properties were obtained prior to 1995. Commonly accepted standards and
procedures for such ESAs have evolved to encompass higher standards and more
extensive procedures over the period from 1988 to the present. The purpose of
ESAs is to identify potential sources of contamination for which the Company
may be responsible and to assess the status of environmental regulatory compli-
ance. Where recommended in the ESA, invasive procedures, such as soil sampling
and testing or the installation and monitoring of groundwater wells, were sub-
sequently performed.
The ESAs, including subsequent procedures where applicable, have not revealed
any environmental liability that the Company believes would have a material
adverse affect on the Company's business, assets or results of operations, nor
is the Company aware of any such material environmental liability. Neverthe-
less, it is possible that the ESAs relating to any one of the Properties do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no assur-
ance that (i) future laws, ordinances or regulations will not impose any mate-
rial environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or opera-
tions in the vicinity of the Properties (such as the presence of underground
storage tanks) or by third parties unrelated to the Company.
17
<PAGE>
Effect of Americans with Disabilities Act Compliance on Cash Flow and
Distributions. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations and commercial facilities are required to meet cer-
tain federal requirements related to access and use by disabled persons.
Existing industrial properties generally are exempt from the provisions of the
ADA but may be subject to provisions requiring that buildings be made acces-
sible to people with disabilities. Compliance with the ADA requirements could
require removal of access barriers, and non-compliance could result in imposi-
tion of fines by the U.S. government or an award of damages to private liti-
gants. While the amounts of such compliance costs, if any, are not currently
ascertainable, they are not expected to have a material effect on the Company.
Changes in Laws. Because increases in income or service taxes generally are
not passed through to tenants under leases, such increases may adversely
affect the Company's cash flow and its ability to make distributions to share-
holders. The Company's properties also are subject to various federal, state
and local regulatory requirements and to state and local fire and life-safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to pri-
vate litigants. The Company believes that the Properties currently are in
material compliance with all such regulatory requirements. However, there can
be no assurance that these requirements will not be changed or that new
requirements will not be imposed which would require significant unanticipated
expenditures by the Company and could have an adverse effect on the Company's
cash flow and ability to make expected distributions to shareholders.
Uninsured Losses. The Company will generally carry commercial general lia-
bility insurance, standard "all-risk" property insurance, and flood and earth-
quake (where appropriate) and rental loss insurance with respect to its prop-
erties with policy terms and conditions customarily carried for similar prop-
erties. No assurance can be given, however, that material losses in excess of
insurance proceeds will not occur in the future which would adversely affect
the business of the Company and its financial condition and results of opera-
tions. In addition, certain types of losses (such as from wars or from earth-
quakes for properties located in California) may be either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a prop-
erty, as well as the anticipated future revenue from such property, and would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property. With certain exceptions, the Company does not carry
earthquake insurance on the Properties located in California. In light of the
California earthquake risk, California building codes have since the early
1970's established construction standards for all new buildings and also con-
tain guidelines for seismic upgrading of buildings intended to reduce the pos-
sibility and severity of loss from earthquakes. It is the Company's policy to
obtain assessments from qualified third-party professionals of the seismic
standards of its properties located in California and to conduct such seismic
upgrading thereof as it determines, on the basis of such third-party assess-
ments, to be appropriate. Such upgrading, however, does not eliminate the pos-
sibility of earthquake loss. In addition, such upgrading with respect to a
number of such Properties is at various stages of completion as of the date
hereof, ranging from initial plan review to partial completion of construc-
tion. Of the Company's 32 Properties located in California, 13 are covered by
earthquake insurance. Seismic upgrading has been completed on four of the
Properties located in California and is expected to be completed with respect
to its remaining Properties located in California within 12 months from date
hereof. The Company currently maintains blanket earthquake insurance coverage
for all Properties located outside California in amounts it deems reasonable.
Risks Associated with Illiquidity of Real Estate. Equity real estate invest-
ments are relatively illiquid. Such illiquidity will tend to limit the ability
of the Company to vary its portfolio promptly in response to changes in eco-
nomic or other conditions. In addition, the Code limits the ability of a REIT
to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Shares.
Risks Associated with Acquisition, Development and Construction
Activities. The Company intends to acquire existing industrial properties to
the extent that they can be acquired on advantageous terms and meet the
Company's investment criteria. See "Business and Growth Strategies--Growth
Strategies--Acquisitions." Acquisitions of such properties entail general
investment risks associated with any real estate investment, including the
risk that investments will fail to perform in accordance with expectations or
that estimates of the costs of improvements to bring an acquired property up
to the Company's standards may prove inaccurate.
The Company also intends to grow through the selective development and con-
struction of industrial properties, including build-to-suit properties and
speculative development, as suitable opportunities arise. See "The Company--
Business Strategies and Operations." Additional risks associated with such
real estate development and construction activities include the risk that the
Company may abandon development activities after expending significant
resources to determine their feasibility; the construction cost of a project
may exceed original estimates; occupancy rates and rents at a newly completed
property may not be sufficient to make the property profitable; financing may
not be available on favorable terms for development of a property; and the
construction and lease up of a property may not be completed on schedule (re-
sulting in
18
<PAGE>
increased debt service and construction costs). Development activities are also
subject to risks relating to inability to obtain, or delays in obtaining, nec-
essary zoning, land-use, building occupancy and other required governmental
permits and authorizations. If any of the above occur, the Company's cash flow
and ability to make expected distributions to shareholders could be adversely
affected. In addition, new development activities, regardless of whether they
are ultimately successful, may require a substantial portion of management's
time and attention.
Risk of Reassessment. Certain local real property tax assessors may seek to
reassess certain of the Properties as a result of the Formation Transactions
and the transfer of interests to occur in connection therewith. In jurisdic-
tions such as California, where Proposition 13 limits the assessor's ability to
reassess real property so long as there is no change in ownership, the assessed
value could increase by as much as the full value of any appreciation that has
occurred during the Contributing Investors' period of ownership. Where appro-
priate, the Company would contest vigorously any such reassessment. Certain of
the current leases may permit the Company to pass through to tenants a portion
of the effect of any increases in real estate taxes resulting from any such
reassessment.
CONFLICTS OF INTEREST IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY
Benefits to the Cabot Group Participants and the Contributing Investors. The
Cabot Group Participants and the other Contributing Investors will receive cer-
tain benefits from the Formation Transactions. As such, these persons may have
interests that differ from, and may in certain cases conflict with, the inter-
ests of persons acquiring Common Shares in the Offering. The benefits the Cabot
Group Participants and the other Contributing Investors will receive might have
been different if they had not participated in structuring the Formation Trans-
actions. These benefits include the following: (i) receipt by certain of the
Cabot Group Participants, as officers and Trustees of the Company, of options
to purchase an aggregate of Common Shares under the Company's Long Term
Incentive Plan at the Offering Price, subject to certain vesting requirements,
which will have an aggregate purchase price of approximately $ million based
on the Offering Price, (ii) deferral of certain tax consequences to the Cabot
Group Participants from the contribution of their interests in Cabot Partners
and the interests of the C-M Property Partnerships in certain Properties to the
Operating Partnership, and (iii) the Operating Partnership's assumption and
repayment from the proceeds of the Offering of approximately $18.7 million and
$13.4 million, respectively, in debt relating to the Properties beneficially
owned by the Cabot Group Participants. See "Certain Relationships and Transac-
tions--Benefits to Related Parties," "Use of Proceeds" and "Management--Long
Term Incentive Plan."
Immediate Dilution. The Properties and other assets to be contributed by the
Cabot Group Participants and the other Contributing Investors in exchange for
Units and Common Shares have a pro forma net tangible book value of $18.93 per
Common Share as of September 30, 1997. The pro forma net tangible book value
per share of the assets of the Company after the Offering will be substantially
less than the Offering Price per share. Accordingly, purchasers of the Common
Shares offered hereby will experience an immediate dilution of $1.25 per Common
Share in the net tangible book value of the Common Shares based on the Offering
Price. See "Dilution."
Limitations on Representations and Warranties. The Contributing Investors and
Cabot Partners have each made certain representations and warranties to the
Company in the Contribution Agreement entered into among the parties in connec-
tion with the Formation Transactions. Such representations and warranties,
which in the case of environmental matters and certain other matters are lim-
ited to the knowledge of specified entities and persons, relate to, among other
things, their authority to enter into the Formation Transactions, their owner-
ship of the Properties or other assets to be contributed by them, the absence
of certain liabilities and other matters relating to the Properties and such
assets. The respective obligations of each Contributing Investor and of Cabot
Partners to indemnify the Company in the event of breach of any of such repre-
sentations and warranties, or breach of certain other provisions of the Contri-
bution Agreement or under certain other circumstances, is subject to an overall
limitation under the Contribution Agreement equal to the value (based on the
Offering Price) of the Units or Common Shares received in the Formation Trans-
actions (or in lieu thereof, the return to the Company of all such Units or
Common Shares received), and is subject to the further limitation that any such
indemnification obligation relating to a specific Property is limited to the
contribution amount assigned to such Property by the parties in connection with
the Formation Transactions. The obligation to make any such indemnification
payments may be satisfied by making cash payments or by delivering Common
Shares or Units, valued at the then market price for Common Shares, to the Com-
pany. In addition, such indemnification obligations are, with certain limited
exceptions, limited to claims for indemnification made within one year after
the consummation of the Formation Transactions. Any losses to the Company
resulting from breaches of such representations and warranties or other provi-
sions of the Contribution Agreement in excess of the foregoing indemnification
limitations would have to be satisfied out of the Company's assets, with the
potential consequences of adversely affecting the Company's financial condition
and of decreasing cash available for distribution to the shareholders.
19
<PAGE>
Enforcement of Terms of Contribution and Other Agreements. The Cabot Group Par-
ticipants, some of whom are Trustees and executive officers of the Company, and
the other Contributing Investors each, directly or indirectly, have ownership
interests in certain of the Properties and in the other assets to be acquired
by the Company. Following the closing of the Offering and consummation of the
Formation Transactions, the Company, under the agreements relating to the con-
tribution of the Properties and such other assets, will be entitled to indemni-
fication and damages in the event of breaches of certain of the terms thereof.
Due to conflicts of interest or in order to maintain an ongoing business rela-
tionship with the entity or individual involved, such officers and Trustees may
cause the Company to choose to enforce its rights under any of these contribu-
tion agreements and to pursue available remedies, such as actions for damages
or injunctive relief, less vigorously than it otherwise might.
Differing Objectives Between the Cabot Group Participants and the Company
Relating to the Sale of the Properties. As holders of Units, the Cabot Group
Participants will have unrealized taxable gain associated with their interests
in certain Properties contributed to the Operating Partnership. Because the
Cabot Group Participants may incur different and more adverse tax consequences
than the Company upon the sale of those Properties, the Cabot Group Partici-
pants and the Company may have different views regarding the appropriate
pricing and timing of any sale of such Properties. While the Company has the
exclusive authority as to whether and on what terms to sell an individual Prop-
erty, the Cabot Group Participants through their status as holders of Units and
senior executives and Trustees of the Company may influence the Company not to
sell certain Properties even though such event might otherwise be financially
advantageous to the Company. See "Policies With Respect to Certain Activities--
Conflict of Interest Policies."
Influence of Significant Shareholders, Trustees and Executive Officers. Upon
the closing of the Offering, the IBM Retirement Plan Trust and Pennsylvania
Public School Employes' Retirement System will be deemed beneficially to own
approximately 26.5% and 14.2%, respectively, of the outstanding Common Shares
(assuming the exchange of all Units for Common Shares). In addition, the senior
management of the Company will beneficially own approximately 4.2% of the out-
standing Common Shares (assuming the exchange of all Units for Common Shares).
The foregoing Contributing Investors and senior management both as shareholders
and management will have influence on the management and operations of the
Company and the outcome of matters submitted to a vote of the Company's
shareholders. Such influence might be exercised in a manner that is
inconsistent with the interests of other shareholders.
Risks Relating to the Operating Partnership. Persons holding Units in the Oper-
ating Partnership (including the Cabot Group Participants) will have the right
to vote, as limited partners of the Operating Partnership ("Limited Partners"),
on certain amendments to the Operating Partnership Agreement (most of which
require approval by a majority in interest of the Limited Partners), on certain
matters involving the Company (such as a merger of the Company or an amendment
to the Declaration of Trust that requires the approval of the Company's share-
holders), see "Partnership Agreement of Operating Partnership--Management," and
individually to approve certain amendments that would adversely affect their
rights, which may be exercised in a manner that conflicts with the interests of
the Company's shareholders. After the Offering, the Company, as the general
partner of the Operating Partnership, may have fiduciary duties to the Limited
Partners, the discharge of which may conflict with interests of the Company's
shareholders. Pursuant to the Operating Partnership Agreement, however, the
Limited Partners have acknowledged that the Company is acting both on behalf of
the Company's shareholders and, in its capacity as general partner of the Oper-
ating Partnership, on behalf of the Limited Partners. The Limited Partners have
agreed that the Company is under no obligation to consider the separate inter-
ests of the Limited Partners in deciding whether to cause the Operating Part-
nership to take (or decline to take) any actions which the General Partner has
taken in good faith on behalf of the Operating Partnership.
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES
Prior to the Offering, there has been no public market for the Common Shares
and there can be no assurance that an active trading market will develop or be
sustained or that Common Shares will be resold at or above the Offering Price.
The Company has applied for listing of the Common Shares on the NYSE. The
Offering Price has been determined by agreement between the Company and the
Representatives of the Underwriters and may not be indicative of the market
price for the Common Shares after the Offering. See "Formation Transactions--
Contribution Amounts of the Properties and Cabot Partners" and "Underwriting."
The market value of the Common Shares could be substantially affected by gen-
eral market conditions, including changes in interest rates. Moreover, numerous
other factors, such as regulatory action and changes in tax laws, could have a
significant impact on the future market price of the Common Shares. There also
can be no assurances that, following listing, the Company will continue to meet
the criteria for continued listing of the Common Shares on the NYSE.
20
<PAGE>
POSSIBLE ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES
One of the factors that is expected to influence the market price of the Common
Shares is the annual distribution rate on the Common Shares. An increase in
market interest rates may lead prospective purchasers of the Common Shares to
demand a higher annual distribution rate from future distributions. Such an
increase in the required distribution rate may adversely affect the market
price of the Common Shares.
POSSIBLE ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE SALE ON PRICE OF COMMON
SHARES
Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect prevailing market prices of the
Common Shares. In addition to the Common Shares offered by the Company in the
Offering, the Company will issue 23,735,183 Units and 9,233,080 Common Shares
to the Contributing Investors (not including the C-M Property Partnerships, but
including partners of Cabot Partners who are not Cabot Group Participants) and
1,906,737 Units to the Cabot Group Participants and the C-M Property Partner-
ships in the Formation Transactions. See "Formation Transactions." The Contrib-
uting Investors and the Cabot Group Participants will not be permitted to
offer, sell, contract to sell or otherwise dispose of the Units or Common
Shares, except in certain limited circumstances, for one year after the closing
of the Offering, or two years thereafter in the case of the partners of Cabot
Partners and of C-M Holdings. See "Shares Available for Future Sale." At the
conclusion of such period, and, in the case of Units, upon the subsequent
exchange of Units for Common Shares, the Common Shares received therefor may be
sold in the public market pursuant to shelf registration statements which the
Company is obligated to file on behalf of the Contributing Investors and the
Cabot Group Participants or pursuant to any available exemptions from registra-
tion.
In addition, options to purchase a total of Common Shares will be granted
to certain executive officers, employees and Trustees upon the closing of the
Offering. See "Management--Compensation of Trustees" and "--Long Term Incentive
Plan." No prediction can be made concerning the effect that future sales of any
of such Common Shares will have on the market price of Common Shares.
ERISA RISKS
ERISA and section 4975 of the Code prohibit certain transactions that involve
an ERISA plan and a "party in interest" or "disqualified person" (collectively
referred to herein as a "party in interest") with respect to the plan. Cabot
Partners is a party in interest with respect to one ERISA plan that is a Con-
tributing Investor. It is not clear that the Formation Transactions would con-
stitute a prohibited transaction with respect to such plan. Nevertheless, such
plan has informed the Company that it is relying on Prohibited Transaction
Exemption 84-14 ("PTE 84-14") and has retained a Qualified Professional Asset
Manager ("QPAM") to decide whether or not to enter into the Formation Transac-
tions. If it were ultimately determined that the Formation Transactions consti-
tute a prohibited transaction, and also that PTE 84-14 does not apply to such
plan's participation in the Formation Transactions, then sanctions could be
imposed on Cabot Partners and the fiduciaries of such plan that could include
reallocation of Units between Cabot Partners and such plan or other remedies,
possibly including rescission of the Property transfers from such plan,
intended to put such plan in a financial position not worse than that in which
it would have been if the parties had acted in accordance with the requirements
of ERISA. Cabot Partners and the Company have received an opinion from Mayer,
Brown & Platt that PTE 84-14 applies to the Formation Transactions with respect
to such plan; however, such opinion is not binding on the Department of Labor,
the Service or any court. See "ERISA Considerations."
RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF NEW PROPERTIES; LACK OF
OPERATING HISTORY
Certain of the Properties acquired by the Company in the Formation Transactions
have not previously been, or only recently have been, under the management of
the Company or its predecessors. Such Properties, in addition to properties
acquired in the future, may have characteristics or deficiencies unknown to the
Company affecting their valuation or revenue potential, and the operating per-
formance of such Properties may therefore decline. As the Company acquires
additional properties, the Company will be subject to risks associated with
managing new properties, including lease-up and tenant retention. In addition,
the Company's ability to manage its growth effectively will require it to suc-
cessfully integrate its new acquisitions into its existing management struc-
ture.
21
<PAGE>
REAL ESTATE FINANCING RISKS
Debt Financing and Potential Adverse Effects on Cash Flows and
Distributions. Upon the consummation of the Formation Transactions and the
closing of the Offering, the Company expects to have no material outstanding
debt.As a result, among other things, of the annual income distribution
requirements applicable to REITs under the Code; however, the Company will be
required to rely on borrowings and other external sources of financing to fund
the costs of new property acquisitions, capital expenditures and other items.
Accordingly, the Company will be subject to real estate financing risks,
including changes from period to period in the availability of such financing,
the risk that the Company's cash flow may not be sufficient to cover both
required debt service payments and distributions to shareholders, and the risk
that indebtedness secured by properties will not be able to be refinanced or
that the terms of such refinancing will not be as favorable as the terms of
existing indebtedness. If the Company becomes unable to meet its required mort-
gage payment obligations, the property or properties subject to such mortgage
indebtedness could be foreclosed upon by or otherwise transferred to the mort-
gagee, with a consequent loss of income and asset value to the Company.
Rising Interest Rates. The Acquisition Facility that the Company is currently
negotiating will bear interest at variable rates, and the Company may incur
additional variable rate indebtedness in the future. Variable-rate debt creates
higher debt service requirements if market interest rates increase, which would
adversely affect the Company's cash flow and the amounts available for distri-
bution to its shareholders. In such event, the Company may in the future engage
in transactions to limit its exposure to rising interest rates as appropriate
and cost effective.
POSSIBLE CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL; NO LIMITATION ON
DEBT
The Company's investment, financing and distribution policies, and its policies
with respect to all other activities, including growth, capitalization and
operations, will be determined by the Board of Trustees. The Company's "Debt
Limitation" described elsewhere in this Prospectus is a policy limiting the
Company's Debt-to-Total Market Capitalization Ratio to 40%, but the organiza-
tional documents of the Company do not contain any limitation on the amount of
indebtedness the Company may incur. Although the Company's Board of Trustees
has no present intention to do so, these policies may be amended or revised at
any time and from time to time at the discretion of the Board of Trustees
without a vote of the shareholders of the Company. A change in these policies
could adversely affect the Company's financial condition, results of operations
or the market price of the Common Shares. See "Policies with Respect to Certain
Activities."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers, including,
Ferdinand Colloredo-Mansfeld and Robert E. Patterson, the Company's Chief Exec-
utive Officer and President, respectively. The loss of either of their services
could have an adverse effect on the operations of the Company.
RISKS ASSOCIATED WITH RELIANCE ON FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking statements" relating to, without lim-
itation, future economic performance, plans and objectives of management for
future operations and projections of revenue and other financial items, which
can be identified by the use of forward-looking terminology such as "may,"
"will," "should," "expect," "anticipate," "estimate," "believe" or "continue"
or the negative thereof or other variations thereon or comparable terminology.
The Company's actual results may differ significantly from the results dis-
cussed in such "forward-looking statements." Factors that could cause such dif-
ferences include, but are not limited to, the risks described in this Risk Fac-
tors and Investment Considerations section of the Prospectus.
22
<PAGE>
THE COMPANY
GENERAL
The Company is an internally managed, fully integrated real estate company that
was formed to continue and expand the national industrial real estate business
of Cabot Partners. Upon the closing of the Offering, the Company will be one of
the largest industrial property REITs, with a portfolio of 127 Properties con-
taining approximately 19 million rentable square feet located in 21 states
throughout the country. At September 30, 1997, the Properties were approxi-
mately 94% leased to 217 tenants. As of November 18, 1997, no single tenant
accounted for more than 3.9% of the Company's total Annualized Base Rent.
Approximately 96% of the Company's properties are located in the top 15% of the
nation's 273 industrial markets, as ranked by Cognetics on the basis of pro-
jected demand for industrial property space.
The Company's goal is to be the preeminent national real estate company focused
on serving a broad spectrum of industrial space users. The Company currently
owns and operates a diversified portfolio of properties and has a significant
market presence across the United States, owning properties in a total of 20
markets and owning Properties with approximately one million or more rentable
square feet in seven of such markets. Its tenant base ranges from large
national distributors using bulk warehouse and other types of industrial space
in multiple locations to small companies located in single flexible workspace
properties. The Properties are within overnight trucking access (a 500-mile
radius) to 90% of the country's population. The Company believes that its geo-
graphic diversification and substantial presence in multiple markets is a stra-
tegic advantage that allows it (i) to serve industrial space users with mul-
tiple site and industrial property type requirements, (ii) compete more effec-
tively in its individual markets, and (iii) respond quickly to acquisition
opportunities in markets across the country.
The Company's markets, together with information summarizing its property hold-
ings in each market, are presented in the following table as of September 30,
1997.
<TABLE>
<CAPTION>
----------------------------------------------------------
NUMBER RENTABLE SQUARE FEET ANNUALIZED NET RENT
OF --------------------- ------------------------
BY REGION(1) PROPERTIES NUMBER % OF TOTAL AMOUNT % OF TOTAL
- ------------ ---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
WESTERN REGION
San Francisco 18 819,869 4.4% $ 3,773,553 5.8%
Los Angeles 14 2,186,946 11.6 7,365,666 11.3
Phoenix 5 946,503 5.0 2,233,060 3.4
Seattle 5 402,760 2.2 1,865,556 2.8
---------- ---------- ---------- ------------ -----------
Subtotal Western Region 42 4,356,078 23.2% $15,237,835 23.3%
---------- ---------- ---------- ------------ -----------
SOUTHWEST REGION
Dallas 6 787,870 4.2% $ 2,328,738 3.6%
---------- ---------- ---------- ------------ -----------
MIDWEST REGION
Chicago 12 2,582,328 13.7% $ 9,208,467 14.1%
Cincinnati/Northern
Kentucky 8 1,524,992 8.1 4,542,479 6.9
Columbus 9 1,609,599 8.6 4,669,456 7.1
Other 3 598,232 3.2 1,779,154 2.7
---------- ---------- ---------- ------------ -----------
Subtotal Midwest Region 32 6,315,151 33.6% $20,199,556 30.8%
---------- ---------- ---------- ------------ -----------
SOUTHEAST REGION
Orlando 12 1,843,907 9.8% $ 5,970,453 9.1%
Memphis 1 336,080 1.8 778,522 1.2
Atlanta 1 231,835 1.2 555,924 0.9
Charlotte 3 359,530 1.9 1,304,227 2.0
Other 1 160,000 0.9 671,386 1.0
---------- ---------- ---------- ------------ -----------
Subtotal Southeast
Region 18 2,931,352 15.6% 9,280,512 14.2%
---------- ---------- ---------- ------------ -----------
NORTHEAST REGION
Boston 3 208,197 1.1% $ 1,059,407 1.6%
New York/New Jersey 15 3,265,090 17.4 12,877,226 19.7
Baltimore/Washington,
D.C. 10 882,170 4.7 4,156,642 6.4
Other 1 37,800 0.2 248,970 0.4
---------- ---------- ---------- ------------ -----------
Subtotal Northeast
Region 29 4,393,257 23.4% $18,342,245 28.1%
---------- ---------- ---------- ------------ -----------
TOTAL 127 18,783,708 100.0% $65,388,886 100.0%
========== ========== ========== ============ ===========
</TABLE>
- -------
(1) References to specific cities include suburban portions of the relevant
metropolitan areas.
23
<PAGE>
The Company offers a variety of industrial property types to meet the diverse
needs of its tenants. The Company classifies its properties into three general
categories: bulk distribution properties, multitenant distribution properties
and workspace properties (light assembly and flex/R&D). The following table
provides information concerning the general characteristics, and the Company's
holdings, of each of these property types as of September 30, 1997.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT
--------------------- -----------------------------------
PER LEASED
PROPERTY TYPE PROPERTY CHARACTERISTICS NUMBER % OF TOTAL AMOUNT % OF TOTAL SQUARE FOOT
- ------------- ------------------------ ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bulk Distribution Buildings
configured for
large tenants
(generally at least
100,000 square
feet; building
depths of 240 feet
or more) 9,178,591 49% $27,311,375 42% $3.23
Multitenant Distribution Buildings
configured for
multitenant use
(generally tenant
sizes of 10,000-
100,000 square
feet; building
depths of less than
240 feet) 6,716,569 36% $24,006,623 37% $3.71
Workspace Light assembly and
flex/R&D (generally
tenant sizes of
3,000-70,000 square
feet) 2,888,598 15% $14,070,888 21% $5.08
---------- ========= ----------- --------- ----------
Total/weighted average 18,783,708 100% $65,388,886 100% $3.70
========== ========= =========== ========= ==========
</TABLE>
The Company's principal growth strategy is to acquire modern, high-quality
industrial properties in attractive submarkets within the markets it currently
serves. Cabot Partners completed the acquisition of approximately $251 million
and $191 million of industrial properties on behalf of its clients in 1995 and
1996, respectively. Cabot Partners expects to acquire $275 million of indus-
trial properties on behalf of its clients in 1997, $223 million of which acqui-
sitions had been completed, and approximately $52 million of which acquisitions
were under contract, as of November 24, 1997.
Cabot Partners has during 1997 negotiated the contribution to the Company in
the Formation Transactions of approximately $270 million of industrial proper-
ties not previously owned by its advisory clients. In addition, the Company has
a contract to purchase four properties for an aggregate purchase price of
approximately $9.2 million. This purchase is expected to close shortly fol-
lowing the completion of the Offering.
The senior management of the Company has an average of approximately 18 years
experience in the real estate industry and will beneficially own 4.2% of the
Company's fully diluted common equity upon the closing of the Offering. Members
of the Company's senior management have worked together since 1987 as the exec-
utive officers of Cabot Partners and Cabot Advisors. Cabot Advisors was founded
as an affiliate of CC&F, a nationwide real estate development, investment, con-
struction and management firm established in 1904. CC&F pioneered the develop-
ment of large-scale planned industrial parks in suburban areas along major
highways and built, leased and managed over 100 million square feet of office
and industrial space in 80 industrial business parks throughout the United
States. In 1990, Ferdinand Colloredo-Mansfeld, the Chief Executive Officer of
Cabot Partners, who was also the Chief Executive Officer of CC&F from 1976 to
1989, and other senior managers of CC&F formed Cabot Partners as a separate
entity to purchase the real estate advisory and management business of Cabot
Advisors. Cabot Partners was established as a registered investment advisor to
provide real estate investment services primarily to public and private pension
funds and others.
The Company is organized as a REIT under the laws of Maryland and expects to
qualify as a REIT for federal income tax purposes. See "Federal Income Tax Con-
siderations." The Company's principal executive offices are located at Two
Center Plaza, Suite 200, Boston, Massachusetts 02108, and its telephone number
is (617) 723-0900.
24
<PAGE>
INDUSTRIAL REAL ESTATE BUSINESS
Attractive Real Estate Sector
The industrial sector of the real estate market has historically generated a
high level of cash income and attractive annual rates of return as compared
with other types of real estate investments. Industrial properties tend to be
less costly to manage and require lower amounts of capital expenditures and
tenant-specific improvement costs. Such properties provide generic storage and
work space suitable for and adaptable to a broad range of tenants and uses.
Industrial properties also generally require shorter development periods as
compared with other commercial property types, such as office buildings, which
enables better balancing of supply and demand for such properties and reduces
risk of overbuilding.
[GRAPH APPEARS HERE]
Label A B C D E F
Label Industrial R&D Retail All Apartment Office
1 9.6 9.3 8.6 8.3 7.5 6.9
* Annual Returns are for first quarter 1978 (except apartment since 1984)
through second quarter 1997.
Source: NCREIF.
Strong Demand
The Company believes that the demand for desirable, well-located industrial
properties will continue to be strong and support increasing rents due to the
following factors: (i) increasing consumption on a per capita basis, coupled
with population growth, (ii) business' increasing need for efficient inventory
management, (iii) growing international trade, and (iv) the growing signifi-
cance of smaller business establishments (according to Cognetics, smaller busi-
ness establishments with fewer than 100 employees now account for 47% of all
jobs and are projected to account for 67% of all new jobs projected to be cre-
ated during the period from 1997 to 2002), which are increasingly looking for
efficient and flexible work space in well located suburban industrial parks.
Nationwide, the demand for distribution and workspace property space during the
period from 1997 to 2002 is projected by Cognetics to increase over existing
levels by approximately 791 million square feet, consisting of approximately
598 million square feet for distribution properties and approximately 193 mil-
lion square feet for other industrial property types. The Company believes that
much of the available supply of industrial property is functionally obsolete
and is at a significant competitive disadvantage to modern, well-designed types
of facilities. Older facilities often do not have the modern design configura-
tions required to satisfy current truck handling and efficiency standards of
major distributors and third-party logistics companies. Approximately 40% of
existing warehouse facilities in the Company's principal markets were built
prior to 1970 (excluding Memphis for which no information was provided) and
approximately 64% were built before 1980 according to CB Commercial Real Estate
Group, Inc./Torto Wheaton Research ("CB Commercial/Torto Wheaton Research").
Industry Consolidation
The historically fragmented industrial real estate business is being reshaped
by strong pressures toward consolidation resulting from the substantial advan-
tages enjoyed by large, integrated and well capitalized firms over local owners
and developers. These advantages include professional management, greater
access to public and private capital, economies of scale and greater opportuni-
ties to increase revenue by serving the changing needs of industrial space
users. In addition, there is an increasing trend toward securitization of real
estate holdings as institutional real estate investors shift from direct pri-
vate ownership to indirect public ownership of real estate. The Company
believes that both of these trends provide substantial opportunities for pub-
licly held real estate companies that have the managerial and financial
resources to maintain an active acquisition and development program.
25
<PAGE>
Diverse Tenant Needs
Different types of industrial space users have significantly different property
and space requirements. Large national and major regional distributors gener-
ally require efficient, well-located bulk distribution properties. These prop-
erties offer the advantages of predictable incomes, less costly management
operations and additional growth opportunities through targeted marketing of
additional sites and property types to large national companies having space
requirements in multiple locations, as well as rental growth resulting from
favorable supply and demand factors. Smaller companies generally demand more
flexible work space, including light assembly facilities and flex/R&D space.
While the operation of these properties is generally more costly to manage, the
Company believes that such properties offer the prospect of higher current
returns because the users of such space are location sensitive and less
inclined to move if the properties they occupy are well located and managed.
Moreover, the Company believes that the continued employment growth resulting
from smaller companies will result in strong demand in the near future for
these workspace properties.
BUSINESS STRATEGIES
The Company's fundamental business objective is to maximize the total return to
its shareholders through growth in its cash available for distribution per
Common Share and in the value of its portfolio of industrial properties and
operations. The Company believes that it is well positioned to take advantage
of the opportunities presented by today's changing industrial real estate mar-
kets through the business strategies and operations described below.
Leveraging Substantial National Market Presence
The Company believes that maintaining and expanding its market presence in its
15 principal targeted markets across the country will be an important factor in
achieving future growth and its targeted returns on investment. These 15 mar-
kets are projected by Cognetics to capture approximately 39% of the growth in
industrial space demand projected to occur in the top 150 markets for distribu-
tion space over the period from 1997 to 2002. See "Properties--Industrial Prop-
erty Market Information."
The Company's substantial market presence in its principal markets provides
significant strategic advantages. Foremost among these advantages is that the
Company is well positioned to market its industrial space to national companies
and third-party logistics companies who have space requirements in multiple
markets. Approximately 36% of the Company's rentable space is leased by Fortune
1,000 companies and major third-party logistics companies serving such compa-
nies. The Company has a national tenant marketing program that, in addition to
the quality and attractive locations of the Properties, emphasizes the advan-
tages of dealing with a single source for a company's industrial space needs.
These advantages include greater efficiency of lease negotiations and day-to-
day property management, as well as better understanding of the tenants' cur-
rent needs and prospective space requirements. The Company currently serves 13
tenants, occupying approximately 13% of the Company's rentable space, in mul-
tiple Properties.
Within each local market, having a substantial inventory of properties and sig-
nificant leasing activities increases the Company's visibility to prospective
tenants and enables the Company to establish strong relationships with leasing
brokers and other local market participants. Such persons serve as sources of
information and potential tenant referrals. In addition, larger inventories
increase the Company's opportunities to relocate tenants to one or more of its
other properties as their needs change. Critical mass also permits the Company
to achieve the economies of scale necessary to support the management personnel
and infrastructure needed to build long-term tenant relationships.
Serving a Broad Spectrum of Tenants By Offering a Variety of Industrial
Property Types
The Company believes that its broad service strategy provides complementary
benefits in meeting the Company's growth objectives. Offering a variety of
industrial property types and the Company's size enable it to provide better
service, on a more cost-efficient basis, to national customers who often need
various types of workspace properties, in addition to distribution space, for
their local operations. At the same time, offering a variety of property types
to smaller companies enables the Company to capture a larger share of the
growth in its chosen industrial property markets. Smaller business establish-
ments are projected by Cognetics to generate approximately 67% of the projected
increased demand for industrial properties during the period from 1997 to 2002.
The Company's strategy of offering diverse property types also enables the Com-
pany to pursue opportunities as they arise across industry segments by
responding to shifts in demand at different stages of the economic cycle.
GROWTH STRATEGIES
The Company intends to achieve its growth objectives through a combination of
property acquisitions, development and internal growth.
26
<PAGE>
Acquisitions
The Company will seek to capitalize on its competitive advantages primarily by
acquiring additional modern, high-quality properties in attractive submarkets
within the industrial markets that it currently serves.
Investment Criteria. The Company follows a disciplined, value-oriented strategy
in its property acquisitions. The Company seeks to acquire modern, cost-effi-
cient buildings located in key national and regional distribution centers. The
Company's investment considerations include (i) capitalization rates; (ii) eco-
nomic fundamentals in the market; (iii) replacement costs; (iv) rent levels and
trends; (v) construction quality and property condition; (vi) historical occu-
pancy rates; (vii) access to transportation; (viii) proximity to housing; (ix)
operating costs; (x) location in modern industrial parks; and (xi) local crime
rates.
Emphasis on Market Research. The Company's property acquisitions are based on
extensive research in each targeted market regarding (i) economic and demo-
graphic trends; (ii) supply of and demand for industrial space in targeted sub-
markets; (iii) existing and potential tenant space requirements; (iv) rent
levels and trends; and (v) the physical characteristics of buildings within the
market. The Company's research includes extensive in-market activity by Company
employees, including physical site inspections and continuing contacts with
leasing brokers and other active participants in the local markets. The Company
has compiled the results of its extensive research over the years into a pro-
prietary database, which is updated periodically, covering each market and
submarket in which it has invested or that it has targeted. The database con-
tains computerized profiles, keyed to Company-prepared aerial maps, of the
Company's properties and each of the buildings deemed most competitive to the
Company's properties or attractive for acquisition. Such profiles include
information regarding the building's age, physical characteristics (including
overall dimensions, clear heights and truck court dimensions) and current
tenant and lease information.
Diversification of Industrial Property Types. To date, the majority of the
Company's properties (84.6% of the Properties based on rentable square feet at
September 30, 1997) have been bulk distribution and multitenant distribution
facilities because of the opportunities for superior returns such properties
have provided. While the Company expects that both types of properties will
continue to be an important focus of its future acquisition program, the Com-
pany believes that workspace properties (light assembly and flex/R&D facili-
ties) are also attractive in selected markets where they are in limited supply
and strong demand exists. The Company has begun to increase its acquisitions of
workspace properties, which represented approximately 15.4% of its Properties
at September 30, 1997 (based on rentable square feet).
Relationships with Institutional Real Estate Investors. Over the past ten
years, Cabot Partners' operations have been focused on serving public and pri-
vate pension funds and other institutional real estate investors in connection
with investments in and management of industrial real estate. This has provided
the Company's management with an extensive knowledge of and, the Company
believes, a favorable reputation with such investors. The Company believes that
it will benefit from its relationships with these investors through further
acquisitions as they increasingly seek to securitize their direct real estate
investments.
Capital and UPREIT Structure. The Company intends to exploit its relatively
unleveraged capital structure and substantial equity base in its acquisition and
future development activities. Upon the closing of the Offering, based upon
amounts outstanding at September 30, 1997, the Com-pany expects to have
approximately $5.3 million of outstanding long term debt, approximately $65.0
million of available cash and a Debt-to-Total Market Capi-talization Ratio of
less than 1%. The Company expects to be able to obtain borrowings on a timely
basis that will enable it to move quickly in completing proposed property
acquisitions. The Company believes that its ability to do so will enhance its
credibility with potential property sellers. The Company is currently in
discussions regarding the establishment of an Acquisition Facility to be used
for the purpose of property acquisitions and expects that this facility will be
available to it upon the closing of the Offering. The Company's UPREIT
structure, which will enable it to acquire industrial proper-ties on a non-cash
basis by exchanging Units in the Operating Partnership for properties in a tax-
deferred manner, provides an attractive alternative to a taxable cash sale for
tax paying property owners. See""--Financial Strategies" below.
Internal Growth
The Company's primary internal growth strategy is to increase the cash flow
generated by the Properties, and from properties that it acquires in the
future, by renewing or replacing expiring leases with new leases at higher
rental rates and through rent increase provisions in its leases. Based on
available industry research and its own market knowledge, the Company believes
that market rents exceed the Company's current rental rates in a number of its
markets. The Company expects to increase its rental income with respect to such
properties over time if market rental rates remain stable or increase. The Com-
pany believes that it will have an opportunity to increase the average rental
rate on its leases expiring
27
<PAGE>
during 1998. In addition, the Company intends to work actively to (i) maintain
its historically high occupancy levels by retaining existing tenants (Cabot
Partners has renewed 84% of its leases, by square footage, over the past two
years), thereby minimizing "down time" and re-leasing costs, (ii) improve the
occupancy levels of any newly acquired properties that have lower occupancy
levels than the Company typically expects from its existing properties, (iii)
capitalize on economies of scale arising from the size of its portfolio of
properties, and (iv) control costs. The Company also will seek internal growth
through converting its properties to more intensive, higher margin uses if and
to the extent that suitable opportunities to do so arise.
Development
The Company's senior management has extensive real estate development experi-
ence, including experience derived from the industrial park development activi-
ties of CC&F. The Company is engaging its existing tenants in discussions about
future space needs and believes that financially attractive build-to-suit
opportunities from its tenant base may be available over time. The Company also
believes that in select target markets there are attractive opportunities for
new development with potentially greater returns than those available from the
purchase of existing stabilized properties, and it intends to pursue a develop-
ment program where such opportunities exist. In order to limit initial overhead
expenses, the Company intends to begin its development activities by engaging
local or regional builders with whom it has established strong relationships.
Thereafter, the Company intends to expand its in-house development staff as the
Company's development activities increase.
OPERATIONS
Real Estate Operations. The Company's property management functions with
respect to its own properties include strategic planning and decision making,
centralized leasing activities and other property management activities. The
Director of Real Estate Operations and the Company's four regional managers,
all of whom are located in the Company's Boston headquarters, oversee the prop-
erty management activities relating to the Company's properties, which include
controlling capital expenditures and expenses that are not reimbursable by ten-
ants, making regular property inspections, overseeing rent collections and cost
control and planning and budgeting activities. Tenant relations functions,
including monitoring of tenant compliance with their property maintenance obli-
gations and other lease provisions, have been handled by in-house personnel for
most of the properties under Cabot Partners' management located in its North-
east Region and by third-party building managers for most other properties
under its management. Shortly after the closing of the Offering, the Company
expects to further internalize such tenant relations functions by opening local
offices in Chicago, Columbus, Dallas, Los Angeles and Orlando.
Leasing. The Company's leasing activities are the primary responsibility of the
Company's Director of Leasing, who reports to the Director of Real Estate Oper-
ations. The Director of Leasing leads the negotiation of most leases with major
tenants and oversees all other leasing negotiations. Smaller tenant leasing and
marketing efforts are typically handled by the Company's regional managers,
working with local leasing brokers and under the overall direction of the
Director of Leasing. The Company believes that centralizing of its leasing
activities provides greater coordination and control of its leasing strategy.
The Company seeks to maximize rental income by working actively to retain
existing tenants and by aggressively marketing space for which tenant renewals
are not obtained. The Company takes an active approach to managing its lease
portfolio, typically preparing its renewal or releasing strategy 24 months
prior to scheduled lease expiration dates and entering into discussions with
tenants well in advance of such termination date. The Company also seeks to
stagger lease termination dates so as to minimize the possibility of large
blocks of space becoming vacant at the same time.
National Marketing. The Company will pursue a national tenant marketing program
emphasizing the advantages of dealing with a single source supplier of indus-
trial space for industrial space needs across the country and the flexibility
in structuring lease maturities and other terms that the Company is able to
offer.
Service Orientation. The Company intends to continue Cabot Partners' emphasis
on providing high-quality service to its tenants. Examples of such service
include promptly addressing tenant concerns, determining and regularly reas-
sessing tenant space requirements and engaging in cooperative cost reduction
efforts with or for the benefit of tenants. As part of its ongoing program of
building mutually beneficial long-term tenant relationships, the Company's
regional managers meet with tenants frequently to supplement the day-to-day
activities of the Company's internal and third-party building managers. The
Company believes that the quality of its tenant services is evidenced by its
high tenant retention rates.
Financial and Cost Controls. The Company maintains strict financial and cost
controls in administering its asset/property management operations. These
include (i) close monitoring and active collection of rents and tenant expense
reimbursements, (ii) use of competitive bidding procedures for all maintenance
and other material expenses and for capital expenditures, (iii) regular real
estate tax assessment appeals where warranted, (iv) approval of all
nonreimbursable expenses and capital expenditures by the Company's regional
managers, and (v) active lease administration, including close monitoring of
28
<PAGE>
tenants' compliance with their lease responsibilities. The Company also
requires extensive planning and budgeting activities for each of its properties
using a standardized, zero-basis budgeting format in an annual process that is
updated quarterly and is coordinated by the Director of Real Estate Operations.
The results of this budgeting process are then incorporated into the Company's
overall budgeting and planning process.
THIRD-PARTY INVESTMENT MANAGEMENT
The Management Company will provide investment advisory and management services
to the clients of Cabot Partners which elected not to contribute some or all of
their industrial properties to the Company. On a pro forma basis as of Sep-
tember 30, 1997, the Management Company would have generated earnings of less
than 3% of the Company's revenues. The Management Company will not provide
services relating to any industrial real estate acquisition or development
activities that would conflict with the Company's own acquisition and develop-
ment activities. The Company believes that its investment in the Management
Company will help it achieve economies of scale with its property management
systems, increase market penetration and provide access to further acquisition
opportunities.
FINANCIAL STRATEGIES
The Company's financial strategy is to minimize its cost of capital by main-
taining adequate working capital and conservative debt levels. The Company
estimates that approximately $65.0 million of net proceeds from the Offering
will be available to allocate to operating capital after payment of offering
expenses and the use of approximately $9.2 million and $13.4 million of such
proceeds to fund the Company Acquisitions and to repay certain outstanding
indebtedness secured by the Properties, respectively. See "Use of Proceeds."
The Company intends to operate with a Debt-to-Total Market Capitalization Ratio
that generally will not exceed 40%, although the Company's Declaration of Trust
and By-laws do not impose any limit on the incurrence of debt.
The Company is currently negotiating with several financial institutions the
establishment of the Acquisition Facility under which the Company would be per-
mitted to borrow up to $325 million. The Acquisition Facility is expected to be
used primarily in connection with the acquisition of additional properties and
is anticipated to be available for such use upon the closing of the Offering.
The Company believes that the size and diversity of its portfolio of properties
will provide it with access to the public debt and equity markets which are not
generally available to smaller, less diversified property owners. The Company
also believes that its UPREIT structure will enable it to acquire industrial
properties in exchange for Units in the Operating Partnership, thereby reducing
its need to incur indebtedness to support future acquisitions. Contributions of
properties to the Operating Partnership by the owners thereof in exchange for
such Units, if properly structured, permit the transferring property owner to
defer recognition, for federal income tax purposes, of gains realized on such
transactions and thereby provide attractive alternatives to a cash sale for
property owners.
29
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the Offering, after deducting the underwriting
discount and estimated expenses of the Offering and of the Formation Transac-
tions, are estimated to be approximately $87.5 million (approximately $101.5
million if the Underwriters' over-allotment option is exercised in full). The
Company will contribute such net proceeds to the Operating Partnership in
exchange for the Company's general partner interest therein. The Operating
Partnership will use net proceeds of approximately $9.2 million to fund the
Company Acquisitions and approximately $13.4 million to repay mortgage indebt-
edness outstanding as of September 30, 1997. The Operating Partnership intends
to use the remaining $65.0 million of net proceeds for general purposes,
including acquisitions of additional properties. None of the net cash proceeds
from the Offering are being paid to any partner of Cabot Partners, any Cabot
Group Participant or any other officer, Trustee or affiliate of the Company.
The net proceeds not immediately used for the foregoing purposes will be
invested in short-term, income producing investments such as depository
accounts, investment grade commercial paper, government securities or money
market funds that invest in government securities.
The following table presents information, as of September 30, 1997, regarding
the indebtedness intended to be repaid as described above.
<TABLE>
<CAPTION>
------------------------------------------------
AMOUNT
PROPERTY MATURITY DATE INTEREST RATE TO BE REPAID
- -------- --------------------- ------------- ------------
<S> <C> <C> <C>
Mortgage Debt relating to
Properties to be contributed
by the C-M Property
Partnerships December 1, 1997(/1/) 8.375% $13,400,000
</TABLE>
- -------
(1) The Mortgage Debt consists of three loans with identical interest rates and
maturity dates. The maturity date of each loan is expected to be extended
from December 1, 1997 to a date on or after the closing of the Offering.
30
<PAGE>
DISTRIBUTION POLICY
The Company intends to make regular quarterly cash distributions to its share-
holders, commencing with a pro rata distribution for the period from comple-
tion of the Offering through March 31, 1998, based upon a quarterly distribu-
tion of $.325 per Common Share. On an annualized basis, this would be $1.30
per Common Share (or an annual distribution rate of 6.5% based on the Offering
Price). The Company does not expect to change its estimated initial distribu-
tion per Common Share if the Underwriters' over-allotment option is exercised.
The following discussion and the information set forth in the tables and
related notes below should be read in conjunction with the historical and pro
forma financial statements and respective notes thereto and "Management's Dis-
cussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
The Company's intended initial annual distribution rate is based on an esti-
mate of the cash that will be available for distribution for the 12 months
ending December 31, 1998. The Company's estimate of cash available for distri-
bution is based on pro forma FFO for the nine months ended September 30, 1997,
as adjusted for the impact of the Offering and the Formation Transactions as
well as adjustments (a) to annualize such nine month figures to reflect 12
months of operations, (b) for certain known events and contractual commitments
that either occurred subsequent to September 30, 1997 or during the 12 months
ended September 30, 1997 but which were not effective for the full 12 months,
(c) for adjustments which revise historical rental revenues from a GAAP basis
to amounts currently being paid or due from tenants and (d) for the amount of
cash estimated to be used for (i) investing activities consisting of recurring
tenant improvements, leasing commissions and building improvements and (ii)
for financing activities consisting of debt principal amortization. Except as
reflected in the table below and the notes thereto, investing and financing
activities are not expected to have a material adverse effect on the estimated
cash that will be available for distribution. The estimate of FFO is being
made solely for the purpose of setting the initial distribution rate and is
not intended to be a prediction or forecast of the Company's results of opera-
tions or of its liquidity.
The Company believes that its estimated cash available for distribution con-
stitutes a reasonable basis for setting the initial distribution rate on the
Common Shares and intends to maintain its initial distribution rate at least
throughout 1998 unless actual results of operations, economic conditions or
other factors differ from the assumptions used in calculating its estimate.
The actual return that the Company will realize and the amount available for
distributions to shareholders will be affected by a number of factors,
including the revenues received from the Properties, the distributions
received from the Operating Partnership, the operating expenses of the Com-
pany, the interest expense incurred on its borrowings and unanticipated cap-
ital expenditures. No assurance can be given that the Company's estimate will
prove accurate. In addition, pro forma results of operations do not purport to
present the actual results that can be expected for future periods. See "Man-
agement's Discussion and Analysis of Financial Condition and Results of Opera-
tions--Funds from Operations."
The Company anticipates that FFO will exceed earnings and profits due to non-
cash expenses, primarily depreciation and amortization, expected to be
incurred by the Company. Distributions by the Company to the extent of its
current or accumulated earnings and profits for federal income tax purposes,
other than capital gain dividends, will be taxable to shareholders as ordinary
dividend income. Capital gain dividends generally will be treated as long-term
capital gain. Distributions in excess of earnings and profits generally will
be treated as a non-taxable reduction of the shareholder's basis in the Common
Shares to the extent thereof, and thereafter as capital gain. Distributions
treated as a non-taxable reduction in basis will have the effect of deferring
taxation until the sale of a shareholder's Common Shares. Based on the
Company's estimated results of operations for the 12 months ending December
31, 1998, the Company estimates that approximately % of the anticipated ini-
tial annual distribution to shareholders will represent a return of capital
for federal income tax purposes and that the Company will be required to dis-
tribute $ million, or $ per Common Share, with respect to such 12-month
period in order to maintain its status as a REIT. If actual FFO or taxable
income vary from the Company's estimates, the percentage of distributions
which represents a return of capital may be materially different. In addition,
such capital gain percentage of distributions may vary substantially in future
years, particularly since REITs are no longer required to distribute net cap-
ital gains to shareholders. For a further discussion of the tax treatment of
distributions to holders of Common Shares, see "Federal Income Tax Considera-
tions--Taxation of Taxable U.S. Shareholders" and "--Taxation of Non-U.S.
Shareholders." In order to qualify to be taxed as a REIT, the Company must
make annual distributions to shareholders of at least 95% of its REIT taxable
income (determined by excluding any net capital gain), which the Company
anticipates will be less than its share of adjusted FFO. Under certain circum-
stances, the Company may be required to make distributions in excess of its
cash available for distribution in order to meet such distribution require-
ments. In such a case, the Company may find it necessary to arrange for short-
term (or possibly long-term) borrowings or to raise funds through the issuance
of Preferred Shares or additional Common Shares.
31
<PAGE>
Future distributions by the Company will be at the discretion of the Board of
Trustees and will depend on the actual FFO of the Company, its financial condi-
tion, capital requirements, the annual distribution requirements under the REIT
provisions of the Code (see "Federal Income Tax Considerations--Taxation of the
Company--Annual Distribution Requirements") and such other factors as the Board
of Trustees deems relevant. See "Risk Factors and Investment Considerations--
Possible Changes in Policies Without Shareholder Approval; No Limitation on
Debt."
The following table illustrates the adjustments made by the Company to its pro
forma FFO for the nine months ended September 30, 1997 in order to determine
its initial estimated distributions.
<TABLE>
<CAPTION>
---------
(Dollars in thousands except per share data)
<S> <C>
Pro forma net income for the nine months ended September 30, 1997
(see "Pro Forma Condensed Combined Financial Statements") $ 31,892
Adjustment:
Depreciation and amortization 14,111
---------
Pro forma funds from operations for the nine months ended September
30, 1997 $ 46,003
=========
Pro forma FFO, as annualized(1) $ 61,337
ADJUSTMENTS TO DERIVE ESTIMATED FFO FOR THE 12 MONTHS ENDING
DECEMBER 31, 1998:
Contractual increase in rental revenues(2) 3,333
Contractual increase in rental revenues from recently signed
leases(3) 129
Provision for leases expiring in 1998(4) (1,084)
Incremental effect of straight-line rents(5) 80
---------
Estimated adjusted FFO for the 12 months ending December 31, 1998 63,795
ADJUSTMENTS TO DERIVE ESTIMATED CASH FLOWS FOR THE 12 MONTHS ENDING
DECEMBER 31, 1998:
Straight-line rent accrual adjustment(6) (1,812)
---------
Estimated cash flows from operating activities 61,983
---------
ESTIMATED CASH FLOWS USED IN INVESTING ACTIVITIES:
Estimated annual tenant improvements and leasing commissions to
retain revenues attributable to existing leased space(7) (2,603)
Estimated recurring non-incremental revenue-generating capital
expenditures(8) (3,757)
---------
Estimated cash used in investing activities (6,360)
---------
ESTIMATED CASH FLOWS USED IN FINANCING ACTIVITIES:
Estimated annual reserve for debt principal amortization (260)
---------
Estimated cash available for distribution for the 12 months ending
December 31, 1998 $ 55,363
=========
ESTIMATED INITIAL ANNUAL CASH DISTRIBUTIONS:
Shareholders of the Company $ 18,501
Limited partners in the Operating Partnership 33,337
---------
Total estimated initial annual cash distributions $ 51,838
=========
Expected initial annual distributions per Common Share and Unit $ 1.30
=========
Expected cash available for distribution payout ratio(9) 93.6%
=========
</TABLE>
- -------
(1)The Company believes that annualizing its FFO for the nine months ended Sep-
tember 30, 1997 represents a reasonable basis for establishing its estimated
FFO for the 12 months ending December 31, 1998, as its operations are not sea-
sonal in nature. The Company believes that the differences between FFO for the
nine months ended September 30, 1997 (as annualized) and pro forma FFO for the
12 months ended September 30, 1997 are not material.
(2) Represents (i) the estimated annual incremental effect on rental revenues
from leases executed prior to September 30, 1997, including contractual
increases in base rents for existing leases and contractual base rents from
leases which commenced paying from January 1, 1997 to September 30, 1997 and
(ii) the estimated annual incremental effect of rental increases for the 12
months ending December 31, 1998 compared to the 12 months ended December 31,
1997 which increases are included only for the period that the leases are in
effect and the tenants will be making payments and are not annualized for the
12 months ending December 31, 1998.
(3) Contractual increases in rental revenues from executed leases that com-
menced paying base rents between October 1, 1997 and November 18, 1997.
32
<PAGE>
(4) Management has assumed that 80% of the existing leases which expire during
the 12 months ending December 31, 1998 will be renewed at existing rental
rates. Given that the Company's rate of renewals over the past two years has
exceeded 80%, management believes that its assumption regarding the renewal
rate and rents at which leases renew (i.e., the current base rent) is reason-
able. These adjustments do not represent forecasts or projections of expected
future rental revenue from space not currently under lease.
(5) Represents an adjustment to reflect estimated additional straight-line
rents for the 12 months ending December 31, 1998 which has been computed as the
estimated straight-line rent adjustment for 1998 of approximately $1,812 less
the pro forma straight-line rent adjustment of $1,732 which is included in the
annualized 1997 FFO.
(6) Represents the conversion of estimated rental revenues for the 12 months
ending December 31, 1998 from a straight-line accrual basis to a cash basis of
revenue recognition.
(7) Represents recurring non-revenue enhancing tenant improvements ("TI") and
leasing commissions ("LC") anticipated for the 12 months ending December 31,
1998 based on the weighted average tenant improvements and leasing commissions
for renewed and re-tenanted space at the Properties for the years ended
December 31, 1996, 1995, 1994 multiplied by the average annual square feet of
space for which leases expire during the period from November 18, 1997 to
December 31, 2000. The weighted average annual per square foot costs of tenant
improvements and leasing commissions and the calculation of the estimated pro-
vision for non-revenue enhancing tenant improvements and leasing commissions on
an annual basis based on lease expirations (rollover) for the period November
18, 1997 to December 31, 2000 are presented below:
<TABLE>
<CAPTION>
-------------------------------------------
TOTAL/
WEIGHTED
1996 1995 1994 AVERAGE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total TIs and LCs $3,875,246 $2,490,707 $2,416,987 $8,782,940
Renewed or released space in
square feet 4,880,988 2,578,374 2,347,899 9,807,261
Cost per square foot $ 0.79 $ 0.97 $ 1.03 $ 0.90
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
AVERAGE
NOVEMBER 18, -- ANNUAL
DECEMBER 31, FOOTAGE
2000 1999 1998 1997 EXPIRING
--------- --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Annual Square Footage
Expiring 2,400,200 3,738,432 2,655,627 243,811 2,892,182
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL SQUARE
TI & LC PER SQUARE FOOT FOOTAGE EXPIRING IN THE TOTAL
RENEWED OR RELEASED NEXT 3 YEARS (INCLUDING 1997) COSTS
----------------------- ----------------------------- ----------
<S> <C> <C> <C> <C>
$0.90 X 2,892,182 = $2,602,964
</TABLE>
(8) Represents estimated annual provision for recurring capital expenditures
for the 12 months ending December 31, 1998 based upon an annual cost of $0.20
per square foot. The Company has calculated this reserve based on the weighted
average historical recurring capital expenditures for the years ended December
31, 1996, 1995 and 1994. The following table summarizes the recurring capital
expenditures for the Properties for the last three years.
<TABLE>
<CAPTION>
-----------------------------------------------
TOTAL
WEIGHTED
1996 1995 1994 AVERAGE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total recurring capital
expenditures $ 2,830,780 $ 2,133,118 $ 2,076,193 $ 7,040,091
Weighted average square feet 14,449,744 11,588,260 8,959,973 34,997,977
Cost per square foot $ 0.20 $ 0.18 $ 0.23 $ 0.20
Pro forma total square feet 18,783,708
Cost per square foot $ 0.20
-----------
Estimated recurring capital expenditures $ 3,756,742
===========
</TABLE>
(9) Calculated by dividing the estimated initial annual cash distributions by
the estimated cash available for distribution. The Company's estimated pro
forma adjusted FFO payout ratio, which is calculated by dividing the estimated
initial annual cash dividends by the estimated pro forma adjusted FFO, is
81.3%.
The Company believes that the amount not distributed will be sufficient to
cover (i) tenant allowances and other costs associated with renewal or replace-
ment of current tenants as their leases expire, (ii) recurring capital expendi-
tures that will not be reimbursed by tenants and (iii) other unforeseen cash
needs. The Company also will have available to it for such purposes a portion
of the net proceeds from the Offering and available borrowing capacity under
the Acquisition Facility. See "Use of Proceeds" and "The Company--Financial
Strategies."
33
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a pro forma
basis as of September 30, 1997 to reflect the consummation of the Formation
Transactions and on a pro forma basis, as adjusted to reflect the closing of
the Offering and the application of a portion of the net proceeds therefrom to
repay certain indebtedness, as if each of such transactions had occurred on
September 30, 1997. See "Use of Proceeds." The information set forth in the
table should be read in conjunction with the combined historical and pro forma
financial statements of the Company and notes thereto included elsewhere in
this Prospectus and the discussion under "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
--------------------------
AS OF SEPTEMBER 30, 1997
PRO FORMA,
PRO FORMA AS ADJUSTED
Dollars in thousands ----------- -------------
<S> <C> <C>
Mortgage debt $ 18,655 $ 5,302
Limited Partners' interest in Operating Partnership 475,421 475,421
Shareholders' equity:
Common shares, $.01 par value; 150,000,000 shares
authorized; 9,233,080 issued and outstanding on a
pro forma basis and 14,233,080 issued and out-
standing on a pro forma, as adjusted basis(1) 92 142
Additional paid-in capital 184,570 272,020
----------- -------------
Total shareholders' equity 184,662 272,162
----------- -------------
Total capitalization $ 678,738 $ 752,885
=========== =============
</TABLE>
- -------
(1) Does not include Common Shares reserved for issuance upon (i) possible
exchange of 25,641,920 Units issued and outstanding after the Offering (the
issuance of which would reduce Limited Partners' interest in the Operating
Partnership),
(ii) Common Shares subject to options to be granted pursuant
to the Company's Long Term Incentive Plan effective upon the closing of the
Offering (see "Management--Long Term Incentive Plan"), or (iii) the 750,000
Common Shares subject to the Underwriters' over-allotment option.
34
<PAGE>
DILUTION
The initial price per share to the public of the Common Shares offered hereby
exceeds the Company's expected net tangible book value per Common Share immedi-
ately following the closing of the Offering and consummation of the Formation
Transactions. Therefore, holders of Units and Common Shares issued in connec-
tion with the Formation Transactions will realize an immediate increase in the
net tangible book value of their Units and Common Shares, while purchasers of
the Common Shares in the Offering will realize an immediate and substantial
dilution in the net tangible book value of their shares. Pro forma net tangible
book value per share has been determined as of September 30, 1997 by sub-
tracting the Company's total liabilities from its total tangible assets and
dividing the remainder by the number of Units and Common Shares that will be
outstanding after the Offering. The following table illustrates the dilution to
purchasers of Common Shares sold in the Offering.
<TABLE>
<CAPTION>
---------------------
<S> <C> <C>
Initial public offering price per share (1) $20.00
Pro forma net tangible book value per unit/share as of
September 30, 1997 prior to the Offering $18.93
Decrease in net tangible book value per share
attributable to purchasers of Common Shares in the
Offering (.18)
---------
Pro forma net tangible book value per share after the Offering 18.75
---------
Dilution per share sold in the Offering $ 1.25
=========
</TABLE>
- -------
(1) Before deducting the Underwriters' discount and estimated expenses of the
Offering and the Formation Transactions.
The following table summarizes, on a pro forma basis giving effect to the
Offering and the number of Common Shares and Units to be issued to each of the
Contributing Investors (other than the C-M Property Partnerships) and the Cabot
Group Participants in connection with the Formation Transactions, the net tan-
gible book value as of September 30, 1997 of the net assets contributed by the
Contributing Investors (other than the C-M Property Partnerships) and the Cabot
Group Participants in the Formation Transactions and the net tangible book
value of the average contribution per share based on total contributions:
<TABLE>
<CAPTION>
--------------------------------------------------------------
PURCHASE
PRICE/BOOK
CASH/BOOK VALUE OF
COMMON VALUE OF AVERAGE
SHARES/UNITS ISSUED TOTAL CONTRIBUTIONS CONTRIBUTIONS
Dollars in thousands, -------------------- ------------------------- PER
except per share/unit SHARES/UNITS PERCENT AMOUNT PERCENT SHARE/UNIT
amounts ------------ ------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Common Shares sold in
the Offering 5,000 12.5% $ 100,000 13.2% $20.00(2)
Common Shares/Units
issued to Contributing
Investors (3) 32,968 82.7 650,322(1) 85.6 19.72
Units issued to Cabot
Group Participants 1,907 4.8 9,761(1) 1.2 5.12
<CAPTION>
------------ ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total 39,875 100.0% $ 760,083 100.0%
<CAPTION>
============ ======= =========== ==========
</TABLE>
- -------
(1) Based on the September 30, 1997 net book value of the assets to be contrib-
uted in connection with the Formation Transactions, net of liabilities to be
assumed.
(2) Before deducting Underwriters' discounts and estimated expenses of the
Offering and the Formation Transactions.
(3) Excludes Units issued to the C-M Property Partnerships, which are included
in the Units issued to the Cabot Group Participants.
35
<PAGE>
CABOT INDUSTRIAL TRUST
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma condensed combined balance sheet as of September 30, 1997 has
been prepared to reflect (i) the contribution to the Company of (A) the
Existing Investors Property Group, (B) the New Investors Property Group, and
(C) the Additional Acquisitions, (ii) the other Formation Transactions, (iii)
the Company Acquisitions, (iv) the Offering and the use of a portion of the net
proceeds therefrom to repay indebtedness and (v) certain other adjustments, as
if each of such contributions, transactions and adjustments had occurred on
September 30, 1997. The pro forma condensed combined statements of operations
for the nine months ended September 30, 1997 and the year ended December 31,
1996 have been prepared to reflect (i) the contribution to the Company of (A)
the Existing Investors Property Group, (B) the New Investors Property Group,
(C) the Additional Acquisitions and (D) the Properties acquired during the year
ended December 31, 1996 and during the nine months ended September 30, 1997,
(ii) the other Formation Transactions, (iii) the Company Acquisitions, (iv) the
use of a portion of the net proceeds of the Offering to repay indebtedness and
(v) certain other adjustments, as if each of such contributions, transactions
and adjustments had occurred on January 1, 1996.
In the opinion of management, the pro forma condensed combined financial state-
ments include for all adjustments necessary to reflect the effects of the fore-
going transactions and adjustments. The pro forma statements are unaudited and
are not necessarily indicative of what the Company's financial position would
have been or the combined results of the Company's operations that would have
been obtained if the transactions and adjustments reflected therein had been
consummated on the dates indicated, or on any particular date in the future,
nor do they purport to represent the financial position, results of operations
or changes in cash flows as of any future date or for any future period.
36
<PAGE>
CABOT INDUSTRIAL TRUST
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
EXISTING NEW PRE-OFFERING
INVESTORS INVESTORS OTHER CABOT INDUSTRIAL
CABOT PROPERTY PROPERTY ADDITIONAL FORMATION TRUST COMPANY
PARTNERS GROUP GROUP(A) ACQUISITIONS (B) TRANSACTIONS PRO-FORMA ACQUISITIONS(I)
-------- --------- --------- ---------------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Properties, net $ -- $320,956 $243,152 $58,131 $ 46,588 (C) $668,827 $ 9,175
Cash and cash
equivalents 1,589 1,140 806 -- (3,535)(F) -- (9,175)
Rents and other
receivables 1,593 1,101 344 -- (3,038)(F) -- --
Advisory fees
receivables 502 -- -- -- (502)(G) -- --
Restricted cash -- 9 -- -- -- 9 --
Deferred rent
receivable -- 4,414 3,907 -- (8,321)(D) -- --
Lease
acquisition
costs, net -- 6,564 3,270 -- -- 9,834 --
Other assets 1,924 385 586 -- (2,818)(E),(F) 77 --
------ -------- -------- ------- --------- -------- -------
Total Assets $5,608 $334,569 $252,065 $58,131 $ 28,374 $678,747 --
====== ======== ======== ======= ========= ======== =======
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Mortgage debt $ -- $ 18,655 $ -- $ -- $ -- $ 18,655 --
Due to related
parties -- 3,703 -- -- (3,703)(H) -- --
Accounts payable
and accrued
liabilities 884 3,231 1,301 -- (5,416)(F) -- --
Advisory fees
payable -- 502 1,717 -- (2,219)(F),(G) -- --
Other
liabilities -- 977 1,173 -- (2,141)(F) 9 --
------ -------- -------- ------- --------- -------- -------
Total
Liabilities 884 27,068 4,191 -- (13,479) 18,664 --
------ -------- -------- ------- --------- -------- -------
Limited Partners
interest in
Operating
Partnership -- -- -- -- 475,421 (C) 475,421 --
Owners' equity 4,724 307,501 247,874 58,131 (618,230) -- --
Common stock -- -- -- -- 92 (C) 92 --
Paid in capital -- -- -- -- 184,570 (C) 184,570 --
------ -------- -------- ------- --------- -------- -------
Total
Shareholders'
Equity 4,724 307,501 247,874 58,131 (433,568) 184,662 --
------ -------- -------- ------- --------- -------- -------
Total
Liabilities
and
Shareholders'
Equity $5,608 $334,569 $252,065 $58,131 $ 28,374 $678,747 --
====== ======== ======== ======= ========= ======== =======
</TABLE>
<TABLE>
<CAPTION>
----------------------------
CABOT
OFFERING INDUSTRIAL
PRO FORMA TRUST
ADJUSTMENTS(J)(K) PRO FORMA
---------------- ----------
<S> <C> <C>
ASSETS
Properties, net $ -- $678,002
Cash and cash
equivalents 74,147 64,972
Rents and other
receivables -- --
Advisory fees
receivables --
Restricted cash -- 9
Deferred rent
receivable -- --
Lease
acquisition
costs, net -- 9,834
Other assets -- 77
-------- --------
Total Assets $ 74,147 $752,894
======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Mortgage debt $(13,353) $ 5,302
Due to related
parties -- --
Accounts payable
and accrued
liabilities -- --
Advisory fees
payable -- --
Other
liabilities -- 9
-------- --------
Total
Liabilities (13,353) 5,311
-------- --------
Limited Partners
interest in
Operating
Partnership -- 475,421
Owners' equity -- --
Common stock 50 142
Paid in capital 87,450 272,020
-------- --------
Total
Shareholders'
Equity 87,500 272,162
-------- --------
Total
Liabilities
and
Shareholders'
Equity $ 74,147 $752,894
======== ========
</TABLE>
37
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
New Investors Property Group
(A) The New Investors Property Group is the combination of the financial infor-
mation for the following Contributing Investors whose financial statements
are included elsewhere in this Prospectus:
Orlando Central Park and 500 Memorial Drive
Knickerbocker Properties, Inc. II
Pennsylvania Public School Employes' Retirement System Industrial Prop-
erties Portfolio
Prudential Properties Group
West Coast Industrial, LLC
In addition, the New Investors Property Group includes a Contributing Investor
with a single property which commenced operations on September 1, 1997. Accord-
ingly, no financial statements for the property are included in this Prospec-
tus.
