<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
CAPITAL AUTOMOTIVE REIT
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 6798 54-1870224
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization) ___________________________
1420 SPRING HILL ROAD, SUITE 525
MCLEAN, VIRGINIA 22102
(703) 288-3075
</TABLE>
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
THOMAS D. ECKERT, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CAPITAL AUTOMOTIVE REIT
1420 SPRING HILL ROAD, SUITE 525
MCLEAN, VIRGINIA 22102
(703) 288-3075
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
___________________
With a copy to:
JOHN B. WATKINS, ESQUIRE
WILMER, CUTLER & PICKERING
2445 M STREET, N.W.
WASHINGTON, D.C. 20037
(202)663-6000
___________________
Approximate date the registrant proposes to begin selling securities to the
public: From time to time after the effective date of this registration
statement.
____________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================================
PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED TO BE REGISTERED OFFERING PRICE PER UNIT (1) PRICE REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest, par
value $.01 per share 4,961,392 $ 11.50 $57,056,008 $15,862
=========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low reported sales
prices for the Registrant's common shares of beneficial interest, as reported
on The Nasdaq Stock Market National Market on February 25, 1999.
This registration statement relates to the possible offering and sale of
common shares of Capital Automotive REIT upon the redemption of units of limited
partnership interest in Capital Automotive L.P. These units were issued in
transactions that closed February 19, 1998 and become redeemable on February 19,
1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
IS TO BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR
UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE ON THE DATE THE SEC, ACTING
UNDER SECTION 8(A), DETERMINES.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 2, 1999
- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. The
Company may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
PROSPECTUS
[LOGO] CAPITAL AUTOMOTIVE REIT
4,961,392 COMMON SHARES of BENEFICIAL INTEREST
The Company is offering 4,961,392 common shares upon redemption of certain
units of limited partnership interest of Capital Automotive L.P. that were
offered and sold February 19, 1998, as more fully described under this
prospectus. See "Plan of Distribution." Generally, holders of units have the
right to notify the Partnership that they want their units redeemed. The Company
has the right to assume the obligations of the Partnership to redeem units. If a
holder exercises his right to have his units redeemed, the Company may issue
shares in exchange for those units. If and when unitholders request redemption
of units, the registration of these common shares does not mean that the Company
will offer or sell the common shares to unitholders. The Partnership or the
Company may choose to pay cash in exchange for the units. The Company will not
receive any money from the offer and sale of these common shares to unitholders.
The Company is also registering the resale of these common shares by the
recipients. The Company will not receive any money from the offer and sale of
common shares by any selling shareholder. See "Use of Proceeds" "Selling
Shareholders" and "Plan of Distribution." The registration of the common shares
for possible resale does not mean that any person who receives common shares
from the Company for his units will offer and sell the shares.
The shares are quoted on the Nasdaq National Market under the symbol
"CARS." On February 25, 1999, the average high and low sales prices of the
common shares as reported on the Nasdaq National Market was $11.50 per share.
To maintain the Company's qualification as a real estate investment trust,
the Company limits the transfer of common shares. No person may own more than
9.9% of the outstanding shares or 9.9% of the outstanding convertible preferred
stock, as determined under the attribution rules of the Internal Revenue Code,
subject to certain exceptions.
YOU SHOULD BE AWARE THAT AN INVESTMENT IN THE COMMON SHARES INVOLVES
VARIOUS RISKS. SEE "RISK FACTORS" ON PAGE 1 AND IN THE COMPANY'S CURRENT REPORT
ON FORM 8-K FILED ON FEBRUARY 26, 1999, WHICH IS INCORPORATED IN THIS PROSPECTUS
BY REFERENCE.
Holders of units should also realize that the redemption of a unit will be
treated as a taxable sale of the unit. As such, holders will recognize gain or
loss from the "sale" of the unit equal to the difference between the amount
considered realized for tax purposes and the holder's adjusted tax basis in the
unit.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March , 1999
<PAGE>
TABLE OF CONTENTS
PAGE NO.
About this Prospectus.................................................. i
Risk Factors........................................................... 1
Tax Consequences of Redemption of Units........................... 1
Potential Change in Investment Upon Redemption of Units........... 1
The Company............................................................ 2
Use of Proceeds........................................................ 4
Market Price of Common Shares.......................................... 4
Description of Shares of Beneficial Interest........................... 5
Description of Partnership Agreement................................... 15
Redemption of Units.................................................... 18
Comparison of the Company and the Partnership.......................... 21
Federal Income Tax Consequences........................................ 29
Plan of Distribution................................................... 56
Legal Matters.......................................................... 56
Experts................................................................ 57
Where You Can Find More Information.................................... 57
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that Capital Automotive
REIT (the "Company") filed with the Securities and Exchange Commission (the
"SEC") using a "shelf" registration process. Under this shelf process, the
Company may offer and sell common shares described in this prospectus on
redemption of units of limited partnership interest of Capital Automotive L.P.
in one or more offerings to persons who acquired their units on February 19,
1998. The person who receives common shares from the Company may also resell
those shares. This prospectus provides you with a general description of the
common shares that the Company may offer. The Company will deliver or provide
a prospectus supplement if and when it offers and sells any common shares, and
when a selling shareholder offers and resells any common shares, which will
contain specific information about all of the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information."
i
<PAGE>
This prospectus, including the documents incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act. Also, documents subsequently filed by Capital Automotive REIT
with the SEC and incorporated by reference will contain forward-looking
statements. When the Company refers to forward-looking statements or
information, sometimes the Company uses words such as "may," "will," "could,"
"should," "plans," "intends," "expects," "believes," "estimates," "anticipates"
and "continues." In particular, the risk factors included or incorporated by
reference in this prospectus describe forward-looking information. The risk
factors are not all inclusive, particularly with respect to possible future
events. Other parts of, or documents incorporated by reference into, this
prospectus may also describe forward-looking information. Many things can happen
that can cause actual results to be very different than those described by the
Company. The Company makes no promise to update any of the Company's forward-
looking statements, or to publicly release the results if the Company revises
any of them.
Unless the context otherwise requires, the term the Company refers to
Capital Automotive REIT and the term the Partnership refers to Capital
Automotive L.P. The term Capital Automotive Group refers to the Company and the
Partnership and their subsidiaries. In this prospectus, the term "subsidiary"
of the Company or the Partnership means a corporation, partnership, limited
liability company or similar entity if the Company or the Partnership, alone or
together, directly or indirectly own at least a majority of the equity interests
of the entity.
RISK FACTORS
You should carefully review the following risks and the risk factors
incorporated by reference from the Company's Form 8-K filed on February 25, 1999
as well as the other information in this prospectus or referred to in this
prospectus, before buying the Company's common shares.
TAX CONSEQUENCES OF REDEMPTION OF UNITS
The redemption of units has tax consequences. If you redeem units for cash or
common shares, you will recognize gain or loss because the redemption and
exchange are treated as a sale and is taxable. Such a sale will be taxable to
you in an amount equal to the cash or the value of the common shares received on
redemption, plus the amount of the Partnership's nonrecourse liabilities that
are allocated to the redeemed units at the time of the redemption. The amount of
gain you recognize, or even the tax liability resulting from such gain, could
exceed the amount of cash or the value of the common shares you receive upon
redemption. Your tax liability may differ if you redeem only a portion of your
units and the Partnership uses its funds to redeem those units for cash. See
"Federal Income Tax Consequences--Tax Consequences of Redemption." In addition,
because the price of common shares fluctuates, the price you receive when you
sell your common shares may not equal the value of your units at the time of
redemption.
POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS
If you exercise your unit redemption right, the Company will determine whether
you receive cash or common shares in exchange for your units. If you receive
common shares, you will become a shareholder of the Company rather than a holder
of units in the Partnership. Although an investment in common shares is
substantially equivalent to an investment in units in the Partnership, there are
some
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differences between ownership of units and ownership of common shares. These
differences include the form of organization, management structure, investor
rights, marketability of interests, liquidity and federal income tax
consequences. These differences, some of which may be material to you, are
discussed in "Redemption of Units -- Comparison of Ownership of Units and Common
Shares."
THE COMPANY
The Company is a Maryland real estate investment trust formed in October
1997. The Company owns its property interests through the Partnership and its
subsidiaries. The Company is the sole general partner of the Partnership. The
Company closed its initial public offering of common shares and began generating
rental income in February 1998.
Capital Automotive Group's primary business purpose is to own and lease
real estate properties (land, buildings and other improvements) used by
operators of new and used automobile and truck dealerships, motor vehicle
auctioneers, motor vehicle service, repair or parts businesses and related
businesses. In this prospectus, Capital Automotive Group uses the term
"dealerships" to refer to these types of businesses that are operated on its
properties.
As of February 1, 1999, Capital Automotive Group owned 131 properties
located in 18 states, making up approximately 760 acres of land and containing
approximately 4.8 million square feet of buildings and improvements. Capital
Automotive Group's lessees operate 203 motor vehicle franchises on these
properties, representing 36 brands of motor vehicles, including Acura, Audi,
BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, Dodge Trucks, Ford,
Freightliner, GMC, Honda, Hyundai, Infiniti, Isuzu, Jaguar, Jeep, Kia, Land
Rover, Lexus, Lincoln-Mercury, Mazda, Mercedes-Benz, Mitsubishi, Nissan,
Oldsmobile, Plymouth, Pontiac, Porsche, Saab, Saturn, Subaru, Toyota, Volkswagen
and Volvo.
Capital Automotive Group focuses on buying properties from third parties
that have a long history of operating dealerships at several locations. In
addition, Capital Automotive Group prefers that the lessee has rights (known in
the business as "franchises") to sell and does sell new automobiles and trucks
from more than one motor vehicle manufacturer. In this prospectus, Capital
Automotive Group uses the term "dealer group" to refer to a group of related
persons and companies who sell properties to Capital Automotive Group. Capital
Automotive Group also uses the term "dealer group" or the term "lessee" to refer
to the person or company that leases a property owned by Capital Automotive
Group.
As of February 1, 1999, Capital Automotive Group has invested approximately
$565 million in properties. Most of the properties have been purchased from
dealer groups who then lease back the properties or otherwise contract to have
the properties leased to related persons. In certain cases, Capital Automotive
Group may lease property to a lessee that is not related to the seller from whom
the property was purchased.
Capital Automotive Group purchases properties with cash, units of limited
partnership interest in the Partnership, assumption of debt or a combination of
all three. Capital Automotive usually pays off any assumed debt in full at
closing. In certain cases, Capital Automotive Group
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assumes a dealer group's responsibilities under an existing mortgage as part of
the purchase of real estate. At times, Capital Automotive Group has agreed in
advance to purchase property in the future after the dealership buildings have
been constructed.
Capital Automotive Group generally leases properties to established,
creditworthy lessees, for a period of 10 to 20 years, with options to renew for
one or more additional periods of 5 to 10 years each. The lessee typically is
required to pay all operating expenses of the property, including all real
estate taxes and assessments, utilities, insurance, repairs, maintenance and
other expenses. This type of lease is commonly known as a "triple-net" lease.
In evaluating dealer groups and potential properties for purchase, Capital
Automotive Group considers such factors as:
. the value of the land, buildings and other improvements as determined
by Capital Automotive Group and its consultants, but not by an
independent MAI appraisal;
. the quality and experience of the dealer group;
. the adequacy of a dealer group's historical, current and forecasted
cash flow to meet the operating needs of the business, expenses and
lease or debt service obligations;
. the construction quality, condition and design of the dealership
buildings and other improvements located on the property;
. the geographic area in which the property is located;
. the type of franchises operated by the dealer group; and
. the environmental condition of the real estate.
Capital Automotive Group intends to acquire more properties. Those
transactions may be structured in ways that are similar to those described
above. The transactions may also be structured differently.
Capital Automotive Group has and will continue to borrow funds to buy
properties. Borrowing arrangements can take different forms. For example, as of
February 20, 1999, Capital Automotive Group had mortgage indebtedness totaling
$162 million secured by 64 properties owned by subsidiaries of the Partnership.
Capital Automotive Group also intends to enter into revolving credit
arrangements. Capital Automotive Group may also issue debt securities, including
senior or subordinated notes. These notes may be secured by properties or
leases. Capital Automotive Group has adopted a policy to limit debt to
approximately 50% of assets. This policy may be changed by the Company's Board
of Trustees at any time without shareholder approval.
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As a real estate investment trust, the Company acquires properties through
its direct and indirect subsidiaries, including the Partnership, and manages its
business in a manner that is consistent with the requirements of the Internal
Revenue Code (the "Code") and the regulations of the Internal Revenue Service
(the "IRS") that govern taxation of real estate investment trusts. The Company
has and expects to continue to pay regular cash dividends to its shareholders;
to provide its shareholders the opportunity for increased dividends from
increasing annual rental income; to preserve and to protect the investments of
its shareholders; and to provide its shareholders with the opportunity to
increase the value of their investments.
The Company is self-administered and self-managed, meaning that its
trustees, officers and employees manage and administer Capital Automotive
Group's business. The Company's executive officers are Thomas D. Eckert,
President and Chief Executive Officer; Scott M. Stahr, Executive Vice President
and Chief Operating Officer; Donald L. Keithley, Executive Vice President of
Business Development; David S. Kay, Vice President and Chief Financial Officer;
John M. Weaver, Vice President, Secretary and General Counsel; and Peter C.
Staaf, Vice President and Treasurer.
The Company's principal executive offices are located at 1420 Spring Hill
Road, Suite 525, McLean, Virginia 22102. The Company's telephone number is
(703) 288-3075.
USE OF PROCEEDS
The Company will not receive any proceeds from common shares offered and
sold on redemption of units. The Company will not receive any proceeds from
common shares sold by selling shareholders.
MARKET PRICE OF COMMON SHARES
The common shares have been trading on the Nasdaq National Market under the
symbol "CARS" since February 13, 1998. The Company has listed below the high
and low sales prices of the common shares as reported on the Nasdaq National
Market and the distributions declared by the Company for the periods indicated.
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<CAPTION>
HIGH LOW DISTRIBUTION
---- --- ------------
<S> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1998
First fiscal quarter (from February 13, 1998) $ 19 3/4 $16 1/4 $0.076
Second fiscal quarter 19 3/8 13 1/8 0.210
Third fiscal quarter 15 3/4 10 7/8 0.270
Fourth fiscal quarter 14 7/8 8 13/16 0.320
FISCAL YEAR ENDING DECEMBER 31, 1999
First fiscal quarter (to February 25, 1999) $15 3/16 $11 1/4
</TABLE>
On February 25, 1999, the last reported sales price on the Nasdaq National
Market was $11.75 per share and there were approximately 34 holders of record
of the common shares of the Company.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The Company is a Maryland real estate investment trust. Your rights as a
shareholder are governed by the Code of Maryland, including Title 8 of the
Corporations and Associations Article, the Company's Declaration of Trust and
the Company's Bylaws. The following summary of terms for the shares of
beneficial interest is not complete. You should read the Company's Declaration
of Trust and Bylaws for more complete information.
AUTHORIZED SHARES
The Company's Declaration of Trust allows it to issue up to 100 million
common shares of beneficial interest, par value $.01 per share, and 20 million
preferred shares of beneficial interest, par value $.01 per share. As of
February 20, 1999, the Company had 21,607,415 common shares outstanding and no
preferred shares outstanding.
Authority of the Board of Trustees. The Company's Declaration of Trust
allows the Board of Trustees to take the following actions without approval by
you or other shareholders:
. classify or reclassify any unissued common shares or preferred shares
into one or more classes or series of shares of beneficial interest;
. set or change the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or distributions,
qualifications or terms or conditions of redemption of any class or
series of shares of beneficial interest; and
. amend the Declaration of Trust to change the total number of shares of
beneficial interest or the number of shares of any class or series of
shares of beneficial interest.
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However, if there are any laws or stock exchange rules which require the Company
to obtain shareholder approval in order for it to take these actions, the
Company will contact you and other shareholders to solicit that approval.
The Company believes that the power of the Board of Trustees to issue
additional shares of beneficial interest will provide it with greater
flexibility in structuring possible future financings and acquisitions and in
meeting other future needs. Although the Board of Trustees does not currently
intend to do so, it has the ability to issue a class or series of beneficial
share that could have the effect of delaying or preventing a change of control
of the Company that might involve a premium price for holders of common shares
or otherwise be favorable to them.
Shareholder Liability. Under Maryland law, you will not be personally
liable for any obligation of the Company solely because you are a shareholder of
the Company. Under the Declaration of Trust the Company's shareholders are not
personally liable for the Company's debts or obligations and will not be
subject to any personal liability, in tort, contract or otherwise, to any person
in connection with the property or affairs of the Company by reason of being a
shareholder.
COMMON SHARES
All common shares offered through this prospectus will be duly authorized,
fully paid and nonassessable. As a shareholder, you will be entitled to receive
distributions on the shares you own if the Board of Trustees authorizes a
distribution out of the legally available assets of the Company. However, your
right to receive these distributions may be affected by the preferential rights
of any other class or series of shares of beneficial interest and the provisions
of the Company's Declaration of Trust regarding restrictions on the transfer of
shares of beneficial interest. For example, you may not receive distributions
if no funds are available for distribution after the Company pays dividends to
holders of preferred shares. You will also be entitled to receive distributions
based on the assets of the Company available for distribution to common
shareholders if we liquidate, dissolve or wind-up the Company. The amount you,
as an individual shareholder, would receive in the distribution would be
determined by your amount of beneficial ownership of the Company in comparison
with other beneficial owners. Assets will be available for distribution to
shareholders only after the Company has paid all known debts and liabilities of
the Company and paid the holders of any preferred shares the Company may issue.
Voting Rights. Each outstanding common share owned by a shareholder
entitles that holder to one vote on all matters submitted to a vote of
shareholders, including the election of trustees. The right to vote is subject
to the provisions of the Company's Declaration of Trust regarding the
restriction on the transfer of shares of beneficial interest, which we describe
under "Restrictions on Ownership and Transfer," below. There is no cumulative
voting in the election of trustees, 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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As a holder of a common share, you will not have any right to:
. convert your shares into any other security;
. have any funds set aside for future payments;
. require the Company to repurchase your shares; or
. purchase any securities of the Company, if other securities are
offered for sale, other than as a member of the general public.
Subject to the terms of the Declaration of Trust regarding the restrictions on
transfer of shares of beneficial interest, each common share has the same
dividend, distribution, liquidation and other rights as any other common share.
According to the terms of the Company's Declaration of Trust, Bylaws, and
Maryland law, all matters submitted to the shareholders for approval, except for
those matters listed below, are approved if a majority of all the votes cast at
a meeting of shareholders duly called and at which a quorum is present are voted
in favor of approval. The following matters require approval other than by a
majority of all votes cast:
1. the intentional disqualification of the Company as a real estate
investment trust or revocation of its election to be taxed as a real
estate investment trust (which requires the affirmative vote of the
holders of two-thirds of the number of common shares outstanding and
entitled to vote on such a matter),
2. 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),
3. the removal of trustees (which requires the affirmative vote of the
holders of two-thirds of the number of common shares outstanding and
entitled to vote on such a matter),
4. the amendment of the Declaration of Trust by shareholders (which
requires the affirmative vote of a majority of votes entitled to be
cast on the matter, except under certain circumstances specified in
the Company's Declaration of Trust that require the affirmative vote
of two-thirds of all the votes entitled to be cast on the matter),
5. the dissolution of the Company (which requires the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter), and
6. the merger or consolidation of the Company with another entity or sale
of all or substantially all of the property of the Company (which
requires the approval of
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the Board of Trustees and an affirmative vote of a majority of all the
votes entitled to be cast on the matter).
The Declaration of Trust permits the trustees by a two-thirds vote to amend
the Declaration of Trust from time to time to qualify as a real estate
investment trust under Maryland law without the approval of you or other
shareholders. The Declaration of Trust permits the Board of Trustees to amend
the Declaration of Trust to change the total number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Company has authority to issue without approval by you or other
shareholders.
The common shares are traded on the Nasdaq National Market System under the
trading symbol "CARS."
PREFERRED SHARES
General. Preferred shares may be offered and sold from time to time, in
one or more series, as authorized by the Board of Trustees. The Board of
Trustees is required by Maryland law and the Declaration of Trust to set for
each series the terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms or
conditions of redemption. The Board of Trustees has the power to set
preferences, powers and rights, voting or other terms of preferred shares that
are senior to, or better than, the rights of holders of common shares or other
classes or series of preferred shares. The offer and sale of preferred shares
could have the effect of delaying or preventing a change of control of the
Company that might involve a premium price for holders of common shares or
otherwise be favorable to them.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Restrictions on ownership and transfer of shares are important to ensure
that the Company meets certain conditions under the Code to qualify as a REIT.
For example, the Code contains the following requirements.
. No more than 50% in value of a REIT's shares may be owned, actually or
constructively (based on attribution rules in the Code), by 5 or fewer
individuals during the last half of a taxable year or a proportionate
part of a shorter taxable year (the "5/50 Rule"). The 5/50 Rule did
not apply to the Company's first year as a REIT, but applies for years
after 1998. Under the Code, individuals include certain tax-exempt
entities except that qualified domestic pension funds are not
generally treated as individuals.
. If a REIT, or an owner of 10% or more of a REIT, is treated as owning
10% or more of a lessee of the REIT's property, the rent received by
the REIT from the lessee will not be "qualifying income" for purposes
of the REIT gross income tests of the Code.
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. A REIT's stock or beneficial interests must be owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. The 100 owner
rule also did not apply to the Company's first year as REIT, but
applies for years after 1998.
The Board of Trustees believes it is essential for the Company to continue to
qualify as a REIT. Therefore, the Declaration of Trust, subject to certain
exceptions described below, provides that no person may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than 9.9% of the
outstanding common shares, preferred shares or any other series of capital
stock. In this prospectus, the term "Ownership Limitation" is used to describe
this provision of the Declaration of Trust.
Any transfer of common or preferred shares will be null and void, and the
intended transferee will acquire no rights in such common shares or preferred
shares if the transfer:
. results in any person owning, directly or indirectly, common shares or
preferred shares in excess of the Ownership Limitation;
. results in the common shares and preferred shares being owned by fewer
than 100 persons (determined without reference to any rules of
attribution);
. results in the Company being "closely held" (within the meaning of
Section 856(h) of the Code); or
. causes the Company to own, directly or constructively, 10% or more of
the ownership interests in a tenant of the Company's or the
Partnership's real property (within the meaning of Section 856 (d) (2)
(B) of the Code).
Automatic Transfer of Shares to Trust. With certain exceptions described
below, the common shares or preferred shares will be designated as "Shares-in-
Trust" and transferred automatically to a trust (the "Share Trust") if any
purported transfer of common shares or preferred shares would violate any of the
four restrictions above which cause the transfer to be null and void. The
transfer to the Share Trust is effective as of the end of the business day
before the purported transfer of such common shares or preferred shares. The
record holder of the common shares or preferred shares that are designated as
Shares-in-Trust (the "Prohibited Owner") must deliver those shares to the
Company for registration in the name of the Share Trust. The Company will
designate a Share Trustee who is not affiliated with the Company. The
beneficiary of the Share Trust (the "Beneficiary") will be one or more
charitable organizations named by the Company.
Any Shares-in-Trust remain issued and outstanding common shares or
preferred shares and are entitled to the same rights and privileges as all other
shares of the same class or series. The Share Trust receives all dividends and
distributions on the Shares-in-Trust and holds such dividends and distributions
in trust for the benefit of the Beneficiary. The Share Trustee votes all
Shares-in-
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<PAGE>
Trust. The Share Trustee may also designate a permitted transferee of the
Shares-in-Trust. The permitted transferee must purchase the Shares-in-Trust for
valuable consideration and acquire the Shares-in-Trust without resulting in the
transfer being null and void.
The Prohibited Owner with respect to Shares-in-Trust must pay the Share
Trust any dividends or distributions received by the Prohibited Owner (1) that
are attributable to any Shares-in-Trust and (2) the record date for which was on
or after the date that such shares became Shares-in-Trust. Upon sale or other
disposition of the Shares-in-Trust to a permitted transferee, the Prohibited
Owner generally will receive from the Share Trustee, the lesser of:
. the price per share, if any, paid by the Prohibited Owner for the
common shares or preferred shares, or if no amount was paid for such
shares (e.g., if such shares were received through a gift or devise),
the price per share equal to the market price (which is calculated as
defined in the Declaration of Trust) on the date the shares were
received;
. the price per share received by the Share Trustee from the sale of
such Shares-in-Trust.
Any amounts received by the Share Trustee in excess of the amounts paid to
the Prohibited Owner will be distributed to the Beneficiary. Unless sooner sold
to a permitted transferee, upon the liquidation, dissolution or winding up of
the Company, the Prohibited Owner generally will receive from the Share Trustee
its share of the liquidation proceeds but in no case more than the price per
share paid by the Prohibited Owner or, in the case of a gift or devise, the
market price per share on the date such shares were received.
The Shares-in-Trust will be offered for sale to the Company, or its
designee, at a price per share equal to the lesser of (1) the price per share in
the transaction that created such Shares-in-Trust (or, in the case of a gift or
devise, the market price per share on the date of such transfer) or (2) the
market price per share on the date that the Company, or its designee, accepts
such offer. The Company may accept such offer for a period of ninety days after
the later of (1) the date of the purported transfer which resulted in such
Shares-in-Trust or (2) the date the Company determines in good faith that a
transfer resulting in such Shares-in-Trust occurred.
Any person who acquires or attempts to acquire common shares or preferred
shares which would be null and void under the restrictions described above, or
any person who owned common shares or preferred shares that were transferred to
a Share Trust, must (1) give immediate written notice to the Company of such
event and (2) provide the Company such other information as requested in order
to determine the effect, if any, of such transfer on the Company's status as a
REIT.
If a shareholder owns more than 5% of the outstanding common shares and
preferred shares, then the shareholder must notify the Company of its share
ownership by January 30 of each year.
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<PAGE>
The Ownership Limitation generally does not apply to the acquisition of
common shares or preferred shares by an underwriter that participates in a
public offering of such shares. In addition, the Board of Trustees may exempt a
person from the Ownership Limitation under certain circumstances and conditions.
The Board may not grant an exemption from the Ownership Limit to any proposed
transferee whose ownership, 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. The restrictions described above will
continue to apply until (1) 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, and (2) there is an affirmative vote of two-
thirds of the votes entitled to be cast on such matter at a regular or special
meeting of the shareholders of the Company.
The Company has waived the Ownership Limitation with respect to Friedman,
Billings, Ramsey Group, Inc. and related persons to permit them to own the
common shares.
The Ownership Limitation 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 the common shares or preferred shares or otherwise
be in the best interest of the shareholders of the Company. All certificates
representing common shares or preferred shares will bear a legend referring to
the restrictions described above.
WARRANTS
Outstanding Warrants. As of February 20, 1999, the Company had warrants
outstanding to acquire a total of 3,141,952 common shares. Warrants for a
total of 2,691,952 common shares were exercisable by the holders on that date.
Warrants for a total of 400,000 common shares will become exercisable for 25% of
the common shares each year over a four year period beginning on January 5,
2000. The warrant for the remaining 50,000 common shares will become exercisable
beginning on January 31, 2000. The warrants have been issued under written
warrant agreements. The exercise price of each outstanding warrant is $15.00
per common share. Warrants for a total of 2,741,952 common shares are for terms
of 5 years. Warrants for a total of 400,000 common shares are for terms of 10
years. Each warrant obligates the Company to file a registration statement
after the warrant has been exercised by the holder to register the common shares
if the holder so requests or if the Company files a registration statement for
its own shares.
REGISTRATION RIGHTS AGREEMENTS
Under various agreements, including the Partnership's partnership
agreement, the Company has agreed to file a registration statement that covers:
. the resale of common shares upon exchange of units that were issued in
private placements at the time of and since the Company's formation;
and
. the resale of common shares upon exercise of warrants.
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<PAGE>
The Company must use its best efforts to maintain the effectiveness of
these registration statements. The exchange of outstanding securities for
common shares will increase the number of outstanding common shares and will
increase the Company's percentage ownership interest in the Partnership.
CERTAIN PROVISIONS OF MARYLAND LAW AND THE DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of the Maryland General
Corporation Law and the Company's Declaration of Trust and Bylaws is not
complete. You should read Maryland General Corporation Law and the Company's
Declaration of Trust and Bylaws for more complete information. The business
combination provisions and the control share acquisition provisions of Maryland
law, both of which are discussed below, could have the effect of delaying or
preventing a change in control of the Company. Also, the removal of trustees
provisions of the Declaration of Trust and the advance notice provisions of the
Bylaws could have the effect of delaying or preventing a transaction or a change
in control of the Company. These provisions could have the effect of
discouraging offers to acquire the Company and of increasing the difficulty of
consummating any such offer, even if the offer contains a premium price for
holders of common shares or otherwise benefits shareholders.
Business Combinations. Maryland General Corporation Law prohibits the
Company from entering into "business combinations" and other corporate
transactions unless special actions are taken. The business combinations that
require such special actions include a merger, consolidation, share exchange,
or, in certain circumstances, an asset transfer or issuance of equity securities
when the combination is between the Company and an "interested shareholder" (as
defined below). An interested shareholder is (1) any person who beneficially
owns 10% or more of the voting power of the Company's shares or (2) any
affiliate of the Company which beneficially owned 10% or more of the voting
power of the Company's shares within 2 years prior to the date in question. We
may not engage in a business combination with an interested shareholder or any
of its affiliates for 5 years after the interested shareholder becomes an
interested shareholder. This prohibition does not apply to business
combinations involving the Company that are exempted by the Board of Trustees
before the interested shareholder becomes an interested shareholder.
We may engage in business combinations with an interested shareholder if at
least 5 years have passed since the person became an interested shareholder, but
only if the transaction is:
1. recommended by the board of trustees; and
2. approved by at least
a. 80% of the Company's outstanding shares entitled to vote, and
b. two-thirds of the Company's outstanding shares entitled to vote
that are not held by the interested shareholder.
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<PAGE>
Shareholder approval will not be required if the Company's shareholders
receive a minimum price (as defined in the statute) for their shares and the
shareholders receive cash or the same form of consideration as the interested
shareholder paid for its shares.
Control Share Acquisitions. The Company's Declaration of Trust exempts
acquisitions of shares of beneficial interest by any person from "control share
acquisition" requirements discussed below. There is no assurance that such
exemption will not be amended or eliminated in the future. If the exemption was
eliminated, "control share acquisitions" would be subject to the following
provisions.
The Maryland General Corporation Law provides that "control shares" of a
Maryland real estate investment trust acquired in a "control share acquisition"
have no voting rights unless two-thirds of the shareholders (excluding shares
owned by the acquirer, officers and trustees who are employees of the Company)
approve their voting rights.
"Control Shares" are shares that, if added with all other shares previously
acquired, would entitle that person to vote, in electing the trustees,
. 20% or more but less than one-third of such shares
. one-third or more but less than a majority of such shares, or
. a majority of the outstanding shares.
Control shares do not include shares the acquiring person is entitled to
vote with shareholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
If this provision becomes applicable to the Company, a person who has made
or proposes to make a control share acquisition could, under certain
circumstances, compel the Company's board of trustees to call a special meeting
of shareholders to consider the voting rights of the control shares. The Company
could also present the question at any shareholders meeting on its own.
If this provision becomes applicable to the Company, subject to certain
conditions and limitations, the Company would be able to redeem any or all
control shares. If voting rights for control shares were approved at a
shareholders meeting and the acquirer is entitled to vote a majority of the
shares entitled to vote, all other shareholders could exercise appraisal rights
and exchange their shares for a fair value as defined by statute.
Limitation of Liability of Trustees and Officers. The Company's
Declaration of Trust provides that, to the fullest extent that limitations on
the liability of trustees and officers are permitted by the Maryland General
Corporation Law, no trustee or officer shall be liable to the Company or its
shareholders for money damages. The Maryland General Corporation Law
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<PAGE>
provides that the Company may restrict or limit the liability of trustees or
officers for money damages except
. to the extent anyone actually received an improper benefit or profit
in money, property or services, or
. a judgment or other final adjudication adverse to the person is
entered in a proceeding based on a finding that the person's action
was material to the cause of action adjudicated and the action or
failure to act was the result of bad faith or active and deliberate
dishonesty.
Indemnification of Trustees and Officers. The Company's Declaration of
Trust and Bylaws permit the Company to indemnify any of its employees or agents.
The Bylaws require the Company to indemnify each trustee or officer who has been
successful in defending any proceeding to which he or she is made a party by
reason of his or her service to the Company. The Company has also entered into
separate indemnification agreements with each of its trustees and certain of its
executive officers. The agreements require that the Company indemnify its
trustees and officers to the fullest extent permitted by Maryland General
Corporation Law. The agreements also require the Company to indemnify and
advance all expenses incurred by trustees and officers seeking to enforce their
indemnification agreements. The Company must also cover trustees and officers
under its trustees' and officers' liability insurance. Although the form
indemnification agreement offers substantially the same scope of coverage as the
Company's Declaration of Trust and Bylaws, the agreements provide greater
assurance to the trustees and officers that indemnification will be available
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Trustees or by the Company's shareholders.
The Maryland General Corporation Law provides that the Company may
indemnify trustees and officers unless
. the trustee actually received an improper benefit or profit in money
property or services,
. the act or omission of the trustee 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
. in a criminal proceeding, the trustee had reasonable cause to believe
that the act or omission was unlawful.
The Company's Bylaws require, as a condition to advancing expenses, (1) a
written affirmation by the trustee or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company and
(2) a written affirmation to repay the amount paid by the Company if it is
determined that the trustee or officer was not entitled to indemnification.
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<PAGE>
Maryland Asset Requirements. To maintain the Company's qualification as a
Maryland real estate investment trust, the Company must 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 Company is also prohibited from using or applying land for farming,
agricultural, horticultural or similar purposes.
Meetings of Shareholders. The Company's Bylaws provide for annual meetings
of shareholders to elect the board of trustees and transact such other business
as may properly be brought before the meeting. Special meetings of shareholders
may be called by the President, the board of trustees or the Chairman of the
Board and shall be called at the request in writing of the holders of 50% or
more of the outstanding shares of beneficial interest of the Company entitled to
vote.
The Bylaws provide that any action required or permitted to be taken at a
meeting of shareholders may be taken by unanimous written consent without a
meeting. The written consent must, among other items, specify the action to be
taken and be signed by each shareholder entitled to vote on the matter.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for the common shares is
American Stock Transfer & Trust Company.
DESCRIPTION OF THE PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement of Capital Automotive
L.P., as currently in effect, including the descriptions of certain provisions
described elsewhere in this prospectus, is qualified in its entirety by
reference to the Partnership Agreement. The Company has filed the Partnership
Agreement as an exhibit to this Registration Statement. You should read the
Partnership Agreement for a complete description of all the terms.
MANAGEMENT
The Partnership was formed as a Delaware limited partnership in October
1997. The Company is the sole general partner and the holder of a majority of
the units of the Partnership. Under the Partnership Agreement, the Company has
full, exclusive and complete responsibility and discretion in the management and
control of the Partnership, subject to certain limited exceptions. The limited
partners of the Partnership generally have no authority to participate in or
exercise control or management power over the business and affairs of the
Partnership.
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<PAGE>
INDEMNIFICATION
The Partnership provides for indemnification of the Company, as general
partner, its officers and trustees and such other persons the Company may
designate to the same extent indemnification is provided in the Declaration of
Trust. The liability of the Company and its officers and trustees to the
Partnership are limited to the same extent as under the Declaration of Trust.
TRANSFERABILITY OF INTERESTS
The Partnership Agreement generally provides that the Company may not
voluntarily withdraw from the Partnership, or transfer or assign its interest in
the Partnership. The limited partners, on the other hand, may transfer their
units if the Partnership consents and the transfer does not violate federal and
state securities laws or REIT qualification rules under the Code. The limited
partners may also transfer units to a qualified transferee as described in the
Partnership Agreement. Both the Company and the Partnership have a right of
first refusal in the case of transfer by the limited partners. No transferee may
become a substituted limited partner without the Partnership's consent.
EXTRAORDINARY TRANSACTIONS
Under the Partnership Agreement, the Company may not (1) engage in any
merger, consolidation or other combination, (2) sell all or substantially all of
its assets, or (3) reclassify, recapitalize or change its outstanding common
shares. These transactions will be referred to as business combinations. The
Company may not participate in a business combination unless the holders of
units will receive the same consideration per unit or preferred unit, if any, as
shareholders receive per common share or preferred share, and no more than 75%
of the equity securities of the acquiring person will be owned by the Company or
related persons. If there is an offer to purchase, tender or exchange common
shares, each holder of units will be able to exchange its units for the greatest
amount of cash, securities or property that a limited partner would have
received had he redeemed his units, and then accepted the sale, tender or
exchange offer for those shares.
The Company can merge into or consolidate with another person if
immediately after the merger or consolidation substantially all of the assets of
the successor person are contributed to the Partnership as a capital
contribution in exchange for units and the surviving person agrees to assume the
obligations of the general partner.
OFFERS AND SALES OF ADDITIONAL UNITS
The Partnership has and will continue to issue additional units. The
Partnership may also issue additional units representing general partnership
interests, common limited partnership interests or preferred limited partnership
interests of any class or series, with such rights, powers and preferences as
the general partner sets.
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<PAGE>
CAPITAL CONTRIBUTIONS AND ADDITIONAL FUNDS
If the Partnership requires additional funds at any time, then the Company,
to the extent consistent with its REIT status, may borrow such funds from a
lender and lend such funds to the Partnership on comparable loan terms. The
Company may also give the Partnership additional funds by making additional
capital contributions in return for units. If the Company sells additional
securities, the Company will contribute the net proceeds to the Partnership by
making additional capital contributions. If the Company contributes additional
capital to the Partnership, its limited partnership interest in the Partnership
will increase on a proportionate basis based upon the amount of the additional
capital. If the additional capital contribution arises from the sale of
securities, the Company will receive units of limited partnership interest with
rights comparable to the rights of the securities that were sold by the Company.
If the Company's limited partnership interest increases, the limited partnership
interests of the limited partners will decrease proportionately.
LIMITED PARTNER REDEMPTION RIGHTS
Under the Partnership Agreement, each limited partner has the right to
require the Partnership to redeem part or all of his units for cash after a
specified holding period that is at least one year from the date such units were
first acquired by the limited partner. The Company may elect to assume the
obligations of the Partnership and may acquire the units for common shares on a
one-for-one basis. The Partnership can refuse or delay a redemption if it would
cause any person to violate any ownership limitation or provision of the
Declaration of Trust or otherwise jeopardize the Company's status as a REIT. See
"Description of Shares of Beneficial Interest--Restrictions on Ownership and
Transfer." The holders of units have been given registration rights requiring
the Company to register the re-sale of any common shares issued in exchange for
units.
TAX MATTERS
As provided in the Partnership Agreement, the Company is the tax matters
partner of the Partnership. Accordingly, the Company makes whatever tax
elections must be made under the Code. The net income or net loss of the
Partnership will generally be allocated to the Company and the limited partners
in accordance with priorities of distribution. See "Federal Income Tax
Consequences-Tax Aspects of the Company's Investments in the Partnership and
Subsidiary Partnerships."
DISTRIBUTIONS
Subject to the terms of any preferred units, the Partnership distributes
cash on a quarterly basis (or if the Company elects more frequently), to its
limited partners on a pro rata basis.
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OPERATIONS
The Partnership Agreement requires that the Partnership be operated in a
manner that will enable the Company to satisfy the requirements for
classification as a real estate investment trust and to ensure that the
Partnership will not be classified as a publicly-traded partnership under the
Code. Under the Partnership Agreement, subject to certain exceptions, the
Partnership will also assume and pay when due, or reimburse the Company for
payment of, all costs and expenses relating to the ownership of interests in and
operation of the Partnership.
DUTIES AND CONFLICTS
The Partnership Agreement provides generally that all business activities
must be conducted through the Partnership.
TERM
The term of the Partnership continues until December 31, 2073, or until
sooner dissolved upon the occurrence of certain other events.
REDEMPTION OF UNITS
TERMS OF REDEMPTION OF UNITS
On February 19, 1998, the Partnership closed the sale of 4,961,392 units to
the prior owners of, or to persons related to the entities that owned, certain
properties as consideration for the contribution of these properties to the
Partnership. Information about the properties, date of contribution, the date
the units become exchangeable and the number of units that were sold by the
Partnership is set forth below:
<TABLE>
<CAPTION>
NUMBER
DATE FIRST OF
DEALERSHIP PROPERTY CONTRIBUTION DATE EXCHANGEABLE UNITS
- ---------- -------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
Pohanka Automotive Group
- ------------------------
Pohanka Cadillac, Hyundai,
Nissan & Kia Fredericksburg, VA February 19, 1998 February 19, 1999 227,027
Pohanka Hyundai & Subaru Marlow Heights, MD February 19, 1998 February 19, 1999 19,596
Pohanka Saturn/Isuzu
Oldsmobile & GMC Truck Marlow Heights, MD February 19, 1998 February 19, 1999 280,281
Pohanka Body Shop Marlow Heights, MD February 19, 1998 February 19, 1999 45,000
Pohanka Honda Marlow Heights, MD February 19, 1998 February 19, 1999 71,024
Pohanka Lexus Chantilly, VA February 19, 1998 February 19, 1999 102,424
Pohanka Undeveloped
Dealership Lot Chantilly, VA February 19, 1998 February 19, 1999 87,735
Pohanka Acura & Chevrolet/GEO Chantilly, VA February 19, 1998 February 19, 1999 256,137
Pohanka Saturn Bowie, MD February 19, 1998 February 19, 1999 70,938
</TABLE>
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<PAGE>
<TABLE>
Rosenthal Automotive Organization
- ---------------------------------
<S> <C> <C> <C> <C>
Rosenthal Infiniti,
Mazda/Nissan Tyson's Corner, VA February 19, 1998 February 19, 1999 1,578,940
Rosenthal Honda &
Jaguar Tyson's Corner, VA February 19, 1998 February 19, 1999 521,898
Rosenthal Body Shop Tyson's Corner, VA February 19, 1998 February 19, 1999 56,723
Rosenthal Nissan, Acura,
Mazda & Isuzu Gaithersburg, MD February 19, 1998 February 19, 1999 286,518
Rosenthal Chevrolet & Jeep
Eagle Arlington, VA February 19, 1998 February 19, 1999 411,710
Rosenthal Mazda Arlington, VA February 19, 1998 February 19, 1999 172,619
Rosenthal Storage Lot Arlington, VA February 19, 1998 February 19, 1999 323,478
Sheehy Auto Stores
- ------------------
Sheehy Ford & Kia Springfield, VA February 19, 1998 February 19, 1999 165,951
Chapman Ford Sales Philadelphia, PA February 19, 1998 February 19, 1999 10,781
Sheehy Lincoln-Mercury
& Mitsubishi Woodbridge, VA February 19, 1998 February 19, 1999 75,804
Sheehy Ford Marlow Heights, MD February 19, 1998 February 19, 1999 88,800
Cherner Automotive Group
- ------------------------
Cherner Lincoln-Mercury Annandale, VA February 19, 1998 February 19, 1999 108,008
</TABLE>
Beginning on February 19, 1999, the holders of these units can cause the
Partnership to redeem the units for cash. The Company has the right to assume
the obligations of the Partnership to redeem units and may redeem the units for
cash or may issue common shares for units on a one-for-one basis, subject to
adjustment. The number of common shares that could be issued to holders of
units on redemption will be adjusted in the event of stock splits, stock
dividends, issuances of certain rights, certain extraordinary distributions
and similar events.
Common shares will only be issued if a holder decides to redeem his units
and if the Company decides to assume the Partnership's redemption obligation and
to offer and sell common shares. The Company is also now registering the resale
of such common shares for the recipients, if and when such shares are offered
and sold by the Company.
A holder of units must deliver a notice of redemption to the Partnership.
That holder will have the right to receive an amount of cash from the
Partnership equal to the Cash Amount, as defined in the Partnership Agreement.
The "Cash Amount" will be determined as of the date that the Partnership
receives the notice of redemption. If the common shares are then quoted on the
Nasdaq National Market or are listed on a national securities exchange, the
"Cash Amount" will be the average of the daily sale prices of common shares for
the 20 consecutive trading days immediately preceding the five trading days
prior to the date that the Partnership received the notice of redemption. If the
Company elects to redeem the units for common shares, the holder will have no
right to receive cash.
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Any common shares issued on redemption of units will be delivered as duly
authorized, validly issued, fully paid and nonassessable shares, free of any
pledge, lien, encumbrance or restriction, other than those provided in the
Declaration of Trust and Bylaws or under applicable state and federal securities
laws. The common shares will be subject to the terms of the registration rights
that relate to those shares.
CERTAIN CONDITIONS TO THE EXCHANGE
If the Company decides to assume the Partnership's obligation to redeem
units and to offer common shares in exchange for such units, we will issue such
common shares to a redeeming holder promptly upon receipt of a notice of
redemption unless:
* a redemption would cause a holder or any other person to violate the
Restrictions on Ownership and Transfer provisions of the Declaration
of Trust;
* a redemption is for less than 1,000 units, or if the redeeming holder
holds less than 1,000 units, the redemption is for less than all
units;
* the redeeming holder has delivered more than 4 notices of redemption
during a calendar year; or
* a redemption would cause the Partnership to be a "publicly traded
partnership" under Section 7704 of the Code.
The redeeming holder will have no right to receive any Partnership
distribution on any units that have been tendered for redemption if the record
date for such distribution is on or after a date that is 30 days after the date
of the notice of redemption to the Partnership.
Any attempted exchange in violation of any of the above conditions will
have no effect.
The Company will not issue common shares in exchange for units if the
issuance of the common shares would:
. result in any person owning, directly or indirectly, common
shares in excess of 9.9% of the outstanding common shares;
. result in common shares being owned by fewer than 100 persons
(determined without reference to any rules of attribution);
. result in the Company being "closely held" within the meaning
of Section 856(h) of the Code;
. cause the Company to own, actually or constructively, 10% or more
of the ownership interests in a lessee of any property, within
the meaning of Section 856(d)(2)(B) of the Code;
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<PAGE>
. otherwise violate the Declaration of Trust or Bylaws of the Company;
or
. be "integrated" with any other distribution of shares of beneficial
interest for purposes of complying with the registration provisions
of the Securities Act of 1933, as amended.
COMPARISON OF THE COMPANY AND THE PARTNERSHIP
Generally an investment in common shares is economically equivalent to an
investment in the units of the Partnership. Currently, only common shares of
the Company and units of the Partnership are outstanding. Holders of common
shares and holders of units receive similar distributions.
However, there are also differences between ownership of units and
ownership of common shares, some of which may be material to investors. The
information below highlights a number of the significant differences between the
Company and the Partnership including form of organization, management control,
voting rights, liquidity and federal income tax considerations. These
comparisons are intended to assist holders of units in understanding how their
investment will be changed if they receive common shares on redemption of their
units. This discussion is only a summary and does not constitute a complete
discussion of these matters. Holders of units should carefully review the
balance of this prospectus and the registration statement of which this
prospectus is a part for additional important information.
FORM OF ORGANIZATION AND ASSETS OWNED
The Partnership is organized as a Delaware limited partnership. The
Partnership owns interests in properties and its subsidiary partnerships and
limited liability companies. The Partnership's purpose is to conduct any
business that may be lawfully conducted by a limited partnership organized under
the Delaware Revised Uniform Limited Partnership Act. However, its business
must be conducted in a manner that permits the Company to qualify as a REIT
unless the Company otherwise ceases to qualify as a REIT.
The Company is a Maryland real estate investment trust. It intends to
elect to be taxed as a REIT under the Code, commencing with the taxable year
ended December 31, 1998. The Company intends to maintain its qualification as a
REIT. Its primary asset is its interest in the Partnership, the Partnership
subsidiaries and in the Company's direct subsidiaries, which gives it an
indirect investment in the properties and subsidiaries of the Partnership. Under
its Declaration of Trust, the Company may engage in any lawful activity
permitted under Maryland law. However, under the Partnership Agreement, the
Company, as general partner, may not conduct any business other than the
business of the Partnership.
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ADDITIONAL EQUITY
The Partnership may issue units (which are substantially equivalent to
common shares), preferred units and other partnership interests (including
partnership interests of different series or classes that may be senior to
units) in exchange for additional capital contributions as determined by the
Company as its sole general partner. In exchange for capital contributions, the
Partnership may issue units, preferred units and other partnership interests to
the Company, may issue units, preferred units and other partnership interests to
existing limited partners and others, and may admit third parties as additional
limited partners. As long as the Partnership is in existence, the proceeds of
all equity capital raised by the Company will be contributed to the Partnership
in exchange for units, preferred units or other partnership units whose terms
will mirror the terms of the securities sold by the Company to raise such
capital.
The Board of Trustees of the Company may, in its discretion, authorize the
offer and sale of additional common shares or preferred shares (including shares
of different series or classes that may be senior to common shares). The Board
may authorize such shares in any class and series and may set the terms,
preferences, rights and privileges of such shares. The Board or a committee may
also set the offering price for such shares. The Declaration of Trust also
permits the Board to increase the aggregate number of shares or the number of
shares of any class or series without any action by the shareholders.
The Company may also raise capital by selling debt securities or entering
into loan or financing arrangements with third parties. Properties of
Partnership subsidiaries have been pledged, and other properties and assets of
the Partnership or its subsidiaries may also be pledged as security for such
debt. The Company will contribute any borrowed funds to the Partnership as a
loan, except in certain limited circumstances described in the Partnership
Agreement. The terms of the indebtedness of the Partnership will be equivalent
to the terms of the indebtedness of the Company.
MANAGEMENT CONTROL
All management powers over the business and affairs of the Partnership are
vested in the Company as the general partner. No limited partner of the
Partnership has any right to participate in or exercise control or management
power over the business and affairs of the Partnership. The Company may not be
removed as general partner by the holders of units with or without cause.
The Company's business and affairs are managed under the direction of the
Board of Trustees. The Company is required under its Declaration of Trust to
hold an annual meeting for the election of Trustees. The Board of Trustees may
alter or eliminate business policies without a vote of the shareholders.
Accordingly, except for their vote in the election of Trustees, shareholders
have no control over the Company's ordinary business policies.
VOTING RIGHTS
General. The Company may generally amend the Partnership Agreement as it
deems necessary, without the consent of limited partners. As a limited partner,
you will have the
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right to vote on the following amendments to the Partnership Agreement, which
require the consent of limited partners (other than the Company in its capacity
as a limited partner) holding at least two-thirds (2/3rds) of the equity
ownership of the Partnership:
* an amendment affecting the operation of the redemption right or
conversion formula for units except as provided in the Partnership
Agreement in a manner adverse to the limited partners;
* an amendment that would adversely affect the rights of the limited
partners to receive the distributions payable to them other than with
respect to the issuance of additional units pursuant to Section 4.02
of the Partnership Agreement;
* an amendment that would alter the Partnership's allocations of profit
and loss to the limited partners in a manner adverse to limited
partners, other than with respect to the issuance of additional units
pursuant to Section 4.02 of the Partnership Agreement;
* an amendment that would impose on the limited partners any obligation
to make additional capital contributions to the Partnership;
* an amendment to Section 8.07 of the Partnership Agreement providing
for certain registration rights, in a manner adverse to any limited
partner; and
* an amendment to Article XI of the Partnership Agreement relating to
when limited partner consent is required.
Each outstanding common share owned by a shareholder entitles that holder
to one vote on all matters submitted to a vote of shareholders, including the
election of trustees. The right to vote is subject to the provisions of the
Company's Declaration of Trust regarding the restrictions on transfer of shares
of beneficial interest, which are described under "Description of Shares of
Beneficial Ownership--Restrictions on Ownership and Transfer." There is no
cumulative voting in the election of trustees, 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.
Under the Declaration of Trust, Bylaws and Maryland law, all matters
submitted to the shareholders for approval, except for those matters listed
below, are approved if a majority of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present are voted in favor of
approval. The following matters require approval other than by a majority of
all votes cast:
1. the intentional disqualification of the Company as a real estate
investment trust or revocation of its election to be taxed as a real
estate investment trust (which requires the affirmative vote of the
holders of two-thirds of the number of common shares outstanding and
entitled to vote on such a matter),
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2. 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),
3. the removal of trustees (which requires the affirmative vote of the
holders of two-thirds of the number of common shares outstanding and
entitled to vote on such a matter), and
4. the amendment of the Declaration of Trust by shareholders (which
requires the affirmative vote of a majority of votes entitled to be
cast on the matter, except under certain circumstances specified in
the Declaration of Trust that require the affirmative vote of two-
thirds of all the votes entitled to be cast on the matter).
The Declaration of Trust permits the trustees by a two-thirds vote to amend
the Declaration of Trust from time to time to qualify as a real estate
investment trust under Maryland law without the approval of you or other
shareholders. The Declaration of Trust permits the Board of Trustees to amend
the Declaration of Trust to change the total number of shares of beneficial
interest or the number of shares of any class of shares of beneficial interest
that the Company has authority to issue without approval by shareholders.
Vote Required to Dissolve the Company or the Partnership. Limited Partners
will have no right to vote to dissolve the Partnership. Under the Partnership
Agreement, the Partnership will dissolve upon the following events:
. the bankruptcy of the general partner;
. 90 days after the sale or disposition of all or substantially all of
the assets of the Partnership;
. the redemption of all limited partnership interests; or
. the election of the general partner.
Under the Declaration of Trust, the shareholders may elect to terminate the
Company upon the affirmative vote of two-thirds of all votes entitled to be cast
on the matter.
Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
the disposition of all or substantially all of the Partnership's assets or
merger or consolidation of the Partnership requires the consent of limited
partners (including the Company in its capacity as a limited partner) holding at
least two-thirds of the equity ownership of the Partnership. The sale of less
than all or substantially all of the properties and assets of the Partnership
does not require the approval of the limited partners. The Company holds a
majority of limited partnership interests in the Partnership.
Under the Declaration of Trust, the sale of all or substantially all of the
Company's assets or a merger or consolidation of the Company requires the
approval of the Board of Trustees and
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the holders of a majority of all votes entitled to be cast on the matter. The
sale of less than 90% of the total assets of the Company within a 12 month
period does not require the approval of the shareholders.
DUTIES OF GENERAL PARTNER AND TRUSTEES
Under Delaware law, the Company, as general partner, has a duty of care to
the Partnership and is accountable to the Partnership as a fiduciary.
Consequently, the Company is required to exercise good faith in all of its
dealings with respect to partnership affairs. However, under the Partnership
Agreement, the Company and its officers and trustees are not liable for monetary
damages for losses sustained or liabilities incurred by partners as a result of
errors of judgment or acts or omissions if the Company acted in good faith.
Under the Declaration of Trust, the trustees must perform their duties in
good faith. Any determination made in good faith by the Board concerning its
powers and authority will be conclusive.
MANAGEMENT LIABILITY AND INDEMNIFICATION
As a matter of Delaware law, the Company, as the general partner, has
liability for the payment of the obligations and debts of the Partnership unless
limitations upon such liability are stated in the document or instrument
evidencing the obligations. Under the Partnership Agreement, the Partnership
indemnifies the Company and its officers and trustees for any and all losses,
claims, damages, liabilities (joint or several), expenses (including reasonable
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, unless it is established that: (1) the act or omission of the
Company or the officer or trustee 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; (2) the Company or the officer or trustee actually
received an improper personal benefit in money, property or services; or (3) in
the case of any criminal proceeding, the Company or the officer or trustee had
reasonable cause to believe that the act or omission was unlawful. Any
indemnification is payable only out of the assets of the Partnership.
The reasonable expenses incurred by an indemnitee may be reimbursed by the
Partnership before the final disposition of the proceeding. First, however, the
indemnitee must deliver to the Partnership an affirmation of his, her or its
good faith belief that the standard of conduct necessary for indemnification has
been met and an undertaking that the indemnitee shall repay the amount if it is
determined that such standard was not met.
The Declaration of Trust contains a provision which eliminates the
liability of Trustees and officers to the Company and its shareholders to the
fullest extent permitted by Maryland law in effect from time to time. The Bylaws
provide indemnification to Trustees and officers to the maximum extent permitted
by Maryland law in effect from time to time. Such indemnification is to the
same extent that the trustees and officers have indemnification rights under the
Partnership
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Agreement (in their capacity as officers and trustees of the general partner of
the Partnership) as described above.
The Company and the Partnership may also indemnify costs and expenses of
shareholders, employees and agents to the maximum extent permitted by law and
authorized by the trustees.
ANTI-TAKEOVER PROVISIONS
Except in limited circumstances (see "-- Voting Rights"), the Company has
exclusive management power over the business and affairs of the Partnership.
The Company may not be removed as general partner by the limited partners with
or without cause. A limited partner may generally not transfer its units
without the consent of the Company unless:
* the transfer is a result of the exercise of a redemption right;
* the transfer is to an affiliate, subsidiary or successor-in-interest
of a limited partner organized as a corporation or other business
entity; or
* the transfer is for donative purposes to an immediate family member or
trust owned by the limited partner or his immediate family members.
The limited partners may pledge units as collateral for any borrowing from
an institutional lender with the consent of the Company.
The Declaration of Trust and Bylaws contain a number of provisions that may
delay or discourage an unsolicited proposal for an acquisition involving the
Company and may prevent or delay the removal of incumbent trustees or
management. These provisions include:
. authorized shares that may be issued as preferred shares in the
discretion of the Board of Trustees, with voting or other rights
superior to the common shares;
. a requirement that trustees be removed only for cause, only at a
meeting of shareholders and only by the affirmative vote of two-thirds
of the aggregate number of votes then outstanding and entitled to vote
generally in the election of trustees; and
. provisions designed to avoid concentration of share ownership in a
manner that would jeopardize the status of the Company as a REIT under
the Code. See "Description of Shares of Beneficial Interest--
Restrictions on Ownership and Transfer."
Maryland law also contains certain provisions which could delay, defer or
prevent a change of control or other transaction. See "Description of Share of
Beneficial Interest--Certain Provisions of Maryland Law and the Declaration of
Trust and Bylaws."
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COMPENSATION, FEES AND DISTRIBUTIONS
The Company does not receive any compensation for its services as general
partner of the Partnership. As a partner in the Partnership, however, the
Company has the same right to receive pro rata allocations and distributions as
other partners of the Partnership. In addition, the Partnership generally will
reimburse the Company for all expenses incurred relating to its ongoing
operation and Partnership business and any offering of additional partnership
interests in the Partnership. The Partnership will also pay the compensation of
officers and employees providing services to the Partnership.
The Company's officers and outside Trustees receive compensation for their
services.
LIABILITY OF LIMITED PARTNERS AND SHAREHOLDERS
Under the Partnership Agreement and applicable Delaware law, the liability
of the holders of common units and exchangeable preferred units for the
Partnership's debts and obligations is generally limited to the amount of their
investment in the Partnership.
Under the Declaration of Trust the Company's shareholders are not
personally liable for the Company's debts or obligations and will not be
subject to any personal liability, in tort, contract or otherwise, to any person
in connection with the property or affairs of the Company by reason of being a
shareholder.
LIQUIDITY
The Company may not transfer or assign any of its general partnership
interest or withdraw as a general partner except as a result of certain
extraordinary transactions such as a merger, consolidation or other combination
or sale of all or substantially all Partnership assets (which requires the
consent of limited partners). The Company may not transfer its units except to
a successor general partner with the consent of a majority in interest of the
limited partners. The Company has agreed that it will hold at least a 20%
ownership interest in the Partnership at all times.
A limited partner may generally not transfer its units without the consent
of the Company unless:
* the transfer is a result of the exercise of a redemption right;
* the transfer is to an affiliate, subsidiary or successor-in-interest
of a limited partner organized as a corporation or other business
entity; or
* the transfer is for donative purposes to an immediate family member or
trust owned by the limited partner or his immediate family members.
The limited partners may pledge units as collateral for any borrowing from
an institutional lender with the consent of the Company.
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The common shares received by a unitholder on redemption will be freely
transferrable as registered securities under the Securities Act, subject to
prospectus delivery and other requirements for registered securities under
federal or state law.
TAXES
The Partnership is not subject to federal income taxes. Instead, each
holder of units includes his allocable share of the Partnership's taxable income
or loss in determining his individual federal income tax liability. The maximum
effective federal tax rate for individuals under current law is 39.6%.
Income and loss from the Partnership generally are subject to the "passive
activity" limitations. Under the "passive activity" rules, income and loss from
the Partnership that is considered "passive activity"generally can be offset
against income and loss from other investments that constitute "passive
activities," unless the Partnership is considered a "publicly traded
partnership," in which case income and loss from the Partnership can be offset
only against other income and loss from the Partnership.
Cash distributions from the Partnership are not taxable to a holder of
units except to the extent they exceed such holder's basis in his interest in
the Partnership, which includes such holder's allocable share of the
Partnership's debt.
Each year, holders of units receive a Schedule K-1 tax form containing
detailed tax information for inclusion in preparing their federal income tax
returns.
Holders of units are required, in some cases, to file state income tax
returns and/or pay state income taxes in the states in which the Partnership
owns property, even if they are not residents of those states.
The Company intends to elect to be taxed as a REIT. So long as it qualifies
as a REIT, the Company will be permitted to deduct distributions paid to its
shareholders, which effectively will reduce the "double taxation" that
typically results when a corporation earns income and distributes that income to
its shareholders in the form of dividends.
Distributions paid by the Company are treated as "portfolio" income and
cannot be offset with losses from "passive activities."
Distributions made by the Company to its taxable domestic shareholders out
of current or accumulated earnings and profits are taken into account by them as
ordinary income. Distributions in excess of current or accumulated earnings and
profits that are not designated as capital gain dividends are treated as a non-
taxable return of basis to the extent of a shareholder's adjusted basis in its
common shares, with the excess taxed as capital gain. Distributions that are
designated as capital gain dividends generally are taxed as gains from the sale
or exchange of a capital asset held for more than one year, to the extent they
do not exceed the Company's actual net capital gain for the taxable year. The
Company may elect to require its shareholders to
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include the Company's undistributed net capital gains in their income. If the
Company so elects, shareholders would include their proportionate share of such
gains in their income and be deemed to have paid their share of the tax paid by
the Company on such gains. Each year, Shareholders will receive Form 1099 used
by corporations to report dividends paid to their shareholders. Shareholders who
are individuals generally are not required to file state income tax returns
and/or pay state income taxes outside of their state of residence with respect
to the Company's operations and distributions. The Company may be required to
pay state income taxes in certain states.
FEDERAL INCOME TAX CONSEQUENCES
The following sections summarize the federal income tax issues that you, as
a redeeming limited partner and shareholder, may consider relevant. Because
this section is a summary, it does not address all of the tax issues that may be
important to you. In addition, this section does not address the tax issues
that may be important to certain types of shareholders that are subject to
special treatment under the federal income tax laws, such as insurance
companies, tax-exempt organizations (except to the extent discussed in "--
Taxation of Tax-Exempt Shareholders" below), financial institutions and broker-
dealers, and non-U.S. individuals and foreign corporations (except to the extent
discussed in "--Taxation of Non-U.S. Shareholders" below).