Additional Acquisitions
(B) To reflect the acquisition, or probable acquisition, of the following prop-
erties after September 30, 1997 and their contribution to the Company in the
Formation Transactions:
<TABLE>
<CAPTION>
----------------------
EXPECTED
SQUARE ACQUISITION
PROPERTY LOCATION BUILDING TYPE FEET COST
----------------- ------------------------ --------- -----------
<S> <C> <C> <C>
Herrod Boulevard, South
Brunswick, NJ Bulk Distribution 418,000 $18,321
Blue Ash, OH Multitenant Distribution
and Workspace 482,942 15,565
Remington Street,
Bolingbrook, IL Bulk Distribution 212,333 8,625
Ambassador Road,
Naperville, IL Bulk Distribution 203,500 8,106
Luna Road, Carrollton,
TX Bulk Distribution 205,400 7,514
--------- -----------
1,522,175 $58,131
========= ===========
</TABLE>
Other Formation Transactions
(C) To record the allocation of cost of assets acquired in excess of the Prop-
erties' historical net book value based on the Common Shares and Units issued
in connection with the Formation Transactions (excludes Units issued to the
accounting acquiror, Cabot Partners, which are recorded at Cabot Partners' car-
ryover basis), as follows:
<TABLE>
<CAPTION>
---------
<S> <C>
Issuance of 33,000,300 Common Shares and Units for equity
interests in real estate assets at $20 per Common Share/Unit $ 660,006
Plus: Liabilities assumed 18,655
Less: Historical net book value of Properties and other acquired
assets (632,073)
---------
Cost of assets acquired in excess of historical book value $ 46,588
=========
</TABLE>
(D) To eliminate $8,321 deferred rent receivable which arose from the histor-
ical straight-lining of rents.
(E) To write off $1,017 of intangible assets of Cabot Partners related to Advi-
sory Contracts terminated at the time of the Formation Transactions and to
eliminate $133 of unamortized deferred loan costs related to mortgage debt to
be repaid with net proceeds of the Offering.
(F) To reflect the distribution of substantially all of the net non-real estate
assets to the Contributing Investors as a result of the Formation Transactions.
38
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET--(CONTINUED)
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(G) To eliminate fees receivable (payable) between Cabot Partners and the
Existing Investors Property Group arising from Advisory Contracts which will
be terminated as a part of the Formation Transactions.
(H) To reflect the conversion to equity of $3,703 due by certain of the C-M
Property Partnerships to certain affiliated entities.
The Company Acquisitions
(I) To reflect the probable acquisition of four workspace Properties totalling
213,430 square feet in Orlando, Florida with proceeds from the Offering.
The Offering
(J) To reflect the net proceeds of the Offering of $100,000 received in
exchange for the issuance of 5 million Common Shares at a price of $20 per
share, net of $12.5 million of estimated fees and expenses associated with the
Formation Transactions and Offering.
(K) To reflect the repayment of three mortgage loans totalling $13,353, each
with a fixed interest rate of 8.375%, due December 1, 1997 with a portion of
the net proceeds of the Offering. The total debt to be repaid with the pro-
ceeds of the Offering is based on the principal outstanding at September 30,
1997. The actual amounts repaid will differ to the extent of any amortization
of the principal occurring prior to the actual date of repayment. An extension
of such due date to a date on or after the closing of the Offering is being
negotiated.
39
<PAGE>
CABOT INDUSTRIAL TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
PRE-
OFFERING
EXISTING NEW CABOT
INVESTORS INVESTORS OTHER INDUSTRIAL
CABOT PROPERTY PROPERTY 1997 FORMATION TRUST COMPANY
PARTNERS GROUP GROUP(A) ACQUISITIONS(L) TRANSACTIONS PRO FORMA ACQUISITIONS(O)
-------- --------- --------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental.......... $ -- $23,968 $22,725 $5,712 $ 364 (U) $52,769 $589
Tenant
reimbursements.. -- 4,343 1,138 845 -- 6,326 69
Other........... -- 331 53 33 -- 417 40
Advisory fee
income......... 5,095 -- -- -- (4,454)(N) 641 --
Advisory fee
income
associated with
the
Existing
Investors
Property
Group.......... 1,739 -- -- -- (1,739)(M) -- --
Interest........ -- 94 71 -- -- 165 --
------ ------- ------- ------ ------- ------- ----
6,834 28,736 23,987 6,590 (5,829) 60,318 698
------ ------- ------- ------ ------- ------- ----
EXPENSES
Real estate
taxes.......... -- 4,005 2,076 925 -- 7,006 55
Property
operating ..... -- 1,602 1,827 606 -- 4,035 125
Management
fees........... -- 609 125 123 (85)(M) 772 53
Advisory fees... -- 1,073 2,345 -- (3,418)(M) --
General and
administrative.. 4,899 -- -- -- (3,008)(M)(N) 1,891
Interest........ -- 1,399 -- -- (218)(Q) 1,181 --
Depreciation and
amortization... 732 6,473 5,562 1,195 (6) (R)(S)(T) 13,956 155
------ ------- ------- ------ ------- ------- ----
5,631 15,161 11,935 2,849 (6,735) 28,841 388
------ ------- ------- ------ ------- ------- ----
Net income...... $1,203 $13,575 $12,052 $3,741 $ 906 $31,477 $310
====== ======= ======= ====== ======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
-----------------------
CABOT
OFFERING INDUSTRIAL
PRO FORMA TRUST
ADJUSTMENTS PRO FORMA
----------- ----------
<S> <C> <C>
REVENUES
Rental.......... $ -- $53,358
Tenant
reimbursements.. -- 6,395
Other........... -- 457
Advisory fee
income......... -- 641
Advisory fee
income
associated with
the
Existing
Investors
Property
Group.......... -- --
Interest........ -- 165
----- -------
-- 61,016
----- -------
EXPENSES
Real estate
taxes.......... -- 7,061
Property
operating ..... -- 4,160
Management
fees........... -- 825
Advisory fees... -- --
General and
administrative.. 750 (P) 2,641
Interest........ (855)(Q) 326
Depreciation and
amortization... -- 14,111
----- -------
(105) 29,124
----- -------
Net income...... $105 $31,892
===== =======
</TABLE>
40
<PAGE>
CABOT INDUSTRIAL TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
PRE-
OFFERING
EXISTING NEW CABOT
INVESTORS INVESTORS OTHER INDUSTRIAL
CABOT PROPERTY PROPERTY 1996 1997 FORMATION TRUST
PARTNERS GROUP GROUP(A) ACQUISITIONS(L) ACQUISITIONS(L) TRANSACTIONS PRO- FORMA
-------- --------- --------- --------------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental........... $ -- $29,736 $29,335 $1,995 $7,796 $ 720 (U) $69,582
Tenant
reimbursements.. -- 4,917 2,068 172 1,195 -- 8,352
Other............ -- 334 735 -- 33 -- 1,102
Advisory fee
income.......... 5,822 -- -- -- -- (4,972)(N) 850
Advisory fee
income
associated with
the
Existing
Investors
Property Group.. 2,086 -- -- -- -- (2,086)(M) --
Interest......... -- 193 139 -- -- -- 332
------ ------- ------- ------ ------ ------- -------
Total Revenues.. 7,908 35,180 32,277 2,167 9,024 (6,338) 80,218
------ ------- ------- ------ ------ ------- -------
EXPENSES
Real estate
taxes........... -- 5,037 3,030 183 1,242 -- 9,492
Property
operating....... -- 2,434 2,546 97 1,047 -- 6,124
Management fees.. -- 645 175 135 161 (119)(M) 997
Advisory fees.... -- 1,244 1,451 174 -- (2,869)(M) --
General and
administrative.. 5,895 -- -- -- -- (3,476)(M)(N) 2,419
Interest......... -- 1,931 -- -- -- (299)(Q) 1,632
Depreciation and
amortization.... 419 7,966 7,020 400 1,725 1,566 (R)(S)(T) 19,096
------ ------- ------- ------ ------ ------- -------
Total Expenses.. 6,314 19,257 14,222 989 4,175 (5,197) 39,760
------ ------- ------- ------ ------ ------- -------
Net income....... $1,594 $15,923 $18,055 $1,178 $4,849 $(1,141) $40,458
====== ======= ======= ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
CABOT
OFFERING INDUSTRIAL
COMPANY PRO FORMA TRUST
ACQUISITIONS (0) ADJUSTMENTS PRO FORMA
-------------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Rental........... $411 $ -- $69,993
Tenant
reimbursements.. 36 -- 8,388
Other............ 5 -- 1,107
Advisory fee
income.......... -- -- 850
Advisory fee
income
associated with
the
Existing
Investors
Property Group.. -- -- --
Interest......... -- -- 332
---- ------- -------
Total Revenues.. 452 -- 80,670
---- ------- -------
EXPENSES
Real estate
taxes........... 32 -- 9,524
Property
operating....... 41 -- 6,165
Management fees.. 14 -- 1,011
Advisory fees.... -- -- --
General and
administrative.. -- 1,000 (P) 3,419
Interest......... -- (1,183)(Q) 449
Depreciation and
amortization.... 206 -- 19,302
---- ------- -------
Total Expenses.. 293 (183) 39,870
---- ------- -------
Net income....... $159 $ 183 $40,800
==== ======= =======
</TABLE>
41
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Acquisitions
(L) To reflect the operations and the depreciation expense for the pro forma
condensed combined statement of operations for (a) the nine months ended Sep-
tember 30, 1997: for the period from January 1, 1997 through the earlier of the
date of acquisition or September 30, 1997, as applicable, for properties
acquired or anticipated to be acquired in 1997 and (b) the year ended December
31, 1996: for the period from January 1, 1996 through the date of acquisition
for properties acquired in 1996 or December 31, 1996 for the properties
acquired or anticipated to be acquired in 1997, for the following properties:
<TABLE>
<CAPTION>
-----------------------------
PERIOD
DATE ACQUIRED REFERENCE
------------------ ----------
<S> <C> <C>
ACQUIRED PROPERTY
-----------------
Reames Road, Charlotte, NC February 22, 1996 *
Santa Anita Avenue, Rancho Cucamonga, CA June 27, 1996 *
Holton Drive, Independence, KY July 6, 1996 *
East Jurupa Street, Ontario, CA November 11, 1996 *
North 104th Avenue, Tolleson, AZ November 26, 1996 *
Kingspointe Parkway, Orlando, FL December 30, 1996 *
South 55th Avenue, Phoenix, AZ March 27, 1997 **
North 47th Avenue, Phoenix, AZ March 27, 1997 **
South Rockefeller Avenue, Ontario, CA July 17, 1997 **
Huntwood Avenue, Hayward, CA September 12, 1997 **
Diplomat Drive, Carrollton, TX September 19, 1997 **
Remington Street, Bolingbrook, IL October 7, 1997 **
Ambassador Road, Naperville, IL October 9, 1997 **
Luna Road, Carrollton, TX October 17, 1997 **
Herrod Boulevard, South Brunswick, NJ October 22, 1997 **
Blue Ash, OH Under Contract **
</TABLE>
* Included in the pro forma condensed combined statement of operations for
the year ended December 31, 1996 (through the date of acquisition) in the
column entitled "1996 Acquisitions".
** Included in the pro forma condensed combined statement of operations for
the year ended December 31, 1996 and for the nine months ended September
30, 1997 through the date of acquisition or September 30, 1997, whichever
is earlier in the column entitled "1997 Acquisitions".
Other Formation Transactions
(M) To eliminate advisory fee revenues of Cabot Partners and the related advi-
sory fee expense of the Existing Investors Property Group arising from Advisory
Contracts which will be terminated as a part of the Formation Transactions and
to restate advisory fees paid by the New Investors Property Group to third par-
ties as general and administrative expenses of the Company using an estimate of
the cost to manage the real estate assets. (see Note E).
42
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(N) To reflect the effects of establishing the Company's investment in the Man-
agement Company by reclassifying the associated revenues, operating expenses
and amortization expense to an unconsolidated subsidiary for the nine months
ended September 30, 1997 and the year ended December 31, 1996. The pro forma
operations of the Management Company and the Company's share of the Management
Company's net income, based upon its 95% economic interest, are as follows:
<TABLE>
<CAPTION>
---------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Advisory fee revenues $ 5,095 $ 5,822
General and administrative expenses (3,324) (4,024)
Amortization expense (647) (306)
------------- ------------
Income before income taxes 1,124 1,492
Income tax (assumed effective tax rate of
40%) (450) (597)
------------- ------------
Net income 674 895
------------- ------------
Company's share of net income $ 641 $ 850
============= ============
</TABLE>
Advisory fee revenues consist of actual fees earned by Cabot Partners during
the nine months ended September 30, 1997 and the year ended December 31, 1996
from the assets not owned by the Existing Investors.
General and administrative expenses consist of direct and indirect costs allo-
cated by the Company to the Management Company. Such indirect costs have been
allocated based upon the percentage of total assets expected to be managed by
the Management Company after the Offering.
The Company Acquisitions
(O) To reflect the operations and the depreciation expense for the nine months
ended September 30, 1997 and the year ended December 31, 1996 for the workspace
property to be acquired with proceeds from the offering (See Note I).
The Offering
(P) To reflect additional general and administrative expenses expected to be
incurred on an annual basis, as a result of reporting as a public company, as
follows:
<TABLE>
<CAPTION>
---------
<S> <C>
Legal, audit and tax services $ 350
Printing and mailing 350
Directors and officers insurance 100
Investor relations 50
Other 150
---------
Totals $ 1,000
=========
</TABLE>
(Q) To reflect the reduction of interest expense associated with the repayment
of mortgage debt with a portion of the net proceeds of the Offering and the
conversion to equity of related party indebtedness (see Note H).
(R) To eliminate deferred loan cost amortization of $60 for the nine months
ended September 30, 1997 and $80 for the year ended December 31, 1996 histori-
cally recognized by Existing Investors Property Group (see Note E).
(S) To fully amortize the unamortized intangible assets of Cabot Partners
($1,017 in the year ended December 31, 1996); to eliminate the related histor-
ical amortization for the Advisory Contracts which have been terminated as a
result of a sale of the underlying properties or will be terminated as part of
the Formation Transactions of $85 and $113 for the nine months ended September
30, 1997 and the year ended December 31, 1996, respectively; and to reclass to
the Management Company $647 and $306 for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.
43
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(T) The depreciation adjustment for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively, includes the following:
<TABLE>
<CAPTION>
----------
<S> <C>
Adjustment to the basis of the Properties (see Note C) $ 46,588
Less: Portion allocated to land estimated at 10% 4,659
----------
$ 41,929
==========
Depreciation expense based on a weighted average estimated
useful life of 40 years--
For the nine months ended September 30, 1997 $ 786
==========
For the year ended December 31, 1996 $ 1,048
==========
</TABLE>
(U) To reflect the adjustment for the straight-line effect of scheduled rent
increases, assuming the transaction closed on January 1, 1996.
44
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
Set forth below are selected historical financial and other data for (i) the
Existing Investors Property Group, and (ii) the real estate advisory business
of Cabot Partners. The selected financial data presented below as of and for
the years ended December 31, 1996, 1995 and 1994 have been derived from the
Existing Investors Property Group Combined Financial Statements and the Cabot
Partners Financial Statements, each of which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
included elsewhere in this Prospectus. This information should be read in conj-
unction with such financial statements and the notes thereto included elsewhere
in this Prospectus. The selected financial data presented below as of and for
the years ended December 31, 1993 and 1992 for Cabot Partners are derived from
the Cabot Partners Financial Statements and the notes thereto not included in
this Prospectus which have been audited by Arthur Andersen LLP. The selected
financial data presented below as of and for the years ended December 31, 1993
and 1992 for the Existing Investors Property Group and as of and for the nine
months ended September 30, 1997 and 1996 for both Cabot Partners and the
Existing Investors Property Group have not been audited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary to present fairly such information in accordance with GAAP
applied on a consistent basis. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of results for the
entire year. Other Data (including Property data) for all periods and dates
presented are unaudited and are derived from the unaudited financial and other
records of Cabot Partners.
45
<PAGE>
CABOT INDUSTRIAL TRUST
SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
----------------------------------------------------------------------
EXISTING INVESTORS NINE MONTHS ENDED
PROPERTY GROUP(1) SEPTEMBER 30, YEARS ENDED DECEMBER 31,
- ------------------ -------------------- ------------------------------------------------
In thousands, 1997 1996 1996 1995 1994 1993 1992
except per share data --------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 28,736 $ 26,138 $ 35,180 $ 28,794 $ 28,209 $ 25,252 $ 21,904
Real estate tax expense 4,005 3,649 5,037 3,979 3,769 5,144 2,772
Property operating
expenses 3,284 3,003 4,323 3,357 3,063 3,227 2,940
General and administra-
tive expenses -- -- -- -- -- -- --
Interest expense 1,399 1,430 1,931 2,097 2,082 2,013 2,292
Depreciation and amorti-
zation expense 6,473 5,864 7,966 7,118 6,606 6,111 5,441
--------- --------- -------- -------- -------- -------- --------
Operating income 13,575 12,192 15,923 12,243 12,689 8,757 8,459
Gain on sale of proper-
ties -- -- -- -- 186 -- --
--------- --------- -------- -------- -------- -------- --------
Net income $ 13,575 $ 12,192 $ 15,923 $ 12,243 $ 12,875 $ 8,757 $ 8,459
========= ========= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
-------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
In thousands --------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental Properties
(before accumulated
depreciation) $ 358,498 $ 323,639 $336,836 $301,059 $250,387 $255,050 $240,358
Rental Properties, net 320,956 291,226 304,308 274,629 229,451 237,101 227,149
Total assets 334,569 308,237 318,732 289,337 241,026 247,615 236,457
Mortgage debt 18,655 19,496 19,292 20,083 20,608 20,550 20,550
Owners' equity 307,501 281,267 291,286 261,629 213,203 220,621 211,897
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------- ------------------------------------------------
In thousands,
except number of
properties and 1997 1996 1996 1995 1994 1993 1992
percentages --------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (2) $ 21,447 $ 19,486 $ 25,820 $ 21,458 $ 21,377 $ 16,881 $ 16,192
Funds From Operations
(4) 19,988 18,012 23,809 19,298 19,193 14,764 13,855
Cash flows provided by
(used in):
Operating activities 19,497 16,525 25,695 19,401 17,552 17,471 14,123
Investing activities (22,818) (24,825) (39,074) (53,868) 2,037 (17,393) (9,980)
Financing activities 2,038 7,068 13,204 35,680 (19,596) (278) (6,216)
Total rentable square
footage of properties
at end of period 9,529 8,547 9,069 7,879 6,253 6,644 6,100
Number of properties at
end of period 72 64 67 61 53 57 53
Occupancy rate at end of
period 93% 97% 92% 99% 90% 90% 86%
</TABLE>
- -------
(1) Represents historical combined financial and other data for the Existing
Investors Property Group for the periods indicated. See Note (1) to Combined
Financial Statements of the Existing Investors Property Group.
(2) EBITDA is computed as operating income before gain on sale of properties
plus interest expense, income taxes, depreciation and amortization. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measure of assessing the operating performance of an
equity REIT because, together with net income and cash flows, EBITDA provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such as
revenues, property operating expenses, real estate taxes and general and admin-
istrative expenses should be considered. See "Management's Discussion and Anal-
ysis of Financial Condition and Results of Operations." Excluded from EBITDA
are financing costs such as interest, as well as depreciation and amortization,
each of which can significantly affect a REIT's results of operations and
liquidity and should be considered in evaluating a REIT's operating perfor-
mance. Further, EBITDA does not represent net income or cash flows from operat-
ing, financing and investing activities as defined by GAAP and does not neces-
sarily indicate that cash flows will be sufficient to fund cash needs. It
should not be considered as an alternative to net income as an indicator of a
REIT's operating performance or to cash flows as a measure of liquidity.
(notes continued on next page)
46
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
NINE MONTHS
CABOT PARTNERS (5) ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
- ------------------ ----------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
In thousands ----------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 6,818 $ 5,743 $ 7,908 $ 6,516 $ 4,159 $ 4,088 $ 3,618
General and
administrative expenses 4,899 4,362 5,888 5,069 4,267 4,074 3,992
Depreciation and
amortization expense 732 315 419 453 474 480 480
Net income (loss) 1,203 1,050 1,594 1,057 (536) (428) (806)
------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
----------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
In thousands ----------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 5,608 $ 5,925 $ 6,075 $ 5,628 $ 4,300 $ 4,923 $ 5,412
Total liabilities 884 878 485 563 292 379 440
Total partners' capital 4,724 5,047 5,590 5,065 4,008 4,544 4,972
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
In thousands ----------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash flows provided by
(used in):
Operating activities $ 1,908 $ 875 $ 1,283 $ 1,351 $ (12) $ (173) $ (269)
Investing activities 41 (37) 113 (6) 40 25 5
Financing activities (2,069) (1,069) (1,069) -- -- -- --
Assets under
management (5) 1,070,000 941,000 979,000 778,000 515,000 472,000 442,000
</TABLE>
- -------
(notes continued from preceding page)
(3) FFO represents net income before minority interests and extraordinary
items, adjusted for depreciation on real property and amortization of tenant
improvements costs and lease commissions and gains from the sale of properties
and FFO. In addition to cash flow and net income, management and industry ana-
lysts generally consider FFO to be one additional measure of the performance of
an equity REIT because, together with net income and cash flows, FFO provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. How-
ever, FFO does not measure whether cash flow is sufficient to fund all of an
entity's cash needs including principal amortization, capital improvements and
distributions to stockholders. FFO also does not represent cash generated from
operating, investing or financing activities as determined in accordance with
GAAP. It should not be considered as an alternative to net income as an indi-
cator of a REIT's operating performance or to cash flows as a measure of
liquidity. Further, FFO as disclosed by other REITs may not be comparable to
the Company's calculation of FFO. The Company calculates FFO in accordance with
the White Paper.
(4) Represents the historical financial and other data of Cabot Partners for
periods prior to the Formation Transactions.
(5) Based on the estimated fair market value of such assets as of the dates
indicated.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which are not historical facts may be for-
ward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements which speak only as of the date hereof. See "Risk Factors
and Investment Considerations--Risks Associated with Reliance on Forward-
Looking Statements."
GENERAL
Existing Investors Property Group
The Existing Investors Property Group referred to herein is not a separate
legal entity and has not conducted operations as such for any period. Refer-
ences to the Existing Investors Property Group, and the combined financial
statements and related notes thereto contained in this Prospectus, are intended
to reflect, in accordance with the accounting requirements of the Commission
and GAAP, the Properties contributed by the Contributing Investors that were
actually managed by Cabot Partners as of the dates indicated on a combined his-
torical basis. The New Investors Property Group operations are presented sepa-
rately in the other financial statements included in this Prospectus.
The timing and amount of funds used for property acquisitions by the Existing
Investors was primarily the result of individual decisions of the Existing
Investors to commit additional capital to industrial real estate investments.
The Existing Investors Property Group financial statements and related notes
contained elsewhere in this Prospectus should be read in conjunction with the
other historical financial statements relating to Cabot Partners and the other
Properties that are to be contributed to the Company in the Formation Transac-
tions, as well as the pro forma financial statements and related notes, for
more complete information concerning the intended combined operations, assets
and liabilities of the Company.
Cabot Partners
Cabot Partners is the real estate advisory and management entity that is the
accounting acquiror and the predecessor to the Company as described in this
Prospectus. Its revenues have primarily consisted of asset management and
acquisition fees earned under Advisory Contracts with large institutional
investors. Cabot Partners' property acquisitions on the behalf of its clients
for 1995, 1996 and the first nine months of 1997 were approximately $251 mil-
lion, $191 million and $168 million, respectively.
The Company
The Company will be the result of combining the properties of the Contributing
Investors and the advisory business of Cabot Partners contributed in the Forma-
tion Transactions described in this Prospectus, the Offering and the use of a
portion of the net proceeds therefrom to repay indebtedness as described herein
under "Use of Proceeds." The Company's growth will be dependent upon its
ability to acquire and develop additional properties, attract low cost debt and
equity capital and to increase occupancy rates and increase rental rates of its
properties.
RESULTS OF OPERATIONS
Existing Investors Property Group
The historical financial data presented herein show increases in revenues and
expenses attributable to property acquisitions and increases in occupancy and
rental rates. Therefore, the analysis below describes (i) changes resulting
from properties that were held during the entire period for both periods being
compared (the "Base Line Properties") and (ii) changes attributable to acquisi-
tion activity. Base Line Properties consisted of 61 properties for the compar-
ison between the nine months ended September 30, 1997 and 1996, 53 properties
for the comparison between the years ended December 31, 1996 and 1995 and 51
properties for the comparison between the years ended December 31, 1995 and
1994.
Nine Months Ended September 30, 1997 and 1996
Revenues. Revenues include rental revenues, tenant reimbursements, interest and
other rental revenues. Revenues increased by $2.6 million for the nine months
ended September 30, 1997, or 9.9%, to $28.7 million as compared to $26.1 mil-
lion for the nine months ended September 30, 1996. Approximately $2.2 million,
or 84.6%, of this increase was attributable to properties acquired in 1996 and
1997 and the remaining $351,000 was attributable to growth in rental revenue in
the Base Line Properties primarily from leasing vacant space and tenant expan-
sions.
48
<PAGE>
Real estate tax expense. Real estate tax expense increased by $356,000 for the
nine months ended September 30, 1997, or 9.8%, to $4.0 million as compared to
$3.6 million for the nine months ended September 30, 1996. Substantially all of
this increase was attributable to properties acquired in 1997 and 1996.
Property operating expenses. Property operating expenses (excluding real estate
tax expense) increased by $281,000 for the nine months ended September 30,
1997, or 9.4%, to $3.3 million as compared to $3.0 million for the nine months
ended September 30, 1996. Substantially all of this increase was attributable
to properties acquired in 1997 and 1996.
Depreciation and amortization expense. Depreciation and amortization expense
increased by $609,000 for the nine months ended September 30, 1997, or 10.4%,
to $6.5 million as compared to $5.9 million for the nine months ended September
30, 1996. Approximately $439,000, or 72.1%, of this increase was attributable
to properties acquired in 1997 and 1996 and the remaining $170,000 of this
increase was attributable to the Base Line Properties. The increase in the Base
Line Properties was related to depreciation and amortization of capital and
tenant improvements and leasing commissions made at the Base Line Properties in
1997 and 1996.
Years Ended December 31, 1996 and 1995
Revenues. Revenues increased by $6.4 million for the year ended December 31,
1996, or 22.2%, to $35.2 million as compared to $28.8 million for the year
ended 1995. Approximately $4.1 million, or 63.9%, of this increase was attrib-
utable to properties acquired in 1996 and 1995. The remaining $2.3 million was
attributable to growth in rental revenue in the Base Line Properties primarily
from leasing vacant space.
Real estate tax expense. Real estate tax expense increased by $1.1 million for
the year ended December 31, 1996, or 26.6%, to $5.0 million as compared to $4.0
million for the year ended December 31, 1995. Approximately $615,000, or 58.1%,
of this increase was attributable to properties acquired in 1996 and 1995. The
Base Line Properties increase of approximately $443,000 was primarily attribut-
able to lower real estate tax expense due to tax abatements received in 1995
that related to 1995 and prior years.
Property operating expenses. Property operating expenses (excluding real estate
tax expense) increased by $966,000 for the year ended December 31, 1996, or
28.8%, to $4.3 million as compared to $3.4 million for the year ended December
31, 1995. Approximately $590,000, or 61.1%, of this increase was attributable
to Base Line Properties. The increase in property operating expenses for Base
Line Properties was due primarily to additional provisions for doubtful tenant
accounts receivable and unusually high snow removal costs. The remainder of the
increase was attributable to properties acquired in 1996 and 1995.
Depreciation and amortization expense. Depreciation and amortization expense
increased by $848,000 for the year ended December 31, 1996, or 11.9%, to $8.0
million as compared to $7.1 million for the year ended December 31, 1995.
Approximately $681,000, or 80.3%, of the increase was related to properties
acquired in 1996 and 1995 and the remainder of this increase was related to
Base Line Properties. The increase in the Base Line Properties was related to
depreciation and amortization of capital and tenant improvements and leasing
commissions incurred at the Base Line Properties in 1996 and 1995.
Years Ended December 31, 1995 and 1994
Revenues. Revenues increased by $585,000 for the year ended December 31, 1995,
or 2.1%, to $28.8 million as compared to $28.2 million for the year ended 1994.
Approximately $4.4 million of additional rental revenue was earned in 1995 as
compared to 1994 from properties acquired during 1994 and 1995, offset by lower
revenue from Base Line Properties of approximately $2.2 million, due primarily
to $1.6 million of termination payments received in 1994 and the resulting
vacancy in 1995 of the properties previously leased to the terminating tenants.
Rental revenue also decreased by $1.7 million in 1995 as compared to 1994 due
to properties sold during 1994.
Real estate tax expense. Real estate tax expense increased by $210,000 for the
year ended December 31, 1995, or 5.6%, to $4.0 million as compared to $3.8 mil-
lion for the year ended December 31, 1994. Properties acquired in 1995 and 1994
resulted in an increase of $675,000, offset by a decrease in Base Line Proper-
ties of approximately $148,000 due to real estate tax abatements. Properties
sold in 1994 resulted in a $317,000 decrease in real estate tax expense for
1995 as compared to 1994.
49
<PAGE>
Property operating expenses. Property operating expenses (excluding real estate
tax expense) increased by $294,000 for the year ended December 31, 1995, or
9.6%, to $3.4 million as compared to $3.1 million for the year ended December
31, 1994. Properties acquired in 1994 and 1995 resulted in an increase of
$446,000, partially offset by properties sold in 1994 which resulted in a
$233,000 decrease in property operating expenses.
Depreciation and amortization expense. Depreciation and amortization expense
increased by $512,000 for the year ended December 31, 1995, or 7.8%, to $7.1
million as compared to $6.6 million for the year ended December 31, 1994. Prop-
erties acquired after January 1, 1994 resulted in a $857,000 increase, while
properties sold in 1994 resulted in a $419,000 decrease in depreciation and
amortization expense for 1995 as compared to 1994.
Cabot Partners
Nine Months Ended September 30, 1997 and 1996
Revenues. Revenues, primarily consisting of asset management fees and acquisi-
tion fees, increased by $1.1 million for the nine months ended September 30,
1997, or 18.7%, to $6.8 million as compared to $5.7 million for the nine months
ended September 30, 1996. The increase was due to a $216 million increase in
the average assets under management for the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996 which resulted in
a $755,000 increase in asset management fees.
General and administrative expenses. General and administrative expenses
increased by $537,000 for the nine months ended September 30, 1997, or 12.3%,
to $4.9 million as compared to $4.4 million for the nine months ended September
30, 1996. Compensation expense increases resulted in $291,000, or 54.2%, of the
increase. The remainder of the increase was primarily due to higher profes-
sional services fees. General and administrative expenses as a percent of reve-
nues declined from 76.1% to 71.9% for the comparative periods.
Depreciation and amortization expense. Depreciation and amortization expense
increased by $417,000 for the nine months ended September 30, 1997, or 132%, to
$732,000 due to increased amortization of two Advisory Contracts that will ter-
minate before the end of 1997.
Years Ended December 31, 1996, 1995 and 1994
Revenues. Revenues, primarily consisting of asset management fees and acquisi-
tion fees, increased by $1.4 million for the year ended December 31, 1996, or
21.4%, to $7.9 million as compared to $6.5 million for the year ended December
31, 1995 due to a $201 million, or 25.8%, increase in assets under management.
Advisory fee revenues increased $2.4 million for the year ended December 31,
1995, or 56.7%, to $6.5 million as compared to $4.1 million for the year ended
December 31, 1994 because of a $188 million increase in acquisitions in 1995 as
compared to 1994.
General and administrative expense. General and administrative expenses for the
years ended December 31, 1996 and 1995 increased by approximately 16.2% and
18.8% over the prior year due primarily to compensation expense increases. Gen-
eral and administrative expense as a percent of revenues for 1996, 1995 and
1994 was 74.5%, 77.8% and 102.6%, respectively.
CAPITAL RESOURCES AND LIQUIDITY
The principal sources of funding for acquisitions, expansions and renovation of
the Existing Investors Property Group historically have been capital contribu-
tions from its investors and cash flow provided by operations. In the future,
the Company intends to rely on cash provided by operations, bank borrowings,
and public debt and equity financings as its primary sources of funding for
acquisition, development, expansion or renovation of properties. The Company is
currently negotiating with several financial institutions concerning the estab-
lishment of a $325 million Acquisition Facility. It is anticipated the Acquisi-
tion Facility will be available at the closing of the Offering and it will be
used to fund property acquisitions, development activities, building expan-
sions, tenant leasing costs and other general corporate purposes. The Acquisi-
tion Facility is expected to contain certain customary restrictions and
requirements such as total debt-to-assets, debt service coverage, minimum unen-
cumbered assets to unsecured debt ratios, and other limitations. Although the
Company is currently negotiating the terms of the Acquisition Facility and
believes commercially acceptable terms will be realized, a currently binding
commitment does not exist. The Company believes cash flow from operations not
distributed will be sufficient to cover tenant allowances and costs associated
with renewal or replacement of current tenants as their leases expire and
recurring non-incremental revenue generating capital expenditures. See "Proper-
ties--Tenant Improvements and Leasing Commissions" and "Capital Expenditures"
for a discussion of historical leasing costs and capital expenditures.
50
<PAGE>
CAPITAL RESOURCES
The Company's low Debt-to-Total Market Capitalization Ratio reduces exposure to
fixed charges and increases its ability to access large amounts of debt capi-
tal. On a pro forma basis at September 30, 1997, after giving effect to the
Formation Transactions and the Offering, the Operating Partnership expects to
have fixed rate debt secured by only three properties with an outstanding prin-
cipal amount of approximately $5.0 million and a Debt-to-Total Market Capital-
ization Ratio of less than 1%. See "Cabot Industrial Trust Pro Forma Combined
Condensed Financial Statements."
LIQUIDITY
Existing Investors Property Group
Nine Months Ended September 30, 1997 and 1996
Cash and cash equivalents decreased by approximately $1.3 million, to approxi-
mately $1.1 million, at September 30, 1997 compared to $2.4 million at December
31, 1996. This was the result of $19.5 million of cash generated from opera-
tions, reduced by $22.8 million of cash used for investing activities and
increased by $2.0 million provided by financing activities. Cash flow generated
by operations increased by $3.0 million, from $16.5 million to $19.5 million,
primarily due to additional cash flow generated by an increase in the number of
properties owned. Net cash used for investing activities decreased by $2.0 mil-
lion, from $24.8 million to $22.8 million, due to a $2.4 million decrease in
property acquisitions partially offset by increased capital expenditures and
lease acquisition cost. Net cash provided by financing activities decreased by
$5.1 million, from $7.1 million to $2.0 million, primarily due to a $4.8 mil-
lion decrease in capital contributions, net of distributions.
Years ended December 31, 1996 and 1995
Cash and cash equivalents decreased by $175,000, to $2.4 million at December
31, 1996 compared to $2.6 million at December 31, 1995. This was the result of
$25.7 million generated from operations and $13.2 million provided by financing
activities, reduced by $39.1 million of net cash used for investing activities.
Cash generated by operations increased by $6.3 million, from $19.4 million to
$25.7 million, primarily due to additional cash flow generated by an increase
in the number of properties owned. Net cash used for investing activities
decreased by $14.8 million, from $53.9 million to $39.1 million, primarily due
to a decrease in the number of properties purchased during 1996 as compared to
1995. Net cash provided by financing activities decreased by $22.5 million,
from $35.7 million to $13.2 million due to a $15.1 million decrease in capital
contributions and a $7.4 million increase in distributions.
Cabot Partners
Cabot Partners relies primarily on cash payments of asset management fees and
acquisition fees from its advisory clients to fund its operating expenses and
distributions to its partners.
INFLATION
Substantially all of the leases of the Properties require the tenant to pay, as
additional rent, either all real estate taxes and operating expenses or all
increases in real estate taxes and operating expenses over a base amount. In
addition, many of such leases provide for fixed increases in base rent or
indexed escalations (based on the consumer price index or other measures). Man-
agement believes that inflationary increases in operating expenses will be off-
set, in part, by the expense reimbursements and contractual rent increases
described above.
51
<PAGE>
FUNDS FROM OPERATIONS
Management believes that Funds from Operations ("FFO"), as defined by the
National Association of Real Estate Investment Trusts ("NAREIT") is an appro-
priate measure of performance for an equity REIT. While FFO is a relevant and
widely used measure of operating performance of REITs, it does not represent
cash flow from operations or net income as defined by GAAP, and it should not
be considered as an alternative to those indicators in evaluating liquidity or
operating performance.
The following table reflects the calculation of the Existing Investors Property
Group's FFO on a historical combined basis for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
-----------------------------------------
NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------------
1997 1996 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before gain on sale of prop-
erties............................. $ 13,575 $ 12,192 $15,923 $12,243 $12,689
Real estate depreciation and amorti-
zation............................. 6,413 5,820 7,886 7,055 6,504
-------- -------- ------- ------- -------
FFO(1).............................. $ 19,988 $ 18,012 $23,809 $19,298 $19,193
======== ======== ======= ======= =======
</TABLE>
- -------
(1) The White Paper defines FFO as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization. Management
considers FFO to be an appropriate measure of performance of an equity REIT
because it is predicated on cash flow analyses. The Company computes FFO in
accordance with standards established by the White Paper which may differ from
the methodology for calculating FFO utilized by other REITs and, accordingly,
may not be comparable to such other REITs. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indicator
of the Company's financial performance or to cash flow from operating activi-
ties (determined in accordance with GAAP) as a measure of the Company's liquid-
ity, nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make distributions.
52
<PAGE>
PROPERTIES
GENERAL
Upon the closing of the Offering, the Company will own a geographically diver-
sified portfolio of 127 Properties having an aggregate of approximately 19 mil-
lion rentable square feet, approximately 94% of which space was leased to 217
tenants at September 30, 1997. The Properties are located in 21 states and in
each of the five principal regions of the United States and are within over-
night trucking access (a 500-mile radius) to 90% of the population of the
United States.
The Company categorizes its properties into three types: bulk distribution
properties, multitenant distribution properties, and workspace properties. Bulk
distribution properties are oriented primarily to large national and regional
distribution tenants. These properties generally have at least 100,000 square
feet of rentable space, building depths of at least 240 feet, clear heights of
24 feet or more, truck courts in excess of 100 feet in depth to accommodate
larger modern trucks, a ratio of loading docks to rentable space of one or more
per 10,000 square feet, and a location with good access to interstate highways.
Multitenant distribution properties are oriented primarily to smaller regional
and local distribution tenants, and are generally designed to be subdivided to
suit tenants whose space requirements generally range from 10,000 square feet
to 100,000 square feet. These properties generally have clear heights of 20
feet or more, building depths of less than 240 feet (unless configured with
loading on two sides), and a location with good access to regional and inter-
state highways. Both types of distribution property are used predominately for
the storage and distribution of goods. Workspace properties are designed to
serve a broad range of industrial tenants with workspace related requirements,
including light manufacturing and assembly, research, testing, re-packaging and
sorting, back office, and sales office functions. Workspace tenants include
smaller companies whose space requirements generally range from 3,000 square
feet to 70,000 square feet. Workspace properties generally have clear heights
of 14 to 24 feet, attractive building exteriors, office finish of up to 30%,
parking ratios of one to four spaces per 1,000 rentable square feet, and loca-
tions with good access to executive residential areas and local highways, labor
supply, and dining and shopping amenities.
The Properties typically are leased on a triple net basis, with tenants paying
their proportionate share of real estate taxes, operating costs and utilities
costs. However, some of the Properties are leased at higher gross rents with
the Company responsible for paying a stated amount of real estate taxes, oper-
ating costs and utilities costs with tenants being responsible for any and all
increases in such taxes and costs above that stated amount. Excluding lease
renewal options, lease terms typically range from three to five years or, for
leases that are renewed, a shorter period of generally two to three years.
Approximately 45% (based on leased square footage) of the leases contain a pro-
vision providing for an automatic "stepped rent" increase of a specified amount
or percentage at a certain point or points during the term of the lease.
53
<PAGE>
PROPERTY OVERVIEW
The Properties are located in 20 major industrial real estate markets and in
each of the five principal regions of the United States. Information regarding
the Properties by region as of September 30, 1997 is set forth below.
PROPERTIES BY REGION
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------ ----------------------------------
PER LEASED
NUMBER OF SQUARE PERCENT
PROPERTY TYPE BY REGION PROPERTIES NUMBER % OF TOTAL AMOUNT % OF TOTAL FOOT LEASED
- ----------------------- ---------- ---------- ---------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BULK DISTRIBUTION
PROPERTIES:
West 11 2,269,146 12.1% $ 5,975,083 9.1% $3.06 86.0%
Southwest 2 346,200 1.8 839,712 1.3 3.45 70.4
Midwest 16 3,872,086 20.6 11,295,226 17.3 3.01 97.0
Southeast 4 1,029,247 5.5 2,648,415 4.1 3.15 81.7
Northeast 7 1,661,862 8.8 6,552,939 10.0 3.94 100.0
---------- ---------- ---------- ----------- ---------- ---------- -------
Subtotal/weighted
average 40 9,178,541 48.8% $27,311,375 41.8% $3.23 92.1%
---------- ---------- ---------- ----------- ---------- ---------- -------
MULTITENANT DISTRIBUTION
PROPERTIES:
West 4 831,626 4.4% $ 3,002,560 4.6% $3.61 100.0%
Southwest 3 385,135 2.1 1,163,982 1.8 3.02 100.0
Midwest 13 2,159,560 11.5 7,771,102 11.9 3.93 91.7
Southeast 7 1,274,745 6.8 4,070,073 6.2 3.39 94.2
Northeast 11 2,065,503 11.0 7,998,906 12.2 3.87 100.0
---------- ---------- ---------- ----------- ---------- ---------- -------
Subtotal/weighted
average 38 6,716,569 35.8% $24,006,623 36.7% $3.71 96.2%
---------- ---------- ---------- ----------- ---------- ---------- -------
WORKSPACE PROPERTIES:
West 27 1,255,306 6.7% $ 6,260,192 9.6% $5.04 99.0%
Southwest 1 56,535 0.3 325,044 0.5 5.75 100.0
Midwest 3 283,505 1.5 1,133,228 1.7 4.91 81.4
Southeast 7 627,360 3.3 2,562,024 3.9 4.32 94.6
Northeast 11 665,892 3.6 3,790,400 5.8 5.88 96.8
---------- ---------- ---------- ----------- ---------- ---------- -------
Subtotal/weighted
average 49 2,888,598 15.4% $14,070,888 21.5% $5.08 95.8%
---------- ---------- ---------- ----------- ---------- ---------- -------
TOTAL/WEIGHTED AVERAGE 127 18,783,708 100.0% $65,388,886 100.0% $3.70 94.2%
========== ========== ========== =========== ========== ========== =======
</TABLE>
- -------
(1) "Annualized Net Rent" means annualized monthly Net Rent from leases in
effect as of September 30, 1997. "Net Rent" means contractual rent, excluding
any reimbursements for real estate taxes or operating expenses.
54
<PAGE>
PROPERTIES BY REGION AND MARKET
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------- ----------------------------------
ANNUALIZED
EFFECTIVE RENT
YEAR BUILT/ NUMBER OF PER LEASED PER LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT SQUARE FOOT(2)
- -------------------------- ----------- ---------- ------------- ----------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BULK DISTRIBUTION
PROPERTIES:
West Region
Los Angeles Market
South Vintage Avenue,
Ontario, CA............ 1986 2 520,512 100% $1,512,233 2.3% $2.91 $2.83
South Rockefeller
Avenue, Ontario, CA.... 1986 1 164,140 100 551,510 0.8 3.36 3.36
East Jurupa Street,
Ontario, CA............ 1986 1 141,132 0 0 0.0 0.00 0.00
Vintage Avenue, Ontario,
CA..................... 1988 1 284,559 100 914,000 1.4 3.21 3.11
Santa Anita Avenue,
Rancho Cucamonga, CA... 1988 1 212,300 100 764,280 1.2 3.60 3.73
---------- ------------- ----------- ---------- ---------- ----------- --------------
Market Subtotal........ 6 1,322,643 89% $3,742,023 5.7% $3.17 $3.14
Phoenix Market
North 47th Avenue,
Phoenix, AZ............ 1986 1 163,200 100% $ 434,283 0.7% $2.66 $2.57
South 63rd Avenue,
Phoenix, AZ............ 1990 1 168,165 100 450,494 0.6 2.68 2.73
South 55th Avenue,
Phoenix, AZ............ 1986 1 100,000 100 288,000 0.4 2.88 2.88
North 104th Avenue,
Tolleson, AZ........... 1995 1 279,131 37 297,815 0.5 2.88 2.62
South 84th Avenue,
Tolleson, AZ........... 1989 1 236,007 100 762,468 1.2 3.23 3.16
---------- ------------- ----------- ---------- ---------- ----------- --------------
Market Subtotal........ 5 946,503 81% $2,233,060 3.4% $2.90 $2.83
---------- ------------- ----------- ---------- ---------- ----------- --------------
WEST REGION SUBTOTAL... 11 2,269,146 86% $5,975,083 9.1% $3.06 $3.02
Southwest Region
Dallas Market
Luna Road, Carrollton,
TX(3).................. 1997 1 205,400 50% $ 346,908 0.5% $3.37 $3.56
Airline Drive, Building
2, Coppell, TX......... 1990 1 140,800 100 492,804 0.8 3.50 3.34
---------- ------------- ----------- ---------- ---------- ----------- --------------
SOUTHWEST REGION/MARKET
SUBTOTAL.............. 2 346,200 70% $839,712 1.3% $3.45 $3.43
Midwest Region
Chicago Market
West 73rd Street,
Building 1, Bedford
Park, IL............... 1982 1 233,282 100% $ 671,482 1.0% $2.88 $2.67
West 73rd Street,
Building 2, Bedford
Park, IL............... 1986 1 380,269 100 1,034,331 1.6 2.72 2.52
West 73rd Street,
Building 3, Bedford
Park, IL............... 1979 1 232,000 100 720,953 1.1 3.11 2.80
Remington Street,
Bolingbrook, IL(3)..... 1996 1 212,333 100 796,925 1.2 3.75 3.75
Harvester Drive,
Chicago, IL............ 1974 1 212,922 100 798,458 1.2 3.75 3.57
Arthur Avenue, Elk
Grove, IL.............. 1978 1 230,768 100 653,076 1.0 2.83 3.04
Ambassador Road,
Naperville, IL(3)...... 1997 1 203,500 44 328,967 0.5 3.70 3.96
Mark Street, Wood Dale,
IL..................... 1985 1 234,000 100 809,992 1.3 3.46 2.91
---------- ------------- ----------- ---------- ---------- ----------- --------------
Market Subtotal........ 8 1,939,074 94% $5,814,184 8.9% $3.19 $3.03
Cincinnati/Northern Ken-
tucky Market
Holton Drive,
Independence, KY....... 1996 1 352,000 100% $ 991,952 1.5% $2.82 $3.04
International Way,
Hebron, KY............. 1990 1 192,000 100 556,800 0.9 2.90 2.81
International Road,
Building 1,
Cincinnatti, OH........ 1990 1 192,000 100 528,000 0.8 2.75 2.41
International Road,
Building 2,
Cincinnatti, OH........ 1990 1 204,800 100 720,896 1.1 3.52 3.53
---------- ------------- ----------- ---------- ---------- ----------- --------------
Market Subtotal........ 4 940,800 100% $2,797,648 4.3% $2.97 $2.97
Columbus Market
Westbelt Drive, Building
2, Columbus, OH........ 1980 1 229,200 100% $ 616,343 0.9% $2.69 $2.42
Equity Drive, Building
1, Columbus, OH........ 1980 1 227,480 100 648,318 1.0 2.85 2.90
---------- ------------- ----------- ---------- ---------- ----------- --------------
Market Subtotal........ 2 456,680 100% $1,264,661 1.9% $2.77 $2.66
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------- -----------------------------------
ANNUALIZED
EFFECTIVE
RENT
PER LEASED
YEAR BUILT/ NUMBER OF PER LEASED SQUARE
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT FOOT(2)
- -------------------------- ----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Market
North State Rd. #9,
Howe, IN................ 1988 1 346,515 100% $ 762,333 1.2% $2.20 $1.84
Lakefront Drive, Earth
City, MO................ 1995 1 189,017 100 656,400 1.0 3.47 3.78
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal......... 2 535,532 100% $1,418,733 2.2% $2.65 $2.52
---------- ------------- ----------- ----------- ---------- ----------- ----------
MIDWEST REGION
SUBTOTAL............... 16 3,872,086 97% $11,295,226 17.3% $3.01 $2.90
Southeast Region
Memphis Market
Pilot Drive, Memphis,
TN...................... 1987 1 336,080 100% $ 778,522 1.2% $2.32 $2.21
Orlando Market
Land Street, Orlando,
FL...................... 1997 1 355,732 47% $ 995,742 1.5% $5.95 $5.95
Charlotte Market
Reames Road, Charlotte,
NC...................... 1994 1 105,600 100% $ 318,227 0.5% $3.01 $3.01
Atlanta Market
Westgate Parkway,
Atlanta, GA............. 1988 1 231,835 100% $ 555,924 0.9% $2.40 $2.45
---------- ------------- ----------- ----------- ---------- ----------- ----------
SOUTHEAST REGION
SUBTOTAL............... 4 1,029,247 82% $ 2,648,415 4.1% $3.15 $3.12
Northeast Region
Baltimore/Washington
Market
Tar Bay Drive, Jessup,
MD...................... 1990 1 210,000 100% $ 800,527 1.2% $3.81 $3.81
Oceano Avenue, Jessup,
MD...................... 1987 1 243,500 100 998,350 1.5 4.10 4.04
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal......... 2 453,500 100% $1,798,877 2.7% $3.97 $3.94
New York/New Jersey
Market
Pepes Farm Road,
Milford, CT............. 1980 1 200,000 100% $ 829,998 1.3% $4.15 $4.07
South Middlesex Avenue,
Building 1,
Cranbury, NJ............ 1989 1 204,369 100 735,728 1.1 3.60 3.60
Birch Creek Road,
Bridgeport, NJ.......... 1991/1997 1 203,229 100 713,204 1.1 3.51 3.76
Pierce Street, Franklin
Township, NJ............ 1984 1 182,764 100 776,748 1.2 4.25 4.25
Herrod Boulevard, South
Brunswick, NJ(3)........ 1989 1 418,000 100 1,698,384 2.6 4.06 4.06
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal......... 5 1,208,362 100% $4,754,062 7.3% $3.93 $3.96
---------- ------------- ----------- ----------- ---------- ----------- ----------
NORTHEAST REGION
SUBTOTAL............... 7 1,661,862 100% $ 6,552,939 10.0% $3.94 $3.96
---------- ------------- ----------- ----------- ---------- ----------- ----------
BULK DISTRIBUTION PROP-
ERTIES TOTAL.......... 40 9,178,541 92% $27,311,375 41.8% $3.23 $3.17
MULTITENANT DISTRIBUTION
PROPERTIES:
West Region
Los Angeles Market
East Dyer Road, Santa
Ana, CA................. 1954/1965 1 372,096 100% $1,301,983 2.0% $3.50 $3.29
---------- ------------- ----------- ----------- ---------- ----------- ----------
San Francisco Market
Reed Avenue, Building 1,
West
Sacramento, CA.......... 1988 1 103,110 100% $ 378,141 0.6% $3.67 $4.06
Reed Avenue, Building 2,
West
Sacramento, CA.......... 1988 1 105,600 100 423,336 0.6 4.01 4.24
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal......... 2 208,710 100% $ 801,477 1.2% $3.84 $4.15
Seattle Market
Kent West Corporate
Park, II, Kent, WA...... 1989 1 250,820 100% $ 899,100 1.4% $3.58 $3.24
---------- ------------- ----------- ----------- ---------- ----------- ----------
WEST REGION SUBTOTAL.... 4 831,626 100% $ 3,002,560 4.6% $3.61 $3.49
Southwest Region
Dallas Market
113th Street, Arlington,
TX...................... 1979 1 79,735 100% $ 291,032 0.5% $3.65 $3.49
Airline Drive, Building
1, Coppell, TX.......... 1991 1 75,000 100 262,500 0.4 3.50 3.38
North Lake Drive,
Coppell, TX............. 1982 1 230,400 100 610,450 0.9 2.65 2.30
---------- ------------- ----------- ----------- ---------- ----------- ----------
SOUTHWEST REGION/MARKET
SUBTOTAL............... 3 385,135 100% $ 1,163,982 1.8% $3.02 $2.75
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
-------------------------- -----------------------------------
ANNUALIZED
EFFECTIVE
RENT
PER LEASED
YEAR BUILT/ NUMBER OF PER LEASED SQUARE
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT FOOT(2)
- -------------------------- ----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Midwest Region
Chicago Market
Medinah Road, Roselle, IL..... 1986 2 480,258 100% $ 2,618,591 4.0% $5.45 $5.45
High Grove Lane, Naperville,
IL........................... 1994 1 95,000 100 392,549 0.6 4.13 4.13
Western Avenue, Lisle, IL..... 1970/1985 1 67,996 100 383,143 0.6 5.63 4.50
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal.............. 4 643,254 100% $ 3,394,283 5.2% $5.28 $5.16
Cincinnati/Northern Kentucky
Market
Lake Forest Drive, Building 1,
Blue Ash, OH(3).............. 1978 1 239,891 98% $ 628,303 1.0% $2.67 $2.70
Lake Forest Drive, Building 2,
Blue Ash, OH(3).............. 1979 1 176,956 100 398,671 0.6 2.25 2.30
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal.............. 2 416,847 99% $ 1,026,974 1.6% $2.49 $2.53
Columbus Market
International Street, Colum-
bus, OH...................... 1988 1 152,800 100% $ 450,760 0.7% $2.95 $2.73
Port Road, Building 1, Colum-
bus, OH...................... 1995 1 205,109 100 672,903 1.0 3.28 3.27
Port Road, Building 2, Colum-
bus, OH...................... 1995 1 156,000 100 425,880 0.7 2.73 2.82
Westbelt Drive, Building 1,
Columbus, OH................. 1979 1 202,000 100 1,010,000 1.5 5.00 5.36
Dividend Drive, Columbus, OH.. 1980 1 144,850 100 429,881 0.7 2.97 3.11
Twin Creek Drive, Columbus,
OH........................... 1989 1 176,000 0 0 0.0 0.00 0.00
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal.............. 6 1,036,759 83% $ 2,989,424 4.6% $3.47 $3.56
Other Market
Sysco Court, Grand Rapids,
MI........................... 1985 1 62,700 100% $ 360,421 0.5% $5.75 $5.17
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
MIDWEST REGION SUBTOTAL...... 13 2,159,560 92% $ 7,771,102 11.9% $3.93 $3.91
SOUTHEAST REGION
Orlando Market
Orlando Central Park, Orlando,
FL........................... 1983 6 1,172,875 94% $ 3,729,932 5.7% $3.39 $2.81
Kingspointe Parkway, Orlando,
FL........................... 1991 1 101,870 100 340,141 0.5 3.34 3.34
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
SOUTHEAST REGION/MARKET
SUBTOTAL.................... 7 1,274,745 94% $ 4,070,073 6.2% $3.39 $2.85
Northeast Region
Boston Market
First Avenue, Needham, MA..... 1961/1992 1 119,573 100% $ 662,892 1.0% $5.54 $4.19
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
New York/ New Jersey Market
South Middlesex Avenue,
Building 2, Cranbury, NJ..... 1982 1 203,404 100% $ 661,062 1.0% $3.25 $3.25
Colony Road, Building 1,
Jersey City, NJ.............. 1976 1 262,453 100 918,438 1.4 3.50 3.41
Colony Road, Building 2,
Jersey City, NJ.............. 1974 1 124,933 100 499,732 0.8 4.00 3.79
Pulaski Boulevard, Bayonne,
NJ........................... 1974/1982 1 224,664 100 703,139 1.1 3.13 3.13
Port Jersey Boulevard,
Building 1, Jersey City, NJ.. 1974 1 425,121 100 1,802,297 2.8 4.24 4.22
Port Jersey Boulevard,
Building 2, Jersey City, NJ.. 1974 1 204,564 100 754,841 1.2 3.69 3.86
Industrial Drive, Building 1,
Jersey City, NJ.............. 1976 1 263,717 100 988,939 1.4 3.75 3.80
Industrial Drive, Building 2,
Jersey City, NJ.............. 1976 1 154,000 100 577,500 0.8 3.75 3.75
Industrial Drive, Building 3,
Jersey City, NJ.............. 1972 1 45,274 100 181,096 0.3 4.00 4.00
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal.............. 9 1,908,130 100% $ 7,087,044 10.8% $3.71 $3.71
Other Market
Ritter Road, Mechanicsburg,
PA........................... 1986 1 37,800 100% $ 248,970 0.4% $6.59 $5.44
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
NORTHEAST REGION SUBTOTAL.... 11 2,065,503 100% $ 7,998,906 12.2% $3.87 $3.77
----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
MULTITENANT DISTRIBUTION
PROPERTIES TOTAL.......... 38 6,716,569 96% $24,006,623 36.7% $3.71 $3.55
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------- -----------------------------------
ANNUALIZED
EFFECTIVE
RENT
PER LEASED
YEAR BUILT/ NUMBER OF PER LEASED SQUARE
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT FOOT(2)
- -------------------------- ----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WORKSPACE PROPERTIES:
West Region
Los Angeles Market
East Howell Avenue,
Building 1, Anaheim,
CA..................... 1968 1 81,475 100% $ 322,641 0.5% $ 3.96 $ 4.08
East Howell Avenue,
Building 2, Anaheim,
CA..................... 1991 1 25,962 100 109,040 0.2 4.20 4.20
Avenida Encinas, Carls-
bad, CA................ 1972 1 80,000 100 613,193 0.9 7.66 9.30
Avenida Encinas, Carls-
bad, CA................ 1993 1 126,008 100 682,711 1.0 5.42 6.44
Artesia Avenue, Building
1, Fullerton, CA....... 1991 1 55,498 100 211,749 0.4 3.82 3.82
Artesia Avenue, Building
2, Fullerton, CA....... 1991 1 60,502 100 224,944 0.3 3.72 3.81
Commonwealth Avenue,
Fullerton, CA.......... 1965 1 62,762 95 157,382 0.3 2.63 2.63
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal........ 7 492,207 99% $2,321,660 3.6% $ 4.74 $ 5.31
San Francisco Market
Brisbane Industrial
Park, Brisbane, CA..... 1965 15 549,128 98% $2,525,448 3.9% $ 4.68 $ 4.43
Huntwood Avenue, Hay-
ward, CA............... 1982 1 62,031 100 446,628 0.7 7.20 7.20
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal........ 16 611,159 98% $2,972,076 4.6% $ 4.94 $ 4.72
Seattle Market
Kent West Corporate Park
I, Kent, WA............ 1989 4 151,940 100% $ 966,456 1.4% $ 6.36 $ 6.08
---------- ------------- ----------- ----------- ---------- ----------- ----------
WEST REGION SUBTOTAL... 27 1,255,306 99% $ 6,260,192 9.6% $5.04 $5.12
Southwest Region
Dallas Market
Diplomat Drive, Carroll-
ton, TX................ 1997 1 56,535 100% $ 325,044 0.5% $ 5.75 $ 5.75
---------- ------------- ----------- ----------- ---------- ----------- ----------
SOUTHWEST REGION/MARKET
SUBTOTAL.............. 1 56,535 100% $ 325,044 0.5% $5.75 $5.75
Midwest Region
Cincinnati/Northern Ken-
tucky Market
Empire Drive, Florence,
KY..................... 1991 1 101,250 100% $ 318,999 0.5% $ 3.15 $ 3.15
Creek Road, Blue Ash, OH
(3).................... 1983 1 66,095 88 398,858 0.6 6.84 7.70
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal........ 2 167,345 95% $ 717,857 1.1% $ 4.50 $4.81
Columbus Market
Equity Drive, Building
2, Columbus, OH........ 1980 1 116,160 61% $ 415,371 0.6% $ 5.83 $ 5.33
---------- ------------- ----------- ----------- ---------- ----------- ----------
MIDWEST REGION
SUBTOTAL.............. 3 283,505 81% $ 1,133,228 1.7% $ 4.91 $ 4.97
Southeast Region
Charlotte Market
Old Charlotte Highway,
Monroe, NC............. 1957/1972 2 253,930 100% $ 986,000 1.5% $ 3.88 $ 3.55
---------- ------------- ----------- ----------- ---------- ----------- ----------
Orlando Market
Boggy Creek, Building 1,
Orlando, FL (3)........ 1992 1 52,500 99% $ 242,874 0.4% $ 4.66 $ 4.74
Boggy Creek, Building 2,
Orlando, FL (3)........ 1996 1 55,456 100 297,949 0.5 5.37 5.54
Land Street, Building 2,
Orlando, FL (3)........ 1987 1 55,456 40 116,228 0.2 5.29 5.65
Land Street, Building 3,
Orlando, FL (3)........ 1996 1 50,018 100 247,587 0.3 4.95 5.10
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal........ 4 213,430 84% $ 904,638 1.4% $ 5.04 $ 5.20
Other Market
Industrial Drive South,
Gluckstadt, MS......... 1988 1 160,000 100% $ 671,386 1.0% $ 4.20 $ 4.20
---------- ------------- ----------- ----------- ---------- ----------- ----------
SOUTHEAST REGION
SUBTOTAL.............. 7 627,360 95% $ 2,562,024 3.9% $ 4.32 $ 4.22
Northeast Region
Baltimore/Washington
Market
The Crysen Center,
Jessup, MD............. 1985 2 151,863 100% $ 697,087 1.1% $ 4.59 $ 4.14
Oakville Industrial
Park, Alexandria, VA... 1948 6 276,807 92 1,660,678 2.5 6.50 5.42
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal........ 8 428,670 95% $2,357,765 3.6% $ 5.79 $ 4.94
Boston Market
Technology Drive,
Auburn, MA............. 1973 1 54,400 100% $ 190,368 0.3% $ 3.50 $ 2.75
John Hancock Road,
Taunton, MA............ 1986 1 34,224 100 206,147 0.3 6.02 5.24
---------- ------------- ----------- ----------- ---------- ----------- ----------
Market Subtotal........ 2 88,624 100% $ 396,515 0.6% $ 4.47 $ 3.71
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------- -----------------------------------
ANNUALIZED
EFFECTIVE
RENT
PER LEASED
YEAR BUILT/ NUMBER OF PER LEASED SQUARE
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT FOOT(2)
- -------------------------- ----------- ---------- ------------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York/ New Jersey
Market
Memorial Drive,
Franklin Township, NJ... 1988 1 148,598 100% $1,036,120 1.6% $6.97 $6.43
---------- ------------- ----------- ----------- ---------- ----------- ----------
NORTHEAST REGION
SUBTOTAL............... 11 665,892 97% $ 3,790,400 5.8% $5.88 $5.12
---------- ------------- ----------- ----------- ---------- ----------- ----------
WORKSPACE PROPERTIES
TOTAL................. 49 2,888,598 96% $14,070,888 21.5% $5.08 $4.93
GRAND TOTALS.............. 127 18,783,708 94% $65,388,886 100.0% $3.70 $3.58
========== ============= =========== =========== ========== =========== ==========
</TABLE>
- -------
(1) "Annualized Net Rent" means annualized monthly Net Rent from leases in
effect as of September 30, 1997. "Net Rent" means contractual rent, excluding
any reimbursements for real estate taxes or operating expenses.
(2) "Annualized Effective Rent" means Annualized Net Rent, less amortization of
the related leasing costs, plus the effect of straight-lining rent steps.
(3) Property was acquired subsequent to September 30, 1997 or was a probable
acquisition as of November 25, 1997. The Property's Annualized Net Rent is as
of September 30, 1997 and Annualized Effective Rent is as of the estimated
acquisition date.
59
<PAGE>
INDUSTRIAL PROPERTY MARKET INFORMATION
Cognetics and CB Commercial/Torto Wheaton Research have each ranked the fastest
growing industrial property markets in the United States. Of the top 10 markets
ranked by each as listed below, the Company owns properties in those markets
highlighted in bold face text.
LEADING MARKETS FOR
FORECASTED NET ABSORPTION OF
INDUSTRIAL SPACE 1997-2002
----------------------------
1. ATLANTA
2. CHICAGO
3. RIVERSIDE
4. Houston
5. PHOENIX
6. WASHINGTON,
D.C.
7. Oakland
8. Portland
9. SEATTLE
10. DALLAS
TOP 10
DISTRIBUTION SPACE MARKETS
FORECASTED SPACE
DEMAND 1997-2002
--------------------------
1. NEW YORK/NEW JERSEY
2. LOS ANGELES
3. CHICAGO
4. SAN FRANCISCO BAY AREA
5. ATLANTA
6. DALLAS/FORT WORTH
7. Miami/Ft. Lauderdale
8. Houston/Galveston
9. PHOENIX
10. Detroit
TOP 10
FLEX/R&D MARKETS
FORECASTED SPACE
DEMAND 1997-2002
----------------
1. SAN FRANCISCO BAY AREA
2. LOS ANGELES
3. NEW YORK/NEW JERSEY
4. DALLAS/FORTH WORTH
5. CHICAGO
6. BOSTON
7. ATLANTA
8. SEATTLE
9. Minneapolis/St. Paul
10. PHOENIX
Source: CB Source: Cognetics Source: Cognetics
Commercial/Torto
Wheaton
Research
The Company's 15 principal markets, based on percentage of Annualized Net Rent
and percentage of rentable area, as of September 30, 1997, are set forth below:
<TABLE>
<CAPTION>
-----------------------------
PERCENT OF PERCENT OF
MARKET ANNUALIZED RENT RENTABLE AREA
------ --------------- -------------
<S> <C> <C>
New York/New
Jersey 19.7% 17.4%
Chicago 14.1 13.7
Los Angeles, including Riverside 11.3 11.6
Orlando 9.1 9.8
Columbus 7.1 8.6
Cincinnati/Northern
Kentucky 6.9 8.1
Baltimore/Washington,
D.C. 6.4 4.7
San Francisco, including San Jose 5.8 4.4
Dallas 3.6 4.2
Phoenix 3.4 5.0
Seattle 2.8 2.2
Charlotte 2.0 1.9
Boston 1.6 1.1
Memphis 1.2 1.8
Atlanta 0.9 1.2
Other Markets 4.1 4.3
------ ------
Total 100.0% 100.0%
====== ======
</TABLE>
60
<PAGE>
VACANCY RATE AND TW RENT INDEX FOR THE COMPANY'S 14 LARGEST MARKETS(1)
[GRAPH APPEARS HERE]
Label A
Label Vacancy
1 1992 10.4
2 1993 9.8
3 1994 8.6
4 1995 7.9
5 1996 7.8
6 1997 7.1
Source: CB Commercial/Torto Wheaton Research
- -------
(1) CB Commercial/Torto Wheaton Research defines the "TW Rent Index" as a "sta-
tistically computed dollar value for a three-year, 15,000 square foot lease for
an existing warehouse space in the statistical average of the metro or
submarket area." The TW Rent Index and vacancy rate in the chart above repre-
sent the weighted average of the TW Rent Index and vacancy rate for 14 of the
Company's 15 largest markets, as identified in the Company's principal targeted
markets table on the preceding page. The Memphis market is not covered by CB
Commercial/Torto Wheaton Research. The 1997 figures are forecasts.
NET ABSORPTION, COMPLETIONS AND VACANCY RATES FOR THE COMPANY'S 14 LARGEST
MARKETS (1)
[GRAPH APPEARS HERE]
Label A B
Label NetAbsorption Completions
1 1992 41792 22153
2 1993 46299 19248
3 1994 79764 24254
4 1995 78271 48837
5 1996 54562 53787
6 1997 90804 62529
Source: CB Commercial/Torto Wheaton Research
- -------
(1) CB Commercial/Torto Wheaton Research defines "net absorption" as the change
in occupied stock (completions less change in availability) of industrial
space, in square feet, during that period. The net absorption and completions
in the chart above represent the aggregate of such parameters, and the vacancy
rate in the chart above represents the weighted average vacancy rate, for 14 of
the Company's 15 largest markets, as identified in the Company's principal
targeted markets table on the preceding page. The Memphis market is not covered
by CB Commercial/Torto Wheaton Research. The 1997 figures are forecasts.
61
<PAGE>
TENANT INFORMATION
The following table sets forth the Company's 20 largest tenants based on
Annualized Base Rent as of November 18, 1997.
<TABLE>
<CAPTION>
---------------------------------------------------
MONTHS
TOTAL PERCENT REMAINING
LEASED ANNUALIZED OF ANNUALIZED AFTER
SQUARE BASE BASE NOVEMBER 18,
TENANTS(1) FEET(1) RENT(1)(2) RENT(1) 1997
- ---------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Forrestville Industries
(guaranteed by North
American Philips
Corporation) 480,258 $ 2,618,591 3.83% 44
Goodtimes Home Video Corp. 358,564 1,332,341 1.95 27
Excel Logistices, Inc.
(Merchants Home Delivery) 367,448 1,242,586 1.82 22
National Distribution
Centers 299,567 1,168,053 1.71 87
B. Dalton Bookseller
(guaranteed by Barnes &
Noble, Inc.) 306,901 1,161,699 1.70 33
Enesco Corporation 234,000 1,064,700 1.56 18
GATX Logistics, Inc. 380,269 1,034,331 1.51 23
CGM, Inc. (Tri-State Gift) 202,000 1,010,000 1.48 138
Giant of Maryland, Inc. 243,500 998,350 1.46 19
Menlo Logistics, Inc.
(guaranteed by Emery Air
Freight Corporation) 167,264 995,742 1.46 52
Appleton Papers, Inc. 352,000 991,952 1.45 103
CPC International, Inc. 263,717 988,939 1.45 53
Yale Security, Inc. 253,930 986,000 1.44 46
Food Warehousing Corp. 223,412 949,502 1.39 32
Port Jersey Distribution
Serivces, Inc. 262,453 918,438 1.34 53
LA Gear, Inc. 284,559 914,000 1.34 19
Reebok International Ltd. 336,080 907,416 1.33 16
Locust Industries Ltd.
Partnership 210,000 871,500 1.28 3
Waldes Truarc, Inc. 107,209 855,234 1.25 21
Totes, Inc. 204,800 813,056 1.19 79
--------- ----------- ------------- ------------
Total 5,537,931 $21,822,429 31.94% 44
========= =========== ============= ============
</TABLE>
- -------
(1) Aggregate of all affiliated entities based on information known.
(2) Annualized Base Rent means annual contractual rent.
The following table sets forth information relating to the distribution of the
Company's leases at the Properties based upon rentable square feet under lease
as of November 18, 1997.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PERCENT OF ANNUALIZED PERCENT
PERCENT TOTAL AGGREGATE BASE OF PORTFOLIO
SQUARE FOOTAGE NUMBER OF OF ALL LEASED LEASED RENT (IN ANNUALIZED
UNDER LEASE LEASES LEASES SQUARE FEET SQUARE FEET THOUSANDS) BASE RENT
- -------------- --------- ------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Less than 10,000 47 19.6% 250,538 1.4% $ 1,581 2.3%
10,001-20,000 27 11.3 383,661 2.1 2,094 3.1
20,001-50,000 55 22.9 1,772,401 9.9 7,947 11.6
50,001-100,000 43 17.9 3,124,839 17.3 12,636 18.5
100,001 and over 68 28.3 12,466,926 69.3 44,038 64.5
--------- ------- ----------- ----------- ---------- ------------
Total 240 100.0% 17,998,365 100.0% $68,296 100.0%
========= ======= =========== =========== ========== ============
</TABLE>
62
<PAGE>
LEASE EXPIRATIONS--PORTFOLIO TOTAL
The following table sets forth a summary schedule of lease expirations for the
Properties for leases in place as of November 18, 1997, assuming that none of
the tenants exercise renewal options or termination rights, if any, at or prior
to the scheduled expirations.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
ANNUALIZED PERCENT
ANNUALIZED BASE RENT OF ANNUALIZED
NUMBER OF EXPIRING LEASES BASE RENT OF OF EXPIRING BASE RENT OF
LEASES ---------------------- EXPIRING LEASES PER EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING SQUARE FEET % OF TOTAL LEASES(1) SQUARE FOOT(1) LEASES(1)
- ------------------------ --------- ----------- ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1997(2) 9 243,811 1.4% $ 1,066,276 $4.37 1.5%
1998 39 2,655,627 14.8% 9,027,043 3.40 13.2%
1999 47 3,738,432 20.8% 13,899,987 3.72 20.3%
2000 47 2,400,200 13.3% 9,878,164 4.12 14.5%
2001 39 2,642,321 14.7% 10,750,287 4.07 15.7%
2002 22 2,098,606 11.7% 7,560,209 3.60 11.1%
2003 9 788,749 4.4% 3,254,302 4.13 4.8%
2004 5 411,265 2.3% 1,472,895 3.58 2.2%
2005 6 749,765 4.2% 3,043,670 4.06 4.5%
2006 5 764,416 4.2% 2,862,928 3.75 4.2%
2007 7 708,990 3.9% 2,613,690 3.69 3.8%
2008 and beyond 5 796,183 4.3% 2,866,828 3.60 4.2%
--------- ----------- ---------- ------------ -------------- -------------
240 17,998,365 100.00% $68,296,279 $3.79 100.00%
========= =========== ========== ============ ============== =============
</TABLE>
- -------
(1) Based on currently payable rent.
(2) Represents lease expirations from November 18 to December 31, 1997 and
month-to-month leases.
The following reconciles the square footage of expiring leases set forth above
to the Company's total rentable square footage as of November 18, 1997.
<TABLE>
<CAPTION>
------------------------------
SQUARE PERCENTAGE
FOOTAGE TOTAL
---------- ----------
<S> <C> <C>
Square footage occupied by tenants 17,998,365 95.8%
Square footage vacant 785,343 4.2
---------- ----------
Total net rentable square footage 18,783,708 100.0%
========== ==========
</TABLE>
TENANT IMPROVEMENTS AND LEASING COMMISSIONS
The following table summarizes by year the Company's capitalized tenant
improvement and leasing commission expenditures incurred in the renewal or
releasing of previously occupied space for the past three years.
<TABLE>
<CAPTION>
------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cost per square foot $ 0.79 $ 0.97 $ 1.03
Renewed or released space in
square feet 4,880,988 2,578,374 2,347,899
Total expenditures $3,875,246 $2,490,707 $2,416,987
</TABLE>
RECURRING CAPITAL EXPENDITURES
The following table summarizes the recurring capital expenditures for the Prop-
erties for the last three years.
<TABLE>
<CAPTION>
--------------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Cost per square foot $ 0.20 $ 0.18 $ 0.23
Total portfolio square feet at
year end 14,449,744 11,588,260 8,959,973
Total recurring capital expenditures $ 2,830,780 $ 2,133,118 $2,076,193
</TABLE>
63
<PAGE>
INSURANCE
The Company maintains comprehensive insurance, including liability, fire, work-
ers' compensation, extended coverage, rental loss and, when available on rea-
sonable commercial terms, flood and earthquake insurance, with policy specifi-
cations, limits and deductibles customarily carried for other properties sim-
ilar to the Properties. The Company currently maintains blanket earthquake
insurance on all Properties located outside of California in amounts it deems
reasonable. With certain exceptions, the Company does not carry earthquake
insurance on its Properties located in California. In light of the California
earthquake risk, California building codes have since the early 1970's estab-
lished construction standards for all new buildings and also contain standards
for seismic upgrading of buildings intended to reduce the possibility and
severity of loss from earthquakes. It is the Company's policy to obtain assess-
ments from qualified third-party professionals of the seismic guidelines of its
Properties located in California and to conduct such seismic upgrading thereof
as it determines, on the basis of such third-party assessments, to be appropri-
ate. Such upgrading, however, does not eliminate the possibility of earthquake
loss. In addition, such upgrading with respect to a number of such Properties
is at various stages of completion as of the date hereof, ranging from initial
plan review to partial completion of construction. Of the Company's 32 Proper-
ties located in California, 13 were covered by earthquake insurance. Seismic
upgrading has been completed on four of the Properties located in California
and is expected to be completed with respect to all remaining Properties
located in California within 12 months from the date hereof. Certain types of
losses, such as those arising from subsidence activity, are insurable only to
the extent that certain standard policy exceptions to insurability are waived
by agreement with the insurer. The Company believes, however, that the Proper-
ties are insured in accordance with industry standards.
ENVIRONMENTAL MATTERS
In connection with the ownership and operation of the Properties, the Company
may be potentially liable for costs associated with the removal or remediation
of certain hazardous or toxic substances or the release of or exposure to haz-
ardous substances, including ACMs, into the air. See "Risk Factors and Invest-
ment Considerations--Real Estate Investment Risks--Possible Environmental Lia-
bilities."
ESAs were obtained in connection with initial acquisition of the Properties by
the Contributing Investors, for those Properties managed by Cabot Partners as
of September 30, 1997, and for all other Properties in connection with their
contribution to the Company in the Formation Transactions. The earliest of such
ESAs were obtained in 1988 and ESAs on approximately 40% of the Properties were
obtained prior to 1995. Commonly accepted standards and procedures for such
ESAs have evolved to encompass higher standards and more extensive procedures
over the period from 1988 to the present. The purpose of ESAs is to identify
potential sources of contamination for which the Company may be responsible and
to assess the status of environmental regulatory compliance. Where recommended
in the ESA, invasive procedures, such as soil sampling and testing or the
installation and monitoring of groundwater wells, were subsequently performed.
The ESAs, including subsequent procedures where applicable, have not revealed
any environmental liability that the Company believes would have a material
adverse affect on the Company's business, assets or results of operations, nor
is the Company aware of any such material environmental liability. Neverthe-
less, it is possible that the ESAs relating to any one of the Properties do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Neither the Company nor, to the
knowledge of the Company, any of the current owners of the Properties has been
notified by any governmental authority of any material noncompliance, liability
or claim relating to hazardous or toxic substances or other environmental sub-
stances in connection with any of its present or former properties.
LEGAL PROCEEDINGS
Neither the Company nor any of the Properties is presently subject to any mate-
rial litigation nor, to the Company's knowledge, is any litigation threatened
against the Company or any of the Properties, other than routine actions
arising in the ordinary course of business, substantially all of which are
expected to be covered by liability insurance and which in the aggregate are
not expected to have a material adverse effect on the business, results of
operations or financial condition of the Company.
64
<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a description of certain investment, financing and other poli-
cies of the Company. These policies have been adopted by the Company's Board of
Trustees and may be amended or revised from time to time without the approval
of the Company's shareholders, except that (i) the Company may not change its
policy of holding its assets and conducting its businesses only through the
Operating Partnership and its subsidiaries and other affiliates, including the
Management Company and joint ventures in which the Operating Partnership or a
subsidiary may be a partner, without the consent of the Limited Partners as
provided in the Operating Partnership Agreement, and (ii) changes in certain
policies with respect to conflicts of interest must be consistent with legal
requirements.
INVESTMENT POLICIES
The Company will conduct all of its investment activities through the Operating
Partnership and its subsidiaries and other affiliates, including the Management
Company and joint ventures in which the Operating Partnership or a subsidiary
may be a partner. The Company's investment objectives are to provide quarterly
cash distributions and achieve long-term capital appreciation through increases
in the value of the Company's portfolio of properties and its operations. For a
discussion of the Company's Properties and its property acquisition and other
strategic objectives, see "Properties" and "The Company--Business Strategies
and "--Operations." The Company's policies are to (i) purchase income-producing
industrial properties primarily for long-term capital appreciation and rental
growth, and (ii) expand and improve the Properties or other properties pur-
chased or sell such properties, in whole or in part, when circumstances war-
rant.
Equity investments may be subject to existing mortgage financing and other
indebtedness or to such financing or indebtedness as may be incurred in connec-
tion with acquiring or refinancing such equity investments. Debt service with
respect to such financing or indebtedness will have a priority over any distri-
butions with respect to the Common Shares. Investments are also subject to the
Company's policy not to be treated as an investment company under the Invest-
ment Company Act of 1940.
The Company expects to pursue its investment objectives primarily through the
direct ownership by the Operating Partnership of the Properties and other
acquired properties. The Company currently intends to invest primarily in
existing improved properties but may, if market conditions warrant, invest in
development projects as well. Future investment or development activities will
not be limited to any geographic area or product type or to a specified per-
centage of the Company's assets. While the Company intends to maintain diver-
sity in its investments in terms of property locations, size and market, the
Company does not have any limit on the amount or percentage of its assets that
may be invested in any one property or any one geographic area. The Company
intends to engage in such future investment and development activities in a
manner which is consistent with the maintenance of its status as a REIT for
federal income tax purposes.
While the Company's current portfolio consists of, and the Company's business
objectives emphasize, equity investments in commercial real estate, the Company
may, in the discretion of the Board of Trustees, invest in mortgages and deeds
of trust, consistent with the Company's continued qualification as a REIT for
federal income tax purposes, including participating or convertible mortgages
if the Company concludes that it may benefit from the cash flow or any appreci-
ation in value of the property secured by such mortgages. Investments in real
estate mortgages run the risk that one or more borrowers may default under such
mortgages and that the collateral securing such mortgages may not be sufficient
to enable the Company to recoup its full investment.
Subject to the limitations on ownership of certain types of assets and the
gross income tests imposed by the Code, the Company also may invest in the
securities of other REITs, other entities engaged in real estate activities or
other issuers, including for the purpose of exercising control over such enti-
ties. See "Federal Income Tax Considerations--Taxation of the Company--Gross
Income Tests" and "--Taxation of the Company--Asset Tests." The Company may
enter into joint ventures or partnerships for the purpose of obtaining an
equity interest in a particular property in accordance with the Company's
investment policies. Such investments may permit the Company to own interests
in larger assets without unduly restricting diversification and, therefore, add
flexibility in structuring its portfolio. The Company will not enter into a
joint venture or partnership to make an investment that would not otherwise
meet its investment policies.
FINANCING POLICIES
As a general policy, the Company intends to limit its total consolidated
indebtedness incurred so that at the time any debt is incurred, the Company's
Debt-to-Total Market Capitalization Ratio does not exceed 40%. The Company's
Declaration of
65
<PAGE>
Trust and Bylaws do not, however, limit the amount or percentage of indebted-
ness that the Company may incur. In addition, the Company may from time to time
modify its debt policy in light of current economic conditions, relative costs
of debt and equity capital, the market values of its properties, general condi-
tions in the market for debt and equity securities, fluctuations in the market
price of its Common Shares, growth and acquisition opportunities and other fac-
tors. Accordingly, the Company may increase its Debt-to-Total Market Capital-
ization Ratio beyond the limit described above. If its debt policy were
changed, the Company could become more highly leveraged, resulting in an
increased risk of default on its obligations and a related increase in debt
service requirements that could adversely affect the financial condition and
results of operations of the Company and the Company's ability to make distri-
butions to shareholders.
The Company has established its debt policy on the basis of its Debt-to-Total
Market Capitalization Ratio, rather than on the basis of a ratio of debt to the
book value of its assets, a ratio that is frequently employed, because it
believes that the book value of its assets (which to a large extent is the
depreciated value of real property, the Company's primary tangible asset) does
not accurately reflect its ability to borrow and to meet debt service require-
ments. The Debt-to-Total Market Capitalization, however, is subject to greater
fluctuation than book value ratios, and does not necessarily reflect the fair
market value of the underlying assets of the Company. Moreover, due to fluctua-
tions in the value of the Company's portfolio of properties over time, and
since any determination of the Company's Debt-to-Total Market Capitalization
Ratio is made only at the time debt is incurred, the Debt-to-Total Market Capi-
talization Ratio could exceed the 40% level.
The Company has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio as a whole.
Although the Company will consider factors other than its Debt-to-Total Market
Capitalization Ratio in making decisions regarding the incurrence of debt (such
as the purchase price of properties to be acquired with debt financing, the
estimated market value of properties upon refinancing and the ability of par-
ticular properties and the Company as a whole to generate sufficient cash flow
to cover expected debt service), there can be no assurance that the Debt-to-
Total Market Capitalization Ratio, or any other financial measure, at the time
the debt is incurred or at any other time will be consistent with any partic-
ular level of distributions to shareholders. See "Risk Factors and Investment
Considerations--Possible Changes in Policies Without Shareholder Approval; No
Limitation on Debt."
To the extent that the Board of Trustees decides to obtain additional capital,
the Company may raise such capital through additional equity offerings (in-
cluding offerings of senior securities), debt financings or retention of cash
available for distribution (subject to provisions in the Code concerning tax-
ability of undistributed REIT income), or a combination of these methods. As
long as the Operating Partnership is in existence, the net proceeds of the sale
of Common Shares by the Company will be transferred to the Operating Partner-
ship in exchange for that number of Units in the Operating Partnership equal to
the number of Common Shares sold by the Company. The Company presently antici-
pates that any additional borrowings would be made through the Operating Part-
nership, although the Company may incur indebtedness directly and loan the pro-
ceeds to the Operating Partnership. Borrowings may be unsecured or may be
secured by any or all of the assets of the Company, the Operating Partnership
or any existing or new property owning partnership and may have full or limited
recourse to all or any portion of the assets of the Company, the Operating
Partnership or any existing or new property owning partnership. Indebtedness
incurred by the Company may be in the form of bank borrowings, purchase money
obligations to sellers of properties, publicly or privately placed debt instru-
ments or financing from institutional investors or other lenders. The proceeds
from any borrowings by the Company may be used for working capital, to refi-
nance existing indebtedness or to finance acquisitions, expansions or the
development of new properties, and for the payment of distributions. See "Fed-
eral Income Tax Considerations."
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies that are intended to minimize poten-
tial conflicts of interest. However, there can be no assurance that these poli-
cies will 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.
Declaration of Trust and Bylaw Provisions
The Company's Declaration of Trust, with limited exceptions, requires that a
majority of the Company's Board of Trustees be comprised of individuals who are
not officers or employees of the Company ("Independent Trustees"). The fore-
going
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<PAGE>
requirement may not be amended, altered, changed or repealed without the affir-
mative vote of majority of all of the outstanding shares of the Company enti-
tled to vote on the matter. The Declaration of Trust also includes a provision
generally permitting the Company to enter into any agreement or transaction
with any person, including any Trustee, officer, employee or agent of the Com-
pany. The Operating Partnership Agreement provides that neither the Company nor
any of its affiliates (including its officers and Trustees) may sell, transfer
or convey any property to, or purchase any property from, the Operating Part-
nership except on terms that are fair and reasonable and no less favorable than
would be obtained from an unaffiliated party.
The Operating Partnership
The Operating Partnership Agreement gives the Company, in its capacity as gen-
eral partner, full, complete and exclusive discretion in managing and control-
ling the business of the Operating Partnership and in making all decisions
affecting the business and assets of the Operating Partnership. Pursuant to the
Operating Partnership Agreement, the Limited Partners have agreed that the Com-
pany is acting on behalf of the Operating Partnership and the Company's share-
holders generally and, in its capacity as general partner of the Operating
Partnership, the Company is under no obligation to consider the separate inter-
ests of the Limited Partners in deciding whether to cause the Operating Part-
nership to take (or decline to take) any actions which the Company, in its
capacity as general partner, has undertaken in good faith on behalf of the
Operating Partnership. In addition, the Company in its capacity as general
partner is not responsible for any misconduct or negligence on the part of its
agents, provided that such agents were appointed in good faith.
Provisions of Maryland Law
Under the MGCL, a contract or other transaction between a corporation and any
of its directors and any other corporation, firm or other entity in which any
of its directors is a director or has a material financial interest is not void
or voidable solely because of (a) the common directorship or interest, (b) the
presence of the director at the meeting of the board or a committee of the
board that authorizes, approves or ratifies the contract or transaction or (c)
the counting of the vote of the director for the authorization, approval or
ratification of the contract or transaction if (i) after disclosure of the
interest, the transaction is authorized, approved or ratified by the affirma-
tive vote of a majority of the disinterested directors, or by the affirmative
vote of a majority of the votes cast by stockholders entitled to vote other
than the votes of shares owned of record or beneficially by the interested
director or such corporation, firm or other entity, or (ii) the transaction is
fair and reasonable to the corporation.
Policies with Respect to Other Activities
The Company may, but does not presently intend, to make investments other than
as previously described. The Company has authority to offer its Common Shares,
other shares of beneficial interest or other securities for cash or in exchange
for property and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. As described under
"Shares Available for Future Sale," the Company expects to issue Common Shares
to holders of Units upon exercise of their Exchange Rights. The Company has not
issued Common Shares, interests or any other securities to date, except in con-
nection with the formation of the Company. The Company has no outstanding loans
to other entities or persons, including its officers and Trustees. The Company
has not engaged in trading, underwriting or agency distribution or sale of
securities of other issuers, nor has the Company invested in the securities of
other issuers other than the Operating Partnership for the purpose of exer-
cising control and currently does not intend to do so. The Company makes and
intends to continue to make investments in such a way that it will not be
treated as an investment company under the Investment Company Act of 1940. The
Company's policies with respect to such activities may be reviewed and modified
or amended from time to time by the Company's Board of Trustees without
approval of the Company's shareholders.
At all times, the Company intends to make investments in such a manner consis-
tent with the requirements of the Code for the Company to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in Trea-
sury Regulations), the Company's Board of Trustees determines that it is no
longer in the best interests of the Company to qualify as a REIT.
WORKING CAPITAL RESERVES
The Company intends to maintain working capital reserves in amounts that the
Board of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.
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<PAGE>
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the Company's execu-
tive officers and Trustees (including those persons who have agreed to become
Trustees upon the closing of the Offering).
<TABLE>
<CAPTION>
-------------------------------------------------
TERM
NAME AGE POSITION EXPIRING
- ---- --- -------- --------
<S> <C> <C> <C>
Ferdinand Colloredo- 58 Chairman of the Board and Chief 2000
Mansfeld(1) Executive Officer, Trustee
Robert E. Patterson 52 President, Trustee 2000
Noah T. Herndon (2) 64 Trustee
Christopher C. Milliken (2) 52 Trustee
Maurice Segall (2) 68 Trustee
W. Nicholas Thorndike (2) 64 Trustee
Ronald L. Skates (2) 56 Trustee
Franz Colloredo-Mansfeld(1) 34 Chief Financial Officer
Andrew D. Ebbott 41 Senior Vice President--Director of
Acquisitions
Howard B. Hodgson, Jr. 41 Senior Vice President--Director of
Real Estate Operations
Neil E. Waisnor 42 Senior Vice President--Finance,
Treasurer and Secretary
Eugene F. Reilly 36 Senior Vice President--Director of
Leasing, Marketing and Development
Gerald F. Ianetta 36 Vice President, Asset Management
Jean M. Murphy 34 Vice President, Asset Management
Brian R. Barringer 31 Vice President, Acquisitions
Mark A. Bechard 31 Vice President, Financial Planning
Andrew J. Klouse 32 Vice President, Financial Reporting
Andrew G. LeStage 27 Asset Manager
Jeffrey G. Swanson 26 Asset Manager
John F. Malloy 52 Senior Vice President, Management
Company
Peter F. Tague 58 Senior Vice President, Management
Company
</TABLE>
- -------
(1) Messrs. Ferdinand and Franz Colloredo-Mansfeld are father and son.
(2) Has agreed to become a Trustee upon the closing of the Offering.
The following paragraphs summarize the business experience of the Trustees and
executive officers of the Company:
Ferdinand Colloredo-Mansfeld has been Chairman, Chief Executive Officer and
Chief Investment Officer of Cabot Partners since he founded it in 1990, having
previously served in the same positions with Cabot Advisors since its formation
in 1986. Mr. Colloredo-Mansfeld began his real estate career in 1970 when he
joined the Cabot, Cabot & Forbes, a national real estate development, manage-
ment and construction firm, becoming its Chief Financial Officer in 1973, Chief
Operating Officer in 1974 and Chief Executive Officer in 1976, a position he
held until his retirement from Cabot, Cabot & Forbes in 1989. As Chief Execu-
tive Officer, Mr. Colloredo-Mansfeld oversaw the development and management of
approximately $4 billion of commercial properties in twenty states including 35
master planned suburban business and industrial parks. Mr. Colloredo-Mansfeld
is a graduate of Harvard College and Harvard Business School. He is a limited
partner in Brown Brothers, Harriman and Company and is a Director of Data Gen-
eral Corporation and Raytheon Company. He is Chairman of the Board of Trustees
of Massachusetts General Hospital and a Trustee of Partners HealthCare System,
Inc.
Robert E. Patterson has been Executive Vice President, Director of Acquisitions
and a member of the Investment Committee of Cabot Advisors and Cabot Partners
since 1987. He was also a founding partner of Cabot Partners upon its formation
in 1990. Mr. Patterson began his real estate career in 1972 as a lawyer with
the firm of Gaston Snow & Ely Bartlett. In 1978, he became the first Executive
Director of the Massachusetts Industrial Finance Agency and remained in
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that position until 1983 when he joined the Beal Companies, a Boston-based real
estate development, management and investment firm as Senior Vice President. He
joined Cabot, Cabot & Forbes Realty Advisors, Inc. in 1987 to head its acquisi-
tions group and was a founding partner of Cabot Partners upon its formation as
an independent entity in 1990. Mr. Patterson is a graduate of Harvard College
and Harvard Law School. He is a Trustee of the Putnam Group of Mutual Funds and
is Chairman of the Board of Trustees of the Joslin Diabetes Center. He is a
member of numerous industry associations including the National Association of
Real Estate Investment Trusts, the Society of Industrial and Office Realtors,
the Urban Land Institute and the National Association of Real Estate Investment
Managers.
Noah T. Herndon is a Partner of Brown Brothers Harriman & Co., where he has
worked since 1958. Mr. Herndon is a Director of Fieldcrest Cannon, Inc.,
National Auto Credit, Inc., Scully Signal Company, Standard Mutual Insurance
Company, Watts Industries, Inc., Wonalancet Company and Zoll Medical Company.
He is an Overseer of the Museum of Science, Boston, and the Tufts University
School of Veterinary Medicine. He is Trustee and Treasurer of Dumaines Trust,
and Trustee of the Museum of the American Textile History, The Carroll School
and Thompson Island Outward Bound Education Center. Mr. Herndon is a graduate
of Princeton University and Harvard Business School.
Christopher C. Milliken has been the Senior Vice President, Operations of the
Boise Cascade Office Products Corporation since 1995, previously having served
as the Eastern Region Manager from 1990. Prior to beginning his career at Boise
Cascade Office Products Corporation in 1977, Mr. Milliken served in various
merchandise management positions at Marshall Fields & Company from 1970 to
1977. Mr. Milliken is a graduate of Clemson University.
Maurice Segall has been a senior lecturer at the MIT-Sloan School of Management
and a senior advisor to the Boston Consulting Group since 1989. Until 1989, he
was Chairman, President and Chief Executive Corporate Officer of Zayre Corpora-
tion which he joined as President and Chief Executive Officer in 1978. Mr.
Segall is a Director of AMR Corporation and Harcourt General, Inc. He is
Trustee of Massachusetts General Hospital, Beth Israel Hospital, and the Museum
of Fine Arts, Boston. Mr. Segall is a graduate of McGill University, Columbia
University and the London School of Economics.
Ronald L. Skates has been President, Chief Executive Officer and a Director of
Data General Corporation since 1989. Prior to joining Data General Corporation
in 1986, Mr. Skates was a Partner of Price Waterhouse LLP, certified public
accountants. He is a member of the American Institute of Certified Public
Accountants and the Massachusetts Society of Certified Public Accountants. He
is also a Trustee of Massachusetts General Hospital, an Overseer of the Boston
Museum of Fine Arts, and Vice Chairman and a Director of the Massachusetts High
Technology Council. Mr. Skates is a graduate of Harvard College and Harvard
Business School.
W. Nicholas Thorndike retired in 1988 from Wellington Management
Company/Thorndike, Doran, Paine and Lewis where he was Chairman of the Board
and Managing Partner. Mr. Thorndike is a Director of Courier Corporation, Data
General Corporation, The Providence Journal (where he is Chairman of the Execu-
tive Committee), and Bradley Real Estate Inc. He is a Trustee and a former
Chairman of the Board and President of Massachusetts General Hospital, and a
Trustee of Eastern Utilities Associates, Northeastern University and The Putnam
Funds. Mr. Thorndike is a graduate of Harvard University.
Franz Colloredo-Mansfeld has been a Senior Vice President of Cabot Partners
since 1996. He was a Senior Engagement Manager of McKinsey & Company, Inc. from
1992 through 1996. He previously worked for the Deutsche Bank real estate
investment group in 1992 and was a Robert Bosch Fellow at the German Central
Bank (Bundesbank) in 1991 (Frankfurt, Germany). He was also an investment
banker with Merrill Lynch & Co. from 1986 through 1989 where he worked in
Mergers and Acquisitions. Mr. Colloredo-Mansfeld is a graduate of Harvard Col-
lege and Harvard Business School. He is a director or trustee of numerous char-
itable organizations.
Andrew D. Ebbott joined Cabot Advisors in 1988 as Director of Research and a
member of its acquisition department, becoming a Vice President in 1991 and a
Senior Vice President in 1995 of Cabot Partners. Mr. Ebbott is a graduate of
Dartmouth College and the University of Chicago Business School. He has over 11
years experience in real estate finance, investments and research and is a
member of the American Institute of Certified Public Accountants, the National
Association of Real Estate Investment Managers and the National Council of Real
Estate Investment Fiduciaries.
Howard B. Hodgson, Jr. has been a Senior Vice President--Director of Asset Man-
agement and Member of the Investment Committee of Cabot Partners since 1992.
Mr. Hodgson began his real estate career in 1979 with the Boston-based real
estate firm R.M. Bradley & Co., Inc., becoming the head of its institutional
property management group prior to joining CC&F Asset Management Company, a
subsidiary of Cabot, Cabot & Forbes, in 1991 as a Senior Vice President and
head
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of its property management group. Mr. Hodgson is a graduate of Northeastern
University. He is a Trustee and a member of the Board of Investment of the Cam-
bridge Savings Bank. He is a member of the Building Owners and Managers Associ-
ation, the National Association of Industrial and Office Parks and the National
Council of Real Estate Investment Fiduciaries.
Neil E. Waisnor was a founding partner of Cabot Partners, joining as a Vice
President and Treasurer in 1990 and becoming a Senior Vice President and Chief
Financial Officer in 1995. Prior to joining Cabot Partners, he was Vice Presi-
dent and Controller of Cabot, Cabot & Forbes, where he served in a variety of
financial capacities since 1985. He worked for Arthur Andersen & Co. from 1977
until 1985 where he was a senior audit manager serving real estate and high
technology companies. Mr. Waisnor is a graduate of the University of Massachu-
setts at Amherst and is a member of the American Institute of Certified Public
Accountants, the Massachusetts Society of Certified Public Accountants, the
National Association of Real Estate Investment Managers and has served on the
Accounting Committee of the National Council of Real Estate Investment
Fiduciaries.
Eugene F. Reilly has been Director of Leasing and Marketing of Cabot Partners
since 1992, becoming Senior Vice President in 1996. Mr. Reilly began his real
estate career with the Boston commercial real estate brokerage firm of Leggat
McCall and Werner in 1983 and subsequently became a leasing broker with Julien
J. Studley, Inc. In 1985, he joined National Development Corporation where he
became a Senior Vice President prior to joining Cabot Partners as a Vice Presi-
dent in 1992. Mr. Reilly is a graduate of Harvard College. He is a member of
the National Association of Industrial and Office Parks, the Industrial Devel-
opment Research Council and The Council of Logistics Managers.
Robert M. Angland served as President, Chief Operating Officer and a member of
the Investment Committee of Cabot Advisors and Cabot Partners from 1986 to
1997. He was a founding partner of Cabot Partners upon its formation as an
independent entity in 1990. Mr. Angland's real estate experience began in 1974
when he joined Equitable Life Assurance Society where he rose to head its Group
Pension Department and its Real Estate Capital Acquisition Department. He also
served as a member of its Pension Investment Committee. In 1983 he was instru-
mental in founding Lehndorff & Babson Real Estate Counsel, an institutional
real estate advisor. Mr. Angland is a graduate of Lesley College. He is a
member of numerous industry associations, including the National Association of
Real Estate Investment Trusts.
Gerald F. Ianetta has been a Vice President, Asset Management of Cabot Partners
since 1993. He is also the Senior Regional Asset Manager and oversees the man-
agement of assets located in the Northeast and South regions. Prior thereto, he
was an asset manager at The Boston Company Real Estate Counsel, Inc. which he
joined in 1989. Mr. Ianetta began his career in real estate asset management in
1982 upon joining CC&F Asset Management Company, Inc., an affiliate of Cabot
Partners. Mr. Ianetta is a graduate of Bentley College.
Jean M. Murphy has been an Asset Manager of Cabot Partners since 1989. Ms.
Murphy is a graduate of Shiller International University in Paris, France. She
is an Insurance Institute of America Associate in Risk Management.
Brian R. Barringer has been a Regional Manager of Acquisitions at Cabot Part-
ners since 1994. Prior to joining Cabot Partners, Mr. Barringer was a leasing
agent covering retail, office, and industrial properties with Combined Proper-
ties (Washington, D.C.) between 1991 and 1992, and with the Trammell Crow Com-
pany (Washington D.C. and Cleveland, Ohio) from 1989 to 1991. Mr. Barringer is
a graduate of Harvard Business School and Harvard University.
Mark A. Bechard served as a Senior Portfolio Accountant of Cabot Partners from
1993. Mr. Bechard served as a real estate analyst at the Codman Company between
1993 and 1990. Mr. Bechard is a graduate of Salem State College.
Andrew J. Klouse served as a Manager of Portfolio Accounting at Cabot Partners
from 1994. He was an Assistance Vice President at The Boston Company Real
Estate Counsel, Inc. from 1990 to 1993 and an accountant at Liberty Real Estate
between 1988 and 1990. Mr. Klouse is a graduate of the University of Bridge-
port.
Andrew G. LeStage has been an Asset Manager for Cabot Partners since 1996. He
is responsible for the Midwest and Southwest regions. From 1993 to 1996, he was
a Property Manager with John Burnham & Company in San Diego. He is a graduate
of Bucknell University.
Jeffrey G. Swanson joined Cabot Partners as an Asset Manager in 1997. He will
manage properties for the Management Company. From 1993 to 1997, he was an
Assistant Vice President with AEW Capital Management and its predecessor compa-
nies. He is a graduate of Colgate University.
John F. Malloy has been a Senior Vice President of Cabot Partners since 1990,
having previously served in a similar position with Cabot Advisors since 1986.
He has been an institutional investment counselor for over twenty years and
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<PAGE>
began his institutional real estate experience upon joining the Equitable Life
Assurance Society in 1980. He subsequently worked with Lehndorff & Babson Real
Estate Counsel, Inc., before joining Cabot Advisors. Mr. Malloy is a graduate
of Fitchburg State College and Northeastern University. He is a Director of the
Boston Adult Literacy Fund and a member of the Association of Investment Man-
agement Sales Executives.
Peter F. Tague has been a Senior Vice President of Cabot Partners since 1990,
having previously served in a similar position with Cabot Advisors in 1987. He
worked with Boston Financial Real Estate Advisors from 1984 until joining Cabot
Advisors in 1987. He has been an institutional investment counselor for over
twenty-five years, beginning his investment career as a fixed income analyst
and portfolio manager with the Bank of Boston in 1964. Mr. Tague is a graduate
of Harvard College. He is a member of the National Association of Real Estate
Investment Trusts, and the Pension Real Estate Association.
BOARD OF TRUSTEES
The business and affairs of the Company will be managed under the direction of
the Board of Trustees. Pursuant to the terms of the Company's Declaration of
Trust, the Trustees are divided into three classes. One class will hold office
initially for a term expiring at the annual meeting of shareholders to be held
in 1998, a second class will hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1999, and a third class will hold
office initially for a term expiring at the annual meeting of shareholders to
be held in 2000. At each annual meeting of the shareholders of the Company, the
successors to the class of Trustees whose terms expire at that meeting will be
elected to hold office for a term continuing until the annual meeting of share-
holders held in the third year following the year of their election and the
election and qualification of their successors. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws."
COMMITTEES OF THE BOARD OF TRUSTEES
Audit Committee. Within 30 days following the closing of the Offering, the
Board of Trustees of the Company will establish an Audit Committee that will
consist of not less than three Independent Trustees. The Audit Committee will
make recommendations concerning the engagement of independent public accoun-
tants, 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 accoun-
tants, consider the range of audit and non-audit fees and review the adequacy
of the Company's internal accounting controls.
Executive Compensation Committee. The Board of Trustees will also establish an
Executive Compensation Committee (the "Compensation Committee") comprised of
two or more Independent Trustees to determine the compensation levels and poli-
cies for the Company's executive officers and to implement the Company's Long
Term Incentive Plan.
The Board of Trustees will not have a standing nominating committee.
COMPENSATION OF TRUSTEES
The Independent Trustees will receive annual retainer fees of $18,000 and per
meeting compensation of $1,000. The chairmen of the Audit Committee and the
Compensation Committee will each receive an additional $1,000 annually for
their services in such capacities. Officers of the Company who are Trustees
will not receive any separate compensation for their service as Trustees.
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<PAGE>
EXECUTIVE COMPENSATION
The Company was organized as a Maryland real estate investment trust on October
10, 1997, and has not to date paid any cash compensation to its executive offi-
cers. The following table sets forth the base compensation proposed to be paid
and the initial amounts of stock options proposed to be granted to the
Company's Chief Executive Officer and each of the other executive officers
indicated (collectively, the "Named Executive Officers") during the fiscal year
ending December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------
BASE STOCK
NAME AND PRINCIPAL POSITION SALARY RATE OPTIONS(1)
--------------------------- ----------- ----------
<S> <C> <C>
Ferdinand Colloredo-Mansfeld $265,000
Chairman of the Board and
Chief Executive Officer
Robert E. Patterson 245,000
President
Franz Colloredo-Mansfeld 175,000
Chief Financial Officer
Andrew D. Ebbott 175,000
Senior Vice President
Howard B. Hodgson, Jr. 175,000
Senior Vice President
Eugene F. Reilly 175,000
Senior Vice President
Neil E. Waisnor 175,000
Senior Vice President, Treasurer and Secretary
</TABLE>
- -----------
(1) All options will vest in four equal annual installments commencing on the
first anniversary of the date of grant and will have per share exercise prices
equal to the Offering Price.
In addition to cash compensation in the form of annual base salary, the Company
will have a cash bonus incentive plan pursuant to which cash bonuses may be
awarded to executive officers and other key employees based on attainment of
specified personal and corporate objectives. The amounts of such bonuses may,
depending on the level of an individual's corporate responsibility and attain-
ment of specified objectives, range up to 100% of the individual's annual base
salary.
EMPLOYMENT AGREEMENTS
Messrs. Ferdinand Colloredo-Mansfeld, Robert E. Patterson and Franz Colloredo-
Mansfeld will enter into employment agreements with the Company. Each agreement
will be for an initial term of three years, which will be automatically renewed
for successive one-year periods unless otherwise terminated. The agreements
will provide for base annual compensation in the amounts set forth in "--Execu-
tive Compensation" above and incentive compensation to be determined by the
Board of Trustees or the Compensation Committee thereof. The base annual com-
pensation may be increased in subsequent years by action of the Board of
Trustees or the Compensation Committee. Each of the employment agreements pro-
vides for certain severance payments in the event of disability or termination
by the Company without cause or by the employee for good reason. Each executive
will be required under the terms of his employment agreement to devote substan-
tially all of his business time to the affairs of the Company. The agreements
also prohibit each executive from engaging, directly or indirectly, during the
term of his employment in activities that compete with those of the Company.
LONG TERM INCENTIVE PLAN
Prior to the Offering, the Board of Trustees will adopt, and the sole share-
holder of the Company will approve, the Cabot Industrial Trust Long Term Incen-
tive Plan (the "Long Term Incentive Plan") for the purpose of attracting and
retaining highly qualified executive officers, Trustees and employees. The Long
Term Incentive Plan will be administered by the Compensation Committee of the
Board of Trustees, provided that the Board of Directors of the Management Com-
pany or a committee thereof will select those employees of the Management Com-
pany who are eligible for awards under the Long Term Incentive Plan. As used in
this summary, the term "Administrator" means the applicable Board or committee
or its
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delegate, as appropriate. Officers and other employees of the Company, the
Operating Partnership and designated subsidiaries, including the Management
Company, and members of the Board of Trustees who are not employees of the
Company ("Non-employee Trustees") will be eligible to participate in the Long
Term Incentive Plan. Certain awards will be made to the Non-employee Trustees
automatically and the applicable Administrator will select the other individ-
uals who will participate in the Plan ("Participants"). No option or other
incentive award may be granted under the Long Term Incentive Plan after Decem-
ber 31, 2007.
Options awarded to Participants in the Long Term Incentive Plan who are Non-
employee Trustees or employees of the Company relate to Common Shares. Options
awarded to Participants in the Plan who are employees of the Management Com-
pany relate to Units. The Long Term Incentive Plan authorizes the issuance of
up to Common Shares and Units. The number of Common Shares and Units
available may increase on each January 1 to an amount equal to 10% of the
aggregate number of outstanding Common Shares and Units on such date. The
number of Common Shares or Units underlying awards made to any one individual
in any one-year period may not exceed 500,000 Common Shares or 500,000 Units
or any combination thereof. The Long Term Incentive Plan provides for the
grant of (i) Common Share options intended to qualify as incentive options
under Section 422 of the Code, (ii) Common Share options and Unit options not
intended to qualify as incentive options under Section 422 of the Code and
(iii) dividend equivalent rights and distribution equivalent rights which
entitle a Participant to be credited with additional Common Share or Unit
Rights.
In connection with the grant of options under the Long Term Incentive Plan
other than options to Non-employee Trustees, the Administrator will determine
the terms of the option, including the option exercise price and any vesting
requirements and whether a dividend equivalent right or a distribution equiva-
lent right shall be awarded in conjunction, respectively, with a Common Share
option or a unit option. The Administrator has authority to award options at
less than fair market value (as defined in the Long Term Incentive Plan) but
at this time has no intention of doing so. At the time of a Non-employee
Trustee's initial election or appointment as a Trustee, such Trustee shall
automatically receive an option to purchase 10,000 Common Shares. Thereafter,
at the closing of the annual meeting of the Trust's shareholders, each contin-
uing Non-employee Trustee shall receive an option to purchase an additional
4,000 Common Shares. Effective as of the closing of the Offering, options for
Common Shares and Units will be granted to employees, officers and Non-
employee Trustees, including the officers named in "--Executive Compensation"
above, with an exercise price equal to the Offering Price. The initial options
granted under the Long Term Incentive Plan will have ten-year terms and will
become exercisable in four equal annual installments commencing on the first
anniversary of the date of grant, subject to acceleration of vesting upon a
change in control of the Company (as defined in the Long Term Incentive Plan).
A Common Share option granted under the Long Term Incentive Plan may be exer-
cised for any number of whole Common Shares less than the full number of
Common Shares for which the option could be exercised. A Unit option may be
exercised for any number of whole units less than the full number of Units for
which the option could be exercised. A holder of an option will have no rights
as an owner with respect to the Common Shares or Units, as applicable, subject
to his or her option until the option is exercised. To the extent an option
has not become exercisable at the time of the holder's termination of employ-
ment, it will be forfeited unless the Administrator has previously exercised
its reasonable discretion to make such option exercisable, and all vested
options which are not exercised by the expiration date described in the Long
Term Incentive Plan will be forfeited. Any Common Shares or Units subject to
an option which is forfeited (or which expires without exercise) will again be
available for grant under the Long Term Incentive Plan. Payment of the exer-
cise price of a Common Share option granted under the Long Term Incentive Plan
may be made in cash or by exchanging Common Shares that have been held by the
Participant for at least six months, or in any combination thereof, as deter-
mined by the Administrator. Payment of the exercise price of a Unit option
shall be made in cash.
SAVINGS PLAN
The Company intends to assume and continue, and the Operating Partnership and
designated subsidiaries, including the Management Company (each, a "Partici-
pating Employer"), intend to adopt, the Cabot Partners Employee Savings Plan
(the "401(k) Plan"). Prior service with Cabot Partners will be credited in
full as service with the Company or a Participating Employer for all purposes
under the 401(k) Plan, including eligibility and vesting.
The 401(k) Plan permits each participating employee to elect to defer up to
15% of base compensation, subject to the annual statutory limitation pre-
scribed by Section 402(g) of the Code, on a pre-tax basis. Plan participants
may also elect to make an after-tax contribution of up to % of their base
compensation. The Company and the Participating Employers will make matching
contributions equal to % of amounts deferred up to $ in deferrals. The Com-
pany and the Participating Employers may also make annual contributions if the
Company achieves certain performance objectives to be determined on an annual
basis by the Compensation Committee. Matching and discretionary contributions
will be made in cash or Common Shares.
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<PAGE>
INDEMNIFICATION
The Company will enter into indemnification agreements with each of its execu-
tive officers and Trustees that will require that the Company indemnify such
persons to the fullest extent permitted by law and reimburse them for legal and
related expenses as incurred, in connection with litigation to which they may
become subject as a result of their positions with the Company, subject to an
obligation to reimburse the Company if it is ultimately determined that indem-
nification is not permitted in such circumstances. Although the indemnification
agreements will provide substantially the same scope of indemnification as that
to which the Company's officers and Trustees will be entitled under the
Company's Bylaws and applicable law, such agreements may provide greater assur-
ance to directors and executive officers that indemnification will be avail-
able, because, as a contract, they cannot be modified unilaterally in the
future by the Board of Trustees or the shareholders to eliminate the rights
they provide. For a description of the limitation of liability and indemnifica-
tion rights of the Company's officers and Trustees, see "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws--Limitation
of Liability and Indemnification."
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FORMATION TRANSACTIONS AND COMPANY ACQUISITIONS
The Company was formed to continue and to expand Cabot Partners' national
industrial real estate business and to acquire the Properties. Prior to or
simultaneously with the closing of the Offering, the Company will complete the
Formation Transactions described below, which are designed to consolidate the
ownership of the Properties and Cabot Partners' industrial real estate busi-
ness (and certain of its related assets) in the Company, to facilitate the
Offering and to enable the Company to qualify as a REIT commencing with its
short taxable year ending December 31, 1997.
FORMATION TRANSACTIONS
The principal focus of Cabot Partners' real estate advisory services for third
parties has been on assisting pension funds and other institutional investors
in developing industrial real estate investment strategies that are appro-
priate to their needs, implementing such strategies through identifying suit-
able properties for acquisition, acquiring and managing such properties for
the advisory clients and, ultimately, deciding when to sell such investments
and conducting the sale process. Such services are provided pursuant to
written contracts (the "Advisory Contracts") entered into between Cabot Part-
ners and the advisory client. The advisory clients hold such real estate
investments in a variety of forms, predominantly including single asset corpo-
rations of which a single pension fund or other advisory client is the sole
direct or indirect stockholder, but also including direct ownership of the
properties in certain cases and ownership through a corporation established
and managed by Cabot Partners for the purpose of providing a vehicle for
pooled investment by institutional clients.
In preparation for the Offering and in connection with the closing thereof,
Cabot Partners and the Contributing Investors are undertaking the transactions
summarized below (the "Formation Transactions") for the purpose of organizing
the Company and the Operating Partnership, and transferring the Properties and
Cabot Partners' real estate advisory and management business and certain
related assets to the Company and the Operating Partnership in a tax efficient
manner. As a result of the Formation Transactions, the Contributing Investors,
including the C-M Property Partnerships (all of the partnership interests in
which are owned by Ferdinand Colloredo-Mansfeld and Franz Colloredo-Mansfeld,
respectively, and members of their immediate families), will become equity
investors in the Company through, in certain cases, direct ownership of Common
Shares or, in most cases, ownership of Units in the Operating Partnership that
may, subject to the limitations described below, be exchanged for Common
Shares, to be received by them in exchange for their contributions of Proper-
ties to the Company or the Operating Partnership. Cabot Partners will con-
tribute to the Operating Partnership its real estate advisory and management
business and other assets that relate to the Properties contributed to the
Operating Partnership pursuant to the Formation Transactions. Cabot Partners'
Advisory Contracts and assets relating to industrial properties that are not
being contributed pursuant to the Formation Transactions will be held by the
Management Company. As a result of such contributions, the Company will become
the indirect owner of the contributed Properties, through and to the extent of
its interest in the Operating Partnership, and will no longer receive advisory
or management fees with respect to such Properties. The Properties to be con-
tributed by the Contributing Investors, including those of the C-M Property
Partnerships, do not, however, comprise all of the industrial properties for
which Cabot Partners is currently providing advisory or management services,
nor do the Contributing Investors comprise all of the advisory clients of
Cabot Partners.
The Formation Transactions include the following:
(i) The Company was formed as a real estate investment trust under Maryland
law through the filing of the Company's Declaration of Trust with the Mary-
land Secretary of State on October 10, 1997.
(ii) The Operating Partnership was formed as a limited partnership under
Delaware law on October 10, 1997.
(iii) The Operating Partnership incorporated the Management Company as its
wholly-owned subsidiary through the filing of a certificate of incorpora-
tion for the Management Company with the Delaware Secretary of State on
, 1997 and the contemporaneous initial purchase by the Operating Part-
nership of 100 shares of the common stock of the Management Company.
(iv) Prior to or simultaneously with the closing of the Offering, the Con-
tributing Investors, including the C-M Property Partnerships, will con-
tribute certain of their industrial real estate investment properties (com-
prising the Properties described herein), directly or indirectly, to the
Operating Partnership. Such contributions will be effected pursuant to the
Contribution Agreement, dated as of October 10, 1997, entered into among
the Company, the Operating Partnership, Cabot Partners and each of the Con-
tributing Investors. The Contribution Agreement provides, among other
things, that the Contributing Investors will convey to the Operating Part-
nership, or in certain cases directly to the Company, all of their inter-
ests in the Properties, in exchange for a number of Units, or Common
Shares, determined on the basis of the relative derived contribution
amounts of the Properties contributed as compared to the aggregate
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<PAGE>
derived contribution amounts of all of the Properties and assets to be con-
tributed by the Contributing Investors and Cabot Partners in the Formation
Transactions. See "--Contribution Amounts of Properties and Cabot Part-
ners." In the case of contributions of Properties that the Contribution
Agreement provides are to be made directly to the Company in exchange for
Common Shares, the Company will direct that such Properties be conveyed by
the Contributing Investor to the Operating Partnership, in exchange for
which the Operating Partnership will issue to the Company a number of GP
Units in the Operating Partnership equal to the number of Common Shares
issued by the Company to the Contributing Investor. The determination of
the specific forms of such contribution transactions and whether Units or
Common Stock are to be issued in connection therewith was made in order to
maximize the tax efficiency of such contributions taking into account the
specific facts relating to and the organizational structure of the respec-
tive contributing entities. As a result of such contributions, the Contrib-
uting Investors (not including the C-M Property Partnerships) will receive
a total of 23,283,039 Units and 9,233,080 Common Shares, which will in the
aggregate represent approximately 81.6% of the common equity of the Company
on a fully diluted basis.
(v) The Contribution Agreement also provides, among other things, that
prior to or simultaneously with the closing of the Offering, Cabot Part-
ners, most of whose partners are Cabot Group Participants, will contribute
to the Operating Partnership (or to a subsidiary thereof) the Advisory Con-
tracts and other assets relating to Cabot Partner's advisory and management
business, including furniture, fixtures and equipment, general intangibles,
intellectual property, books and records. As a result of such contribution
and the contribution of the C-M Partnerships, Cabot Partners and Messrs.
Colloredo-Mansfeld (including members of their immediate families) will
receive a total of 2,358,881 Units which will represent approximately 5.9%
of the common equity of the Company on a fully diluted basis. Cabot Part-
ners' Advisory Contracts and assets relating to industrial properties that
are not being contributed pursuant to the Formation Transactions will be
held by the Management Company. The Operating Partnership will own 100% of
the non-voting preferred stock of the Management Company, representing 95%
of the economic interest of the Management Company. Ferdinand Colloredo-
Mansfield will own 100% of the voting common stock of the Management Com-
pany, representing 5% of the economic interest of the Management Company.
(vi) The Units and Common Shares received by the Contributing Investors
(excluding the C-M Property Partnerships) in connection with the Formation
Transactions will have a total value of approximately $650.3 million based
on the Offering Price. The Units will be exchangeable for Common Shares on
a one-for-one basis or the cash equivalent thereof (as determined by the
Company) beginning one year after the Closing Date, or such earlier date as
the Company may authorize.
(vii) The Units received by the Cabot Partners and Messrs. Colloredo-
Mansfeld (including members of their immediate families) in connection with
their contributions pursuant to the Formation Transactions will have a
total value of approximately $47.2 million based on the Offering Price and
will be exchangeable into Common Shares on a one-for-one basis or the cash
equivalent thereof (as determined by the Company), beginning one year after
the Closing Date (or such earlier date as the Company may authorize); how-
ever, such Units or Common Shares may not, subject to certain exceptions,
be disposed of until two years after the Closing Date (or such earlier date
as the Company and J.P. Morgan Securities Inc. may authorize).
(viii) The Operating Partnership will use approximately $13.4 million of
the net proceeds of the Offering to repay mortgage indebtedness secured by
certain of the Properties. See "Use of Proceeds" and "Certain Relationships
and Transactions."
COMPANY ACQUISITIONS
In addition to the Properties that are being contributed by the Contributing
Investors in the Formation Transactions, the Company has agreed to purchase
four Properties from an unaffiliated third party for an aggregate purchase
price (including certain related costs) of approximately $9.2 million in cash.
The purchase of such Properties is expected to be completed concurrently with
the closing of the Offering.
LIMITATIONS ON REPRESENTATIONS AND WARRANTIES
The Contributing Investors and Cabot Partners have each made certain represen-
tations and warranties to the Company in the Contribution Agreement entered
into among the parties in connection with the Formation Transactions. Such
representations and warranties, which in the case of environmental matters and
certain other matters are limited to the knowledge of specified entities and
persons, relate to, among other things, their authority to enter into the For-
mation Transactions, their ownership of the Properties or other assets to be
contributed by them, and the absence of certain liabilities, and other matters
relating primarily to the condition and operation of the Properties and such
assets. The respective obligations of
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<PAGE>
each Contributing Investor and of Cabot Partners to indemnify the Company in
the event of breach of any of such representations and warranties, or breach of
certain other provisions of the Contribution Agreement or under certain other
circumstances is subject to an overall limitation under the Contribution Agree-
ment equal to the value (based on the Offering Price) of the Units or Common
Shares received by the Contributing Investor in the Formation Transactions (or
in lieu thereof, the return to the Company of all such Units or Common Shares
received), and is subject to the further limitation that any such indemnifica-
tion obligation relating to a specific Property is limited to the contribution
amount assigned to such Property by the parties in connection with the Forma-
tion Transactions. In addition, such indemnification obligations are generally
limited to claims for indemnification made within one year after the completion
of the Formation Transactions.
EFFECTS OF THE FORMATION TRANSACTIONS AND THE OFFERING
As a result of the transactions involved in the formation of the Company (in-
cluding the Offering), the Company initially will hold an approximate 35.7%
interest in the Operating Partnership, the remaining 64.3% interest in the
Operating Partnership will be held by certain Contributing Investors and Man-
agement. Immediately following the closing of the Offering, on a fully diluted
basis, purchasers of Common Shares in the Offering will hold approximately
12.5% of the common equity of the Company, the Cabot Group Participants (in-
cluding the C-M Property Partnerships) will directly or indirectly hold approx-
imately 4.8% of the common equity of the Company and the Contributing Investors
(not including the C-M Property Partnerships but including partners of Cabot
Partnership who are not Cabot Group Participants) will hold approximately 82.7%
of the common equity of the Company.
The Operating Partnership will own 100% of the fee interest in the Properties
and 100% of the non-voting preferred stock of the Management Company, repre-
senting 95% of the economic interests therein, with Ferdinand Colloredo-
Mansfeld, the Company's chief executive officer, owning 100% of the voting
stock, representing 5% of the economic interests therein.
CONTRIBUTION AMOUNTS OF THE PROPERTIES AND CABOT PARTNERS
Neither Cabot Partners, the Contributing Investors nor the Company obtained any
third-party determination of the fair market value of the Properties or other
assets contributed to the Company or the Operating Partnership in connection
with the Formation Transactions. Third-party estimates of the derived contribu-
tion amounts of such assets, however, were obtained in August and September
1997 in accordance with procedures agreed upon by the Contributing Investors
and Cabot Partners solely to assist Cabot Partners and the Contributing
Investors in determining the allocation of the equity interests in the Company
and the Operating Partnership among Cabot Partners and the Contributing
Investors (including the C-M Property Partnerships) prior to the Offering.
The market capitalization of the Company at the Offering Price may not be
indicative of, and may exceed: (i) the aggregate derived contribution values of
the Properties and other assets to be acquired by the Company in the Formation
Transactions and (ii) the fair market value of the Properties and such other
assets. The Offering Price has been negotiated between the Company and the Rep-
resentatives of the Underwriters named herein based on their consideration of
the factors referred to in "Underwriting." This methodology has been used
because the Company believes it is appropriate to value the Company as an
ongoing business, rather than on the basis of values that might be obtained
from a liquidation of the Company or of its individual assets. No assurance can
be given that the Offering Price will be an indication of the actual value of
the Common Shares, which will be determined by market conditions and other fac-
tors over time. The Company's percentage interest in the Operating Partnership
was determined based upon the percentage of estimated cash available for dis-
tribution required to pay estimated distributions at an annual rate equal to
6.5% of the Offering Price on the Common Shares to be outstanding upon the
closing of the Offering. The distribution rate was derived by comparison to
distribution rates of other REITs that the Company believes may be comparable
and in light of current market conditions.
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<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
See "Formation Transactions" for a summary of certain related party transac-
tions that will be consummated prior to or simultaneously with the closing of
the Offering.
BENEFITS TO RELATED PARTIES
The Cabot Group Participants and the Contributing Investors will realize cer-
tain benefits as a result of the Offering and the Formation Transactions,
including the following:
Receipt of Units by the Cabot Group Participants and the Contributing Investors
The Cabot Group Participants will receive a total of 1,422,542 Units and
484,195 Units in consideration for their interests in Cabot Partners and the C-
M Property Partnerships, respectively, in connection with the Formation Trans-
actions. These Units (representing approximately 4.8% of the common equity
interests in the Company on a fully diluted basis) will have a total value of
approximately $38.1 million based on the Offering Price, compared to the aggre-
gate net tangible book value of the assets contributed to the Operating Part-
nership by the Cabot Group Participants of approximately $9.8 million as of
September 30, 1997. The Company believes that the net tangible book value of
the individual assets contributed to the Operating Partnership by the Cabot
Group Participants is less than the aggregate current market value of such
assets. Beginning one year following the Closing Date, any of the Cabot Group
Participants holding Units may, in accordance with the Operating Partnership
Agreement, exchange all or a portion of such Units for Common Shares on a one-
for-one basis or, at the election of the Company, the cash equivalent thereof,
but may not, with certain exceptions, transfer any of such Units or Common
Shares prior to two years after the Closing Date.
The Contributing Investors (not including the C-M Property Partnerships) will
receive a total of 32,968,263 Units and Common Shares in consideration for
their interests in the Properties in connection with the Formation Transac-
tions. These Units and Common Shares (representing in the aggregate approxi-
mately 82.7% of the equity interests in the Company on a fully diluted basis)
will have a total value of approximately $659.4 million based on the Offering
Price, compared to the aggregate net tangible book value of the Properties con-
tributed to the Company by such Contributing Investors of approximately $650.3
million. The Company believes that the net tangible book value of the indi-
vidual assets contributed to the Company by such Contributing Investors (which
reflects the historical cost of such assets less accumulated depreciation) is
less than the aggregate current market value of such assets. At any time after
one year following the Closing Date, any of such Contributing Investors holding
Units may, in accordance with the Operating Partnership Agreement, exchange all
or a portion of such Units for Common Shares on a one-for-one basis or, at the
election of the Company, the cash equivalent thereof.
The Company currently expects that it will not elect to pay cash for Units in
connection with any such exchange request, but instead will issue Common Shares
in exchange for such Units. The receipt and retention of Units in exchange for
contributed assets may provide the Cabot Group Participants and certain of the
Contributing Investors with continued deferral of the taxable gain that would
otherwise be associated with dispositions of those assets.
Increase in Net Tangible Investment
The Cabot Group Participants, together with the C-M Property Partnerships, and
the Contributing Investors (not including the C-M Property Partnerships), each
on a pro forma basis as of September 30, 1997, will realize an immediate
increase of $28.4 million and $9.0 million, respectively, in the net tangible
book value of their respective original investments in the Company. This
increase is derived from the difference between the net tangible assets per
Common Share before and after giving effect to the Formation Transactions mul-
tiplied by the 1,906,737 Units to be received as consideration by the Cabot
Group Participants and by the 32,968,263 Units and Common Shares to be received
as consideration by such Contributing Investors, respectively. See "Dilution."
Repayment of Debt
Approximately $18.7 million of indebtedness secured by the Properties to be
contributed by the C-M Property Partnerships (which are owned by certain of the
Cabot Group Participants) will be assumed by the Operating Partnership and
approximately $13.4 million (based on amounts outstanding as of September 30,
1997) will be repaid from the proceeds of the Offering.
Options Granted
The Company will grant options to purchase an aggregate of Common Shares
under the Company's Long Term
Incentive Plan at the Offering Price to officers and Trustees of the Company,
subject to certain vesting requirements. See "Management--Long Term Incentive
Plan."
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<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth the beneficial ownership of Common Shares and
(or Common Shares for which Units are exchangeable) of (i) each person who is a
shareholder of the Company owning more than 5% of the beneficial interest in
the Company, (ii) each person who is a Trustee (and Trustee nominee) (iii) each
Named Executive Officer, and (iv) all Trustees (and Trustee nominees) and exec-
utive officers of the Company as a group, in each case after the closing of the
Offering and consummation of the Formation Transactions. Unless otherwise indi-
cated in the footnotes, all of such interests are to be owned directly, and the
indicated person or entity will have sole voting and investment power. The
number of Common Shares reflected in the table below represents the number of
Common Shares the person or entity is expected to hold plus the number of
Common Shares for which Units expected to be held by the person or entity are
exchangeable (without regard to the prohibition on exchange of Units until one
year after the closing of the Offering and assuming the Company elects to issue
Common Shares rather than pay cash upon such exchange). The extent to which a
person will hold Common Shares as opposed to Units is set forth in the notes to
the table below.
<TABLE>
<CAPTION>
--------------------------------------------------
NUMBER OF
COMMON
SHARES
BENEFICIALLY NUMBER OF PERCENT OF
OWNED UNITS ALL COMMON PERCENT OF
AFTER THE BENEFICIALLY SHARES ALL COMMON
NAMES AND ADDRESS OF BENEFICIAL OWNERS(1) OFFERING OWNED AND UNITS(2) SHARES(3)
- ----------------------------------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Ferdinand Colloredo-
Mansfeld(4)............... 0 1,369,679 3.4% 8.8%
Robert E. Patterson(5)..... 0 141,355 * 1.0%
Franz Colloredo-
Mansfeld(6)............... 0 27,097 * *
Andrew D. Ebbott........... 0 38,152 * *
Howard B. Hodgson, Jr. .... 0 38,152 * *
Eugene F. Reilly........... 0 31,793 * *
Neil E. Waisnor............ 0 38,152 * *
Noah T. Herndon............ 0 0 * *
Christopher C. Milliken.... 0 0 * *
Maurice Segall............. 0 0 * *
W. Nicholas Thorndike...... 0 0 * *
Ronald L. Skates........... 0 0 * *
IBM Retirement Plan
Trust(7).................. 0 10,556,507 26.5 42.6
Pennsylvania Public School
Employes' Retirement
System(8)................. 0 5,669,607 14.2 28.5
New York State Teachers'
Retirement System(9)...... 2,253,170 3,878,573 15.4 33.9
State of Wisconsin
Investment Board(10)...... 3,049,151 0 7.6 21.4
Leland Stanford Jr.
Endowment Fund(11)........ 0 2,439,625 6.1 14.6
The Prudential Insurance
Company of America(12).... 2,296,237 0 5.8 16.1
Argo Partnership II,
L.P.(13).................. 1,634,523 0 4.1 11.5
All Trustees, nominated
Trustees and executive
officers as a group (16
persons).................. 0 1,906,737 4.8% 11.8%
</TABLE>
- -----------
* Less than 1%.
(1) Unless otherwise indicated, the address of each named person or title
holding entity is c/o Cabot Industrial Trust, Two Center Plaza, Suite 200,
Boston, Massachusetts 02108.
(2) Assumes a total of 39,875,000 Common Shares and Units outstanding immedi-
ately following completion of the Offering. Assumes that all Units are
exchanged for Common Shares.
(3) Assumes 14,233,080 Common Shares outstanding immediately following comple-
tion of the Offering (before giving effect to any exchange of Units benefi-
cially held by the identified person). Assumes that all Units beneficially
held by the identified person (and no other person) are exchanged for
Common Shares.
(4) Includes 484,195 Units held of record by C-M Property Partnerships which
are beneficially owned by Mr. Colloredo-Mansfeld.
(5) Includes 14,181 Units held of record by an affiliated partnership which are
beneficially owned by Mr. Patterson.
(6) Includes 4,842 Units held of record by C-M Property Partnerships which are
beneficially owned by Mr. Colloredo-Mansfeld.
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<PAGE>
(7) Includes 10,556,507 Units held of record by CP Investment Properties, Inc.
which are beneficially owned by IBM Retirement Plan Trust.
(8) Includes 5,669,607 Units owned of record by Keystone-Illinois Property
Holding Corp., Keystone-New Jersey Property Holding Corp. and Keystone-Ohio
Property Holding Corp. which are each wholly owned by Pennsylvania Public
School Employes' Retirement System. The business address of these
unitholders is 875 North Michigan Avenue, Suite 4114, Chicago, Illinois
60611.
(9) Includes 2,253,170 Common Shares and 3,878,573 Units held of record by
three title holding entities and six title holding entities, respectively,
which are each wholly owned by New York State Teachers' Retirement Systems.
(10) The business address of this shareholder is 121 East Wilson Street, 2nd
Floor, Madison, Wisconsin 53702.
(11) Includes 2,439,625 Units held of record by CP Reprop Corp. which is wholly
owned by Leland Stanford Jr. Endowment Fund.
(12) The business address of this shareholder is Eight Campus Drive,
Parsippeny, New York 07054.
(13) Includes 1,634,523 Units held of record by West Coast Industrial, L.L.C.
which are beneficially owned by its managing member, Argo Partnership II,
L.P. ("Argo Fund"). The business address of this unitholder is c/o The
O'Conner Group, 399 Park Avenue, New York, New York 10022. J.P. Morgan
Securities, Inc. owns a partnership interest in the Argo Fund. See "Under-
writing."
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<PAGE>
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial interest of the
Company does not purport to be complete and is subject to and qualified in its
entirety by reference to Maryland law and to the Declaration of Trust and
Bylaws of the Company, copies of which are exhibits to the Registration State-
ment of which this Prospectus is a part. See "Additional Information."