The statements in this section are based on the current federal income tax
laws governing the Company's qualification as a REIT. The Company cannot assure
you that new laws, interpretations of laws or court decisions, any of which may
take effect retroactively, will not cause any statement in this section to be
inaccurate.
THE COMPANY URGES YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO YOU OF REDEEMING YOUR UNITS AND OF THE COMPANY'S
ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH INVESTMENT AND ELECTION, AND REGARDING POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes certain federal income tax
considerations that may be relevant to a limited partner who exercises his right
to require the Partnership to redeem his units.
Tax Treatment of Redemption of Units. If the Company assumes the
redemption obligation and purchases units from a limited partner, the
Partnership Agreement provides that the redemption will be treated by the
Company, the Partnership, and the redeeming limited partner as a sale of units
by the limited partner to the Company. The sale will be fully taxable to the
limited partner, and he will realize for tax purposes an amount equal to the sum
of the cash or the value of the common shares received in exchange for the
units, plus the amount of any partnership liabilities allocable to the redeemed
units at the time of the purchase.
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If the Company does not elect to assume the obligation to redeem a limited
partner's units, then the Partnership will redeem the units for cash. If the
Partnership redeems the units for cash contributed by the Company, the
redemption likely would be treated for tax purposes as a sale of such units in a
fully taxable transaction. In that event, the redeeming partner will realize an
amount equal to the sum of the cash received in connection with the redemption,
plus the amount of any partnership liabilities allocable to the redeemed units
at the time of the redemption. The determination of the amount of gain or loss
in the event of sale treatment is discussed more fully below.
If the Partnership redeems units for cash that is not contributed by the
Company to effect the redemption, the tax consequences would be the same as
described in the previous paragraph, except that if the Partnership redeems less
than all of the units owned by a limited partner, the limited partner would not
be permitted to recognize any loss occurring on the transaction. The limited
partner would recognize taxable gain only to the extent that the sum of the cash
and the amount of any partnership liabilities allocable to the redeemed units
exceeds his adjusted basis in all of his units immediately before the
redemption.
Tax Treatment of Disposition of Units by Limited Partner Generally. If a
unit is redeemed in a manner that is treated as a sale of the unit, or if a
limited partner otherwise disposes of a unit (other than in a transaction that
is treated as a redemption for tax purposes), the determination of gain or loss
from such sale or other disposition will be based on the difference between the
amount realized for tax purposes and the tax basis in such unit. See "--Basis
of Units."
Upon the sale of a unit, the "amount realized" will be measured by the sum
of the cash and fair market value of other property (e.g., common shares)
received, plus the amount of any partnership liabilities allocable to the unit
sold. To the extent that the amount realized exceeds the limited partner's basis
in the unit sold, the limited partner will recognize gain. The amount of gain
recognized, or the tax liability resulting from such gain, could exceed the
amount of cash and the value of any other property received during the sale.
Except as described below, any gain recognized upon a sale or other
disposition of units will be treated as gain attributable to the sale or
disposition of a capital asset. However, the excess of (A) the amount realized
upon the sale of a unit that is attributable to a limited partner's share of the
Partnership's "unrealized receivables" (as defined in Section 751 of the Code)
over (B) the basis attributable to those assets will be ordinary income.
Unrealized receivables include, to the extent not previously included in the
Partnership's income, any rights to payment for services rendered or to be
rendered. Unrealized receivables also include amounts that would be subject to
recapture as ordinary income if the Partnership had sold its assets at their
fair market value at the time of the transfer of a unit.
Basis of Units. In general, if a limited partner is treated as having
received units upon liquidation of a partnership, he will have an initial tax
basis in his units ("Initial Basis") equal to his basis in his interest in the
liquidated partnership. Similarly, in general, if a limited partner received
his units in exchange for a contribution of a partnership interest or other
property to
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Partnership, he will have an Initial Basis equal to his basis in the contributed
partnership interest or other property.
A limited partner's Initial Basis generally is increased by (1) his share
of the Partnership's income and (2) increases in his share of the Partnership's
liabilities (including any increase in his share of liabilities occurring in
connection with the transactions resulting in the issuance of the units).
Generally, a limited partner's basis in his units is decreased (but not
below zero) by (1) his share of the Partnership's distributions, (2) decreases
in his share of the Partnership's liabilities (including any decrease in his
share of liabilities occurring in connection with the transactions resulting in
the issuance of the units), (3) his share of the Partnership's losses and (4)
his share of the Partnership's nondeductible expenditures that are not
chargeable to capital.
Potential Application of Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption of units may cause the limited
partner's original transfer of property to the Partnership in exchange for units
to be treated as a "disguised sale" of property.
The Code and the related Treasury Regulations (the "Disguised Sale
Regulations") generally provide that, unless an exception applies, if (A) a
partner contributes property to a partnership and (B) a partnership at the same
time or afterwards transfers money or other consideration (including the
assumption of or taking subject to a liability) to the partner, then the
transaction will be presumed to be a sale, in whole or in part, of the property
by the partner to the partnership.
The Disguised Sale Regulations provide generally that, in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property to the partnership, the transactions will, when viewed together, be
presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale.
The Disguised Sale Regulations also provide that, if two years have passed
between the contribution of property and the transfer of money or other
consideration from the partnership to a partner, the transactions will be
presumed not to be a sale unless the facts and circumstances clearly establish
that the transfers constitute a sale. A Disguised Sale may exist in cases in
which the transfers are not made simultaneously only if based on all the facts
and circumstances the later transfer is not dependent on the entrepreneurial
risks of partnership operations.
Accordingly, if the Partnership redeems a unit, the Internal Revenue
Service could argue that the Disguised Sale Regulations apply, because the
redeeming limited partner will receive cash or common shares after he has
contributed property to the Partnership. If the Internal Revenue Service were
to take such a position and sustain it in court, the original issuance of the
units could be taxable as a disguised sale under the Disguised Sale Regulations.
Any gain recognized thereby may be eligible for installment reporting under
Section 453 of the Code, subject to certain limitations.
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TAXATION OF THE COMPANY
The Company will elect to be taxed as a REIT under the federal income tax
laws when it files its 1998 tax return. The Company has operated in a manner
intended to qualify as a REIT and it intends to continue to operate in that
manner. This section discusses the laws governing the federal income tax
treatment of a REIT and its shareholders. These laws are highly technical and
complex.
In the opinion of the Company's tax counsel, Wilmer, Cutler & Pickering,
(1) the Company will qualify as a REIT under section 856 through 859 of the
Code with respect to the Company's first taxable year ended December 31, 1998;
and (2) the Company is organized in conformity with the requirements for
qualification as a REIT under the Code and its current method of operation will
enable it to meet the requirements for qualification as a REIT for the current
taxable year and for future taxable years. With respect to its current and
future years, however, the Company's status as a REIT at any time is dependent,
among other things, upon its meeting certain requirements throughout the year as
a whole. You should be aware that opinions of counsel are not binding on the IRS
or any court. Wilmer, Cutler & Pickering based this opinion on various
assumptions and factual representations made by the Company. The Company's
qualification as a REIT depends on its ability to meet, on a continuing basis,
certain qualification tests set forth in the federal tax laws. Those
qualification tests involve the percentage of income that the Company earns from
specified sources, the percentage of its assets that fall within certain
categories, the diversity of its share ownership, and the percentage of its
earnings that it distributes. We describe the REIT qualification tests in more
detail below. Wilmer, Cutler & Pickering will not monitor the Company's
compliance with the requirements for REIT qualification on an ongoing basis.
Accordingly, no assurance can be given that the Company's actual operating
results will satisfy the qualification tests. For a discussion of the tax
treatment of the Company and its shareholders if the Company fails to qualify as
a REIT, see "--Failure to Qualify."
If the Company qualifies as a REIT, it generally will not be subject to
federal income tax on the taxable income that it distributes to its
shareholders. The benefit of that tax treatment is that it avoids the "double
taxation" (i.e., at both the corporate and stockholder levels) that generally
results from owning stock in a corporation. However, the Company will be
subject to federal tax in the following circumstances:
. the Company will pay federal income tax on taxable income (including net
capital gain) that it does not distribute to its shareholders during, or
within a specified time period after, the calendar year in which the income
is earned;
. the Company may be subject to the " alternative minimum tax" on any items
of tax preference that it does not distribute or allocate to its
shareholders;
. the Company will pay income tax at the highest corporate rate on (i) net
income from the sale or other disposition of property acquired through
foreclosure ("foreclosure property") that it holds primarily for sale to
customers in the ordinary course of business and (ii) other non-qualifying
income from foreclosure property;
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. the Company will pay a 100% tax on net income from certain sales or other
dispositions of property (other than foreclosure property) that it holds
primarily for sale to customers in the ordinary course of business
("prohibited transactions");
. if the Company fails to satisfy the 75% gross income test or the 95% gross
income test (as described below under "--Requirements for Qualification --
Income Tests"), and nonetheless continues to qualify as a REIT because it
meets certain other requirements, it will pay a 100% tax on (i) the gross
income attributable to the greater of the amounts by which it fails the 75%
and 95% gross income tests, multiplied by (ii) a fraction intended to
reflect its profitability;
. if the Company fails to distribute during a 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 periods, it will pay a 4% excise tax on the excess of
such required distribution over the amount it actually distributed;
. the Company may elect to retain and pay income tax on its net long-term
capital gain; or
. if the Company acquires any asset from a C corporation (i.e., a
corporation generally subject to full corporate-level tax) in a merger
or other transaction in which it acquires a "carryover" basis in the asset
(i.e., basis determined by reference to the C corporation"s basis in the
asset (or another asset)), it will pay tax at the highest regular corporate
rate applicable if it recognizes gain on the sale or disposition of such
asset during the 10-year period after it acquires such asset. The amount
of gain on which it will pay tax is the lesser of (i) the amount of gain
that it recognizes at the time of the sale or disposition and (ii) the
amount of gain that it would have recognized if it had sold the asset at
the time it acquired the asset. The rule described in this paragraph will
apply assuming that the Company makes an election under IRS Notice 88-19
upon its acquisition of an asset from a C corporation.
REQUIREMENTS FOR REIT QUALIFICATION
In order to qualify as a REIT, the Company must be a corporation, trust or
association that meets the following requirements:
1. it is managed by one or more trustees or directors;
2. its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
3. it would be taxable as a domestic corporation, but for sections 856
through 860 of the Code;
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4. it is neither a financial institution nor an insurance company subject
to certain provisions of the Code;
5. at least 100 persons are beneficial owners of its shares or ownership
certificates;
6. not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities)
during the last half of any taxable year (the "5/50 Rule");
7. it elects to be a REIT (or has made such election for a previous
taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be
met to elect and maintain REIT status;
8. it uses a calendar year for federal income tax purposes and complies
with the record keeping requirements of the Code and the related
Treasury Regulations; and
9. it meets certain other qualification tests, described below, regarding
the nature of its income and assets.
The Company must meet requirements 1 through 4 during its entire taxable
year and must meet requirement 5 during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12
months. The Company was not required to meet requirements 5 and 6 during 1998.
If the Company complies with all the requirements for ascertaining the ownership
of its outstanding shares in a taxable year and has no reason to know that it
violated the 5/50 Rule, it will be deemed to have satisfied the 5/50 Rule for
such taxable year. For purposes of determining share ownership under the 5/50
Rule, an "individual" generally includes a supplemental unemployment
compensation benefits plan, a private foundation, or a portion of a trust
permanently set aside or used exclusively for charitable purposes. An
"individual," however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under Code section 401(a), and
beneficiaries of such a trust will be treated as holding shares of the Company
in proportion to their actuarial interests in the trust for purposes of the 5/50
Rule.
The Company believes it has issued sufficient common shares with sufficient
diversity of ownership to satisfy requirements 5 and 6 set forth above. In
addition, the Company's Declaration of Trust restricts the ownership and
transfer of the common shares so that the Company should continue to satisfy
requirements 5 and 6. The provisions of the Declaration of Trust restricting
the ownership and transfer of the common shares are described in "Description of
Shares of Beneficial Ownership--Restrictions on Ownership and Transfer."
The Company currently has several direct corporate subsidiaries and may
have additional corporate subsidiaries in the future. A corporation that is a
"qualified REIT subsidiary" is not treated as a corporation separate from its
parent REIT. All assets, liabilities, and items of
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income, deduction, and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is owned by the REIT. Thus, in applying the requirements described herein, any
"qualified REIT subsidiary" of the Company will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiary will
be treated as assets, liabilities, and items of income, deduction, and credit of
the Company. The Company believes its direct corporate subsidiaries are
qualified REIT subsidiaries. Accordingly, they are not subject to federal
corporate income taxation, though they may be subject to state and local
taxation.
A REIT is treated as owning its proportionate share of the assets of any
partnership in which it is a partner and as earning its allocable share of the
gross income of the partnership for purposes of the applicable REIT
qualification tests. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Partnership and of any other partnership
(or limited liability company treated as a partnership) in which the Company has
acquired or will acquire an interest, directly or indirectly (a "Subsidiary
Partnership"), are treated as assets and gross income of the Company for
purposes of applying the various REIT qualification requirements.
INCOME TESTS
The Company must satisfy two gross income tests annually to maintain its
qualification as a REIT:
. At least 75% of its gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of defined types of income
that it derives, directly or indirectly, from investments relating to real
property or mortgages on real property or temporary investment income (the
"75% gross income test"). Qualifying income for purposes of the 75% gross
income test includes "rents from real property," interest on debt secured
by mortgages on real property or on interests in real property, and
dividends or other distributions on and gain from the sale of shares in
other REITs; and
. At least 95% of its gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of income that is
qualifying income for purposes of the 75% gross income test, dividends,
other types of interest, gain from the sale or disposition of stock or
securities, or any combination of the foregoing (the "95% gross income
test").
The following paragraphs discuss the specific application of these tests to the
Company.
Rental Income. The Partnership's primary source of income derives from
leasing properties to dealer groups. The leases generally are on a "triple-
net" basis, which require the lessees to pay substantially all expenses
associated with the operation of the properties, such as real estate taxes,
insurance, utilities, services, maintenance and other operating expenses and any
ground lease payments.
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Rents under the leases will constitute "rents from real property" only if
the leases are treated as true leases for federal income tax purposes and are
not treated as service contracts, joint ventures, financing arrangements or some
other type of arrangement. The determination of whether the leases are true
leases depends on an analysis of all surrounding facts and circumstances. In
making such a determination, courts have considered a variety of factors,
including the following: (1) the intent of the parties; (2) the form of the
agreement; (3) the degree of control over the property that is retained by the
property owner (e.g., whether the lessee has substantial control over the
operation of the property or whether the lessee was required simply to use its
best efforts to perform its obligations under the agreement); (4) the extent to
which the property owner retains the risk of loss with respect to the operation
of the property (e.g., whether the lessee bears the risks of increases in
operating expenses or the risk of damage to the property); and (5) the extent to
which the property owner retains the burdens and benefits of ownership of the
property.
Capital Automotive Group believes that each lease will be treated as a true
lease for federal income tax purposes. Such belief is based, in part, on the
following facts:
1. Capital Automotive Group and the lessees intend for the relationship
with the Partnership to be that of a lessor and lessee and such
relationship will be documented by lease agreements;
2. the lessees will have the right to exclusive possession and use and
quiet enjoyment of the properties during the term of the leases;
3. the lessees will bear the cost of, and be responsible for, day-to-day
maintenance and repair of the properties, and will dictate how the
properties are operated, maintained, and improved;
4. the lessees will bear all of the costs and expenses of operating the
properties during the terms of the leases;
5. the lessees will benefit from any savings in the costs of operating
the properties during the terms of the leases;
6. the lessees will generally indemnify Capital Automotive Group against
all liabilities imposed on Capital Automotive Group during the term of
the leases by reason of (a) injury to persons or damage to property
occurring at the properties, or (b) the lessees' use, management,
maintenance or repair of the properties;
7. the lessees are obligated to pay fixed rent for the period of use of
the properties;
8. the lessees stand to reap substantial gains (or incur substantial
losses) depending on how successfully they operate the properties;
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9. the useful lives of the properties are significantly longer than the
terms of the leases; and
10. Capital Automotive Group will receive the benefit of increases in
value, and will bear the risk of decreases in value, of the properties
during the terms of the leases.
If the IRS were to challenge successfully the characterization of the
leases as true leases, the Partnership would not be treated as the owner of the
property in question for federal income tax purposes and the Partnership would
lose tax depreciation and cost recovery deductions with respect to such
property, which in turn could cause the Company to fail to qualify as a REIT.
See "--Distribution Requirements."
Shareholders should be aware that there are no controlling Treasury
regulations, published rulings, or judicial decisions involving leases with
terms substantially similar to those contained in the leases that address
whether such leases constitute true leases for federal income tax purposes. If
the leases are recharacterized as financing arrangements or partnership
agreements, rather than true leases, part or all of the payments that the
Partnership receives from the lessees may not be considered rent or may not
otherwise satisfy the various requirements for qualification as "rents from real
property." In that case, the Company likely would not be able to satisfy either
the 75% or 95% gross income tests and, as a result, would lose REIT status.
Capital Automotive Group received an opinion of counsel at the time of its
initial public offering that the leases entered into at that time were true
leases. That opinion is not binding on the IRS. Capital Automotive Group will
use its best efforts to structure any leasing transaction for properties
acquired in the future such that the lease will be characterized as a "true
lease " and the Partnership will be treated as the owner of the property in
question for federal income tax purposes and has generally entered into leases
substantially similar to those entered into at the time of the initial public
offering. The Company will not seek an advance ruling from the IRS and does not
intend to seek an opinion of counsel that it will be treated as the owner of any
other leased properties for federal income tax purposes, and thus there can be
no assurance that future leases will be treated as true leases for federal
income tax purposes.
In addition, rent that the Partnership receives from real property that it
owns and leases to lessees will qualify as "rents from real property" (which is
qualifying income for purposes of the 75% and 95% gross income tests) only if
several conditions are met under the REIT tax rules:
. The rent must not be based, in whole or in part, on the income or profits
of any person although, generally, rent may be based on a fixed percentage
or percentages of receipts or sales. The Partnership has not entered into
any lease based in whole or part on the net income of any person and does
not anticipate entering into such arrangements.
. Neither the Company nor someone who owns 10% or more of the Company's
shares may own 10% or more of a lessee from whom the Partnership receives
rent. The ownership of the Company and a lessee is determined based on
direct, indirect and constructive ownership. The constructive ownership
rules generally provide that if 10% or more in
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value of the shares of the Company are owned, directly or indirectly, by or
for any person, the Company is considered as owning the shares owned,
directly or indirectly, by or for such person. The applicable attribution
rules, however, are highly complex and difficult to apply, and the
Partnership may inadvertently enter into leases with lessees who, through
application of such rules, will constitute "Related Party Tenants." In such
event, rent paid by the Related Party Tenant will not qualify as "rents
from real property," which may jeopardize the Company's status as a REIT.
The Partnership will use its best efforts not to rent any property to a
Related Party Tenant (taking into account the applicable constructive
ownership rules), unless the Company determines in its discretion that the
rent received from such Related Party Tenant is not material and will not
jeopardize the Company's status as a REIT. The Company believes that the
Partnership has not leased property to any Related Party Tenant.
. The rent attributable to any personal property leased in connection with a
lease of property is no more than 15% of the total rent received under the
lease. In general, the Partnership has not leased personal property under
its current leases. If any incidental personal property has been leased,
Capital Automotive Group believes that rent from the personal property
would be less than 15% of total rent from that lease. If the Partnership
were to lease personal property in connection with a future lease, Capital
Automotive Group intends to satisfy the 15% test described above.
. Capital Automotive Group generally must not operate or manage its property
or furnish or render services to its lessees, other than through an
"independent contractor" who is adequately compensated and from whom
Capital Automotive Group does not derive revenue. Capital Automotive Group
may provide services directly, if the services are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered "rendered to the occupant." In addition, Capital
Automotive Group may render directly a de minimis amount of "non-
customary" services to the lessees of a property without disqualifying the
income as "rents from real property," as long as its income from the
services does not exceed 1% of its income from the related property.
Capital Automotive Group has not provided services to leased properties
itself or through an independent contractor. In the future, Capital
Automotive Group intends that any services provided will not cause rents to
be disqualified as rents from real property.
Based on the foregoing, the Company believes that rent from leases should
qualify as "rents from real property" for purposes of the 75% and 95% gross
income tests. As described above, however, there can be no complete assurance
that the IRS will not assert successfully a contrary position and, therefore,
prevent the Company from qualifying as a REIT.
On an ongoing basis, the Company will use its best efforts not to cause the
Partnership to:
. charge rent for any property that is based in whole or in part on the
income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above);
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. rent any property to a Related Party Tenant (taking into account the
applicable constructive ownership rules), unless the Company determines in
its discretion that the rent received from such Related Party Lessee is not
material and will not jeopardize the Company's status as a REIT;
. derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the
lease); and
. perform services considered to be rendered to the occupant of the
property, unless such services generate rents not in excess of 1% of all
amounts received or accrued during the taxable year with respect to such
property, other than through an independent contractor from whom the
Company derives no revenue or if the provisions of such services will not
jeopardize the Company's status as a REIT.
Because the Code provisions applicable to REITs are complex, however, the
Company may fail to meet one or more of the foregoing.
Interest Income. Capital Automotive Group may offer financing to dealer
groups for the development of property used by dealerships and earn interest
with respect to such financings. For purposes of the 75% and 95% gross income
tests, amounts received or accrued (directly or indirectly), which are based in
whole or in part on the income or profits of any person are generally not
treated as interest. An amount received or accrued will generally be treated as
interest even if it is based (1) on a fixed percentage or percentages of
receipts or sales or (2) on the income or profits of a debtor if the debtor
derives substantially all of its gross income from the related property through
the leasing of substantially all of its interests in the property, but only to
the extent the amounts received by the debtor would be characterized as "rents
from real property" if received by a REIT. Furthermore, to the extent that
interest from a loan that is based on the cash proceeds from the sale of the
property securing the loan constitutes a "shared appreciation provision" (as
defined in the Code), income attributable to such participation feature will be
treated as gain from the sale of the secured property, which generally is
qualifying income for purposes of the 75% and 95% gross income tests.
Interest on obligations secured by mortgages on real property or on
interests in real property generally is qualifying income for purposes of the
75% gross income tests. However, if Capital Automotive Group receives interest
income with respect to a loan that is secured by both real property and other
property and the highest principal amount of the loan outstanding during a
taxable year exceeds the fair market value of the real property on the date
Capital Automotive Group acquired the loan, the interest income from the loan
will be apportioned between the real property and the other property. This
apportionment may cause the Company to recognize income that is not qualifying
income for purposes of the 75% gross income test. The Company intends to
structure any such financing arrangement such that it will continue to qualify
as a REIT.
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Tax on Income From Property Acquired in Foreclosure. The Company will be
subject to tax at the maximum corporate rate on any income from foreclosure
property (other than income that would be qualifying income for purposes of the
75% gross income test), less expenses directly connected to the production of
such income. "Foreclosure property" is any real property (including interests
in real property) and any personal property incident to such real property:
. that is acquired by a REIT at a foreclosure sale, or having otherwise
become the owner or in possession of the property by agreement or process
of law, after a default (or imminent default) on a lease of such property
or on an indebtedness owed to the REIT secured by the property;
. for which the related loan was acquired by the REIT at a time when default
was not imminent or anticipated; and
. for which the REIT makes a proper election to treat the property as
foreclosure property.
A REIT will not be considered to have foreclosed on a property where it takes
control of the property as a mortgagee-in-possession and cannot receive any
profit or sustain any loss except as a creditor of the mortgagor. Generally,
property acquired as described above ceases to be foreclosure property on the
earlier of:
. the last day of the third taxable year following the taxable year in which
the Partnership acquired the property (or longer if an extension is granted
by the Secretary of the Treasury);
. the first day on which a lease is entered into with respect to such
property that, by its terms, will give rise to income that does not qualify
under the 75% gross income test or any amount is received or accrued,
directly or indirectly, pursuant to a lease entered into on or after such
day that will give rise to income that does not qualify under the 75% gross
income test;
. the first day on which any construction takes place on such property
(other than completion of a building, or any other improvement, where more
than 10% of the construction of such building or other improvement was
completed before default became imminent); or
. the first day that is more than 90 days after the day on which such
property was acquired by the REIT and the property is used in a trade or
business that is conducted by the REIT (other than through an independent
contractor from whom the REIT itself does not derive or receive any
income).
Tax on Prohibited Transactions. A REIT will incur a 100% tax on net income
derived from any "prohibited transaction." A "prohibited transaction" generally
is a sale or other disposition of property (other than foreclosure property)
that the REIT holds primarily for sale to customers in the ordinary course of a
trade or business. Capital Automotive Group believes that
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none of its assets is held for sale to customers and that a sale of any such
asset would not be in the ordinary course of its business. Whether a REIT holds
an asset "primarily for sale to customers in the ordinary course of a trade or
business" depends, however, on the facts and circumstances in effect from time
to time, including those related to a particular asset. Nevertheless, Capital
Automotive Group will attempt to comply with the terms of safe-harbor provisions
in the Code prescribing when an asset sale will not be characterized as a
prohibited transaction. Capital Automotive Group may fail to comply with such
safe-harbor provisions or may own property that could be characterized as
property held "primarily for sale to customers in the ordinary course of a trade
or business."
Relief from Consequences of Failing to Meet Income Tests. If the Company
fails to satisfy one or both of the 75% and 95% gross income tests for any
taxable year, it nevertheless may qualify as a REIT for such year if it
qualifies for relief under certain provisions of the Code. Those relief
provisions generally will be available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its tax return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. The Company may not qualify for the relief provisions in all
circumstances. In addition, as discussed above in "--Taxation of the Company,"
even if the relief provisions apply, the Company would incur a 100% tax on gross
income to the extent it fails the 75% and 95% gross income tests (whichever
amount is greater), multiplied by a fraction intended to reflect its
profitability.
ASSET TESTS
To maintain its qualification as a REIT, the Company also must satisfy two
asset tests at the close of each quarter of each taxable year:
. At least 75% of the value of its total assets must consist of cash or cash
items (including certain receivables), government securities, "real estate
assets," or qualifying temporary investments (the "75% asset test").
* "Real estate assets" include interests in real property,
interests in mortgages on real property and stock in other REITs.
The Company believes that the properties qualify as real estate
assets.
* "Interests in real property" includes an interest in mortgage
loans or land and improvements thereon, such as buildings or
other inherently permanent structures (including items that are
structural components of such buildings or structures), a
leasehold of real property, and an option to acquire real
property (or a leasehold of real property).
* Qualifying temporary investments are investments in stock or debt
instruments during the one-year period following the Company's
receipt of new capital that it raises through equity or long-term
(at least five-year) debt offerings.
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. For investments not included in the 75% asset test, (A) the value of its
interest in any one issuer's securities (which does not include its equity
ownership of other REITs, the Partnership or any qualified REIT subsidiary)
may not exceed 5% of the value of its total assets (the "5% asset test")
and (B) the Company may not own more than 10% of any one issuer's
outstanding voting securities which does not include its equity ownership
in other REITs, the Partnership or any qualified REIT subsidiary (the "10%
asset test").
The Company intends to select future investments so as to comply with the asset
tests.
If the Company failed to satisfy the asset tests at the end of a calendar
quarter, it would not lose its REIT status if (i) it satisfied the asset tests
at the close of the preceding calendar quarter and (ii) the discrepancy between
the value of its assets and the asset test requirements arose from changes in
the market values of its assets and was not wholly or partly caused by the
acquisition of one or more non-qualifying assets. If the Company did not
satisfy the condition described in clause (ii) of the preceding sentence, it
still could avoid disqualification as a REIT by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which the discrepancy
arose.
DISTRIBUTION REQUIREMENTS
Each taxable year, the Company must distribute dividends (other than
capital gain dividends and deemed distributions of retained capital gain) to its
shareholders as follows:
. an aggregate amount at least equal to (1) the sum of 95% of (A) its "REIT
taxable income" (computed without regard to the dividends paid deduction
and its net capital gain or loss) and (B) its net income (after tax), if
any, from foreclosure property, minus (2) certain items of non-cash income.
-----
. at least 95% of the built-in gain (after tax), if any, recognized on the
disposition of any asset acquired from a C corporation in a carryover basis
transaction during its Recognition Period (pursuant to Treasury regulations
which have not yet been promulgated).
The Company must pay such distributions in the taxable year to which they
relate, or in the following taxable year if it declares the distribution before
it timely files its federal income tax return for such year and pays the
distribution on or before the first regular dividend payment date after such
declaration.
The Company will pay federal income tax on taxable income (including net
capital gain) that it does not distribute to shareholders. Furthermore, it will
incur a 4% nondeductible excise tax if it fails to distribute during a calendar
year (or, in the case of distributions with declaration and record dates falling
in the last three months of the calendar year, by the end of January following
such calendar year) at least the sum of (1) 85% of its REIT ordinary income for
such year, (2) 95% of its REIT capital gain income for such year, and (3) any
undistributed taxable income from prior periods. The excise tax is on the
excess of such required distribution over the
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amounts it actually distributed. The Company may elect to retain and pay income
tax on the net long-term capital gain it receives in a taxable year. See "--
Taxation of Taxable U.S. Shareholders." For purposes of the 4% excise tax, it
will be treated as having distributed any such retained amount. The Company has
made, and the Company intends to continue to make, timely distributions
sufficient to satisfy the annual distribution requirements.
It is possible that, from time to time, the Company may experience timing
differences between (1) the actual receipt of income and actual payment of
deductible expenses and (2) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, the Company may
not deduct recognized capital losses from its "REIT taxable income." Further, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. As a result of the
foregoing, the Company may have less cash than is necessary to distribute all of
its taxable income and thereby avoid corporate income tax and the excise tax
imposed on certain undistributed income. In such a situation, it may need to
borrow funds or issue preferred shares or additional common shares.
The Company intends to calculate its "REIT taxable income" based upon the
conclusion that the Partnership is the owner for federal income tax purposes of
all of the properties. As a result, the Company expects that depreciation
deductions with respect to all such properties will reduce its "REIT taxable
income." If the IRS were to successfully challenge this position, the Company
might be deemed retroactively to have failed to meet the distribution
requirement and would have to rely on the payment of a "deficiency dividend" in
order to retain its REIT status.
Under certain circumstances, the Company may be able to correct a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to its shareholders in a later year. The Company may include such deficiency
dividends in its deduction for dividends paid for the earlier year. Although
the Company may be able to avoid income tax on amounts distributed as deficiency
dividends, it will be required to pay interest to the IRS based upon the amount
of any deduction it takes for deficiency dividends.
PARTNERSHIP ANTI-ABUSE RULE
The United States Treasury Department has issued a regulation (the "Anti-
Abuse Rule") under the partnership provisions of the Code that authorizes the
IRS, in certain "abusive" transactions involving partnerships, to disregard the
form of the transaction and recast it for federal tax purposes as the IRS deems
appropriate. The Anti-Abuse Rule applies where a partnership is formed or
utilized in connection with a transaction (or series of related transactions)
with a principal purpose of substantially reducing the present value of the
partners' aggregate federal tax liability in a manner inconsistent with the
intent of the partnership provisions. The Anti-Abuse Rule states that the
partnership provisions are intended to permit taxpayers to conduct joint
business (including investment) activities through a flexible economic
arrangement that accurately reflects the partners' economic agreement and
clearly reflects the partners' income without incurring any entity-level tax.