GENERAL
The Declaration of Trust of the Company provides that the Company may issue up
to 150,000,000 shares of beneficial interest (the "Shares"), which may consist
of Common Shares and preferred shares of beneficial interest, $0.01 par value
per share ("Preferred Shares"), in such combination as the Trustees may deter-
mine. Upon the closing of the Offering and the consummation of the Formation
Transactions, 14,233,080 Common Shares will be issued and outstanding
(14,983,080 shares if the Underwriters' overallotment option is exercised in
full) and no Preferred Shares will be issued and outstanding. As permitted by
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland, as amended (the "Maryland REIT Law"), the Declaration of Trust con-
tains a provision permitting the Board of Trustees, without any action by the
shareholders of the Company, to amend the Declaration of Trust to increase or
decrease the aggregate number of shares of beneficial interest or the number of
shares of any class of shares of beneficial interest that the Trust has
authority to issue. The Company believes that the power of the Board of
Trustees to issue additional shares of beneficial interest will provide the
Company with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs that might arise. The additional
shares of beneficial interest, including possibly Common Shares, will be avail-
able for issuance without further action by the Company's shareholders, unless
action by the shareholders is required by applicable law or the rules of any
stock exchange or automated quotation system on which the Company's securities
may be listed or traded. Although the Board of Trustees currently has no inten-
tion of doing so, it could authorize the Company to issue a class or series
that could, depending on the terms of such class or series, delay, defer or
prevent a transaction or a change in control of the Company that might involve
a premium price for the Common Shares and might otherwise be in the best inter-
ests of the shareholders.
Both the Maryland REIT Law and the Company's Declaration of Trust provide that
no shareholder of the Company will be personally liable for any obligation of
the Company solely as a result of such shareholder's status as a shareholder of
the Company. The Company's Declaration of Trust further provides that the Com-
pany will indemnify and hold each shareholder harmless against any claim or
liability to which the shareholder may become subject by reason of such share-
holder's being or having been a shareholder or former shareholder, subject to
such shareholder providing prompt notice to the Company. The Company must also
pay or reimburse each shareholder or former shareholder for all legal and other
expenses reasonably incurred by such shareholder in connection with any claim
or liability unless it is established by a court that such claim or liability
arose out of such shareholder's bad faith, willful misconduct or gross negli-
gence. Inasmuch as the Company carries public liability insurance which it con-
siders adequate, any risk of personal liability to shareholders is limited to
situations in which the Company's assets plus its insurance coverage would be
insufficient to satisfy the claims against the Company and its shareholders.
COMMON SHARES
All Common Shares offered pursuant to this Registration Statement will be duly
authorized, fully paid and nonassessable. Subject to the preferential rights of
any other shares or series of beneficial interest and to the provisions of the
Company's Declaration of Trust regarding the restriction on transfer of Common
Shares, holders of Common Shares are entitled to receive dividends on such
shares if, as and when authorized and declared by the Board of Trustees of the
Company out of assets legally available therefor and to share ratably in the
assets of the Company legally available for distribution to its shareholders in
the event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Company.
Each outstanding Common Share entitles the holder of such Common Share to one
vote on all matters submitted to a vote of shareholders, including the election
of Trustees, and, except as provided with respect to any other class or series
of shares of beneficial interest, the holders of such Common Shares possess the
exclusive voting power. There is no cumulative voting in the election of Trust-
ees, which means that the holders of a majority of the outstanding Common
Shares can elect all of the Trustees then standing for election and the holders
of the remaining shares will not be able to elect any Trustees.
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holders of Common Shares have no preference, conversion, sinking fund, redemp-
tion or appraisal rights and have no preemptive rights to subscribe for any
securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of Common Shares, Common Shares
have equal dividend, distribution, liquidation and other rights.
Under the Maryland REIT Law, a Maryland real estate investment trust generally
cannot amend its declaration of trust or merge unless approved by the affirma-
tive vote of shareholders holding at least two-thirds of the shares entitled
to vote on the matter unless a lesser percentage (but not less than a majority
of all the votes entitled to be cast on the matter) is set forth in the real
estate investment trust's declaration of trust. The Company's Declaration of
Trust provides for approval by a majority of the votes cast by holders of
Common Shares entitled to vote on the matter in all situations permitting or
requiring action by the shareholders, except with respect to: (i) the election
of Trustees (which requires a plurality of all the votes cast at a meeting of
shareholders of the Company at which a quorum is present), (ii) the removal of
Trustees (which requires the affirmative vote of the holders of two-thirds of
the outstanding shares of beneficial interest of the Company entitled to vote
generally in the election of Trustees, which action can only be taken by vote
at a shareholder meeting), (iii) the merger of the Company into a new entity,
consolidation or sale (or other disposition) of all or substantially all of
the assets of the Company (which requires the affirmative vote of the holders
of two-thirds of the outstanding shares entitled to vote on the matter, which
action can only be taken by vote at a shareholder meeting), (iv) the amendment
of the Declaration of Trust by shareholders, including the amendment or repeal
of the Independent Trustee provision (which requires the affirmative vote of a
majority of votes entitled to be cast on the matter, except under certain cir-
cumstances specified in the Declaration of Trust which require the affirmative
vote of two-thirds of all the votes entitled to be cast on the matter), and
(v) the dissolution of the Company (which requires the affirmative vote of
two-thirds of the outstanding shares entitled to vote on the matter). The Com-
pany has agreed pursuant to the Operating Partnership Agreement that Limited
Partners also have voting rights with respect to certain of the foregoing
actions for a limited period. See "Partnership Agreement of Operating Partner-
ship--Management." As allowed under the Maryland REIT Law, the Company's Dec-
laration of Trust permits the Trustees by a two-thirds vote to amend the dec-
laration of trust from time to time to qualify as a real estate investment
trust under the Code or the Maryland REIT Law without the approval of the
shareholders. As permitted by the Maryland REIT Law, the Declaration of Trust
contains a provision permitting the Board of Trustees, without any action by
the shareholders of the Company, to amend the Declaration of Trust to increase
or decrease the aggregate number of shares of beneficial interest or the
number of shares of any class of shares of beneficial interest that the Com-
pany has authority to issue.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time in one or more
series, as authorized by the Board of Trustees. Prior to issuance of shares of
each series, the Board of Trustees is required by the Maryland REIT Law and
the Company's Declaration of Trust to set for each such series, subject to the
provisions of the Company's Declaration of Trust regarding the restriction on
transfer of shares of beneficial interest, the terms, the preferences, conver-
sion or other rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications and terms or conditions of redemption
for each such series. Thus, the Board of Trustees could authorize the issuance
of Preferred Shares with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in control of the
Company that might involve a premium price for holders of Common Shares or
otherwise might be in their best interest. As of the date hereof, no Preferred
Shares are outstanding and the Company has no present plans to issue any Pre-
ferred Shares.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of beneficial
interest. Specifically, not more than 50% in value of the Company's out-
standing shares of beneficial interest may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain enti-
ties) at any time during the last half of a taxable year (other than the first
year the election to be a REIT has been made), and the Company must be benefi-
cially owned by 100 or more persons during at least 335 days of a taxable year
of twelve months or during a proportionate part of a shorter taxable year. See
"Federal Income Tax Considerations--Taxation of the Company."
For this reason, among others, the Declaration of Trust, subject to certain
exceptions described below and to possible limited exceptions regarding cer-
tain Contributing Investors, provides that no person may own, or be deemed to
own by
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virtue of the attribution provisions of the Code, more than (i) 9.8% of the
Company's issued and outstanding Shares, or (ii) 9.8% of the total value of
such Shares (the "Ownership Limit"). Any transfer of Common or Preferred Shares
that would (i) result in any person owning, directly or indirectly, Common or
Preferred Shares in excess of the Ownership Limit, (ii) result in the Common
and Preferred Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), or (iii) result in the Company 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 in such Common or
Preferred Shares.
Subject to certain exceptions described below, if any purported transfer of
Common or Preferred Shares would (i) result in any person owning, directly or
indirectly, Common or Preferred Shares in excess of the Ownership Limit, or
(ii) result in the Company being "closely held" within the meaning of Section
856(h) of the Code, the Common or Preferred Shares will be designated as excess
shares (the "Excess Shares") and transferred automatically to a trust (the
"Share Trust") effective as of the close of business on the business day before
the purported transfer of such Common or Preferred Shares. The record holder of
the Common or Preferred Shares that are designated as Excess Shares (the "Pur-
ported Transferee") will have no rights in such shares except as described
below. The trustee of the Share Trust (the "Share Trustee") will be designated
by the Company, but will not be affiliated with the Company. The beneficiary of
the Share Trust (the "Beneficiary") will be one or more charitable organiza-
tions that are named by the Company.
Excess Shares will remain issued and outstanding Common or Preferred Shares and
will be entitled to the same rights and privileges as all other shares of the
same class or series. The Share Trust will receive all dividends and distribu-
tions on the Excess Shares and will hold such dividends and distributions in
trust for the benefit of the Beneficiary. The Share Trustee will vote all
Excess Shares. At the direction of the Company, the Share Trustee must transfer
the Shares held in the Excess Share Trust to a person whose ownership of the
Shares will not violate the Ownership Limit. Such transfer must be made within
60 days after the latest of (i) the date of the transfer that resulted in such
Excess Shares and (ii) the date that the Board of Trustees determines in good
faith that a transfer resulting in Excess Shares has occurred, if the Company
does not receive notice of such transfer (as described below). Upon such a
transfer, which is subject to the Company waiving its purchase right described
below, the Purported Transferee generally will receive from the Share Trustee
the lesser of (i) the price per share such Purported Transferee paid for the
Common or Preferred Shares that were designated as Excess Shares (or, in the
case of a gift or devise, the Market Price (as defined below) per share on the
date of such transfer) and (ii) the price per share received by the Share
Trustee from the sale of such Excess Shares. Any amounts received by the Share
Trustee in excess of the amounts to be paid to the Purported Transferee will be
distributed to the Beneficiary.
The Excess Shares will be deemed to have been offered for sale to the Company,
or its designee, at a price per share equal to the lesser of (i) the price per
share in the transaction that created such Excess Shares (or, in the case of a
gift or devise, the Market Price per share on the date of such transfer) or
(ii) the Market Price per share on the date that the Company, or its designee,
accepts such offer. The Company will have the right to accept such offer for a
period of ninety days after the later of (i) the date of the purported transfer
which resulted in such Excess Shares and (ii) the date the Company determines
in good faith that a transfer resulting in such Excess Shares occurred.
"Market Price" means the last reported sales price reported on the NYSE for a
particular class of Shares on the trading day immediately preceding the rele-
vant date, or if not then traded on the NYSE, the last reported sales price for
such class of Shares on the trading day immediately preceding the relevant date
as reported on any exchange or quotation system over or through which such
class of Shares may be traded, or if not then traded over or through any
exchange or quotation system, then the market price of such class of Shares on
the relevant date as determined in good faith by the Board of Trustees.
Any person who acquires or attempts to acquire Common or Preferred Shares in
violation of the foregoing restrictions, or any person who owned Common or Pre-
ferred Shares that were transferred to a Share Trust, will be required (i) to
give immediately written notice to the Company of such event or, in the event
of a proposed or attempted transfer, must give at least 15 days prior written
notice to the Company of such event, and (ii) to provide to the Company such
other information as the Company may request in order to determine the effect,
if any, of such transfer on the Company's status as a REIT.
The Declaration of Trust requires all persons who own, directly or indirectly,
more than 5% (or such lower percentages as required pursuant to regulations
under the Code) of the number or value of the outstanding Common and Preferred
Shares, within 30 days after January 1 of each year, to provide to the Company
a written statement stating the name and address of such direct or indirect
owner, the number of Common and Preferred Shares owned directly or indirectly,
and a description of how such shares are held. In addition, each direct or
indirect shareholder shall provide to the Company such additional information
as the Company may request in order to determine the effect, if any, of such
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limit.
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The Ownership Limit generally will not apply to the acquisition of Common or
Preferred Shares by an underwriter that participates in a public offering of
such shares. In addition, the Board of Trustees, upon receipt of a ruling from
the Service or an opinion of counsel and upon such other conditions as the
Board of Trustees may direct, may exempt a person from the Ownership Limit
under certain circumstances. However, the Board may not grant an exemption from
the Ownership Limit to any proposed transferee whose ownership, direct or indi-
rect, of shares of beneficial interest of the Company in excess of the Owner-
ship Limit would result in the termination of the Company's status as a REIT.
The foregoing restrictions will continue to apply until the Board of Trustees
determines that it is no longer in the best interests of the Company to attempt
to qualify, or to continue to qualify, as a REIT.
The Ownership Limit could have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a pre-
mium price for the Common Shares or otherwise be in the best interest of the
shareholders of the Company.
All certificates representing Common or Preferred Shares will bear a legend
referring to the restrictions described above.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S DECLARATION OF TRUST
AND BYLAWS
The following summary of certain provisions of Maryland law and of the Declara-
tion of Trust and Bylaws of the Company does not purport to be complete,
although the Company believes all material provisions thereof are described,
and is qualified in its entirety by reference to Maryland law and to the Decla-
ration of Trust and Bylaws of the Company, copies of which are exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
CLASSIFICATION OF THE BOARD OF TRUSTEES
The Company's Declaration of Trust provides that the number of Trustees of the
Company cannot be less than three nor more than 15. At the closing of the
Offering, there will be seven Trustees. The Trustees are divided into three
classes, with terms of three years each and with one class to be elected at
each annual meeting of shareholders. The classified Board of Trustees could
have the effect of making the removal of incumbent Trustees time-consuming and
difficult, which could discourage a third party from making a tender offer or
otherwise attempting to effect a change in control of the Company that a
majority of shareholders may believe to be beneficial to the Company and its
shareholders.
VACANCIES
Any vacancy on the Board of Trustees arising for any cause other than an
increase in the number of Trustees may be filled by a majority of the remaining
Trustees, even if less than a quorum, or by a sole remaining Trustee. Any
vacancy created by an increase in the number of Trustees may be filled by a
majority of the entire Board of Trustees. Only the Independent Trustees may
nominate a replacement for a vacancy in an Independent Trustee position. Any
Trustee elected to fill a vacancy will hold office until the next annual
meeting of shareholders. A Trustee elected at an annual meeting of shareholders
to fill a vacancy will have the same remaining term as that of his or her pred-
ecessor.
REMOVAL OF TRUSTEES
The Declaration of Trust provides that a Trustee may be removed with or without
cause upon the affirmative vote of at least two-thirds of the votes entitled to
be cast in the election of Trustees, but only by a vote taken at a shareholder
meeting. This provision has the effect of limiting shareholders' power to
remove incumbent Trustees to cases in which a substantial majority of share-
holders approve such removal.
BUSINESS COMBINATIONS
Under the MGCL, as applicable to Maryland real estate investment trusts, cer-
tain "business combinations" (including mergers, consolidations, share
exchanges and asset transfers and certain issuances or reclassifications of
equity securities) between a Maryland real estate investment trust and any
person who beneficially owns ten percent or more of the voting power of the
trust's shares or an affiliate of the trust who, at any time within the two-
year period prior to the date in question, was the beneficial owner of ten per-
cent or more of the voting power of the then outstanding voting stock of the
trust (an "Interested Shareholder"), or an affiliate of such an Interested
Shareholder, are prohibited for five years after the most recent date on which
the Interested Shareholder becomes an Interested Shareholder. Thereafter, any
such business combination must be recommended by the board of trustees of such
trust and approved by the affirmative vote of at least (i) 80% of the votes
entitled to be cast by holders of outstanding voting shares of beneficial
interest of the trust and (ii) two-thirds of the votes entitled to be cast by
holders of voting shares of the trust other than shares held by the Interested
Shareholder with whom (or with whose affiliate) the business combination is to
be effected, unless, among other conditions, the trust's common shareholders
receive a minimum price (as defined in the MGCL) for their shares and the con-
sideration is received in cash or in the same form as previously paid by the
Interested Shareholder for its shares. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted by the
board of trustees of the trust prior to the time that the Interested Share-
holder becomes an Interested Shareholder.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, provides
that "control shares" (as defined below) of a Maryland real estate investment
trust acquired in a "control share acquisition" (as defined below) have no
voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares of beneficial
interest owned by the acquiror, by officers or by trustees who are employees of
the trust. "Control Shares" are voting shares of beneficial interest which, if
aggregated with all other such shares of beneficial interest previously
acquired
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by the acquiror or in respect of which the acquiror is able to exercise or
direct the exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the acquiror to exercise voting power in electing
trustees within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority,
or (iii) a majority or more of all voting power. Control Shares do not include
shares the acquiring person is then entitled to vote as a result of having pre-
viously obtained shareholder approval. A "control share acquisition" means the
acquisition of Control Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the trust may redeem any
or all of the Control Shares (except those for which voting rights have previ-
ously been approved) at their fair value, determined without regard to the
absence of voting rights for the Control Shares, as of the date of the last
Control Share Acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other shareholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share acquisi-
tion.
The Control Share Acquisition statute does not apply (a) to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the trans-
action or (b) to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust.
SHAREHOLDERS' MEETINGS
The Declaration of Trust and Bylaws provide for an annual meeting of Share-
holders to be held upon proper notice and within a reasonable period, but not
less than 30 days, following delivery of the Company's annual report, but in
any event within six months after the end of each full fiscal year. Special
meetings of Shareholders may be called by a majority of the Trustees, a
majority of the Independent Trustees or by an executive officer of the Company
and must be called upon the written request of Shareholders holding in the
aggregate not less than 25% of the outstanding shares of the Company entitled
to vote. Written 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, but is required to be delivered not less than 10
nor more than 60 days before the day of the meeting to each holder of record.
Unless requested by shareholders entitled to cast a majority of all the 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 the matter voted on at
any meeting of the shareholders held during the preceding twelve months.
ANNUAL REPORT
The Company is required to deliver to Shareholders an annual report concerning
its operations for the preceding fiscal year containing financial statements
prepared in accordance with GAAP which are audited and reported on by indepen-
dent certified public accountants. The report must include a balance sheet, an
income statement and a surplus statement. Annual reports must be mailed or
delivered to each Shareholder and must be placed on file at the principal
office of the Company within the time prescribed by the Maryland REIT Law.
AMENDMENT
The Trustees, by a two-thirds vote, may amend the provisions of the Company's
Declaration of Trust, without shareholder approval, to qualify the Company as a
REIT under the Code or under the Maryland REIT Law. The Board of Trustees may
also amend the Declaration of Trust, without shareholder approval, to increase
or decrease the aggregate number of Shares that the Company has the authority
to issue. Otherwise, the Company's Declaration of Trust may be amended only by
the affirmative vote or written consent of the holders of not less than a
majority of the Shares then outstanding and entitled to vote thereon, except
with respect to provisions therein relating to (i) removal of Trustees and (ii)
certain reorganization transactions of the Company. The provisions described in
clauses (i)-(ii) in the preceding sentence may be amended only by the affirma-
tive vote or, in certain instances, written consent of the holders of not less
than two-thirds of the Shares then outstanding. The Company's Bylaws may only
be amended by the Board of Trustees.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (i) actual receipt of an improper benefit
or profit in money, property or services or (ii) active and deliberate dishon-
esty established by a final judgment as being material to the cause of action.
The Company's Declaration of Trust contains such a provision limiting such lia-
bility to the maximum extent permitted by the Maryland REIT Law.
The Declaration of Trust provides that the Company, to the fullest extent per-
mitted by Maryland law, must indemnify each Trustee, officer, employee and
agent in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person was a Trustee, officer, employee or agent of the
Company or is or was serving at the request of the Company as a director, offi-
cer, partner, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
from all claims and liabilities to which such person may become subject by
reason of service in that capacity and to pay or reimburse reasonable expenses,
as such expenses are incurred, of each Trustee, officer, employee or agent in
connection with any such action, suit or proceeding. The Bylaws of the Company
obligate it, to the maximum extent permitted by Maryland law, to indemnify and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (i) each Trustee and officer from and against all claims and lia-
bilities, whether they proceed to judgment or are settled, in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative to which such Trustee or officer may
become subject by reason or such person being or having been a Trustee or offi-
cer, or by reason of any action alleged to have been taken or omitted by such
person as a Trustee or officer, and will reimburse such person for all reason-
able legal and other expenses incurred by such person in connection with such
claim or liability, including any claim or liability arising under the provi-
sions of federal or state securities laws, or (ii) any such Trustee or officer
who at the request of the Company serves or has served another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or any other enterprise as a director, trustee, officer or partner, employee or
agent of such foreign or domestic entity and who is made a party to the pro-
ceeding by reason of such person's service in that capacity against any claim
or liability to which such person may become subject by reason of such status.
The Maryland REIT Law permits a Maryland real estate investment trust to indem-
nify, and to advance expenses to, its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of Mary-
land corporations. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in connec-
tion with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (i) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty, (ii) the director or officer actually
received an improper personal benefit in money, property or services or (iii)
in the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgement of liability on the basis that per-
sonal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer
of such person's good faith belief that he or she has met the standard of con-
duct necessary for indemnification by the corporation and (b) a written under-
taking by or on behalf of such person to repay the amount paid or reimbursed by
the Company if it shall ultimately be determined that the standard of conduct
was not met.
OPERATIONS
The Company is generally prohibited from acquiring or holding property or
engaging in any activity that would cause the Company to fail to qualify as a
real estate investment trust. To maintain its qualification as a Maryland real
estate investment trust, the Maryland REIT Law requires that the Company hold,
either directly or indirectly, at least 75% of the value of its assets in real
estate assets, mortgages or mortgage related securities, government securities,
cash and cash equivalent items, including high-grade short-term securities and
receivables. The Maryland REIT Law also prohibits using or applying land for
farming, agriculture, horticulture or similar purposes.
TERMINATION OF THE TRUST AND REIT STATUS
The Company's Declaration of Trust permits (i) the termination of the Company
and the discontinuation of the operations of the Company by the affirmative
vote or written consent of the holders of not less than two-thirds of the
Company's outstanding Shares of all classes and (ii) the termination of the
Company's qualification as a REIT if such qualification, in the opinion of the
Board of Trustees, is no longer advantageous to the shareholders.
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ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (a)
pursuant to the Company's notice of the meeting, (b) by or at the direction of
the Board of Trustees or (c) by a shareholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (ii) with respect to special meetings of shareholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of shareholders and nominations of persons for election to the Board of
Trustees may be made only (a) pursuant to the Company's notice of the meeting,
(b) by the Board of Trustees, or (c) provided that the Board of Trustees has
determined that Trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The provisions of the Declaration of Trust on classification of the Board of
Trustees, the removal of Trustees and the restrictions on the transfer of
shares of beneficial interest and the advance notice provisions of the Bylaws
could have the affect of delaying, deferring or preventing a transaction or a
change in control of the Company that might involve a premium price for holders
of Common Shares or otherwise be considered by shareholders to be in their best
interest.
MARYLAND ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust, the
Maryland REIT Law requires at least 75% of the value of the Company's assets to
be held, directly or indirectly, in real estate assets, mortgages or mortgage
related securities, government securities, cash and cash equivalent items,
including high-grade short term securities and receivables. The Maryland REIT
Law also prohibits the Company from using or applying land for farming, agri-
cultural, horticultural or similar purposes.
SHARES AVAILABLE FOR FUTURE SALE
Upon the closing of the Offering and consummation of the Formation Transac-
tions, the Company will have 14,233,080 Common Shares issued and outstanding
(14,983,080 Common Shares if the Underwriter's overallotment option is exer-
cised in full). In addition, 25,641,920 Common Shares will be reserved for
issuance upon redemption of Units and Common Shares will be reserved for
issuance under the Company's Long Term Incentive Plan. The Common Shares issued
in the Offering will be freely tradeable by persons other than "Affiliates" (as
that term is defined for purposes of compliance with the Securities Act of
1933, as amended (the "Securities Act")) of the Company without restriction
under the Securities Act, subject to certain limitations on ownership set forth
in the Declaration of Trust. See "Description of Shares of Beneficial Inter-
est--Restrictions on Transfer."
Pursuant to the Operating Partnership Agreement, the Limited Partners have
Exchange Rights which, beginning one year (or earlier upon the consent of the
Company) from the Closing Date, enable them to cause the Operating Partnership
to exchange their Units for Common Shares on a one-for-one basis. Also, each of
the Limited Partners has agreed under the Operating Partnership Agreement that
until one year from the Closing Date (or two years in the case of any Limited
Partner that is a partner of Cabot Partners or C-M Holdings), it will not dis-
pose of any Common Shares or Units without the prior consent of the Company,
provided that any Limited Partner (other than a partner of Cabot Partners or C-
M Holdings) may make a private resale to a Qualified Institutional Buyer (as
defined in Commission Rule 144A) beginning nine months after the closing of the
Offering. In addition, the Company has agreed not to waive or amend the fore-
going restrictions on resale without the prior written consent of J.P. Morgan
Securities, Inc. Pursuant to the Underwriting Agreement, the Company has also
agreed not to offer for sale or sell any Common Shares (except in certain cir-
cumstances) for a period of months after the closing of the offering without
the prior written consent of J.P. Morgan Securities Inc. See "Underwriting."
The Common Shares issued to the Contributing Investors and the Common Shares
that will be issuable to holders of Units upon exercise of the Exchange Rights
will be "restricted" securities under the meaning of Rule 144 promulgated under
the Securities Act ("Rule 144") and may not be sold in the absence of registra-
tion under the Securities Act unless an exemption from the registration
requirements of the Securities Act is available, including exemptions pursuant
to Rule 144. As described below, the Company has granted registration rights
with respect to such Common Shares to the holders thereof.
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In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Com-
pany or any Affiliate of the Company, the acquiror or subsequent holder thereof
will be entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding Common Shares or the
average weekly trading volume of the Common Shares during the four calendar
weeks preceding the date on which an appropriate notice of the sale is filed
with the Securities and Exchange Commission (the "Commission"). Sales under
Rule 144 also are subject to certain manner of sale provisions, notice require-
ments and the availability of current public information about the Company. If
two years have elapsed since the date of acquisition of restricted shares from
the Company or from any Affiliate, and the acquiror or subsequent holder
thereof is deemed not to have been an Affiliate at any time during the three
months preceding a sale, such person would be entitled to sell such shares in
the public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice require-
ments.
On the first business day after the first anniversary of the Closing Date, the
Company has agreed to file a registration statement with the Commission for the
purpose of registering the sale, subject to certain exceptions, of all, but not
less than all, of the Common Shares issued to the Contributing Investors or
Cabot Partners (or issued upon conversion of Units issued to such persons). The
Company will use its best efforts to have such registration statement declared
effective as soon as practical thereafter and to keep it effective for a period
expiring on the earlier of (i) the date on which all such securities have been
sold and (ii) the date on which all such securities are in the opinion of legal
counsel for the Company eligible for sale (A) under Rule 144(k) or, (B) in the
case of any Affiliate of the Company, under Rule 144 and could be sold in one
transaction in accordance with the volume limitations contained therein. Upon
effectiveness of such registration statement, those persons holding Common
Shares upon redemption of the applicable Units who are not Affiliates of the
Company may sell such shares in the secondary market without being subject to
the volume limitations or other requirements of Rule 144. The Operating Part-
nership will bear expenses incident to the registration requirements, except
that such expenses shall not include any underwriting discounts or commissions,
the fees and disbursements of any counsel to a selling shareholder, transfer
taxes or certain other fees or taxes relating to such shares. Registration
rights may be granted to future sellers of properties to the Operating Partner-
ship who agree to receive Common Shares, Units, or other securities convertible
into Common Shares, in lieu of cash.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Shares prevailing from time to time. Sales of substantial
amounts of Common Shares, or the perception that such sales could occur, may
affect adversely prevailing market prices of the Common Shares. See "Risk Fac-
tors and Investment Considerations--Possible Adverse Effect of Shares Available
for Future Sale on Price of Common Shares."
PARTNERSHIP AGREEMENT OF OPERATING PARTNERSHIP
GENERAL
The Properties will be owned by the Operating Partnership. By contributing
their interests in the CM Property Partnerships and Cabot Partners to the Oper-
ating Partnership, the Cabot Group Participants will, among other things, be
permitted to defer until a later date a portion of the tax liabilities that
they otherwise would incur if they received Common Shares. In addition, through
the Operating Partnership the Company may acquire interests in additional
industrial properties in transactions that may defer such tax consequences for
the contributors.
Following the closing of the Offering, substantially all of the Company's
assets (including the Company's interest in the Properties) will be held by,
and its operations will be conducted through, the Operating Partnership. The
Company will initially hold Units equal to 35.7% of the economic interest in
the Operating Partnership and will control the Operating Partnership in its
capacity as the sole general partner. The Company's interest 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 the Company's
percentage ownership of the Operating Partnership (apart from tax allocations
of profits and losses to take into account pre-contribution property apprecia-
tion). The Limited Partners will own the remaining 64.3% economic interest in
the Operating Partnership. For a period of one year (or two years for any
partner of Cabot Partners or C-M Holdings) following the Closing Date, the
holders of Units or Common Shares will not be permitted to offer, pledge, sell,
contract to sell, grant any options for the sale of or otherwise dispose of any
such Units or Common Shares without the permission of the Company (except (i)
in the case of a holder that is a natural person, to certain family members of
such holder or upon death of such holder, to such holder's estate, personal
representative or beneficiaries, (ii) in the case of a business entity, to
another entity wholly owned thereby or as a distribution to the equity owners
thereof, (iii) in the case of a master pension or
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profit sharing trust or group trust, to one or more of its participating trusts
or to a successor trust, (iv) as a bona fide gift, or (v) pursuant to a pledge,
grant of a security interest or other encumbrance effected in a bona fide
transaction with an unrelated and unaffiliated pledgee). After the first anni-
versary after the closing of the Offering (or second anniversary for any
partner of Cabot Partners or C-M Holdings) Units or Common Shares may be trans-
ferred by a Limited Partner without restriction (except if such transfer would
(i) violate any securities laws, (ii) result in the Operating Partnership being
treated as an association taxable as a corporation, (iii) be effectuated
through an "established securities market" or a "secondary market (or the sub-
stantial equivalent thereof)" within the meaning of Section 7709 of the Code,
or (iv) be to a lender to the Operating Partnership or related person holding
nonrecourse liability), although the transferee will only be admitted as a Lim-
ited Partner subject to furnishing certain specified or requested instruments
or documents to the Company in its capacity as general partner. Also, after the
first anniversary after the closing of the Offering (or earlier with the con-
sent of the Company in its capacity as general partner), any holder of Units
may exchange one Unit for one Common Share subject to the Company's right to
pay cash in lieu of issuing Common Shares. With each exchange of Units, the
Company's interest in the Operating Partnership will increase.
The Company will hold one Unit in the Operating Partnership for each Common
Share that it has issued. The net proceeds of any issuance of Common Shares of
the Company will be contributed to the Operating Partnership in exchange for an
equivalent number of Units.
As the general partner of the Operating Partnership, the Company will have the
exclusive power under the Operating Partnership Agreement to manage and conduct
the business of the Operating Partnership. The Board of Trustees of the Company
will manage the affairs of the Company by directing the affairs of the Oper-
ating Partnership. The Operating Partnership will be responsible for, and pay
when due, its share of all administrative and operating expenses of the Proper-
ties.
The following summary of the Operating Partnership Agreement, including the
descriptions of certain provisions set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Operating Partnership Agreement,
which is filed as an exhibit to the Registration Statement of which the Pro-
spectus is a part.
MANAGEMENT
The Operating Partnership has been organized as a Delaware limited partnership
pursuant to the terms of the Operating Partnership Agreement. The Company, as
the sole general partner of the Operating Partnership and the holder of the
majority of the Units, will generally have full, exclusive and complete discre-
tion in managing and controlling the Operating Partnership. The Contributing
Investors receiving Units, as the Limited Partners of the Operating Partner-
ship, will have no authority to transact business for, or to participate in the
management activities or decisions of, the Operating Partnership, except as
provided in the Operating Partnership Agreement and as provided by applicable
law. However, the consent of all the Limited Partners will be required to (i)
take any action that would make it impossible to carry on the ordinary business
of the Operating Partnership, except as otherwise provided in the Operating
Partnership Agreement; (ii) possess Operating Partnership property, or assign
any rights to specific Operating Partnership property for other than an Oper-
ating Partnership purpose, except as otherwise provided in the Operating Part-
nership Agreement; (iii) admit a person as a partner, except as otherwise pro-
vided in the Operating Partnership Agreement; or (iv) perform any act that
would subject a Limited Partner to liability as a general partner in any juris-
diction or any other liability except as provided in the Operating Partnership
Agreement or under the laws of the State of Delaware. In addition, the Company
has agreed pursuant to the Operating Partnership Agreement that it will not
take any of the following actions prior to the first anniversary of the Closing
Date without the consent of Limited Partners holding a majority of the out-
standing Units: (i) a merger, consolidation or share exchange of the Company
requiring the approval of the Company's shareholders or any merger, consolida-
tion or partnership interest exchange of the Operating Partnership, (ii) a
sale, lease, transfer or other disposition of all or substantially all of the
Company's assets requiring the approval of the Company's shareholders, a sale,
lease, transfer or other disposition of all or substantially all of the oper-
ating assets, or any election to dissolve the Company requiring the approval of
the Company's shareholders, or (iii) an amendment to the Declaration of Trust
requiring the approval of the Company's shareholders.
INDEMNIFICATION
The Operating Partnership Agreement provides that each individual made a party
to a proceeding by reason of his status as a general partner or an officer of
the Operating Partnership or a trustee or officer of the Company or any other
person as the Company may designate from time to time in its sole and absolute
discretion (each, an "Indemnitee") will be indemnified and held harmless by the
Operating Partnership for any act relating to the operation of Operating Part-
nership 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 com-
mitted in bad faith or was the result of active and deliberate dishonesty; (ii)
the Indemnitee actually received an
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improper personal benefit of 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 Operating Partnership Agreement
further provides that 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 above. The termination of any pro-
ceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, would, under the Oper-
ating Partnership Agreement, create a rebuttable presumption that the indi-
vidual acted in a manner contrary to that specified above. Any indemnification
so made shall be made only out of the assets of the Operating Partnership.
CAPITAL CONTRIBUTIONS
When the Company contributes additional capital to the Operating Partnership
from the proceeds of Common Shares (or preferred shares of beneficial inter-
est) issued by the Company, the Company's interest in the Operating Partner-
ship will be increased on a proportionate basis based upon the number of
Common Shares (or preferred shares of beneficial interest) issued to the
extent the net proceeds from, or the property received in consideration for,
the issuance thereof are used to fund the contribution.
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the Company will be the tax
matters partner of the Operating Partnership and, as such, will have authority
to make certain tax related decisions and tax elections under the Code on
behalf of the Operating Partnership.
OPERATIONS
The Operating Partnership Agreement allows the Company to operate the Oper-
ating Partnership in a manner that will enable the Company to satisfy the
requirements for being classified as a REIT. The Operating Partnership Agree-
ment also requires the distribution of the cash available for distribution of
the Operating Partnership quarterly on a basis in accordance with the Oper-
ating Partnership Agreement.
DUTIES AND CONFLICTS
The Operating Partnership Agreement provides that the Company shall not enter
into or conduct any business other than in connection with its ownership,
acquisition and disposition of partnership interests in the Operating Partner-
ship and the management of the business and incidental activities of the Oper-
ating Partnership. Thereof, all activities pertaining to the acquisition,
development, management and operation of any properties, must be conducted
through the Operating Partnership.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2097 or until sooner dissolved upon (i) the withdrawal of the
Company as a general partner (unless all of the Limited Partners elect to con-
tinue the Operating Partnership), or (ii) by the election of the Company, with
the consent of a majority in interest of Limited Partners, or (iii) in connec-
tion with a merger or other combination of the Operating Partnership, or (iv)
by the sale or other disposition of all or substantially all of the assets of
the Operating Partnership, or (v) entry of a decree of judicial dissolution of
the Operating Partnership, or (vi) bankruptcy or insolvency of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The Company 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
Company and its shareholders with respect to the treatment of the Company as a
REIT.
Based upon certain assumptions and representations described below, in the
opinion of Mayer, Brown & Platt, counsel to the Company, the Company has been
organized in conformity with the requirements for qualification as a REIT
beginning with its taxable year ending December 31, 1998, and its proposed
method of operation as described in this Prospectus and as represented by the
Company will enable it to satisfy the requirements for such qualification.
This opinion is based on certain assumptions relating to the organization and
operation of the Company, the Operating Partnership and the Management Com-
pany, and is conditioned upon certain representations made by the Company as
to certain factual matters relating to the Company's organization and intended
or expected manner of operation. In addition, this opinion is based on the law
existing and in effect on the date hereof and the Company's qualification and
taxation as a REIT will depend on compli -
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ance with such law existing and in effect on the date hereof and as the same
may hereafter be amended. The Company's qualification and taxation as a REIT
will further depend upon the Company's ability to meet, on a continuing basis
through actual operating results, asset composition, distribution levels and
diversity of share ownership, the various qualification tests imposed under the
Code discussed below. Counsel will not review compliance with these tests on a
continuing basis, and thus no assurance can be given that the Company will sat-
isfy such tests on a continuing basis.
In brief, a corporation that invests primarily in real estate can, if it meets
the REIT provisions of the Code described below, claim a tax deduction for the
dividends it pays to its shareholders. Such a corporation generally is not
taxed on its "REIT taxable income" to the extent such income is currently dis-
tributed to shareholders, thereby substantially eliminating the "double taxa-
tion" (i.e., at both the corporate and shareholder levels) that generally
results from an investment in a corporation. However, as discussed in greater
detail below, such an entity remains subject to tax in certain circumstances
even if it qualifies as a REIT. Further, if the entity were to fail to qualify
as a REIT in any year, it would not be able to deduct any portion of the divi-
dends it paid to its shareholders and would be subject to full federal income
taxation on its earnings, thereby significantly reducing or eliminating the
cash available for distribution to its shareholders. See "--Taxation of the
Company--General" and "--Taxation of the Company--Failure to Qualify."
The Board of Trustees of the Company currently expects that the Company will
operate in a manner that permits it to elect, and that it will timely and
effectively elect, REIT status for its 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
Company continuing to satisfy the numerous asset, income and distribution tests
described below, which in turn will be dependent on the Company's operating
results.
The following summary is based on existing law, is not exhaustive of all pos-
sible 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 or her particular circumstances or to certain types of share-
holders (including insurance companies, financial institutions and broker-deal-
ers, foreign corporations and persons who are not the citizens or residents of
the United States) subject to special treatment under the federal income taxa-
tion laws.
TAXATION OF THE COMPANY
General.
In any year in which the Company 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 Company may, however, be
subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed. Under recently enacted legislation, shareholders are
required to include their proportionate share of the REIT's undistributed long-
term capital gain in income but receive a credit for their share of any taxes
paid on such gain by the REIT.
Notwithstanding its qualification as a REIT, the Company also may be subject to
taxation in certain other circumstances. If the Company should fail to satisfy
either the 75% or the 95% gross income test (each as discussed below), and
nonetheless maintain its qualification as a REIT because certain other require-
ments are met, it will be subject to a 100% tax on the greater of the amount by
which the Company fails either the 75% or the 95% test, multiplied by a frac-
tion intended to reflect the Company's profitability. The Company will also be
subject to a tax of 100% on net income from any "prohibited transaction" (as
described below), and if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to cus-
tomers 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 fore-
closure property at the highest corporate rate. In addition, if the Company
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 Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company also
may be subject to the corporate alternative minimum tax, as well as to tax in
certain situations not presently contemplated. The Management Company will be
taxed on its income at regular corporate rates. The Company will use the cal-
endar 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 Company must meet, among others, the fol-
lowing requirements:
Share Ownership Tests.
The Company's shares of beneficial interest (which term, in the case of the
Company, currently means the Common 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
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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 outstanding shares of bene-
ficial interest of the Company may be owned, directly or indirectly and
including the effects of certain constructive ownership rules, by five or fewer
individuals, which for this purpose includes certain tax-exempt entities. How-
ever, for purposes of this test, any shares of beneficial interest 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 share ownership requirements need not be
met until the second taxable year of the Company for which a REIT election is
made.
In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company has placed certain restrictions on the transfer of its
shares of beneficial interest to prevent additional concentration of stock own-
ership. Moreover, to evidence compliance with these requirements, Treasury reg-
ulations require the Company to maintain records which disclose the actual own-
ership of its outstanding shares of beneficial interest. In fulfilling its
obligations to maintain records, the Company must and will demand written
statements each year from the record holders of designated percentages of its
shares of beneficial interest disclosing the actual owners of such shares of
beneficial interest (as prescribed by Treasury regulations). A list of those
persons failing or refusing to comply with such demand must be maintained as
part of the Company's records. A shareholder failing or refusing to comply with
the Company's written demand must submit with his tax return a similar state-
ment disclosing the actual ownership of Company shares of beneficial interest
and certain other information. In addition, the Company's Declaration of Trust
provides restrictions regarding the transfer of its shares of beneficial
interest that are intended to assist the Company in continuing to satisfy the
share ownership requirements. See "Description of Shares of Beneficial Inter-
est--Restrictions on Transfer."
Asset Tests.
At the close of each quarter of the Company's taxable year, the Company must
satisfy two tests relating to the nature of its assets (determined in accor-
dance with generally accepted accounting principles). First, at least 75% of
the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, government securities and qualified temporary investments.
Second, although the remaining 25% of the Company's assets generally may be
invested without restriction, 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
Company's total assets (the "Value Test") or (ii) 10% of the outstanding voting
securities of any one such issuer (the "Voting Stock Test"). Where the Company
invests in a partnership (such as the Operating Partnership), it will be deemed
to own a proportionate share of the partnership's assets and the partnership
interest does not constitute a security for purposes of these tests. See "--Tax
Aspects of the Company's Investments in Partnerships--General." Accordingly,
the Company's investment in the Properties through its interest in the Oper-
ating Partnership is intended to constitute an investment in qualified assets
for purposes of the 75% asset test.
The Operating Partnership will own 100% of the non-voting preferred stock of
the Management Company, and by virtue of its partnership interest in the Oper-
ating Partnership, the Company will be deemed to own initially a pro rata share
of such non-voting preferred stock. Because the Operating Partnership will own
none of the voting common stock of the Management Company and the non-voting
preferred stock's approval right is limited to certain fundamental corporate
actions that could adversely affect the preferred stock as a class, the Voting
Stock Test should be satisfied.
Based upon its analysis of the estimated value of the stock of the Management
Company to be owned by the Operating Partnership relative to the estimated
value of the total assets to be owned by the Operating Partnership, the Company
believes that its pro rata share of the stock of the Management Company to be
held by the Operating Partnership will not exceed on the date of this Pro-
spectus 5% of the value of the Company's total assets. Mayer, Brown & Platt, in
rendering its opinion as to the qualification of the Company as a REIT, is
relying on representations of the Company to such effect with respect to the
value of such stock and assets. The Value Test must be satisfied at the end of
any quarter in which the Company so increases its interest in the Management
Company or so acquires other property. In this respect, if any Continuing
Investor exercises its conversion option to exchange Units for Common Shares,
the Company will thereby increase its proportionate (indirect) ownership
interest in the Management Company, thus requiring the Company to meet the
Value Test in any quarter in which such conversion option is exercised. A sim-
ilar result will follow in the case of any exchange of Units by the Operating
Partnership or the Management Company employees that they received pursuant to
the Company's Long Term Incentive Plan. See "Management--Long Term Incentive
Plan." Although the Company plans to take steps to ensure that it satisfies the
Value Test for any quarter with respect to which retesting is to occur, there
can be no assurance that such steps will always be successful and will not
require a reduction in the Operating Partnership's overall interest in the Man-
agement Company.
Gross Income Tests.
There are two separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For pur-
poses of these tests, where the Company invests in a partnership, the Company
will be treated as
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receiving its share of the income and loss of the partnership, and the gross
income of the partnership will retain the same character in the hands of the
Company as it has in the hands of the partnership. See "--Tax Aspects of the
Company's Investments in Partnerships--General" below. The two tests are sepa-
rately described below:
The 75% Test. At least 75% of the Company's gross income for the taxable year
must be "qualifying income." Qualifying income generally includes: (i) rents
from real property (except as modified below); (ii) interest on obligations
secured by mortgages on, or interests in, real property; (iii) gains from the
sales or other disposition of interests in real property and real estate mort-
gages, other than gain from property bought primarily for sale to customers in
the ordinary course of the Company'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 prop-
erty ("foreclosure property"); and (vii) commitment fees received for agreeing
to make loans secured by mortgages on real property or to purchase or lease
real property.
Rents received from a customer will not, however, qualify as rents from real
property in satisfying the 75% gross income test (or the 95% gross income test
described below) if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such customer. In addition, if
rent attributable to personal property leased in connection with a lease of
real property is greater that 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 pur-
poses 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 for purposes
of the 75% and 95% gross income tests, the Company generally must not operate
or manage the property or furnish or render services to customers, other than
through an "independent contractor" from whom the Company derives no income,
except that the "independent contractor" requirement does not apply to the
extent that the services provided by the Company 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."
The Company intends to monitor its operations in the context of these standards
so as to satisfy the 75% and 95% gross income tests. The Operating Partnership
will provide certain services at the Properties that it owns and possibly at
any newly acquired Properties of the Operating Partnership. The Company
believes that for purposes of the 75% and 95% gross income tests the services
provided at such Properties and any other services and amenities provided by
the Operating Partnership or its agents with respect to such Properties will be
of the type usually or customarily rendered in connection with the rental of
space for occupancy only and not rendered to the occupant for his convenience.
Mayer, Brown & Platt, in rendering its opinion as to the qualification of the
Company as a REIT, is relying on representations of the Company to such effect.
The Company intends that services that cannot be provided directly by the Oper-
ating Partnership, the Management Company or other agents will be performed by
independent contractors. The Company anticipates that the dividend income on
its indirect investment in the Management Company will not cause it to fail to
satisfy the 75% gross income test.
The 95% Test. In addition to deriving 75% of its gross income from the sources
listed above, at least 95% of the Company's gross income for the taxable year
must be derived from the above-described qualifying income or from dividends,
interest, or gains from the sale or other disposition of stock or other securi-
ties 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% gross income test. The Company
intends to closely monitor its non-qualifying income and anticipates that non-
qualifying income from its other activities will not result in the Company
failing to satisfy either the 75% or 95% gross income test.
For purposes of determining whether the Company complies with the 75% and the
95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (ex-
cluding foreclosure property); however, a sale of property will not be a pro-
hibited transaction if such property is held by the Company 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 sat-
isfied. See "--Taxation of the Company--General" and "--Tax Aspects of the
Company's Investments in Partnerships--Sale of the Properties."
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the Properties through the Operating Partner-
ship will in major part give rise to qualifying income in the form of rents,
and that gains on sales of the Properties, or of the Company's interest in the
Operating Partnership, generally will also constitute qualifying income.
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Even if the Company fails to satisfy one or both of the 75% and 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 Company's failure to comply
is due to reasonable cause and not to willful neglect; (ii) the Company 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 Company 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 Company's profit-
ability.
Annual Distribution Requirements.
In order to qualify as a REIT, the Company is required to distribute dividends
to its shareholders each year in an amount at least equal to (A) the sum of (i)
95% of the Company's REIT taxable income (computed without regard to the divi-
dends received deduction and the Company's net capital gain) and (ii) 95% of
the net income (after tax), if any, for foreclosure property, minus (B) the sum
of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after the declaration. To the extent
that the Company 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 gain or
ordinary corporate tax rates, as the case may be.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the pre-
ceding paragraph. In this regard, the Operating Partnership Agreement autho-
rizes the Company in its capacity as general partner to take such steps as may
be necessary to cause the Operating Partnership to distribute to its partners
an amount sufficient to permit the Company to meet the distribution require-
ments. It is possible that the Company may not have sufficient cash or other
liquid assets to meet the 95% distribution requirement, due to timing differ-
ences 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 expense in
computing the Company's REIT taxable income on the other hand; due to the Oper-
ating Partnership's inability to control cash distributions with respect to any
properties as to which its does not have decision making control; or for other
reasons. The Company 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 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 Company fails to meet the 95% distribution requirement as a result of an
adjustment to the Company's tax return by the Service, the Company may retroac-
tively cure the failure by paying a "deficiency dividend" (plus applicable pen-
alties and interest) within a specified period.
Failure to Qualify.
If the Company fails to qualify for taxation as a REIT in any taxable year and
the relief provisions do not apply, the Company will be subject to tax (in-
cluding any applicable alternative minimum tax) on its taxable income at reg-
ular corporate rates. Distributions to shareholders in any year which the Com-
pany fails to qualify as a REIT will not be deductible by the Company, nor gen-
erally 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 limita-
tions in the Code, corporate distributees may be eligible for the dividends
received deduction. Unless entitled to relief under specific statutory provi-
sions, the Company also will be disqualified from the re-electing taxation as a
REIT for the four taxable years following the year during which qualification
was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company will hold a partnership interest in the Operating Partner-
ship. 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 partner-
ship, and are potentially subject to tax thereon, without regard to whether the
partnership received a distribution from the partnership. The Company will
include its proportionate share of the foregoing partnership items for purposes
of the various REIT gross income tests and in the computation of its REIT tax-
able income. See "--Taxation of the Company--General" and "--Gross Income
Tests."
Each partner's share of a partnership's tax attributes is determined in accor-
dance with the partnership agreement, although the allocations will be adjusted
for tax purposes if they do not comply with the technical provisions of Code
Section 704(b) and the regulations thereunder. The Operating Partnership's
allocations of tax attributes are intended to comply with these provisions.
Notwithstanding these allocation provisions, for purposes of complying with the
gross income and asset tests
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discussed above, the Company will be deemed to own its proportionate share of
each of the assets of the partnership and will be deemed to have received a
share of the income of the Partnership based on its capital interest in the
Operating Partnership.
Accordingly, any resultant increase in the Company's REIT taxable income from
its interest in the Operating Partnership (whether or not a corresponding cash
distribution is also received from the Operating Partnership) will increase its
distribution requirements (see "--Taxation of the Company--Annual Distribution
Requirements"), but will not be subject to federal income tax in the hands of
the Company provided that an amount equal to such income is distributed by the
Company to its shareholders. Moreover, for purposes of the REIT asset tests
(see "--Taxation of the Company--Asset Tests"), the Company will include its
proportionate share of assets held by the Operating Partnership.
Entity Classification. Based on certain representations of the Company and the
condition that the Operating Partnership does not become a "publicly traded
partnership" under the Code, in the opinion of Mayer, Brown & Platt, under
existing federal income tax law and regulations, the Operating Partnership will
be treated for federal income tax purposes as a partnership, and not as an
association taxable as a corporation. Such opinion, however, is not binding on
the Service.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c) of
the Code, income, gain, loss and deductions attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the Properties or interests
therein) 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 con-
tribution, and the adjusted tax basis of such property at the time of contribu-
tion (a "Book-Tax Difference"). Such allocations are solely for federal income
tax purposes and do not affect the book capital amounts or other economic
arrangements among the partners. The formation of the Operating Partnership
included contributions of appreciated property (including certain of the Prop-
erties or interests therein). Consequently, the Partnership Agreement requires
certain allocations to be made in a manner consistent with Section 704(c) of
the Code.
In general, certain of the Continuing Investors and the Cabot Group Partici-
pants as contributors of certain of the Properties or interests therein will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership on the
contributed assets (including certain of such Properties). This will tend to
eliminate the Book-Tax Difference over the life of the Operating 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 spe-
cific taxable transaction such as a sale, and accordingly variations from
normal Section 704(c) principles may arise, which could result in the alloca-
tion of additional taxable income to the Company in excess of corresponding
cash proceeds in certain circumstances.
Treasury regulations under Section 704(c) provide partnerships with a choice of
several methods of accounting for Book-Tax Differences. The Operating Partner-
ship and the Company have not yet determined which of the alternative methods
of accounting for Book-Tax Differences will be elected, and accordingly, such
determination could have differing timing and other effects on the Company.
Certain of the Properties acquired in taxable transactions will in general have
a tax basis equal to their fair market value. Section 704(c) of the Code will
not apply in such cases.
Sale of the Properties. The Company's share of any gain realized by the Oper-
ating Partnership on the sale of any "dealer property" generally will be
treated as income from a prohibited transaction that is subject 100% penalty
tax. See "--Taxation of the Company--General" and "--Gross Income Tests--The
95% Test." Under existing law, whether property is dealer property is a ques-
tion of fact that depends on all the facts and circumstances with respect to
the particular transaction. The Operating Partnership intends to hold (and, to
the extent within its control, to have any joint venture to which the Operating
Partnership is a partner so hold) the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, owning, oper-
ating and developing the Properties and other industrial properties, and to
make such occasional sales of the Properties and other properties acquired sub-
sequent to the date hereof as are consistent with the Company's investment
objectives. Based upon the Company's investment objectives, the Company
believes that overall, the Properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies as
a REIT, distributions made to the Company's taxable domestic shareholders out
of current or accumulated earnings and profits (and not designated as capital
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<PAGE>
gain dividends) generally will be taxed to such shareholders as ordinary divi-
dend income and will not be eligible for the dividends received deduction for
corporations. Distributions of net capital gain designated by the Company as
capital gain dividends will be taxed to such shareholders as long-term capital
gain (to the extent they do not exceed the Company's actual net capital gain
for the fiscal year) without regard to the period for which the shareholder has
held its shares of beneficial interest of the Company. However, corporate
shareholders may be required to treat up to 20% of capital gain dividends as
ordinary income. To the extent that the Company makes distributions in excess
of current and accumulated earnings and profits, such distributions will be
treated first as a tax-free return of capital to the shareholder, reducing the
tax basis of a shareholder's Common Shares by the amount of such excess distri-
bution (but not below zero), with distributions in excess of the shareholder's
tax basis being taxed as capital gains (if the Common Shares are held by the
shareholder as a capital asset). See "Distribution Policy." In addition, any
dividend declared by the Company in October, November or December of any year
that is payable to a shareholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses of the
Company. Federal income tax rules may also require that certain minimum tax
adjustments and preferences be apportioned to Company shareholders.
The Company is permitted under the Code to elect to retain and pay income tax
on its net capital gain for any taxable year. Under the Taxpayer Relief Act of
1997 (the "1997 Act"), however, if the Company so elects, a shareholder must
include in income such shareholder's proportionate share of the Company's
undistributed capital gain for the taxable year, and will be deemed to have
paid such shareholder's proportionate share of the income tax paid by the Com-
pany with respect to such undistributed capital gain. Such tax would be cred-
ited against the shareholder's tax liability and subject to normal refund pro-
cedures. In addition, each shareholder's basis in such shareholder's shares of
Common Shares would be increased by the amount of undistributed capital gain
(less the tax paid by the Company) included in the shareholder's income.
The 1997 Act also alters the taxation of capital gain income for individuals
(and for certain trusts and estates). Gain from the sale or exchange of certain
investments held for more than 18 months will be taxed at a maximum capital
gain rate of 20%. Gain from the sale or exchange of such investments held for
18 months or less, but for more than one-year, will be taxed at a maximum cap-
ital gain rate of 28%. The 1997 Act also provides a maximum rate of 25% for
"unrecaptured section 1250 gain" recognized on the sale or exchange of certain
real estate assets, introduces special rules for "qualified 5-year gain," and
makes certain other changes to prior law. On November 10, 1997, the Service
issued Notice 97-64, which provides generally that the Company may classify
portions of its designated capital gain dividend as (i) a 20% rate gain distri-
bution (which would be taxed as long-term capital gain in the 20% group), (ii)
an unrecaptured Section 1250 gain distribution (which would be taxed as long-
term capital gain in the 25% group), or (iii) a 28% rate gain distribution
(which would be taxed as long-term capital gain in the 28% group). If no desig-
nation is made, the entire designated capital gain dividend will be treated as
a 28% rate gain distribution. Notice 97-64 provides that a REIT must determine
the maximum amounts that it may designate as 20% and 25% rate capital gain div-
idends by performing the computation required by the Code as if the REIT were
an individual whose ordinary income was subject to a marginal tax rate of at
least 28%.
In general, any loss upon a sale or exchange of Common Shares by a shareholder
who has held such Common 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 Company required to be treated by such share-
holders as long-term capital gains.
Backup Withholding. The Company 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 a rate of 31% with
respect to dividends paid unless such shareholder (i) is a corporation or comes
with 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 pro-
vide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup with-
holding is available as a credit against the shareholder's income tax liabil-
ity. In addition, the Company may be required to withhold a portion of capital
gain distributions made to any shareholders who fail to certify their non-for-
eign status to the Company. See "--Taxation of the Shareholders--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 Com-
pany to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-
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<PAGE>
exempt entity has not financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code, that the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity, and that the
Company, consistent with its present intent, does not hold a residual interest
in a real estate mortgage investment conduit ("REMIC") that is an entity or
arrangement that satisfies the standards set forth in Section 860D of the Code.
If any pension or other retirement trust that qualifies under Section 401(a) of
the Code (a "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 consti-
tute UBTI. For these purposes, a "pension-held REIT" is defined as a REIT (i)
which 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) as to which at least one qualified pension trust
holds more than 25% by value of the interests of such REIT or one or more qual-
ified 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.
The Company may constitute a "pension-held REIT" immediately after the closing
of the Offering and Formation Transaction. In addition, no assurance can be
given that the Company will not become a "pension-held REIT" in the future.
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. Sharehold-
ers") 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 and local income tax laws with regard to
an investment in Common Shares, including any reporting requirements. The Com-
pany will qualify as a "domestically-controlled REIT" so long as less than 50%
in value of its shares of beneficial interest are held by foreign persons
(i.e., non-resident aliens, and foreign corporations, partnerships, trusts and
estates). The Company currently anticipates that it will qualify as a domesti-
cally-controlled REIT. Under these circumstances, gain from the sale of Common
Shares by a foreign person should not be subject to United States taxation,
unless such gain is effectively connected with such person's United States
trade or 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 Company's current anticipation that the Com-
pany will qualify as a domestically-controlled REIT, because the Common Shares
will be publicly traded no assurance can be given that the Company will con-
tinue to so qualify.
Distributions of cash generated by the Company'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 a rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign share-
holder files with the Company the required form evidencing such lower rate, or
(ii) the foreign shareholder files and Internal Revenue Service Form 4224 with
the Company claiming that the distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United States
real property interests by the Company are subject to income and withholding
taxes pursuant to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), and may also 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 or exemption. The Company is required by applicable Treasury regulations
to withhold 35% of any distribution to a foreign person that could be desig-
nated by the Company 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 other considerations. Accordingly, foreign investors in the
Company should consult their own tax advisor regarding the income and with-
holding tax considerations with respect to their investments in the Company.
OTHER TAX CONSIDERATIONS
Management Company. The income of the Management Company will be subject to
federal and state income tax at full corporate rates, and the Management Com-
pany cannot claim a deduction for the dividends it pays to its shareholders,
including the Operating Partnership. To the extent that the Management Company
pays federal, state or local taxes, it will have less cash available to dis-
tribute to its shareholders, thereby reducing cash available for distribution
by the Company to its shareholders. The Management Company will attempt to min-
imize the amount of such taxes, but there can be no assurance whether or the
extent to which the measures it takes to minimize taxes will be successful.
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The 1997 Act. The 1997 Act modifies many of the provisions relating to the
requirements for qualification as, and the taxation of, a REIT. Among other
things, the 1997 Act (1) replaced the rule that disqualifies a REIT for any
year in which the REIT fails to comply with United States Treasury regulations
to ascertain its ownership with an intermediate penalty for failing to do so;
(ii) permits a REIT 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;
(iii) permits a REIT to elect to retain and pay income tax on net long-term
capital gains; (iv) repeals a rule that required that less than 30% of a REIT's
gross income be derived from gain from the sale or other disposition of stock
or securities held for less than one year, certain real property held for less
than four years, and property that is sold or disposed of in a prohibited
transaction; (v) lengthened the original grace period for foreclosure property
from two years after the REIT acquired the property to a period ending on the
last day of the third full taxable year following the taxable year in which the
property was acquired; (vi) treats income from all hedges that reduce the
interest rate risk of REIT liabilities, not just interest rate swaps and caps,
as qualifying income under the 95% gross income test; and (vii) permits any
corporation wholly-owned by a REIT to be treated as a qualified subsidiary,
regardless of whether the corporation has always been owned by a REIT. The
changes are effective for taxable years beginning after the date of enactment.
Thus, these changes will apply to the formation and operation of the Company.
Possible Legislative or Other Actions Affecting Tax Consequences. Prospective
shareholders should recognize that the present federal income tax treatment of
an investment in the Company may be modified by legislative, judicial or admin-
istrative 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 in 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. Revi-
sions in federal tax laws and interpretations thereof can adversely affect the
tax consequences of an investment in the Company.
State and Local Taxes. The Company and its shareholders may be subject to state
or local taxation, the Company and the Operating Partnership may be subject to
state or local tax withholding requirements in various jurisdictions, including
those in which it or they transact business or reside. The state and the tax
treatment of the Company 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 PURCHASER IS ADVISED TO CONSULT WITH SUCH PURCHASER'S TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH PURCHASER OF THE PUR-
CHASE, 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.
ERISA CONSIDERATIONS
THE FOLLOWING IS INTENDED TO BE A SUMMARY ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL PLANNING WITH A PROFESSIONAL. Employee benefit plans subject to ERISA
("ERISA Plans"), governmental plans, Individual Retirement Accounts and Indi-
vidual Retirement Annuities ("IRAs") and certain other non-ERISA plans (collec-
tively, "Plans") considering purchasing the Common Shares should consult with
their own legal counsel regarding specific considerations arising under ERISA,
the Code or state law with respect to their purchase of the Common Shares.
GENERAL FIDUCIARY CONSIDERATIONS
The fiduciary requirements of Title I of ERISA require the investments of an
ERISA Plan to be (i) prudent and in the best interest of the ERISA Plan, its
participants and beneficiaries; (ii) diversified in order to avoid the risk of
large losses, unless it is clearly prudent not to do so; and (iii) authorized
under the terms of the governing documents of the ERISA Plan. Each fiduciary of
an ERISA Plan should carefully consider whether an investment in the Common
Shares is consistent with his or her fiduciary duties.
PROHIBITED TRANSACTIONS
ERISA and the Code prohibit certain transactions that involve an ERISA Plan and
a "party in interest" or "disqualified person" (collectively referred to herein
as a "party in interest") with respect to the plan. A party in interest who
engages in a prohibited transaction with a plan is subject to an excise tax of
15% of the amount involved in the prohibited transaction. If
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<PAGE>
the prohibited transaction is not corrected by undoing the transaction to the
extent possible and, in any case, putting the plan in a financial position not
worse than that in which it would have been had the party in interest acted in
accordance with the requirements of ERISA, the party in interest is subject to
a further excise tax of 100%. Cabot Partners is a party in interest with
respect to one ERISA plan that is a Contributing Investor. It is not clear
that the Formation Transactions would constitute a prohibited transaction with
respect to such plan. Nevertheless, such plan has informed the Company that it
is relying on Prohibited Transaction Exemption 84-14 ("PTE 84-14") and has
retained a Qualified Professional Asset Manager ("QPAM") to decide whether or
not to enter into the Formation Transactions. If it were ultimately determined
that the Formation Transactions constitute a prohibited transaction, and also
that PTE 84-14 does not apply to such plan's participation in the Formation
Transactions, then sanctions could be imposed on Cabot Partners and the fidu-
ciaries of such plan that could include reallocation of Units between Cabot
Partners and such plan or other remedies, possibly including rescission of the
Property transfers from such plan, intended to put such plan in a financial
position not worse than that in which it would have been if the parties had
acted in accordance with the requirements of ERISA. Cabot Partners and the
Company have received an opinion from Mayer, Brown & Platt that PTE 84-14
applies to the Formation Transactions with respect to such plan; however, such
opinion is not binding on the Department of Labor, the Service or any court.
PLAN ASSETS ISSUES
A regulation promulgated by the Department of Labor (the "Regulation") pro-
vides that, except under certain circumstances set forth therein, investment
by an ERISA Plan in a corporation, partnership or other entity may result in
the assets of that entity being treated as the assets of the investing ERISA
Plan.
The Regulation provides that an entity's assets will not be treated as "plan
assets" because of an ERISA Plan's investment if the ERISA Plan acquires an
equity interest in the entity which is a "publicly offered security." Under
the Regulation, a "publicly-offered security" is a security that is freely
transferable, part of a class of securities that is widely held and either (i)
part of a class of securities that is registered under section 12(b) or 12(g)
of the Exchange Act, or (ii) sold pursuant to an effective registration state-
ment under the Securities Act (provided that the securities are registered
under the Exchange Act within 120 days after the end of the fiscal year of the
issuer during which the offering occurred). The Common Shares are expected to
be registered under section 12(b) of the Exchange Act.
A security is "widely held" if it is part of a class of securities owned by
100 or more investors independent of the issuer and of each other. The Company
believes that the Common Shares will be widely held upon the closing of the
Offering.
Whether a security is considered "freely transferable" is a factual question
determined upon the relevant facts and circumstances. The Regulation provides
that when a security is part of an offering in which the minimum investment is
$10,000 or less, as is the case with the Offering, certain restrictions ordi-
narily will not affect, alone or in combination, the finding that the securi-
ties are freely transferable. The Company believes that the restrictions
imposed under the Company's Declaration of Trust on the transfer of the Common
Shares are limited to restrictions on transfer generally permitted under the
Regulation and will not result in the failure of the Common Shares to be
"freely transferable." The Company also believes that the restrictions that
apply to the Common Shares that derive from contractual arrangements requested
by the Underwriters in connection with the Offering will not result in the
failure of the Common Shares to be "freely transferable." The Regulation only
establishes a presumption in favor or free transferability, and no assurance
can be given that the Department of Labor or the U.S. Treasury Department will
not reach a contrary conclusion.
Assuming that the Common Shares will be "widely held" and that no facts and
circumstances other than those referred to in the preceding paragraph exist
that restrict transferability, the Company believes that, while the issue is
not entirely free of doubt because of its factual nature, the Common Shares
will be publicly offered securities and the assets of the Company will not be
deemed to be "plan assets" of any Plan which invests in the Common Shares.
The Regulation also provides exceptions to the rule that an entity will hold
plan assets if the entity qualifies as an operating company or a real estate
operating company ("REOC"). A REOC is an entity which, on certain specified
valuation dates, has at least 50 percent of it assets, valued at cost (other
than short term investments pending long term commitment or distribution)
invested in real estate which is managed or developed and with respect to
which the REOC has the right to substantially participate in the management or
development activities; and which throughout the year(s) is engaged directly
in real estate management or development. As the Company will be self-managed,
it may qualify under the Regulation as a REOC. The Company may also constitute
an "operating company" within the meaning of the Regulation.
Notwithstanding the foregoing, if the assets of the Company were deemed to be
"plan assets" under ERISA, the Company's ability to engage in business trans-
actions could be hampered because (i) certain persons exercising discretion as
to the Company's assets might be considered fiduciaries of the ERISA Plans;
and (ii) transactions involving the Company undertaken at their discretion or
transactions that the Company might enter into in the ordinary course of its
business might constitute prohibited transactions under ERISA and the Code.
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UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Under-
writers named below, for whom J.P. Morgan Securities Inc., Goldman, Sachs &
Co., Prudential Securities Incorporated and Smith Barney Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase, and
the Company has agreed to sell to them, the respective number of Common Shares
set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
J.P. Morgan Securities Inc.........................................
Goldman, Sachs & Co. ..............................................
Prudential Securities Incorporated.................................
Smith Barney Inc...................................................
---------
Total............................................................. 5,000,000
<CAPTION>
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several Under-
writers to purchase Common Shares are subject to approval of certain legal mat-
ters by counsel and certain other conditions. The Underwriters are obligated to
take and pay for all of the Common Shares, if any are taken.
The Underwriters propose initially to offer the Common Shares directly to the
public at the public offering price set forth on the cover page of this Pro-
spectus and to certain dealers at such price less a concession not in excess of
$ per Share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per Share to certain other dealers. After the
Common Shares are released for sale to the public, the offering price and such
concessions may be changed.
The Company has granted to the Underwriters an option, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
an additional 750,000 Common Shares at the initial public offering price, less
the underwriting discount. The Underwriters may exercise such option solely to
cover over-allotments, if any. To the extent that the Underwriters exercise
such option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of such additional
Common Shares as the number set forth next to such Underwriters name in the
preceding table bears to the total number of Common Shares offered hereby.
The Company has agreed not to offer for sale, contract to sell, sell or other-
wise dispose of, directly or indirectly, any Common Shares (other than the
Common Shares offered hereby, shares issued pursuant to the Company's Long Term
Incentive Plan and any Units or Common Shares that may be issued in connection
with any acquisition of a property), or sell or grant options, rights or war-
rants with respect to any Common Shares (other than pursuant to the Company's
Long Term Incentive Plan), for a period of months after the closing of the
Offering, without the prior written consent of J.P. Morgan Securities Inc.