The purposes for structuring a transaction involving a partnership are
determined based on all of the facts and circumstances,
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including a comparison of the purported business purpose for a transaction and
the claimed tax benefits resulting from the transaction. A reduction in the
present value of the partners' aggregate federal tax liability through the use
of a partnership does not, by itself, establish inconsistency with the intent of
the partnership provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partner interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, the limited partners have the right, beginning
one year after the formation of the partnership, to require the redemption of
their limited partnership interests in exchange for cash or REIT shares (at the
corporation's option) equal to the fair market value of their respective
interests in the partnership at the time of the redemption. The example
concludes that the use of the partnership is not inconsistent with the intent of
the partnership provisions and, thus, cannot be recast by the IRS. Based on the
foregoing, the Company believes that the Anti-Abuse Rule will not have any
adverse impact on the Company's ability to qualify as a REIT. However, the Anti-
Abuse Rule is extraordinarily broad in scope and is applied based on an analysis
of all of the facts and circumstances. As a result, there can be no assurance
that the Service will not attempt to apply the Anti-Abuse Rule to the Company.
If the conditions of the Anti-Abuse Rule are met, the IRS is authorized to take
appropriate enforcement action, including disregarding the Partnership for
federal tax purposes or treating one or more of its partners as non-partners.
Any such action potentially could jeopardize the Company's status as a REIT.
RECORD KEEPING REQUIREMENTS
The Company must maintain certain records in order to qualify as a REIT. In
addition, to avoid a monetary penalty, it must request on an annual basis
certain information from its shareholders designed to disclose the actual
ownership of its outstanding stock. The Company has complied, and the Company
intends to continue to comply, with such requirements.
FAILURE TO QUALIFY
If the Company failed to qualify as a REIT in any taxable year, and no
relief provision applied, it would be subject to federal income tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. In calculating its taxable income in a year in which it failed
to qualify as a REIT, the Company would not be able to deduct amounts paid out
to shareholders. In fact, the Company would not be required to distribute any
amounts to shareholders in such year. In such event, to the extent of its
current and accumulated earnings and profits, all distributions to shareholders
would be taxable as ordinary income. Subject to certain limitations of the Code,
corporate shareholders might be eligible for the dividends received deduction.
Unless the Company qualified for relief under specific statutory provisions, it
also would be disqualified from taxation as a REIT for the four taxable years
following the year during which it ceased to qualify as a REIT. The Company
cannot predict whether in all circumstances it would qualify for such statutory
relief.
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TAXATION OF SHAREHOLDERS
Taxation of Taxable U.S. Shareholders. As long as the Company qualifies as
a REIT, a taxable "U.S. shareholder" must take into account distributions out of
the Company's current or accumulated earnings and profits (and that it does not
designate as capital gain dividends or retained long-term capital gain) as
ordinary income. A U.S. Stockholder will not qualify for the dividends received
deduction generally available to corporations. As used herein, the term "U.S.
shareholder" means a holder of common Shares that for U.S. federal income tax
purposes is
. a citizen or resident of the United States,
. a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of a political subdivision thereof,
. an estate whose income is subject to U.S. federal income taxation
regardless of its source, or
. any trust with respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust and (B) one or
more U.S. persons have the authority to control all substantial decisions
of the trust.
A U.S. shareholder will recognize distributions that the Company designates
as capital gain dividends as long-term capital gain (to the extent they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the U.S. shareholder has held its common shares.
Subject to certain limitations, the Company will designate its capital gain
dividends as either 20% or 25% rate distributions. A corporate U.S.
shareholder, however, may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
The Company may elect to retain and pay income tax on the net long-term
capital gain that it receives in a taxable year. In that case, a U.S.
shareholder would be taxed on its proportionate share of the Company's
undistributed long-term capital gain. The U.S. shareholder would receive a
credit or refund for its proportionate share of the tax the Company paid. The
U.S. shareholder would increase the basis in its stock by the amount of its
proportionate share of the Company's undistributed long-term capital gain, minus
its share of the tax the Company paid.
A U.S. shareholder will not incur tax on a distribution in excess of the
Company's current and accumulated earnings and profits if such distribution does
not exceed the adjusted basis of the U.S. shareholder's common shares. Instead,
such distribution will reduce the adjusted basis of such common shares. A U.S.
shareholder will recognize a distribution in excess of both the Company's
current and accumulated earnings and profits and the U.S. shareholder's adjusted
basis in its common shares as long-term capital gain (or short-term capital gain
if the common shares have been held for one year or less), assuming the common
shares are a capital asset in the hands of the U.S. shareholder. In addition,
if the Company declares a distribution in October,
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November, or December of any year that is payable to a U.S. Stockholder of
record on a specified date in any such month, such distribution shall be treated
as both paid by the Company and received by the U.S. shareholder on December 31
of such year, provided that the Company actually pays the distribution during
January of the following calendar year. The Company will notify U.S.
shareholders after the close of its taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income or
capital gain dividends.
Taxation of U.S. Shareholders on the Disposition of the Common Shares. In
general, a U.S. shareholder who is not a dealer in securities must treat any
gain or loss realized upon a taxable disposition of the common shares as long-
term capital gain or loss if the U.S. shareholder has held the common stock for
more than one year and otherwise as short-term capital gain or loss. However, a
U.S. shareholder must treat any loss upon a sale or exchange of common shares
held by such shareholder for six months or less (after applying certain holding
period rules) as a long-term capital loss to the extent of capital gain
dividends and other distributions from the Company that such U.S. shareholder
treats as long-term capital gain. All or a portion of any loss a U.S.
shareholder realizes upon a taxable disposition of the common shares may be
disallowed if the U.S. shareholder purchases additional common shares within 30
days before or after the disposition.
Capital Gains and Losses. A taxpayer generally must hold a capital asset
for more than one year for gain or loss derived from its sale or exchange to be
treated as long-term capital gain or loss. The highest marginal individual
income tax rate is 39.6%. The maximum tax rate on long-term capital gain
applicable to non-corporate taxpayers is 20% for sales and exchanges of assets
held for more than one year. The maximum tax rate on long-term capital gain
from the sale or exchange of "section 1250 property" (i.e., depreciable real
property) is 25% to the extent that such gain would have been treated as
ordinary income if the property were "section 1245 property." With respect to
distributions that the Company designates as capital gain dividends and any
retained capital gain that it is deemed to distribute, the Company may designate
(subject to certain limits) whether such a distribution is taxable to its non-
corporate shareholders at a 20% or 25% rate. Thus, the tax rate differential
between capital gain and ordinary income for non-corporate taxpayers may be
significant. A U.S. shareholder required to include retained long-term capital
gains in income will be deemed to have paid, in the taxable year of the
inclusion, its proportionate share of the tax paid by the Company in respect of
such undistributed net capital gains. U.S. shareholders subject to these rules
will be allowed a credit or a refund, as the case may be, for the tax deemed to
have been paid by such shareholders. U.S. shareholders will increase their
basis in their common shares by the difference between the amount of such
includible gains and the tax deemed paid by the U.S. shareholder in respect of
such gains. In addition, the characterization of income as capital gain or
ordinary income may affect the deductibility of capital losses. A non-corporate
taxpayer may deduct capital losses not offset by capital gains against its
ordinary income only up to a maximum annual amount of $3,000. A non-corporate
taxpayer may carry forward unused capital losses indefinitely. A corporate
taxpayer must pay tax on its net capital gain at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five years.
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Information Reporting Requirements and Backup Withholding. The Company
will report to its shareholders and to the IRS the amount of distributions it
pays during each calendar year, and the amount of tax it withholds, if any.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions unless such holder
(1) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (2) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A shareholder who does not provide the Company with its correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to the Company. The Treasury Department has issued
final regulations regarding the backup withholding rules as applied to Non-U.S.
shareholders. Those regulations alter the current system of backup withholding
compliance and are effective for distributions made after December 31, 1999.
See "--Taxation of Non-U.S. Shareholders."
Taxation of Tax-Exempt Shareholders. Tax-exempt entities, including
qualified employee pension and profit sharing trusts and individual retirement
accounts and annuities ("Exempt Organizations"), generally are exempt from
federal income taxation. However, they are subject to taxation on their
unrelated business taxable income ("UBTI"). While many investments in real
estate generate UBTI, the IRS has issued a published ruling that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the exempt employee pension trust does not otherwise use the
shares of the REIT in an unrelated trade or business of the pension trust. Based
on that ruling, amounts that the Company distributes to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization were
to finance its acquisition of the common shares with debt, a portion of the
income that they receive from the Company would constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions that they receive from the Company as UBTI. Finally, in certain
circumstances, a qualified employee pension or profit sharing trust that owns
more than 10% of the Company's shares is required to treat a percentage of the
dividends that it receives from the Company as UBTI (the "UBTI Percentage").
The UBTI Percentage is equal to the gross income the Company derives from an
unrelated trade or business (determined as if it were a pension trust) divided
by its total gross income for the year in which it pays the dividends. The UBTI
rule applies to a pension trust holding more than 10% of the Company's shares
only if:
. the UBTI Percentage is at least 5%;
. the Company qualifies as a REIT by reason of the modification of the 5/50
Rule that allows the beneficiaries of the pension trust to be treated as
holding the Company's shares in proportion to their actuarial interests in
the pension trust; and
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. the Company is a "pension-held REIT" (i.e., either (1) one pension trust
owns more than 25% of the value of its shares or (2) a group of pension
trusts individually holding more than 10% of the value of its shares
collectively owns more than 50% of the value of its shares).
Tax-exempt entities will be subject to the rules described above, under the
heading "--U.S. Shareholders" concerning the inclusion of the Company's
designated undistributed net capital gains in the income of its shareholders.
Thus, such entities will, after satisfying filing requirements, be allowed a
credit or refund of the tax deemed paid by such entities in respect of such
includible gains.
Taxation of Non-U.S. Shareholders. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships, and other foreign shareholders (collectively, "Non-U.S.
shareholders") are complex. This section is only a summary of such rules. We
urge Non-U.S. shareholders to consult their own tax advisors to determine the
impact of federal, state, and local income tax laws on ownership of common
shares, including any reporting requirements.
Ordinary Dividends. A Non-U.S. shareholder that receives a distribution
that is not attributable to gain from the Company's sale or exchange of U.S.
real property interests (as defined below) and that the Company does not
designate as a capital gain dividend or retained capital gain will recognize
ordinary income to the extent that the Company pays such distribution out of its
current or accumulated earnings and profits. A withholding tax equal to 30% of
the gross amount of the distribution ordinarily will apply to such distribution
unless an applicable tax treaty reduces or eliminates the tax. However, if a
distribution is treated as effectively connected with the Non-U.S. shareholder's
conduct of a U.S. trade or business, the Non-U.S. shareholder generally will be
subject to federal income tax on the distribution at graduated rates, in the
same manner as U.S. shareholders are taxed with respect to such distributions
(and also may be subject to the 30% branch profits tax in the case of a Non-U.S.
shareholder that is a non-U.S. corporation). The Company plans to withhold U.S.
income tax at the rate of 30% on the gross amount of any such distribution paid
to a Non-U.S. shareholder unless (i) a lower treaty rate applies and the Non-
U.S. shareholder files the required form evidencing eligibility for that reduced
rate with the Company or (ii) the Non-U.S. shareholder files an IRS Form 4224
with the Company claiming that the distribution is effectively connected income.
The U.S. Treasury Department has issued final regulations that modify the manner
in which the Company will comply with the withholding requirements. Those
regulations are effective for distributions made after December 31, 1999.
Distributions to a Non-U.S. shareholder that are designated by the Company
at the time of distribution as capital gain dividends which are not attributable
to or treated as attributable to the disposition by the Company of a U.S. real
property interest generally will not be subject to U.S. federal income taxation,
except as described below.
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Return of Capital. A Non-U.S. shareholder will not incur tax on a
distribution in excess of the Company's current and accumulated earnings and
profits if such distribution does not exceed the adjusted basis of its common
shares. Instead, such a distribution will reduce the adjusted basis of such
common shares. A Non-U.S. shareholder will be subject to tax on a distribution
that exceeds both the Company's current and accumulated earnings and profits and
the adjusted basis of its common shares, if the Non-U.S. shareholder otherwise
would be subject to tax on gain from the sale or disposition of its common
shares, as described below. Because the Company generally cannot determine at
the time it makes a distribution whether or not the distribution will exceed its
current and accumulated earnings and profits, it normally will withhold tax on
the entire amount of any distribution at the same rate as it would withhold on a
dividend. However, a Non-U.S. shareholder may obtain a refund of amounts that
the Company withholds if it later determines that a distribution in fact
exceeded its current and accumulated earnings and profits.
The Company must withhold 10% of any distribution that exceeds its current
and accumulated earnings and profits. Consequently, although it intends to
withhold at a rate of 30% on the entire amount of any distribution, to the
extent that it does not do so, it will withhold at a rate of 10% on any portion
of a distribution not subject to withholding at a rate of 30%.
Capital Gain Dividends. For any year in which the Company qualifies as a
REIT, a Non-U.S. shareholder will incur tax on distributions that are
attributable to gain from its sale or exchange of "U.S. real property
interests" under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). The term "U.S. real property interests" includes
certain interests in real property and stock in corporations at least 50% of
whose assets consists of interests in real property, but excludes mortgage loans
and mortgage-backed securities. Under FIRPTA, a Non-U.S. shareholder is taxed
on distributions attributable to gain from sales of U.S. real property interests
as if such gain were effectively connected with a U.S. business of the Non-U.S.
shareholder. A Non-U.S. shareholder thus would be taxed on such a distribution
at the normal capital gain rates applicable to U.S. shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of a nonresident alien individual). A non-U.S. corporate shareholder not
entitled to treaty relief or exemption also may be subject to the 30% branch
profits tax on distributions subject to FIRPTA. The Company must withhold 35%
of any distribution that it could designate as a capital gain dividend.
However, if the Company makes a distribution and later designates it as a
capital gain dividend, then (although such distribution may be taxable to a Non-
U.S. shareholder) it is not subject to withholding under FIRPTA. Instead, the
Company must make-up the 35% FIRPTA withholding from distributions made after
the designation, until the amount of distributions withheld at 35% equals the
amount of the distribution designated as a capital gain dividend. A Non-U.S.
shareholder may receive a credit against its FIRPTA tax liability for the amount
the Company withholds.
Sale of Shares. A Non-U.S. shareholder generally will not incur tax under
FIRPTA on gain from the sale of its common shares as long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period non-U.S. persons held,
directly or indirectly, less than 50% in value of the stock.
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The Company anticipates that it will continue to be a "domestically controlled
REIT." However, a Non-U.S. shareholder will incur tax on gain not subject to
FIRPTA if (1) the gain is effectively connected with the Non-U.S. shareholder's
U.S. trade or business, in which case the Non-U.S. shareholder will be subject
to the same treatment as U.S. shareholders with respect to such gain, or (2) the
Non-U.S. shareholder is a nonresident alien individual who was present in the
U.S. for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the Non-U.S. shareholder will incur a 30% tax on
his capital gains. Capital gains dividends not subject to FIRPTA will be subject
to similar rules. However, a Non-U.S. shareholder that owned, actually or
constructively, 5% or less of outstanding common shares at all times during a
specified testing period will not incur tax under FIRPTA if the common shares
are "regularly traded" on an established securities market. If the gain on the
sale of the common shares were taxed under FIRPTA, a Non-U.S. shareholder would
be taxed in the same manner as U.S. shareholders with respect to such gain
(subject to applicable alternative minimum tax, a special alternative minimum
tax in the case of nonresident alien individuals, and the possible application
of the 30% branch profits tax in the case of non-U.S. corporations).
Backup Withholding. Backup withholding tax (which generally is withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements) and information reporting will generally not apply to
distributions to Non-U.S. shareholders outside the United States that are
treated as (1) dividends subject to the 30% (or lower treaty rate) withholding
tax discussed above, (2) capital gains dividends, or (3) distributions
attributable to gain from the sale or exchange by the Company of United States
real property interests. As a general matter, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
common shares by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of the
proceeds of a sale of Common Shares by a foreign office of a broker that (a) is
a United States person, (b) derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or (c) is
a "controlled foreign corporation" (generally, a foreign corporation controlled
by U.S. shareholders) for United States tax purposes, unless the broker has
documentary evidence in its records that the holder is a Non-U.S. shareholder
and certain other conditions are met, or the shareholder otherwise establishes
an exemption. Payment to or through a United States office of a broker of the
proceeds of a sale of common shares is subject to both backup withholding and
information reporting unless the shareholder certifies under penalty of perjury
that the shareholder is a Non-U.S. shareholder, or otherwise establishes an
exemption. Backup withholding is not an additional tax. A Non-U.S. shareholder
may obtain a refund of any amounts withheld under the backup withholding rules
by filing the appropriate claim for refund with the IRS. The Treasury
Department has issued final regulations regarding backup withholding rules.
Those regulations alter the current system of backup withholding compliance and
are effective for distributions made after December 31, 1999.
OTHER TAX CONSEQUENCES
State and Local Taxes. The Company and/or you may be subject to state and
local tax in various states and localities, including those states and
localities in which the Company or you
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transact business, own property or reside. The state and local tax treatment in
such jurisdictions may differ from the federal income tax treatment described
above. Consequently, you should consult your own tax advisor regarding the
effect of state and local tax laws upon an investment in the Common Stock.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN THE PARTNERSHIP AND SUBSIDIARY
PARTNERSHIPS
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investments in the
Partnership and its subsidiaries. The discussion does not cover state or local
tax laws or any federal tax laws other than income tax laws.
Classification as Partnerships. The Company is entitled to include in its
income its distributive share of the Partnership's income and to deduct its
distributive share of the Partnership's losses only if the Partnership is
classified for federal income tax purposes as a partnership rather than as a
corporation or association taxable as a corporation. An organization will be
classified as a partnership, rather than as a corporation, for federal income
tax purposes if it (1) is treated as a partnership under Treasury Regulations,
effective January 1, 1997, relating to entity classification (the "Check-the-Box
Regulations") and (2) is not a "publicly traded" partnership.
Under the Check-the-Box Regulations, an unincorporated entity with at least
two members may elect to be classified either as an association taxable as a
corporation or as a partnership. If such an entity fails to make an election, it
generally will be treated as a partnership for federal income tax purposes. The
Company believes that the Partnership and its subsidiaries are classified as
partnerships for federal income tax purposes.
A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). While the units will not be
traded on an established securities market, they could possibly be deemed to be
traded on a secondary market or its equivalent due to the redemption rights
enabling the limited partners to dispose of their units. A publicly traded
partnership will not, however, be treated as a corporation for any taxable year
if 90% or more of the partnership's gross income for such year consists of
certain passive-type income, including (as may be relevant here) real property
rents, gains from the sale or other disposition of real property, interest, and
dividends (the "90% Passive Income Exception").
The U.S. Treasury has issued regulations (the "PTP Regulations") that
provide limited safe harbors from the definition of a publicly traded
partnership. Pursuant to one of those safe harbors (the "Private Placement
Exclusion"), interests in a partnership will not be treated as readily tradable
on a secondary market or the substantial equivalent thereof if (i) all interests
in the partnership were issued in a transaction (or transactions) that was not
required to be registered under the Securities Act of 1933, as amended, and (ii)
the partnership does not have more than 100 partners at any time during the
partnership's taxable year. In determining the number of partners in a
partnership, a person owning an interest in a flow-through entity (i.e., a
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partnership, grantor trust, or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (i)
substantially all of the value of the owner's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (ii) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation. The Company believes that the Partnership qualified for the Private
Placement Exclusion in 1998 and intends to continue to qualify for the Private
Placement Exclusion unless it qualifies for another exception. It is possible
that in the future the Partnership might not qualify for the Private Placement
Exclusion.
If the Partnership is considered a publicly traded partnership under the
PTP Regulations because it is deemed to have more than 100 partners, such
Partnership would need to qualify under another safe harbor in the PTP
Regulations or for the 90% Passive Income Exception. Because of the substantial
ownership of the Partnership by certain partners who also own, directly or
indirectly, lessees, the Partnership would not currently be eligible for the 90%
Passive Income Exception, but it may so qualify in the future.
If, however, for any reason the Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to qualify as a REIT. See "--Requirements for Annual Qualification
- --Income Tests" and "--Requirements for Qualification -- Asset Tests." In
addition, any change in the Partnership's status for tax purposes might be
treated as a taxable event, in which case the Company might incur tax liability
without any related cash distribution. See "--Requirements for Annual
Qualification --Distribution Requirements." Further, items of income and
deduction of the Partnership would not pass through to its partners, and its
partners would be treated as shareholders for tax purposes. Consequently, the
Partnership would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing such Partnership's taxable income.
Income Taxation of the Partnerships and their Partners. Partners, not the
Partnership, are subject to taxation. The Partnership is not a taxable entity
for federal income tax purposes. Rather, the Company is required to take into
account its allocable share of the Partnership's income, gains, losses,
deductions and credits for any taxable year of the Partnership ending during the
taxable year of the Company, without regard to whether the Company has received
or will receive any distribution from the Partnership.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of section 704(b) of the Code and the Treasury regulations promulgated
thereunder. If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Partnership's allocations of
taxable income, gain and loss are intended to comply with the requirements of
section 704(b) of the Code and the Treasury regulations promulgated thereunder.
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Tax Allocations With Respect to Contributed Properties. Pursuant to
section 704(c) of the Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of such property
at the time of contribution (a "Book-Tax Difference"). Such allocations are
solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Partnership was formed by way of contributions of appreciated property and has
received contributions of appreciated property since the Company's formation.
Consequently, the Partnership Agreement requires such allocations to be made in
a manner consistent with section 704(c) of the Code.
In general, the partners who contribute property to the Partnership will be
allocated depreciation deductions for tax purposes which are lower than such
deductions would be if determined on a pro rata basis. In addition, in the
event of the disposition of any of the contributed assets (including the
Properties) which have a Book-Tax Difference, all income attributable to such
Book-Tax Difference will generally be allocated to the contributing partners and
the Company will generally be allocated only its share of capital gains
attributable to appreciation, if any, occurring after the closing of the
Offering. This will tend to eliminate the Book-Tax Difference over the life of
the Partnership. However, the special allocation rules of Section 704(c) do not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands the Partnership will cause the
Company to be allocated lower depreciation and other deductions, and possibly an
amount of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it as a result of such sale.
This may cause the Company to recognize taxable income in excess of cash
proceeds, which might adversely affect the Company's ability to comply with the
REIT distribution requirements. See "--Taxation of the Company -- Distribution
Requirements." The foregoing principles also apply in determining the earnings
and profits of the Company for purposes of determining the portion of
distributions taxable as dividend income. The application of these rules over
time may result in a higher portion of distributions being taxed as dividends
than would have occurred had the Company purchased the contributed assets at
their agreed values.
The U.S. Treasury has issued regulations requiring partnerships to use a
"reasonable method" for allocating items affected by section 704(c) of the Code
and outlining several reasonable allocation methods. The general partner of the
Partnership has the discretion to determine which of the methods of accounting
for Book-Tax Differences (specifically approved in the Treasury Regulations)
will be elected with respect to any properties contributed to the Partnership.
The Partnership generally has elected to use the "traditional method with
ceiling rule" for allocating Code section 704(c) items with respect to the
properties that it acquires in exchange for units. The use of this method may
result in the Company being allocated less depreciation, and therefore more
taxable income in a given year than would be the case if a
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different method for eliminating the Book-Tax Difference were chosen. If this
occurred, a larger portion of shareholder distributions would be taxable income
as opposed to the return of capital that might arise if another method were
used. The Company has not determined which method of accounting for Book-Tax
Differences will be elected for properties contributed to the Partnership in the
future.
Basis in Partnership Interest. The Company's adjusted tax basis in its
partnership interest in the Partnership generally is equal to (1) the amount of
cash and the basis of any other property contributed to the Partnership by the
Company, (2) increased by (A) its allocable share of the Partnership's income
and (B) its allocable share of indebtedness of the Partnership, and (3) reduced,
but not below zero, by (A) the Company's allocable share of the Partnership's
loss, and (B) the amount of cash distributed to the Company, and (C)
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Partnership.
If the allocation of the Company's distributive share of the Partnership's
loss would reduce the adjusted tax basis of the Company's partnership interest
in the Partnership below zero, the recognition of such loss will be deferred
until such time as the recognition of such loss would not reduce the Company's
adjusted tax basis below zero. To the extent that the Partnership's
distributions, or any decrease in the Company's share of the indebtedness of the
Partnership (such decrease being considered a constructive cash distribution to
the partners), would reduce the Company's adjusted tax basis below zero, such
distributions (including such constructive distributions) would constitute
taxable income to the Company. Such distributions and constructive
distributions normally will be characterized as capital gain, and, if the
Company's interest in the Partnership has been held for longer than the long-
term capital gain holding period (currently one year), the distributions and
constructive distributions will constitute long-term capital gain.
Sale of a Partnership's Property. Generally, any gain realized by the
Partnership on the sale of property held by the Partnership for more than one
year will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. Any gain recognized by the
Partnership on the disposition of contributed properties will be allocated
first to the partners of the Partnership under section 704(c) of the Code to the
extent of their "built-in gain" on those properties for federal income tax
purposes. The partners' "built-in gain" on the contributed properties sold will
equal the excess of the partners' proportionate share of the book value of those
properties over the partners' tax basis allocable to those properties at the
time of the sale. Any remaining gain recognized by the Partnership on the
disposition of the contributed properties, and any gain recognized by the
Partnership on the disposition of the other properties, will be allocated among
the partners in accordance with their respective percentage interests in the
Partnership.
The Company's share of any gain realized by the Partnership on the sale of
any property held by the Partnership as inventory or other property held
primarily for sale to customers in the ordinary course of the Partnership's
trade or business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. Such prohibited transaction income also may
have an adverse effect upon the Company's ability to satisfy the income tests
for REIT status.
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See "-- Requirements for Qualification -- Income Tests." The Company, however,
does not presently intend to allow the Partnership to acquire or hold any
property that represents inventory or other property held primarily for sale to
customers in the ordinary course of the Company's or the Partnership's trade or
business.
SELLING SHAREHOLDERS
The selling shareholders will have received any common shares they may
offer for sale under this Prospectus by redeeming units received in connection
with the contribution of certain properties to the Partnership. Under the
Partnership Agreement, these unitholders have the right to redeem their units,
beginning February 19, 1999. If one or more unitholders requests redemption by
the Partnership, the Company may assume the obligation of the Partnership and
may elect to purchase the units with common shares or with cash. The following
table lists the selling shareholders and the number of common shares which could
be resold if the units they hold were redeemed for common shares. The common
shares are being registered under registration rights granted to such holders in
the Partnership Agreement.
Selling Shareholder (1) Shares(2)
- ----------------------- ---------
Vincent A. Sheehy and Helen M. Sheehy(3) 10,781
Sheehy Investments One Limited Partnership 241,755
Sheehy Investments Two, L.C. 88,800
Andrew M. Cherner and Abby S. Cherner(3) 54,004
Jonathan K. Cherner and Randee L. Cherner(3) 54,004
Pohanka Properties, Inc. 774,462
Pohanka Virginia Properties, L.L.C. 385,700
Robert M. Rosenthal 703,795
Marion Rosenthal 106,425
Robert M. Rosenthal and Marion Rosenthal(3) 28,000
Brooke E. Peterson 96,543
Jane R. Cafritz 96,543
Nancy L. Rosenthal 96,543
750 North Glebe Road Limited Partnership 144,619
3400 Columbia Pike Limited Partnership 182,887
R.P. Gaithersburg Limited Partnership 286,518
8525 Leesburg Pike L.P. 1,578,940
Richard Patterson 21,894
Donald Bavely 7,391
Jim Burns 894
Jim Smith 894
All Selling Shareholders
as a Group (21 Persons) 4,961,392
_____________________
(1) All of the units owned by the persons named on this table were issued on
February 19, 1998 and such units first became eligible for redemption on
February 19, 1999.
55
<PAGE>
(2) At the option of the Company, the units can be redeemed for common shares
on a one-for-one basis, as adjusted. The number of common shares that could be
issued to holders of units on redemption will be adjusted in the event of stock
splits, stock dividends, issuance of certain rights, certain extraordinary
transactions and similar events.
(3) The units held by these persons are held as tenants by the entirety.
PLAN OF DISTRIBUTION
This prospectus relates to the offering by the Company of up to 4,961,392
common shares if, and to the extent that, holders of up to 4,961,392 units
tender such units for redemption. We are registering the common shares to
provide the holders with freely tradeable securities, subject to other
provisions of federal and state securities laws but the registration of these
common shares does not necessarily mean that any of these shares will be issued
by the Company, or, if issued, will be offered or sold by the holders.
We have paid for all expenses in connection with the registration
statement. No commissions or selling expenses will be paid by the Company in
connection with the offering and sale of these common shares or the resale of
such shares.
The Company will not receive any proceeds from the offering and sale of the
common shares to holders on redemption of their units. The Company will acquire
and own the units that are redeemed for shares.
The holders may resell any common shares on a negotiated or competitive bid
basis to or through one or more underwriters or dealers. Such shares may also
be sold directly to institutional investors or other purchasers or through
agents. To the extent required by law, any underwriter, dealer or agent
involved in the offer and sale of such shares, and any applicable commissions,
discounts and other items constituting compensation to such underwriters,
dealers or agents, will be identified in a prospectus supplement. Such common
shares may be distributed from time to time in one or more transactions at a
fixed price or prices (which may be changed) or at market prices prevailing at
the time of sale, at prices related to such prevailing market prices, or at
negotiated prices.
LEGAL MATTERS
Certain legal matters in connection with any offering of securities made by
this prospectus will be passed upon for the Company by Wilmer, Cutler &
Pickering, Washington, D.C. In addition, the description of federal income tax
consequences contained in this prospectus under "Federal Income Tax
Consequences" is, to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, the opinion of Wilmer, Cutler & Pickering.
56
<PAGE>
EXPERTS
The financial statements and schedules of the Company incorporated by
reference in this prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
The financial statements of Geneva Enterprises, Inc. and Affiliated Company
incorporated by reference in this prospectus and elsewhere in the Registration
Statement have been audited by Walpert, Smullian & Blumenthal, P.A., independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy statements
and other information with the SEC. The Company's SEC filings are available to
the public over the SEC's website at http://www.sec.gov. You may also read and
copy any document the Company files at the SEC's public reference rooms at:
* Public Reference Section
Securities and Exchange Commission
Room 1024, Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
* Midwest Regional Office:
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
* Northeast Regional Office:
7 World Trade Center
Suite 1300
New York, New York 10048
Please call the SEC at 1-800-SEC-0330 for further information on public
reference rooms.
The SEC allows the Company to "incorporate by reference" the information
the Company files with them, which means the Company can disclose important
information to you by referring you to those documents. The information that
the Company incorporates by reference is an important part of this prospectus,
and all information that the Company will later file with the SEC will
automatically update and supersede this information. The Company
57
<PAGE>
incorporates by reference the documents listed below as well as any future
filings made with the SEC under Sections 13(a), 13(c), 12, or 15(d) of the
Securities Exchange Act of 1934 until the Company sells all of the securities.
. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as amended, (File No. 000-23733).
. The description of the common shares contained in the Registration
Statement on Form 8-A filed with the SEC on February 5, 1998 (File No.
000-1049316).
. The financial statements of Geneva Enterprises, Inc. and Affiliated
Company contained in the Final Prospectus filed with the SEC pursuant
to Rule 424(b)(1) on February 13, 1998 (File No. 333-41183).
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998 (File No. 000-23733).
. Current Reports on Form 8-K filed with the SEC on August 7, 1998,
December 3, 1998, December 7, 1998 and February 26, 1999 (File
No. 000-23733).
You may request a copy of these filings at no cost, by writing or
telephoning the Company. Those copies will not include exhibits to those
documents unless the exhibits are specifically incorporated by reference in the
documents or unless you specifically request them. You may also request copies
of any exhibits to the Registration Statement. Please direct your request to:
Ms. Lisa M. Clements
Capital Automotive REIT
1420 Spring Hill Road, Suite 525
McLean, Virginia 22102
(703) 288-3075
The prospectus and any accompanying prospectus supplement do not contain
all of the information included in the registration statement. The Company has
omitted certain parts of the registration statement in accordance with the rules
and regulations of the SEC. For further information, the Company refers you to
the registration statement, including its exhibits and schedules. Statements
contained in this prospectus and any accompanying prospectus supplement about
the provisions or contents of any contract, agreement or any other document
referred to are not necessarily complete. Please refer to the actual exhibit
for a more complete description of the matters involved. You may get copies of
the exhibits by contacting the person named above.
58
<PAGE>
You should rely only on the information in this prospectus, any prospectus
supplement and the documents that are incorporated by reference. The Company
has not authorized anyone else to provide you with different information. The
Company is not offering these securities in any state where the offer is
prohibited by law. You should not assume that the information in this
prospectus, any prospectus supplement or any incorporated document is accurate
as of any date other than the date of the document.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT,
INCORPORATED BY REFERENCE OR PROVIDED IN A PROSPECTUS SUPPLEMENT.
THE COMPANY HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR
ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON
THE FRONT OF THESE DOCUMENTS. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
59
<PAGE>
CAPITAL AUTOMOTIVE REIT
4,961,392 COMMON SHARES of BENEFICIAL INTEREST
($0.01 Par Value Per Share)
PROSPECTUS
March , 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred, or to be incurred, by
the Registrant in connection with the registration and issuance of the common
shares being registered hereunder. As indicated below, all amounts shown are
estimates except for the SEC registration fee.
Registration Fee -- Securities and Exchange
Commission.................................. $ 15,862
Printing and Engraving Expenses.............. 10,000
Accounting Fees and Expenses................. 5,000
Legal Fees and Expenses...................... 50,000
Blue Sky Fees and Expenses................... 1,000
Miscellaneous (including listing fees)....... 50,000
-------------
Total....................................... $ 131,862
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Declaration of Trust and By-laws authorize the Company to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time under Maryland law. The Maryland
General Corporation Law, as applicable to Maryland REITs, currently provides
that indemnification of a person who is a party, or threatened to be made a
party, to legal proceedings by reason of the fact that such a person is or was a
trustee, officer, employee or agent of a corporation, or is or was serving as a
trustee, officer, employee or agent of a corporation or other firm at the
request of a corporation, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, is mandatory in certain circumstances and
permissive in others, subject to authorization by the board of trustees, a
committee of the board of trustees consisting of two or more trustees not
parties to the proceeding (if there does not exist a majority vote quorum of the
board of trustees consisting of trustees not parties to the proceeding), special
legal counsel appointed by the board of trustees or such committee of the board
of trustees, or by the shareholders, so long as it is not established that the
act or omission of such person was material to the matter giving rise to the
proceedings and was committed in bad faith, was the result of active and
deliberate dishonesty, involved such person receiving an improper personal
benefit in money, property or services, or, in the case of criminal proceedings,
such person had reason to believe that his or her act or omission was unlawful.
The Company's officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto. The Company intends to purchase an
insurance policy which purports to insure the officers and trustees of the
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<PAGE>
Company against certain liabilities incurred by them in the discharge of their
functions as such officers and trustees, except for liabilities resulting from
their own malfeasance.
ITEM 16. EXHIBITS
NUMBER DESCRIPTION
3.1 Amended and Restated Declaration of Trust of Capital Automotive REIT
(previously filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-11 filed with the SEC on November 26, 1997, as
subsequently amended (File No. 333-41183) (the "Registration Statement
on Form S-11") and incorporated herein by reference)
3.2* Amended and Restated Bylaws of Capital Automotive REIT
3.3* First Amendment to Bylaws
4.1 Specimen of certificate representing common shares of beneficial
interest (previously filed as Exhibit 4.2 to the Registration
Statement on Form S-11 and incorporated herein by reference)
4.5* Form of Share Warrant
5.1* Form of Opinion of Wilmer, Cutler & Pickering regarding the validity
of the Offered Securities being registered
8.1* Form of Opinion of Wilmer, Cutler & Pickering regarding certain
federal income tax matters
10.43* Second Amended and Restated Partnership Agreement of Capital
Automotive L.P.
23.1 Consent of Wilmer, Cutler & Pickering (included as part of Exhibits
5.1 and 8.1)
23.2* Consent of Arthur Andersen LLP
23.3* Consent of Walpert, Smullian & Blumenthal, P.A.
25 Power of Attorney (included on signature page)
* Included with this filing.
** To be filed by amendment or by a Current Report on Form 8-K
incorporated by reference herein.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any acts or events arising
after the effective date of the registration statement (or the most
recent post-effective
II-2
<PAGE>
amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration
statement; notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
SEC by the registrant(s) pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the provisions described under Item 15
above, 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 Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the respective registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, such
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent,
II-3
<PAGE>
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(d) The undersigned registrant Capital Automotive REIT, hereby undertakes
to file an application for the purpose of determining the eligibility of the
trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the SEC under Section
305(b)(2) of the Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Fairfax, Commonwealth of Virginia, on March 1,
1999.
Capital Automotive REIT
By: /s/ Thomas D. Eckert
---------------------------
Thomas D. Eckert
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below on March 1, 1999 by the
following persons in the capacities indicated. Each person whose signature
appears below hereby constitutes and appoints each of Thomas D. Eckert and David
S. Kay as his attorney-in-fact and agent, with full power of substitution and
resubstitution for him in any and all capacities, to sign any or all amendments
or post-effective amendments to this Registration Statement, or any Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with
exhibits thereto and other documents in connection therewith or in connection
with the registration of the securities under the Securities Act of 1934, as
amended, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that such attorney-in-fact and agent or his
substitutes may do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/ Thomas D. Eckert
- ------------------------ President and Chief March 1, 1999
Thomas D. Eckert Executive Officer and
Trustee (principal
executive officer)
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<PAGE>
/s/ David S. Kay
- ------------------------ Vice President and Chief March 1, 1999
David S. Kay Financial Officer (principal
financial and accounting
officer)
/s/ Craig L. Fuller
- ------------------------ Trustee March 1, 1999
Craig L. Fuller
/s/ William E. Hoglund
- ------------------------ Trustee March 1, 1999
William E. Hoglund
/s/ R. Michael McCullough
- ------------------------ Trustee March 1, 1999
R. Michael McCullough
/s/ Lee P. Munder
- ------------------------ Trustee March 1, 1999
Lee P. Munder
/s/ John J. Pohanka
- ------------------------ Trustee March 1, 1999
John J. Pohanka
/s/ John E. Reilly
- ------------------------ Trustee March 1, 1999
John E. Reilly
/s/ Robert M. Rosenthal
- ------------------------ Trustee March 1, 1999
Robert M. Rosenthal
/s/ Vincent A. Sheehy
- ------------------------ Trustee March 1, 1999
Vincent A. Sheehy
II-6
<PAGE>
/s/
- ------------------------ Trustee March , 1999
William R. Swanson
II-7
<PAGE>
EXHIBIT 3.2
CAPITAL AUTOMOTIVE REIT
AMENDED AND RESTATED BYLAWS
ARTICLE I
NAME
Section 1.1 Name. The name of the Trust is CAPITAL AUTOMOTIVE REIT.
-----
Section 1.2 State of Formation. The Trust has been formed under the
-------------------
laws of the State of Maryland.
ARTICLE II
REGISTERED AND PRINCIPAL OFFICES
Section 2.1 Registered Office. The registered office of the Trust in
------------------
the State of Maryland shall be at WC&P Agent Corporation, whose address is 100
Light Street, Baltimore, Maryland 21202.
Section 2.2 Offices. The principal office of the Trust and any other
--------
offices of the Trust shall be located at such places, within and without the
State of Maryland, as the Board of Trustees may from time to time determine or
as the business of the Trust may require.
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 3.1 Place of Meetings. All meetings of the holders
------------------
("shareholders") of shares of beneficial interest ("shares") of the Trust shall
be held at such place or places, within or without the State of Maryland, as
shall be determined by the Board of Trustees from time to time.
Section 3.2 Annual Meetings. An annual meeting of the shareholders for
----------------
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held during the month of May of each year, after the
delivery of the annual report, referred to in Section 3.15 of this Article III,
at a convenient location and on proper notice, on a date and at the time set by
the Trustees. Failure to hold an annual meeting does not invalidate the Trust's
existence or affect any otherwise valid acts of the Trust.
1
<PAGE>
Section 3.3 Special Meetings. Subject to the provisions of the
-----------------
Declaration of Trust of the Trust, as amended, restated or supplemented from
time to time (the "Declaration" or "Declaration of Trust"), special in lieu of
annual meetings or special meetings of the shareholders may be called at any
time by the Chairman of the Board, Chief Executive Officer, President or a
majority of members of the Board of Trustees and shall be called upon the
request in writing of holders of 50% or more of the outstanding shares entitled
to vote. Special meetings of the shareholders shall be held on a date fixed by
the Secretary of the Trust which shall be not more than ninety (90) days after
the date of the call, or after receipt of the request. If the Secretary shall
neglect or refuse to fix the date or to give notice as required by Section 3.4,
below, the person or persons making the request may do so.
Section 3.4 Notice of Meetings. Written notice of every meeting of
-------------------
shareholders, stating the time and place thereof, shall be given as herein
provided by, or at the direction of, the person authorized to call the meeting,
to each shareholder of record entitled to vote at the meeting, not less than ten
(10) nor more than ninety (90) days prior to the day named for the meeting,
unless a greater period of notice is required by statute in a particular case.
In the case of a special meeting of shareholders, the notice shall also set
forth the purpose of the meeting. When a meeting is adjourned, it shall not be
necessary to give any notice of the adjourned meeting or of the business to be
transacted at any adjourned meeting, other than by announcement at the meeting
at which such adjournment is taken. Except as set forth in Section 4.4, below,
business to be conducted at any annual, special in lieu of annual or special
meeting of shareholders may be proposed only by the Board of Trustees or by a
shareholder who is entitled to vote at the meeting and who has filed his
proposed item of business with the Secretary of the Trust within the time limits
set forth in the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or, if the Trust is not subject to the requirements of the Exchange Act,
forty-five (45) days prior to the meeting. Only the business specified in the
notice of meeting may be brought before the meeting.
Section 3.5 Quorum. At any meeting of shareholders, the presence in
-------
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this Section
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 the shareholders, the shareholders
entitled to vote at such meeting, present in person or by proxy, shall have the
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 3.6 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 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.
A majority of the votes cast at a meeting of shareholders duly
2
<PAGE>
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 herein or by statute or by the Declaration. Unless
otherwise provided in the Declaration, 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 3.7 Voting by Ballot. Voting on any question or in any election
-----------------
may be viva voce unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
Section 3.8 Voting by Proxy. At each meeting of the shareholders, every
----------------
shareholder having the right to vote shall be entitled to vote in person or by
proxy appointed by an instrument in writing subscribed by such shareholder and
delivered to the Secretary at the meeting. No unrevoked proxy shall be valid
after eleven (11) months from the date of its execution, unless a longer time is
expressly provided therein.
Section 3.9 Unpaid Shares. No share upon which any installment is due
--------------
the Trust and unpaid shall be voted at any meeting.
Section 3.10 Voting List. The officer or agent having charge of the
------------
transfer books shall make, at least five (5) days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, setting forth the address of and the
number of shares held by each, which list shall be kept on file at the
registered office of the Trust, and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting, and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof
(kept at the office of the transfer agent for the Trust) shall be prima facie
evidence as to who are the shareholders entitled to examine such list or share
ledger or transfer book, or to vote in person or by proxy, at any meeting of
shareholders.
Section 3.11 Action by Consent. 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 a 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 3.12. Cumulative Voting. Unless the Declaration expressly
------------------
provides for cumulative voting, in all elections for Trustees, every shareholder
entitled to vote shall have the right, in person or by proxy, to cast one vote
per share; there shall be no cumulative voting.
3
<PAGE>
Section 3.13. Voting of Shares by Certain Holders. Shares of the Trust
------------------------------------
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
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
The Trustees 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 Trustees consider
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 3.14 Inspectors. At any meeting of shareholders, the chairman of
-----------
the meeting may, or 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 upon 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 3.15 Reports to Shareholders.
------------------------
(a) Not later than 90 days after the close of each fiscal year
of the Trust, the Trustees shall deliver or cause to be delivered a financial
report of the business and operations of the Trust during such fiscal year to
the shareholders, containing a balance sheet and a statement of income and
surplus of the Trust, accompanied by the certification of an independent
certified public accountant based on the accountant's full examination of the
books and records of the real estate investment trust in accordance with
generally accepted auditing procedure, and such
4
<PAGE>
further information as the Trustees may determine is required pursuant to any
law or regulation to which the Trust is subject. A signed copy of the annual
report and the accountant's certificate shall be placed on file at the principal
office of the Trust and filed by the Trustees with such governmental agencies,
if any, as may be required by law and as the Trustees may deem appropriate.
(b) Not later than 45 days after the end of each of the first
three quarterly periods of each fiscal year, the Trustees shall deliver or cause
to be delivered an interim financial report to the shareholders containing
unaudited financial statements for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, and such further
information as the Trustees may determine is required pursuant to any law or
regulation to which the Trust is subject.
ARTICLE IV
TRUSTEES AND BOARD MEETINGS
Section 4.1 Management by Board of Trustees. The business, property and
--------------------------------
affairs of the Trust shall be managed by its Board of Trustees. The Board of
Trustees may exercise all such powers of the Trust and do all such lawful acts
and things as are not by statute or by the Declaration or by these Bylaws
directed or required to be exercised or done by the shareholders. A Trustee
shall be an individual at least 21 years of age who is not under legal
disability. Unless otherwise agreed between the Trust and the Trustee, each
individual Trustee, may engage in other business activities of the type
conducted by the Trust. In case of failure to elect Trustees at an annual
meeting of the shareholders, the Trustees holding over shall continue to direct
the management of the business and affairs of the Trust until their successors
are elected and qualify.
Section 4.2 Annual and Regular Meetings. An annual meeting of the
----------------------------
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this By-law being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 4.3 Special Meetings. Special meetings of the Trustees may be
-----------------
called by or at the request of the Chairman of the Board, the 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 Trustees may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Trustees called by them.
Section 4.4 Notice. Notice of any special meeting shall be given by
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written notice delivered personally, telegraphed or mailed to each Trustee at
his business or residence address. Personally delivered 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. Telephone notice shall be given
at least 24 hours 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. Telephone notice
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shall be deemed given when the Trustee is personally given such notice in a
telephone call to which he is a party. Neither the business to be transacted
at, nor the purpose of, any annual, regular or special meeting of the Trustees
need be stated in the notice, unless specifically required by statute or these
Bylaws.
Section 4.5 Quorum. Except as provided in subsection (b) of Section
-------
4.6, a majority of the entire Board of Trustees shall constitute a quorum for
transaction of business at any meeting of the Trustees, provided that, if less
than a majority of such Trustees are present at said 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 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 4.6 Voting. The action of the majority of the Trustees present
-------
at a meeting at which a quorum is present shall be the action of the Trustees,
unless the concurrence of a greater proportion is required for such action by
the Declaration, these Bylaws or applicable statute.
Section 4.7 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 4.8 Informal Action by Trustees. Any action required or
----------------------------
permitted to be taken at any meeting of the Trustees 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 Trustees.
Section 4.9 Vacancies. If due to an increase in the size of the
----------
Board of Trustees, death, resignation or for any reason any or all the Trustees
cease to be Trustees, such event shall not terminate the Trust or affect these
Bylaws or the powers of the remaining Trustees hereunder (even if fewer than two
Trustees remain). If the office of any Trustee shall become vacant by reason of
death, resignation, disqualification or other cause, such vacancy or vacancies,
including vacancies resulting from an increase in the number of Trustees, shall
be filled by a majority of the remaining members of the Board, though less than
a quorum. Each person so elected by the Board of Trustees to fill a vacancy
shall be a Trustee until his or her successor is elected by the
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shareholders who may make such election at the next annual meeting of
shareholders, or at any earlier special meeting of the shareholders duly called
for that purpose, and until such successor shall qualify.
Section 4.10 Compensation. Trustees shall not receive any stated salary
------------
for their services as Trustees but, by resolution of the Trustees, may receive
cash compensation or shares of beneficial interest of the Trust for any service
or activity they performed or engaged in as Trustees. By resolution of the
Trustees, Trustees may receive a fee for and may be reimbursed for expenses in
connection with attendance, if any, at each annual, regular or special meeting
of the Trustees or of any committee thereof; and for their expenses, if any, in
connection with each property visit and any other service or activity performed
or engaged in as Trustees; but nothing herein contained shall be construed to
preclude any Trustees from serving the Trust in any other capacity and receiving
compensation therefor.
Section 4.11 Removal of Trustees. The shareholders may, at any time,
--------------------
remove any Trustee in the manner provided in the Declaration.
Section 4.12 Loss of Deposits. No Trustee shall be liable for any loss
-----------------
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or shares have been
deposited.
Section 4.13 Surety Bonds. Unless required by law, no Trustee shall be
-------------
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 4.14 Number, Tenure and Qualifications. The number of Trustees
---------------------------------
of the Trust shall not be less than three (3) nor more than fifteen (15), as
determined from time to time by the Board of Trustees, except that the number of
Trustees may be equal to the number of shareholders of the Company, if the
number of shareholders is less than three. Trustees need not be shareholders of
the Trust. The number of members of the Board of Trustees may be increased or
decreased by the vote of a majority of the whole Board of Trustees.
ARTICLE V
COMMITTEES
Section 5.1 General. The Board of Trustees may, by resolution passed by
--------
a majority of the whole Board of Trustees, designate one or more committees,
each such committee to consist of one or more of the Trustees of the Trust. The
Board of Trustees may designate one or more Trustees as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the Board of Trustees shall have and may exercise all the powers and authority
of the Board of Trustees in the management of the business and affairs of the
Trust, and may authorize the seal of the Trust to be affixed to all papers which
may require it; but no such committee shall have the power or authority to amend
the Declaration (except that a
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committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares adopted by the Board of Trustees, fix the
price of any such shares, or otherwise establish the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution or assets of the Trust or the conversion into, or
the exchange of such shares for, shares of any other class or classes or any
other series of any series of shares or authorize the increase or decrease of
the shares of any series), adopting an agreement of merger or consolidation,
recommending to the shareholders the sale, lease or exchange of all or
substantially all of the Trust's property and assets, recommending to the
shareholders a dissolution of the Trust or a revocation of a dissolution, or
amending the Bylaws of the Trust; and, unless the resolution or the Declaration
expressly so provides, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of shares or to adopt a
certificate of ownership and merger.
Section 5.2 Committees. The committees designated by the Trust may
----------
include the following committees, the specific authority and members of which
shall be as designated herein or by resolution of the Board of Trustees.
(a) An Audit Committee, which shall make recommendations
concerning the engagement of independent public accounts, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accounts,
review the independence of the independent public accounts, consider the range
of audit and non-audit fees and review the adequacy of the Trust's initial
accounting controls.
(b) An Executive Committee, which shall have certain authority
to acquire and dispose of real property and the power to authorize, on behalf of
the full Board of Trustees, the execution of certain contracts and agreements,
including those related to the borrowing of money by the Trust or on behalf of
the Trust as general partner of any partnership, to authorize such partnership
to take such actions.
(c) An Executive Compensation Committee, which shall determine
compensation for the Trust's executive officers and administer any share
incentive plans adopted by the Trust.
Section 5.3. Records of Committee Meetings. Each committee shall keep
------------------------------
regular minutes of its meetings and report the same to the Board of Trustees
when required. The presence of a majority of the total membership of any
committee shall constitute a quorum for the transaction of business at any
meeting of such committee and the act of a majority of those present shall be
necessary and sufficient for the taking of any action at such meeting.
ARTICLE VI
OFFICERS
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Section 6.1 General Provisions. The officers of the Trust may consist
-------------------
of a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive
Officer, a President, one or more Executive Vice Presidents or Vice Presidents,
a Chief Operating Officer, a Chief Financial Officer, a Treasurer, one or more
Assistant Treasurers, a Secretary, and one or more Assistant Secretaries. In
addition, the Trustees may from time to time appoint such other officers with
such powers and duties as they shall deem necessary or desirable. The officers
of the Trust shall be elected annually by the Trustees at the first meeting of
the Trustees held after each annual meeting of shareholders. 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
successor is elected and qualifies or until his 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 their discretion, the
Trustees may leave unfilled any office except that of President and Secretary.
Election of an officer or agent shall not of itself create contract rights
between the Trust and such officer or agent.
Section 6.2 Removal and Resignation. Except as otherwise provided in an
------------------------
employment contract or other agreement governing terms of employment to which
the Company and the officer are a party, in which case the terms therein shall
govern, any officer or agent of the Trust may be removed by the Trustees if in
their 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 resignation to the Trustees, the Chairman of the Board, 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 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 6.3 Vacancies. A vacancy in any office may be filled by the
----------
Trustees for the balance of the term.
Section 6.4 Chairman and Vice Chairman of the Board. The Trustees may
----------------------------------------
designate a Chairman of the Board and a Vice Chairman of the Board from among
the Trustees. If there shall be a Chairman of the Board or a Vice-Chairman or
the Board, the Chairman of the Board shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present and shall in
general oversee all of the business and affairs of the Trust. In the absence of
the Chairman of the Board, the Vice Chairman of the Board shall preside at such
meetings at which he shall be present. The Chairman and the Vice Chairman of
the Board may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Trustees or by these Bylaws to some other officer or agent of the Trust or shall
be required by law to be otherwise executed. The Chairman of the Board and the
Vice Chairman of the Board shall perform such other duties as may be assigned to
him or
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them by the Trustees. In the absence of a Chairman of the Board and Vice
Chairman of the Board, the Chief Executive Officer or President of the Trust
shall preside.
Section 6.5 Chief Executive Officer. The Trustees may designate a Chief
------------------------
Executive Officer from among the elected officers. The Chief Executive Officer
shall have responsibility for implementation of the policies of the Trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust. In the absence of both the Chairman and Vice Chairman of the
Board, the Chief Executive Officer shall preside over the meetings of the
Trustees and of the shareholders at which he shall be present.
Section 6.6 Chief Operating Officer. The Trustees may designate a Chief
------------------------
Operating Officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the Chief Executive
Officer.
Section 6.7 Business Development Officer. The Trustees may designate a
-----------------------------
Chief Development Officer from among the elected officers. Said officer will
have the responsibilities and duties as set forth by the Trustees or the Chief
Executive Officer.
Section 6.8 Chief Financial Officer. The Trustees may designate a Chief
------------------------
Financial Officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the Chief Executive
Officer.
Section 6.9 President. In the absence of the Chairman, the Vice
----------
Chairman of the Board and the Chief Executive Officer, the President shall
preside over the meetings of the Trustees and of the shareholders at which he
shall be present. In the absence of a designation of a Chief Executive Officer
by the Trustees, the President shall be the Chief Executive Officer and shall be
ex officio a member of all committees that may, from time to time, be
constituted by the Trustees other than committees that are required to consist
of independent members pursuant to these Bylaws, the Declaration, the rules and
regulations of any governmental authority or national or regional securities
exchange or The Nasdaq Stock Market, Inc. on which any class or series of
securities of the Trust may be listed for trading. The President may execute
any deed, mortgage, bond, contract or other instrument, except in cases where
the execution thereof shall be expressly delegated by the Trustees 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
Trustees from time to time.
Section 6.10 Executive Vice Presidents or Vice Presidents. In the
---------------------------------------------
absence of the President or in the event of a vacancy in such office, the Vice
President (or in the event there be 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 President and when so acting shall have all the powers of and
be subject to all the restrictions upon the President; and shall perform such
other duties as from time to time may
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be assigned to him by the President or by the Trustees. The Trustees may
designate one or more Vice Presidents as Executive Vice President or as Vice
President for particular areas of responsibility.
Section 6.11 Secretary. The Secretary shall (a) keep the minutes of
----------
the proceedings of the shareholders, the Trustees and committees of the Trustees
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 Trust 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 by the Chief Executive Officer, the
President or by the Trustees.
Section 6.12 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 Trustees.
The Treasurer shall disburse the funds of the Trust as may be ordered
by the Trustees, taking proper vouchers for such disbursements, and shall render
to the President and Trustees, at the regular meetings of the Trustees or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Trust.
If required by the Trustees, the Treasurer shall give the trust a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Trustees for the faithful performance of the duties of his office and for the
restoration to the Trust, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, moneys and other property
of whatever kind in his possession or under his control belonging to the Trust.
Section 6.13 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 President or the Trustees. The Assistant Treasurers shall, if required
by the Trustees, give bonds for the faithful performance of their duties in such
sums and with such surety or sureties as shall be satisfactory to the Trustees.
Section 6.14 Salaries. The salaries of the officers shall be fixed from
---------
time to time by the Trustees and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a Trustee.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
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Section 7.1 Contracts. The Trustees 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 upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
Section 7.2 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 such officer or officers, agent or agents
of the Trust in such manner as shall from time to time be determined by the
Trustees.
Section 7.3 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 Trustees may designate.
ARTICLE VIII
SHARES
Section 8.1 Certificates. Each shareholder shall be entitled to a
-------------
certificate or certificates which shall represent and certify the number of
shares of each class or series of beneficial interests held by him in the Trust.
Each certificate shall be signed by the Chief Executive Officer, the President
or a 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 or
letter 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, which are preferred or limited as to their dividends 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 upon
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 8.2 Transfers. Certificates shall be treated as negotiable,
----------
and title thereto and to the shares they represent shall be transferred by
delivery thereof to the same extent as those of a Maryland stock corporation.
No transfers of shares of the Trust shall be made if (i) void ab initio pursuant
to any provision of the Declaration, (ii) the Board of Trustees, pursuant to any
provision of the Declaration or other written agreement between or among any
shareholder(s) and the Trust, shall have refused to permit the transfer of such
shares, or (iii) the
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shares have not been registered under the Securities Act of 1933, as amended
(the "Act"), or under applicable state blue-sky or securities laws, unless
exemptions from the registration requirements of the Act and applicable state
blue-sky or securities laws are, in the opinion of counsel, satisfactory to the
Trust, for the transferor, available. Permitted transfers of shares of the Trust
shall be made on the share records of the Trust only upon the instruction of the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and upon surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
share transfer power and the payment of all taxes thereon. Upon surrender to the
Trust or the transfer agent of the Trust of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, as to any transfers not prohibited by any provision of
the Declaration or by action of the Board of Trustees thereunder, it shall be
the duty of the Trust to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 8.3 Replacement Certificate. Any officer designated by the
------------------------
Trustees 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 officer designated by the Trustees may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he 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 8.4 Closing of Transfer Books or Fixing of Record Date. The
---------------------------------------------------
Trustees 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
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other 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 of record is to be held or taken.
In lieu of fixing a record date, the Trustees 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
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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 an
allotment of any other rights shall be the close of business on the day on which
the resolution of the Trustees, declaring the dividend 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, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
Section 8.5 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 8.6 Fractional Share; Issuance of Units. The Trustees may issue
------------------------------------
fractional shares or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other
provision of the Declaration or these Bylaws, the Trustees 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 Trustees 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.
Section 8.7 Agreements Restricting Transfer of Shares. The Board of
------------------------------------------
Trustees may authorize the Trust to become party to agreements with shareholders
and others relating to transfer, repurchase, and issuance, of shares of the
Trust; provided, however, that such agreement must be filed with the Trust and
all share certificates affected thereby shall have clearly imprinted thereon a
legend containing such agreement or referring thereto.
ARTICLE IX
DISTRIBUTIONS
Section 9.1 Authorization. Dividends and other distributions upon the
--------------
shares of the Trust may be authorized and declared by the Board Trustees in
their discretion, subject to the provisions of law and the Declaration or as
required by law. Dividends may be paid in cash, property or shares of the
Trust, subject to the provisions of law and the Declaration.
Section 9.2 Contingencies. Before payment of any dividends, there may
--------------
be set aside out of any funds of the Trust available for dividends such sum or
sums as the Trustees may from
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time to time, in their absolute discretion, think proper as a reserve fund for
contingencies, for equalizing dividends, for repairing or maintaining any
property of the Trust or for such other purpose as the Trustees shall determine
to be in the best interest of the Trust, and the Trustees may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE X
SEAL
Section 10.1 Seal. The Trustees may authorize the adoption of a seal by
----
the Trust. The seal shall have inscribed thereon the name of the Trust and the
year of its formation. The Trustees may authorize one or more duplicate seals
and provide for the custody thereof.
Section 10.2 Affixing Seal. Whenever the Trust is required to place 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 XI
INDEMNIFICATION AND ADVANCES FOR EXPENSES; RELIANCE ON CERTAIN INFORMATION
Section 11.1 Indemnification. To the maximum extent permitted by
----------------
Maryland law in effect from time to time, the Trust, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
indemnify (a) any Trustee or officer or any former Trustee or officer (including
among the foregoing, for all purposes of this Article XI and without limitation,
any individual who, while a Trustee or officer and at the express request of the
Trust, serves or has served another corporation, partnership, limited liability
company, joint venture, trust, employee benefit plan or any other enterprise as
a director, officer, shareholder, manager, member, partner or trustee of such
corporation, partnership, limited liability company, joint venture, trust,
employee benefit plan or other enterprise) who has been successful, on the
merits or otherwise, in the defense of a proceeding to which he was made a party
by reason of service in such capacity, against reasonable expenses incurred by
him in connection with the proceeding, and (b) any Trustee or officer or any
former Trustee or officer against any claim or liability to which he may become
subject by reason of such status unless it is established that (i) his act 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,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful. In addition, the Trust shall
pay or reimburse, in advance of final disposition of a proceeding, reasonable
expenses incurred by a Trustee or officer or former Trustee or officer made a
party to a proceeding by reason such status, provided that, the Trust shall have
received
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(i) a written affirmation by the Trustee or officer of his good faith belief
that he has met the applicable standard of conduct necessary for indemnification
by the Trust as authorized by these Bylaws and (ii) a written undertaking by or
on its behalf to repay the amount paid or reimbursed by the Trust if it shall
ultimately be determined that the applicable standard of conduct was not met.
The Trust may, with the approval of its Trustees, provide such indemnification
or payment or reimbursement of expenses to any Trustee or officer or any former
Trustee or officer who served a predecessor of the Trust and to any employee or
agent of the Trust or a predecessor of the Trust. Neither the amendment nor
repeal of this Article, nor the adoption or amendment of any other provision of
the Declaration or these Bylaws inconsistent with this Article, shall apply to
or affect in any respect the applicability of this Article with respect to any
act or failure to act which occurred prior to such amendment, repeal or
adoption.
Section 11.2 Payments by Trust. Any indemnification or payment or
------------------
reimbursement of the expenses permitted by these Bylaws shall be furnished in
accordance with the procedures provided for indemnification or payment or
reimbursement of expenses, as the case may be, under Section 2-418 of the
Maryland General Corporation Law (the "MGCL") for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders such
other and further indemnification or payment or reimbursement of expenses, as
the case may be, to the fullest extent permitted by the MGCL, as in effect from
time to time, for directors of Maryland corporations.
Section 11.3 Nonexclusivity. The indemnification provided by this Article
--------------
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under Maryland law, the Declaration, any by-law,
agreement, resolution of shareholders or trustees or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
trustee, officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 11.4 Insurance. The Trust shall have power to purchase and
----------
maintain insurance on behalf of any person who is or was a trustee, officer,
employee or agent of the Trust, or is or was serving at the request of the Trust
as a director, officer, partner, manager, member, trustee, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust, other enterprise or employee benefit plan against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Trust would have the power to indemnify him
against such liability under the specified statutory authority, the Declaration
or the provisions of this Article XI.