("J.P. Morgan"). Each of the Company's officers and Trustees has entered into
agreements with the Underwriters providing that, subject to certain exceptions,
such person may not sell any Common Shares or Units prior to 24 months after
Closing Date, without the consent of the Company and J.P. Morgan. In addition,
the Company has agreed not to waive any of the restrictions set forth in the
Registration Rights Agreement, including the limitation on Contributing
Investors offering for sale or selling any Common Shares or Units, without the
prior written consent of J.P. Morgan. See "Shares Available for Future Sale."
The Company and the Operating Partnership have agreed to indemnify the Under-
writers against certain liabilities, including liabilities under the Securities
Act of 1933.
The Underwriters have informed the Company that they do not expect sales to
accounts over which they exercise discretionary authority to exceed five per-
cent of the total number of shares offered by them.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Shares.
Specifically, the Underwriters may overallot the offering, creating a syndicate
short position. In addition, the Underwriters may bid for, and purchase, Shares
in the open market to cover syndicate shorts or to stabilize the price of the
Common Shares. Finally, the underwriting syndicate may reclaim selling conces-
sions allowed for distributing the Shares in the Offering, if the syndicate
repurchases previously distributed Common Shares in syndicate covering transac-
tions, in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the Shares above independent market
levels. The Underwriters are not required to engage in these activities, and
may end any of these activities at any time.
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Prior to the Offering, there has been no public market for the Common Shares.
Consequently, the Offering Price was determined by negotiations among the Com-
pany and the Representatives. Among the factors considered in such negotiations
in addition to prevailing market conditions, were estimated cash available for
distribution and FFO, multiples of comparable publicly traded REITs, the reve-
nues and earnings of the Company, including the historical revenues and earn-
ings of the Properties contributed by the Contributing Investors in recent
periods, the current financial position of the Company and estimates of the
business potential and earnings prospects of the Company. Additionally, consid-
eration was given to the general status of the securities market, the market
conditions for new issues of securities and the demand for securities of compa-
rable companies at the times the offerings for such companies were made. There
can be no assurance that an active trading market will develop for the Common
Shares or that the Common Shares will trade in the public market subsequent to
the Offering at or above the initial public offering price.
Certain of the Underwriters and their affiliates have from time to time, and
may continue to perform in the future, various investment banking services for
Cabot Partners, for which customary compensation has been received. The Company
will pay an advisory fee equal to 0.5% of the gross proceeds of the Offering
(including any exercise of the Underwriters' overallotment option) to J.P.
Morgan for advisory services in connection with the evaluation, analysis and
structuring of the Company's formation as a REIT in connection with the Offer-
ing. J.P. Morgan Capital Corporation, Inc., an affiliate of J.P. Morgan, has an
ownership interest in the Argo Fund, which is one of the Contributing Invest-
ors. In addition, Prudential Properties Group ("Prudential Properties"), an
affiliate of Prudential Securities Incorporated ("Prudential Securities") is
one of the Contributing Investors. Upon consummation of the Formation Transac-
tions, the Argo Fund and Prudential Properties will receive less than 4.2% and
5.9%, respectively, of the ownership interest of the Company on a fully diluted
basis. J.P. Morgan and Prudential Securities will receive standard underwrit-
er's compensation in connection with the Offering.
LEGAL MATTERS
Certain legal matters, including the validity of the Common Shares offered
hereby, will be passed upon for the Company by Mayer, Brown & Platt, Chicago,
Illinois and for the Underwriters by Cahill Gordon & Reindel (a partnership
including a professional corporation), New York, New York. Mayer, Brown & Platt
and Cahill Gordon & Reindel will rely on Ballard Spahr Andrews & Ingersoll, as
to certain matters of Maryland law.
EXPERTS
The audited financial statements and schedules (if applicable) of Cabot Part-
ners Limited Partnership, Existing Investors Property Group, Prudential Proper-
ties Group, West Coast Industrial, LLC, Blue Ash Office L.L.C. and Blue Ash
Industrial L.L.C, and Seefried Properties Group included in the registration
statement have been audited by Arthur Andersen LLP, independent public accoun-
tants, as indicated in their reports and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports.
The financial statements and related schedule of Pennsylvania Public School
Employes' Retirement System Industrial Properties Portfolio included in this
Prospectus and elsewhere in the Registration Statement, have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, to the extent
and for the periods indicated in their report thereon also appearing elsewhere
herein and in the Registration Statement. Such financial statements and related
schedule have been included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The historical cost basis combined statements of assets and liabilities of
Orlando Central Park and 500 Memorial Drive as of December 31, 1996 and 1995
and the related historical cost basis combined statements of income, changes in
net assets, and cash flows for the years then ended, included in this Prospec-
tus, have been included herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The historical cost basis balance sheets of Knickerbocker Properties, Inc. II
as of December 31, 1996 and 1995 and the related historical cost basis state-
ments of operations, stockholder's equity and cash flows for the years then
ended, included in this Prospectus, have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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The statement of revenue and certain expenses of Herrod Associates for the year
ended December 31, 1996 has been audited by Grant Thornton LLP, independent
certified public accountants, whose report thereon is included herein in reli-
ance upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission on Form S-11
under the Securities Act with respect to the Common Shares offered hereby. In
accordance with the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and financial statement schedules thereto. For further infor-
mation with respect to the Company and the Common Shares, reference is made to
the Registration Statement and such exhibits and financial statement schedules,
copies of which may be examined without charge at or obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at Judi-
ciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 13th Floor, 7 World Trade Center, New York, New York 10048 and at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commis-
sion maintains a Website at http:/www.sec.gov, and reports, proxy and informa-
tion statements and other information regarding registrants that file electron-
ically with the Commission (including the Company) can be obtained from that
site.
Statements contained in this Prospectus as to the contents of any contract or
other document that is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document.
The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. Reports, proxy
statements and other information concerning the Company filed with the Commis-
sion pursuant to the Exchange Act may be inspected and copied, or obtained
from, the above described officer of the Commission. Such materials may also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
103
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus.
"401(k) Plan" means the Cabot Partners Employee Savings Plan that will be
assumed and continued by the Company.
"ACMs" means asbestos-containing materials.
"Acquisition Facility" means a revolving credit facility, which the Company is
negotiating with several financial institutions, under which the Company would
be permitted to borrow up to $325 million.
"ADA" means the Americans with Disabilities Act of 1990.
"Additional Acquisitions" means the Properties acquired or to be acquired after
September 30, 1997 by Cabot Partners on behalf of the Existing Investors.
"Administrator" means the Compensation Committee of the Board of Trustees or
its delegate, as appropriate as administrator of the Company's Long Term Incen-
tive Plan.
"Advisory Contracts" means the investment advisory and property management con-
tracts entered into between Cabot Partners and certain advisory clients.
"Affiliate" means (i) any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, (ii) any other
person that owns, beneficially, directly or indirectly, five percent or more of
the outstanding capital stock, shares or equity interests of such person, or
(iii) any officer, director, employee, partner or trustee of such person or any
person controlling, controlled by or under common control with such person (ex-
cluding trustees and persons serving in similar capacities who are not other-
wise an Affiliate of such person). The term "person" means and includes indi-
viduals, corporations, general and limited partnerships, stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other entities and governments and
agencies and political subdivisions thereof. For the purposes of this defini-
tion, "control" (including the correlative meanings of the terms "controlled
by" and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, through the owner-
ship of voting securities, partnership interests or other equity interests.
"Annualized Base Rent" means annual contractual rent.
"Annualized Net Rent" means annualized monthly Net Rent from leases in effect
as of September 30, 1997.
"Annualized Effective Rent" means Annualized Net Rent, less amortization of the
related leasing costs, plus the effect of straight-lining rent steps.
"Base Line Properties" means properties that were held during the entire period
for both periods being compared in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
"Beneficiary" means the beneficiary of the Share Trust.
"Book-Tax Difference" means 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.
"Board of Trustees" means Board of Trustees of the Company.
"Bylaws" means the Company's Bylaws.
"Cabot Advisors" means Cabot, Cabot & Forbes Realty Advisors, Inc.
"Cabot Group" means Cabot Partners and certain affiliated partnerships.
"Cabot Group Participants" means certain of the officers and Trustees of the
Company and members of their immediate families who are contributing their
interests in Cabot Partners and/or the C-M Property Partnerships (the partner-
ship interests of which are entirely owned by Ferdinand Colloredo-Mansfeld, the
Company's chief executive officer and members of their immediate family).
104
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"Cabot Partners" means Cabot Partners Limited Partnership, a Massachusetts lim-
ited partnership.
"CB Commercial/Torto Wheaton Research" means the CB Commercial Real Estate
Group, Inc./Torto Wheaton Research.
"CC&F" means Cabot, Cabot & Forbes Company.
"Closing Date" means the date of the closing of the Offering.
"C-M Holdings" means C-M Holdings L.P.
"C-M Property Partnerships" means C-M Holdings and its affiliated partnerships.
"Cognetics" means Cognetics Real Estate, Inc.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means common shares of beneficial interest, $.01 par value per
share, of the Company.
"Company" means Cabot Industrial Trust and its operating subsidiaries,
including the Operating Partnership, of which the Company is the sole general
partner, and the Management Company.
"Compensation Committee" means the committee comprised of two or more of the
Independent Trustees established by the Board of Trustees to determine compen-
sation for the Company's executive officers and to implement the Company's Long
Term Incentive Plan.
"Contributing Investors" means those Cabot Partners advisory clients who are
contributing Properties (or where such clients hold title through another
entity, such title holding entity), the C-M Property Partnerships and other
certain investors who are contributing Properties in the Formation Transac-
tions.
"Contribution Agreement" means the Contribution Agreement relating to the Capi-
talization of Cabot Industrial Trust, dated as of October 10, 1997, among the
Company, the Operating Partnership, Cabot Partners and various Contributing
Investors identified therein.
"Control Share Acquisition" means the acquisition of Control Shares, subject to
certain exceptions.
"Control Shares" means shares of beneficial interest that, if aggregated with
all other such shares of beneficial interest of the Company previously acquired
by the acquiror, would entitle the acquiror to exercise voting power in
electing trustees within one of the following ranges of voting power: (i) one-
fifth or more but less than one-third, (ii) one-third or more but less than a
majority, or (iii) a majority of all voting power, but does not include shares
which the acquiring person is then entitled to vote as a result of having pre-
viously obtained shareholder approval.
"Debt Limitation" means the Company's policy limiting its Debt-to-Total Market
Capitalization Ratio to 40%.
"Debt-to-Total Market Capitalization Ratio" means a ratio calculated based on
the Company's total consolidated and unconsolidated debt as a percentage of the
market value of outstanding Common Shares and Units (not owned by the Company)
plus total consolidated and unconsolidated debt, but excluding (i) all nonre-
course consolidated debt in excess of the Company's proportionate shares of
such debt and (ii) all nonrecourse unconsolidated debt of partnerships in which
the Company is a limited partner.
"Declaration of Trust" means the Declaration of Trust of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Plans" means employee benefit plans subject to ERISA.
"ESAs" means Phase I environmental site assessments.
"Excess Shares" means Common or Preferred Shares which are transferred automat-
ically to the Share Trust.
"Exchange Rights" means the right of Limited Partners to exchange all or a por-
tion of their Units for Common Shares on a one-for-one basis pursuant to the
terms of the Operating Partnership Agreement.
105
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"Existing Investors" means those Contributing Investors that are to contribute
Properties which were managed by Cabot Partners as of September 30, 1997.
"Existing Investors Property Group" means the Properties of the Contributing
Investors that were managed by Cabot Partners as of September 30, 1997.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Formation Transactions" means the transactions relating to the formation of
the Company and the acquisition of the Properties and certain other assets.
"FFO" means Funds from Operations which represents net income before minority
interests and extraordinary items, adjusted for depreciation on real property
and amortization of tenant improvements costs and lease commissions, gains from
the sale of properties and FFO attributable to minority interests in consoli-
dated joint ventures whose interests are not convertible into shares of Common
Stock. In addition to cash flow and net income, management generally considers
FFO to be one additional measure of the performance of an equity REIT because
together with net income and cash flows, FFO provides investors with an addi-
tional basis to evaluate the ability of an entity to incur and service debt and
to fund acquisitions and other capital expenditures. However, FFO does not
measure whether cash flow is sufficient to fund all of an entity's cash needs
including principal amortization, capital improvements and distributions to
stockholders. FFO also does not represent cash generated from operating,
investing or financing activities as determined in accordance with GAAP. FFO
should not be considered as an alternative to net income as an indicator of an
entity's operating performance or as an alternative to cash flow as a measure
of liquidity. Further, FFO as disclosed by other REITs may not be comparable to
the Company's calculation of FFO. The Company calculates FFO in accordance with
the White Paper on Funds from Operations approved by the Board of Governors of
NAREIT in March 1995.
"GAAP" means generally accepted accounting principles.
"GP Units" means general partnership interests in the Operating Partnership.
"Indemnitee" means each individual made a party to a proceeding by reason of
his status as a general partner or an officer of the Operating Partnership or a
trustee or officer of the Company or any other Person as the Company may desig-
nate from time to time in its sole and absolute discretion.
"Independent Trustee" means a Trustee of the Company who is not an officer or
employee of the Company.
"Interested Shareholder" means a beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of beneficial interest of a
trust or an Affiliate thereof.
"IRAs" means government plans, Individual Retirement Accounts and Individual
Retirement Annuities.
"J.P. Morgan" means J.P. Morgan Securities Inc.
"Limited Partners" means the limited partners of the Operating Partnership.
"LC" means leasing commissions.
"Long Term Incentive Plan" means the Long Term Incentive Plan of the Company.
"Management Company" means Cabot Services, Inc., a Delaware corporation.
"Market Price" means the last reported sales price reported on the NYSE for a
particular class of Shares on the trading day immediately preceding the rele-
vant date, or if not then traded on the NYSE, the last reported sales price for
such class of Shares on the trading day immediately preceding the relevant date
as reported on any exchange or quotation system over or through which such
class of Shares may be traded, or if not then traded over or through any
exchange or quotation system, then the market price of such class of Shares on
the relevant date as determined in good faith by the Board of Trustees.
"Maryland REIT Law" means Title 8 of the Corporations and Associations Article
of the Annotated Code of Maryland, as amended.
"MGCL" means the Maryland General Corporation Law, as amended.
"Named Executive Officers" means those officers named in the Summary Compensa-
tion Table in the Management-Executive Compensation section.
"NAREIT" means National Association of Real Estate Investment Trusts, Inc.
106
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"NCREIF" means National Council of Real Estate Investment Fiduciaries.
"New Investors Property Group" means the Properties of Contributing Investors
which were not property management clients of Cabot Partners at or prior to
September 30, 1997.
"Net Rent" means contractual rent, excluding any reimbursements for real estate
taxes or operating expenses.
"Non-employee Trustees" means members of the Board of Trustees who are not
employees of the Company.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign corpora-
tions, foreign partnerships and other foreign shareholders.
"NYSE" means the New York Stock Exchange.
"Offering" means the offering of Common Shares hereby.
"Offering Price" means $20.00 per Common Share (the midpoint of the range set
forth in the cover page of this Prospectus).
"Operating Partnership" means Cabot Industrial Properties, L.P., a Delaware
limited partnership.
"Operating Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership.
"Ownership Limit" means the direct or indirect ownership of no more than 9.8%
of the Company's number of issued and outstanding shares of beneficial interest
or 9.8% of the total equity value of such shares.
"Participating Employer" means the Company and the Operating Partnership and
designated subsidiaries, including the Management Company.
"Participants" means the individuals who will participate in the Plan.
"Party in Interest" means persons who have specified relationships with a Plan,
"Parties in Interest" under ERISA and "Disqualified Persons" under the Code.
"Plans" means certain employee benefit plans and individual retirement accounts
and individual retirement arrangements.
"Preferred Shares" means the preferred shares of beneficial interest, $.01 par
value per share, of the Company.
"Properties" means, collectively, the industrial buildings acquired by or con-
tributed to the Company or the Operating Partnership in the Formation Transac-
tions.
"Prudential Properties" means Prudential Properties Group an affiliate of Pru-
dential Securities.
"Prudential Securities" means Prudential Securities Incorporated.
"PTE 84-14" means Prohibited Transaction Exemption.
"Purported Transferee" means the record holder of the Common or Preferred
Shares that are designated as Excess Shares.
"QPAM" means Qualified Professional Asset Manager.
"qualified pension trust" means a pension or other retirement trust that quali-
fies under Section 401(a) of the Code.
"R&D" means research and development.
"REIT" means a real estate investment trust.
"REOC" means a real estate operating company.
"Regulation" means the United States Department of Labor regulation which pro-
vides that, except under certain circumstances set forth therein, investment by
an ERISA Plan in a corporation, partnership or other entity may result in the
assets of that entity being treated as the assets of the investing ERISA Plan.
107
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"REMIC" means a Real Estate Mortgage Investment Conduit that is an entity or
arrangement that satisfies the standards set forth in Section 860D of the Code.
"Representatives" means J.P. Morgan Securities Inc., Goldman, Sachs & Co., Pru-
dential Securities Incorporated and Smith Barney Inc, in their capacities as
representatives for the Underwriters.
"Restricted Shares" means restricted Common Shares of the Company.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the U.S. Internal Revenue Service.
"Share Trust" means a trust which holds Common or Preferred Shares of the Com-
pany which have been designated as Excess Shares.
"Share Trustee" means the trustee of the Share Trust.
"Shares" means shares of beneficial interest of the Company.
"The 1997 Act" means the Taxpayer Relief Act of 1997.
"Trustees" means trustees of the Company.
"TI" means tenant improvements.
"UBTI" means unrelated business taxable income.
"Underwriters" means the underwriters named in this Prospectus.
"Underwriting Agreement" means the underwriting agreement whereby the Company
has agreed to sell to the Underwriters, and each of the Underwriters has sever-
ally agreed to purchase, a certain number of Common Shares as set forth
therein.
"Units" means limited partnership interests in the Operating Partnership.
"UPREIT" means the structure of the Company as a REIT that owns all of its
properties through the Operating Partnership.
"Value Test" means 5% of the value of the Company's total assets in the case of
securities of any one non-government issuer.
"Voting Stock Test" means 10% of the outstanding voting securities of any one
non-government issuer.
"White Paper" means the White Paper on Funds from Operations approved by the
Board of Governors of NAREIT in March 1995.
"Workspace" means light assembly and flex/R&D.
108
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CABOT INDUSTRIAL TRUST
Pro Forma Condensed Combined Financial Statements (unaudited)............. 36
Pro Forma Condensed Combined Balance Sheet as of September 30, 1997..... 37
Notes to Pro Forma Condensed Combined Balance Sheet..................... 38
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1997............................................... 40
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996...................................................... 41
Notes to Pro Forma Condensed Combined Statements of Operations.......... 42
CABOT PARTNERS LIMITED PARTNERSHIP
Report of Independent Public Accountants.................................. F-3
Balance Sheets as of September 30, 1997 (unaudited), December 31, 1996 and
1995..................................................................... F-4
Statements of Operations for the nine months ended September 30, 1997 and
1996 (unaudited), and the years ended December 31, 1996, 1995 and 1994... F-5
Statements of Partners' Capital for the nine months ended September 30,
1997 (unaudited) and the years ended December 31, 1996, 1995 and 1994.... F-6
Statements of Cash Flows for the nine months ended September 30, 1997 and
1996 (unaudited), and the years ended December 31, 1996, 1995 and 1994... F-7
Notes to Financial Statements............................................. F-8
EXISTING INVESTORS PROPERTY GROUP
Report of Independent Public Accountants.................................. F-11
Combined Balance Sheets as of September 30, 1997 (unaudited), December 31,
1996 and 1995............................................................ F-12
Combined Statements of Income for the nine months ended September 30, 1997
and 1996 (unaudited), and the years ended December 31, 1996, 1995 and
1994..................................................................... F-13
Combined Statements of Owners' Equity for the nine months ended September
30, 1997 (unaudited) and the years ended December 31, 1996, 1995 and
1994..................................................................... F-14
Combined Statements of Cash Flows for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, 1995
and 1994................................................................. F-15
Notes to Combined Financial Statements.................................... F-16
Schedule III -- Real Estate and Accumulated Depreciation as of December
31, 1996................................................................. F-21
NEW INVESTORS PROPERTY GROUP
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
Report of Independent Accountants......................................... F-25
Combined Statement of Assets and Liabilities as of September 30, 1997
(unaudited), December 31, 1996 and 1995.................................. F-26
Combined Statements of Income for the nine months ended September 30, 1997
and 1996 (unaudited), and the years ended December 31, 1996, and 1995.... F-27
Combined Statement of Changes in Net Assets for the nine months ended
September 30, 1997 (unaudited), and the years ended December 31, 1996,
and 1995................................................................. F-28
Combined Statement of Cash Flows for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, and
1995..................................................................... F-29
Notes to Combined Financial Statements.................................... F-30
KNICKERBOCKER PROPERTIES, INC. II
Report of Independent Accountants......................................... F-33
Combined Balance Sheets as of September 30, 1997 (unaudited), December 31,
1996 and 1995............................................................ F-34
Combined Statements of Operations for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, and
1995..................................................................... F-35
Combined Statements of Stockholder's Equity for the nine months ended
September 30, 1997 (unaudited), and the years ended December 31, 1996,
and 1995................................................................. F-36
Combined Statements of Cash Flows for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, and
1995..................................................................... F-37
Notes to Combined Financial Statements.................................... F-38
</TABLE>
F-1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PENNSYLVANIA PUBLIC SCHOOL EMPLOYES' RETIREMENT SYSTEM INDUSTRIAL
PROPERTIES PORTFOLIO
Independent Auditors' Report.............................................. F-40
Combined Balance Sheets as of September 30, 1997 (unaudited), December 31,
1996 and 1995............................................................ F-41
Combined Statements of Operations for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, and
1995..................................................................... F-42
Combined Statements of Owner's Equity for the nine months ended September
30, 1997 (unaudited), and the years ended December 31, 1996, and 1995.... F-43
Combined Statements of Cash Flows for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, and
1995..................................................................... F-44
Notes to Combined Financial Statements.................................... F-45
Schedule III -- Combined Real Estate and Accumulated Depreciation as of
December 31, 1996........................................................ F-48
PRUDENTIAL PROPERTIES GROUP
Report of Independent Public Accountants.................................. F-49
Combined Balance Sheets as of September 30, 1997 (unaudited), December 31,
1996 and 1995............................................................ F-50
Combined Statements of Operations for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, and
1995..................................................................... F-51
Combined Statements of Owners' Equity for the nine months ended September
30, 1997 (unaudited), and the years ended December 31, 1996, and 1995.... F-52
Combined Statements of Cash Flows for the nine months ended September 30,
1997 and 1996 (unaudited), and the years ended December 31, 1996, and
1995..................................................................... F-53
Notes to Combined Financial Statements.................................... F-54
Schedule III -- Real Estate and Accumulated Depreciation as of December
31, 1996................................................................. F-57
WEST COAST INDUSTRIAL, LLC
Report of Independent Public Accountants ................................. F-58
Statements of Revenues and Certain Expenses for the nine months ended
September 30, 1997 (unaudited), and the year ended December 31, 1996..... F-59
Notes to Statements of Revenues and Certain Expenses...................... F-60
FINANCIAL STATEMENTS FOR PROPERTY ACQUISITIONS
HERROD ASSOCIATES
Report of Independent Certified Public Accountants........................ F-61
Statement of Revenues and Certain Expenses for the nine months ended
September 30, 1997 (unaudited), and the year ended December 31, 1996..... F-62
Notes to Statement of Revenues and Certain Expenses....................... F-63
BLUE ASH OFFICE L.L.C. AND BLUE ASH INDUSTRIAL L.L.C.
Report of Independent Public Accountants.................................. F-64
Combined Statements of Revenue and Certain Expenses for the nine months
ended September 30, 1997 (unaudited), and the year ended December 31,
1996..................................................................... F-65
Notes to Combined Statements of Revenue and Certain Expenses ............. F-66
SEEFRIED PROPERTIES GROUP
Reports of Independent Public Accountants................................. F-67
Combined Statements of Revenues and Certain Expenses for the nine months
ended September 30, 1997 (unaudited), and the year ended December 31,
1996..................................................................... F-68
Notes to Combined Statements of Revenues and Certain Expenses............. F-69
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Cabot Partners Limited Partnership:
We have audited the accompanying balance sheets of Cabot Partners Limited Part-
nership as of December 31, 1996 and 1995, and the related statements of opera-
tions, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the responsi-
bility of the management of the Partnership. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cabot Partners Limited Part-
nership as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts March 20, 1997 (except with respect to certain matters
discussed in Note 6, as to which the date is November 24, 1997)
F-3
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------
DECEMBER 31,
SEPTEMBER 30, ---------------------
1997 1996 1995
------------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents $ 1,589 $ 1,709 $ 1,382
Accounts receivable 2,095 1,637 942
Investments 809 836 1,026
Cost of Investment Advisory Contracts
acquired, net of accumulated amortization
of $3,137, $2,425 and $2,034,
respectively 1,017 1,729 2,121
Other assets 98 164 157
---------- --------- ---------
Total Assets $ 5,608 $ 6,075 $ 5,628
========== ========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accrued compensation $ 746 $ 385 $ 457
Accrued liabilities 138 100 106
---------- --------- ---------
Total Liabilities 884 485 563
---------- --------- ---------
Commitments
Partners' Capital 4,724 5,590 5,065
---------- --------- ---------
Total Liabilities and Partners' Capital $ 5,608 $ 6,075 $ 5,628
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- --------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Advisory fees $ 6,778 $ 5,729 $ 7,871 $ 6,482 $ 4,149
Other income 40 14 37 34 10
--------- --------- --------- --------- ---------
Total Revenues 6,818 5,743 7,908 6,516 4,159
--------- --------- --------- --------- ---------
EXPENSES
Compensation 3,138 2,847 3,887 3,416 2,553
Other general and
administrative 1,761 1,515 2,001 1,653 1,714
Depreciation and amor-
tization 732 315 419 453 474
--------- --------- --------- --------- ---------
Total Expenses 5,631 4,677 6,307 5,522 4,741
--------- --------- --------- --------- ---------
Income (loss) before
income (loss) from
unconsolidated
subsidiary 1,187 1,066 1,601 994 (582)
Equity in income (loss)
from unconsolidated
subsidiary 16 (16) (7) 63 46
--------- --------- --------- --------- ---------
Net income (loss) $ 1,203 $ 1,050 $ 1,594 $ 1,057 $ (536)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) ANDTHE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------
GENERAL LIMITED PARTNERS PARTNERS'
PARTNER CLASS A CLASS B CAPITAL
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Partners' Capital, January 1,
1994 $ -- $ 4,544 $ -- $ 4,544
Net loss for the year ended
December 31, 1994 -- (536) -- (536)
--------- --------- --------- ---------
Partners' Capital, December 31,
1994 -- 4,008 -- 4,008
Net income for the year ended
December 31, 1995 -- 1,057 -- 1,057
--------- --------- --------- ---------
Partners' Capital, December 31,
1995 -- 5,065 -- 5,065
Net income for the year ended
December 31, 1996 10 1,194 390 1,594
Distributions -- (1,069) -- (1,069)
--------- --------- --------- ---------
Partners' Capital, December 31,
1996 10 5,190 390 5,590
Net income for the nine
months ended September 30,
1997 (unaudited) -- 1,203 -- 1,203
Distributions (unaudited) (10) (1,669) (390) (2,069)
--------- --------- --------- ---------
Partners' Capital, September
30, 1997 (unaudited) $ -- $ 4,724 $ -- $ 4,724
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,203 $ 1,050 $ 1,594 $ 1,057 $ (536)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization 732 315 419 453 474
Unrealized equity in
(income) loss of
investment (16) 16 7 (63) (46)
(Increase) Decrease in
accounts receivable (459) (876) (695) (315) 183
Increase (Decrease) in
accrued liabilities 408 332 (70) 265 (59)
(Decrease) Increase in
accounts payable (9) (18) (9) 6 (28)
Decrease (Increase) in
other assets 49 56 37 (52) --
--------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities 1,908 875 1,283 1,351 (12)
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Dividends received 43 33 183 77 50
Purchase of furniture,
fixtures and equipment (2) (50) (50) (63) --
Additional cost-basis
investments -- (20) (20) (20) (10)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities 41 (37) 113 (6) 40
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Distribution to
partners (2,069) (1,069) (1,069) -- --
--------- --------- --------- --------- ---------
Net (decrease) increase
in cash and cash
equivalents (120) (231) 327 1,345 28
Cash and cash equiva-
lents, beginning of
period 1,709 1,382 1,382 37 9
--------- --------- --------- --------- ---------
Cash and cash equiva-
lents, end of period $ 1,589 $ 1,151 $ 1,709 $ 1,382 $ 37
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
Cabot Partners Limited Partnership (the Partnership), a Massachusetts limited
partnership, was formed as of July 11, 1990 to provide a variety of real estate
investment advisory and management services, primarily to a small number of
pension and profit-sharing plans and other institutional investors. Nine
investors represented 77% of fee revenues for 1996, eleven investors repre-
sented 81% of fee revenues for 1995 and nine investors represented 56% of fee
revenues for 1994.
The Partnership has two classes of limited partners. The Class A limited part-
ners contributed cash on a disproportionate basis to their ownership interest
and are entitled to a cumulative guaranteed return on their Adjusted Capital
Contributions, as defined, of 10% through December 31, 1995 and 5% thereafter,
payable only out of available cash. In addition, the Class A limited partners
are entitled to a 5% return of their Adjusted Capital Contributions prior to
distributions of available cash to all the partners in accordance with their
ownership interest. As of December 31, 1996, the cumulative unpaid and unrecog-
nized return was $3,978.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
No provision for federal and state income taxes has been recorded relating to
the Partnership, as the partners report their respective shares of the net tax-
able income on their individual tax returns. The tax basis of assets and lia-
bilities does not significantly differ from their historical cost basis.
Furniture, Fixtures and Equipment
Furniture and equipment additions are recorded at cost and are depreciated over
an estimated useful life of five years. Fixtures include leasehold improvements
that are recorded at cost and amortized over the shorter of their useful life
or the remaining lease term.
Cost of Investment Advisory Contracts Acquired
The investment advisory contracts acquired are recorded at their fair market
value at the date of acquisition, based on independent appraisals, and are
being amortized over their estimated lives, which range from eight to sixteen
years.
Allocation of Profits and Losses
Income and losses have been allocated to the partners in accordance with the
provisions of the partnership agreement.
Cash Equivalents
At December 31, 1996, the Partnership had invested excess funds in money market
mutual funds, which have an original maturity of less than three months. For
purposes of the statement of cash flows, this investment has been considered a
cash equivalent.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported on the accompanying balance sheets for cash and
cash equivalents, receivables, accounts payable and accrued expenses approxi-
mate fair value, due to the short-term nature of these investments.
3. INVESTMENTS
The Partnership owns a 1% managing general partnership interest in a real
estate operating company, CP Private Partners, L.P.-I (Private Partners), and
accounts for this investment under the equity method. Under this method of
accounting, the Partnership's pro rata share of Private Partners' income (loss)
is recorded each year as an increase (decrease) in the carrying value of its
investment, and any distributions received are recorded as decreases in the
carrying value.
F-8
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
The condensed unaudited historical cost balance sheets of Private Partners at
December 31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
---------------------
DECEMBER 31,
---------------------
1996 1995
--------- ----------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 186 $ 51
Real estate assets, net 58,776 80,537
Other assets 18,203 25,402
--------- ----------
Total Assets $ 77,165 $ 105,990
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 453 $ 605
Note payable -- 9,665
--------- ----------
Total Liabilities 453 10,270
--------- ----------
PARTNERS' CAPITAL
The Partnership 767 957
Other Partners 75,945 94,763
--------- ----------
Total Partners' Capital 76,712 95,720
--------- ----------
Total Liabilities and Partners' Capital $ 77,165 $ 105,990
========= ==========
</TABLE>
The difference between the Partnership's share of the historical partners' cap-
ital and the investment on the balance sheets is due to stating the investment
at fair market value at the time of purchase.
The condensed unaudited historical cost income statements of Private Partners
for the years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
---------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Sale of real estate assets $ 20,817 $ -- $ --
Rental revenues 11,726 12,778 11,344
Cost of real estate sold (20,411) -- --
Note receivable reduction (7,688) -- --
Operating expenses (5,163) (6,483) (6,761)
--------- --------- ---------
Net (loss) income $ (719) $ 6,295 $ 4,583
========= ========= =========
Dividends paid $ 18,292 $ 7,700 $ 5,000
========= ========= =========
The Partnership's share of:
Net (loss) income $ (7) $ 63 $ 46
========= ========= =========
Dividends paid $ 183 $ 77 $ 50
========= ========= =========
</TABLE>
On September 30, 1997, Private Partners sold real estate assets with a net
book value of $49,480 for a gross purchase price of $60,288. A distribution of
the net sales proceeds of $58,733 was paid to the partners in October, 1997,
and the Partnership received $587.
F-9
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. MINIMUM FUTURE LEASE OBLIGATIONS
Minimum future lease obligations under noncancelable operating leases for each
of the next five years ending December 31 and thereafter are as follows:
<TABLE>
<CAPTION>
---------
<S> <C>
1997 $ 262
1998 295
1999 311
2000 323
2001 310
Thereafter 0
</TABLE>
5. RELATED PARTY FEES
Under two separate agreements, the Partnership provides acquisition, asset man-
agement and property management services to a partnership and a company sepa-
rately controlled by two Class A limited partners. The agreements are cancel-
able by either party with 30 days notice. After a recent amendment, one agree-
ment provides for annual fixed fees of $158. The other agreement provides for
an acquisition fee of .25% of acquisition cost and an asset management fee of
5% of net operating income. The Partnership received acquisition fees from
related parties of $345 for the nine months ended September 30, 1997, and other
related party fees of $164, $153, $70 and $73 for the nine months ended Sep-
tember 30, 1997 and the years ended December 31, 1996, 1995 and 1994, respec-
tively.
6. SUBSEQUENT EVENTS
Formation Transactions
Under the provisions of the Contribution Agreement executed by each Contrib-
uting Investor, Cabot Partners will contribute its Advisory Contracts and cer-
tain of its other net assets to Cabot Industrial Properties, L.P. (the Oper-
ating Partnership), a subsidiary partnership of Cabot Industrial Trust (the
Company) and will receive Units from the Operating Partnership. The remainder
of the Partnership's net assets will be distributed to its partners. The con-
summation of these proposed transactions is subject to the completion of an
offering of Common Shares of the Company to the public and various other condi-
tions of the Contribution Agreement. The impact of these proposed transactions
is not reflected in the accompanying financial statements.
It is anticipated that the cumulative unpaid and unrecognized return discussed
in Note 1 will be settled through the distribution of Common Shares or Units to
be received in conjunction with the transactions.
Sale of Assets Under Management
Under the terms of the investment advisory agreements, investors have the right
to terminate the Partnership as advisor with 30 days notice. In addition, a
significant portion of the Partnership's assets under management may be trans-
ferred to other advisors or sold as a part of the portfolio's investment strat-
egy.
During 1997, all the properties of three portfolios have been or are expected
to be sold. These portfolios accounted for recurring advisory fees of $2,334
for the nine months ended September 30, 1997 and $3,141, $2,632 and $2,191 for
the years ended December 31, 1996, 1995 and 1994, respectively.
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the Existing Investors Property Group:
We have audited the accompanying combined balance sheets of the Existing
Investors Property Group, as defined in Note 1, as of December 31, 1996 and
1995, and the related combined statements of income, owners' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
combined financial statements are the responsibility of the management of the
Existing Property Investors. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Existing
Investors Property Group at December 31, 1996 and 1995, and the combined
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic com-
bined financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic finan-
cial statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts September 2, 1997
F-11
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------
1997 1996 1995
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Rental properties $358,498 $336,836 $301,059
Accumulated depreciation (37,542) (32,528) (26,430)
------------- -------- --------
320,956 304,308 274,629
Cash and Cash Equivalents 1,140 2,423 2,598
Rents and other receivables, net of allow-
ance for doubtful accounts of $253, $339
and $294, respectively 5,515 4,810 6,041
Restricted cash 9 71 353
Lease acquisition costs, net of accumulated
amortization of $6,982, $5,721 and $4,505,
respectively 6,564 6,808 5,307
Other assets 385 312 409
------------- -------- --------
Total Assets $334,569 $318,732 $289,337
============= ======== ========
LIABILITIES AND OWNERS' EQUITY
Mortgage debt $ 18,655 $ 19,292 $ 20,083
Due to Related Parties 3,703 3,668 3,407
Accounts payable and accrued expenses 3,733 3,608 3,606
Other liabilities 977 878 612
------------- -------- --------
Total Liabilities 27,068 27,446 27,708
------------- -------- --------
Contingencies
Owners' Equity 307,501 291,286 261,629
------------- -------- --------
Total Liabilities and Owners' Equity $334,569 $318,732 $289,337
============= ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-12
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Rental $ 23,968 $ 21,947 $ 29,736 $ 24,691 $ 22,552
Tenant reimbursements 4,343 3,776 4,917 3,759 3,473
Other rental 331 313 334 199 2,035
Interest 94 102 193 145 149
-------- -------- -------- -------- --------
Total Revenues 28,736 26,138 35,180 28,794 28,209
-------- -------- -------- -------- --------
EXPENSES
Real estate taxes 4,005 3,649 5,037 3,979 3,769
Management fees 1,682 1,380 1,889 1,522 1,306
Property operating costs 382 555 755 648 563
Maintenance and repairs 343 324 504 393 502
Grounds care 206 239 298 218 189
Professional services 259 150 214 194 158
Insurance 226 158 210 151 78
Other 186 197 453 231 267
Interest 1,399 1,430 1,931 2,097 2,082
Depreciation and amortization 6,473 5,864 7,966 7,118 6,606
-------- -------- -------- -------- --------
Total Expenses 15,161 13,946 19,257 16,551 15,520
-------- -------- -------- -------- --------
Income before gain on sale of
properties 13,575 12,192 15,923 12,243 12,689
Gain on sale of properties -- -- -- -- 186
-------- -------- -------- -------- --------
Net income $ 13,575 $ 12,192 $ 15,923 $ 12,243 $ 12,875
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-13
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------
<S> <C>
Owners' Equity, January 1, 1994 $ 220,621
Contributions 10,005
Distributions (30,298)
Net income for the year ended December 31, 1994 12,875
---------
Owners' Equity, December 31, 1994 213,203
Contributions 50,326
Distributions (14,143)
Net income for the year ended December 31, 1995 12,243
---------
Owners' Equity, December 31, 1995 261,629
Contributions 35,228
Distributions (21,494)
Net income for the year ended December 31, 1996 15,923
---------
Owners' Equity, December 31, 1996 291,286
Contributions (unaudited) 21,880
Distributions (unaudited) (19,240)
Net income for the nine months ended September 30, 1997
(unaudited) 13,575
---------
Owners' Equity, September 30, 1997 (unaudited) $ 307,501
=========
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-14
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 13,575 $ 12,192 $ 15,923 $ 12,243 $ 12,875
Adjustments to reconcile
net income to net cash
provided by operating
activities--
Depreciation and amorti-
zation adjustments 6,473 5,864 7,966 7,118 6,606
Rent normalization
adjustments (316) (454) (519) (993) (452)
Gain on sale of real
estate -- -- -- -- (186)
Changes in assets--(in-
crease) decrease--
Rents and other receiv-
ables (389) 1,100 1,750 196 (1,071)
Restricted cash 62 285 282 265 (268)
Other assets (132) (2,102) 25 184 (83)
Changes in liabilities--
increase (decrease)--
Accounts payable and
accrued liabilities 125 (348) 2 705 260
Other liabilities 99 (12) 266 (317) (129)
--------- --------- --------- --------- ---------
Net cash provided by
operations 19,497 16,525 25,695 19,401 17,552
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Property acquisitions (19,016) (21,406) (33,485) (49,677) (9,240)
Payments for capital
expenditures and
lease acquisition costs (3,802) (3,411) (5,581) (4,038) (3,545)
Proceeds on the sale of
real estate -- -- -- -- 14,841
Deferred financing costs -- (8) (8) (153) (19)
--------- --------- --------- --------- ---------
Net cash (used in)
provided by investing
activities (22,818) (24,825) (39,074) (53,868) 2,037
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Capital contributions 21,880 24,750 35,228 50,326 10,005
Distributions (19,240) (17,304) (21,494) (14,143) (30,298)
Mortgage loan proceeds -- -- -- 10,865 14,950
Repayments of mortgage
loans (637) (587) (791) (11,390) (14,892)
Advances from (repayments
to) related
parties, net 35 209 261 22 639
--------- --------- --------- --------- ---------
Net cash provided by
(used in)
financing activities 2,038 7,068 13,204 35,680 (19,596)
--------- --------- --------- --------- ---------
Net (decrease) increase
in Cash and Cash
Equivalents (1,283) (1,232) (175) 1,213 (7)
Cash and Cash
Equivalents, Beginning
of Period 2,423 2,598 2,598 1,385 1,392
--------- --------- --------- --------- ---------
Cash and Cash Equiva-
lents, End of Period $ 1,140 $ 1,366 $ 2,423 $ 2,598 $ 1,385
========= ========= ========= ========= =========
Supplemental Information
Interest paid during the
period $ 1,220 $ 1,296 $ 1,730 $ 1,909 $ 1,927
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-15
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BUSINESS AND ORGANIZATION
Existing Investors Property Group (EIP Group) is not a legal entity but rather
a combination of all the assets, liabilities and operations for 67 industrial
buildings (as of December 31, 1996) that are owned by certain real estate title
holding corporations, general partnerships and a retirement plan. EIP Group
properties are located in selected markets in the United States and are man-
aged, leased and renovated by Cabot Partners Limited Partnership (Cabot Part-
ners), the investment manager, under separate investment management agreements
with each owner. The accompanying financial statements include all of the
direct and indirect costs of the business of EIP Group. Refer to Schedule III
for a detailed listing of the industrial properties included in the financial
statements. A summary of EIP Group is as follows:
<TABLE>
<CAPTION>
----------------------
NUMBER OF
BUILDINGS SQUARE FEET
---------- -----------
<S> <C> <C>
PROPERTY OWNER
CP Investment Properties, Inc. 45 5,179,162
CP REPROP, Corp. 7 1,537,200
Properties owned by two real estate title holding
companies and a limited partnership owned by the New
York State Teachers' Retirement System 7 1,245,007
Six general partnerships owned by C-M Holdings Limited
Partnership 7 895,169
State of Wisconsin Investment Board 1 212,300
---------- -----------
Total 67 9,068,838
========== ===========
</TABLE>
2. FORMATION TRANSACTION
Under the provisions of the Contribution Agreement executed by each property
owner, EIP Group will contribute all of its properties to Cabot Industrial
Trust (the Company) or a subsidiary partnership, Cabot Industrial Properties,
L.P. (the Operating Partnership) and will receive common shares from the Com-
pany or units from the Operating Partnership. The consummation of these pro-
posed transactions is subject to the completion of an offering of common shares
of the Company to the public and various other conditions of the Contribution
Agreement. It is anticipated that the Company will seek to qualify as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
The impact of these proposed transactions is not reflected in the accompanying
combined financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The accompanying financial statements have been presented on a combined basis,
at historical cost, because EIP Group is under the common management of Cabot
Partners through investment advisory agreements. All significant intercompany
transactions and balances have been eliminated in combination.
The combined financial statements and information included in these notes to
the combined financial statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996 are unaudited. In the opinion of man-
agement, such combined financial statements and information reflect all adjust-
ments necessary for a fair presentation of the results of the respective
interim periods. All such adjustments are of a normal, recurring nature.
F-16
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Rental Properties
Rental properties, which consist of industrial warehouses, are stated at cost.
Expenditures for ordinary maintenance and repairs are expensed to operations as
incurred. Significant renovations and improvements that improve or extend the
useful life of the assets are capitalized. Except for amounts attributed to
land, rental property and improvements are depreciated over their estimated
useful lives using the straight-line method. The estimated useful lives by
asset category are as follows:
<TABLE>
<CAPTION>
-----------
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
ASSET CATEGORY
Buildings and improvements 10 - 40
years
Tenant improvements Life of
lease
</TABLE>
Properties consisted of the following at September 30, 1997, December 31, 1996
and 1995:
<TABLE>
<CAPTION>
---------------------------------
SEPTEMBER 30, DECEMBER 31,
------------- -------------------
1997 1996 1995
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Land $ 78,231 $ 74,939 $ 69,602
Buildings and
improvements 280,267 261,897 231,457
------------- --------- ---------
Total $ 358,498 $ 336,836 $ 301,059
============= ========= =========
</TABLE>
EIP Group adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of, on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Adoption of this
statement did not have an impact on EIP Group's financial position, results of
operations or liquidity.
Lease Acquisition Costs
Capitalized lease acquisition costs are recorded at cost. These costs are amor-
tized over the respective lives of the leases. Unamortized costs are charged to
expense in the event of any early termination of the lease.
Loan Costs
Capitalized loan costs are recorded at cost and are included in other assets.
These costs are amortized over the term of the respective financings on a
straight-line basis. Loan costs, net of accumulated amortization of $313, $253
and $173 as of September 30, 1997, December 31, 1996 and 1995, respectively,
were approximately $133, $194 and $266, respectively.
Rental Income
All leases are classified as operating leases. Certain leases provide for min-
imum rent payments that increase during the term of the lease and tenant occu-
pancy during periods for which no rent is due. EIP Group records rental income
for the full term of each lease on a straight-line basis. As of September 30,
1997, December 31, 1996 and 1995, the receivables from tenants, net of
reserves, which EIP Group expects to collect over the remaining life of these
leases rather than currently, were approximately $4,414, $4,098 and $3,579,
respectively (Deferred Rent). The amounts included in rental income for the
nine months ended September 30, 1997 and 1996, and for the years ended December
31, 1996, 1995 and 1994, which are not currently due, were approximately $316,
$454, $519, $993 and $452, respectively. Deferred Rent is not recognized for
income tax purposes until received.
Cash Equivalents
EIP Group invests excess funds in short-term investments with original maturi-
ties of less than three months. For the purpose of the statements of cash
flows, all such investments are considered cash equivalents.
F-17
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Restricted Cash
Restricted cash represents amounts committed for security deposits and utility
deposits. Certain of these amounts may be reduced upon the fulfillment of cer-
tain obligations.
Fair Value of Financial Instruments
Management believes that the carrying basis of EIP Group mortgage loans approx-
imated their respective fair market values as of September 30, 1997 and
December 31, 1996 and 1995. The current value of debt was computed by dis-
counting the projected debt service payments for each loan based on the spread
between the market rate and the effective rate, including the amortization of
loan origination costs, for each year. In addition, the carrying values of cash
and cash equivalents, restricted cash, escrow deposits, rents receivable (ex-
cluding Deferred Rent), accounts payable and accrued expenses are reasonable
estimates of their fair value.
Income Taxes
The properties are owned in tax-exempt real estate title holding companies,
general partnerships or directly by qualified pension plans. Since the taxable
operating results of EIP Group are either included in the income tax returns of
tax-exempt entities or the owners, no provision for state and federal income
taxes has been reflected in these combined financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
4. MORTGAGE DEBT
As of September 30, 1997, December 31, 1996 and 1995, EIP Group had outstanding
fixed rate mortgage indebtedness as follows:
<TABLE>
<CAPTION>
-----------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996 1995
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Three mortgage loans at fixed interest
rate of 8.375% due December 1, 1997 $13,353 $13,813 $14,383
Three mortgage loans at fixed interest
rates ranging from 7.95% to 8.05% due
January 1, 2003 5,302 5,479 5,700
------------- --------- ---------
Total mortgage loans payable $18,655 $19,292 $20,083
============= ========= =========
</TABLE>
Payments on mortgage debt are due in monthly installments of principal and
interest. The weighted average interest rate was approximately 8.3% as of Sep-
tember 30, 1997, December 31, 1996 and 1995. The mortgage loans are secured by
deeds of trust on six properties and all the loans are subject to prepayment
penalties based on a yield maintenance formula in the event of early repayment.
Scheduled payments of principal on mortgage debt for each of the next five
years and thereafter as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
-------
<S> <C>
1997 $14,052
1998 259
1999 280
2000 304
2001 329
Thereafter 4,068
</TABLE>
F-18
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancellable operating leases for the
industrial properties as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
-------
<S> <C>
1997 $28,269
1998 25,202
1999 21,454
2000 16,644
2001 13,051
Thereafter 35,423
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. EIP Group is subject to the usual business risks associated with the
collection of the above scheduled rents.
6. TRANSACTIONS WITH THE INVESTMENT MANAGER
Under the provisions of the separate investment management agreements, EIP
Group is obligated to pay Cabot Partners acquisition, asset management and
property management fees. Acquisition fees are payable based on a percentage of
acquisition cost (ranging from .90 to 1.50%), asset management fees are payable
based on a percentage (ranging from .4 to .6%) of the properties' fair market
value or a percentage (ranging from 6 to 7%) of the properties' net operating
income and property management fees are payable on certain properties based on
2.25% of gross receipts. Fees incurred under the agreements were as follows:
<TABLE>
--------------------------------------------------------
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
--------------------- -----------------------------------
1997 1996 1996 1995 1994
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FEE INCURRED
Asset management $ 1,073 $ 805 $ 1,244 $ 981 $ 769
Acquisition 214 139 360 504 100
Property management 452 340 482 437 503
</TABLE>
At September 30, 1997, December 31, 1996 and 1995, total fees payable to Cabot
Partners were $502, $343 and $311, respectively.
Acquisition fees are capitalized to Rental Properties in the accompanying
combined balance sheets and property and asset management fees are expensed as
incurred and included in Management Fees in the accompanying combined
statements of income .
7. DUE TO RELATED PARTIES
Four properties held in general partnerships incurred capital expenditures,
leasing costs and operating deficits that were funded through cash advances
from the general partners. The advances accrue interest at prime plus 1.5% (10%
as of September 30, 1997) and are payable out of cash flows after third-party
debt service of the property. Interest expense related to the advances was
$299, $314 and $265 for the years ended December 31, 1996, 1995 and 1994,
respectively, and $218 and $199 for the nine months ended September 30, 1997
and 1996, respectively.
F-19
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
EIP Group maintains its cash and cash equivalents at financial institutions.
The combined account balances at each institution periodically exceed FDIC
insurance coverage, and as a result, there is a concentration of credit risk
related to amounts on deposit in excess of FDIC insurance coverage. Management
of EIP Group believes the risk is not significant.
Environmental
EIP Group, as an owner of real estate, is subject to various environmental
laws of federal and local governments. Compliance by EIP Group with existing
laws has not had a material adverse effect on EIP Group's financial condition
and results of operations, and management does not believe it will have such
an impact in the future. However, EIP Group cannot predict the impact of new
or changed laws or regulations on its current properties or on properties that
it may acquire in the future.
Litigation
Management of EIP Group does not believe there is any litigation threatened
against it other than routine litigation arising out of the ordinary course of
business, some of which is expected to be covered by liability insurance, none
of which is expected to have a material adverse effect on the operating
results or financial position of EIP Group.
Commitments
Subsequent to September 30, 1997, EIP Group has acquired, or has executed com-
mitments to acquire, the following industrial properties:
<TABLE>
<CAPTION>
-----------------------------------------------------
EXPECTED
ACQUISITION
BUILDING TYPE SQUARE FEET COST
-------------------------------- ------------------- ----------- -----------
<S> <C> <C> <C>
PROPERTY LOCATION
Herrod
Boulevard, South Brunswick, NJ Bulk Distribution 418,000 $18,321
Blue Ash, OH Bulk Distribution
and Workspace 482,942 15,565
Remington Street, Bolingbrook,
IL Bulk Distribution 212,333 8,625
Ambassador Road, Naperville, IL Bulk Distribution 203,500 8,106
Luna Road, Carrollton, TX Bulk Distribution 205,400 7,514
----------- -----------
1,522,175 $58,131
=========== ===========
</TABLE>
Pursuant to the Contribution Agreement, EIP Group will contribute the proper-
ties to the Company or the Operating Partnership and will receive common
shares from the Company or units from the Operating Partnership.
F-20
<PAGE>
SCHEDULE III
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
COSTS
CAPITALIZED GROSS AMOUNT
SUBSEQUENT CARRIED AS OF
INITIAL COST TO ACQUISITION DECEMBER 31, 1996
--------------------- ------------------ ------------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
PROPERTY NAME(8) LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(7)
- ---------------- -------- ------------ ------- ------------- ---- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South 63rd
Avenue Phoenix, AZ -- $ 528 $ 3,953 -- -- $ 528 $ 3,953 $ 4,481
North 104th
Avenue Tolleson, AZ -- 651 5,948 -- -- 651 5,948 6,599
South 84th
Avenue Tolleson, AZ -- 553 5,116 -- $ 187 553 5,303 5,856
Brisbane
Industrial
Park(1) Brisbane, CA -- 10,519 17,011 -- 409 10,519 17,420 27,939
South Vintage
Avenue(2) Ontario, CA -- 2,896 15,836 -- 92 2,896 15,928 18,824
East Jurupa
Street Ontario, CA -- 409 2,217 -- -- 409 2,217 2,626
Santa Anita
Avenue Rancho Cucamonga, CA -- 1,200 6,491 -- -- 1,200 6,491 7,691
East Dyer Road Santa Ana, CA -- 8,160 10,432 -- 2,162 8,160 12,594 20,754
Pepes Farm Road Milford, CT -- 1,637 8,787 -- 558 1,637 9,345 10,982
Kingspointe
Parkway Orlando, FL -- 600 2,581 -- 6 600 2,587 3,187
West 73rd
Street, Building
1 Bedford Park, IL -- 1,333 4,819 -- 35 1,333 4,854 6,187
West 73rd
Street, Building
2 Bedford Park, IL -- 2,148 8,258 -- 45 2,148 8,303 10,451
West 73rd
Street, Building
3 Bedford Park, IL -- 986 5,395 -- 77 986 5,472 6,458
Harvester Drive Chicago, IL -- 763 5,604 -- 156 763 5,760 6,523
Arthur Avenue Elk Grove, IL -- 2,160 4,777 -- 825 2,160 5,602 7,762
Western Avenue Lisle, IL -- 700 1,922 -- 131 700 2,053 2,753
Mark Street Wood Dale, IL -- 2,844 9,668 -- -- 2,844 9,668 12,512
High Grove Lane Naperville, IL -- 800 3,334 -- 5 800 3,339 4,139
North State Road
#9(6) Howe, IN 4,620 239 6,112 -- 28 239 6,140 6,379
Holton Drive Independence, KY -- 2,100 8,294 -- -- 2,100 8,294 10,394
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
DEPRECI-
DATE ABLE
ACCUMULATED CONSTRUCTED/ DATE LIVES
PROPERTY NAME(8) LOCATION DEPRECIATION RENOVATED ACQUIRED IN YEARS(9)
- ---------------- -------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
South 63rd
Avenue Phoenix, AZ $ 262 1990 05/27/94 10-40
North 104th
Avenue Tolleson, AZ 15 1995 11/26/96 10-40
South 84th
Avenue Tolleson, AZ 227 1989 04/03/95 10-40
Brisbane
Industrial
Park(1) Brisbane, CA 2,781 1965 08/10/90 10-40
South Vintage
Avenue(2) Ontario, CA 3,127 1986 11/20/89 10-40
East Jurupa
Street Ontario, CA 10 1986 11/19/96 10-40
Santa Anita
Avenue Rancho Cucamonga, CA 95 1988 06/27/96 10-40
East Dyer Road Santa Ana, CA 2,173 1954/1965 04/24/89 10-40
Pepes Farm Road Milford, CT 1,795 1980 11/07/88 10-40
Kingspointe
Parkway Orlando, FL -- 1991 12/30/96 10-40
West 73rd
Street, Building
1 Bedford Park, IL 757 1982 09/13/90 10-40
West 73rd
Street, Building
2 Bedford Park, IL 1,296 1986 09/13/90 10-40
West 73rd
Street, Building
3 Bedford Park, IL 850 1979 09/13/90 10-40
Harvester Drive Chicago, IL 1,276 1974 07/05/88 10-40
Arthur Avenue Elk Grove, IL 1,166 1978 06/27/88 10-40
Western Avenue Lisle, IL 419 1970/1985 06/27/88 10-40
Mark Street Wood Dale, IL 1,468 1985 12/14/90 10-40
High Grove Lane Naperville, IL 166 1994 01/11/95 10-40
North State Road
#9(6) Howe, IN 1,084 1988 12/01/89 10-40
Holton Drive Independence, KY 52 1996 07/6/96 10-40
</TABLE>
F-21
<PAGE>
SCHEDULE III--(CONTINUED)
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
COSTS
CAPITALIZED GROSS AMOUNT
SUBSEQUENT CARRIED AS OF
INITIAL COST TO ACQUISITION DECEMBER 31, 1996
------------------- ------------------ ----------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
PROPERTY NAME(8) LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(7)
- ---------------- -------- ------------ ----- ------------- ---- ------------- ----- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Empire Drive Florence, KY -- 212 2,456 -- 57 212 2,513 2,725
Technology Drive Auburn, MA -- 663 2,050 -- 344 663 2,394 3,057
First Avenue Needham, MA -- 2,530 3,120 -- 873 2,530 3,993 6,523
John Hancock
Road(6) Taunton, MA $1,607 257 1,753 -- 133 257 1,886 2,143
Tar Bay Drive Jessup, MD -- 1,415 5,111 -- 13 1,415 5,124 6,539
The Crysen
Center(3) Jessup, MD -- 1,662 4,470 -- 201 1,662 4,671 6,333
Oceano Avenue Jessup, MD -- 1,629 7,940 -- 49 1,629 7,989 9,618
Sysco Court(6) Grand Rapids, MI 2,324 354 2,452 -- -- 354 2,452 2,806
Lakefront Drive Earth City, MO -- 1,320 4,799 -- -- 1,320 4,799 6,119
Industrial Drive
South(6) Gluckstadt, MS 3,742 320 4,325 -- -- 320 4,325 4,645
Old Charlotte
Highway(4)(6) Monroe, NC 5,451 2,311 6,137 -- -- 2,311 6,137 8,448
Reames Road Charlotte, NC -- 365 2,939 -- -- 365 2,939 3,304
Birch Creek Road Bridgeport, NJ -- 24 4,858 $330 -- 354 4,858 5,212
South Middlesex
Avenue, Building
1 Cranbury, NJ -- 1,300 6,817 -- 19 1,300 6,836 8,136
South Middlesex
Avenue, Building
2 Cranbury, NJ -- 1,400 5,470 -- 31 1,400 5,501 6,901
Pierce Street Franklin Township, NJ -- 1,400 5,635 -- 6 1,400 5,641 7,041
International
Street Columbus, OH -- 517 3,537 -- -- 517 3,537 4,054
Twin Creek Drive Columbus, OH -- 705 4,071 -- 8 705 4,079 4,784
Ritter Road(6) Mechanicsburg, PA 1,549 332 1,460 -- -- 332 1,460 1,792
Pilot Drive Memphis, TN -- 1,364 6,334 -- -- 1,364 6,334 7,698
113th Street Arlington, TX -- 506 1,855 -- 18 506 1,873 2,379
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
DEPRECI-
DATE ABLE
ACCUMULATED CONSTRUCTED/ DATE LIVES IN
PROPERTY NAME(8) LOCATION DEPRECIATION RENOVATED ACQUIRED YEARS(9)
- ---------------- -------- ------------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Empire Drive Florence, KY 236 1991 04/06/93 10-40
Technology Drive Auburn, MA 436 1973 01/30/89 10-40
First Avenue Needham, MA 636 1961/1992 01/16/90 10-40
John Hancock
Road(6) Taunton, MA 316 1986 12/01/89 10-40
Tar Bay Drive Jessup, MD 768 1990 12/20/90 10-40
The Crysen
Center(3) Jessup, MD 728 1985 08/09/90 10-40
Oceano Avenue Jessup, MD 1,290 1987 06/28/90 10-40
Sysco Court(6) Grand Rapids, MI 431 1985 12/01/89 10-40
Lakefront Drive Earth City, MO 190 1995 06/15/95 10-40
Industrial Drive
South(6) Gluckstadt, MS 760 1988 12/01/89 10-40
Old Charlotte
Highway(4)(6) Monroe, NC 1,078 1957/1972 12/01/89 10-40
Reames Road Charlotte, NC 73 1994 02/22/96 10-40
Birch Creek Road Bridgeport, NJ 509 1991/1997 10/22/92 10-40
South Middlesex
Avenue, Building
1 Cranbury, NJ 341 1989 01/17/95 10-40
South Middlesex
Avenue, Building
2 Cranbury, NJ 274 1982 06/02/95 10-40
Pierce Street Franklin Township, NJ 141 1984 08/18/95 10-40
International
Street Columbus, OH 96 1988 11/21/95 10-40
Twin Creek Drive Columbus, OH 212 1989 12/01/94 10-40
Ritter Road(6) Mechanicsburg, PA 257 1986 12/01/89 10-40
Pilot Drive Memphis, TN 212 1987 09/05/95 10-40
113th Street Arlington, TX 213 1979 07/20/92 10-40
</TABLE>
F-22
<PAGE>
SCHEDULE III--(CONTINUED)
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
COSTS
CAPITALIZED GROSS AMOUNT
SUBSEQUENT CARRIED AS OF
INITIAL COST TO ACQUISITION DECEMBER 31, 1996
---------------------- ------------------ -------------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
PROPERTY NAME(8) LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(7)
- ---------------- -------- ------------ -------- ------------- ---- ------------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Airline Drive,
Building 1 Coppell, TX -- $ 316 $ 1,850 -- -- $ 316 $ 1,850 $ 2,166
Airline Drive,
Building 2 Coppell, TX -- 696 3,491 -- -- 696 3,491 4,187
North Lake Drive Coppell, TX -- 1,165 3,636 $ 68 -- 1,233 3,636 4,869
Oakville
Industrial
Park(5) Alexandria, VA -- 10,552 19,806 -- 2,502 10,552 22,308 32,860
------------ -------- ------------- ---- ------------- -------- ------------- --------
Totals $19,293 $ 74,541 $252,927 $398 $8,970 $ 74,939 $261,897 $336,836
============ ======== ============= ==== ============= ======== ============= ========
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------
DEPRECI-
ABLE
DATE LIVES
ACCUMULATED CONSTRUCTED/ DATE IN
PROPERTY NAME(8) LOCATION DEPRECIATION RENOVATED ACQUIRED YEARS(9)
- ---------------- -------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Airline Drive,
Building 1 Coppell, TX $ 171 1991 04/23/93 10-40
Airline Drive,
Building 2 Coppell, TX 323 1990 04/23/93 10-40
North Lake Drive Coppell, TX 337 1982 05/12/93 10-40
Oakville
Industrial
Park(5) Alexandria, VA 3,481 1948 02/28/90 10-40
------------
Totals $32,528
============
</TABLE>
- ----
(1) Brisbane Industrial Park consists of fifteen buildings.
(2) South Vintage Avenue consists of two buildings.
(3) The Crysen Center consists of two buildings.
(4) Old Charlotte Highway consists of two buildings.
(5) Oakville Industrial Park consists of six buildings.
(6) The loans encumbering these properties are subject to cross default provi-
sions.
(7) The aggregate cost for federal income tax purposes as of December 31, 1996
was approximately $337 million
(8) All buildings within schedule are industrial properties.
(9) Buildings are depreciated over 40 years and certain improvements are depre-
ciated over their expected life.
F-23
<PAGE>
SCHEDULE III--(CONTINUED)
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
The changes in the total investment in real estate for the years ended December
31, 1996, 1995, 1994 are as follows:
<TABLE>
<CAPTION>
--------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of the year $301,059 $250,387 $255,050
Acquisitions 33,485 49,677 9,240
Improvements 2,292 995 2,290
Properties disposed of -- -- (16,193)
------------ ------------ ------------
Balance, end of year $336,836 $301,059 $250,387
============ ============ ============
</TABLE>
The changes in accumulated depreciation for the years ended December 31, 1996,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
--------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of the year $26,430 $20,936 $17,949
Depreciation 6,098 5,494 4,821
Properties disposed of -- -- (1,834)
------------ ------------ ------------
Balance, end of year $32,528 $26,430 $20,936
============ ============ ============
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of the State of Wisconsin
Investment Board:
We have audited the accompanying historical cost basis combined statements of
assets and liabilities of ORLANDO CENTRAL PARK and 500 MEMORIAL DRIVE (the
"Properties") as of December 31, 1996 and 1995, and the related historical cost
basis combined statements of income, changes in net assets and cash flows for
the years then ended. These financial statements are the responsibility of the
Properties' investment advisor. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the historical cost basis combined financial
position of Orlando Central Park and 500 Memorial Drive as of December 31, 1996
and 1995, and the historical cost basis combined results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
As indicated in Note 2, these financial statements have been prepared on the
historical cost basis to comply with Regulation S-X of the Securities and
Exchange Commission.
Coopers & Lybrand L.L.P.
New York, New York
October 6, 1997.
F-25
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
---------------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate investments
Land $ 8,847,965 $ 8,847,965 $ 8,847,965
Building and improvements 40,743,523 40,720,252 40,650,198
Accumulated depreciation (7,089,882) (6,316,118) (5,285,497)
------------- ----------- -----------
42,501,606 43,252,099 44,212,666
Cash and cash equivalents 108,716 591,653 229,262
Accounts receivable and accrued
investment income 56,046 109,938 92,105
Deferred leasing costs, net of
accumulated amortization of
$2,643,292, $2,135,209 and
$1,420,455 at September 30, 1997,
December 31, 1996 and December
31, 1995, respectively 2,860,706 3,392,025 3,331,155
Deferred rent concessions 1,074,538 838,408 985,175
Other assets 65,082 62,815 21,929
------------- ----------- -----------
Total Assets $46,666,694 $48,246,938 $48,872,292
============= =========== ===========
LIABILITIES AND NET ASSETS
Accounts payable and accrued
expenses $ 569,040 597,561 176,895
Security deposits 216,875 211,363 273,105
Unearned rental income 197,265 247,756 120,156
------------- ----------- -----------
Total Liabilities 983,180 1,056,680 570,156
------------- ----------- -----------
Net Assets 45,683,514 47,190,258 48,302,136
------------- ----------- -----------
Total Liabilities and Net Assets $46,666,694 $48,246,938 $48,872,292
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-----------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------- -------------------------------
1997 1996 1996 1995
---------- ---------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Rental income $4,563,630 $4,315,620 $ 5,521,188 $ 5,757,490
Other income 20,370 90,609 99,749 233,998
---------- ---------- --------------- ---------------
Total Revenue 4,584,000 4,406,229 5,620,937 5,991,488
OPERATING EXPENSES
Property taxes 512,787 502,653 653,797 640,810
Operating expenses 718,686 802,388 1,045,704 928,209
Depreciation and
amortization 1,360,074 1,284,250 1,745,376 1,693,022
---------- ---------- --------------- ---------------
Total Operating
Expenses 2,591,547 2,589,291 3,444,877 3,262,041
---------- ---------- --------------- ---------------
Net income $1,992,453 $1,816,938 $ 2,176,060 $ 2,729,447
========== ========== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENT OF CHANGES IN NET ASSETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
-----------
<S> <C>
Net assets, January 1, 1995 $49,237,627
Asset advisory fees paid by owner 281,062
Distributions (3,946,000)
Net income for the year ended December 31, 1995 2,729,447
-----------
Net assets, January 1, 1996 48,302,136
Asset advisory fees paid by owner 275,062
Distributions (3,563,000)
Net income for the year ended December 31, 1996 2,176,060
-----------
Net assets, January 1, 1997 47,190,258
Asset advisory fees paid by owner (unaudited) 240,803
Distributions (unaudited) (3,740,000)
Net income for the nine months ended September 30, 1997
(unaudited) 1,992,453
-----------
Net assets, September 30, 1997 (unaudited) $45,683,514
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ --------------------------
1997 1996 1996 1995
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 1,992,453 $ 1,816,938 $ 2,176,060 $ 2,729,447
Adjustments to reconcile
net income to net cash
provided by operating
activities-
Depreciation and
amortization 1,360,074 1,284,250 1,745,376 1,693,022
Asset advisory fee paid
by owner 240,803 206,227 275,062 281,062
Changes in operating
assets and liabilities
Accounts receivable 53,892 (23,676) (17,833) 85,920
Other assets (2,267) (58,011) (40,886) 344
Deferred rent
concessions (236,130) (28,195) 146,767 (197,855)
Accounts payable and
accrued expenses (28,521) 377,760 420,666 (73,095)
Security deposits 5,512 (49,675) (61,742) 5,919
Unearned rental income (50,491) 72,973 127,600 (3,394)
----------- ----------- ------------ ------------
Net cash provided by
operations 3,335,325 3,598,591 4,771,070 4,521,370
----------- ----------- ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Payments for capital
expenditures and
leasing commissions (78,262) (85,933) (845,679) (908,717)
----------- ----------- ------------ ------------
Net cash used in
investing activities (78,262) (85,933) (845,679) (908,717)
----------- ----------- ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Distributions (3,740,000) (3,134,000) (3,563,000) (3,946,000)
----------- ----------- ------------ ------------
Net cash used in
financing activities (3,740,000) (3,134,000) (3,563,000) (3,946,000)
----------- ----------- ------------ ------------
Net (decrease)
increase in cash (482,937) 378,658 362,391 (333,347)
Cash and cash
equivalents, beginning
of period 591,653 229,262 229,262 562,609
----------- ----------- ------------ ------------
Cash and cash
equivalents, end of
period $ 108,716 $ 607,920 $ 591,653 $ 229,262
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
The properties known as Orlando Central Park and 500 Memorial Drive (the "Prop-
erties") are owned by the State of Wisconsin Investment Fixed Retirement Trust
Fund ("SWIB") which was established for the benefit of the participants in the
Wisconsin Retirement System. The State of Wisconsin Investment Board has exclu-
sive control over all monies in the Fixed Retirement Trust Fund. Clarion Part-
ners, formerly known as Jones Lang Wootton Realty Advisors ("Realty Advisors"),
manages the Properties under an investment advisory agreement. These financial
statements include the combined assets, liabilities and operations of the Prop-
erties which comprise Orlando Central Park (six industrial bulk warehouse
buildings and associated land located in an industrial park in Orlando, Flor-
ida) and 500 Memorial Drive (an industrial building and associated land located
in an industrial park in Franklin Township, New Jersey).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
These financial statements of the Properties have been combined since they are
under common ownership and management and they are expected to be acquired in a
business combination by a newly formed real estate investment trust in connec-
tion with a public offering of securities.