Section 11.5 Reliance on Certain Information. In performing his duties, a
-------------------------------
Trustee shall be entitled to rely on any information, opinion, report or
statement, including any financial statement or other financial data, in each
case prepared or presented by any of the following:
16
<PAGE>
(a) One or more officers or employees of the Trust whom the Trustee
reasonably believes to be reliable and competent in the matters presented.
(b) A lawyer, certified public accountant or other person as to
matters which a Trustee reasonably believes to be within the person's
professional or expert competence.
(c) A committee of the Board of Trustees upon which he does not
serve, as to matters within its designated authority, which the Trustee
reasonably relieves to merit confidence; provided however that a Trustee shall
not be considered to be acting in good faith it he has any knowledge concerning
the matter in question that would cause his reliance to be unwarranted.
ARTICLE XII
LIABILITY OF TRUSTEES AND RELATION OF OFFICERS TO TRUST
Section 12.1 Fiduciary Relationship. Trustees and officers of the Trust
-----------------------
shall discharge the duties of their respective positions in good faith, in a
manner they reasonably believe to be in the best interests of the Trust and with
the care which ordinarily prudent persons in like positions would use under
similar circumstances.
Section 12.2 Liability of Trustees to the Trust. The Trustees and
-----------------------------------
officers of the Trust shall not be personally liable for monetary damages as
such for any action except to the extent that (i) it is proved that any such
person actually received an improper benefit or profit in money, property or
services or (ii) a judgment or other final adjudication adverse to the person is
entered in a proceeding based on a finding in the proceeding that the person's
action or failure to act was the result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding.
ARTICLE XIII
MINUTES OF PROCEEDINGS
There shall be kept at the principal office of the Trust an original or
duplicate record of the proceedings of the shareholders and of the Trustees, and
the original or a copy of its Bylaws, including all amendments or alterations
thereof to date, together with other necessary and appropriate corporate
records.
ARTICLE XIV
WAIVER OF NOTICE
17
<PAGE>
Whenever any notice is required to be given pursuant to the Declaration
or 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 where such person attends a 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 XV
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal any
provision of these Bylaws and to make new Bylaws in accordance with Article IV
hereof.
ARTICLE XVI
MISCELLANEOUS
Section 16.1 Fiscal Year. The fiscal year of the Trust shall be as fixed
------------
by resolution of the Board of Trustees. If the Board of Trustees shall not do
so, the Chief Executive Officer shall fix the fiscal year.
Section 16.2 Designation of Presiding and Recording Officers. The
------------------------------------------------
Trustees or shareholders, at any meeting of Trustees or shareholders, as the
case may be, shall have the right to designate any person, whether or not an
officer, Trustee or shareholder to preside over, or record the proceedings of,
such meeting.
Section 16.3 Amendments and Supplements to Bylaws. All references to the
-------------------------------------
Declaration shall include any amendments or supplements thereto.
Section 16.4 Recording Amendments and Alterations. The text of all
-------------------------------------
amendments and alterations to these Bylaws shall be attached to the Bylaws with
a notation of the date of each such amendment or alteration.
18
<PAGE>
ARTICLE XVII
ADOPTION OF BYLAWS; RECORD OR AMENDMENT
These Amended and Restated Bylaws have been adopted and filed with the
undersigned to be effective as of the 3rd day of February, 1998.
/s/ David S. Kay
------------------------------------
David Kay, Secretary
19
<PAGE>
EXHIBIT 3.3
AMENDMENT NO. 1 TO BYLAWS
OF
CAPITAL AUTOMOTIVE REIT
ARTICLE VI, SECTION 6.5. Chief Executive Officer. Section 6.5. Chief
------------------------ -----
Executive Officer. be and hereby is deleted in its entirety and is replaced in
- ------------------
its entirety with the following:
"Section 6.5 Chief Executive Officer. The Trustees may designate a
------------------------
Chief Executive Officer from among the elected officers. The Chief
Executive Officer shall have responsibility for implementation of the
policies of the Trust, as determined by the Trustees, and for the
administration of the business affairs of the Trust. Except as
otherwise provided in the Declaration of Trust or ByLaws of the
Company, the Restated Partnership Agreement or pursuant to resolutions
adopted by the Board of Trustees, the Chief Executive Officer is
authorized and empowered to decide all matters that are submitted to
the Trust in its capacity as sole General Partner of Capital
Automotive L.P. (the "Operating Partnership") and to decide all
matters that are submitted to the Operating Partnership in its
capacity as owner or general partner of any Partnership-Owned Entities
(as defined in the Agreement of Limited Partnership of the Operating
Partnership, as amended, restated and supplemented from time to time).
The Secretary of Capital Automotive REIT be and hereby certifies that
the foregoing Amendment No.1 to the ByLaws have been adopted and approved by the
Board of Trustees of Capital Automotive REIT on this 2nd day of February 1999.
/s/ John M. Weaver
------------------------------------
John M. Weaver
Secretary
[Seal]
<PAGE>
EXHIBIT 4.5
THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NON-PUBLIC
OFFERINGS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE
SECURITIES MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF
COUNSEL FOR OR REASONABLY SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE
APPLICABLE FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS
MADE WITH SUCH REGISTRATION REQUIREMENTS. THIS LEGEND SHALL BE ENDORSED UPON
ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT.
WARRANT TO PURCHASE COMMON SHARES OF BENEFICIAL INTEREST
(par value $.01 per share)
CAPITAL AUTOMOTIVE REIT
No.:________ Dated: _____________
THIS CERTIFIES THAT, ____________________ ("Holder"), for value received,
or its registered assigns, is entitled to purchase, on the terms and subject to
the conditions hereinafter set forth, from Capital Automotive REIT, a Maryland
real estate investment trust (the "Company"), at any time, and from time to
time, during the period beginning on ____________ and ending on _____________,
that number of common shares (the "Warrant Shares") of beneficial interest, par
value $.01 per share, of the Company (the "Shares"), as determined in accordance
with the provisions of Section 2 hereof.
SECTION 1. EXERCISE PRICE. The exercise price per Warrant Share at which
--------------
this Warrant (the "Warrant") may be exercised shall be equal to _________
($______) per Share (the "Exercise Price"), as adjusted from time to time in
accordance with the provisions of Section 4 hereof.
SECTION 2. EXERCISE OF WARRANT.
-------------------
2.1. Number of Warrant Shares for Which Warrant is Exercisable.
---------------------------------------------------------
(a) The aggregate number of Warrant Shares for which this Warrant may
be exercised at any time prior to its expiration shall be determined by (i)
multiplying __________ by the Exercise Price, and (ii) dividing the result by
the reference price (the "Reference Price") initially equal to the Exercise
Price or, in case an adjustment of the Reference Price has taken place pursuant
to the provisions of Section 4 of this Warrant, then by the
1
<PAGE>
Reference Price as last adjusted and in effect at the date of any partial or
full exercise of this Warrant.
2.2. Procedure for Exercise of Warrant. To exercise this Warrant in whole
---------------------------------
or in part, the Holder shall deliver to the Company, at its principal executive
office (or such other office of the Company in the United States as the Company
may designate by notice in writing to the Holder), (i) the Warrant Certificate
attached hereto completed to specify the fraction of the Warrant which the
Holder is electing to exercise, (ii) consideration in an amount equal to the
aggregate Exercise Price of the Warrant Shares being purchased, consisting of
(A) cash or a certified or official bank check, payable to the order of the
Company, (B) cancellation by the Holder of indebtedness of the Company to the
Holder, or (C) a combination of (A) and (B) above, and (iii) if this Warrant is
being exercised in whole or the last fraction of this Warrant is being
exercised, this Warrant.
Notwithstanding anything herein to the contrary, this Warrant may not be
exercised or transferred, in whole or in part, if such exercise or transfer
would, in the opinion of legal counsel to the Company, adversely affect the
Company's status under the Internal Revenue Code of 1986, as amended, as a real
estate investment trust or would result in the Holder or the transferee owning
Shares in violation of the restrictions on ownership and transfer of Shares
provided in the Company's Declaration of Trust, as amended, restated or
supplemented. If exercise of the Warrant is prohibited by reason of the
previous sentence, the expiration of the Warrant will be extended to such a time
as the Warrant may be exercised without causing, in the opinion of legal counsel
to the Company, the consequences referenced in the previous sentence.
2.3. Transfer Restriction Legend. This Warrant and each certificate for
---------------------------
Warrant Shares initially issued upon exercise of this Warrant, unless at the
time of exercise such Warrant Shares are registered under the Securities Act of
1933, as amended (the "Act"), shall bear the following legends (and any
additional legend required by any securities exchange upon which such Warrant
Shares may, at the time of such exercise, be listed, any applicable state
securities administration or commission and the Declaration of Trust of the
Company, as the case may be,) on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD
OR TRANSFERRED UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH LAWS,
OR IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO CAPITAL
AUTOMOTIVE REIT, AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND DIRECT AND INDIRECT OWNERSHIP AS SET FORTH IN
THE DECLARATION OF TRUST OF THE COMPANY, AS AMENDED, RESTATED OR
SUPPLEMENTED, FROM TIME TO TIME. A COPY OF THE DECLARATION OF TRUST MAY BE
OBTAINED FROM THE SECRETARY OF THE CAPITAL AUTOMOTIVE REIT OR ITS TRANSFER
AGENT.
2
<PAGE>
2.4. Acknowledgment of Continuing Obligation. The Company will, at the
---------------------------------------
time of the exercise of this Warrant, in whole or in part, upon request of the
Holder, acknowledge in writing its continuing obligation to the Holder in
respect of any rights to which the Holder shall continue to be entitled after
such exercise in accordance with this Warrant, provided, that the failure of the
Holder to make any such request shall not affect the continuing obligation of
the Company to the Holder in respect of such rights.
2.5. Investment Representation. The Holder of this Warrant, by acceptance
-------------------------
hereof, acknowledges that this Warrant and, upon exercise, the Warrant Shares,
are being acquired solely for the Holder's own account and not as a nominee for
any other party and for investment, and that the Holder will not offer, sell,
transfer, assign or otherwise dispose of this Warrant or the Warrant Shares
issued upon exercise hereof, unless registered under the Act and applicable
state securities laws or pursuant to an opinion of counsel reasonably
satisfactory to the Company that an exemption from registration under such laws
is available. Upon exercise of this Warrant, the Holder shall, if requested by
the Company, confirm, in writing, in a form reasonably satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
Holder's own account and not as a nominee for any party and for investment.
2.6. Fractional Shares. No fractional Shares or scrip representing
-----------------
fractional Shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Share called for upon any exercise hereof, upon
payment of the proportionate Exercise Price therefor, the Company shall pay to
the Holder an amount in cash equal to such fraction multiplied by the current
fair market value ("FMV") of a Share, determined in accordance with the
provisions of Section 2.7 hereof.
2.7 Fair Market Value.
------------------
(a) The FMV of a Share shall be determined in accordance with the
provisions of Section 2.7(b) hereof. Notwithstanding the foregoing, where there
exists a public market for Shares at the time of such exercise, the FMV per
Share shall be equal to the average of the closing bid and asked prices of the
Shares quoted in the Over-The-Counter Market Summary or the average of the last
reported sale price of the Shares or the closing price quoted on The Nasdaq
Stock Market National Market or on any national exchange on which the Shares are
listed, whichever is applicable, as published in The Wall Street Journal for
the twenty consecutive trading days immediately preceding the five trading days
prior to the date of determination of the FMV.
(b) If no public market for the Shares shall exist on the Exercise
Date, FMV of one Share shall be determined as follows:
(i) Agreement of the Company and the Holder. If the Company and
---------------------------------------
the Holder can agree in writing as to the FMV, such agreed value shall be the
3
<PAGE>
FMV. If no agreement on the FMV can be reached within five (5) days from the
date of the exercise of this Warrant, then the FMV shall be determined pursuant
to subsection (ii) below.
(ii) Third Party Appraisal. If the FMV is not agreed upon as
---------------------
provided in subsection (i) above within the period therein stated, then five (5)
days thereafter, an appraiser or appraisers shall be jointly selected by the
Company and the Holder, and the determination of such jointly selected appraiser
or appraisers as to the FMV shall be binding and conclusive upon all parties. If
the Company and the Holder are unable to reach an agreement as to an appraiser,
the provisions of subsection (iii) below shall apply.
For purposes of this subsection (ii), the FMV shall take into account,
among other things, earnings of the Company, but shall not take into account any
minority ownership, marketability or other such discount.
(iii) Additional Appraiser. If the Company and the Holder do not
--------------------
agree upon the selection of an appraiser or appraisers, as provided in
subsection (ii) within the period therein stated, then, within three (3) days
after the expiration of the five (5) day period provided for in subsection (ii)
above, each of the Company and the Holder shall deliver, by written notice to
the other, a list of three appraisers and each of the Company and the Holder
shall select one (1) appraiser from the list delivered by the other. In the
event either party falls to deliver a list of appraisers or to select an
appraiser from such list within said three (3) day period, the other party may
select an appraiser from its list and such appraiser shall serve as the sole
appraiser. Each of the appraisers so selected shall, within ten (10) days of
being selected, determine the FMV. In the event the lower of the two (2)
appraisals is at least ninety percent (90%) of the higher appraisal, then the
FMV shall be equal to the average of the two (2) appraisals. In the event that
the lower of the two (2) appraisals is less than ninety percent (90%) of the
higher appraisal, then the two (2) appraisers shall appoint a third appraiser
within three (3) days after the end of said ten (10) day period, and such third
appraiser shall, within ten (10) days of being selected, determine the FMV.
The FMV shall be equal to the average of (x) the third appraisal and
(y) whichever of the first two appraisals is closest in dollars to the third
appraisal or equal to the third appraisal if such appraisal is mid-way between
the first two appraisals. The determination of such appraisals shall be
determinative of the FMV and shall be binding, final and conclusive on the
Company and the Holder.
(iv) Costs of Appraisals. The parties shall share equally the
-------------------
entire cost of any appraisals hereunder.
(v) Fair Market Value Per Share. FMV in reference to one Share
---------------------------
shall mean the FMV allocable to the issued Warrant Shares divided by the number
of Shares that would have been outstanding had (1) all warrants exercisable for
Shares, (2) all options to purchase Shares, and (3) all securities convertible
into Shares, been exercised or
4
<PAGE>
converted on the date as of which the FMV is determined (with appropriate
adjustment by appraisal to reflect the proceeds of the assumed exercise or
conversion).
2.8 Exercise of Warrant, Delivery of Shares. Upon receipt of the Warrant
---------------------------------------
Certificate, the Warrant, or both, as applicable, and the aggregate Exercise
Price therefore, the Holder shall be deemed to be the holder of record of the
Warrant Shares issuable upon such exercise, notwithstanding that the stock
ledger, books or records of the Company shall then be closed or that
certificates representing such Warrant Shares shall not then be actually
delivered to the Holder, and the Company shall, as promptly as practicable, and
in any event within five (5) business days thereafter, cause to be reflected on
the books and records of the Company, ownership of the aggregate number of
Shares by Holder specified in said Warrant Certificate. If this Warrant shall
have been exercised only in part, the Company shall deliver to the Holder a
certificate evidencing the fraction of this Warrant which remains exercisable.
The Company shall pay all expenses, taxes and other charges payable (excluding
income taxes payable by the Holder) in connection with the issuance of Shares
pursuant to this Section 2.8, except that, in case such Shares shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all transfer taxes, which shall be payable upon the issuance
of the Shares, shall be paid by the Holder to the Company at the time of
delivering this Warrant to the Company as mentioned above.
2.9 Accredited Investor; Experience; Risk. The Holder is an accredited
-------------------------------------
investor within the definition of Regulation D of the Act. The Holder has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of purchase of the Warrants and the Warrant
Shares.
2.10 Restricted Transfer of Securities. The Holder agrees that the Shares
---------------------------------
issued or to be issued pursuant to this Warrant (collectively, the "Issued
Securities") shall also be subject to all of the terms and conditions set forth
in the Declaration of Trust of the Company, as amended, restated or
supplemented, from time to time, including any restrictions on ownership,
redemption or transfer.
SECTION 3. OWNERSHIP, TRANSFER.
-------------------
3.1. Ownership of this Warrant. The Company may deem and treat the person
-------------------------
in whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Section 3.
3.2. Exchange, Transfer and Replacement. Subject to the restrictions on
----------------------------------
transfer set forth in Section 2 of this Warrant, this Warrant is exchangeable
upon the surrender hereof by the Holder to the Company at its office or agency
for new Warrants of like tenor and date representing in the aggregate the right
to purchase the number of Warrant Shares purchasable
5
<PAGE>
hereunder, each of such new Warrants to represent the portion of this Warrant
exchanged as shall be designated by the Holder at the time of such surrender.
Subject to the terms of this Warrant and the restrictions on transfer, this
Warrant and all rights hereunder are transferable in whole or in part upon the
books of the Company by the Holder in person or by duly authorized attorney, and
a new Warrant shall be made and delivered by the Company, of the same tenor as
this Warrant but registered in the name of the transferee, upon surrender of
this Warrant duly endorsed at said office or agency of the Company. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant. This Warrant
shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall pay all
expenses, taxes (other than transfer taxes and income taxes) and other charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this Section 3.
SECTION 4 ADJUSTMENT OF REFERENCE PRICE, NUMBER OF WARRANT SHARES.
-------------------------------------------------------
4.1 Subdivision or Combination of Shares. If the Company, at any time
-------------------------------------
while this Warrant is outstanding, shall subdivide or combine its Shares, the
Reference Price shall be proportionately reduced, in case of subdivision of
Shares, to reflect the increase in the total number of Shares outstanding as a
result of such subdivision, as at the effective date of such subdivision; or the
Reference Price shall be proportionately increased, in the case of combination
of Shares, by reverse stock split or otherwise, to reflect the reduction in the
total number of Shares outstanding as a result of such combination, as at the
effective date of such combination.
4.2 Dividends. If the Company, at any time while this Warrant is
----------
outstanding, shall pay a dividend in, or make any other distribution of, Shares
on account of outstanding Shares, the Reference Price shall be adjusted (as at
the date of such payment or other distribution), to that price determined by
multiplying the Reference Price in effect immediately prior to such payment or
other distribution, by a fraction (i) the numerator of which shall be the total
number of Shares outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of Shares
outstanding immediately after such dividend or distribution (plus in the event
that the Company paid cash for fractional Shares, the number of additional
Shares which would have been outstanding had the Company issued fractional
Shares in connection with said dividends).
4.3 Reorganization, Reclassification, Recapitalization Consolidation,
-----------------------------------------------------------------
Merger or Sale. If any capital reorganization, reclassification or
- ---------------
recapitalization of the Company, or consolidation or merger of the Company, or
sales of all or substantially all of its assets to another entity, shall be
effected in such a way that holders of Shares shall be entitled to receive
stock, securities, cash or assets with respect to or in exchange for Shares,
then, as a condition of such reorganization,
6
<PAGE>
reclassification, recapitalization, consolidation, sale or merger, lawful and
adequate provisions shall be made whereby each Holder of Warrants shall
thereupon have the right and option to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the Warrant Shares, such
shares of stock, securities, cash or assets as may be issued or payable with
respect to or in exchange for a number of outstanding Shares equal to the number
of Warrant Shares as would have been received upon exercise of this Warrant at
the Reference Price then in effect immediately before such reorganization,
reclassification, recapitalization, consolidation, sale or merger, and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holders to the end that the provisions hereof (including
without limitation provisions for adjustments of the applicable Reference Price)
shall thereafter be applicable, as nearly as may be practicable, in relation to
any rights to acquire the class or series of stock or securities delivered in
connection with such reorganization, reclassification, recapitalization,
consolidation, sale or merger. Prior to the consummation of any consolidation or
merger or sale of assets of the Company, the successor entity resulting from
such consolidation or merger, or the purchaser of such assets, shall agree in
writing to be bound by the provisions hereof.
4.4 Minimum Level for Adjustments. Notwithstanding any provision to the
-----------------------------
contrary contained herein, no adjustment of the Reference Price shall be made if
the amount of said adjustment shall aggregate less than ten cents ($.10);
provided however, that in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall aggregate at least ten cents ($.10).
SECTION 5. COVENANTS OF THE COMPANY. The Company hereby covenants and
------------------------
agrees that:
5.1. Reservation of Shares. The Company will reserve and set apart and
---------------------
have at all times, free from preemptive rights, a number of Shares deliverable
upon the exercise of this Warrant or of any other rights or privileges provided
for herein sufficient to enable it at any time to fulfill all its obligations
hereunder.
5.2. Avoidance of Certain Actions. The Company will not, by amendment of
-----------------------------
its organizational documents or through any reorganization, transfer of assets,
consolidation, merger, issue or sale of securities or otherwise, avoid or take
any action which would have the effect of avoiding the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in carrying out all of the provisions of
this Warrant and in taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holder of this Warrant hereunder.
5.3. Governmental Approvals. If any Shares required to be reserved for the
----------------------
purposes of exercise of this Warrant require the consent or approval of any
governmental authority under any Federal law (other than registration under the
Act or the Securities Exchange Act of 1934, as
7
<PAGE>
amended) or under any state law (other than registration or qualification under
state securities or blue sky laws) before such Shares may be issued upon
exercise of this Warrant, the Company will, at its expense, as expeditiously as
possible, use its best efforts to obtain such consent or approval, as the case
may be.
5.4. Binding on Successors. This Warrant shall be binding upon any
---------------------
corporation
succeeding to the Company by merger, consolidation, exchange, reorganization or
acquisition of all or substantially all of the Company's assets.
SECTION 6. REGISTRATION.
------------
6.1 REGISTRATION.
(a) Shelf Registration. At the request of a Holder, the Company
-------------------
agrees to file with the Securities and Exchange Commission (the
"Commission"), a shelf registration statement on Form S-3 under
Rule 415 of the Act, or any similar rule that may be adopted by
the Commission (the "Shelf Registration"), with respect to all of
the Warrant Shares issued to the Holder on exercise of this
Warrant. The Company will use its best efforts to have the Shelf
Registration declared effective under the Act and to keep the
Shelf Registration continuously effective until a date agreed
upon by the Company and a majority of the holders of warrants
issued by the Company or until such time as all of the Warrant
Shares registered pursuant to such Shelf Registration (i) have
been disposed of pursuant to such Shelf Registration, (ii) have
otherwise been distributed pursuant to Rule 144 promulgated under
the Act ("Rule 144"), or (iii) have been otherwise transferred in
a transaction resulting in the transferee receiving cash,
securities or Shares not deemed to be "restricted securities"
under Rule 144. The Company further agrees to supplement or make
amendments to the Shelf Registration, if required by the rules,
regulations or instructions applicable to the registration form
utilized by the Company or by the Act or rules and regulations
thereunder for the Shelf Registration. No provision of this
Agreement shall require the Company to file a registration
statement on any form other than Form S-3. The Company, in the
exercise of its reasonable judgment, shall have the right to
delay the filing of the Shelf Registration for up to 120 days.
(i) Sale of Warrant Shares. The Company may require in its sole
-----------------------
discretion that the Warrant Shares be sold in block trades
through underwriters or broker-dealers or that the sale of the
Warrant
8
<PAGE>
Shares be underwritten by investment banking firms selected by
the Company.
(ii) Listing on Securities Exchange or The Nasdaq Stock Market. If
----------------------------------------------------------
the Company shall list or maintain the listing of any Shares on
any securities exchange or national market system, it will at its
expense and as necessary to permit the registration and sale of
the Warrant Shares hereunder, list thereon, maintain and, when
necessary, increase such listing to include such Warrant Shares.
(b) Piggyback Registration Rights.
------------------------------
(i) Notice of Registration. If, at any time commencing upon the date
----------------------
upon which all or any portion of the Warrant Shares have been
issued to the Holder upon exercise of this Warrant, the Company
files a registration statement under the Act with respect to a
firm commitment underwritten public offering of any securities of
the Company, the Company shall give thirty (30) days prior
written notice thereof to each Holder and shall, upon the written
request of any or all of the Holders, include in the underwritten
public offering the number of Warrant Shares that each such
Holder may request (except as set forth in Section 6.1(c) below).
The Company will keep such registration statement effective and
current under the Act permitting the sale of Warrant Shares
covered thereby for the same period that the registration
statement is maintained effective for the other persons
(including the Company) selling thereunder. In any underwritten
offering, however, the Warrant Shares to be included will be sold
at the same time and at the same price as the Company's
securities. In the event that the Company fails to receive a
written request from a Holder within thirty (30) days of its
written notice, then the Company shall have no obligation to
include any of his Warrant Shares in the offering. In
connection with any registration statement or subsequent
amendment or similar document filed pursuant to this Section
6.1(b), the Company shall take all reasonable steps to make the
securities covered thereby eligible for public offering and sale
under the securities or blue sky laws of the applicable
jurisdictions by the effective date of such registration
statement; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it
is not so qualified at the time of filing such documents or to
take any action which would subject it to unlimited service of
process in any jurisdiction where it is not so subject at such
time. The Company
9
<PAGE>
shall keep such filing current for the length of time it must
keep any registration statement, post-effective amendment,
prospectus or offering circular effective pursuant hereto.
(ii) Underwriting. In the event of an offering by the Company in
-------------
which one or more Holders wishes to include Warrant Shares under
this Section 6.1(b), and it is determined in good faith by the
managing underwriter of such offering, giving effect to the
number of Shares to be offered by the Company, that the total
number of Warrant Shares that would consequently be offered is in
excess of the number of Warrant Shares that can be sold at the
proposed price, then the number of warrant shares of all holders
of warrants, including the Holder, to be offered will be reduced
ratably, based upon the number of warrant shares each holder has
requested to include in such registration; provided, however,
that notwithstanding anything in this Section 6.1(b) to the
contrary, such holders shall have the right to contribute, on a
pro-rata basis as described above, an aggregate of shares issued
on exercise of warrants equaling at least fifteen percent (15%)
of the total value of such offering.
(c) Conditions to Registration.
----------------------------
(i) Obligations of Holders Upon Registration. To include any Warrant
-----------------------------------------
Shares in any registration, each Holder shall:
(1) Cooperate with the Company in preparing each such
registration and execute all such agreements as any
underwriter may deem reasonably necessary in favor of such
underwriter;
(2) Promptly supply the Company with all information, documents,
representations and agreements as such underwriter may deem
reasonably necessary in connection with such registration;
and
(3) Agree in writing not to sell or transfer any Warrant Shares
not included in such underwritten offering for a period of
seven (7) days prior to and thirty (30) days after the
effective date of such registration without the
underwriters' consent, but no Holder shall be required to
make such agreement unless the other holders of shares
issued
10
<PAGE>
pursuant to warrants included in any offering covered by
such registration shall similarly agree.
(ii) Obligations of Company Upon Registration. If and whenever the
-----------------------------------------
Company is obligated by the provisions of this Section 6.1(a) or
(b) to effect the registration of any offering of Warrant Shares
under the Act, as expeditiously as possible the Company will, or
will use its best efforts to, as the case may be:
(1) prepare and file with the Commission a registration
statement, including amendments thereof and supplements
relating thereto, with respect to the Warrant Shares;
(2) use its best efforts to cause the registration statement to
be declared effective by the Commission;
(3) prepare and file with the Commission such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be necessary
to keep such registration statement effective until the
earlier of the sale of all securities covered thereby or the
date on which such Warrant Shares may be sold into the
market without restriction under Rule 144;
(4) in the case of a Shelf Registration pursuant to Section
6.01(a), to keep the Shelf Registration effective and the
related prospectus current; provided, however, that the
Company shall have no obligation to file any amendment or
supplement at its own expense more than 90 days after the
effective date of the Shelf Registration;
(5) furnish to each Holder of Warrant Shares registered thereon,
such numbers of copies of prospectuses, and supplements or
amendments thereto, and such other documents as such holder
reasonably requests;
(6) register or qualify the Warrant Shares covered by the
registration statement under the securities or blue sky laws
of such jurisdictions within the United States as the Holder
shall reasonably request, and do such other reasonable acts
and things as may be required of it to enable such Holders
to consummate the sale or other disposition in such
jurisdictions of the Warrant Shares; provided, however, that
11
<PAGE>
the Company shall not be required to (i) qualify as a
foreign corporation or consent to a general and unlimited
service or process in any jurisdictions in which it would
not otherwise be required to be qualified or so consent or
(ii) qualify as a dealer in securities; and
(7) keep the Holders of Warrant Shares advised as to the
initiation and progress of the registration.
(iii) Expenses Relating to Shelf Registration. The Company shall pay
----------------------------------------
all expenses in connection with the Shelf Registration, including
without limitation (i) all expenses incident to filing with the
National Association of Securities Dealers, Inc., (ii)
registration fees, (iii) printing expenses, (iv) accounting and
legal fees and expenses, except to the extent Holders of Warrant
Shares elect to engage accountants or attorneys in addition to
the accountants and attorneys engaged by the Company, (v)
accounting expenses incident to or required by any such
registration or qualification and (vi) expenses of complying with
the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided,
however, the Company shall not be liable for (A) any discounts or
commissions to any broker attributable to the sale of Warrants
Shares, or (B) any fees or expenses incurred by holders of
Warrant Shares in connection with such registration which,
according to the written instructions of any regulatory
authority, the Company is not permitted to pay.
(iv) Expenses Relating to Piggyback Registration. In connection with
--------------------------------------------
any filing or other registration hereunder the Company shall bear
all the expenses and professional fees which arise in connection
with such filings or registration (except for the Holder's pro
rata share of any underwriters' discount and commission) and all
expenses incurred in making such filings and keeping them
effective and correct as provided hereunder and shall also provide
each Holder with a reasonable number of printed copies of the
prospectus, offering circulars and/or supplemental prospectuses or
amended prospectuses in final and preliminary form; PROVIDED,
HOWEVER, each Holder will pay its own direct out-of-pocket costs
incurred with the registration of Warrant Shares, including but
not limited to, Holder's attorney and accountants fees, travel
expenses and any consulting fees.
(v) Indemnification.
----------------
12
<PAGE>
(1) Indemnification by the Company. The Company will indemnify
------------------------------
each Holder, each of its officers and trustees, and each
person controlling the Holder, with respect to which
registration, qualification or compliance has been effected
pursuant to this Section 6.1, against all claims, losses,
damages, costs, expenses and liabilities whatsoever (or
actions in respect thereof) arising out of or based on (i)
any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement,
prospectus, offering circular or other similar document
(including any related registration statement, notification
or the like) incident to any such registration,
qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances
under which they were made or (ii) any violation by the
Company of the Act or any state securities law or of any
rule or regulation promulgated under the Act or any state
securities law applicable to the Company and relating to
action or inaction required of the Company in connection
with any such registration, qualification or compliance, and
will reimburse the Holder, each of its officers and
trustees, and each person controlling the Holder, for any
legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim,
loss, damage, liability or action, provided, however, that
(x) the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability, or
action arises out of or is based on any untrue statement (or
alleged untrue statement) or omission (or alleged omission)
based upon written information furnished to the Company by
an instrument duly executed by the Holder and stated to be
specifically for use therein or furnished by the Holder to
the Company in response to a request by the Company stating
specifically that such information will be used by the
Company therein, and (y) such indemnity agreement shall not
inure to the benefit of the Holder, insofar as it relates to
any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary
prospectus or prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the
13
<PAGE>
amended prospectus filed with the Commission pursuant to
Rule 424(b) under the Act or in any subsequent amended
prospectus filed with the Commission prior to the written
confirmation of the sale of the Warrant Shares at issue
(collectively, the "Final Prospectus"), if a copy of the
Final Prospectus was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior
to the time such action is required by the Act.