SWIB is a pension fund and prepares the financial statements, including those
of the Properties, on the fair value basis pursuant to Statement of Financial
Accounting Standards No. 35 and Statement of Government Accounting Standards
No. 25. However, these financial statements have been restated utilizing the
historical cost basis in accordance with the requirement of Regulation S-X
promulgated by of the Securities and Exchange Commission.
Real Estate
Rental property is presented in the balance sheet at cost, which includes fees
for services related to the acquisition of the rental property. Depreciation of
the buildings is computed using the straight-line method over the estimated
useful lives of the property, generally 40 years. Depreciation of improvements
to the rental property is computed using the straight-line method over the
remaining useful lives of the buildings, or the useful life of the improvement,
if shorter. Tenant improvements, including commissions paid for services
related to the signing of new leases, are amortized using the straight-line
method over the lesser of their useful lives or the remaining term of the lease
to which they relate.
Expenditures for major renewals and betterments are capitalized and expendi-
tures for repairs and maintenance are expensed when incurred. Sales and dispo-
sitions of assets are recorded by removing the related costs and accumulated
depreciation amounts with any resulting gain or loss reflected in income.
Revenue Recognition
The Properties earn rental income from tenants under leasing arrangements which
generally provide for minimum rents, escalations and charges to tenants for
their pro-rata share of real estate taxes and operating expenses. All leases
have been accounted for as operating leases.
The Properties recognize rental income from leases with scheduled rent
increases on a straight-line basis over the lease term. Deferred rent conces-
sions represent the difference between the straight-line rent and amounts cur-
rently due.
Investment Advisory Fees:
Fees earned by Jones Lang Wootton Realty Advisors in its role as investment
advisor are paid directly by SWIB. These financial statements reflect those
fees as expenses with a corresponding capital contribution. The asset manage-
ment fees for the years ended December 31, 1996 and 1995 were $275,062 and
$281,062, respectively. The asset management fees for the nine months ended
September 30, 1997 and 1996 were $240,803 and $206,227, respectively.
Income Taxes
SWIB and the entities through which the Properties are owned are not subject to
income taxes, therefore no income taxes have been provided in the accompanying
financial statements.
Cash and Cash Equivalents
The Properties consider all highly liquid investments purchased with original
maturities of three months or less, at the date of purchase, to be cash equiva-
lents. At times, cash and cash equivalent balances at a limited number of banks
and
F-30
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
financial institutions may exceed insurable amounts. The Properties' Management
believes it mitigates its risks by depositing cash or investing cash equiva-
lents through major financial institutions.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of con-
tingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The most
significant estimates relate to the recoverability of the real estate invest-
ments. Actual results could differ from those estimates.
3. LEASES
Minimum future rental receipts under noncancelable operating leases which
extend for more than one year at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1997 $ 4,381,000
1998 4,350,000
1999 3,665,000
2000 2,065,000
2001 1,634,000
Thereafter 3,797,000
-----------
$19,892,000
===========
</TABLE>
Minimum rentals above do not include recoveries of operating expenses and real
estate taxes. Recoveries of operating expenses and real estate taxes, included
in base rental income, amounted to approximately $1,068,000 and $1,015,000 for
the years ended December 31, 1996 and 1995, respectively, and approximately
$776,000 and $831,000 for the nine month periods ended September 30, 1997 and
1996, respectively.
4. PROPERTY MANAGEMENT FEES
Orlando Central Park
SWIB has retained Trammell Crow Realty Associates, Inc. ("Trammell Crow") to
provide management services to Orlando Central Park on a year-to-year basis.
For its services, Trammell Crow receives a base management fee equal to 3% of
base rents collected, as defined. SWIB has the right to terminate the agree-
ment, with written notice, under certain conditions, as defined in the manage-
ment agreement. For the years ended December 31, 1996 and 1995, fees incurred
under this agreement were $104,590 and $112,083, respectively. For the nine
month periods ended September 30, 1997 and 1996, fees incurred under this
agreement were $84,056 and $77,286, respectively.
Trammell Crow earns leasing commissions when it provides services in negoti-
ating and obtaining, on behalf of SWIB, leases with tenants for Orlando Central
Park in accordance with provisions of the management agreement.
Trammell Crow also earns fees for providing construction management services at
the request of SWIB. The Construction Management fee is equal to (i) 8% of the
construction costs of each Capital Repair in excess of $10,000, as defined in
the agreement, and (ii) 8% of the construction costs of alterations, additions
and improvement work made by SWIB on behalf of tenants, as defined in the
agreement.
500 Memorial Drive
SWIB retained Jones Lang Wootton USA ("JLW USA") to provide management services
to 500 Memorial Drive on a year-to-year basis. For its services, JLW USA
received a management fee equal to 3% of gross income collected, as defined in
the management agreement. For the years ended December 31, 1996 and 1995, fees
incurred under these agreements were $38,595 and $37,259, respectively, of
which $3,194 is included in accrued expenses at December 31, 1995. For the nine
month periods ended September 30, 1997 and 1996, fees under these agreements
were $27,685 and $29,028, respectively.
F-31
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
JLW USA earned fees from leasing commissions when it provides services in nego-
tiating and obtaining, on behalf of SWIB, leases with tenants for 500 Memorial
Drive in accordance with provisions of the management agreement, as defined. No
such fees for leasing commissions were incurred in 1997, 1996 and 1995.
Effective January 1, 1997, SWIB entered into an agreement with Institutional
Realty Management, L.L.C., an affiliate of Realty Advisors, to provide manage-
ment services to 500 Memorial Drive on a month-to-month basis which is cancel-
able by either party with 30 days written notice.
5. UNAUDITED PERIODS
The unaudited combined financial statements as of September 30, 1997 and for
the nine months ended September 30, 1997 and 1996 have been prepared pursuant
to the requirements of Article 10 of Regulation S-X promulgated by the Securi-
ties and Exchange Commission. Pursuant to such rules, certain information and
disclosures required by generally accepted accounting principles has been omit-
ted. Such financial statements are unaudited, but in the opinion of the invest-
ment advisor and management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of such combined
financial statements have been included. The results of the combined operations
for the nine months ended September 30, 1997 and 1996 are not necessarily
indicative of the future results of operations for the full year ending
December 31, 1997.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder
Knickerbocker Properties, Inc. II
We have audited the accompanying historical cost basis balance sheets of Knick-
erbocker Properties, Inc. II as of December 31, 1996 and 1995, and the related
historical cost basis statements of income, stockholder's equity, and cash
flows for the years then ended. These financial statements are the responsi-
bility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the historical cost basis financial position of Knicker-
bocker Properties, Inc. II at December 31, 1996 and 1995, and the historical
cost basis results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As indicated in Note 1, these financial statements have been prepared on the
historical cost basis to comply with Regulation S-X of the Securities and
Exchange Commission.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
April 25, 1997
F-33
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate investments
Land $ 3,691,118 $ 3,691,118 $ 3,691,118
Building and improvements 17,225,462 16,865,157 16,855,791
Accumulated depreciation (3,253,212) (2,888,428) (2,392,331)
------------- ----------- -----------
17,663,368 17,667,847 18,154,578
Cash and Cash Equivalents 74,019 80,186 66,853
Deferred rent concessions 135,627 148,959 163,944
Other assets 4,374 13,414 --
------------- ----------- -----------
Total Assets $17,877,388 $17,910,406 $18,385,375
============= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 98,689 33,125 47,759
Security deposits 148,812 146,996 146,527
Dividend payable -- -- 25,090
Unearned rental income 64,856 58,930 17,463
------------- ----------- -----------
Total Liabilities 312,357 239,051 236,839
------------- ----------- -----------
Stockholder's Equity
Common Stock $1 par value; 500 shares
authorized, issued and outstanding 500 500 500
Additional Paid in Capital 17,564,531 17,670,855 18,148,036
Retained Earnings -- -- --
------------- ----------- -----------
17,565,031 17,671,355 18,148,536
------------- ----------- -----------
Total Liabilities and Stockholder's
Equity $17,877,388 $17,910,406 $18,385,375
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1997 1996 1996 1995
--------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Rental income $1,706,917 $ 1,613,475 $ 2,171,445 $ 2,250,490
Other income 5,469 1,004 1,372 1,371
--------------- --------------- --------------- ---------------
Total Revenue 1,712,386 1,614,479 2,172,817 2,251,861
OPERATING EXPENSES
Property taxes 224,106 222,147 296,291 291,804
Operating Expenses 144,363 134,860 178,487 195,505
Depreciation and
amortization 364,784 374,387 496,096 460,397
--------------- --------------- --------------- ---------------
Total Operating
Expenses 733,253 731,394 970,874 947,706
--------------- --------------- --------------- ---------------
Net income $ 979,133 $ 883,085 $ 1,201,943 $ 1,304,155
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
--------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $500 $18,619,408 $ -- $18,619,908
Net Income 1,304,155 1,304,155
Dividends (471,372) (1,304,155) (1,775,527)
------ ----------- ----------- -----------
Balance at December 31, 1995 500 18,148,036 -- 18,148,536
Net income 1,201,943 1,201,943
Additional Paid in Capital 139,904 139,904
Dividends (617,085) (1,201,943) (1,819,028)
------ ----------- ----------- -----------
Balance at December 31, 1996 500 17,670,855 -- 17,671,355
Net income (unaudited) 979,133 979,133
Additional Paid in Capital (un-
audited) 141,718 -- 141,718
Dividends (unaudited) (248,042) (979,133) (1,227,175)
------ ----------- ----------- -----------
Balance at September 30, 1997
(unaudited) $500 $17,564,531 $ -- $17,565,031
====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------------
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ ------------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 979,133 $ 883,085 $ 1,201,943 $ 1,304,155
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amorti-
zation 364,784 374,387 496,096 460,397
Changes in assets--(In-
crease) Decrease:
Other assets 9,040 -- (13,414) 8,029
Deferred rent conces-
sions 13,332 (11,985) 14,985 71,580
Changes in liabilities--
Increase (Decrease):
Accounts payable and
accrued expenses 65,564 51,201 (14,634) 12,835
Unearned rental income 5,926 4,274 41,467 (42,622)
Tenant security deposits 1,816 468 469 (1,596)
----------- ----------- ----------- -----------
Net cash provided by oper-
ating activities 1,439,595 1,301,430 1,726,912 1,812,778
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Capital and tenant
improvements (360,305) (2,528) (9,365) (83,030)
----------- ----------- ----------- -----------
Net cash used for
investing activities (360,305) (2,528) (9,365) (83,030)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Additional Paid in Capital 141,718 -- 139,904 --
Dividends (1,227,175) (1,273,610) (1,844,118) (1,750,437)
----------- ----------- ----------- -----------
Net cash used in financing
activities (1,085,457) (1,273,610) (1,704,214) (1,750,437)
----------- ----------- ----------- -----------
Net increase (decrease) in
cash (6,167) 25,292 13,333 (20,689)
Cash at beginning of
period 80,186 66,853 66,853 87,542
----------- ----------- ----------- -----------
Cash at end of period $ 74,019 $ 92,145 $ 80,186 $ 66,853
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
The Company
Knickerbocker Properties, Inc. II (the Company) was incorporated under the
laws of the State of Delaware in June 1990. The Company, which was formed to
acquire real estate, is wholly owned by New York State Teachers' Retirement
System (the Parent), a pension benefit organization for New York State teach-
ers. Capital contributions were made by the Parent to fund real estate pur-
chases.
On June 28, 1990, the Company purchased the property and improvements known as
Kent West Corporate Park, a multi-tenant industrial park located in Kent,
Washington containing five buildings with approximately 400,000 total square
feet. As of December 31, 1996, the Property was fully leased. Cash flow in
excess of operating requirements is distributed to the Parent.
Basis of Presentation
The Company is expected to be acquired in a business combination by a newly
formed real estate investment trust in connection with a public offering of
securities. As such, these financial statements have been prepared utilizing
the historical cost basis in accordance with the requirement of Regulation S-X
promulgated by the Securities and Exchange Commission.
2. SIGNIFICANT ACCOUNTING POLICIES
Rental Property
Rental property is presented in the balance sheets at cost, which includes
fees for services related to the acquisition of the rental property. Deprecia-
tion of the buildings is computed using the straight-line method over the
estimated useful lives of the property, generally 40 years. Depreciation of
improvements to the rental property is computed using the straight-line method
over the remaining useful lives of the buildings, or the useful life of the
improvement, if shorter. Tenant improvements, including commissions paid for
services related to the signing of new leases, are amortized using the
straight-line method over the remaining term of the lease to which they
relate.
Expenditures for major renewals and betterments are capitalized and expendi-
tures for repairs and maintenance are expensed when incurred. Sales and dis-
posals of assets are recorded by removing the related cost and accumulated
depreciation amounts with any resulting gain or loss reflected in income.
Revenue Recognition
Rental revenue is recognized by amortizing future minimum lease payments over
the lease term using the straight-line method. Amounts recorded as straight-
line rent in excess of amounts currently due are included in deferred lease
concessions. Tenants are required to reimburse their pro rata share of the
majority of operating expenses of the industrial park. The Company recognizes
such reimbursement of expenses by tenants as revenue when earned.
Investment Advisors Fees
Fees earned by Equitable Real Estate Management, Inc. ("Equitable"), in its
role as investment advisor, are paid directly by the Parent and, therefore,
are not included in the statements of Operations. Certain other expenses are
paid by Equitable and reimbursed by the Company. Certain officers of Equitable
are also officers of the Company.
Cash and Cash Equivalents
The Company classifies as cash equivalents any investments which can be
readily converted to cash and have an original maturity of less than three
months. At times, cash and cash equivalent balances at a limited number of
banks and financial institutions may exceed insurable amounts. The Company
believes it mitigates its risks by depositing cash or investing cash equiva-
lents through major financial institutions.
Income Taxes
The Company is exempt from income taxation pursuant to Section 501(c)(25) of
the Internal Revenue Code. Accordingly, no income taxes have been provided in
the accompanying financial statements.
F-38
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of con-
tingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period. The most
significant estimates relate to the recoverablility of the operating property
and the unbilled rent receivable. Actual results could differ from these esti-
mates.
Financial Instruments
The fair value of the Company's financial instruments, including cash and cash
equivalents, approximates carrying value. Fair values were estimated based on
quoted market prices, where available.
Reclassification
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
3. LEASES
The Company's property is being leased to ten tenants under operating leases
that expire at various dates through 2001. The Company expects that the leases
will be renewed or replaced by other leases in the normal course of business.
Three tenants currently lease 48%, 23% and 10% of the total leaseable space.
Expected future minimum rental on noncancelable long-term leases in effect at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1997 $1,678,049
1998 1,380,941
1999 758,718
2000 74,421
2001 7,194
</TABLE>
4. COMMITMENTS
The property has been assessed local improvement district costs by the local
county authorities totaling $194,758, of which $103,585 is outstanding at
December 31, 1996. The Company's policy is to bill tenants for their pro rata
share of these assessments. To the extent the property is not fully leased, the
Company would have to incur a pro rata portion of these costs. Since the Com-
pany anticipates having the ability to bill all costs, these amounts are not
included as liabilities on the balance sheet. The payments, including interest
ranging from 7.85% to 7.98%, for each of the next five years and thereafter are
as follows:
<TABLE>
<CAPTION>
---------
<S> <C>
1997 $ 16,418
1998 15,768
1999 15,118
2000 14,468
2001 13,787
Thereafter 84,961
---------
$ 160,520
=========
</TABLE>
The total amount of interest included in the above minimum payments is $56,935
to be paid through May 2009.
5. MANAGEMENT AGREEMENT
The Company entered into a Real Estate Management Agreement with Crow-Wash-
ington Management Limited Partnership ("Crow") to manage the operations of the
property. In accordance with this agreement, Crow is paid a management fee
based on the rental income collected, as defined. Total management fees for the
nine months ended September 30, 1997 and the years ended December 31, 1996 and
1995 amounted to $47,840 (unaudited), $61,832 and $63,440, respectively.
6. UNAUDITED PERIODS
The unaudited financial statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996 have been prepared pursuant to the
requirements of Article 10 of Regulation S-X promulgated by the Securities and
Exchange Commission. Pursuant to such rules, certain information and disclo-
sures required by generally accepted accounting principles has been omitted.
Such financial statements are unaudited, but in the opinion of the investment
advisor and management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of such financial statements
have been included. The results of the operations for the nine months ended
September 30, 1997 and 1996 are not necessarily indicative of the future
results of operations for the full year ending December 31, 1997.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Retirement Board Pennsylvania Public School Employes' Retirement System:
We have audited the accompanying combined balance sheets of Pennsylvania Public
School Employes' Retirement System Industrial Properties Portfolio Managed by
RREEF America L.L.C. (the Portfolio, as defined in Note 1) as of December 31,
1996 and 1995, and the related combined statements of operations, combined own-
er's equity, and combined cash flows for the year ended December 31, 1996 and
the period from July 6, 1995 (date of acquisition) to December 31, 1995. In
connection with our audits of the aforementioned combined financial statements,
we have also audited the accompanying Schedule III, Combined Real Estate and
Accumulated Depreciation as of December 31, 1996. These combined financial
statements and combined financial statement schedule are the responsibility of
the Portfolio's management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Port-
folio as of December 31, 1996 and 1995, and the combined results of its opera-
tions and its combined cash flows for the year ended December 31, 1996 and the
period from July 6, 1995 (date of acquisition) to December 31, 1995 in confor-
mity with generally accepted accounting principles. Also in our opinion, the
related combined financial statement schedule, when considered in relation to
the basic combined financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
KPMG Peat Marwick LLP
September 29, 1997
F-40
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------------------
DECEMBER 31,
SEPTEMBER 30, -------------------------
1997 1996 1995
------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real estate:
Land $ 21,148,662 $ 21,148,662 $19,116,603
Building and improvements 84,839,709 83,748,432 77,994,039
Accumulated depreciation (6,442,309) (4,142,761) (1,304,717)
------------- ------------ -----------
99,546,062 100,754,333 95,805,925
Cash and cash equivalents 570,685 1,431,677 2,688,020
Rents and other tenant receivables,
net 232,433 462,457 299,613
Accrued rents receivable (note 3) 2,297,972 1,901,037 699,246
Deferred expenses (note 2) 465,555 331,426 1,360
Other assets 41,571 184,028 93,152
------------- ------------ -----------
Total Assets $103,154,278 $105,064,958 $99,587,316
============= ============ ===========
LIABILITIES AND OWNER'S EQUITY
Accounts payable and accrued
expenses $ 1,978,482 $ 1,255,294 $ 500,296
Tenant security deposits 364,047 327,400 303,604
Other 58,511 42,344 167,679
------------- ------------ -----------
Total Liabilities 2,401,040 1,625,038 971,579
------------- ------------ -----------
Owner's Equity 100,753,238 103,439,920 98,615,737
------------- ------------ -----------
Total Liabilities and Owner's
Equity $103,154,278 $105,064,958 $99,587,316
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-41
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA, L.L.C.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------
FOR THE
NINE MONTHS ENDED FOR THE YEAR PERIOD FROM
SEPTEMBER 30, ENDED JULY 6, TO
----------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
INCOME
Rental income (note 3) $ 9,214,198 $ 9,187,839 $12,348,207 $5,859,691
Tenant reimbursements 784,769 905,294 1,389,320 333,724
Interest 71,277 121,544 139,190 95,901
Other 13,820 632,207 633,066 2,667
----------- ----------- ------------ ------------
Total Income 10,084,064 10,846,884 14,509,783 6,291,983
EXPENSES
Property taxes 703,198 788,772 1,234,230 271,316
Operating expenses 632,407 720,867 853,074 271,920
Advisor fees (note 4) 1,904,182 544,382 731,836 339,440
Depreciation and amortiza-
tion 2,359,949 2,148,889 2,858,119 1,304,717
----------- ----------- ------------ ------------
Total Expenses 5,599,736 4,202,910 5,677,259 2,187,393
----------- ----------- ------------ ------------
Net income $ 4,484,328 $ 6,643,974 $ 8,832,524 $4,104,590
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-42
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
COMBINED STATEMENT OF OWNER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED), THE YEAR ENDED
DECEMBER 31, 1996, AND THE PERIOD FROM JULY 6, TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
------------
<S> <C>
Beginning balance $ --
Contributions 98,561,147
Distributions (4,050,000)
Net income 4,104,590
------------
Balance at December 31, 1995 98,615,737
Contributions 7,147,878
Distributions (11,156,219)
Net income 8,832,524
------------
Balance at December 31, 1996 $103,439,920
Contributions (unaudited) 558,990
Distributions (unaudited) (7,730,000)
Net income for the nine months ended September 30, 1997
(unaudited) 4,484,328
------------
Balance at September 30, 1997 (unaudited) $100,753,238
============
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-43
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA, L.L.C.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------
FOR THE YEAR FOR THE PERIOD
NINE MONTHS ENDED ENDED FROM JULY 6, TO
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
------------------------ ------------ ---------------
1997 1996 1996 1995
----------- ----------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPER-
ATING ACTIVITIES
Net income $ 4,484,328 $ 6,643,974 $ 8,832,524 $ 4,104,590
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amor-
tization 2,359,949 2,148,889 2,858,119 1,304,717
Accrued rents receiv-
able (396,935) (899,681) (1,201,791) (699,246)
Changes in:
Rents and other tenant
receivables, net 230,024 (3,674) (162,845) (299,613)
Other assets 142,457 (8,557) (90,876) (93,152)
Accounts payable and
accrued expenses 723,188 285,865 754,998 500,296
Tenant security
deposits 36,647 23,846 23,796 303,604
Other liabilities 16,167 (98,295) (125,335) 167,679
----------- ----------- ------------ ---------------
Net cash provided by
operating activities 7,595,825 8,092,367 10,888,590 5,288,875
----------- ----------- ------------ ---------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of real estate
investment property
(note 1) -- (6,268,069) (6,268,069) (96,049,051)
Additions and improve-
ments to real estate (1,091,277) (1,302,103) (1,518,383) (1,061,591)
Payment of deferred
expenses (194,530) (108,288) (350,140) (1,360)
----------- ----------- ------------ ---------------
Net cash used in
investing activities (1,285,807) (7,678,460) (8,136,592) (97,112,002)
----------- ----------- ------------ ---------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Contributions 558,990 6,962,217 7,147,878 98,561,147
Distributions (7,730,000) (8,136,219) (11,156,219) (4,050,000)
----------- ----------- ------------ ---------------
Net cash (used in) pro-
vided by financing
activities (7,171,010) (1,174,002) (4,008,341) 94,511,147
----------- ----------- ------------ ---------------
Net increase (decrease)
in cash and cash equiv-
alents (860,992) (760,095) (1,256,343) 2,688,020
Cash and cash equiva-
lents, at beginning of
period 1,431,677 2,688,020 2,688,020 --
----------- ----------- ------------ ---------------
Cash and cash equiva-
lents, at end of period $ 570,685 $ 1,927,925 $ 1,431,677 $ 2,688,020
=========== =========== ============ ===============
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-44
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION
The accompanying combined financial statements include the accounts of the
industrial real estate investment properties and related title holding compa-
nies, collectively referred to as the Portfolio, which are managed by RREEF
America L.L.C. (Advisor) for Pennsylvania Public School Employes' Retirement
System (PSERS). At December 31, 1996, the Portfolio includes the following
wholly owned real estate investment properties:
<TABLE>
<CAPTION>
-----------------------
LOCATION
-----------------------
NAME OF PROPERTIES IN PORTFOLIO
<S> <C>
Medinah Roselle, Illinois
Port Jersey Jersey City, New Jersey
Westbelt Columbus, Ohio
</TABLE>
On July 6, 1995, PSERS acquired industrial properties aggregating to approxi-
mately 2,881,000 square feet located in Roselle, Illinois, Jersey City, New
Jersey and Columbus, Ohio for a cash purchase price including closing costs of
approximately $96,049,000.
On January 30, 1996, the Portfolio acquired a 225,000 square foot industrial
property located in Bayonne, New Jersey for a cash purchase price including
closing costs of approximately $6,268,000. The property is included in the Port
Jersey Industrial Properties.
2. SIGNIFICANT ACCOUNTING POLICIES
Depreciation of buildings and improvements is provided using a 30-year life on
a straight-line basis for financial reporting purposes.
Tenant improvement costs, included in buildings and improvements in the accom-
panying balance sheets, are amortized using the straight-line method over the
term of the lease to which they relate.
Maintenance and repair expenses are charged to operations as incurred. Expendi-
tures which extend the economic life or represent additional capital invest-
ments benefiting future periods, including tenant improvements and leasing com-
missions, are capitalized.
Deferred expenses are comprised of leasing commissions and other costs directly
attributable to obtaining tenants are amortized over the terms of the leases to
which they relate.
For purposes of the combined statements of cash flows, the Portfolio considers
all highly liquid marketable securities purchased with a maturity of three
months or less to be cash equivalents.
The preparation of combined financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and dis-
closure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires all entities to disclose the SFAS 107
value of all financial assets and liabilities for which it is practicable to
estimate. Value is defined in the Statement as the amount at which the instru-
ment could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale. The Portfolio believes the carrying
amount of its financial instruments approximates SFAS 107 value due to the rel-
atively short maturity of these instruments.
The Portfolio adopted the provisions of Statement of Financial Accounting Stan-
dards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of (SFAS 121), on January 1, 1996. This Statement
requires
F-45
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or change in circumstances indicate that the car-
rying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not
have an impact on the Portfolio's combined financial position, combined results
of operations, or liquidity.
The combined financial statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996 are unaudited. In the opinion of man-
agement all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of such combined financial statements have
been included. The results of combined operations for the nine months ended
September 30, 1997 are not necessarily indicative of the Portfolio future
results of combined operations for the full year ending December 31, 1997.
Pennsylvania Public School Employes' Retirement System and the Portfolio's
title holding companies are exempt from taxes, and accordingly, no income tax
provision is required.
3. LEASES
The Portfolio has determined that all leases relating to the Portfolio's
investment properties are to be classified as operating leases; therefore,
rental income is reported when earned. Leases range from two to thirteen years
and provide, with the exception of one tenant, for fixed base rent, partial
reimbursement of operating costs, including real estate taxes. The lease of one
tenant provides for the payment of base rent, additional rents related to
increases in the Consumer Price Index and the direct payment of all operating
costs, real estate taxes and insurance related to the property.
The approximate future minimum rentals on noncancelable long-term operating
leases in effect at December 31, 1996 (exclusive of expense reimbursements) are
as follows:
<TABLE>
<CAPTION>
-----------
AMOUNT
-----------
YEAR
<S> <C>
1997 $11,883,886
1998 10,192,438
1999 8,622,861
2000 7,172,169
2001 3,829,988
Thereafter 18,328,642
-----------
Total $60,029,984
===========
</TABLE>
A number of tenant leases contain provisions for scheduled rent increases
during the term of the lease. Generally accepted accounting principles require
that rental income be recorded for the period of occupancy using the effective
monthly rent, which is the average monthly rent for the entire period of occu-
pancy during the term of the lease. Accrued rents receivable represents future
amounts receivable related to scheduled future rent increases. The net
increases in accrued rents receivable during the year ended December 31, 1996
and the period from July 6, 1995 to December 31, 1995, of $1,201,791 and
$699,246, respectively, and for the nine months ended September 30, 1997 and
1996 of $396,935 and $899,681, respectively, represent increases to base rent
revenue.
F-46
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995--(CONTINUED)
4. ADVISOR'S AND AFFILIATES FEES
The annual advisor's fee for the Portfolio is calculated in accordance with the
agreement as a percentage of PSERS' original cash investment for those proper-
ties. All fees are paid quarterly in arrears.
The Advisor may also be entitled in future years to receive an incentive fee
based primarily on cumulative unrealized appreciation related to the Portfolio.
An affiliate of the Advisor acts as the property manager, as well as performs
leasing and construction supervisory services. A property management fee is
paid based upon methods and rates that the Advisor believes is consistent with
industry practice. Management fees for the year ended December 31, 1996 and the
period from July 6, 1995 to December 31, 1995 amounted to $287,879 and
$119,055, respectively, and $217,074 and $218,369 for the nine months ended
September 30, 1997 and 1996, respectively. Leasing commissions for the year
ended December 31, 1996 and the period from July 6, 1995 to December 31, 1995
amounted to $216,380 and $1,360, respectively, and $351,528 and $94,858 for the
nine months ended September 30, 1997 and 1996, respectively. Construction
supervisory services for the year ended December 31, 1996 and the period from
July 6, 1995 to December 31, 1995, amounted to $53,981 and $0, respectively,
and $88,850 and $46,263 for the nine months ended September 30, 1997 and 1996,
respectively.
5. SUBSEQUENT EVENT
In September 1997, an estimate of the incentive fee referred to in Note 4 above
became determinable and approximately $1,345,000 was accrued at September 30,
1997.
F-47
<PAGE>
SCHEDULE III
PENNSYLVANIA PUBLIC SCHOOL EMPLOYES' RETIREMENT
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
COMBINED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
INITIAL COST(A) ACQUISITION AT CLOSE OF PERIOD
------------------------- ----------------- -------------------------------------
LAND
BUILDINGS AND BUILDING AND BUILDING AND ACCUMULATED
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL(B) DEPRECIATION(C)
- ----------- ----------- ------------- ----------------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial Prop-
erty:
Medinah Indus- $ 3,120,000 $17,668,584 $ 195,457 $ 3,120,000 $17,864,041 $ 20,984,041 $ 892,619
trial Park
(Roselle, Illi-
nois)
Port Jersey 15,230,059 37,593,965 1,545,787 15,230,059 39,139,752 54,369,811 1,911,464
Industrial Park
(Jersey City,
New Jersey)
Westbelt Busi- 2,798,603 25,905,909 838,730 2,798,603 26,744,639 29,543,242 1,338,678
ness Park
(Columbus, Ohio)
----------- ------------- ----------------- ----------- ------------ ------------ ---------------
$21,148,662 $81,168,458 $2,579,974 $21,148,662 $83,748,432 $104,897,094 $4,142,761
=========== ============= ================= =========== ============ ============ ===============
</TABLE>
<TABLE>
<CAPTION>
--------------------------
LIFE ON WHICH
DEPRECIATION IN
STATEMENT
DATE OF OPERATIONS IS
DESCRIPTION ACQUIRED COMPUTED
- ----------- -------- ----------------
<S> <C> <C>
Industrial Prop-
erty:
Medinah Indus- 7/6/95 30 years
trial Park
(Roselle, Illi-
nois)
Port Jersey 7/6/95 2-30 years
Industrial Park
(Jersey City,
New Jersey)
Westbelt Busi- 7/6/95 2-30 years
ness Park
(Columbus, Ohio)
</TABLE>
Notes
(A) The initial cost to the Portfolio represents the original purchase price of
the properties
(B) Reconciliation of real estate owned:
<TABLE>
<CAPTION>
-------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Balance at beginning of period $ 97,110,642 --
Additions during period 7,786,452 $97,110,642
------------ -----------
Balance at end of period $104,897,094 $97,110,642
============ ===========
(C) Reconciliation of accumulated depreciation:
--------------------------------
Balance at beginning of period $1,304,717 --
Depreciation expense 2,838,044 $1,304,717
------------ -----------
Balance at end of period $4,142,761 $1,304,717
============ ===========
</TABLE>
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the Prudential Properties Group:
We have audited the accompanying combined balance sheets of the Prudential
Properties Group, as defined in Note 1, as of December 31, 1996 and 1995, and
the related combined statements of operations, owners' equity and cash flows
for each of the two years in the period ended December 31, 1996. These combined
financial statements are the responsibility of the management of the Prudential
Properties Investors. Our responsibility is to express an opinion on these com-
bined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Prudential Prop-
erties Group at December 31, 1996 and 1995, and the combined results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic com-
bined financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic finan-
cial statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
October 13, 1997
F-49
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------
DECEMBER 31,
SEPTEMBER 30, ------------------------
1997 1996 1995
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Real Estate Investments:
Land $ 8,302,419 $ 8,302,419 $ 7,071,873
Buildings and improvements 35,656,389 35,656,389 25,312,335
------------- ----------- -----------
43,958,808 43,958,808 32,384,208
Accumulated depreciation (4,666,487) (3,997,931) (3,128,071)
------------- ----------- -----------
39,292,321 39,960,877 29,256,137
------------- ----------- -----------
Cash and Cash Equivalents 52,422 61,377 95,161
Accounts Receivable and Accrued
Investment Income 55,500 53,272 89,083
Deferred Leasing Costs 408,925 181,461 72,198
Deferred Rent Concessions 398,752 345,406 190,308
Other Assets 10,225 6,284 6,306
------------- ----------- -----------
Total assets $40,218,145 $40,608,677 $29,709,193
============= =========== ===========
LIABILITIES
Accounts Payable and Accrued Expenses $ 373,313 $ 557,563 $ 381,874
Other Liabilities 121,782 75,000 75,000
------------- ----------- -----------
Total liabilities 495,095 632,563 456,874
------------- ----------- -----------
Owners' Equity 39,723,050 39,976,114 29,252,319
------------- ----------- -----------
Total Liabilities and Owners' Equity $40,218,145 $40,608,677 $29,709,193
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- ---------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Rental income $3,584,600 $3,374,711 $4,433,557 $3,776,468
Other income (1,182) -- 1,975 --
---------- ---------- ---------- ----------
Total revenue 3,583,418 3,374,711 4,435,532 3,776,468
OPERATING EXPENSES
Property taxes 257,842 271,071 371,771 290,962
Operating expenses 479,766 534,570 823,830 482,778
Depreciation and amortization 731,751 725,462 928,406 686,548
---------- ---------- ---------- ----------
Total operating expenses 1,469,359 1,531,103 2,124,007 1,460,288
---------- ---------- ---------- ----------
Net income $2,114,059 $1,843,608 $2,311,525 $2,316,180
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-51
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE YEARS ENDED DECEMBER 31,
1996 AND 1995
<TABLE>
<CAPTION>
-----------
<S> <C>
Owners' Equity, December 31, 1994 $29,998,086
Net transfers to owners (3,061,947)
Net income for the year ended December 31, 1995 2,316,180
-----------
Owners' Equity, December 31, 1995 29,252,319
Net transfers from owners 8,412,270
Net income for the year ended December 31, 1996 2,311,525
-----------
Owners' Equity, December 31, 1996 39,976,114
Net transfers to owners (unaudited) (2,367,123)
Net income for the nine months ended September 30, 1997
(unaudited) 2,114,059
-----------
Owners' Equity, September 30, 1997 (unaudited) $39,723,050
===========
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-52
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------- -------------------------
1997 1996 1996 1995
----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,114,059 $ 1,843,608 $ 2,311,525 $ 2,316,180
Adjustments to reconcile
net income to net cash
provided by operating
activities-
Depreciation and amorti-
zation 731,751 725,462 928,406 686,548
Changes in assets--(in-
crease) decrease
Accounts receivable (2,228) 40,002 35,811 (122,243)
Other assets (3,941) (7,108) 22 (1,621)
Deferred rent conces-
sions (53,346) (148,728) (155,098) (83,760)
Changes in liabilities--
increase (decrease)-
Accounts payable and
accrued expenses (184,251) (2,992) 175,689 193,561
Other liabilities 46,782 -- -- --
----------- ------------ ------------ -----------
Net cash provided by
operations 2,648,826 2,450,244 3,296,355 2,988,665
----------- ------------ ------------ -----------
INVESTING ACTIVITIES
Property acquisitions -- (11,574,600) (11,574,600) --
Payments for capital and
tenant improvements (290,658) (167,809) (167,809) --
----------- ------------ ------------ -----------
Net cash used in
investing activities (290,658) (11,742,409) (11,742,409) --
----------- ------------ ------------ -----------
FINANCING ACTIVITIES
Net transfers (to) from
owners (2,367,123) 9,286,247 8,412,270 (3,061,947)
----------- ------------ ------------ -----------
Net increase (decrease)
in cash (8,955) (5,918) (33,784) (73,282)
Cash, beginning of period 61,377 95,161 95,161 168,443
----------- ------------ ------------ -----------
Cash, end of period $ 52,422 $ 89,243 $ 61,377 $ 95,161
=========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these combined financial state-
ments.
F-53
<PAGE>
PRUDENTIAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Prudential Properties Group (Prudential Group) is not a legal entity but rather
a combination of all the assets, liabilities and operations for seven warehouse
buildings that are owned by a real estate title holding corporation and in a
separate account of The Prudential Insurance Company of America, Inc. Pruden-
tial Group properties are managed, leased and renovated by The Prudential's
Private Asset Management Group--Real Estate Division (PAMG), the investment
manager, under separate investment management agreements with each owner. The
accompanying financial statements include all of the direct and indirect costs
of the business of Prudential Group. A summary of the holdings of Prudential
Group is as follows (each location has one building):
<TABLE>
<CAPTION>
---------------------
NUMBER OF
TENANTS SQUARE FEET
--------- -----------
<S> <C> <C>
BULK DISTRIBUTION PROPERTIES:
Ontario, CA 1 284,599
Hebron, KY 1 192,000
Cincinnati, OH 1 192,000
Cincinnati, OH 1 204,800
Columbus, OH 3 205,109
Columbus, OH 1 156,000
Fulton County, GA 1 231,835
--------- -----------
Total 9 1,466,343
--------- -----------
</TABLE>
2. FORMATION TRANSACTION
Under the provisions of the Contribution Agreement executed by each property
owner, Prudential Group will contribute all of its properties to Cabot Indus-
trial Trust (the Company) or a subsidiary partnership, Cabot Industrial Proper-
ties, L.P. (the Operating Partnership) and will receive common shares from the
Company or units from the Operating Partnership. The consummation of these pro-
posed transactions is subject to the completion of an offering of common shares
of the Company to the public and various other conditions of the Contribution
Agreement. It is anticipated that the Company will seek to qualify as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
The impact of these proposed transactions is not reflected in the accompanying
financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The accompanying financial statements have been presented on a combined basis,
at historical cost, because Prudential Group is under the common management of
PAMG through investment advisory agreements. All significant intercompany
transactions and balances have been eliminated in combination.
The combined financial statements and information included in these notes to
the combined financial statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996 are unaudited. In the opinion of man-
agement, such financial statements and information reflect all adjustments nec-
essary for a fair presentation of the results of the respective interim peri-
ods. All such adjustments are of a normal, recurring nature.
Real Estate Investments
Real estate investments, which consist of industrial warehouses, are stated at
cost. Expenditures for ordinary maintenance and repairs are expensed to opera-
tions as incurred. Significant renovations and improvements that improve or
extend the useful life of the assets are capitalized. Except for amounts
attributed to land, rental property and improvements are depreciated over their
estimated useful lives using the straight-line method. The estimated useful
lives by asset category are as follows:
<TABLE>
<CAPTION>
-------------
ESTIMATED
USEFUL LIFE
ASSET CATEGORY -------------
<S> <C>
Buildings and improvements 40 years
Tenant improvements Life of lease
</TABLE>
F-54
<PAGE>
PRUDENTIAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Prudential Group adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of, on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Adoption of this
statement did not have an impact on Prudential Group's financial position,
results of operations or liquidity.
Lease Acquisition Costs
Capitalized lease acquisition costs are recorded at cost. These costs are amor-
tized over the respective lives of the leases. Unamortized costs are charged to
expense in the event of any early termination of the lease.
Rental Income
All leases are classified as operating leases. Certain leases provide for min-
imum rent payments that increase during the term of the lease and tenant occu-
pancy during periods for which no rent is due. Prudential Group records rental
income for the full term of each lease on a straight-line basis. As of December
31, 1996 and 1995, the receivables from tenants, net of reserves, which Pruden-
tial Group expects to collect over the remaining life of these leases rather
than currently, were approximately $345,000 and $190,000, respectively (De-
ferred Rent). The amounts included in rental income for the years ended
December 31, 1996 and 1995, which are not currently due, were approximately
$155,000 and $84,000, respectively. Deferred Rent is not recognized for income
tax purposes until received.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, rents receivable (excluding
Deferred Rent), accounts payable and accrued expenses are reasonable estimates
of their fair value.
Income Taxes
The properties are owned in tax-exempt real estate title holding companies or
directly by other legal entities not subject to tax. Since the taxable oper-
ating results of Prudential Group are either included in the income tax returns
of tax-exempt entities or the owners, no provision for state and federal income
taxes has been reflected in these financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
4. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancellable operating leases for the
industrial properties as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1997 $4,291,865
1998 4,329,812
1999 3,472,172
2000 2,942,526
2001 2,003,584
Thereafter 4,026,498
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. Prudential Group is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-55
<PAGE>
PRUDENTIAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH THE INVESTMENT MANAGER
Under the provisions of the separate investment management agreements, Pruden-
tial Group is obligated to pay PAMG acquisition and asset management fees.
Acquisition fees are payable based on a percentage of acquisition cost (ranging
from .75% to .80%), and asset management fees are payable based on a percentage
(ranging from .20% to .40%) of the properties' net cost and/or a percentage
(ranging from 0% to 7.5%) of the properties' net operating income. Incentive
fees are based on performance in excess of various levels of internal rates of
return. Fees incurred under the agreements were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
---------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FEE INCURRED:
Asset management $ 186,102 185,000 274,410 168,796 205,836
Acquisition -- 93,000 93,000 -- --
Property management 50,648 47,126 62,835 60,302 59,969
Incentive 14,121 -- 76,514 3,400 --
</TABLE>
At September 30, 1997, December 31, 1996 and December 31, 1995, total fees pay-
able to PAMG were $106,139, $308,103 and $124,505, respectively.
All property and asset management fees are expensed as incurred and included in
management fees in the accompanying statements of operations.
6. COMMITMENTS AND CONTINGENCIES
Environmental
Prudential Group, as an owner of real estate, is subject to various environ-
mental laws of federal and local governments. Compliance by the Prudential
Group with existing laws has not had a material adverse effect on either finan-
cial condition or results of operations, and management does not believe it
will have such an impact in the future. However, Prudential Group cannot pre-
dict the impact of new or changed laws or regulations on its current properties
or on properties that it may acquire in the future.
Litigation
Management of Prudential Group does not believe there is any litigation threat-
ened against it other than routine litigation arising out of the ordinary
course of business, some of which is expected to be covered by liability insur-
ance, none of which is expected to have a material adverse effect on the oper-
ating results or financial position of Prudential Group.
F-56
<PAGE>
PRUDENTIAL PROPERTIES GROUP
SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO GROUP ACQUISITION GROSS AMOUNT CARRIED AT DECEMBER 31,1996
-------------------------- ------------------ ------------------------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND ACCUMULATED
DESCRIPTION(1) LOCATION LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(2) DEPRECIATION
- -------------- ------------- ---------- --------------- ---- ------------- ------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Vintage Avenue Ontario CA $ 3,761 $ 6,918 -- -- $3,761 $ 6,918 $10,679 $1,384
Westgate Parkway Fulton Co. GA 1,619 4,196 -- -- 1,619 4,196 5,815 839
International
Way Hebron KY 663 4,483 -- -- 663 4,483 5,146 486
International
Blvd., Building
1 Cincinnati OH 564 4,858 -- -- 564 4,858 5,422 526
International
Blvd., Building
2 Cincinatti OH 464 4,858 -- -- 464 4,858 5,322 526
Port Road,
Building 1 Columbus OH 651 5,974 -- -- 651 5,974 6,625 137
Port Road,
Building 2 Columbus OH 580 4,370 -- -- 580 4,370 4,950 100
---------- --------------- ---- ------------- ------ ------------- -------- ------------
$ 8,302 $ 35,657 -- -- $8,302 $35,657 $43,959 $3,998
========== =============== ==== ============= ====== ============= ======== ============
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
DATE DATE DEPRECIABLE
DESCRIPTION(1) LOCATION CONSTRUCTED ACQUIRED LIVES
- -------------- ------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Vintage Avenue Ontario CA 1988 1998 40
Westgate Parkway Fulton Co. GA 1988 1998 40
International
Way Hebron KY 1990 1992 40
International
Blvd., Building
1 Cincinnati OH 1990 1992 40
International
Blvd., Building
2 Cincinatti OH 1990 1992 40
Port Road,
Building 1 Columbus OH 1995 1996 40
Port Road,
Building 2 Columbus OH 1995 1996 40
</TABLE>
- -----
(1)All properties consist of single buildings which are considered to be Indus-
trial
(2)The aggregate cost for Federal Income Tax purposes as of December 31, 1996
was approximately $44 million
The changes in the total Investment in real estate for the years ended December
31, 1996 and 1995 are as fol-lows:
<TABLE>
<CAPTION>
-------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Balance, beginning of the year $32,384 $32,384
Acquisitions 11,575 --
------------ ------------
Balance, end of year $43,959 $32,384
============ ============
</TABLE>
The changes in accumulated depreciation for the years ended December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
-------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Balance, beginning of the year $3,128 $2,495
Depreciation 870 633
------------ ------------
Balance, end of year $3,998 $3,128
============ ============
</TABLE>
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of West Coast Industrial, LLC:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of West Coast Industrial, LLC (the Portfolio) for the year ended
December 31, 1996. The Combined Statement of Revenue and Certain Expenses is
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and
Certain Expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures made in the
Combined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Combined
Statement of Revenue and Certain Expenses. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the registration statement
on Form S-11 of Cabot Industrial Trust as described in Note 2 and is not
intended to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
September 10, 1997
F-58
<PAGE>
WEST COAST INDUSTRIAL, LLC
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
--------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Base Rent $2,376,075 $3,154,050
Tenant Reimbursements 209,829 488,767
Other Income 14,646 (1,133)
------------- ------------
Total Revenues 2,600,550 3,641,684
------------- ------------
EXPENSES
Property, Operating and Maintenance 106,496 241,665
Real Estate Taxes 271,950 332,503
Management Fees 46,424 74,323
Insurance 177,862 135,953
------------- ------------
Total Expenses 602,732 784,444
------------- ------------
Revenue in Excess of Certain Expenses $1,997,818 $2,857,240
============= ============
</TABLE>
The accompanying notes are an integral part of this financial combined
statement.
F-59
<PAGE>
WEST COAST INDUSTRIAL, LLC
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
1. BUSINESS
The accompanying Combined Statements of Revenue and Certain Expenses relates
to the operations of West Coast Industrial, LLC (the Portfolio). The Portfolio
consists of nine buildings totaling approximately 700,000 rentable square
feet, which are located at the following addresses:
<TABLE>
<CAPTION>
--------------
<S> <C> <C>
East Howell Avenue, Building 1 Anaheim CA
East Howell Avenue, Building 2 Anaheim CA
Commonwealth Avenue Fullerton CA
Artesia Avenue, Building 1 Fullerton CA
Artesia Avenue, Building 2 Fullerton CA
Avenida Encinas, Building 1 Carlsbad CA
Avenida Encinas, Building 2 Carlsbad CA
Reed Avenue, Building 1 Sacramento CA
Reed Avenue, Building 2 Sacramento CA
</TABLE>
These properties were acquired by the Portfolio on August 12, 1997, from an
unrelated party.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statements of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of
the actual operations of the Portfolio for the period presented nor indicative
of future operations as certain expenses, primarily depreciation, amortization
and interest expenses, which may not be comparable to the expenses expected to
be incurred by Cabot Industrial Trust in future operations of the Portfolio,
have been excluded.
The combined financial statement, and information included in these notes to
the combined financial statement, for the nine months ended September 30, 1997
is unaudited. In the opinion of management, such financial statements and
information reflect all adjustments necessary for a fair presentation of the
results of the interim periods. All such adjustments are of a normal, recur-
ring nature.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
3. RENTALS
The property has entered into tenant leases that provide for tenants to share
in the operating expenses and real estate taxes on a pro rata basis, as
defined.
4. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancellable operating leases for the
Portfolio as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1997 $3,180,528
1998 3,007,911
1999 2,659,887
2000 2,512,865
2001 2,475,949
Thereafter 9,189,156
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-60
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of Herrod Associates:
We have audited the accompanying statement of revenues and certain expenses of
Herrod Associates (a general partnership) for the year ended December 31, 1996.
The financial statement is the responsibility of the Partnership's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evalu-
ating the overall presentation of the statement of revenues and certain
expenses. We believe that our audit provides a reasonable basis for our opin-
ion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Form S-11 of Cabot Industrial Trust
and excludes material amounts, described in note B to the statement of revenues
and certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Herrod Associates for the year ended December 31, 1996 in confor-
mity with generally accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
March 5, 1997
F-61
<PAGE>
HERROD ASSOCIATES
(A GENERAL PARTNERSHIP)
STATEMENT OF REVENUES AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
REVENUES
Rental income
Affiliate $ 589,744 $ 968,530
Other 694,049 845,222
Tenant-reimbursed expenses
Affiliate 1,130 19,371
Other 171,428 191,631
------------- ------------
1,456,351 2,024,754
------------- ------------
CERTAIN EXPENSES
General operating 92,847 92,483
Real estate taxes and licenses 234,850 293,800
------------- ------------
327,697 386,283
------------- ------------
REVENUES IN EXCESS OF CERTAIN EXPENSES $1,128,654 $1,638,471
============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-62
<PAGE>
HERROD ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
NOTE A--ORGANIZATION
Herrod Associates (the Partnership), a New Jersey general partnership, owns and
operates a building in New Jersey which is leased to two tenants, one of whom
is a related party. The related party accounts for approximately 49% of 1996
revenues. The building has an aggregate net leasable area of approximately
418,000 square feet.
NOTE B--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statement is not representative of the actual opera-
tions of the Partnership for the period presented as certain expenses, which
may not be comparable to the expenses to be incurred by the Cabot Industrial
Trust in the proposed future operation of the property, have been excluded.
Expenses excluded consist of interest, depreciation and amortization. After
reasonable inquiry, the Partnership is not aware of any material factors that
would cause reported financial information not to be necessarily indicative of
future operating results.
The statement of revenues and certain expenses for the nine months ended Sep-
tember 30, 1997 is unaudited. In the opinion of management, all adjustments
consisting solely of normal recurring adjustments necessary for a fair presen-
tation of the financial statements for the interim period have been included.
The results for the interim period are not necessarily indicative of the
results for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C--LEASING ACTIVITIES
The Partnership leases warehouse space to tenants under operating leases.
Leases generally provide for minimum rents, as well as reimbursement of the
lessor for certain operating expenses and real estate taxes. The minimum future
rentals on the existing long-term noncancellable operating leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1997 $ 869,700
1998 869,700
1999 869,700
2000 579,800
----------
$3,188,900
==========
</TABLE>
Minimum future rentals above exclude amounts related to a lease with an affili-
ated company which is on a month-to-month basis.
F-63
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
Blue Ash Office L.L.C. and Blue Ash Industrial L.L.C.:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Blue Ash Office L.L.C. and Blue Ash Industrial L.L.C. (the Portfo-
lio) for the year ended December 31, 1996. The Combined Statement of Revenue
and Certain Expenses is the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on the Combined Statement of Revenue
and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 24, 1997
F-64
<PAGE>
BLUE ASH OFFICE L.L.C. AND BLUE ASH INDUSTRIAL L.L.C.
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
----------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER DECEMBER
30, 1997 31, 1996
----------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Base Rent $1,783,748 $1,803,134
Tenant Reimbursements 147,842 147,842
Other Income 33,178 33,178
----------- ----------
Total Revenues 1,964,768 1,984,154
----------- ----------
EXPENSES
Property Operating Costs 194,668 194,668
Maintenance and Repairs 129,276 129,276
Real Estate Taxes 289,294 289,294
Management Fees 56,866 56,866
Professional Services 42,630 42,630
Insurance 17,317 17,317
----------- ----------
Total Expenses 730,051 730,051
----------- ----------
Revenue in Excess of Certain Expenses $1,234,717 $1,254,103
=========== ==========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-65
<PAGE>
BLUE ASH OFFICE L.L.C. AND BLUE ASH INDUSTRIAL L.L.C.
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
1. BUSINESS
The accompanying Combined Statement of Revenue and Certain Expenses relates to
the operations of Blue Ash Office L.L.C. and Blue Ash Industrial L.l.C. (the
Portfolio). The Portfolio consists of three buildings totaling approximately
482,942 rentable square feet.
These properties were acquired by the Portfolio during 1995, from an unrelated
party.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for the inclusion in the registration statement
on Form S-11 of Cabot Industrial Trust. The statement is not representative of
the actual operations of the Portfolio for the period presented nor indicative
of future operations as certain expenses, primarily depreciation, amortization
and interest expenses, which may not be comparable to the expenses expected to
be incurred by Cabot Industrial Trust in future operations of the Portfolio,
have been excluded.
The combined financial statement, and information included in these notes to
the combined financial statement, for the nine months ended September 30, 1997
is unaudited. In the opinion of management, such financial statements and
information reflect all adjustments necessary for a fair presentation of the
results of the interim periods. All such adjustments are of a normal, recur-
ring nature.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
3. RENTALS
The Portfolio has entered into tenant leases that provide for tenants to share
in the operating expenses and real estate taxes on a pro rata basis, as
defined.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1997 $1,775,684
1998 1,885,204
1999 1,739,235
2000 1,118,855
2001 770,296
Thereafter 134,742
----------
$7,424,016
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
Seefried Properties Group:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Seefried Properties Group (the Portfolio) for the year ended
December 31, 1996. The Combined Statement of Revenue and Certain Expenses is
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 24, 1997
F-67
<PAGE>
SEEFRIED PROPERTIES GROUP
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
--------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Base rent $575,751 $399,029
Tenant reimbursements 68,953 36,451
Other income 39,790 4,860
------------- ------------
Total revenues 684,494 440,340
------------- ------------
EXPENSES:
Property operating costs 83,461 37,112
Maintenance and repairs 9,342 --
Real estate taxes 55,013 32,305
Management fees 53,145 14,094
Professional services 27,944 --
Insurance 4,260 4,364
------------- ------------
Total expenses 233,165 87,875
------------- ------------
Revenue in Excess of Certain Expenses $451,329 $352,465
============= ============
</TABLE>
The accompanying notes are an integral part of this combined financial
statements.
F-68
<PAGE>
SEEFRIED PROPERTIES GROUP
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
DECEMBER 31, 1996
1. BUSINESS
Seefried Properties Group (Seefried Group) is not a legal entity but rather a
combination of the operations of four warehouse buildings that are owned by a
real estate title holding corporation. Seefried Group properties are managed,
leased and developed by Seefried's Private Asset Management Group - Real
Estate Division, the investment manager, under separate management agreements
with the owner. The accompanying financial statement includes all of the
direct costs of the business (as defined in Note 2) of Seefried Group. A sum-
mary of the holdings of Seefried Group is as follows:
<TABLE>
<CAPTION>
----------------------
NUMBER OF
PROPERTY TYPE AND LOCATION TENANTS SQUARE FEET
-------------------------- --------- -----------
<S> <C> <C>
Boggy Creek - Building #1, Orlando, FL 6 52,069
Boggy Creek - Building #2, Orlando, FL 2 55,456
Landstreet - Building #2, Orlando, FL 2 55,456
Landstreet - Building #3, Orlando, FL 1 50,018
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of
the actual operations of the Portfolio for the period presented nor indicative
of future operations as certain expenses, primarily depreciation, amortization
and interest expenses, which may not be comparable to the expenses expected to
be incurred by Cabot Industrial Trust in future operations of the Portfolio,
have been excluded.
The combined financial statement, and information included in these notes to
the combined financial statement, for the nine months ended September 30, 1997
is unaudited. In the opinion of management, such financial statements and
information reflect all adjustments necessary for a fair representation of the
results of the interim periods. All such adjustments are of a normal, recur-
ring nature.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
3. RENTALS
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1997 $ 798,106
1998 959,052
1999 901,504
2000 770,454
2001 575,338
Thereafter 309,441
----------
$4,313,895
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-69
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ADD ITEM 30. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimates of the expenses that will be incurred
by the Registrant in connection with the issuance and distribution of the
Shares being registered.
<TABLE>
<CAPTION>
-------
AMOUNT
-------
<S> <C>
SEC Registration Fee................................................... $34,849
NASD Filing Fee........................................................ 12,000
NYSE Fee............................................................... *
Legal Fees and Expenses................................................ *
Accounting Fees and Expenses........................................... *
Printing and Engraving Expense......................................... *
Transfer Agent and Registrar Fees...................................... *
Blue Sky Fees and Expenses............................................. *
Other Miscellaneous.................................................... *
Property Transfer Fees................................................. *
-------
Total................................................................ $ *
=======
</TABLE>
- -------
* To be supplied by amendment.
ITEM 32. SALES TO SPECIAL PARTIES.
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 5, Section 11, of the Registrant's Declaration of Trust provides as
follows with respect to indemnification of Trustees:
"The Company shall indemnify each Trustee, to the maximum extent permitted by
Maryland law, as amended from time to time, in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of his or her being or having been a
Trustee of the Company or serving or having served at the request of the Com-
pany as a director, trustee, officer, parnter, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise from all claims and liabilities to which such
Trustee may become subject by reason of service in that capacity and to pay or
reimburse reasonable expenses, as such expenses are incurred, by such Trustee
in connection with any such claim or liability."
II-1
<PAGE>
Article 9, Section 1 of the Registrant's Declaration of Trust provides as fol-
lows with respect to the limitation of liability for Trustees and officers and
indemnification:
"To the maximum extent that Maryland law in effect from time to time per-
mits limitation of the liability of trustees, officers, employees or agents
of a REIT, no trustee, officer, employee or agent of the Company shall be
liable to the Company or to any shareholder for money damages. Neither the
amendment nor the repeal of this Section 1, nor the adoption or amendment
of any other provision of this Declaration of Trust inconsistent with this
Section 1, shall apply to or affect in any respect the applicability of the
preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption. In the absence of any Maryland
statute limiting the liability of trustees, officers, employees or agents
of a Maryland REIT for money damages in a suit by or on behalf of the Com-
pany or by any shareholder, trustee, officer, employee or agent of the Com-
pany shall be liable to the Company or to any shareholder for money damages
except to the extent that (a) the trustee, officer, employee or agent actu-
ally received an improper benefit or profit in money, property or services,
for the amount of the benefit or profit in money, property or services
actually received; or (b) a judgment or other final adjudication adverse to
the trustee, officer, employee or agent is entered in a proceeding based on
a finding in the proceeding that the trustee's, officer's, employee's or
agent's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of the action adjudicated in the
proceeding."
Article 9, Section 3 of the Registrant's Declaration of Trust provides as fol-
lows with respect to the indemnification of Trustees and officers:
"Notwithstanding any other provisions of this Declaration of Trust, the
Trust, for the purpose of providing indemnification for its Trustees and
officers, shall have the authority, without specific shareholder approval,
to enter into insurance or other arrangements to indemnify all Trustees and
officers of the Trust against any and all liabilities and expenses incurred
by them by reason of their being Trustees or officers of the Trust, whether
or not the Trust would otherwise have the power under this Declaration of
Trust or under Maryland law to indemnify such persons against such liabil-
ity. Without limiting the power of the Trust to procure or maintain any
kind of insurance or other arrangement, the Trust may, for the benefit of
persons indemnified by it, (a) create a trust fund, (b) establish any form
of self-insurance, (c) secure its indemnity obligation by grant of any
security interest or other lien on the assets of the Trust, or (d) estab-
lish a letter of credit, guaranty or surety arrangement. Any such insurance
or other arrangement may be procured, maintained or established within the
Trust or with any insurer or other person deemed appropriate by the Board
regardless of whether all or part of the stock or other securities thereof
are owned in whole or in part by the Trust. In the absence of fraud, the
judgment of the Board as to the terms and conditions of insurance or other
arrangement and the identity of the insurer or other person participating
in any arrangement shall be conclusive, and such insurance or other
arrangement shall not be subject to voidability, nor subject the Trustees
approving such insurance or other arrangement to liability on any ground,
regardless of whether Trustees participating and approving such insurance
or other arrangement shall be beneficiaries thereof."
The Registrant will enter into indemnity agreements with each of its officers
and Trustees which provide for reimbursement of all expenses and liabilities of
such officer or Trustee, arising out of any lawsuit or claim against such
officer or Trustee due to the fact that he was or is serving as an officer or
Trustee, except for such liabilities and expenses (a) the payment of which is
judicially determined to be unlawful, (b) relating to claims under Section
16(b) of the Securities Exchange Act of 1934, or (c) relating to judicially
determined criminal violations.
The form of Underwriting Agreement to be filed as an exhibit to this Registra-
tion Statement will provide for the reciprocal indemnifications by the Under-
writers of the Registrant, and its Trustees, officers and controlling persons,
and by the Registrant of the Underwriters, and their respective directors,
officers and controlling persons, against certain liabilities under the Securi-
ties Act.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
The consideration to be received by the Registrant from sales of the Shares
hereby registered will be credited to the appropriate capital accounts of the
Registrant.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
See Index to Financial Statements and Index to Exhibits.
II-2
<PAGE>
ITEM 37. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide the underwriters at the
closing specified in the underwriting agreements certificates in such denomina-
tion and registered in such names as required by the underwriters to permit
prompt deliver to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the Reg-
istrant 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, there-
fore, 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 trustee, officer or controlling person of the Registrant in the suc-
cessful defense of any action, suit or proceeding) is asserted by such trustee,
officer or controlling person in connection with the securities being regis-
tered, the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate juris-
diction 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.
The undersigned 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 it was declared 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 securi-
ties offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant cer-
tifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned, there-
unto duly authorized, in the City of Boston, State of Massachusetts, on
November 26, 1997 .
CABOT INDUSTRIAL TRUST
/s/ Robert E. Patterson
By: _____________________________________
ROBERT E. PATTERSON, PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO.
1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
NAME AND SIGNATURE TITLE DATE
Chairman of the
* Board, Chief November 26,
- ---------------------------------- Executive 1997
FERDINAND COLLOREDO-MANSFELD Officer, Trustee
President, Trustee
/s/ Robert E. Patterson November 26,
- ---------------------------------- 1997
ROBERT E. PATTERSON ATTORNEY-IN
FACT *
Chief Financial
* Officer November 26,
- ---------------------------------- 1997
FRANZ COLLOREDO-MANSFELD
Senior Vice
* President-- November 26,
- ---------------------------------- Finance, 1997
NEIL E. WAISNOR Treasurer,
Secretary
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NO.
------- -------------------- ----------
<C> <S> <C>
1 Form of Underwriting Agreement between Company, the
Operating Partnership, the Operating Partnership and the
Underwriters named therein.**
3.1 Cabot Industrial Trust Declaration of Trust, dated
October 8, 1997.*
3.2 Bylaws of the Company.*
3.3 Registration Rights Agreement, dated October 10, 1997,
between the Company and , as Rights Agent, including
form of Rights Certificate.**
3.4 Form of share certificate for Common Shares of the
Company.**
3.5 Amended and Restated Agreement of Limited Partnership
Agreement of Cabot Industrial Properties, L.P., dated
, 1997 by and among .*
4.1 Contribution Agreement relating to the Capitalization of
Cabot Industrial Trust, dated as of October 10, 1997,
among the Company, the Operating Partnership, Cabot
Partners and Various Contributors and Title Holding
Entities Identified Therein.**
5.1 Opinion of Mayer, Brown & Platt as to legality of Shares
being registered.**
8.1 Opinion of Mayer, Brown & Platt as to certain tax
matters.**
10.1 Form of Indemnification Agreement entered into between
the Company and the Trustees.**
23.1 Consent of Mayer, Brown & Platt (included in the opinions
filed as Exhibits 5 and 8).
23.2 Consent of Arthur Andersen LLP.*
23.3 Consent of KPMG Peat Marwick LLP.*
23.4.1 Consent of Coopers & Lybrand L.L.P.*
23.4.2 Consent of Coopers & Lybrand L.L.P.*
23.5 Consent of Grant Thornton LLP.*
23.6 Consent of Noah T. Herndon.***
23.7 Consent of Christopher C. Milliken.***
23.8 Consent of Maurice Segall.***
23.9 Consent of W. Nicholas Thorndike.***
23.10 Consent of Ronald L. Skates.***
23.11 Consent of Ballard Spahr Andrews & Ingersoll.**
24.1 Power of Attorney pursuant to which amendments to this
Registration Statement may be filed.***
</TABLE>
- -------
*Filed herewith.
**To be filed by amendment.
***Previously filed.
<PAGE>
EXHIBIT 3.1
CABOT INDUSTRIAL TRUST
DECLARATION OF TRUST
October 8, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
RECITALS.................................................................... 1
DECLARATION................................................................. 1
ARTICLE 1. THE TRUST........................................................ 1
Section 1. Name......................................................... 1
Section 2. Resident Agent............................................... 2
Section 3. Nature of the Trust.......................................... 2
Section 4. Purpose of the Trust......................................... 2
ARTICLE 2. SHARES........................................................... 2
Section 1. Shares, Certificates of Beneficial Interest.................. 2
Section 2. Sale of Shares............................................... 4
Section 3. General Nature of Shares..................................... 4
Section 4. Treasury Shares.............................................. 5
Section 5. Transferability of Shares.................................... 5
ARTICLE 3. RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES................................................. 5
Section 1. Definitions................................................. 5
Section 2. Ownership Limitation........................................ 8
Section 3. Excess Shares............................................... 9
Section 4. Prevention of Transfer...................................... 9
Section 5. Notice to Trust............................................. 10
Section 6. Information for Trust....................................... 10
Section 7. Other Action by Board....................................... 10
Section 8. Ambiguities................................................. 10
Section 9. Modification of Existing Holder Limits...................... 11
Section 10. Increase or Decrease in Ownership Limit..................... 11
Section 11. Limitations on Changes in Existing Holder and Ownership
Limits...................................................... 11
Section 12. Waivers by Board............................................ 12
Section 13. Legend...................................................... 12
Section 14. Severability................................................ 13
Section 15. Trust for Excess Shares..................................... 13
Section 16. Distributions on Excess Shares.............................. 13
Section 17. Voting of Excess Shares..................................... 13
Section 18. Non-Transferability of Excess Shares........................ 14
Section 19. Call by Trust on Excess Shares.............................. 14
-i-
<PAGE>
Page
----
Section 20. Underwritten Offerings...................................... 15
ARTICLE 4. SHAREHOLDERS..................................................... 15
Section 1. Shareholders' Meetings...................................... 15
Section 2. Voting...................................................... 15
Section 3. Distributions............................................... 16
Section 4. Report to Shareholders...................................... 16
Section 5. Inspection of Trust Books................................... 16
Section 6. Nonliability and Indemnification of Shareholders............ 16
Section 7. Nonliability................................................ 17
ARTICLE 5. THE TRUSTEES..................................................... 17
Section 1. Number, Terms, Qualification, Compensation and
Names of Trustees........................................... 17
Section 2. Resignation, Removal and Death.............................. 18
Section 3. Vacancies................................................... 18
Section 4. Successor Trustees.......................................... 19
Section 5. Actions by and Meetings of Trustees......................... 19
Section 6. Authority of Trustees....................................... 20
Section 7. Powers of Trustees.......................................... 20
Section 8. Trustees' Right to Own Shares in Trust...................... 22
Section 9. Related Party Transactions.................................. 22
Section 10. Non-Liability of Trustees................................... 22
Section 11. Indemnification of Trustees................................. 23
Section 12. Persons Dealing with Trustees............................... 23
Section 13. Administrative Powers of Trustees........................... 23
Section 14. Election of Officers........................................ 24
Section 15. Committees of Trustees, Delegation of Powers and Duties to
Committees, Trustees, Officers and Employees................ 24
Section 16. Proposal of Amendments...................................... 24
ARTICLE 6. DURATION AND TERMINATION OF TRUST................................ 25
Section 1. Termination of Trust........................................ 25
Section 2. Merger...................................................... 25
Section 3. Duration of Trust........................................... 25
Section 4. Organization as a Corporation............................... 25
ARTICLE 7. AMENDMENTS....................................................... 26
Section 1. General..................................................... 26
Section 2. Amendment by Shareholders................................... 26
-ii-
<PAGE>
Page
----
Section 3. Amendment by Trustees....................................... 26
Section 4. Requirements of Maryland Law................................ 26
ARTICLE 8. MISCELLANEOUS.................................................... 26
Section 1. Construction................................................ 26
Section 2. Headings for Reference Only................................. 26
Section 3. Filing and Recording........................................ 27
Section 4. Applicable Law.............................................. 27
Section 5. Certifications.............................................. 27
Section 6. Severability................................................ 27
Section 7. Bylaws...................................................... 28
ARTICLE 9. LIMITATION OF LIABILITY FOR TRUSTEES
AND OFFICERS; INDEMNIFICATION............................................ 28
Section 1. Limitation of Officer Liability............................. 28
Section 2. Indemnification............................................. 28
Section 3. Indemnification and Insurance............................... 28
Section 4. Conflicts................................................... 29
Section 5. Severability................................................ 29
Section 6. No Impairment............................................... 29
Section 7. References.................................................. 29
-iii-
<PAGE>
CABOT INDUSTRIAL TRUST
DECLARATION OF TRUST
This Declaration of Trust of Cabot Industrial Trust (this "Declaration of
Trust") is made in Chicago, Illinois, as of October 8, 1997.