(2) Indemnification by the Holders. The Holders will, if
-------------------------------
Warrant Shares held by or issuable to such Holders are
included in the registration statement to which such
registration, qualification or compliance is being effected,
indemnify the Company, each of its trustees and officers,
each underwriter, if any, of the Shares covered by such
registration statement, and each person who controls the
Company within the meaning of the Act against all claims,
losses, damages, costs, expenses and liabilities whatsoever
(or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement,
prospectus, offering circular or other similar document
(including any related registration statement, notification
or the like) incident to any such registration,
qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under
which they were made, and will reimburse the Company, such
trustees, officers, persons or underwriters for any legal or
any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
costs, expense, liability or action, in each case to the
extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement,
prospectus, offering circular or other document in reliance
upon and in conformity with written information furnished to
the Company by an instrument duly executed by the Holders
and stated to be specifically for use therein or furnished
by any Holders to the Company in response to a request by
the Company stating specifically that such information will
be used by the Company therein, provided, however, that the
foregoing
14
<PAGE>
indemnity agreement is subject to the condition that such
indemnity agreement shall not inure to the benefit of the
Company or any underwriter insofar as it relates to any such
untrue statements (or alleged untrue statements) or omission
(or alleged omission) made in the preliminary prospectus or
prospectus but eliminated or remedied in the Final
Prospectus, if a copy of the Final Prospectus was not
furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such
action is required by the Act.
(3) Indemnification Procedures. Each party entitled to
---------------------------
indemnification under this Section 6.1 (the "Indemnified
Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as
to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be
withheld). The failure of any Indemnified Party to give
notice as provided herein shall relieve the Indemnifying
Party of its obligations hereunder only to the extent that
such failure to give notice shall materially prejudice the
Indemnifying Party in the defense of any such claim or any
such litigation. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment
or enter into any settlement that attributes any liability
to the Indemnified Party, unless the settlement includes as
an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. If any
such Indemnified Party shall have been advised by counsel
chosen by it that there may be one or more legal defenses
available to such Indemnified Party that are different from
or additional to those available to the Indemnifying Party,
the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of such Indemnified
Party and will reimburse such Indemnified Party and any
person controlling such
15
<PAGE>
Indemnified Party for the reasonable fees and expenses of
any counsel retained by the Indemnified Party, it being
understood that the Indemnifying Party shall not, in
connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm
of attorneys for each Indemnified Party or controlling
person (and all other Indemnified Parties and controlling
persons which may be represented without conflict by one
counsel), which firm shall be designated in writing by the
Indemnified Party (or Indemnified Parties, if more than one
Indemnified Party is to be represented by such counsel) to
the Indemnifying Party. The Indemnifying Party shall not be
subject to any liability for any settlement made without its
consent, which shall not be unreasonably withheld.
(4) Allocation of Indemnity. If the indemnification
------------------------
provided for in this Section 6.1 from the Indemnifying
Party is unavailable to an Indemnified Party hereunder
in respect of any losses, claims, damages, labilities
or expenses referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims,
damages, labilities or expenses in such proportion as
is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Parties in
connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and
Indemnified Parties shall be determined by reference
to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state
a material fact, has been made by, or relates to
information supplied by, such Indemnifying Party or
Indemnified Parties, and their relative intent,
knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or
payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above
shall be deemed to include any
16
<PAGE>
legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6.1
were determined by pro rata allocation or by any other
method of allocation which does not take account of the
equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f)
of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent
misrepresentation.
SECTION 7. NOTIFICATIONS BY THE COMPANY. In case at any time:
----------------------------
(a) the Company shall declare any dividend payable in securities
upon the Shares or make any distribution (other than in cash) to the holders of
Shares;
(b) there shall be proposed any other transaction of a type
referred to in Section 4 hereof; and
(c) there shall be proposed a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
- ----
the Holder of the date on which (i) the books of the Company shall close or a
record shall be taken for such dividend, distribution, subscription rights, or
other transaction, or (ii) such reorganization, reclassification, consolidation,
merger, sale, dissolution, other transaction, liquidation or winding-up shall
take place, as the case may be. Such notice shall also specify the date as of
which the holders of Shares of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
Shares for, or receive in respect of their Shares, securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, other transaction, liquidation, or winding-up, as the case
may be. Such written notice shall be given not less than five (5) business days
prior to the taking of the action in question.
SECTION 8. NOTICES. Any notice or other document required or permitted to
-------
be given or delivered to the Holder shall be delivered at, or sent by certified
or registered mail to each Holder at the address listed in the records of the
Company or to such other address as shall have been furnished to the Company in
writing by such Holder. Any notice or other document required or permitted to
be given or delivered to the Company shall be delivered at, or sent by certified
or registered mail to, the principal office of the Company, at 1420 Spring Hill
Road,
17
<PAGE>
Suite 525, McLean, Virginia 22102, Attention: Thomas D. Eckert or such other
name or address as shall have been furnished to the Holder by the Company.
SECTION 9. LIMITATION OF LIABILITY. No provision hereof, in the absence of
-----------------------
affirmative action by the Holder to purchase Shares, and no mere enumeration
herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
SECTION 10. GOVERNING LAW. This Warrant shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of Virginia,
without giving effect to its conflicts of laws provisions.
SECTION 11. MISCELLANEOUS. No term of this Warrant may be amended, except
-------------
with the joint written consent of the Holder and the Company. The headings in
this Warrant are for purposes of reference only and shall not affect the meaning
or construction of any of the provisions hereof.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer on the date first above written.
CAPITAL AUTOMOTIVE REIT
By:________________________________
Name:______________________________
Title:_____________________________
[Signature Page to ________________ Share Warrant No. _____
19
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES AND
IS PERMITTED TO TRANSFER THE WITHIN WARRANT OF
CAPITAL AUTOMOTIVE REIT
FOR VALUE RECEIVED__________________ hereby sells, assigns and transfers
unto ______________________ the right to purchase ________ of the number of
common shares of beneficial interest, par value $.01 per share, of Capital
Automotive REIT covered by the within Warrant No. ___, and does hereby
irrevocably constitute and appoint ________________ as Attorney-in-Fact to
transfer the said Warrant on the books of the Company (as defined in said
Warrant) with full power of substitution.
Signature:________________________________(SEAL)
Address: _________________________________
_________________________________
Dated:_________________
Signature Guarantee:
In the presence of: [Name of Institution]
_________________ By:________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
20
<PAGE>
WARRANT CERTIFICATE
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THE WITHIN WARRANT OF
CAPITAL AUTOMOTIVE REIT
The undersigned hereby irrevocably exercises the right to purchase shares
of beneficial interest, par value $.01 per share ("Shares") obtainable by
exercise of ___________ % of the within Warrant, according to the conditions
thereof and herewith makes payment of the Exercise Price for such Shares in
full.
Signature___________________(SEAL)
Address:____________________
____________________
Dated:_____________________
Signature Guarantee:
In the presence of :
[Name of Institution]
___________________________ By:____________________
21
<PAGE>
EXHIBIT 5.1
WILMER, CUTLER & PICKERING Washington
2445 M Street, N.W. Baltimore
Washington, D.C. 20037-1420 New York
___ London
Telephone (410) 986-2800 Brussels
Facsimile (410) 986-2828 Berlin
March 1, 1999
Capital Automotive REIT
1420 Spring Hill Road, Suite 525
McLean, Virginia 22102
Re: Capital Automotive REIT
-----------------------
Registration Statement on Form S-3
-------------------------------------
Dear Ladies and Gentlemen:
We have acted as counsel to Capital Automotive REIT, a Maryland real estate
investment trust (the "Company"), in connection with a Registration Statement on
Form S-3 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. The Registration
Statement relates to the offering of up to 4,961,392 common shares of beneficial
interest, par value $.01 per share (the "Shares"), of the Company, that may be
offered and sold from time to time if, and to the extent that, certain holders
of units of limited partnership interest ("Units") in Capital Automotive L.P., a
Delaware limited partnership (the "Partnership"), tender their Units to the
Partnership for redemption and the Company exercises its contractual right to
assume this obligation of the Partnership and decides to redeem the Units for
Shares in accordance with the terms of the Agreement of Limited Partnership (the
"Partnership Agreement"), as amended, restated or supplemented, of the
Partnership.
For the purposes of this opinion, we have examined copies of the following
documents:
1. The Registration Statement;
2. The Declaration of Trust of the Company (the "Declaration of Trust"),
as amended, restated or supplemented, as certified by the Maryland
State Department of Assessments and Taxation on February 23, 1999;
<PAGE>
Capital Automotive REIT
March 1, 1999
Page 2
3. The Bylaws of the Company (the "Bylaws"), as amended, restated or
supplemented, as of the date hereof;
4. The Partnership Agreement, as amended, restated or supplemented, as of
the date hereof;
5. The Resolutions of the Board of Trustees of the Company dated
February 2, 1999; and
6. Such other documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary for the
purposes of rendering this opinion.
In our examination of the aforesaid documents, we have assumed the legal
capacity of all natural persons, the genuineness of all signatures, the
completeness and authenticity of all documents submitted to us as originals, and
the conformity to original documents of all documents submitted to us as
certified, telecopied, photostatic or reproduced copies.
In connection with the opinions expressed below, we have assumed that, at
and prior to the time of the offering, sale and delivery of Shares pursuant to
the Registration Statement, (i) the Resolutions of the Board of Trustees
authorizing the offering and sale of the Shares have not have been amended,
modified or rescinded, (ii) the Registration Statement has been declared
effective and no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings with respect thereto have been
commenced or threatened, and (iii) there has not occurred any change in law
materially adversely affecting the power of the Company to offer and sell the
Shares or the validity of the Shares. We have also assumed that the offering,
sale and delivery of Shares will not at the time of such offering and sale
violate or conflict with (1) the Declaration of Trust, as then amended, restated
and supplemented, and Bylaws, as then amended, restated and supplemented, of the
Company (or the Partnership Agreement, as then amended, restated or
supplemented, of the Partnership), (2) any provision of any license, indenture,
instrument, mortgage, contract, document or agreement to which the Company (or
the Partnership) is then a party or by which the Company (or the Partnership)
is then bound, or (3) any law or regulation or any decree, judgment or order
applicable to the Company (or the Partnership). We have further assumed that the
number of Shares to be offered and sold pursuant to the Registration Statement
will not at the time of such offering and sale exceed the amount of such class
of capital shares authorized in the Declaration of Trust, as then amended,
restated or supplemented, and unissued at such time.
<PAGE>
Capital Automotive REIT
March 1, 1999
Page 3
Based upon, subject to, and limited by the foregoing, we are of the opinion
that the Shares have been duly authorized and when sold and issued by the
Company, and paid for by delivery of the Units, pursuant to the Partnership
Agreement, the Shares will be validly issued, fully paid and nonassessable.
This opinion is limited to the laws of the United States and the General
Corporation Law of Maryland. We are members of the Bar of the State of Maryland
and do not hold ourselves out as being experts in the laws of any other
jurisdiction. Our opinion is rendered only with respect to the laws and the
rules, regulations and orders thereunder that are currently in effect. We
assume no obligation to advise you of any changes in the foregoing subsequent to
the delivery of this opinion. This opinion has been prepared solely for your
use in connection with the filing of the Registration Statement, and should not
be quoted in whole or in part or otherwise be referred to, nor otherwise be
filed with or furnished to any governmental agency or other person or entity,
without our express prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein under the caption
"Legal Matters."
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/ JOHN B. WATKINS, JR.
---------------------------------
John B. Watkins, Jr., a partner
<PAGE>
Exhibit 8.1
<TABLE>
<S> <C>
WILMER, CUTLER & PICKERING WASHINGTON
2445 M Street, N.W. BALTIMORE
Washington, D.C. 20037-1420 NEW YORK
----------- LONDON
Telephone (202) 663-6000 BRUSSELS
Facsimile (202)663-6363 BERLIN
</TABLE>
March 1, 1999
Capital Automotive REIT
1420 Spring Hill Road, Suite 525
McLean, Virginia 22102
Capital Automotive REIT
-----------------------
Qualification as Real Estate Investment Trust
---------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Capital Automotive REIT, a Maryland real
estate investment trust ("Capital Automotive"), in connection with the
preparation of a Form S-3 registration statement (the "Registration Statement")
filed with the Securities and Exchange Commission on March 2, 1999, with respect
to the offering of up to 4,961,392 common shares of beneficial interest, par
value $.01 per share ("Common Shares"), of Capital Automotive that may be
offered and sold from time to time if, and to the extent that, certain limited
partners of Capital Automotive L.P., a Delaware limited partnership (the
"Partnership"), seek to redeem their units of limited partnership interest
("Units") and the Company exercises its contractual right to assume the
Partnership's obligation and redeems the Units for Common Shares. You have
requested our opinion regarding certain U.S. federal income tax matters in
connection with the Registration Statement. Unless specifically defined
otherwise, all terms used herein have the meaning set forth in the Registration
Statement.
In giving this opinion letter, we have examined and relied on
originals, or copies certified or otherwise identified to our satisfaction, of
the following: (1) the Declaration of Trust of Capital Automotive, as amended,
restated and supplemented (the "Declaration of Trust"), as certified by the
Department of Assessments and Taxation of the State of Maryland on February 23,
1999; (2) the Bylaws of Capital Automotive, as amended, restated and
supplemented (the "Bylaws"), to the date hereof; (3) the Registration Statement,
including the prospectus contained as part of the Registration Statement (the
<PAGE>
Capital Automotive REIT
March 1, 1999
Page 2
"Prospectus"); (4) the Agreement of Limited Partnership of the Partnership, as
amended, restated and supplemented (the "Partnership Agreement"), to the date
hereof, among Capital Automotive, in its capacity as general partner, and the
limited partners (the general partner and the limited partners are collectively
referred to herein as "Partners"); (5) the representations contained in a
certificate dated March 1, 1999 and executed by a duly appointed officer of
Capital Automotive (the "Officer's Certificate") and (6) such other documents as
we have deemed necessary or appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have assumed, with
your consent, that: (i) each of the documents referred to above has been duly
authorized, executed and delivered; is authentic, if an original, or is
accurate, if a copy; has not been amended; and any unexecuted documents have
been or will be executed substantially in the form and content reviewed by us;
(ii) Capital Automotive will elect REIT status in conformity with the
requirements of Treas. Reg. Section 1.856-2(b) in its federal income tax return
for 1998; (iii) during its taxable year ended December 31, 1998 and subsequent
taxable years, Capital Automotive operated and intends to continue to operate in
such a manner that will make the representations contained in the Officer's
Certificate, true for such years; (iv) Capital Automotive does not intend to
make any amendments to the Declaration of Trust and Bylaws, the Partnership
Agreement or any other agreements, after the date of this opinion that would
affect its qualification as a real estate investment trust for U.S. federal
income tax purposes for any taxable year; and (v) no action will be taken by
Capital Automotive, the Partnership or the Partners after the date hereof that
would have the effect of altering the facts upon which the opinions set forth
below are based.
Unless facts material to the opinions expressed herein are
specifically stated to have been independently established or verified by us, we
have relied as to such facts solely upon the correctness of the representations
made by Capital Automotive and the Partnership. For the purposes of rendering
this opinion, we have not made an independent investigation of the facts set
forth in any of the aforementioned documents, including without limitation the
Prospectus and the Officer's Certificate. We have consequently relied upon your
representations that the information presented in such documents or otherwise
furnished to us accurately and completely describes all material facts relevant
to this opinion. After reasonable inquiry, no facts have come to our attention
that would cause us to question the accuracy and completeness of the facts
contained in the documents and assumptions set forth above, the representations
set forth in the Officer's Certificate, or the Prospectus in a material way.
Based on the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, and the discussion in
the Prospectus under the caption "Federal Income Tax Consequences" (which is
incorporated herein by reference), we are of the opinion that:
<PAGE>
Capital Automotive REIT
March 1, 1999
Page 3
(a) Capital Automotive will qualify as a REIT under sections 856
through 859 of the Internal Revenue Code of 1986, as amended (the "Code")
with respect to the Company's first taxable year ended December 31, 1998,
is organized in conformity with the requirements for qualification as a
REIT under the Code, and its current method of operation will enable it to
meet the requirements for qualification as a REIT for the current taxable
year and for future taxable years. With respect to its current and future
years, however, Capital Automotive's status as a REIT at any time is
dependent, among other things, upon its meeting certain requirements
throughout the year as a whole; and
(b) the descriptions of the law and the legal conclusions contained in
the Prospectus under the caption "Federal Income Tax Consequences" are
correct in all material respects, and the discussion thereunder fairly
summarizes the federal income tax consequences that are likely to be
material to a holder of the Common Shares.
We will not review on a continuing basis Capital Automotive's
compliance with the documents or assumptions set forth above, or the
representations set forth in the Officer's Certificate. Accordingly, no
assurance can be given that the actual results of Capital Automotive's
operations for any given taxable year will satisfy the requirements for
qualification and taxation as a REIT.
The foregoing opinions are based on current provisions of the Code and
the Treasury regulations thereunder (the "Regulations"), published
administrative interpretations thereof, and published court decisions. The
Internal Revenue Service has not issued Regulations or administrative
interpretations with respect to various provisions of the Code relating to REIT
qualification. No assurance can be given that the law will not change in a way
that will prevent Capital Automotive from qualifying as a REIT for federal
income tax purposes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to Wilmer, Cutler &
Pickering under the caption "Federal Income Tax Consequences" in the Prospectus.
The foregoing opinions are limited to the U.S. federal income tax
matters addressed herein, and no other opinions are rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
other country, or any state or locality. We undertake no obligation to update
the opinions expressed herein after the date of this letter. This opinion
letter is solely for the information and use of the addressees, and it may not
be distributed, relied upon for any purpose by any other person, quoted in whole
or in part or otherwise reproduced in any document, or filed with any
governmental agency without our express written consent.
<PAGE>
Capital Automotive REIT
March 1, 1999
Page 4
Very truly yours,
Wilmer, Cutler & Pickering
/s/ Robert B. Stack
-----------------------------
By Robert B. Stack, a Partner
<PAGE>
EXHIBIT 10.43
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPITAL AUTOMOTIVE L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINED TERMS........................................................................................ 2
ARTICLE II - PARTNERSHIP FORMATION AND IDENTIFICATION............................................................ 9
2.01 Name, Office and Registered Agent.............................................................. 9
2.02 Partners....................................................................................... 9
2.03 Term and Dissolution........................................................................... 9
2.04 Filing of Certificate and Perfection of Limited Partnership.................................... 10
ARTICLE III - BUSINESS OF THE PARTNERSHIP........................................................................ 10
ARTICLE IV - CAPITAL CONTRIBUTIONS AND ACCOUNTS.................................................................. 10
4.01 Capital Contributions.......................................................................... 10
4.02 Additional Capital Contributions and Issuances of Additional Partnership Interests............. 11
4.03 Loans.......................................................................................... 13
4.04 Capital Accounts............................................................................... 14
4.05 Percentage Interests........................................................................... 14
4.06 No Interest on Contributions................................................................... 14
4.07 Return of Capital Contributions................................................................ 14
4.08 No Third Party Beneficiary..................................................................... 14
4.09 Rights, Options, Warrants and Other Derivative Securities...................................... 15
ARTICLE V - PROFITS AND LOSSES; DISTRIBUTIONS.................................................................... 16
5.01 Allocation of Profit and Loss.................................................................. 16
5.02 Distribution of Cash........................................................................... 17
5.03 REIT Distribution Requirements................................................................. 19
5.04 No Right to Distributions in Kind.............................................................. 19
5.05 Limitations on Return of Capital Contributions................................................. 19
5.06 Distributions upon Liquidation................................................................. 19
5.07 Substantial Economic Effect.................................................................... 20
ARTICLE VI - RIGHTS, OBLIGATIONS AND POWERS
OF THE GENERAL PARTNER......................................................................... 20
6.01 Management of the Partnership.................................................................. 20
6.02 Delegation of Authority........................................................................ 22
6.03 Indemnification and Exculpation of Indemnitees................................................. 22
6.04 Liability of the General Partner............................................................... 24
6.05 Expenditures by the Partnership................................................................ 25
6.06 Outside Activities............................................................................. 25
6.07 Employment or Retention of Affiliates.......................................................... 25
6.08 General Partner Participation.................................................................. 26
6.09 Title to Partnership Assets.................................................................... 26
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.10 Miscellaneous.................................................................................. 26
ARTICLE VII - CHANGES IN GENERAL PARTNER......................................................................... 27
7.01 Transfer of the General Partner's Partnership Interest......................................... 27
7.02 Admission of a Substitute or Successor General Partner......................................... 28
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution of a General Partner.................... 29
7.04 Removal of a General Partner................................................................... 29
ARTICLE VIII - RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.................................................... 30
8.01 Management of the Partnership.................................................................. 30
8.02 Power of Attorney.............................................................................. 30
8.03 Limitation on Liability of Limited Partners.................................................... 31
8.04 [Reserved]..................................................................................... 31
8.05 Redemption Right............................................................................... 31
8.06 Registration................................................................................... 33
8.07 "Piggyback"Registration Rights................................................................. 35
ARTICLE IX - TRANSFERS OF LIMITED PARTNERSHIP INTERESTS.......................................................... 39
9.01 Purchase for Investment........................................................................ 39
9.02 Restrictions on Transfer of Limited Partnership Interests...................................... 40
9.03 Admission of Substitute Limited Partner........................................................ 42
9.04 Rights of Assignees of Partnership Interests................................................... 43
9.05 Effect of Bankruptcy, Death, Incompetence or Termination of a Limited Partner.................. 43
9.06 Joint Ownership of Interests................................................................... 43
ARTICLE X - BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS........................................................... 44
10.01 Books and Records.............................................................................. 44
10.02 Custody of Partnership Funds; Bank Accounts.................................................... 44
10.03 Fiscal and Taxable Year........................................................................ 44
10.04 Annual Tax Information and Report.............................................................. 45
10.05 Tax Matters Partner; Tax Elections; Special Basis Adjustments.................................. 45
10.06 Reports to Limited Partners.................................................................... 45
ARTICLE XI - AMENDMENT OF AGREEMENT; SALE OF ALL OR SUBSTANTIALLY
ALL OF COMPANY'S ASSETS.......................................................................................... 46
11.01 Amendment of Agreement......................................................................... 46
11.02 Sale of All or Substantially All of the Assets of the Partnership; Change in Control........... 46
ARTICLE XII - GENERAL PROVISIONS................................................................................. 47
12.01 Notices........................................................................................ 47
12.02 Survival of Rights............................................................................. 47
12.03 Additional Documents........................................................................... 47
ii
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.04 Severability.................................................................................. 47
12.05 Entire Agreement.............................................................................. 47
12.06 Pronouns and Plurals.......................................................................... 47
12.07 Headings...................................................................................... 47
12.08 Counterparts.................................................................................. 47
12.09 Governing Law................................................................................. 48
12.10 Guaranty by Company........................................................................... 48
EXHIBIT A - SCHEDULE OF PARTNERS, NUMBER OF PARTNERSHIP UNITS AND THE AGREED VALUE OF NON-CASH CAPITAL
CONTRIBUTIONS................................................................................. A-1
EXHIBIT B - RESERVED...................................................................................... B-1
EXHIBIT C - NOTICE OF EXERCISE OF REDEMPTION RIGHT........................................................ C-1
</TABLE>
iii
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPITAL AUTOMOTIVE L.P.
THIS SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF CAPITAL
AUTOMOTIVE L.P. (this "Agreement"), is made this 2nd day of February, 1999 by
and among CAPITAL AUTOMOTIVE REIT, a Maryland real estate investment trust (in
its capacity as General Partner, the "General Partner"), and each of the Limited
Partners signatory hereto.
THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts,
understandings and intentions:
A. Capital Automotive L.P. (the "Partnership") was formed as a limited
partnership under the laws of the State of Delaware by a Certificate of Limited
Partnership filed with the Secretary of State of Delaware on November 14, 1997.
The Partnership is governed by a Limited Partnership Agreement dated November
21, 1997, as First Amended and Restated as of February 19, 1998, as Second
Amended and Restated as of the date hereof, and as further amended, restated and
supplemented, from time to time, maintained at the offices of the Partnership.
B. Capital Automotive L.P. is intended to result in an umbrella
partnership real estate investment trust in which Capital Automotive REIT shall
be the general partner.
C. In order to fund certain Administrative Expenses, as defined herein,
the Partnership assumed the obligation to repay certain obligations of the
General Partner, and has otherwise agreed to reimburse the General Partner for
any and all Administrative Expenses in connection with the formation of Capital
Automotive REIT and the Partnership.
D. The parties have reached certain understandings with respect to their
relative sharing of the benefits and burdens to be derived from the business
operations of the Partnership, and desire to enter into this Agreement in order
to (i) set forth herein such understandings and agreements; and (ii) set forth
their rights, obligations and understandings with respect to the Partnership and
its business.
NOW, THEREFORE, in consideration of the foregoing, and the covenants and
agreements between the parties hereto, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the meanings
specified below:
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time.
"Additional Limited Partner" means a Person admitted to this Partnership as
a Limited Partner pursuant to Section 4.02 hereof.
"Administrative Expenses" means: (i) all administrative and operating costs
and expenses and other expenses incurred by the Partnership; (ii) all
administrative and operating costs and expenses of the General Partner,
including any salaries or other payments to trustees, officers and/or employees
of the General Partner, and any accounting and legal expenses of the General
Partner, all of which costs and expenses, the Partners have agreed, are expenses
of the Partnership and not the General Partner; and (iii) to the extent not
included in clause (ii) above, other REIT Expenses. The amount of any
Administrative Expenses shall be reduced by all amounts (including non-income
amounts (by way of example, and not in limitation, refinancing proceeds))
received or recorded by, or on account of, the General Partner, arising out of
(a) any bank account, investment account, separate account or similar account of
the General Partner, (b) any investment other than the General Partner's direct
investment in the Partnership, and (c) any other assets held by the General
Partner other than Partnership Interests.
"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, 5% 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 (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "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 ownership
of voting securities, partnership interests or other equity interests.
"Agreed Value" means the fair market value of a Partner's non-cash Capital
Contribution as agreed to by the Partners. For purposes of this Agreement, the
Agreed Value of a Partner's non-cash Capital Contribution shall be equal to (A)
the number of Partnership Units received by such Partner (a) in exchange for
Property or an interest therein, (b) in exchange for interests in any
partnership, limited liability company or other entity, (c) in connection with
the merger of any partnership, limited liability company or other entity with
and into the Partnership or any Partnership-owned Entity, or (d) in exchange for
any other non-cash asset so contributed, multiplied by (B) the price per Share
established for those Partnership Units in the contribution
2
<PAGE>
agreement between the General Partner and such Partners. The names and addresses
of the Partners, number of Partnership Units issued to each Partner, and the
Agreed Value of non-cash Capital Contributions is set forth on EXHIBIT A.
"Agreement" means this Agreement of Limited Partnership of the Partnership,
as amended, restated and supplemented, from time to time.
"Capital Account" has the meaning provided in Section 4.04 hereof.
"Capital Automotive L.P." means Capital Automotive L.P., a Delaware limited
partnership.
"Capital Automotive REIT" means Capital Automotive REIT, a Maryland real
estate investment trust.
"Capital Contribution" means the total amount of cash, cash equivalents and
Agreed Value of non-cash items, including Property, contributed or agreed to be
contributed, as the context requires, to the Partnership, by a Partner. Any
reference to the Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the Partnership Interest of such
Partner. The paid-in Capital Contribution shall mean the cash, cash equivalents
or the Agreed Value of any non-cash items, including Property, as the case may
be, actually contributed by a Partner and received by the Partnership or any
Partnership-owned Entity.
"Capital Transaction" means the refinancing, sale, exchange, condemnation,
recovery of a damage award or insurance proceeds (other than business or rental
interruption insurance proceeds not reinvested in the repair or reconstruction
of Properties), or other disposition of any Property (or the Partnership's
direct or indirect interest therein).
"Cash Amount" means an amount of cash per Partnership Unit equal to the
value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption. The value of the REIT Shares Amount shall be based on
the average of the daily market price of REIT Shares for the twenty consecutive
trading days immediately preceding the five trading days prior to the date of
receipt by the General Partner of a Notice of Redemption. The market price for
each such trading day shall be: (i) if the REIT Shares are listed or admitted to
trading on any securities exchange or Nasdaq, the closing sale 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, regular way, on such day, (ii) if the REIT Shares
are not listed or admitted to trading on any securities exchange or Nasdaq, the
last reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or (iii) if the
REIT Shares are not listed or admitted to trading on any securities exchange or
Nasdaq 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
3
<PAGE>
prices have been so reported; PROVIDED THAT if there are no bid and asked prices
reported during the ten days prior to the date in question, the value of the
REIT Shares shall be determined by the General Partner acting in good faith on
the basis of such quotations, if available, or other information as it
considers, in its reasonable judgment, appropriate. In the event the REIT Shares
Amount includes "rights" that a holder of REIT Shares would be entitled to
receive, then the value of such rights shall be determined by the Company acting
in good faith on the basis of such quotations, if available, or other
information as it considers, in its reasonable judgment, appropriate.
"Certificate" means any instrument or document that is required under the
laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices within the State of Delaware or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the State of Delaware or such other
jurisdiction.
"Charter" means the Declaration of Trust of the Company filed with the
State Department of Assessments and Taxation of the State of Maryland, as
amended, restated or supplemented, from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
succeeding provision of the Code.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Capital Automotive REIT, a Maryland real estate investment
trust.
"Conversion Factor" means 1.0, PROVIDED THAT in the event that the Company
(i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or
makes a distribution to all holders of its outstanding REIT Shares in REIT
Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(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 REIT Shares (determined without the above assumption)
issued and outstanding on such date. Any adjustment to the Conversion Factor
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event; PROVIDED, HOWEVER, that
if the Company receives a Notice of Redemption after the record date, but prior
to the effective date of such dividend, distribution, subdivision or
combination, the Conversion Factor shall be
4
<PAGE>
determined as if the Company had received the Notice of Redemption immediately
prior to the record date for such dividend, distribution, subdivision or
combination.
"Defaulting Limited Partner" has the meaning provided in Section 5.02(b)
hereof.
"Effective Date" means the date of closing of the Initial Offering.
"Equity Incentive Plan" means the Capital Automotive REIT 1998 Equity
Incentive Plan, as such plan may be restated, amended and supplemented from time
to time, or any equity incentive plan, including share option plan, restrictive
equity plan or share purchase plan, adopted in the future by the Company.
"Event of Bankruptcy" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"EXHIBIT A" means Exhibit A, as amended from time to time, to this
Agreement.
"Funding Loan" has the meaning provided in Section 4.03 hereof.
"GAAP" means generally accepted accounting principles, consistently
applied.
"General Partner" means the Company and any Person who becomes a substitute
or additional General Partner as provided herein, and any of their successors as
General Partner. The Company shall hold that amount of its Partnership Interest
which equals one percent (1%) of the total Partnership Interests in the
Partnership as General Partner.
"General Partner Investment Loan" means indebtedness incurred by the
General Partner (including, without limitation a loan from the Partnership, any
Partnership-owned Entity, Subsidiary or from any other Person) in connection
with its investment (either directly or through one or more Subsidiary
corporations or other entities) in a Subsidiary or a Partnership-owned Entity or
otherwise deemed necessary to finance or otherwise carry out the business
objectives of the Company and the Partnership.
"General Partnership Interest" means the one percent (1%) general
partnership interest held by the General Partner.
5
<PAGE>
"Incentive Rights" has the meaning set forth in Section 4.02 hereof.
"Indemnitee" means (i) any Person made a party to a proceeding by reason of
his status as the General Partner or an affiliate of the General Partner or a
trustee or officer of the Partnership or the General Partner or an affiliate of
the General Partner or the Partnership and (ii) such other Persons, including
employees or agents of the Partnership or General Partner, as the General
Partner may designate in good faith from time to time, in its reasonable
discretion, giving consideration to the interest of the Partnership.