RECITALS
I. The trustees named on Schedule A hereto (the "Trustees") desire to
create a real estate investment trust under the laws of the State of Maryland.
II. The Trustees desire that this Trust qualify as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as now in effect or hereafter amended (the "Code"), and under
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland, as amended ("Title 8").
III. The beneficial interest in this Trust shall be divided into
transferable shares ("Shares") of one or more classes evidenced by certificates.
DECLARATION
NOW, THEREFORE, the Trustees hereby declare that they assume the duties of
Trustees hereunder.
ARTICLE 1. THE TRUST
Section 1. Name. The trust created by this Declaration of Trust is
herein referred to as the "Trust" and shall be known by the name "Cabot
Industrial Trust." So far as may be practicable, legal and convenient, the
affairs of the Trust shall be conducted and transacted under that name, which
name shall not refer to the Trustees individually or personally or to the
beneficiaries or shareholders of the Trust, or to any officers, employees or
agents of the Trust.
Under circumstances in which the Board of Trustees (the "Board") determines
that the use of the name "Cabot Industrial Trust" is not practicable, legal or
convenient, they may as appropriate use their names with suitable reference to
their trustee status, or some other suitable designation, or they may adopt
another name under which the Trust may hold property or operate in any
jurisdiction which name shall not, to the knowledge of the Board, refer to
beneficiaries or shareholders of the Trust. Legal title to all the properties
subject from time to time to this Declaration of Trust shall be transferred to,
vested in and held by the Trust in its own name or by the Trustees as joint
tenants with right of survivorship as Trustees of this Trust, except that the
Board shall have the power to cause legal title to any property of this Trust to
be held by and/or in the name of one or more of the Trustees, or any other
person as nominee,
<PAGE>
on such terms, in such manner and with such powers as the Board may determine,
provided that the interest of the Trust therein is appropriately protected.
The Trust shall have the authority to operate under an assumed name or
names in such state or states or any political subdivision thereof where it
would not be legal, practical or convenient to operate in the name of the Trust.
The Trust shall have the authority to file such assumed name certificates or
other instruments in such places as may be required by applicable law to operate
under such assumed name or names.
Section 2. Resident Agent. The name and address of the resident agent of
the Trust in the State of Maryland is The Corporation Trust Incorporated, 32
South Street, Baltimore, Maryland 21202. The Trust may have such other offices
or places of business within or without the State of Maryland as the Board may
from time to time determine.
Section 3. Nature of the Trust. The Trust is a REIT within the meaning
of Title 8. The Trust is not intended to be, shall not be deemed to be and shall
not be treated as a general partnership, limited partnership, joint stock
association or, except as contemplated in Section 1 of Article 8, a corporation.
The shareholders shall be beneficiaries in that capacity in accordance with the
rights conferred on them hereunder.
Section 4. Purpose of the Trust. The Trust shall have all the powers
granted to REITs generally by Title 8 or any successor statute and shall have
such 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
of Trust. The purpose of the Trust is to invest in notes, bonds and other
obligations secured by mortgages on real property and to purchase, hold, lease,
manage, develop, sell, exchange, subdivide and improve real property and
interests in real property, and in general, to carry on any other acts in
connection with the foregoing and to have and exercise all powers conferred by
the laws of the State of Maryland on REITs formed under Title 8, and to do any
or all of the things herein set forth to the same extent as natural persons
might or could do. The Trust may act as registered agent for service of process
in any jurisdiction where permitted on behalf of any partnership for which it is
a general partner. In addition, it is intended that the business of the Trust
will be conducted so that the Trust will qualify (so long as such qualification,
in the opinion of the Board, is advantageous to the shareholders) as a REIT as
defined in the Code.
ARTICLE 2. SHARES
Section 1. Shares, Certificates of Beneficial Interest. The units into
which the beneficial interests in the Trust shall be divided shall be designated
as Shares, with a par value of $0.01 per Share. Ownership of Shares shall be
evidenced by certificates in such form as shall be determined by the Board from
time to time in accordance with the laws of the State of Maryland. 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 Maryland
-2-
<PAGE>
corporation. The total number of Shares which the Trust has authority to issue
is 150,000,000, provided that the Board may amend this Declaration of Trust,
without shareholder consent, to increase or decrease the aggregate number of
Shares that the Trust has authority to issue. The Shares shall consist of common
Shares and such other types or classes of securities of the Trust as the Board
may create and authorize from time to time and designate as representing a
beneficial interest in the Trust. The consideration paid for the issuance of
Shares shall be determined by the Board and shall consist of money paid,
tangible or intangible property or labor or services actually performed. Shares
shall not be issued until the full amount of the consideration has been received
by the Trust. The Board may authorize Share dividends or Share splits. All
Shares issued hereunder shall be, when issued, fully paid, and no assessment
shall ever be made on the shareholders.
The Board 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 or distributions,
qualifications or terms or conditions of redemption of the Shares by filing
articles supplementary pursuant to the applicable laws of the State of Maryland.
The Board may issue from the authorized but unissued Shares of the Trust
preferred Shares in series and establish from time to time the number of
preferred Shares to be included in each such series and fix the designation and
any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or distributions, qualifications and terms and
conditions of redemption of the Shares of each series. Except for Shares so
classified or reclassified and any preferred Shares 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.
The authority of the Board with respect to each unissued series shall
include, but not be limited to, determination of the following:
(a) The number of Shares constituting that series and the distinctive
designation of that series;
(b) The rate of dividends or distributions, if any, and whether (and
if so, on what terms and conditions) dividends or distributions shall be
cumulative (and, if so, whether unpaid dividends or distributions shall
compound or accrue interest) or shall be payable in preference or in any
other relation to dividends or distributions payable on any other class or
classes of Shares or any other series of preferred Shares;
(c) Whether that series shall have voting rights in addition to the
voting rights provided by law and, if so, the terms and extent of such
voting rights;
(d) Whether the Shares of that series shall be issued with the
privilege of conversion or exchange and, if so, the terms and conditions of
such conversion or exchange (including, without limitation, the price or
prices or the rate or rates of conversion or exchange or any terms for
adjustment thereof);
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(e) Whether the Shares of that series may be redeemed and, if so, the
terms and conditions on which they may be redeemed (including, without
limitation, the dates on or after which they may be redeemed and the price
or prices at which they may be redeemed, which price or prices may be
different in different circumstances or at different redemption dates);
(f) The amounts, if any, payable on the Shares in the event of
voluntary liquidation, dissolution or winding up of the Trust in preference
of Shares of any other class or series and whether the Shares of that
series shall be entitled to participate generally in distributions on the
common Shares under such circumstances;
(g) The amounts, if any, payable on the Shares of that series in the
event of involuntary liquidation, dissolution or winding up of the Trust in
preference of Shares of any other class or series and whether the Shares of
that series shall be entitled to participate generally in distributions on
the common Shares under such circumstances;
(h) Sinking fund provisions, if any, for the redemption or purchase of
the Shares of that series (the term "sinking fund" being understood to
include any similar fund, however designated); and
(i) Any other relative rights, preferences, limitations and powers of
that series.
Section 2. Sale of Shares. The Board, in its discretion, may from time
to time issue or sell or contract to issue or sell Shares, including Shares held
in the treasury, to such party or parties and for such consideration as is
allowed by the laws of the State of Maryland, at such time or times and on such
terms as the Board may deem appropriate. In connection with any issuance of
Shares, the Board, in its discretion, may provide for the issuance of fractional
Shares or may provide for the 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 Board
may, in its discretion, or if it determines, at the option of each holder,
provide in lieu of scrip for the adjustment of fractions of Shares in cash.
Except as may be provided in any agreement between the Trust and any of its
shareholders, the shareholders shall have no preemptive rights of any kind
whatsoever (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 Shares,
whether or not such Shares are issued and/or disposed of for cash, property or
other consideration of any kind).
Section 3. General Nature of Shares. All Shares shall be personal
property entitling the shareholders only to those rights provided in this
Declaration of Trust, in any Articles
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Supplementary filed with respect to such Shares or in the resolution creating
any class or series of Shares. The legal ownership of the property of the Trust
and the right to conduct the business of the Trust are vested exclusively in the
Trustees; the shareholders shall have no interest therein other than beneficial
interest in the Trust conferred by their Shares and shall have no right to
compel any partition, division, dividend or distribution of the Trust or any of
its property. The death of a shareholder shall not terminate the Trust or give
his or her legal representative any rights against other shareholders, the
Trustees or the Trust property, except the right, exercised in accordance with
applicable provisions of the Bylaws, to receive a new certificate for Shares in
exchange for the certificate held by the deceased shareholder.
Section 4. Treasury Shares. The Trust may repurchase or otherwise
acquire its own Shares at such price or prices as may be determined by the
Board, and for this purpose the Trust may create and maintain such reserves as
are deemed necessary and proper. Shares issued hereunder and repurchased or
otherwise acquired for the account of the Trust shall not, so long as they
belong to the Trust, either receive dividends or distributions (except that they
shall be entitled to receive dividends or distributions payable in Shares of the
Trust) or be voted at any meeting of the shareholders. Such Shares may, in the
discretion of the Board, be held in the treasury and be disposed of by the Board
at such time or times, to such party or parties and for such consideration as
the Board may deem appropriate or may be returned to the status of authorized
but unissued Shares in the Trust.
Section 5. Transferability of Shares. Shares in the Trust shall be
transferable (subject to the provisions of Article 3 hereunder) in accordance
with the procedure prescribed from time to time in the Trust's 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 Board shall not be affected by any notice, actual or
constructive, of any transfer. Any issuance, redemption or transfer of Shares
which would operate to disqualify the Trust as a REIT for purposes of Federal
income tax purposes shall be null and void ab initio as provided in Article 3.
ARTICLE 3. RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES
Section 1. Definitions. For purposes of this Article 3, the following
terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Shares by a Person who
would be treated as an owner of such Shares 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 correlative meanings.
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"Charitable Beneficiary" shall mean an organization or organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code and identified by the
Board as the beneficiary or beneficiaries of the Excess Share Trust.
"Debt" shall mean indebtedness of (a) the Trust or (b) Cabot
Industrial Properties, L.P., a Delaware limited partnership, or any predecessor
thereof.
"Excess Shares" shall have the meaning given to it in paragraph (a) of
Section 3 of this Article 3.
"Excess Share Trust" shall mean the trust created pursuant to Section
15 of this Article 3.
"Excess Share Trustee" shall mean a person, who shall be unaffiliated
with the Trust, any Purported Beneficial Transferee and any Purported Record
Transferee, identified by the Board as the trustee of the Excess Share Trust.
"Existing Holder" shall mean (a) any Person who is, or would be upon
the exchange of Units, Debt or any security of the Trust, the Beneficial Owner
of 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 security
of the Trust, Beneficially Own 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 3, Beneficial Ownership of Shares causing such
transferee to Beneficially Own 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 Shares Beneficially Owned, or which would be
Beneficially Owned upon the exchange of Units, Debt or any 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 9 of this Article 3, shall mean such percentage of the outstanding
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 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 such 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 9 of this Article 3, shall mean
such percentage of the outstanding Shares as so adjusted. From the date of the
Initial Public Offering 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 Limit for each Existing
Holder.
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"Initial Public Offering" shall mean the sale of common Shares
pursuant to the Trust's first effective registration statement for 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 for a particular class of Shares 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 for such class of Shares on the
trading day immediately preceding the relevant date as reported on any exchange
or quotation system over or through which such class of Shares may be traded, or
if not then traded over or through any exchange or quotation system, then the
market price of such class of Shares on the relevant date as determined in good
faith by the Board.
"Ownership Limit" shall initially mean 9.8%, in number of Shares or
value, of the outstanding Shares of the Trust, and after any adjustment as set
forth in Section 10 of this Article 3, shall mean such greater percentage of the
outstanding Shares as so adjusted. The number and value of the outstanding
Shares of the Trust shall be determined by the Board 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 509(a) of the Code, joint stock company
or other entity; but does not include an underwriter which participated in a
public offering of Shares for a period of 25 days following the purchase by such
underwriter of such Shares.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section 3
of this Article 3, the beneficial holder of the Shares, if such Transfer had
been valid under Section 2 of this Article 3.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Shares, as defined below in Section 3
of this Article 3, the record holder of the Shares, if such Transfer had been
valid under Section 2 of this Article 3.
"Restriction Termination Date" shall mean the first day after the date
of the Initial Public Offering on which the Board determines 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 Shares (including (a) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Shares, but excluding
the exchange of Units, Debt or any security of the Trust for Shares and (c) any
transfer or other
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disposition of any interest in Shares as a result of a change in the marital
status of the holder thereof), whether voluntary or involuntary, whether of
record, constructively or beneficially and whether by operation of law or
otherwise. The terms "Transfers" and "Transferred" shall have correlative
meanings.
"Units" shall mean units of limited partnership interest in Cabot
Industrial Properties, L.P., a Delaware limited partnership.
Section 2. Ownership Limitation.
(a) Except as provided in Sections 12 and 20 of this Article 3, and subject
to paragraph (f) of this Section 2, from the date of the Initial Public Offering
until the Restriction Termination Date, no Person (other than an Existing
Holder) shall Beneficially Own Shares in excess of the Ownership Limit and no
Existing Holder shall Beneficially Own Shares in excess of the Existing Holder
Limit for such Existing Holder.
(b) Except as provided in Sections 12 and 20 of this Article 3, and subject
to paragraph (f) of this Section 2, from the date of the Initial Public Offering
until the Restriction Termination Date, any Transfer that, if effective, would
result in any Person (other than an Existing Holder) Beneficially Owning Shares
in excess of the Ownership Limit shall be void ab initio as to the Transfer of
the 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 Shares.
(c) Except as provided in Sections 9 and 12 of this Article 3, and subject
to paragraph (f) of this Section 2, from the date of the Initial Public Offering
until the Restriction Termination Date, any Transfer that, if effective, would
result in any Existing Holder Beneficially Owning Shares in excess of the
applicable Existing Holder Limit shall be void ab initio as to the Transfer of
the 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 Shares.
(d) Subject to paragraph (f) of this Section 2, from the date of the
Initial Public Offering until the Restriction Termination Date, any Transfer
that, if effective, would result in the 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 Shares which would be otherwise beneficially owned (as provided in
Section 856(a) of the Code) by the transferee; and the intended transferee shall
acquire no rights in such Shares.
(e) Subject to paragraph (f) of this Section 2, from the date of the
Initial Public Offering 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 Shares which would cause the Trust to be "closely held"
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<PAGE>
within the meaning of Section 856(h) of the Code; and the intended transferee
shall acquire no rights in such Shares.
(f) Nothing contained in this Article 3 shall preclude the settlement of
any transaction entered into through the facilities of the New York Stock
Exchange. The fact that the settlement of any transaction is permitted shall not
negate the effect of any other provision of this Article 3 and any transferee in
such a transaction shall be subject to all of the provisions and limitations set
forth in this Article 3.
Section 3. Excess Shares.
(a) If, notwithstanding the other provisions contained in this Article 3,
at any time from the date of the Initial Public Offering 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 Shares) such that any Person would Beneficially Own Shares in excess of the
applicable Ownership Limit or Existing Holder Limit (as applicable), then,
except as otherwise provided in Sections 9 and 12 of this Article 3, and subject
to paragraph (f) of Section 2 of this Article 3, the Shares Beneficially Owned
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 3. 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 Shares).
(b) If, notwithstanding the other provisions contained in this Article 3,
at any time after the date of the Initial Public Offering 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 Shares) which, if effective, would cause the Trust to become "closely held"
within the meaning of Section 856(h) of the Code, then the 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 3. 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 Shares).
Section 4. Prevention of Transfer. If the Board or its designee shall at
any time determine in good faith that a Transfer has taken place in violation of
Section 2 of this Article 3 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 in violation of Section 2 of
this Article 3, the Board 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,
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that any Transfers or attempted Transfers in
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violation of paragraph (b), (c), (d) or (e) of Section 2 of this Article 3 shall
automatically result in the designation and treatment described in Section 3 of
this Article 3, irrespective of any action (or non-action) by the Board.
Section 5. Notice to Trust. Any Person who acquires or attempts to
acquire Shares in violation of Section 2 of this Article 3, or any Person who is
a transferee such that Excess Shares result under Section 3 of this Article 3,
shall immediately give written notice or, in the event of a proposed or
attempted Transfer, shall 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.
Section 6. Information for Trust. From the date of the Initial Public
Offering and until the Restriction Termination Date:
(a) every Beneficial Owner of more than 5% (or such other percentage,
between 1/2 of 1% and 5%, as provided in the income tax regulations
promulgated under the Code) of the number or value of outstanding 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 Shares and each Person
(including the shareholder of record) who is holding 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 Board 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.
Section 7. Other Action by Board. Subject to paragraph (f) of Section 2
of this Article 3, nothing contained in this Article 3 shall limit the authority
of the Board 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; provided, however, that no provision of this Section 7
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shall preclude the settlement of any transaction entered into through the
facilities of the New York Stock Exchange.
Section 8. Ambiguities. In the case of an ambiguity in the application
of any of the provisions of this Article 3, including any definition contained
in Section 1, the Board shall have the power to determine the application of the
provisions of this Article 3 with respect to any situation based on the facts
known to it.
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Section 9. Modification of Existing Holder Limits. The Existing Holder
Limits may be modified as follows:
(a) Subject to the limitations provided in Section 11 of this Article
3, the Board may grant options which result in Beneficial Ownership of
Shares by an Existing Holder pursuant to an option plan approved by the
Board and/or the shareholders. Any such grant shall increase the Existing
Holder Limit for the affected Existing Holder to the maximum extent
possible under Section 11 of this Article 3 to permit the Beneficial
Ownership of the Shares issuable upon the exercise of such option.
(b) Subject to the limitations provided in Section 11 of this Article
3, an Existing Holder may elect to participate in a dividend reinvestment
plan approved by the Board which results in Beneficial Ownership of Shares
by such participating Existing Holder and any comparable reinvestment plan
of Cabot Industrial Properties, L.P., a Delaware limited partnership,
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 11 of this Article 3 to permit Beneficial Ownership of the Shares
acquired as a result of such participation.
(c) The Board shall reduce the Existing Holder Limit for any Existing
Holder after any Transfer permitted in this Article 3 by such Existing
Holder by the percentage of the outstanding Shares so Transferred or after
the lapse (without exercise) of an option described in paragraph (a) of
this Section 9 by the percentage of the 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.
Section 10. Increase or Decrease in Ownership Limit. Subject to the
limitations provided in Section 11 of this Article 3 and Section 4 of Article 1,
the Board 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 decrease as a result of a retroactive change in
existing law that would require a decrease to retain REIT status, in which case
such decrease shall be effective immediately).
Section 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 Shares
(including all of the then Existing Holders) could Beneficially Own, in the
aggregate, more than 49.9% in number or value of the outstanding Shares.
(b) Prior to the modification of any Existing Holder Limit or Ownership
Limit pursuant to Section 9 or 10 of this Article 3, the Board may require such
opinions of counsel,
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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.
Section 12. Waivers by Board.
(a) The Board, upon receipt of a ruling from the Internal Revenue Service
or an opinion of counsel or other evidence satisfactory to the Board 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 the Ownership Limit or the Existing Holder Limit, as the case may be,
and upon such other conditions as the Board may direct, may waive the Ownership
Limit or the Existing Holder Limit, as the case may be, with respect to such
transferee.
(b) In addition to waivers permitted under paragraph (a) above, the Board
shall waive the Ownership Limit with respect to a Person if: (i) such Person
submits to the Board information satisfactory to the Board, in its reasonable
discretion, demonstrating that such Person is not an individual for purposes of
Section 542(a)(2) of the Code (determined taking into account Section
856(h)(3)(A) of the Code); (ii) such Person submits to the Board information
satisfactory to the Board, in its reasonable discretion, demonstrating that no
Person who is an individual for purposes of Section 542(a)(2) of the Code
(determined taking into account Section 856(h)(3)(A) of the Code) would be
considered to Beneficially Own Shares in excess of the Ownership Limit by reason
of the ownership of Shares in excess of the Ownership Limit by the Person
receiving the waiver granted under this paragraph (b); (iii) such Person submits
to the Board information satisfactory to the Board, in its reasonable
discretion, demonstrating that the ownership of Shares in excess of the
Ownership Limit by the Person receiving the waiver granted under this paragraph
(b) will not result in the Trust failing to qualify as a REIT; and (iv) such
Person provides to the Board such representations and undertakings, if any, as
the Board may, in its reasonable discretion, require to ensure that the
conditions in clauses (i), (ii) and (iii) above are satisfied and will continue
to be satisfied throughout the period during which such Person owns Shares in
excess of the Ownership Limit pursuant to any waiver granted under this
paragraph (b), and such Person agrees that any violation of such representations
and undertakings or any attempted violation thereof will result in the
application of the remedies set forth in Section 3 of this Article 3 with
respect to Shares held in excess of the Ownership Limit by such Person
(determined without regard to the waiver granted such Person under this
paragraph (b)).
Section 13. Legend. Each certificate for 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 REIT
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under the Internal Revenue Code of 1986, as amended. Except as
otherwise provided pursuant to the Declaration of Trust of the Trust,
no Person may Beneficially Own Shares in excess of _____% (or such
greater percentage as may be determined by the Board of the Trust) of
the number or value of the outstanding Shares of the Trust (unless
such Person is an Existing Holder). Any Person who attempts or
proposes to Beneficially Own 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 of 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 shall be designated and treated as Excess Shares which shall be
held in trust by the Excess Share Trustee for the benefit of the
Charitable Beneficiary.
Section 14. Severability. If any provision of this Article 3 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.
Section 15. Trust for Excess Shares. Upon any purported Transfer that
results in Excess Shares pursuant to Section 3 of this Article 3, such Excess
Shares shall be deemed to have been transferred to the Excess Share Trustee, as
trustee of the Excess Share Trust for the exclusive benefit of the Charitable
Beneficiary. Excess Shares so held in trust shall be issued and outstanding
Shares of the Trust. The Purported Beneficial Transferee shall have no rights in
such Excess Shares except as provided in Section 18 of this Article 3.
Section 16. Distributions on Excess Shares. Any distributions (whether
as dividends, distributions upon liquidation, dissolution or winding up or
otherwise) on Excess Shares shall be paid to the Excess Share Trust for the
benefit of the Charitable Beneficiary. Upon liquidation, dissolution or winding
up, the Purported Record Transferee shall receive the lesser of (a) the amount
of any distribution made upon liquidation, dissolution or winding up or (b) the
price paid by the Purported Record Transferee for the Shares, or if the
Purported Record Transferee did not give value for the Shares, the Market Price
of the Shares on the day of the event causing the Shares to be held in trust.
Any such dividend paid or distribution paid to the Purported Record Transferee
in excess of the amount provided in the preceding sentence prior to the
discovery by the Trust that the Shares with respect to which the dividend or
distribution was made had been exchanged for Excess Shares shall be repaid to
the Excess Share Trust for the benefit of the Charitable Beneficiary.
Section 17. Voting of Excess Shares. The Excess Share Trustee shall be
entitled to vote the Excess Shares for the benefit of the Charitable Beneficiary
on any matter. Any vote taken by a Purported Record Transferee prior to the
discovery by the Trust that the Excess
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Shares were held in trust shall be rescinded ab initio. The owner of the Excess
Shares shall be deemed to have given an irrevocable proxy to the Excess Share
Trustee to vote the Excess Shares for the benefit of the Charitable Beneficiary.
Section 18. Non-Transferability of Excess Shares. Excess Shares shall be
transferable only as provided in this Section 18. At the direction of the Trust,
the Excess Share Trustee shall transfer the Shares held in the Excess Share
Trust to a person whose ownership of the Shares will not violate the Ownership
Limit or Existing Holder Limit. Such transfer shall be made within 60 days after
the latest of (x) the date of the Transfer which resulted in such Excess Shares
and (y) the date the Board 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 5 of this Article 3. If such a transfer is made,
the interest of the Charitable Beneficiary shall terminate and proceeds of the
sale shall be payable to the Purported Record Transferee and to the Charitable
Beneficiary. The Purported Record Transferee shall receive the lesser of (a) the
price paid by the Purported Record Transferee for the Shares or, if the
Purported Record Transferee did not give value for the Shares, the Market Price
of the Shares on the day of the event causing the Shares to be held in trust,
and (b) the price received by the Excess Share Trust from the sale or other
disposition of the Shares. Any proceeds in excess of the amount payable to the
Purported Record Transferee shall be paid to the Charitable Beneficiary. Prior
to any transfer of any Excess Shares by the Excess Share Trustee, the Trust must
have waived in writing its purchase rights under Section 19 of this Article 3.
It is expressly understood that the Purported Record Transferee may enforce the
provisions of this Section 18 against the Charitable Beneficiary.
If any of the foregoing restrictions on transfer of Excess Shares is
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.
Section 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 "Redemption
Price"). 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 Board 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 5 of this Article 3 but in no
event later than a permitted Transfer pursuant to and in compliance with the
terms of Section 18 of this Article 3. Unless the Board determines that it is in
the interests of the Trust to make earlier payments of all of the amount
determined as the Redemption Price per Share in accordance with the preceding
sentence, the Redemption Price may be payable at the option of the Board at any
time up to but not later than
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one year after the date the Trust accepts the offer to purchase the Excess
Shares. In no event shall the Trust have an obligation to pay interest to the
Purported Record Transferee.
Section 20. Underwritten Offerings. The Ownership Limit shall not apply
to the acquisition of Shares or rights, options or warrants for, or securities
convertible into, Shares by an underwriter in a public offering, provided that
--------
the underwriter makes a timely distribution of such Shares or rights, options or
warrants for, or securities convertible into, Shares.
ARTICLE 4. SHAREHOLDERS
Section 1. Shareholders' Meetings. There shall be an annual meeting of
the shareholders to be held at such time and place, either within or without the
State of Maryland, as the Board shall prescribe in accordance with the Trust's
Bylaws, at which Trustees shall be elected or reelected and any other proper
business may be conducted. The annual meeting of shareholders shall be held upon
proper notice, at a convenient location and within a reasonable period following
delivery of the annual report, 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 a majority of the Board, or by any executive
officer of the Trust, and shall be called upon the written request of
shareholders holding in the aggregate not less than twenty-five percent of the
outstanding Shares of the Trust entitled to vote at such meeting in the manner
provided in the Bylaws. If there shall be no Trustees, the officers of the Trust
shall promptly call a special meeting of the shareholders for the election of
successor Trustees. 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 Board 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.
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 or required by law or this Declaration of Trust 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.
Section 2. Voting. 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 and entitled to vote on each matter on which
the vote of the shareholders is taken. In any election in which more than one
vacancy for the position of Trustee is to be filled, each shareholder may vote
the number of Shares of the Trust owned by him and entitled to vote on the
election of Trustees 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)
with regard to any class or series of common Shares, to the extent that articles
supplementary (to the extent permitted by Maryland law) limit
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or deny voting rights to the holders of the common Shares of such class or
series, or (b) as otherwise provided by Maryland law. Preferred Shares shall
have such voting rights as the Board shall establish in articles supplementary
filed with the State Department of Assessments and Taxation of Maryland.
Section 3. Distributions. The Board may from time to time authorize,
declare and pay to shareholders such dividends or distributions in cash,
property or other assets of the Trust or in securities of the Trust or from any
other source as the Board in its discretion shall determine. The Board 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 Board, 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 Board. The exercise of the powers
and rights of the Board pursuant to this Section 3 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 or her 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 with respect to the application thereof.
Section 4. Report to Shareholders. The Trust shall prepare an annual
report concerning its operations for the preceding fiscal year. The report shall
include a balance sheet, an income statement and a surplus statement. The
financial statements in the report shall be certified by an independent
certified public accountant based on the accountant's full examination of the
books and records of the Trust in accordance with generally accepted auditing
procedure. The signed report shall be delivered to shareholders and shall be
placed on file at the principal office of the Trust within the time prescribed
by Title 8.
Section 5. Inspection of Trust Books. The books and records of the Trust
shall be open to inspection upon the written demand of a shareholder at any
reasonable time for a purpose reasonably related to his or her interests as a
shareholder and shall be exhibited at any time when required by the demand at
any shareholders' meeting of ten percent of the Shares represented at the
meeting. Such inspection by a shareholder may be made in person or by agent or
attorney and the right of inspection includes the right to make extracts. Demand
of inspection other than at a Shareholders' meeting shall be made in writing on
the President or the Secretary of the Trust at the principal office of the
Trust.
Section 6. Nonliability and Indemnification of Shareholders.
Shareholders shall not be personally or individually liable in any manner
whatsoever for any debt, act, omission or obligation incurred by the Trust or
the Trustees and shall be under no obligation to the Trust or its creditors with
respect to such Shares other than the obligation to pay to the Trust the full
amount of the consideration for which the Shares were issued or to be issued.
The shareholders shall not be liable to assessment and the Board shall have no
power to bind the shareholders personally. The Trust shall indemnify and hold
each shareholder harmless from and against all claims and liabilities, whether
they proceed to judgment or are settled or otherwise brought to a conclusion, to
which such shareholder may become subject by reason of his or her being or
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having been a shareholder, and shall reimburse such shareholder for all legal
and other expenses reasonably incurred by him or her in connection with any such
claim or liability; provided, however, that no such shareholder shall be
-------- -------
indemnified or reimbursed if such claim, obligation or liability is finally
adjudged by a competent court of law to have arisen out of the shareholder's bad
faith, willful misconduct or gross negligence; and provided, further, that such
-------- -------
shareholder must give prompt notice as to any such claims or liabilities or
suits and must take such action as will permit the Trust to conduct the defense
thereof. The rights accruing to a shareholder under this Section 6 shall not
exclude any other right to which such shareholder may be lawfully entitled, nor
shall anything contained herein restrict the right of the Trust to indemnify or
reimburse a shareholder in any appropriate situation even though not
specifically provided herein; provided, however, that the Trust shall have no
-------- -------
liability to reimburse shareholders for taxes assessed against them by reason of
their ownership of Shares, nor for any losses suffered by reason of changes in
the market value of securities of the Trust. No amendment to this Declaration of
Trust increasing or enlarging the liability of the shareholders shall be made
without the unanimous vote or written consent of all of the shareholders.
Section 7. Nonliability. The Board 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 and the Board shall not be subject to
claims against and obligations of the Trust to any extent whatever. The Trustees
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 and the Trustees 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 of Trust. 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
or the Trustees personally liable.
ARTICLE 5. THE TRUSTEES
Section 1. Number, Terms, Qualification, Compensation and Names of
Trustees. The Board shall be comprised of not less than three nor more than
fifteen Trustees. The number of Trustees shall be determined from time to time
by resolution of the Board. Except for the initial terms of Class I and Class II
Trustees, as set forth on Schedule A hereto, the term of office of each Trustee
shall be three years and until his or her successor is duly elected and
qualifies. Trustees may succeed themselves in office. Trustees shall be
individuals who are at least 21 years old and not under legal disability. No
Trustee shall be required to give bond, surety or security to secure the
performance of his or her duties or obligations hereunder. Whenever a vacancy in
the Board shall occur, until such vacancy is filled as provided in Section 3 of
this Article 5, the Trustees or Trustee continuing in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed on the Trustees by this Declaration of Trust.
The Trustees shall receive such fees for their services and expenses as they
shall deem reasonable and proper. Immediately after the closing of the Initial
Public Offering (as such term is defined in Article 3), and at all times
thereafter in accordance
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with Section 3 of this Article 5, a majority of the Trustees comprising the
Board ("Independent Trustees") shall not be officers or employees of the Trust.
The Board shall be divided into three classes, designated Class I, Class II
and Class III. Each class shall consist, as nearly as may be possible, of one-
third of the total number of Trustees comprising the entire Board. The initial
Class I Trustees shall be elected for a one-year term, the initial Class II
Trustees for a two-year term and the initial Class III Trustees for a three-year
term. At each succeeding annual meeting of shareholders, beginning with the
annual meeting in 1995, successors to the class of Trustees whose term expires
at that annual meeting shall be elected for a three-year term. If the authorized
number of Trustees is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of Trustees in each class as
nearly equal as possible, and any additional Trustee of any class elected to
fill a vacancy resulting from an increase in such class, subject to Section 3 of
this Article 5, shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
Trustees shorten the term of any incumbent Trustee. A Trustee shall hold office
until the annual meeting for the year in which his or her term expires and until
his or her successor shall be elected and shall qualify, subject, however, to
prior death, resignation or removal from office. A majority of the entire Board
shall constitute a quorum for the transaction of business, provided that, if
--------
less than a majority of the Board are present at any meeting, a majority of the
Trustees present may adjourn the meeting from time to time without further
notice, and provided further that, if, pursuant to this Declaration of Trust or
-------- -------
the Trust Bylaws, the vote of a majority of a particular group of Trustees is
required for action, a quorum must also include a majority of such group.
Section 2. Resignation, Removal and Death. A Trustee may resign at any
time by giving written notice thereof in recordable form to the other Trustees
at the principal office of the Trust. The acceptance of a resignation shall not
be necessary to make it effective. A Trustee may be removed at any time by the
affirmative vote of the holders of two-thirds of the outstanding Shares (which
action shall be taken only by vote at a meeting (including a special meeting
called for such purpose) and not by authorization without a meeting,
notwithstanding anything to the contrary in Section 5 of this Article 5). Upon
the resignation or removal of any Trustee, he or she shall execute and deliver
such documents and render such accounting as the remaining Trustees shall
require and shall thereupon be discharged as Trustee. Upon the incapacity or
death of any Trustee, his or her status as a Trustee shall immediately terminate
and his legal representatives shall perform the acts set forth in the preceding
sentence.
Section 3. Vacancies. The resignation, removal or death of any or all of
the Trustees shall not terminate the Trust or affect its continuity. During a
vacancy, the remaining Trustee or Trustees may exercise the powers of the Board
hereunder. Whenever there shall be a vacancy or vacancies on the Board, such
vacancy or vacancies shall be filled in the manner prescribed in the second
paragraph of this Section 3.
Any vacancy on the Board for any cause other than an increase in the number
of Trustees shall be filled by a majority of the remaining Trustees, even if
less than a quorum, or by a sole
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remaining Trustee. Any vacancy created by an increase in the number of Trustees
shall be filled by a majority of the entire Board. Independent Trustees shall
nominate replacements for vacancies among the Independent Trustees' positions.
In the event that, after the closing of the Initial Public Offering (as such
term is defined in Article 3), a majority of the Board are not Independent
Trustees by reason of the resignation or removal of one or more Independent
Trustees or otherwise, the remaining Independent Trustees (or, if there are no
Independent Trustees, the remaining members of the Board) shall promptly elect
that number of Independent Trustees necessary to cause the Board to include a
majority of Independent Trustees. Any Trustee elected to fill a vacancy as
provided herein shall hold office until the next annual meeting of shareholders.
A Trustee elected at an annual meeting of shareholders to fill a vacancy shall
have the same remaining term as that of his or her predecessor.
Section 4. Successor Trustees . The right, title and interest of the
Trustees in and to the Trust property shall vest automatically in all persons
who may hereafter become Trustees upon their due election and qualification
without any further act, and thereupon they shall have the same rights,
privileges, powers, duties and immunities as though originally named as Trustees
in this Declaration of Trust. Appropriate written evidence of the election and
qualification of successor Trustees shall be filed with the records of the Trust
and in such other offices or places as the Board may deem necessary, appropriate
or desirable. Upon the resignation, removal or death of a Trustee, he or she
(and in the event of his or her death, his or her estate) shall automatically
cease to have any right, title or interest in or to any of the Trust property,
and the right, title and interest of such Trustee in and to the Trust property
shall vest automatically in the remaining Trustees without any further act.
Section 5. Actions by and Meetings of Trustees. The Trustees may act
with or without a meeting. Except as otherwise provided herein, any action of a
majority of Trustees present at a duly convened meeting of the Board shall be
conclusive and binding as an action of the Board. A quorum for meetings of the
Board shall be a majority of all of the Trustees in office, provided that, if
--------
less than a majority of such Trustees are present at any meeting, a majority of
the Trustees present may adjourn the meeting from time to time without further
notice, and provided further that, if, pursuant to this Declaration of Trust or
--------
the Bylaws, the vote of a majority of a particular group of Trustees is required
for any action, a quorum must also include a majority of such group. Action may
be taken without a meeting only by unanimous consent of all of the Trustees in
office and shall be evidenced by a written certificate or instrument signed by
all of the Trustees in office. Meetings may otherwise be called, held and
conducted in the manner prescribed by the Trust Bylaws. Any action taken by
Trustees in accordance with the provisions of this Section 5 shall be conclusive
and binding on the Trust, the Trustees and the shareholders, as an action of all
the Trustees, collectively, and of the Trust. Any deed, mortgage, evidence of
indebtedness or other instrument, agreement or document of any character,
whether similar or dissimilar, executed by one or more of the Trustees, when
authorized at a meeting or by written authorization without a meeting in
accordance with the provisions of this Section 5, shall be valid and binding on
the Trustees, the Trust and the shareholders.
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Section 6. Authority of Trustees. Subject to any express limitations
contained in this Declaration of Trust or the Trust's Bylaws, (a) the business
and affairs of the Trust shall be managed under the direction of the Board and
(b) the Board shall have full, exclusive and absolute power, control and
authority over any and all property of the Trust.
Section 7. Powers of Trustees. The Trustees shall have all the powers
necessary, convenient or appropriate to effectuate the purposes of the Trust and
may take any action which they deem necessary or desirable and proper to carry
out such purposes. Any determination of the purposes of the Trust made by the
Trustees in good faith shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption shall be in favor of the grant of powers
to the Trustees.
Subject to the limitations contained in Article 1, and in addition to all
other powers and authority conferred by this Declaration of Trust or by law, the
Trustees' powers in the name and on behalf of the Trust shall include the
following:
(a) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, and to mortgage, sell, acquire,
lease, hold, manage, improve, lease to others, 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, mortgage, sell, acquire, lease,
hold, manage, improve, lease to others, option and exchange personal
property of every nature;
(d) To hold legal title to property of the Trust in the name of the
Trust or in the name of any other person as nominee for the Trust, without
disclosure of the interest of the Trust therein;
(e) To borrow money for the purposes of the Trust 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;
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(g) To create reserve funds for such purposes as they deem 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 on or chargeable against the
Trust 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;
(k) To exercise with respect to property of the Trust, 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 Trustees deem 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
revalue 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;
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(s) To adopt and use a seal;
(t) To merge the Trust with or into any other trust or corporation in
accordance with the laws of the State of Maryland;
(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 specified herein;
(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 its shareholders, Trustees or
officers not inconsistent with law or this Declaration of Trust; and
(x) To do all such other acts and things as are incident to 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 of Trust.
Section 8. Trustees' Right to Own Shares in Trust. A Trustee may
acquire, hold and dispose of Shares in the Trust for his or her individual
account and may exercise all rights of a shareholder to the same extent and in
the same manner as if he or she were not a Trustee.
Section 9. Related Party Transactions. Subject to the provisions of
Section 4 of Article 1 and to any restrictions in this Declaration of Trust or
adopted by the Board in the Bylaws or by resolution, the Trust may enter into
any contract or transaction of any kind (including, without limitation, for the
purchase or sale of property or for any type of services, including those in
connection with underwriting or the offer or sale of securities of the Trust)
with any person, including any Trustee, officer, employee or agent of the Trust
or any person affiliated with a Trustee, officer, employee or agent of the
Trust, whether or not any of them has a financial interest in such transaction.
Section 10. Non-Liability of Trustees. To the maximum extent that
Maryland law in effect from time to time permits limitation of the liability of
trustees of a REIT, no Trustee of the Trust shall be liable to the Trust or to
any shareholder for money damages. Neither the amendment nor repeal of this
Section 10, nor the adoption or amendment of any other provision of this
Declaration of Trust inconsistent with this Section 10, shall apply to or affect
in any respect the applicability of the preceding sentence with respect to any
act or failure to act which occurred prior to such amendment, repeal or
adoption. In the absence of any Maryland statute limiting the liability of
trustees of a Maryland REIT for money damages in a suit by or on behalf
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of the Trust or by any shareholder, no Trustee of the Trust shall be liable to
the Trust or to any shareholder for money damages except to the extent that (a)
the Trustee actually received an improper benefit or profit in money, property
or services, for the amount of the benefit or profit in money, property or
services actually received; or (b) a judgment or other final adjudication
adverse to the Trustee is entered in a proceeding based on a finding in the
proceeding that the Trustee's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of the action
adjudicated in the proceeding.
Section 11. Indemnification of Trustees. The Trust shall indemnify each
Trustee, to the maximum extent permitted by Maryland law, as amended from time
to time, in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of his or her being or having been a Trustee of the Trust or serving or having
served at the request of the Trust as a director, trustee, officer, partner,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise from all claims and
liabilities to which such Trustee may become subject by reason of service in
that capacity and to pay or reimburse reasonable expenses, as such expenses are
incurred, by such Trustee in connection with any such claim or liability.
Section 12. Persons Dealing with Trustees. No corporation, person,
transfer agent or other party shall be required to examine or investigate the
trusts, terms or conditions contained in this Declaration of Trust or otherwise
applicable to the Trust; and no such corporation, person, transfer agent or
other party dealing with the Trustees or with the Trust or Trust property and
assets shall have any obligation with respect to the application of any money or
property paid or delivered to any Trustee, or nominee, agent or representative
of the Trust or the Trustees. A certificate executed by or on behalf of the
Trustees or by any other duly authorized representative of the Trust, delivered
to any person or party dealing with the Trust or Trust property and assets, or,
if relating to real property, recorded in the deed records for the county or
district in which such real property lies, certifying as to the identity and
authority of the Trustees, agents or representatives of the Trust for the time
being, or as to any action of the Trustees or of the Trust, or of the
shareholders, or as to any other fact affecting or relating to the Trust or this
Declaration of Trust, may be treated as conclusive evidence thereof by all
persons dealing with the Trust. No provision of this Declaration of Trust shall
diminish or affect the obligation of the Trustees and every other representative
or agent of the Trust to deal fairly and act in good faith with respect to the
Trust and the shareholders insofar as the relationship and accounting among the
parties to the Trust is concerned; but no third party dealing with the Trust or
with any Trustee, agent or representative of the Trust shall be obliged or
required to inquire into, investigate or be responsible for the discharge and
performance of such fiduciary obligation.
Section 13. Administrative Powers of Trustees. The Trustees shall have
power to pay the expenses of organization and administration of the Trust,
including all legal and other expenses in connection with the preparation and
carrying out of the plan for the formation of the Trust, the acquisition of
properties thereunder and the issuance of Shares thereunder; and to
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employ such officers, experts, counsel, managers, salesmen, agents, workmen,
clerks and other persons as they think best.
Section 14. Election of Officers. The Board may annually elect a
Chairman of the Board (or more than one Co-Chairmen of the Board), a Vice
Chairman of the Board (or more than one Vice Chairmen of the Board) and a Chief
Executive Officer of the Trust. The Board may also annually elect one or more
Vice Presidents, a Chief Operating Officer, a Chief Financial Officer, a
Secretary, a Treasurer, Assistant Secretaries, Assistant Treasurers and such
other officers as the Board shall deem proper. Except as required by law, the
officers of the Trust need not be Trustees. All officers and agents of the Trust
shall have such authority and perform such duties in the management of the Trust
as may be provided in the Bylaws or as may be determined by the Board not
inconsistent with the Bylaws. Any officer or agent elected or appointed by the
Board may be removed by the Board whenever in their judgment the best interest
of the Trust will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of any officer or agent shall not of itself create contract rights.
The Board shall fix the compensation of all officers. Each such officer shall be
entitled to indemnification by the Trust on the same basis provided to Trustees
hereunder.
Section 15. Committees of Trustees, Delegation of Powers and Duties to
Committees, Trustees, Officers and Employees. The Board may, in its
discretion, by resolution passed by a majority of the Trustees, designate from
among its members one or more committees which shall consist of one or more
Trustees. The Board may designate one or more Trustees as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committees shall have and may exercise such
powers as shall be conferred or authorized by the resolution appointing them. A
majority of any such committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. The Board, by
resolution passed by a majority of the Trustees, may at any time change the
membership of any such committee, fill vacancies in it, or dissolve it. The
Bylaws, or a majority of the Trustees, may authorize any one or more of the
Trustees, or any one or more of the officers or employees or agents of the
Trust, on behalf of the Trust, to exercise and perform any and all powers
granted to the Trustees, and to discharge any and all duties imposed on the
Trustees, and to do any acts and to execute any instruments deemed by such
person or persons to be necessary or appropriate to exercise such power or to
discharge such duties, and to exercise his own sound judgment in so doing. The
authority to act on any transaction which under the terms of this Declaration of
Trust requires the vote of a majority of the Independent Trustees may not be
delegated to any committee.
Section 16. Proposal of Amendments. Notwithstanding anything in this
Declaration of Trust to the contrary, no amendment to Section 1, 3, 9 or 16 of
this Article 5 or Section 2 of Article 7 shall be deemed to have been proposed
by the Board for approval by the shareholders unless and until such proposed
amendment has been approved by a majority of the Independent Trustees. Nothing
contained in this Section 16 shall be construed as a condition to
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<PAGE>
or a limitation on the right of the shareholders to amend any Section of this
Declaration of Trust by action taken independent of the Board in accordance with
Title 8.
ARTICLE 6. DURATION AND TERMINATION OF TRUST
Section 1. Termination of Trust. The Trust may be terminated at any time
by a vote or written consent of the holders of two-thirds of the outstanding
Shares of all classes.
In connection with any termination of the Trust, the Board, upon receipt of
such releases or indemnity as they deem necessary for their protection, shall:
(a) Sell and convert into cash the property of the Trust and
distribute the net proceeds among the shareholders ratably; or
(b) Convey the property of the Trust to one or more persons, entities,
trusts or corporations for consideration consisting in whole or in part of
cash, shares of stock, or other property of any kind, and distribute the
net proceeds among the shareholders ratably, at valuations fixed by the
Board, in cash or in kind, or partly in cash and partly in kind; provided
--------
that the proposal to proceed as described in this clause (6) shall have
been approved in writing by shareholders holding two-thirds of the Shares
issued and outstanding.
Upon termination of the Trust and distribution to the shareholders as
herein provided, a majority of the Trustees shall execute and keep among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the right, title and interest of all
shareholders shall cease and be canceled and discharged.
Section 2. Merger. The Trustees shall have the power to (a) merge the
Trust into another entity, (b) consolidate the Trust with one or more other
entities into a new entity or (c) sell or otherwise dispose of all or
substantially all of the assets of the Trust; provided that such action shall
--------
have been approved, at a meeting of the shareholders called for the purpose, by
the affirmative vote of the holders of not less than two-thirds of the Shares
then outstanding and entitled to vote thereon.
Section 3. Duration of Trust. Subject to possible earlier termination in
accordance with the provisions of this Article 6, the duration of the Trust
shall be perpetual or, in any jurisdiction in which such duration is not
permitted, then the Trust shall terminate on the latest date permitted by the
law of such jurisdiction.
Section 4. Organization as a Corporation. Whenever the Board deems it in
the best interests of the shareholders that the Trust be organized as a
corporation under the laws of any state, the Board shall have full power to
organize such corporation, under the laws of such state as it may consider
appropriate, in the place and stead of the Trust without procuring the consent
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<PAGE>
of any of the shareholders, in which event the capital stock of such corporation
shall be and remain the same as fixed under this Declaration of Trust and the
shareholders shall receive and accept stock in such corporation on the same
basis as they hold Shares in the Trust.
ARTICLE 7. AMENDMENTS
Section 1. General. The Trust reserves the right from time to time to
make any amendment to this Declaration of Trust, now or hereafter authorized by
law, including any amendment altering the terms or contract rights, as expressly
set forth in this Declaration of Trust, of any outstanding Shares.
Section 2. Amendment by Shareholders. Except as provided in Section 3 of
this Article 7, this Declaration of Trust may be amended only by the affirmative
vote or written consent of the holders of at least a majority of the Shares
entitled to vote thereon.
Section 3. Amendment by Trustees. The Trustees by a two-thirds vote and
without any action by the shareholders may amend provisions of this Declaration
of Trust from time to time to qualify as a REIT under the Code or under Title 8.
The Trustees may amend this Declaration of Trust without any action by the
shareholders pursuant to Section 1 of Article 2.
Section 4. Requirements of Maryland Law. Notwithstanding anything
contained in this Declaration of Trust to the contrary, this Declaration of
Trust may not be amended except as provided in Title 8.
ARTICLE 8. MISCELLANEOUS
Section 1. Construction. This Declaration of Trust shall be construed in
such a manner as to give effect to the intent and purposes of the Trust and this
Declaration of Trust. If any provisions hereof appear to be in conflict, more
specific provisions shall control over general provisions. This Declaration of
Trust shall govern all of the relationships among the Trustees and shareholders
of the Trust; and each provision hereof shall be effective for all purposes and
to all persons dealing with the Trust to the fullest extent possible under
applicable law in each jurisdiction in which the Trust shall engage in business.
In defining or interpreting the powers and duties of the Trust and the Trustees
and officers, reference may be made, to the extent appropriate and not
inconsistent with the Code or Title 8, to Titles 1 through 3 of the Corporations
and Associations Article of the Annotated Code of Maryland. In furtherance and
not in limitation of the foregoing, in accordance with the provisions of Title
3, Subtitles 6 and 7, of the Corporations and Associations Article of the
Annotated Code of Maryland, the Trust shall be included within the definition of
"corporation" for purposes of such provision.
Section 2. Headings for Reference Only. Headings preceding the text,
Articles and Sections hereof have been inserted solely for convenience and
reference, and shall not be construed to affect the meaning, construction or
effect of this Declaration of Trust.
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<PAGE>
Section 3. Filing and Recording. This Declaration of Trust and any
amendment hereto shall be filed for record with the State Department of
Assessments and Taxation of Maryland and may also be filed or recorded in such
other places as the Board deems appropriate, but failure to file for record this
Declaration of Trust or any amendment hereto in any office other than in the
State of Maryland shall not affect or impair the validity or effectiveness of
this Declaration of Trust or any amendment hereto. An amended Declaration of
Trust shall, upon filing, be conclusive evidence of all amendments contained
therein and may thereafter be referred to in lieu of the original Declaration of
Trust and the various amendments thereto.
Section 4. Applicable Law. This Declaration of Trust has been executed
with reference to and its construction and interpretation shall be governed by
the laws of Maryland, and the rights of all parties and the construction and
effect of every provision hereof shall be subject to and construed according to
the laws of Maryland.
Section 5. Certifications. Any certificates signed by a person who,
according to the records of the State Department of Assessments and Taxation of
Maryland appears to be a Trustee hereunder, shall be conclusive evidence as to
the matters so certified in favor of any person dealing with the Trust or the
Trustees or any one or more of them, and the successors or assigns of such
persons, which certificate may certify to any matter relating to the affairs of
the Trust, including but not limited to any of the following: A vacancy on the
Board; the number and identity of Trustees; this Declaration of Trust and any
Amendments thereto, or any restated Declaration of Trust and any Amendments
thereto, or that there are no Amendments to this Declaration of Trust or any
restated Declaration of Trust; a copy of the Bylaws of the Trust or any
Amendment thereto; the due authorization of the execution of any instrument or
writing; the vote at any meeting of the Board or a committee thereof or
shareholders; the fact that the number of Trustees present at any meeting or
executing any written instrument satisfies the requirements of this Declaration
of Trust; a copy of any Bylaw adopted by the shareholders or the identity of any
officer elected by the Board; or the existence or nonexistence of any fact or
facts which in any manner relate to the affairs of the Trust. If this
Declaration of Trust or any restated Declaration of Trust is filed or recorded
in any recording office other than the State Department of Assessments and
Taxation of Maryland, anyone dealing with real estate so located that
instruments affecting the same should be filed or recorded in such recording
office may rely conclusively on any certificate of the kind described above
which is signed by a person who according to the records of such recording
office appears to be a Trustee hereunder. In addition, the Secretary or any
Assistant Secretary of the Trust or any other officer of the Trust designated by
the Bylaws or by action of the Board may sign any certificate of the kind
described in this Section 5, and such certificate shall be conclusive evidence
as to the matters so certified in favor of any person dealing with the Trust,
and the successors and assigns of such person.
Section 6. Severability. If any provision of this Declaration of Trust
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
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<PAGE>
Declaration of Trust, and this Declaration of Trust shall be carried out, if
possible, as if such invalid or unenforceable provision were not contained
therein.
Section 7. 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 vote of the Trustees.
ARTICLE 9. LIMITATION OF LIABILITY FOR TRUSTEES
AND OFFICERS; INDEMNIFICATION
Section 1. Limitation of Officer Liability. To the maximum extent that
Maryland law in effect from time to time permits limitation of the liability of
trustees, officers, employees or agents of a REIT, no trustee, officer, employee
or agent of the Trust shall be liable to the Trust or to any shareholder for
money damages. Neither the amendment nor the repeal of this Section 1, nor the
adoption or amendment of any other provision of this Declaration of Trust
inconsistent with this Section 1, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption. In the absence
of any Maryland statute limiting the liability of trustees, officers, employees
or agents of a Maryland REIT for money damages in a suit by or on behalf of the
Trust or by any shareholder, no trustee, officer, employee or agent of the Trust
shall be liable to the Trust or to any shareholder for money damages except to
the extent that (a) the trustee, officer, employee or agent actually received an
improper benefit or profit in money, property or services, for the amount of the
benefit or profit in money, property or services actually received; or (b) a
judgment or other final adjudication adverse to the trustee, officer, employee
or agent is entered in a proceeding based on a finding in the proceeding that
the trustee's, officer's, employee's or agent's action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of the
action adjudicated in the proceeding.
Section 2. Indemnification. The Trust shall indemnify each officer,
employee and agent, to the fullest extent permitted by Maryland law, as amended
from time to time, in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she was an officer, employee or
agent of the Trust or is or was serving at the request of the Trust as a
director, trustee, officer, partner, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan, from all claims and liabilities to which such person may
become subject by reason of service in that capacity and to pay or reimburse
reasonable expenses, as such expenses are incurred, of each officer, employee or
agent in connection with any such proceedings.
Section 3. Indemnification and Insurance. Notwithstanding any other
provisions of this Declaration of Trust, the Trust, for the purpose of providing
indemnification for its Trustees and officers, shall have the authority, without
specific shareholder approval, to enter into insurance or other arrangements to
indemnify all Trustees and officers of the Trust against any and all liabilities
and expenses incurred by them by reason of their being Trustees or officers
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<PAGE>
of the Trust, whether or not the Trust would otherwise have the power under this
Declaration of Trust or under Maryland law to indemnify such persons against
such liability. Without limiting the power of the Trust to procure or maintain
any kind of insurance or other arrangement, the Trust may, for the benefit of
persons indemnified by it, (a) create a trust fund, (b) establish any form of
self-insurance, (c) secure its indemnity obligation by grant of any security
interest or other lien on the assets of the Trust or (d) establish a letter of
credit, guaranty or surety arrangement. Any such insurance or other arrangement
may be procured, maintained or established within the Trust or with any insurer
or other person deemed appropriate by the Board regardless of whether all or
part of the stock or other securities thereof are owned in whole or in part by
the Trust. In the absence of fraud, the judgment of the Board as to the terms
and conditions of insurance or other arrangement and the identity of the insurer
or other person participating in any arrangement shall be conclusive, and such
insurance or other arrangement shall not be subject to voidability, nor subject
the Trustees approving such insurance or other arrangement to liability on any
ground, regardless of whether Trustees participating and approving such
insurance or other arrangement shall be beneficiaries thereof.
Section 4. Conflicts. In the event that any provision or portion of a
provision of this Article 9 is determined to be in conflict with any applicable
statute, such provision or portion thereof shall be inapplicable to the extent
of such conflict.
Section 5. Severability . In the event that any provision or portion of a
provision of this Article 9 is determined to be invalid, void, illegal or
unenforceable, the remainder of the provisions of this Article 9 shall continue
to be valid and enforceable and shall in no way be affected, impaired or
invalidated.
Section 6. No Impairment. Nothing in this Article 9 shall be construed
to diminish, limit or impair any rights or defenses afforded to officers or
Trustees by common law, statute, other provisions of this Declaration of Trust,
the Trust Bylaws or otherwise, and the provisions of this Article 9 shall be
deemed to be cumulative thereto.
Section 7. References. References in this Article 9 to Trustees or
officers shall be deemed to refer to any person who is or was a Trustee or
officer of the Trust and any person who, while a Trustee or officer of the
Trust, is or was serving at the request of the Trust as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting all of the present
Trustees of Cabot Industrial Trust, have each executed this Declaration of Trust
as Trustees.
-------------------------------------------------
Ferdinand Colloredo-Mansfeld
-------------------------------------------------
Robert E. Patterson
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<PAGE>
STATE OF MASSACHUSETTS )
)
COUNTY OF SUFFOLK )
On the _____ day of October, 1997, before me, the undersigned, a notary
public in and for Suffolk County, Massachusetts, personally appeared Ferdinand
Colloredo-Mansfeld, known to me to be the person whose name is subscribed to the
within instrument and acknowledged that he executed the same for the purposes
therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-------------------------------------------------
Notary Public
My commission expires:
- ---------------
STATE OF MASSACHUSETTS )
)
COUNTY OF SUFFOLK )
On the _____ day of October, 1997, before me, the undersigned, a notary
public in and for Suffolk County, Massachusetts, personally appeared Robert E.
Patterson, known to me to be the person whose name is subscribed to the within
instrument and acknowledged that he executed the same for the purposes therein
contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-------------------------------------------------
Notary Public
My commission expires:
- ---------------
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<PAGE>
SCHEDULE A
----------
TRUSTEES
--------
Name Class Address
- ---- ----- -------
Ferdinand Colloredo-Mansfeld I Cabot Partners Limited Partnership
Two Center Plaza, Suite 200
Boston, Massachusetts 02108
Robert E. Patterson II Cabot Partners Limited Partnership
Two Center Plaza, Suite 200
Boston, Massachusetts 02108
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<PAGE>
EXHIBIT 3.2
CABOT INDUSTRIAL TRUST
BY-LAWS
October 10, 1997
<PAGE>
CABOT INDUSTRIAL TRUST
BYLAWS
ARTICLE 1. OFFICES
Section 1. Principal Office. The principal office of Cabot Industrial
Trust (the "Trust") shall be located at such place or places as the Board of
Trustees (the "Board") of the Trust may designate.
Section 2. Additional Offices. The Trust may have additional offices at
such places as the Board may from time to time determine or the business of the
Trust may require.
ARTICLE 2. MEETINGS OF SHAREHOLDERS
Section 1. Place. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States as
shall be stated in the notice of the meeting.
Section 2. Annual Meeting. An annual meeting of shareholders for the
election of Trustees and the transaction of any business within the powers of
the Trust shall be held within a reasonable period (not less than 30 days)
following delivery of the annual report described in Section 4 of Article 4 of
the Declaration of Trust, on such date and at such time as the Board may
prescribe beginning in 1998, but in any event such meeting must be held within
six months after the end of each full fiscal year.
Section 3. Special Meetings. Special meetings of shareholders may be
called by a majority of the Board, a majority of the Independent Trustees (as
defined in Section 1 of Article 5 of the Declaration of Trust) or by any
executive officer of the Trust. Special meetings of shareholders shall also be
called by the Secretary upon the written request of shareholders holding in the
aggregate not less than twenty-five percent of the outstanding shares of the
Trust entitled to vote at such meeting. Such request shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
Secretary shall inform such shareholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Trust of
such costs, the Secretary shall give notice to each shareholder entitled to
notice of the meeting. Unless requested by shareholders entitled to cast a
majority of all the 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 meeting of shareholders held during the preceding 12
months.
Section 4. Notice. Not less than ten nor more than 60 days before each
meeting of shareholders, the Secretary shall give to each shareholder of record
entitled to vote at such meeting and to each shareholder not entitled to vote
who is entitled to notice of such meeting written or printed notice stating the
place, date and time of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose or purposes for which the
meeting is called,
2
<PAGE>
either personally or by mail. If mailed, such notice shall be deemed to be given
when deposited in the United States mail addressed to the shareholder at his or
her post office address as it appears on the records of the Trust, with postage
thereon prepaid.
Section 5. Scope of Notice. Subject to Section 11(a) of this Article 2,
any business of the Trust may be transacted at an annual meeting of shareholders
without being specifically designated in the notice, except such business as is
required by statute to be stated in such notice. No business shall be transacted
at a special meeting of shareholders except as specifically designated in the
notice as provided in Section 11(b) of this Article 2.
Section 6. Quorum. At any meeting of shareholders, the presence in person
or by proxy of a majority of the outstanding shares entitled to vote at such
meeting shall constitute a quorum; but this Section 6 shall not affect any
requirement under any statute or the Declaration of Trust for the vote necessary
for the adoption of any measure. If, however, such quorum shall not be present
at any meeting of shareholders, the shareholders entitled to vote at such
meeting, present in person or by proxy, shall have power to adjourn the meeting
from time to time to a date not more than 120 days after the original record
date without notice other than announcement at the meeting. At such adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 7. Voting. A plurality of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share entitled to vote may be voted for as many
individuals as there are Trustees to be elected and for whose election the share
is entitled to be voted. There shall be no right of cumulative voting. A
majority of the votes cast at a meeting of shareholders duly called and at which
a quorum is present shall be sufficient to approve any other matter which may
properly come before the meeting, unless more than a majority of the votes cast
is required by statute or by the Declaration of Trust. Unless otherwise provided
in the Declaration of Trust or Articles Supplementary, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders.
Section 8. Proxies. A shareholder may vote the shares owned of record by
him or her, either in person or by proxy executed in writing by the shareholder
or by his or her duly authorized attorney in fact. Such proxy shall be filed
with the Secretary before or at the time of the meeting. No proxy shall be valid
after 11 months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares by Certain Holders. Shares registered in the
name of a corporation, partnership, trust or other entity, if entitled to be
voted, may be voted by the president or a vice president, a general partner or
trustee thereof, as the case may be, or a proxy appointed by any of the
foregoing individuals, unless some other person who has been appointed to vote
such shares pursuant to a bylaw or a resolution of the board of directors of
such corporation or governing body of such other entity presents a certified
copy of such bylaw or resolution, in which case such person may vote such
shares. Any trustee or other fiduciary may vote shares registered in his or her
name as such fiduciary, either in person or by proxy.
3
<PAGE>
Shares of the Trust directly or indirectly owned by it shall not be voted
at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Board may adopt by resolution a procedure by which a shareholder may
certify in writing to the Trust that any shares registered in the name of the
shareholder are held for the account of a specified person other than the
shareholder. The resolution shall set forth the class of shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Board considers necessary or
desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Section 10. Inspectors. At any meeting of shareholders, the presiding
officer of the meeting may, and upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of shares represented at the meeting based
on their determination of the validity and effect of proxies, count all votes,
report the results and perform such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof.
Section 11. Nominations and Shareholder Business.
(a) Annual Meetings of Shareholders.
(i) Nominations of persons for election to the Board and the
proposal of business to be considered by the shareholders may be made at an
annual meeting of shareholders (A) pursuant to the Trust's notice of meeting,
(B) by or at the direction of the Board or (C) by any shareholder of the Trust
who was a shareholder of record at the time of giving the notice provided for in
this Section 11(a), who is entitled to vote at the meeting and who complied with
the notice procedures set forth in this Section 11(a).
(ii) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (C) of paragraph
(i) of this Section 11(a), the
4
<PAGE>
shareholder must have given timely notice thereof in writing to the Secretary.
To be timely, a shareholder's notice shall be delivered to the Secretary at the
principal executive offices of the Trust not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that if the date of the annual meeting is advanced by more
- -------- -------
than 30 days or delayed by more than 60 days from such anniversary date or if
the Trust has not previously held an annual meeting, notice by the shareholder
to be timely must be so delivered not more than 90 days prior to such annual
meeting nor less than 60 days prior to such annual meeting or ten days following
the day on which public announcement of the date of such meeting is first made
by the Trust. Such shareholder's notice shall set forth (A) as to each person
whom the shareholder proposes to nominate for election or reelection as a
Trustee, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of Trustees, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Trustee if elected), (B) as to any other business that the shareholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and of
the beneficial owner, if any, on whose behalf the proposal is made, and (C) as
to the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (1) the name and address of such
shareholder, as they appear on the Trust's books, and of such beneficial owner
and (2) the class and number of shares of the Trust which are owned beneficially
and of record by such shareholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
paragraph (ii) of this Section 11(a) to the contrary, if the number of Trustees
to be elected to the Board is increased and there is no public announcement
naming all of the nominees for Trustee or specifying the size of the increased
Board made by the Trust at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by this Section
11(a) shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Trust not more than ten days
following the day on which such public announcement is first made by the Trust.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Trust's notice of meeting. Nominations of persons
for election to the Board may be made at a special meeting of shareholders at
which Trustees are to be elected (i) pursuant to the Trust's notice of meeting,
(ii) by or at the direction of the Board or (iii) provided that the Board has
--------
determined that Trustees shall be elected at such special meeting, by any
shareholder of the Trust who was a shareholder of record at the time of giving
of notice provided for in this Section 11(b), who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this Section
11(b). If the Trust calls a special meeting of shareholders for the purpose of
electing one or more Trustees to the Board, any such shareholder may nominate a
person or persons (as the case may be) for election to such position as
specified in the Trust's notice of meeting, if the shareholder's notice required
by paragraph (ii) of Section 11(a) shall be delivered to the Secretary at the
principal
5
<PAGE>
executive offices of the Trust not more than 90 days prior to such meeting nor
less than 60 days prior to such meeting or ten days following the day on which
public announcement of the date of the special meeting and of the nominees
proposed by the Board to be elected at such meeting is first made by the Trust.
(c) General.
(i) Only such persons who are nominated in accordance with
the procedures set forth in this Section 11 shall be eligible to serve as
Trustees and only such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 11. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 11 and, if any proposed nomination or business is not in
compliance with this Section 11, to declare that such nomination or proposal be
disregarded.
(ii) For purposes of this Section 11, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Trust with the Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
11, a shareholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 11. Nothing in this Section 11
shall be deemed to affect any rights of shareholders to request inclusion of,
nor any rights of the Trust to omit, proposals in the Trust's proxy statement
pursuant to Rule 14a-8 under the Exchange Act.
Section 12. Informal Action by Shareholders. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled to
notice of the meeting of shareholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the shareholders.
Section 13. Voting by Ballot. Voting on any question or in any election
may be vive voce unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE 3. TRUSTEES
Section 1. General Powers. The business and affairs of the Trust shall be
managed under the direction of the Board. The Board shall keep a record of its
acts and proceedings, which shall form a part of the records of the Trust in the
custody of the Secretary.
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Section 2. Number, Term and Qualifications. At any regular meeting or at
any special meeting called for that purpose, a majority of the Trustees may
establish, increase or decrease the number of Trustees, provided that the number
--------
thereof shall never be less than three nor more than 15, and provided further
-------- -------
that the term of office of a Trustee shall not be affected by any decrease in
the number of Trustees. Each Trustee shall hold office for the term for which he
or she is elected and until his or her successor is elected and qualifies,
subject, however, to prior death, resignation or removal from office.
Section 3. Annual and Regular Meetings. An annual meeting of the Board
shall be held immediately after and at the same place as the annual meeting of
shareholders, no notice other than this Bylaw being necessary. The Board may
provide, by resolution, the time and place, either within or without the State
of Maryland, for the holding of regular meetings of the Board without other
notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board may be called
by or at the request of the Chairman and Chief Executive Officer or the
President or by a majority of the Trustees then in office. The person or persons
authorized to call special meetings of the Board may fix any place, either
within or without the State of Maryland, as the place for holding any special
meeting of the Board called by them.
Section 5. Notice. Notice of any special meeting shall be given by
written notice delivered personally, transmitted by facsimile, telegraphed or
mailed to each Trustee at his or her business or residence address. Personally
delivered, facsimile transmitted or telegraphed notices shall be given at least
two days prior to the meeting. Notice by mail shall be given at least five days
prior to the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. If given by telegram, such notice shall be deemed to be given when the
telegram is delivered to the telegraph company. If given by facsimile, such
notice shall be deemed to be given upon completion of the transmission and
receipt of a completed answer-back indicating receipt. Neither the business to
be transacted at, nor the purpose of, any annual, regular or special meeting of
the Board need be stated in the notice, unless specifically required by statute
or these Bylaws.
Section 6. Quorum. A majority of the Trustees shall constitute a quorum
for transaction of business at any meeting of the Board, provided that, if less
--------
than a majority of the Trustees are present at any meeting, a majority of the
Trustees present may adjourn the meeting from time to time without further
notice, and provided further that if, pursuant to the Declaration of Trust or
-------- -------
these Bylaws, the vote of a majority of a particular group of Trustees is
required for action, a quorum must also include a majority of such group. The
Trustees present at a meeting which has been duly called and convened may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Trustees to leave less than a quorum.
Section 7. Voting. Except as otherwise provided in the Declaration of
Trust, the action of a majority of the Trustees present at a meeting at which a
quorum is present shall be the action
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of the Board, unless the concurrence of a greater proportion is required for
such action by applicable statute.
Section 8. Telephone Meetings. Trustees may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. Informal Action by Trustees. Any action required or permitted
to be taken at any meeting of the Board may be taken without a meeting, if a
consent in writing to such action is signed by each Trustee and such written
consent is filed with the minutes of proceedings of the Board.
Section 10. Vacancies. If for any reason any or all of the Trustees shall
cease to be Trustees, such event shall not affect these Bylaws or the powers of
the remaining Trustees hereunder (even if fewer than three Trustees remain). Any
vacancy (including a vacancy created by an increase in the number of Trustees)
shall be filled, at any regular meeting or at any special meeting called for
that purpose, by a majority of the Trustees. Any individual so elected as a
Trustee shall hold office until the next annual meeting of shareholders.
Section 11. Removal. The shareholders may, at any time, remove any
Trustee in the manner provided in the Declaration of Trust.
ARTICLE 4. COMMITTEES
Section 1. Executive Committee. The Board, by resolution adopted by a
majority of the Trustees, may designate two or more Trustees to constitute an
Executive Committee, to serve as such, unless the resolution designating the
Executive Committee is sooner amended or rescinded by the Board , until the next
annual meeting of the Board or until their respective successors are designated.
A majority of the members of the Executive Committee shall be Independent
Trustees (as defined in Section 1 of Article 5 of the Declaration of Trust). The
Board, by resolution adopted by a majority of the Trustees, may also designate
additional Trustees as alternate members of the Executive Committee to serve as
members of the Executive Committee in the place and stead of any regular member
or members who may be unable to attend a meeting or otherwise unavailable to act
as a member of the Executive Committee. In the absence or disqualification of a
member and all alternate members who may serve in the place and stead of such
member, the member or members present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another Trustee to act at the meeting in the place of any
such absent or disqualified member.
Except as expressly limited by the laws of the State of Maryland or the
Declaration of Trust, the Executive Committee shall have and may exercise all
the powers and authority of the Board in the management of the business and
affairs of the Trust between the meetings of the Board. The
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Executive Committee shall keep a record of its acts and proceedings, which shall
form a part of the records of the Trust in the custody of the Secretary, and all
actions of the Executive Committee shall be reported to the Board at the next
meeting of the Board.
Meetings of the Executive Committee may be called at any time by the
Chairman (or any Co-Chairman), any Vice Chairman, the Chief Executive Officer,
the President or any two Executive Committee members. No notice of meetings need
be given. A majority of the members of the Executive Committee shall constitute
a quorum for the transaction of business and, except as expressly limited by
this Section 1, the act of a majority of the members present at any meeting at
which there is a quorum shall be the act of the Executive Committee. Except as
expressly provided in this Section 1, the Executive Committee shall fix its own
rules of procedure.
Section 2. Audit Committee. The Board, by resolution adopted by a
majority of the Trustees, may designate two or more Trustees to constitute an
Audit Committee, to serve as such, unless the resolution designating the Audit
Committee is sooner amended or rescinded by the Board, until the next annual
meeting of the Board or until their respective successors are designated. The
Board, by resolution adopted by a majority of the Trustees, may also designate
additional Trustees as alternate members of the Audit Committee to serve as
members of the Audit Committee in the place and stead of any regular member or
members who may be unable to attend a meeting or otherwise unavailable to act as
a member of the Audit Committee. In the absence or disqualification of a member
and all alternate members who may serve in the place and stead of such member,
the member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another Trustee to act at the meeting in the place of any such absent or
disqualified member. Each member of the Audit Committee shall be independent of
management of the Trust and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of independent judgment as a member
of the Audit Committee.
Except as expressly limited by the laws of the State of Maryland or the
Declaration of Trust, the Audit Committee shall have and may exercise all the
powers and authority of the Board to establish auditing procedures for the Trust
and to appoint and oversee the Trust's independent public accountants to the
fullest extent. The Audit Committee shall keep a record of its acts and
proceedings, which shall form a part of the records of the Trust in the custody
of the Secretary, and all actions of the Audit Committee shall be reported to
the Board at the next meeting of the Board.
Meetings of the Audit Committee may be called at any time by the Chairman
and Chief Executive Officer or the President or by any two Audit Committee
members. Two days' written or telephonic notice of meetings shall be given. A
majority of the members of the Audit Committee shall constitute a quorum for the
transaction of business and, except as expressly limited by this Section 2, the
act of a majority of the members present at any meeting at which there is a
quorum shall be the act of the Audit Committee. Except as expressly provided in
this Section 2, the Audit Committee shall fix its own rules of procedure.
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Section 3. Executive Compensation Committee. The Board, by resolution
adopted by a majority of the Trustees, may designate two or more Trustees to
constitute an Executive Compensation Committee, to serve as such, unless the
resolution designating the Executive Compensation Committee is sooner amended or
rescinded by the Board, until the next annual meeting of the Board or until
their respective successors are designated. The Board, by resolution adopted by
a majority of the Trustees, may also designate additional Trustees as alternate
members of the Executive Compensation Committee to serve as members of the
Executive Compensation Committee in the place and stead of any regular member or
members who may be unable to attend a meeting or otherwise unavailable to act as
a member of the Executive Compensation Committee. In the absence or
disqualification of a member and all alternate members who may serve in the
place and stead of such member, the member or members present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another Trustee to act at the meeting in the
place of any such absent or disqualified member. Each member of the Executive
Compensation Committee shall be a "non-employee director" within the meaning of
Rule 16b-3(b)(3)(i) promulgated under the Exchange Act. A majority of the
members of the Executive Compensation Committee shall be Independent Trustees
(as defined in Section 1 of Article 5 of the Declaration of Trust).
Except as expressly limited by the laws of the State of Maryland or the
Declaration of Trust, the Executive Compensation Committee shall have and may
exercise such powers as the Board may determine and specify by resolution. The
Executive Compensation Committee shall keep a record of its acts and
proceedings, which shall form a part of the records of the Trust in the custody
of the Secretary, and all actions of the Executive Compensation Committee shall
be reported to the Board at the next meeting of the Board.
Meetings of the Executive Compensation Committee may be called at any time
by the Chairman and Chief Executive Officer or the President or by any two
Executive Compensation Committee members. Two days' written or telephonic notice
of meetings shall be given. A majority of the members of the Executive
Compensation Committee shall constitute a quorum for the transaction of business
and, except as expressly limited by this Section 3, the act of a majority of the
members present at any meeting at which there is a quorum shall be the act of
the Executive Compensation Committee. Except as expressly provided in this
Section 3, the Executive Compensation Committee shall fix its own rules of
procedure.
Section 4. Other Committees. The Board, by resolution adopted by a
majority of the Trustees, may designate one or more other committees, each such
committee to consist of two or more Trustees. Except as expressly limited by the
laws of the State of Maryland or the Declaration of Trust, any such committee
shall have and may exercise such powers as the Board may determine and specify
in the resolution designating such committee. The Board, by resolution adopted
by a majority of the Trustees, may also designate one or more additional
Trustees as alternate members of any such committee to replace any absent or
disqualified member at any meeting of the committee, and at any time may change
the membership of any committee or amend or rescind the resolution designating
the committee. In the absence or disqualification of a member or alternate
member of a committee, the member of members present at any meeting and not
disqualified from
10
<PAGE>
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another Trustee to act at the meeting in the place of any
such absent or disqualified member, provided that the Trustee so appointed meets
any qualifications stated in the resolution designating the committee. Each
committee shall keep a record of proceedings and report the same to the Board to
such extent and in such form as the Board may require. Unless otherwise provided
in the resolution designating a committee, a majority of all the members of any
such committee may select its chairman, fix its rules of procedure, fix the time
and place of its meetings and specify what notice of meetings, if any, shall be
given.
Section 5. Telephone Meetings. Members of a committee of the Board may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 6. Informal Action by Committees. Any action required or
permitted to be taken at any meeting of a committee of the Board may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
ARTICLE 5. OFFICERS
Section 1. General Provisions. The officers of the Trust may include a
Chairman and Chief Executive Officer, a President, a Chief Financial Officer,
one or more Vice Presidents, a Secretary, a Treasurer, one or more Assistant
Secretaries and one or more Assistant Treasurers. In addition, the Board may
from time to time appoint such other officers with such powers and duties as
they shall deem proper. The officers of the Trust shall be elected annually by
the Board at the first meeting of the Board held after each annual meeting of
shareholders, except that each of the Chairman and Chief Executive Officer and
the President may appoint one or more Vice Presidents, Assistant Secretaries and
Assistant Treasurers. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as may be convenient.
Each officer shall hold office until his or her successor is elected and
qualifies or until his or her death, resignation or removal in the manner
hereinafter provided. Any two or more offices except President and Vice
President may be held by the same person. In its discretion, the Board may leave
unfilled any office. Election of an officer or agent shall not of itself create
contract rights between the Trust and such officer or agent.
Section 2. Removal and Resignation. Any officer or agent of the Trust may
be removed by the Board if in its judgment the best interests of the Trust would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any officer of the Trust may resign at
any time by giving written notice of his or her resignation to the Board, the
Chairman and Chief Executive Officer, the President or the Secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a
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<PAGE>
resignation shall not be necessary to make it effective unless otherwise stated
in the resignation. Such resignation shall be without prejudice to the contract
rights, if any, of the Trust.
Section 3. Vacancies. A vacancy in any office may be filled by the Board
for the balance of the term.
Section 4. Chairman and Chief Executive Officer. The Chairman and Chief
Executive Officer shall preside over the meetings of the Board and of
shareholders at which he or she shall be present. The Chairman and Chief
Executive Officer shall have general responsibility for implementation of the
policies of the Trust, as determined by the Board, and for the management,
supervision and control of all of the business and affairs of the Trust. He or
she may execute any deed, mortgage, bond, contract or other instrument, except
in cases where the execution thereof shall be expressly delegated by the Board
or by these Bylaws to some other officer or agent of the Trust or shall be
required by law to be otherwise executed; and in general shall perform all
duties incident to the office of Chairman and Chief Executive Officer and such
other duties as may be prescribed by the Board from time to time.
Section 5. President. The President shall have general responsibility for
implementation of the policies of the Trust, as determined by the Board and the
Chairman and Chief Executive Officer. In the absence of the Chairman and Chief
Executive Officer, or if there is a vacancy in such office, the President shall
perform the duties of the Chairman and Chief Executive Officer and when so
acting shall have all the powers of and be subject to all the restrictions on
the Chairman and Chief Executive Officer. He or she may execute any deed,
mortgage, bond, contract or other instrument, except in cases where the
execution thereof shall be expressly delegated by the Board or the Chairman and
Chief Executive Officer or by these Bylaws to some other officer or agent of the
Trust or shall be required by law to be otherwise executed; and in general shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board or the Chairman and Chief Executive Officer from
time to time.
Section 6. Chief Financial Officer. The Chief Financial Officer shall
have general responsibility for implementation of the policies of the Trust, as
determined by the Board, the Chairman and Chief Executive Officer or the
President, and for the management, supervision and control of the financial and
accounting affairs of the Trust. In the absence of a designation of a Treasurer
by the Board, the Chief Financial Officer shall be the Treasurer of the Trust.
In the absence of the Chairman and Chief Executive Officer and the President, or
if there are vacancies in such offices, the Chief Financial Officer shall
perform the duties of the Chairman and Chief Executive Officer and the President
and when so acting shall have all the powers of and be subject to all the
restrictions on the Chairman and Chief Executive Officer and the President. He
or she may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Board, the Chairman and Chief Executive Officer or the President or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed; and in general shall perform all duties incident to
the office of Chief Financial Officer and such other duties as may be prescribed
by the Board, the Chairman and Chief Executive Officer or the President from
time to time.
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Section 7. Vice Presidents. In the absence of the Chairman and Chief
Executive Officer, the President and the Chief Financial Officer, or if there
are vacancies in such offices, the Vice President (or if there is more than one
Vice President, the Vice Presidents in the order designated at the time of their
election or, in the absence of any designation, then in the order of their
election) shall perform the duties of the Chairman and Chief Executive Officer
and the President and when so acting shall have all the powers of and be subject
to all the restrictions on the Chairman and Chief Executive Officer and the
President; and shall perform such other duties as from time to time may be
assigned to him or her or them by the Chairman and Chief Executive Officer, the
President or the Board . The Board may designate one or more Vice Presidents as
Executive Vice Presidents or as Vice Presidents for particular areas of
responsibility.
Section 8. Secretary. The Secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Board and committees of the Board in one or
more books provided for that purpose, (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law, (c) be
custodian of the records and of the seal of the Trust, (d) keep a register of
the post office address of each shareholder which shall be furnished to the
Secretary by such shareholder, (e) have general charge of the share transfer
books of the Trust and (f) in general perform such other duties as from time to
time may be assigned to him or her by the Chairman and Chief Executive Officer
or the Board.
Section 9. Treasurer. The Treasurer shall have the custody of the funds
and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Board. In the absence of a
designation of a Chief Financial Officer by the Board, the Treasurer shall be
the Chief Financial Officer.
The Treasurer shall disburse the funds of the Trust as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to
the Chairman and Chief Executive Officer, the President and the Board, at the
regular meetings of the Board or whenever it may so require, an account of all
his or her transactions as Treasurer and of the financial condition of the
Trust.
If required by the Board, he or she shall give the Trust a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board for the
faithful performance of the duties of his or her office and for the restoration
to the Trust, in case of his or her death, resignation, retirement or removal
from office, of all books, papers, vouchers, moneys and other property of
whatever kind in his or her possession or under his or her control belonging to
the Trust.
Section 10. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or Treasurer, respectively, or by the
Chairman and Chief Executive Officer, the President or the Board. The Assistant
Treasurers shall, if required by the Board, give bonds for the faithful
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performance of their duties in such sums and with such surety or sureties as
shall be satisfactory to the Board.
Section 11. Salaries. The salaries and other compensation of the officers
shall be fixed from time to time by the Board and no officer shall be prevented
from receiving such salary by reason of the fact that he or she is also a
Trustee.
ARTICLE 6. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Chairman and Chief Executive Officer, the
President, the Chief Financial Officer and each Vice President are each
authorized to enter into any contract and to execute and deliver any instrument
in the name of and on behalf of the Trust, so long as the dollar value of the
Trust's obligation or liability under such contract or instrument does not
exceed $100,000. The Board may authorize any officer or agent to enter into any
contract or to execute and deliver any instrument in the name of and on behalf
of the Trust, and such authority may be general or confined to specific
instances. Any agreement, deed, mortgage, lease or other document executed by
one or more of the Trustees or by an authorized person shall be valid and
binding on the Board and on the Trust when such execution is authorized or
ratified by these Bylaws or by action of the Board.
Section 2. Checks and Drafts. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Trust shall be signed by the Chief Financial Officer or such officer or
officers, agent or agents of the Trust designated by the Chief Financial Officer
or in such other manner as shall from time to time be determined by the Board.
Section 3. Deposits. All funds of the Trust not otherwise employed shall
be deposited from time to time to the credit of the Trust in such banks, trust
companies or other depositories as the Chairman and Chief Executive Officer, the
President, the Chief Financial Officer or the Board may designate.
ARTICLE 7. SHARES
Section 1. Certificates. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class held by him or her in the Trust. Each certificate shall be
signed by the Chairman and Chief Executive Officer, the President or any Vice
President and countersigned by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer and may be sealed with the seal, if any, of
the Trust. The signatures may be either manual or facsimile. Certificates shall
be consecutively numbered; and if the Trust shall, from time to time, issue
several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers,
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which are preferred or limited as to their dividends or distributions or as to
their allocable portion of the assets upon liquidation or which are redeemable
at the option of the Trust, shall have a statement of such restriction,
limitation, preference or redemption provision, or a summary thereof, plainly
stated on the certificate. In lieu of such statement or summary, the Trust may
set forth on the face or back of the certificate a statement that the Trust will
furnish to any shareholder, upon request and without charge, a full statement of
such information.
Section 2. Transfers. Upon surrender to the Trust or the transfer agent
of the Trust of a share certificate duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Trust shall
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction on its books.
The Trust shall be entitled to treat the holder of record of any share as
the holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Maryland.
Any issuance, redemption or transfer of, or restriction on, shares which
would operate to disqualify the Trust as a real estate investment trust for
Federal income tax purposes shall be void ab initio.
Notwithstanding the foregoing, transfers of shares of any class will be
subject in all respects to the Declaration of Trust and all of the terms and
conditions contained therein.
Section 3. Lost Certificate. The Board or the Secretary (or any other
officer designated by the Board or the Secretary) may direct a new certificate
to be issued in place of any certificate previously issued by the Trust alleged
to have been lost, stolen or destroyed upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen or destroyed.
When authorizing the issuance of a new certificate, the Board or the Secretary
(or any other officer designated by the Board or the Secretary) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or his or her legal
representative to advertise the same in such manner as it or he or she shall
require and/or to give bond, with sufficient surety, to the Trust to indemnify
it against any loss or claim which may arise as a result of the issuance of a
new certificate.
Section 4. Closing of Transfer Books or Fixing of Record Date. The Board
may set, in advance, a record date for the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any dividend or distribution or the allotment of
any other rights, or in order to make a determination of shareholders for any
other proper purpose. Such date, in any case, shall not be prior to the close of
business on the day the record date is fixed and shall be not more than 90 days
and, in the case of a meeting of shareholders, not less than ten days, before
the date on which the meeting or particular action requiring such determination
of shareholders is to be held or taken.
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In lieu of fixing a record date, the Board may provide that the share
transfer books shall be closed for a stated period but not longer than 20 days.
If the share transfer books are closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed for
the determination of shareholders, (a) the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting,
and (b) the record date for the determination of shareholders entitled to
receive payment of a dividend or distribution or an allotment of any other
rights shall be the close of business on the day on which the resolution of the
Board declaring the dividend or distribution or allotment of rights is adopted.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 4, such determination
shall apply to any adjournment thereof, except when (a) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (b) the meeting is adjourned to a date more than 120 days
after the record date fixed for the original meeting, in either of which cases a
new record date shall be determined as provided above.
Section 5. Share Ledger. The Trust shall maintain at its principal office
or at the office of its counsel, accountants or transfer agent, an original or
duplicate share ledger containing the name and address of each shareholder and
the number of shares of each class held by such shareholder.
Section 6. Fractional Shares; Issuance of Units. The Board may issue
fractional shares or provide for the issuance of scrip, all on such items and
under such conditions as they may determine. Notwithstanding any other provision
of the Declaration of Trust or these Bylaws, the Board may issue units
consisting of different securities of the Trust. Any security issued in a unit
shall have the same characteristics as any identical securities issued by the
Trust, except that the Board may provide that for a specified period securities
of the Trust issued in such unit may be transferred on the books of the Trust
only in such unit.
ARTICLE 8. ACCOUNTING YEAR
The Board shall have the power, from time to time, to fix the fiscal year
of the Trust by a duly adopted resolution.
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ARTICLE 9. DIVIDENDS AND DISTRIBUTIONS
Section 1. Declaration. Dividends and distributions on the shares of the
Trust may be authorized and declared by the Board, subject to the provisions of
law and the Declaration of Trust. Dividends and distributions may be paid in
cash, property or other assets of the Trust or in securities of the Trust or
from any other source as the Board in its discretion shall determine, subject to
the provisions of law and the Declaration of Trust.
Section 2. Contingencies. Before payment of any dividends or
distributions, there may be set aside out of any funds of the Trust available
for dividends and distributions such sum or sums as the Board may from time to
time, in its absolute discretion, think proper as a reserve fund for
contingencies, for equalizing dividends and distributions, for repairing or
maintaining any property of the Trust or for such other purpose as the Board
shall determine to be in the best interest of the Trust, and the Board may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE 10. INVESTMENT POLICY
Subject to the provisions of law and the Declaration of Trust, the Board
may from time to time adopt, amend, revise or terminate any policy or policies
with respect to investments by the Trust as it shall deem appropriate in its
sole discretion.
ARTICLE 11. SEAL
Section 1. Seal. The Board may authorize the adoption of a seal by the
Trust. The seal shall have inscribed thereon the name of the Trust. The Board
may authorize one or more duplicate seals and provide for the custody thereof.
Section 2. Affixing Seal. Whenever the Trust is required to affix its
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Trust.
ARTICLE 12. INDEMNIFICATION
To the maximum extent permitted by Maryland law, as amended from time to
time, the Trust shall indemnify and hold harmless, and pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to, each
Trustee and officer from and against all claims and liabilities, whether they
proceed to judgment or are settled, in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, to which such Trustee or officer may become subject by reason
of his or her being or having been a
17
<PAGE>
Trustee or officer, or by reason of any action alleged to have been taken or
omitted by him or her as Trustee or officer, and shall reimburse him or her for
all reasonable legal and other expenses incurred by him or her in connection
with any such claim or liability, including any claim or liability arising under
the provisions of federal or state securities laws; provided, however, that no
-------- -------
Trustee or officer shall be entitled to indemnification under the foregoing
provisions in relation to any matter if it shall have been established that his
or her action or omission was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty or the Trustee or officer actually received an improper
personal benefit in money, property or services or, in the case of any criminal
proceeding, the Trustee or officer had reasonable cause to believe that the act
or omission was unlawful. The foregoing indemnification shall include any action
alleged to have been taken or omitted by any such Trustee or officer by reason
of serving or having served at the request of the Trust as a director, trustee,
officer, partner, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The Trust, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall pay or reimburse reasonable expenses, as
such expenses are incurred by any Trustee or officer in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which such Trustee or officer a
Trustee or officer; provided that if such payment or reimbursement is to be made
--------
prior to the final disposition of any proceeding to which a Trustee or officer
is a party, no payment or reimbursement shall be made by the Trust unless and
until the Trust shall receive a written affirmation from such Trustee or officer
of his or her good faith belief that the standard for indemnification of a
Trustee or officer under Maryland law and as provided above has been met and a
written undertaking by such Trustee or officer to repay such amounts paid or
reimbursed by the Trust if it shall ultimately be determined that such standard
for indemnification has not been met. The rights accruing to a Trustee or
officer under these provisions shall not exclude any other right to which he or
she may be lawfully entitled, nor shall anything herein contained restrict the
right of the Trust to indemnify or reimburse such Trustee or officer in any
proper cause even though not specifically provided for herein.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of these Bylaws or Declaration of Trust
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE 13. WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Declaration of
Trust or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except if such person
18
<PAGE>
attends such meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
ARTICLE 14. AMENDMENT OF BYLAWS
The Board shall have the exclusive power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws. Notwithstanding anything to
the contrary contained herein, after the closing of the Initial Public Offering
(as such term is defined in Section 1 of Article 3 of the Declaration of Trust),
any amendment to Sections 6 and 7 of Article 3, Sections 1 and 3 of Article 4
and this Article 14 shall first be approved by a majority of the Independent
Trustees (as defined in Section 1 of Article 5 of the Declaration of Trust).
19
<PAGE>
EXHIBIT 3.5
-----------
EXHIBIT A
---------
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CABOT INDUSTRIAL PROPERTIES, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I -- DEFINED TERMS......................................................... 1
"Act"......................................................................... 1
"Additional Limited Partner".................................................. 2
"Adjusted Capital Account".................................................... 2
"Adjusted Capital Account Deficit"............................................ 2
"Adjusted Property"........................................................... 2
"Affiliate"................................................................... 2
"Agreed Value"................................................................ 2
"Agreement"................................................................... 3
"Assignee".................................................................... 3
"Available Cash".............................................................. 3
"Bankruptcy".................................................................. 3
"Book-Tax Disparities"........................................................ 4
"Business Day"................................................................ 4
"Cabot Advisors".............................................................. 4
"Capital Account"............................................................. 4
"Capital Contribution"........................................................ 4
"Carrying Value".............................................................. 4
"Certificate"................................................................. 5
"Code"........................................................................ 5
"Common Share Rights"......................................................... 5
"Common Shares"............................................................... 5
"Consent"..................................................................... 5
"Contributed Property"........................................................ 5
"Conversion Right"............................................................ 5
"Converting Partner".......................................................... 5
"Debt"........................................................................ 5
"Declaration of Trust"........................................................ 6
"Depreciation"................................................................ 6
"Dispose of".................................................................. 6
"Effective Date".............................................................. 6
"Events of Dissolution"....................................................... 6
"Exchange Act"................................................................ 6
"General Partner"............................................................. 6
"General Partnership Interest"................................................ 6
"IRS"......................................................................... 6
"Immediate Family"............................................................ 6
"Incapacity".................................................................. 7
"Indemnitee".................................................................. 7
"Initial Limited Partner"..................................................... 7
</TABLE>
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<TABLE>
<S> <C>
"Limited Partner"............................................................. 7
"Limited Partnership Interest"................................................ 7
"Liquidating Transaction"..................................................... 7
"Liquidator".................................................................. 7
"Lock-up"..................................................................... 7
"Lock-up Period".............................................................. 7
"Net Income".................................................................. 7
"Net Loss".................................................................... 8
"New Securities".............................................................. 8
"Nonrecourse Built-in Gain"................................................... 8
"Nonrecourse Deductions"...................................................... 8
"Nonrecourse Liability"....................................................... 8
"Notice of Conversion"........................................................ 8
"Option Plans"................................................................ 8
"Original Partnership Agreement".............................................. 8
"Partner"..................................................................... 8
"Partner Minimum Gain"........................................................ 8
"Partner Nonrecourse Debt".................................................... 9
"Partner Nonrecourse Deductions".............................................. 9
"Partnership"................................................................. 9
"Partnership Interest"........................................................ 9
"Partnership Minimum Gain".................................................... 9
"Partnership Record Date"..................................................... 9
"Partnership Unit" or "Unit".................................................. 9
"Partnership Year"............................................................ 9
"Percentage Interest"........................................................ 10
"Person"..................................................................... 10
"Recapture Income"........................................................... 10
"Redemption Amount".......................................................... 10
"Registration Rights and Lock-up Agreement".................................. 10
"Regulations"................................................................ 10
"REIT"....................................................................... 10
"Residual Gain" or "Residual Loss"........................................... 10
"704(c) Value"............................................................... 10
"Shares"..................................................................... 11
"Specified Conversion Date".................................................. 11
"Subsidiary"................................................................. 11
"Substituted Limited Partner"................................................ 11
"Transaction"................................................................ 11
"Unit Adjustment Factor"..................................................... 11
"Unrealized Gain"............................................................ 11
</TABLE>
ii
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<TABLE>
<S> <C>
"Unrealized Loss"............................................................ 12
"Valuation Date"............................................................. 12
"Value"...................................................................... 12
ARTICLE II -- ORGANIZATIONAL MATTERS.............................................. 12
Section 2.1 Organization and Continuation; Application of Act.................. 12
(a) Organization and Continuation of Partnership............. 12
(b) Application of Act....................................... 13
Section 2.2 Name............................................................... 13
Section 2.3 Registered Office and Agent; Principal Office...................... 13
Section 2.4 Withdrawal......................................................... 13
Section 2.5 Term............................................................... 13
ARTICLE III -- PURPOSE............................................................ 13
Section 3.1 Purpose and Business............................................... 13
Section 3.2 Powers............................................................. 14
ARTICLE IV -- CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
CAPITAL ACCOUNTS............................................................. 14
Section 4.1 Capital Contributions of the Partners.............................. 14
(a) Initial Capital Contributions............................ 14
(b) Additional Capital Contributions......................... 14
(c) Return of Capital Contributions.......................... 15
(d) Liability of Limited Partners............................ 15
Section 4.2 Issuances of Additional Partnership Interests...................... 15
(a) Issuance to Other Than the General Partner............... 16
(b) Issuance to the General Partner.......................... 16
(c) Issuance of Additional Common Shares..................... 17
(d) Issuance Pursuant to Option Plans........................ 17
(e) Conversion of Units...................................... 18
Section 4.3 No Preemptive Rights............................................... 19
Section 4.4 Capital Accounts of the Partners................................... 19
(a) General.................................................. 19
(b) Income, Gains, Deductions and Losses..................... 20
(c) Transfers of Partnership Units........................... 20
(d) Unrealized Gains and Losses.............................. 20
(e) Modification by General Partner.......................... 21
ARTICLE V -- DISTRIBUTIONS........................................................ 22
Section 5.1 Requirement and Characterization of Distributions.................. 22
Section 5.2 Amounts Withheld................................................... 22
</TABLE>
iii
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<TABLE>
<S> <C>
Section 5.3 Distributions Upon Liquidation..................................... 22
ARTICLE VI -- ALLOCATIONS......................................................... 22
Section 6.1 Allocations For Capital Account Purposes Other than
the Taxable Year of Liquidation.................................... 22
(a) Net Income............................................... 23
(b) Net Losses............................................... 23
(c) Nonrecourse Liabilities.................................. 23
(d) Gains.................................................... 23
Section 6.4 Special Allocation Rules........................................... 25
(a) Minimum Gain Chargeback.................................. 25
(b) Partner Minimum Gain Chargeback.......................... 25
(c) Qualified Income Offset.................................. 26
(d) Nonrecourse Deductions................................... 26
(e) Partner Nonrecourse Deductions........................... 26
(f) Code Section 754 Adjustments............................. 26
Section 6.5 Allocations for Tax Purposes....................................... 26
(a) General.................................................. 26
(b) To Eliminate Book-Tax Disparities........................ 27
(c) Power of General Partner to Elect Method................. 27
ARTICLE VII -- MANAGEMENT AND OPERATIONS OF BUSINESS.............................. 27
Section 7.1 Management......................................................... 27
(a) Powers of General Partner................................ 27
(b) No Approval Required for Above Powers.................... 30
(c) Insurance................................................ 31
(d) Working Capital Reserves................................. 31
(e) No Obligation to Consider Tax Consequences to Limited
Partners................................................. 31
(f) Loss of REOC Status...................................... 31
Section 7.2 Certificate of Limited Partnership................................. 31
Section 7.3 Restrictions on General Partner's Authority........................ 31
Section 7.4 Responsibility for Expenses........................................ 32
(a) No Compensation.......................................... 32
(b) Responsibility for Ownership and Operation Expenses...... 32
(c) Responsibility for Organization Expenses................. 32
Section 7.5 Outside Activities of the General Partner.......................... 32
(a) General.................................................. 32
(b) Purchase of Common Shares................................ 33
Section 7.6 Contracts with Affiliates.......................................... 33
(a) Loans.................................................... 33
</TABLE>
iv
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<TABLE>
<S> <C>
(b) Transfers of Assets............................................ 33
(c) Contracts With General Partner................................. 33
(d) Employee Benefit Plans......................................... 34
(e) Conflict Avoidance Arrangements................................ 34
Section 7.7 Indemnification.......................................................... 34
(a) General........................................................ 34
(b) In Advance of Final Disposition................................ 34
(c) Non-Exclusive Section.......................................... 35
(d) Insurance...................................................... 35
(e) Employee Benefit Plans......................................... 35
(f) No Personal Liability for Limited Partners..................... 35
(g) Interested Transactions........................................ 35
(h) Binding Effect................................................. 35
Section 7.8 Liability of the General Partner......................................... 36
(a) General........................................................ 36
(b) No Obligation to Consider Interests of Limited Partners........ 36
(c) Acts of Agents................................................. 36
(d) Effect of Amendment............................................ 36
(e) Limitation of Liability of Shareholders and Officers of the
General Partner................................................ 36
Section 7.9 Other Matters Concerning the General Partner............................. 37
(a) Reliance on Documents.......................................... 37
(b) Reliance on Consultants and Advisers........................... 37
(c) Action Through Officers and Attorneys.......................... 37
(d) Actions to Maintain REIT Status or Avoid Taxation of General
Partner........................................................ 37
Section 7.10 Title to Partnership Assets.............................................. 37
Section 7.11 Reliance by Third Parties................................................ 38
Section 7.12 UBTI..................................................................... 38
ARTICLE VIII -- RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.............................. 38
Section 8.1 Limitation of Liability.................................................. 38
Section 8.2 Management of Business................................................... 38
Section 8.3 Outside Activities of Limited Partners................................... 39
Section 8.4 Priority Among Limited Partners.......................................... 39
Section 8.5 Rights of Limited Partners Relating to the Partnership................... 40
(a) Copies of Business Records..................................... 40
(b) Notification of Changes in Unit Adjustment Factor.............. 40
(c) Confidential Information....................................... 40
(d) Debt Allocation................................................ 40
Section 8.6 Redemption Right......................................................... 41
(a) General........................................................ 41
</TABLE>
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<TABLE>
<S> <C>
(b) Where Delivery of Common Shares Prohibited....................... 41
Section 8.7 Notice for Certain Transactions............................................ 41
ARTICLE IX -- BOOKS, RECORDS, ACCOUNTING AND REPORTS...................................... 41
Section 9.1 Records and Accounting..................................................... 41
Section 9.2 Fiscal Year................................................................ 42
Section 9.3 Reports.................................................................... 42
(a) Annual Reports................................................... 42
(b) Quarterly Reports................................................ 42
ARTICLE X -- TAX MATTERS.................................................................. 42
Section 10.1 Preparation of Tax Returns................................................. 42
Section 10.2 Tax Elections.............................................................. 43
Section 10.3 Tax Matters Partner........................................................ 43
(a) General.......................................................... 43
(b) Powers........................................................... 43
(c) Reimbursement.................................................... 44
Section 10.4 Organizational Expenses.................................................... 44
Section 10.5 Withholding................................................................ 44
ARTICLE XI -- TRANSFERS, WITHDRAWALS...................................................... 45
Section 11.1 Transfer................................................................... 45
(a) Definition....................................................... 45
(b) Requirements..................................................... 45
Section 11.2 Transfer of General Partner's Partnership Interest......................... 46
(a) General.......................................................... 46
(b) Transfer to Partnership or Holder of Common Shares............... 46
(c) Transfer in Connection With Reclassification, Recapitalization, or
Business Combination Involving General Partner................... 46
(d) Merger Involving General Partner Where Surviving Entity's
Assets Contributed to Partnership................................ 46
Section 11.3 Limited Partners' Rights to Transfer....................................... 47
(a) General.......................................................... 47
(b) Incapacitated Limited Partners................................... 47
(c) Transfers Contrary to Securities Laws............................ 47
(d) Transfers Resulting in Corporation Status; Transfers Through
Established Securities or Secondary Markets...................... 47
(e) Transfers to Holders of Nonrecourse Liabilities.................. 49
Section 11.4 Substituted Limited Partners............................................... 49
(a) Consent of General Partner Required.............................. 49
(b) Rights and Duties of Substituted Limited Partners................ 49
(c) Amendment of Exhibit A........................................... 50
</TABLE>
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<TABLE>
<S> <C>
Section 11.5 Assignees.................................................................. 50
Section 11.6 General Provisions......................................................... 50
(a) Withdrawal of Limited Partner.................................... 50
(b) Transfer of All Partnership Units by Limited Partner............. 50
(c) Timing of Transfers.............................................. 50
(d) Allocation When Transfer Occurs.................................. 50
Section 11.7 Lock-up Agreement.......................................................... 51
(a) Lock-up Period................................................... 51
(b) Exceptions....................................................... 51
ARTICLE XII -- ADMISSION OF PARTNERS...................................................... 52
Section 12.1 Admission of Successor General Partner..................................... 52
Section 12.2 Admission of Additional Limited Partners................................... 53
(a) General.......................................................... 53
(b) Consent of General Partner Required.............................. 53
Section 12.3 Amendment of Agreement and Certificate..................................... 53
ARTICLE XIII -- DISSOLUTION AND LIQUIDATION............................................... 53
Section 13.1 Dissolution................................................................ 53
(a) Expiration of Term............................................... 53
(b) Withdrawal of General Partner.................................... 53
(c) Dissolution Prior to 2097........................................ 53
(d) Judicial Dissolution Decree...................................... 54
(e) Sale of Partnership's Assets..................................... 54
(f) Merger........................................................... 54
(g) Bankruptcy or Insolvency of General Partner...................... 54
(h) Readjustment, etc................................................ 54
Section 13.2 Winding Up................................................................. 55
(a) General.......................................................... 55
(b) Where Immediate Sale of Partnership's Assets Impractical......... 55
Section 13.3 Compliance with Timing Requirements of Regulations; Allowance for
Contingent or Unforeseen Liabilities or Obligations........................ 56
(a) Liquidation...................................................... 56
(b) Deficit Balance of General Partner............................... 56
Section 13.4 Deemed Distribution and Recontribution..................................... 57
Section 13.5 Rights of Limited Partners................................................. 57
Section 13.6 Notice of Dissolution...................................................... 57
Section 13.7 Cancellation of Certificate of Limited Partnership......................... 57
Section 13.8 Reasonable Time for Winding-Up............................................. 57
ARTICLE XIV -- AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS............................... 58
Section 14.1 Amendments................................................................. 58
</TABLE>
vii
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<TABLE>
<S> <C>
(a) General.......................................................... 58
(b) General Partner's Power to Amend................................. 58
(c) Consent of Adversely Affected Partner Required................... 59
(d) When Consent of Majority of Limited Partnership Interests
Required......................................................... 59
Section 14.2 Meetings of the Partners................................................... 59
(a) General.......................................................... 59
(b) Informal Action.................................................. 59
(c) Proxies.......................................................... 60
(d) Conduct of Meeting............................................... 60
ARTICLE XV -- GENERAL PROVISIONS.......................................................... 60
Section 15.1 Addresses and Notice....................................................... 60
Section 15.2 Titles and Captions........................................................ 60
Section 15.3 Pronouns and Plurals....................................................... 61
Section 15.4 Further Action............................................................. 61
Section 15.5 Binding Effect............................................................. 61
Section 15.6 Waiver of Partition........................................................ 61
Section 15.7 Entire Agreement........................................................... 61
Section 15.8 Securities Law Provisions.................................................. 61
Section 15.9 Remedies Not Exclusive..................................................... 61
Section 15.10 Time....................................................................... 61
Section 15.11 Creditors.................................................................. 61
Section 15.12 Waiver..................................................................... 61
Section 15.13 Execution Counterparts..................................................... 62
Section 15.14 Applicable Law............................................................. 62
Section 15.15 Invalidity of Provisions................................................... 62
ARTICLE XVI -- POWER OF ATTORNEY.......................................................... 62
Section 16.1 Power of Attorney.......................................................... 62
(a) Scope............................................................ 62
(b) Irrevocability................................................... 63
EXHIBIT A -- PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS................................................................. 1
EXHIBIT B -- VALUE OF CONTRIBUTED PROPERTY................................................. 2
EXHIBIT C -- NOTICE OF CONVERSION.......................................................... 1
EXHIBIT D -- FORM OF UNIT CERTIFICATE...................................................... 1
</TABLE>
viii
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CABOT INDUSTRIAL PROPERTIES, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of
[ ], of Cabot Industrial Properties, L.P. (the "Partnership") is entered into
-----------
by and among Cabot Industrial Trust, a Maryland real estate investment 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 Partnership was formed by the filing of a certificate of
limited partnership with the Secretary of State of the State of Delaware on
[ ] by the General Partner;
WHEREAS, the General Partner and the Initial Limited Partner (as defined
herein) entered into an Agreement of Limited Partnership on __________, 1997 the
"Original Partnership Agreement" for the formation of the Partnership under the
Revised Uniform Limited Partnership Act of the State of Delaware; and
WHEREAS, the Partners desire (i) to ratify the formation of, and provide
for the continuation of, the Partnership, (ii) to effectuate the introduction of
the Limited Partners into the Partnership (and the withdrawal of the Initial
Limited Partner) and (iii) to set forth their respective rights and duties
relating to the Partnership on the amended and restated terms as provided
herein,
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein made and intending to be legally bound, the parties hereby agree as
follows (such agreement to supersede, amend and restate the Original Partnership
Agreement it its entirety, effective as of the Effective Date (as defined
herein)):
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.
1
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"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.
"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.
2
<PAGE>
"Agreement" means this Amended and Restated 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;
(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
3
<PAGE>
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 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.
"Cabot Advisors" means [Cabot Partners, Inc.], a Delaware corporation,
--------------
of which the Partnership owns all of the outstanding preferred stock.
"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 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.
4
<PAGE>
"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, $.01
-------------
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 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.
5
<PAGE>
"Declaration of Trust" means the Declaration of Trust of the General
--------------------
Partner filed with the Office of Assessments and Taxation of the State of
Maryland on [ ], 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.
"Dispose of" has the meaning set forth in Section 11.7(a).
---------- ---------------
"Effective Date" means the date of closing of the sale of Common
--------------
Shares pursuant to that certain Underwriting Agreement among the General Partner
and J.P. Morgan, Inc., as representative of the other underwriters participating
in the initial public offering of the General Partner's Common Shares.
"Events of Dissolution" has the meaning set forth in Section 13.1.
--------------------- ------------
"Exchange Act" has the meaning set forth in Section 4.2(e).
------------ --------------
"General Partner" means Cabot Industrial Trust, a Maryland real estate
---------------
investment trust, and its successors as a general partner of the Partnership in
accordance with the terms of this Agreement.
"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.
6
<PAGE>
"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 or officer
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 [ ].
-----------------------
"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, 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.
---------- ------------
"Lock-up" has the meaning set forth in Section 11.7(a).
------- ---------------
"Lock-up Period" has the meaning set forth in Section 11.7(a).
-------------- ---------------
"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
- -----------
7
<PAGE>
has been included in the initial computation of Net Income is subjected to the
special allocation rules in Sections 6.4 and 6.5, 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 6.4 and 6.5, 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).
-------------- --------------
"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 6.5(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.
"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 Cabot Advisors or any other Subsidiary.
"Original Partnership Agreement" has the meaning set forth in the
------------------------------
recitals hereto.
"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
8
<PAGE>
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 Cabot Industrial 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 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.
9
<PAGE>
"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, trust,
------
unincorporated organization, association or other entity.
"Qualified Organization" means any "qualified organization" within the
----------------------
meaning of Section 514(c)(9)(C) of the Code.
"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).
--------------
"Registration Rights and Lock-up Agreement" means that certain
-----------------------------------------
Registration Rights and Lock-up Agreement dated as of the date hereof among the
General Partner and the Persons identified as "Holders" on the signature pages
thereto.
"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 6.5(b)(1)(i) or 6.5(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
-----------
10
<PAGE>
Partner shall use such method as it deems reasonable and 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" means any Common Shares issued to a Limited Partner upon
------
conversion of its Units pursuant to Section 4.2(e).
--------------
"Specified Conversion Date" means the tenth Business Day after receipt
-------------------------
by the General Partner of a Notice of Conversion; provided, however, that no
-------- -------
Specified Conversion Date shall occur before one year from the date of this
Agreement without the consent of the General Partner except as provided in
Section 4.2(e).
- --------------
"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. With respect to the General Partner and the
Partnership, "Subsidiary" shall include (without limitation) Cabot Advisors.
"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.
-----------
11
<PAGE>
"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, 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 ten (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 Continuation; Application of Act.
-------------------------------------------------
(a) Organization and Continuation of Partnership. The General
--------------------------------------------
Partner and the Limited Partners do hereby continue, and ratify the
formation of, 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 of the
Partnership.
12
<PAGE>
(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 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 Cabot Industrial
----
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, Wilmington, Delaware 19805-
1297, and the registered agent for service of process on the Partnership in the
State of Delaware at such registered office is the Corporation Service Company.
The principal office of the Partnership is located at Two Center Plaza, Suite
200, Boston, Massachusetts 02108, 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 Withdrawal. The Initial Limited Partner hereby withdraws from
----------
the Partnership.
Section 2.5 Term. The term of the Partnership commenced, and shall
----
continue until December 31, 2097 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
13
<PAGE>
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 and provided further, however, that each of the
-------- ------- -------
foregoing clauses (a), (b) and (c) shall be limited and conducted in such a
manner as to permit the Partnership to qualify as a real estate operating
company under U.S. Department of Labor Regulation Section 29 C.F.R. 2510.3-
101(e) unless the General Partner has obtained an opinion of counsel that the
Partnership is otherwise deemed not to hold "plan assets" under U.S. Department
of Labor Regulation Section 29 C.F.R. 2510.3-101.
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, provided that the
--------
Initial Limited Partner does hereby withdraw as the Initial Limited Partner
upon the execution of 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. The Partnership Units held by the General Partner shall at all
times be deemed to be General Partner units and shall constitute the
General Partnership Interest.
(b) Additional Capital Contributions.
--------------------------------
14
<PAGE>
(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.
-----------
(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.
---------------------------------------------
15
<PAGE>
(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, 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 further however,
------------------------
that any issuance of any classes as provided in the foregoing proviso, made
or authorized to be made prior to the first anniversary of the Effective
Date shall be permitted only with the Consent of the Limited Partners
holding a majority of the Percentage Interests of the Limited Partners.
(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, 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
16
<PAGE>
consideration for such shares, in the event such shares are issued in
consideration for other property.
(c) Issuance of Additional Common Shares. The General Partner is
------------------------------------
explicitly authorized to issue additional Common Shares or preferred Shares
of Beneficial Interest of the General Partner, or rights, options, warrants
or convertible or exchangeable securities containing the right to subscribe
for or purchase Common Shares ("New Securities") and in connection
--------------
therewith (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, 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.
(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.
17
<PAGE>
Partnership Units issued to any such Subsidiary shall represent
Limited Partnership Interests.
(e) Conversion of Units.
-------------------
(1) Subject to the further provisions of this Section 4.2(e) and
--------------
the provisions of Sections 8.6 and 11.7, beginning one year after the
------------ ----
Effective Date or earlier with the written consent of the General
Partner (except as otherwise contractually restricted), 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 beginning one year after the Effective Date (or earlier
upon the written consent of the General Partner) and from time to time
by delivering a Notice of Conversion to the General Partner not less
than ten (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)
--------------
18
<PAGE>
hereof. 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 it would be more likely than not that 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.
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 Section 6.4 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 Section 6.4 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
19
<PAGE>
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.
(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 6.5 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 consideration for an
20
<PAGE>
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 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).
21
<PAGE>
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)) 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 Section 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 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 Section 6.2 through Section 6.4 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 clause (a) of
Section 6.1(a), and (ii) thereafter, Net Income shall be allocated to the
--------------
Partners in accordance with their respective Percentage Interests.
22
<PAGE>
(b) Net Losses. After giving effect to the special allocations set
----------
forth in Section 6.2 through Section 6.4 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 6.4 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 rise to the
treatment of such gains as Recapture Income, all in such a manor consistent
with Regulation Section 1.1245-1.
(e) Override. Notwithstanding Section 6.1(a) or Section 6.1(b), if
--------
any Qualified Organization or the General Partner would be allocated an
amount of aggregate Net Income for any taxable year of the Partnership that
would cause its percentage share of aggregate Net Income for such taxable
year of the Partnership to exceed its Percentage Interest for the taxable
year of the Partnership, an amount of Net Income that would otherwise be
allocated to such Qualified Organization or the General Partner shall
instead be allocated to such other Partners in the amount required to cause
the Net Income allocable to such Qualified Organization or the General
Partner to not exceed each such Partners' Percentage Interest for such
taxable year of the Partnership, and in subsequent fiscal years, an amount
of Net Income otherwise allocable to such other Partners shall instead be
allocated to such Qualified Organization and the General Partner to the
maximum extent possible consistent with this Section 6.1(e) until the
amount of Net Income previously allocated to such other Partners pursuant
to this Section 6.1(e) have been reallocated to such Qualified Organization
and the General Partner.
Section 6.2 Allocations for Capital Account Purposes in the Taxable
-------------------------------------------------------
Year of Liquidation.
-------------------
23
<PAGE>
(a) In General. Subject to Sections 6.3 and 6.4, 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.
(b) Override. Notwithstanding Section 6.2(a), if any Qualified
--------
Organization or the General Partner would be allocated an amount of Net Income
for any taxable year of the Partnership ending on the liquidation date of the
Partnership that would cause its percentage share of Net Income for such taxable
year of the Partnership to exceed its Percentage Interest for such taxable year
of the Partnership, an amount of Net Income that would otherwise be allocated to
such Qualified Organization or the General Partner shall instead be allocated to
such other Partners in the amount required to cause the Net Income allocable to
such Qualified Organization or the General Partner to not exceed its Percentage
Interest for such taxable year of the Partnership.
Section 6.3 Additional Allocations.
----------------------
Notwithstanding anything to the contrary in this Agreement, all allocations
under this Agreement shall be adjusted insofar as may be required to enable the
Partnership to meet the requirements of Section 514(c)(9)(E) of the Code and the
Regulations thereunder so that all allocations hereunder have "substantial
economic effect" within the meaning of Section 704(b)(2) of the Code and so
that, as to each Partner which is a Qualified Organization and the General
Partner,
(a) each such Partner's percentage share of the Partnership's "overall
partnership income" (within the meaning of Section 514(c)(9)(E)(i)(I) of the
Code and Regulation Section 1.514(c)-2) shall not, for any taxable year of the
Partnership, be greater than the percentage then applicable to such Partner
pursuant to Section 5.1 hereof, and
(b) each such Partner's percentage share of the Partnership's "overall
partnership loss" (within the meaning of Section 514(c)(9)(E)(i)(I) of the Code
and Regulation Section 1.514(c)-2) shall not, for any taxable year of the
Partnership, be less than the percentage then applicable to such Partner
pursuant to Section 5.1 hereof.
Section 6.4 Special Allocation Rules. Notwithstanding any other
------------------------
provision of this Agreement, the following special allocations shall be
made in the following order:
24
<PAGE>
(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 6.4(a) is intended to comply with the minimum gain chargeback
--------------
requirements in Regulations Section 1.704-2(f) and for purposes of this
Section 6.4(a) only, each Partner's Adjusted Capital Account Deficit shall
--------------
be determined prior to any other allocations pursuant to Section 6.1 of the
-----------
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(a) 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 accordance with Regulations Section 1.704-2(i)(4). This Section 6.4(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 6.4(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 6.4(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 6.4(a) and 6.4(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.
25
<PAGE>
(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 6.5 Allocations for Tax Purposes.
----------------------------
(a) General. Except as otherwise provided in this Section 6.5, 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 6.4 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 6.4 of this Agreement.
------------ ---
26
<PAGE>
(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 6.5(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 6.5 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 6.4 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.
ARTICLE VII
MANAGEMENT AND OPERATIONS 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
27
<PAGE>
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) using its best efforts to undertake the active management
and development of the real property held by the Partnership in a
manner so that the Partnership (unless it has been determined that the
Partnership otherwise does not hold "plan assets") continues to
qualify as a real estate operating company under U.S. Department of
Labor Regulation Section 29 C.F.R. 2510-3.101(e) including obtaining
an opinion of recognized counsel to such effect no more frequently
than annually, if so requested by any Limited Partner;
(3) 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;
(4) 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;
(5) 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 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;
28
<PAGE>
(6) 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);
(7) 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;
(8) 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;
(9) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(10) 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 Subsidiaries and any
other Person in which it has an equity investment from time to time);
(11) 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;
(12) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any
other Person (including,
29
<PAGE>
without limitation, the contribution or loan of funds by the
Partnership to such Persons);
(13) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method
of valuation as it may adopt;
(14) the execution, acknowledgment and delivery of any and all
documents and instruments to effectuate any or all of the foregoing;
and
(15) 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 (including, without limitation, the last
sentence of this Section 7.1(b)), each of the Limited Partners agrees that
---------------
the General Partner is authorized to execute, deliver and perform the
above-mentioned agreements and transactions on behalf of the Partnership
without any further act, approval or vote of the Partners, notwithstanding
any other 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. Notwithstanding the foregoing, the General
Partner agrees that it will not take any of the following actions at any
time prior to the first anniversary of the Effective Date without the
Consent of Limited Partners holding a majority of the outstanding Limited
Partnership Interests: (i) a merger, consolidation or share exchange of the
General Partner and requiring the approval of the General Partner's
shareholders or any merger, consolidation or partnership interest exchange
of the Partnership; (ii) a sale, lease, transfer or other disposition of
all of substantially all of the General Partner's assets requiring the
approval of the General Partner's shareholders, a sale, lease, transfer or
other disposition of all or substantially all of the Partnership's assets,
or any election to dissolve the General Partner requiring the approval of
the General Partner's shareholders; or (iii) an amendment to the
Declaration of Trust requiring the approval of the General Partner's
shareholders.
(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.
30
<PAGE>
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.
-----------
(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.
(f) Loss of REOC Status. If the General Partner becomes aware that
-------------------
the Partnership may not qualify as a real estate operating company under
Department of Labor Regulation Section 29 C.F.R. 2510-3.101(e), it shall
notify the Limited Partners and, at the request of any affected Limited
Partner, shall meet with any affected Limited Partner upon not less than 10
days advance notice to consider alternatives in a good faith effort to
address the situation.
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:
31
<PAGE>
(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 ir 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
(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.
-----------------------------------------
32
<PAGE>
(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) or other assets provided below. 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.
(b) Purchase of Common Shares. In the event the General Partner
-------------------------
exercises its rights under Article 3 of the Declaration of Trust to
purchase Common Shares, 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 Common Shares.
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. After the Effective Date and
------------------------------
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
33
<PAGE>
that are fair and reasonable and no less favorable to the Partnership than
would be obtained from an unaffiliated third party in connection therewith.
(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 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 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.
34
<PAGE>
(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 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.
--------------------------------
35
<PAGE>
(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 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 and Officers 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
36
<PAGE>
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, 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 of its duly authorized officers and a duly
appointed attorney or attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full
power and authority to do and perform all and every act and duty which is
permitted or required to be done by the General Partner hereunder.
(d) 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,
37
<PAGE>
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 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.
Section 7.12 UBTI. The General Partner shall use its reasonable best
----
efforts to prevent the Partnership from engaging in any activity or activities
that would cause any Partner that is a qualified organization within the meaning
of Section 514(c)(9)(C) of the Code to incur unrelated business taxable income
as defined in Section 512-514 of the Code.
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,
employee, partner, agent or trustee
38
<PAGE>
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, 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 pursuant to Section 7.6(e) hereof and subject to any
--------------
other 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 (other
than the General 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
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 Limited 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
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
------
39
<PAGE>
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;
(2) to obtain a copy of the Partnership's Federal, state and
local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a partner.
(b) 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. C-M Holdings L.P. shall have the option, to
---------------
the extent of indebtedness available for such purpose, of guaranteeing 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 C-M Holdings L.P. equal to the amount of debt then
required to be allocated to C-M Holdings L.P. to enable C-M Holdings L.P.
to avoid recognizing gain pursuant to Section 731(a)(1) of the Code as a
40
<PAGE>
result of a deemed distribution of money to C-M Holdings L.P. 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 Common Shares 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 Common Shares to such Partner on the Specified Conversion Date
would be prohibited under the Declaration of Trust.
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 twenty (20)
Business Days prior to the effective date or, to the extent applicable, record
date of such transaction, whichever comes first.
41
<PAGE>
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 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 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
42
<PAGE>
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) 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,
43
<PAGE>
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 his duties hereunder, so long as the compensation paid by the
Partnership for such services is reasonable.
Section 10.4 Organizational Expenses. The Partnership shall elect to
-----------------------
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60-month period as provided in Section 709 of the Code.
Section 10.5 Withholding. Each Limited Partner hereby authorizes the
-----------
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of Federal, state, local, or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to 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
44
<PAGE>
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.
ARTICLE XI
TRANSFERS, WITHDRAWALS AND LOCK-UP
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.
45
<PAGE>
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 either to the
Partnership in accordance with Section 7.5(b) hereof or to a purported
--------------
holder of Common Shares in accordance with the provisions of Article 3 of
the Declaration of Trust relating to "Excess Shares" (as such term is
defined in the Declaration of Trust).
(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, 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, 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.
46
<PAGE>
Section 11.3 Limited Partners' Rights to Transfer.
------------------------------------
(a) General. Subject to the remaining provisions of this Section
------- -------
11.3 as well as Sections 11.4 and 11.7, 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 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, or
would otherwise violate any Federal or state securities laws or regulations
applicable to the Partnership or the Partnership Units.
(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 Securities Act of 1933 (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, (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
47
<PAGE>
void ab initio, and no person shall otherwise become a Partner if (A) 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 or (B) after such
transfer or assignment (or purported transfer or assignment) the
Partnership would have more than 100 Partners. For purposes of clause (A)
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 Securities Exchange Act of 1934 (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. For purposes of
determining whether the Partnership will have more than 100 Partners, each
person indirectly owning an interest in the Partnership through a
partnership (including any entity treated as a partnership for federal
income tax purposes), a grantor trust or an S corporation (each such entity
a "flow-through entity") shall be treated as a Partner unless the General
Partner determines in its sole and absolute discretion that less than
substantially all of the value of the beneficial owner's interest in the
flow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the Partnership. 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).
(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
48
<PAGE>
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, 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 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.
------------------
49
<PAGE>
(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.
Section 11.7 Lock-up Agreement.
-----------------
(a) Lock-up Period. Each of the Limited Partners who is a Limited
--------------
Partner as of the closing of the initial public offering of the Common
Shares hereby agrees that, except as set forth in Section 11.7(b), from the
---------------
Effective Date until one year, except such period shall be two years in the
case of any Limited Partner which is a partner of either Cabot Partners
Limited Partnership (a Massachusetts limited partnership) or C-M Holdings
Limited Partnership (a Massachusetts limited partnership) (or any
permitted transferee thereof as provided herein), following the Effective
Date (the "Lock-up Period"), without the prior written consent of the
--------------
General Partner, it will not offer, pledge, sell, contract to sell, grant
any options for the sale of or otherwise dispose of, directly or indirectly
(collectively, "Dispose of"), any Shares or Partnership Units (the "Lock-
---------- ----
up"). Each Limited Partner agrees to be bound by the Registration Rights
--
and Lock-up Agreement
50
<PAGE>
and specifically authorizes the General Partner as its attorney-in-fact to
execute the Registration Rights and Lock-up Agreement on its behalf.
(b) Exceptions. The following transfers of Shares or Partnership
----------
Units shall not be subject to the Lock-up set forth in Section 11.7(a):
---------------
(1) a Limited Partner who is a natural person may Dispose of
Shares or Partnership Units to his or her spouse, siblings, parents or
any natural or adopted children or other descendants or to any
personal trust in which such family members or such Limited Partner
retain the entire beneficial interest;
(2) a Limited Partner who is a natural person may Dispose of
Shares or Partnership Units on his or her death to such Limited
Partner's estate, executor, administrator or personal representative
or to such Limited Partner's beneficiaries pursuant to a devise or
bequest or by the laws of descent and distribution;
(3) a Limited Partner that is a corporation, partnership,
trust or other business entity may (A) Dispose of Shares or
Partnership Units to one or more other entities that are wholly owned
and controlled, legally and beneficially, by such Limited Partner or
by a Person or Persons that directly or indirectly wholly owns and
controls such Limited Partner or (B) Dispose of Shares or Partnership
Units by distributing such Shares or Partnership Units in a merger,
liquidation, dissolution, winding up or otherwise without
consideration to the equity owners of such corporation, partnership or
business entity or to any other corporation, partnership or business
entity that is wholly owned by such equity owners;
(4) a Limited Partner that is a master pension or profit
sharing trust or a group trust may Dispose of Shares or Partnership
Units to one or more of its participating trusts or to a successor
trustee;
(5) a Limited Partner may Dispose of Shares or Partnership
Units as a bona fide gift; and
(6) a Limited Partner may Dispose of Shares or Partnership
Units pursuant to a pledge, grant of security interest or other
encumbrance effected in a bona fide transaction with an unrelated and
unaffiliated pledgee;
provided, however, that in the case of any transfer of Shares or Partnership
- -------- -------
Units pursuant to clauses (1), (3) and (4), the transfers shall each be effected
pursuant to a bona fide exemption under the 1933 Act, as amended.
In the event any Limited Partner Disposes of Shares or Partnership Units
described in this Section 11.7(b) during the Lock-up Period, such Shares or
---------------
Partnership Units shall be subject to this Section 11.7 and the Registration
------------
Rights and Lock-up Agreement and, as a condition of the
51
<PAGE>
validity of such disposition, the transferee (and any pledgee who acquires
Shares or Partnership Units upon foreclosure or any transferee thereof) shall be
required to execute and deliver a counterpart of this Agreement and the
Registration Rights and Lock-up Agreement. Thereafter, such transferee shall be
deemed to be a "Holder" for purposes of the Registration Rights and Lock-up
Agreement.
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 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 practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Article XVI hereof.
52
<PAGE>
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 hereof;
(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 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 2097--from and after the date of this
-------------------------
Agreement through December 31, 2097, 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;
53
<PAGE>
(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 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.
54
<PAGE>
(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, 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
55
<PAGE>
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.
----
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.
56
<PAGE>
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.
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
57
<PAGE>
(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.
---------------
(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 Sections 2.5 or 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, and 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
58
<PAGE>
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.
(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.
59
<PAGE>
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
--------------------
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
--------------
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 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 Securities Law Provisions. The Partnership Units have not
-------------------------
been registered under the Federal or state securities laws of any state and,
therefore, may not be resold unless appropriate Federal and state securities
laws, as well as the provisions of Article XI hereof, have been complied with.
Section 15.9 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 15.10 Time. Time is of the essence of this Agreement.
----
Section 15.11 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 15.12 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 15.13 Execution Counterparts. This Agreement may be executed in
----------------------
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto,
60
<PAGE>
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 15.14 Applicable Law. This Agreement shall be construed in
--------------
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 15.15 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
61
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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.
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.
62
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
Cabot Industrial Trust
By:
---------------------------
Name:
Title:
WITHDRAWING INITIAL LIMITED PARTNER:
--------------------------------
Name:
LIMITED PARTNERS:
By:
----------------------------
Name:
Title:
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
EXHIBIT A
A-1
<PAGE>
PARTNERS, CONTRIBUTIONS AND
PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Name and Address Agreed Value of Partnership Percentage
of Partner Contributed Property Units Interest
- ------------------ -------------------- ----------- ----------
<S> <C> <C> <C>
General Partner
- ---------------
Cabot Industrial Trust (1)
Limited Partners
- ----------------
(2)
(3)
(4)
---
(5)
Total
(1) Cash contribution.
(2)
(3)
(4)
(5)
</TABLE>
2
<PAGE>
EXHIBIT B
VALUE OF CONTRIBUTED PROPERTY
<TABLE>
<CAPTION>
Underlying Property Basis Agreed Value
- ------------------- ----- ------------
<S> <C> <C>
</TABLE>
3
<PAGE>
EXHIBIT C
NOTICE OF CONVERSION
The undersigned hereby irrevocably (a) elects to exercise its Conversion
Right set forth in the Amended and Restated Agreement of Limited Partnership of
Cabot Industrial 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:
Name:
C-1
<PAGE>
EXHIBIT D
FORM OF UNIT CERTIFICATE
Attached
D-1
<PAGE>
NON-NEGOTIABLE, NON-TRANSFERABLE, NON-ASSIGNABLE
CABOT INDUSTRIAL PROPERTIES, L.P.
The undersigned hereby acknowledges that Units in Cabot Industrial
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:
<TABLE>
<CAPTION>
Social Security or
Certificate Taxpayer
Number Name and Address Identification Number Number of Units
- ----------- ---------------- --------------------- ---------------
<S> <C> <C> <C>
</TABLE>
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 Amended and Restated 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 limitations 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 Sections 8.6 and 11.7 of the Partnership
Agreement, beginning one year after the Effective Date or earlier with the
consent of the General Partner, 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. Subject to certain limited exemptions, Limited Partners
are prohibited from offering, selling, contracting to sell or otherwise
disposing of any Units or Common Shares obtained in exchange of Units for a
period of one year from the Effective Date without the prior written consent of
the General Partner. 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 Cabot Industrial Trust, [
], 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:
------------------------
------------------------------
Chief Executive Officer
Cabot Industrial Trust
General Partner
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports,
Cabot Partners Limited Partnership, dated March 20, 1997 (except with respect
to certain matters discussed in Note 6, as to which the date is November 24,
1997), Existing Investors Property Group, dated September 2, 1997, Prudential
Properties Group, dated October 13, 1997, West Coast Industrial, LLC, dated
September 10, 1997, Blue Ash Office L.L.C. and Blue Ash Industrial L.L.C.,
dated November 24, 1997, and Seefried Properties Group, dated November 24,
1997, included in this registration statement of Cabot Industrial Trust on Form
S-11, dated November 26, 1997.
Arthur Andersen LLP
Boston, Massachusetts
November 24, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors of Cabot Industrial Trust:
We consent to the use of our report included herein dated September 29, 1997,
relating to the combined balance sheets of the Pennsylvania Public School
Employes' Retirement System Industrial Properties Portfolio as of December 31,
1996 and 1995, and the related combined statements of operations, owner's
equity, and cash flows for the year ended December 31, 1996 and the period from
July 6, 1995 (date of acquisition) to December 31, 1995, and the related
schedule as of December 31, 1996, included herein, and to the reference to our
firm under the heading "Experts" in this Amendment No. 1 to the registration
statement on Form S-11 of Cabot Industrial Trust.
KPMG Peat Marwick LLP
Chicago, Illinois
November 25, 1997
<PAGE>
EXHIBIT 23.4.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement of Cabot Industrial
Trust on Form S-11 of our report dated October 6, 1997 on our audits of the
historical cost basis combined financial statements of Orlando Central Park and
500 Memorial Drive as of December 31, 1996 and 1995 and for the years then
ended. We also consent to the reference to our firm under the caption "Ex-
perts."
Coopers & Lybrand L.L.P.
New York, New York
November 24, 1997
<PAGE>
EXHIBIT 23.4.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement of Cabot Industrial
Trust on Form S-11 of our report dated October 6, 1997 on our audits of the
historical cost basis combined financial statements of Knickerbocker Proper-
ties, Inc. II as of December 31, 1996 and 1995 and for the years then ended. We
also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Atlanta, Georgia
November 24, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 5, 1997, accompanying the financial
statement of Herrod Associates contained in the Registration Statement and Pro-
spectus. We consent to the use of the aforementioned report in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "Experts".
GRANT THORNTON LLP
Philadelphia, Pennsylvania
November 24, 1997
1