"Independent Trustees" shall mean those individuals, who are not, and
within the last two years have not been, (i) executive officers or employees of
the Company or the Partnership or any Subsidiary thereof or Partnership-owned
entity, (ii) a holder or a group of affiliated holders of securities of the
Company, who own or have the right to acquire 10% or more of the REIT Shares and
or preferred shares of beneficial interest of the Company on a fully diluted and
converted basis, or an officer, director, trustee, member, employee or Affiliate
thereof or a person who is a designee or nominee of any such holder to the Board
of Trustees of the Company, or (iii) a partner or an officer, director, trustee,
member, employee or Affiliate of a Partner.
"Initial Public Offering Price" shall mean the initial public offering
price per share of $15.00 as set forth in the Prospectus.
"Initial Offering" means the initial offer and sale by the Company and the
purchase by the Underwriters (as defined in the Prospectus) of the common shares
of beneficial interest of the Company for sale to the public that closed on
February 19, 1998.
"Limited Partner" means any Person named as a Limited Partner on EXHIBIT A,
and any Person who becomes a Substitute or Additional Limited Partner, in such
Person's capacity as a Limited Partner in the Partnership. EXHIBIT A shall be
amended from time to time to include such substitute and additional Limited
Partners therein.
"Limited Partnership Interest" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"Loss" has the meaning provided in Section 5.01(f) hereof.
"Minimum Limited Partnership Interest" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the Partnership exceed $50 million, 1%
divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
shall not be less than 0.2% at any time.
"Nasdaq" means The Nasdaq Stock Market.
6
<PAGE>
"New Securities" has the meaning set forth in Section 4.02(a)(ii) hereof.
"Notice of Redemption" means the Notice of Exercise of Redemption Right
substantially in the form attached as EXHIBIT C hereto.
"Original Limited Partner" means Scott M. Stahr.
"Partner" means any General Partner and/or Limited Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section 1.704-
2(i)(5).
"Partnership-owned Entity" means any partnership, limited liability company
or other entity in which the Partnership has an ownership interest.
"Partnership Interest" means an ownership interest in the Partnership, of
any class or series as may be outstanding from time to time, 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.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for no consideration other than full
satisfaction of the liability, and then aggregating the separately computed
gains. A Partner's share of Partnership Minimum Gain shall be determined in
accordance with Regulations Section 1.704-2(g)(1).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the Company for
a distribution to its shareholders of some or all of its portion of such
distribution.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests, of any class or series that may be outstanding from time to time, of
all Partners issued hereunder. The holdings of Partnership Units by the
Partners is as set forth on EXHIBIT A.
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding, as
it may be required to be adjusted for the powers, rights and preferences of any
class or series of Partnership Unit that may be outstanding from time to time.
7
<PAGE>
"Person" means any individual, partnership, corporation, limited liability
company, joint venture, trust or other entity.
"Profit" has the meaning provided in Section 5.01(f) hereof.
"Property" means any real estate property and improvements, or other
investments, assets or properties, whether tangible or intangible, including
securities, in which the Partnership or any Partnership-owned Entity holds any
direct or indirect ownership interest.
"Prospectus" means the final prospectus delivered to purchasers of the
Company's common shares of beneficial interest in the Initial Offering dated
February 12, 1998.
"Redeeming Partner" has the meaning provided in Section 8.05(a) hereof.
"Redemption Amount" means either the Cash Amount or the REIT Shares Amount,
as determined pursuant to Section 8.05(b) hereof.
"Redemption Eligibility Date" means (i) the date set forth opposite the
name of the Limited Partner on EXHIBIT A hereto, or (ii) with respect to any
Unit sold or issued after December 1, 1998, the date that is the earlier to
occur of the last business day of January or July that is at least 12 months
following the date of sale of such Unit. EXHIBIT A shall be amended from time
to time to include new Partners and the applicable Redemption Eligibility Date
shall be included on such EXHIBIT A.
"Redemption Right" has the meaning provided in Section 8.05(a) hereof.
"Redemption Shares" has the meaning provided in Section 8.06(a) hereof.
"Regulations" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any succeeding provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 859
of the Code.
"REIT Expenses" means (i) costs and expenses relating to the formation and
continuity of existence of the Company, including taxes, fees and assessments
associated therewith, any and all costs, expenses or fees payable to any
trustee, officer or employee of the Company, (ii) costs and expenses relating to
the public offering and registration of securities by the Company and all
statements, reports, fees and expenses incidental thereto, including
underwriting discounts and selling commissions applicable to any such offering
of securities, (iii) costs and expenses associated with the preparation and
filing of any periodic reports by the Company under federal, state or local laws
or regulations, including filings with the Commission, (iv) costs and expenses
associated with compliance by the Company with laws, rules and regulations
promulgated by
8
<PAGE>
any regulatory body, including the Commission, and (v) all other operating or
administrative costs of the Company incurred in the ordinary course of its
business on behalf of the Partnership.
"REIT Share" means one common share of beneficial interest of the Company.
"REIT Shares Amount" shall mean a number of REIT Shares equal to the number
of Partnership Units offered for redemption by a Redeeming Partner, multiplied
by the Conversion Factor; PROVIDED THAT in the event the Company issues to all
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the "rights"), then the REIT
Shares Amount shall also include such rights that a holder of that number of
REIT Shares would be entitled to receive.
"Rule 144" has the meaning set forth in Section 8.06(a) hereof.
"SEC" means the Commission or the U. S. Securities and Exchange Commission.
"Securities Act" has the meaning set forth in Section 8.05(b) hereof.
"Service" means the Internal Revenue Service.
"Specified Redemption Date" means 30 days after the receipt by the Company
of the Notice of Redemption.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substitute Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
"Transaction" has the meaning set forth in Section 7.01(c) hereof.
"Transfer" has the meaning set forth in Section 9.02(a) hereof.
ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION
2.01 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership shall
be Capital Automotive L.P. The specified office and place of business of the
Partnership shall be 1420 Spring Hill Road, Suite 525, McLean, Virginia 22102.
The General Partner may at any time change the location of such office, provided
the General Partner gives notice to the Partners of any such change. The name
and address of the Partnership's registered agent is Corporation Service
Company, 1013 Centre Road, Wilmington, Delaware 19805. The sole duty
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of the registered agent as such is to forward to the Partnership any notice that
is served on him as registered agent.
2.02 PARTNERS.
(a) As of the date hereof, the General Partner of the Partnership
shall be Capital Automotive REIT, a Maryland real estate investment trust. Its
principal place of business shall be the same as that of the Partnership.
(b) The Limited Partners shall be those Persons identified as Limited
Partners in EXHIBIT A hereto. The Limited Partners (other than the Original
Limited Partner) hereby are admitted as Limited Partners.
2.03 TERM AND DISSOLUTION.
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2073 except that the Partnership shall be dissolved
upon the happening of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death or withdrawal of a General Partner
unless the business of the Partnership is continued pursuant to
Section 7.03(b) hereof; PROVIDED THAT if a General Partner is on the
date of such occurrence a partnership, the dissolution of such
General Partner as a result of the dissolution, death, withdrawal,
removal or Event of Bankruptcy of a partner in such partnership shall
not be an event of dissolution of the Partnership if the business of
such General Partner is continued by the remaining partner or
partners, either alone or with additional partners, and such General
Partner and such partners comply with any other applicable
requirements of this Agreement;
(ii) The passage of 90 days after the sale or other disposition
of all or substantially all the assets of the Partnership; (PROVIDED
THAT if the Partnership receives an installment obligation as
consideration for such sale or other disposition, the Partnership
shall continue, unless sooner dissolved under the provisions of this
Agreement, until such time as such note or notes are paid in full);
(iii) The redemption of all Limited Partnership Interests (other
than any of such interests held by the Company); or
(iv) The election by the General Partner that the Partnership
should be dissolved.
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(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution, for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.04 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business or any Property
is located.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
shall be limited to and conducted in such a manner as to permit the Company at
all times to qualify as a REIT, unless the Company otherwise ceases to qualify
as a REIT, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing and (iii) to do anything necessary or
incidental to the foregoing. The General Partner shall also be empowered to do
any and all acts and things necessary or prudent to ensure that the Partnership
will not be classified as a "publicly traded partnership" for purposes of
Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 CAPITAL CONTRIBUTIONS. The Company, in its capacity as General
Partner and as a Limited Partner shall, subject to Section 4.02(b), contribute
to the capital of the Partnership cash in an amount set forth on EXHIBIT A,
which shall represent the gross proceeds of the Initial Offering. The Limited
Partners, other than the Company, shall contribute to the capital of the
Partnership certain real property interests in one or more of the Properties as
set forth opposite their names on EXHIBIT A. The Agreed Values of the Limited
Partners' ownership interests in the Properties that are contributed to the
Partnership are as set forth opposite their names on EXHIBIT A.
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4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in Sections 4.02 or 4.03, the
Partners shall have no right or obligation to make any additional Capital
Contributions or loans to the Partnership. The General Partner may contribute
additional capital to the Partnership, from time to time, and receive additional
Partnership Interests in respect thereof, in the manner contemplated in this
Section 4.02.
(a) ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS.
(i) GENERAL. 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 (including the Company) 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. Any additional Partnership Interests
issued thereby may be issued 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
represented by Partnership Units, all as shall be determined by the
General Partner in its sole and absolute discretion and without the
approval of any Limited Partner, subject to Delaware law, including,
without limitation, (i) the allocation 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 no
additional Partnership Interests shall be issued by the Partnership to the
Company unless either:
(1) the additional Partnership Interests are issued in
connection with an issuance of shares of or other interests in the Company,
which shares or interests 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 Company by the Partnership in accordance with this
Section 4.02 and (B) except as provided in Section 4.02(a)(ii) hereof, the
Company shall make a Capital Contribution to the Partnership in an amount
equal to the proceeds raised in connection with the issuance of such shares
of or other interests in the Company, or
(2) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly
authorized to cause the Partnership to issue Partnership Units for
less than fair market value,
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under the Equity Incentive Plan, pursuant to the dealer warrants
described in the Prospectus, or otherwise, so long as the General
Partner concludes in good faith that such issuance is in the best
interests of the General Partner, the Company and the Partnership.
(ii) UPON OFFER AND SALE OF NEW SECURITIES. After the Initial
Offering, the Company shall not offer and sell any additional REIT Shares
(other than REIT Shares offered and sold in connection with a redemption
pursuant to Section 8.05 hereof) or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe
for or purchase REIT Shares (collectively, "New Securities") other than to
all holders of REIT Shares, unless (A) the General Partner shall cause the
Partnership to issue Partnership Interests to the Company 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 (B) the Company contributes the proceeds from the offering
and sale of such New Securities (including property) and from the exercise
of rights contained in such New Securities to the Partnership, or,
alternatively, (C) the New Securities are issued to all shareholders of the
Company in proportion to their respective ownership interest in the
Company; PROVIDED, HOWEVER, that the Company is allowed to issue New
Securities in connection with an acquisition of property to be held
directly by the Company, but if and only if, such direct acquisition and
issuance of New Securities have been approved and determined to be in the
best interests of the Company and the Partnership by a majority of the
Independent Trustees. Without limiting the foregoing, the Company is
expressly authorized to issue New Securities for less than fair market
value, and to cause the Partnership to issue to the General Partner
corresponding Partnership Interests, so long as (x) the General Partner
concludes in good faith that such issuance is in the best interests of the
General Partner and the Partnership (for example, and not by way of
limitation, the issuance of REIT Shares and corresponding Partnership Units
pursuant to an employee stock purchase plan providing for employee
purchases of REIT Shares at a discount from fair market value or employee
stock options that have an exercise price that is less than the fair market
value of the REIT Shares, either at the time of issuance or at the time of
exercise), and (y) the Company contributes all proceeds from such issuance
to the Partnership. By way of example, in the event the Company issues
REIT Shares for a cash purchase price and contributes all of the proceeds
of such issuance, if any, and the exercise price thereof, to the
Partnership as required hereunder, the Company shall be issued a number of
additional Partnership Units equal to the product of (A) the number of such
REIT Shares issued by the Company the proceeds of which were so
contributed, multiplied by (B) a fraction, the numerator of which is one
hundred percent (100%), and the denominator of which is the Conversion
Factor in effect on the date of such contribution.
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(b) CERTAIN DEEMED CONTRIBUTIONS OF PROCEEDS OF OFFERS AND SALES OF
REIT SHARES. In connection with any and all offers and sales of REIT Shares,
the Company shall contribute all of the proceeds raised in connection with such
offers and sales as Capital Contributions to the Partnership, PROVIDED THAT if
the proceeds actually received by and contributed by the Company are less than
the gross proceeds of such offers and sales as a result of any underwriter's
discount, commissions, offering or other expenses paid or incurred in connection
with such offering and sale, then the Company shall be deemed to have made a
Capital Contribution to the Partnership in the amount of the gross proceeds of
such offering and sale and the Partnership shall be deemed simultaneously to
have paid such offering expenses or other Administrative Expenses as an expense
of the Partnership in connection with the required issuance of additional
Partnership Units to the Company for such Capital Contribution pursuant to
Section 4.02(a) hereof. Any such offering expenses or other Administrative
Expenses in connection with the offering, as well as other items of income,
gain, deduction or loss may be specially allocated among the Partners so that
each Partner's capital account shall bear the same relationship to the aggregate
of the Partners' capital accounts as such Partner's Percentage Interest bears to
the aggregate of the Partners' Percentage Interests.
(c) MINIMUM LIMITED PARTNERSHIP INTEREST. In the event that either a
redemption pursuant to Section 8.05 hereof or an additional Capital Contribution
by the Company would result in all Limited Partners (other than the Company in
its capacity as a Limited Partner), in the aggregate, owning less than the
Minimum Limited Partnership Interest, the General Partner and the Limited
Partners shall form another partnership and contribute sufficient Limited
Partnership Interests together with such other Limited Partners so that the
Limited Partners (other than the Company in its capacity as a Limited Partner)
own at least the Minimum Limited Partnership Interest.
(d) WARRANTS. No warrant issued by the Company or the Partnership
may be exercised for Partnership Units if, in the opinion of legal counsel for
the Partnership, the issuance of such Partnership Units would result in the
Partnership's being treated as an association taxable as a corporation (other
than a qualified REIT subsidiary within the meaning of Section 856(i) of the
Code).
4.03 LOANS. The General Partner may from time to time borrow funds from a
third party and advance such funds to the Partnership or any Partnership-owned
Entity as a loan or capital contribution ("Funding Loan"), including, without
limitation, a Funding Loan that is convertible into REIT Shares or otherwise
constitutes a class of New Securities ("Convertible Funding Loans"), PROVIDED
THAT any such funds must first be obtained by the General Partner from a third
party lender, and then all of such funds must be loaned by the General Partner
to the Partnership or Partnership-owned Entity on the same terms and conditions,
including principal amount, interest rate, repayment schedule and costs and
expenses, as shall be applicable with respect to or incurred in connection with
such loan with such third party lender. Notwithstanding anything herein to the
contrary, the General Partner shall not be obligated to lend the net proceeds of
any Funding Loan or Convertible Funding Loan to the Partnership in a manner that
would be inconsistent with the General Partner's ability to remain qualified as
a REIT. In addition, the General Partner may from time to time enter into
General Partner Investment Loans. Except for Funding Loans or General Partner
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Investment Loans, the General Partner shall not incur any indebtedness for
borrowed funds; provided, however, that any loan proceeds received by the
General Partner may be distributed to the Company and, in turn, to the Company's
shareholders or other equity holders if such loan and distribution have been
approved and determined to be necessary by a majority of the Independent
Trustees to enable the Company to maintain its status as a REIT under Sections
856-859 of the Code.
4.04 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account")
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires
an additional Partnership Interest in exchange for more than a de minimis
Capital Contribution, (ii) the Partnership distributes to a Partner more than a
de minimis amount of Partnership property as consideration for a Partnership
Interest, or (iii) the Partnership is liquidated within the meaning of
Regulation Section 1.704-l(b)(2)(ii)(g), the General Partner shall revalue the
property of the Partnership to its fair market value (as determined by the
General Partner and taking into account Section 7701(g) of the Code) in
accordance with Regulations Section 1.704-l(b)(2)(iv)(f). When the Partnership's
property is revalued by the General Partner, the Capital Accounts of the
Partners shall be adjusted in accordance with Regulations Sections 1.704-
1(b)(2)(iv)(f) and (g), which generally require such Capital Accounts to be
adjusted to reflect the manner in which the unrealized gain or loss inherent in
such property (that has not been reflected in the Capital Accounts previously)
would be allocated among the Partners pursuant to Section 5.01 if there were a
taxable disposition of such property for its fair market value (as determined by
the General Partner and taking into account Section 7701(g) of the Code) on the
date of the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding Partnership Units
increases or decreases during a taxable year, a Partner's Partnership Interest
shall be adjusted to reflect its new Percentage Interest, as necessary, to give
effect to such increase or decrease. If the Partners' Partnership Interests are
adjusted to reflect new Percentage Interests pursuant to this Section 4.05, the
Profits and Losses for the taxable year in which the adjustment occurs shall be
allocated between the part of the year ending on the day of the adjustment and
the part of the year beginning on the following day either (i) as if the taxable
year had ended on the date of the adjustment or (ii) based on the number of days
in each part. The General Partner, in its sole discretion, shall determine which
method shall be used to allocate Profits and Losses for the taxable year in
which the adjustment occurs. The allocation of Profits and Losses for the
earlier part of the year shall be based on the Percentage Interests before
adjustment, and the allocation of Profits and Losses for the later part shall be
based on the adjusted Percentage Interests.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
interest on its Capital Contribution.
4.07 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
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4.08 NO THIRD PARTY BENEFICIARY. No creditor or other third party having
dealings with the Partnership and/or any Partnership-owned Entity, as the case
may be, shall have the right to enforce the right or obligation of any Partner
to make Capital Contributions or loans or to pursue any other right or remedy
hereunder or at law or in equity, it being understood and agreed that the
provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns. None of the rights or obligations of the Partners herein set forth to
make Capital Contributions or loans to the Partnership or any Partnership-owned
Entity, as the case may be, shall be deemed an asset of the Partnership and/or
Partnership-owned entity, as the case may be, for any purpose by any creditor or
other third party, nor may such rights or obligations be sold, transferred or
assigned by the Partnership or any Partnership-owned Entity, as the case may be,
or pledged or encumbered by the Partnership or any Partnership-owned Entity, as
the case may be, to secure any debt or other obligation of the Partnership
and/or Partnership-owned Entity, as the case may be, or of any of the Partners.
In addition, it is the intent of the parties hereto that no distribution to any
Partner shall be deemed a return of capital, money or other property in
violation of the Act.
4.09 RIGHTS, OPTIONS, WARRANTS AND OTHER DERIVATIVE SECURITIES
(a) If grants of REIT Shares are made in connection with an Equity
Incentive Plan:
(i) The Company shall contribute, as soon as practicable after
such grant to the Partnership (to be thereafter taken into account for the
purposes of calculating any cash distributable to the Partners), an amount
equal to the price, if any, paid to the Company by the party receiving such
REIT Shares;
(ii) The Partnership shall issue to the Company an aggregate
number of additional Partnership Units equal to the product of (1) the
number of such REIT Shares issued by the Company, multiplied by (2) a
fraction, the numerator of which is 100%, and the denominator of which is
the Conversion Factor in effect on the date of such contribution; and
(iii) The Company's Percentage Interest and the Percentage
Interests of the other Limited Partners shall be adjusted as set forth in
Section 4.02.
(b) If rights, options or warrants granted, offered or sold by the
Company are exercised:
(i) The Company shall contribute, as soon as practicable after
such exercise, to the Partnership (to be thereafter taken into account for
purposes of calculating any cash distributable to the Partners), an amount
equal to the exercise price, if any, paid to the Company by the exercising
party in connection with the exercise of such right, option or warrant;
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(ii) The Partnership shall issue to the Company as a
reimbursement of a Partnership expense pursuant to Section 6.05 an
aggregate number of additional Partnership Units equal to the product of
(1) the number of REIT Shares issued by the Company in satisfaction of such
exercised option or warrant, multiplied by (2) a fraction, the numerator of
which is 100%, and the denominator of which is the Conversion Factor in
effect on the date of such contribution; and
(iii) The Company's Percentage Interest and the Percentage
Interests of the other Limited Partners shall be adjusted as set forth in
Section 4.02.
(c) If the Company grants any share appreciation rights, performance
share awards or other similar rights ("Incentive Rights"), then simultaneously,
the Partnership shall grant the Company corresponding and economically
equivalent rights with respect to Partnership Units. Consequently, upon the
cash payment by the Company pursuant to such Incentive Rights, the Partnership
shall make an equal cash payment to the Company as a reimbursement of a
Partnership expense pursuant to Section 6.05 hereof.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
5.01 ALLOCATION OF PROFIT AND LOSS.
(a) GENERAL. Except as otherwise provided in this Section 5.01 and
Section 4.02(b), Profit and Loss of the Partnership for each fiscal year of the
Partnership shall be allocated among the Partners in accordance with their
respective Percentage Interests.
(b) MINIMUM GAIN CHARGEBACK. Notwithstanding any provision to the
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(f) and the
ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain within the meaning of
Regulations Section 1.704-2(i)(4) for any Partnership taxable year, items of
gain and income shall be allocated among the Partners in accordance with
Regulations Section 1.704-2(i)(4) and the ordering rules contained in
Regulations Section 1.704-2(j). A Partner's "interest in partnership profits"
for purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be
such Partner's Percentage Interest.
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(c) QUALIFIED INCOME OFFSET. If a Limited Partner receives in any
taxable year an adjustment, allocation, or distribution described in
subparagraphs (4), (5), or (6) of Regulations Section 1.704-l(b)(2)(ii)(d) that
causes or increases a negative balance in such Partner's Capital Account that
exceeds the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated specially
for such taxable year (and, if necessary, later taxable years) items of income
and gain in an amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Regulations Section 1.704-
l(b)(2)(ii)(d). After the occurrence of an allocation of income or gain to a
Limited Partner in accordance with this Section 5.01(c), to the extent permitted
by Regulations Section 1.704-l(b), items of expense or loss shall be allocated
to such Partner in an amount necessary to offset the income or gain previously
allocated to such Partner under this Section 5.01(c).
(d) CAPITAL ACCOUNT DEFICITS. Loss shall not be allocated to a
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-l(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to such Partner under
this Section 5.01(d).
(e) ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE. If a Partner
transfers any part or all of its Partnership Interest, and the transferee is
admitted as a substitute Partner as provided herein, the distributive shares of
the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
substitute Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
discretion, shall determine which method shall be used to allocate the
distributive shares of the various items of Profit and Loss between the
transferor and the substitute Partner.
(f) DEFINITION OF PROFIT AND LOSS. "Profit" and "Loss" and any items
of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-l(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Section 5.01(b), 5.01(c), or 5.01(d). All allocations of income,
Profit, gain, Loss, and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.01, except as otherwise required by Section 704(c) of
the Code and Regulations Section 1.704-l(b)(4). The General Partner shall have
the authority to elect the method to be used by the Partnership for
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allocating items of income, gain, and expense as required by Section 704(c) of
the Code and such election shall be binding on all Partners.
5.02 DISTRIBUTION OF CASH.
(a) The General Partner shall distribute cash on a quarterly (or, at
the election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole discretion, to the Partners who
are Partners on the Partnership Record Date with respect to such quarter (or
other distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date; PROVIDED, HOWEVER, that if a new or
existing Partner acquires an additional Partnership Interest in exchange for a
Capital Contribution on any date other than a Partnership Record Date, the cash
distribution attributable to such additional Partnership Interest relating to
the Partnership Record Date next following the issuance of such additional
Partnership Interest shall be reduced in the proportion to (i) the number of
days that such additional Partnership Interest is held by such Partner bears to
(ii) the number of days between such Partnership Record Date and the immediately
preceding Partnership Record Date.
(b) Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required to withhold and pay
over to any taxing authority any amount resulting from the allocation or
distribution of income to the Partner or assignee (including by reason of
Section 1446 of the Code), either (i) if the actual amount to be distributed to
the Partner or assignee equals or exceeds the amount required to be withheld by
the Partnership, the amount withheld shall be treated as a distribution of cash
in the amount of such withholding to such Partner or assignee, or (ii) if the
actual amount to be distributed to the Partner or assignee is less than the
amount required to be withheld by the Partnership, the amount required to be
withheld shall be treated as a loan (a "Partnership Loan") from the Partnership
to the Partner on the day the Partnership pays over such amount to the
applicable taxing authority. A Partnership Loan shall be repaid through
withholding by the Partnership with respect to subsequent distributions to the
applicable Partner or assignee. In the event that a Limited Partner or assignee
(collectively, a "Defaulting Limited Partner") fails to pay any amount owed to
the Partnership with respect to the Partnership Loan within 15 days after demand
for payment thereof is made by the Partnership on the Defaulting Limited
Partner, the General Partner, in its sole discretion, may elect to make the
payment to the Partnership on behalf of such Defaulting Limited Partner. In such
event, on the date of payment, the General Partner shall be deemed to have
extended a loan (a "General Partner Loan") to the Defaulting Limited Partner in
the amount of the payment made by the General Partner and shall succeed to all
rights and remedies of the Partnership against the Defaulting Limited Partner as
to that amount. Without limitation, the General Partner shall have the right to
receive any distributions that otherwise would be made by the Partnership to the
Defaulting Limited Partner until such time as the General Partner Loan has been
paid in full, and any such distributions so received by the General Partner
shall be treated as having been received by the Defaulting Limited Partner and
immediately paid to the General Partner.
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Any amounts treated as a Partnership Loan or a General Partner Loan
pursuant to this Section 5.02(b) shall bear interest at the lesser of (i) 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, or (ii) the
maximum lawful rate of interest on such obligation, such interest to accrue from
the date the Partnership or the General Partner, as applicable, is deemed to
extend the loan until such loan is repaid in full.
(c) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a dividend
with respect to a REIT Share for which all or part of such Partnership Unit has
been or will be exchanged pursuant to Section 8.05(a).
5.03 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its
reasonable efforts to cause the Partnership to distribute amounts sufficient to
enable the Company (i) to meet its distribution requirement for qualification as
a REIT as set forth in Section 857(a)(1) of the Code and (ii) to avoid any
federal income or excise tax liability imposed by the Code.
5.04 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any of
the provisions of this Article V, no Partner shall have the right to receive and
the General Partner shall not have the right to make, a distribution which
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of all
liabilities of the Partnership, other than the liabilities to a Partner for the
return of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
5.06 DISTRIBUTIONS UPON LIQUIDATION.
(a) Upon liquidation of the Partnership, after payment of, or
adequate provision for, debts and obligations of the Partnership, including any
Partner loans, any remaining assets of the Partnership shall be distributed to
all Partners with positive Capital Accounts in accordance with their respective
positive Capital Account balances. For purposes of the preceding sentence, the
Capital Account of each Partner shall be determined after all adjustments made
in accordance with Sections 5.01 and 5.02 resulting from Partnership operations
and from all sales and dispositions of all or any part of the Partnership's
assets. Any distributions pursuant to this Section 5.06 should be made by the
end of the Partnership's taxable year in which the liquidation occurs (or, if
later, within 90 days after the date of the liquidation). To the extent deemed
advisable by the General Partner, appropriate arrangements (including the use of
a liquidating trust) may be made to assure that adequate funds are available to
pay any contingent debts or obligations.
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(b) If the General Partner has a negative balance in its Capital
Account following a liquidation of the Partnership, as determined after taking
into account all Capital Account adjustments in accordance with Sections 5.01
and 5.02 resulting from Partnership operations and from all sales and
dispositions of all or any part of the Partnership's assets, the General Partner
shall contribute to the Partnership an amount of cash equal to the negative
balance in its Capital Account and such cash shall be paid or distributed by the
Partnership to creditors, if any, and then to the Limited Partners in accordance
with Section 5.06(a). Such contribution by the General Partner shall be made by
the end of the Partnership's taxable year in which the liquidation occurs (or,
if later, within 90 days after the date of the liquidation).
5.07 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that
the allocations of Profit and Loss under this Agreement have substantial
economic effect (or be consistent with the Partners' interests in the
Partnership in the case of the allocation of losses attributable to nonrecourse
debt) within the meaning of Section 704(b) of the Code as interpreted by the
Regulations promulgated pursuant thereto. Article V and other relevant
provisions of this Agreement shall be interpreted in a manner consistent with
such intent.
ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
6.01 MANAGEMENT OF THE PARTNERSHIP.
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions, directly or indirectly, on behalf of the Partnership or
for the benefit of the Partnership through any Partnership-owned Entity or
otherwise:
(i) to acquire, purchase, own, lease and dispose of any real
property and any other property or assets that the General Partner
determines are necessary or appropriate or in the best interests of the
business of the Partnership;
(ii) subject to the terms of any applicable lease, to construct
buildings and make other improvements on any Properties;
(iii) to borrow money, issue evidences of indebtedness in
connection therewith, refinance, guarantee, increase the amount of, modify,
amend or change the terms of, or extend the time for the payment of, any
indebtedness or obligation, and secure such indebtedness by mortgage, deed
of trust, pledge or other lien on any Property;
(iv) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses consistent with this
Agreement;
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(v) to lease all or any portion of any Property, whether or
not the terms of such leases extend beyond the termination date of the
Partnership or any Partnership-owned Entity, as the case may be, and
whether or not any portion of the Property so leased is to be occupied by
the lessee, or, in turn, subleased in whole or in part to others, for such
consideration and on such terms as the General Partner may determine;
(vi) to prosecute, defend, arbitrate, settle or compromise any
and all claims or Liabilities in favor of or against the Partnership or any
Partnership-owned Entity, as the case may be, on such terms and in such
manner as the General Partner may reasonably determine, and similarly to
prosecute, defend, arbitrate, settle or compromise any litigation with
respect to the Partners, the Partnership, any Partnership-owned Entity or
any Property; PROVIDED, HOWEVER, that the General Partner may not, without
the consent of all of the Partners, confess a judgment against the
Partnership;
(vii) to file applications, communicate, and otherwise deal with
any and all governmental agencies;
(viii) to make or revoke any election permitted or required by
any taxing authority;
(ix) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance in such amounts and such
types, as it shall determine from time to time;
(x) to determine whether or not to apply any insurance
proceeds for any Property to the restoration of such Property or to
distribute the same;
(xi) to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may deem
necessary or appropriate and to pay therefor such reasonable remuneration
as the General Partner may deem reasonable and proper;
(xii) to retain other services of any kind or nature and to pay
therefor such remuneration as the General Partner may deem reasonable and
proper;
(xiii) to negotiate and conclude agreements with respect to any
of the rights, powers and authority conferred upon the General Partner;
(xiv) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns;
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(xv) to distribute cash or other assets in accordance with
this Agreement;
(xvi) to form or acquire an interest in, and contribute
Property to, any limited or general partnerships, joint ventures, limited
liability companies or other entities or enter into any other relationships
that it deems desirable (including, without limitation, the acquisition of
interests in, and the contributions of Property to, its Partnership-owned
Entities or any other Person in which it has an ownership interest from
time to time);
(xvii) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(xviii) to take such other action, execute, acknowledge, swear
to or deliver such other documents and instruments, and perform any and all
other acts the General Partner deems necessary or appropriate for the
formation, continuation and conduct of the business and affairs of the
Partnership (including, without limitation, all actions consistent with
allowing the Company at all times to qualify as a REIT unless the Company
voluntarily terminates its REIT status) and to possess and enjoy all of the
rights and powers of a general partner as provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
Partnership-owned Entities or other Persons, the General Partner shall not have
any obligations hereunder except to the extent that Partnership funds are
reasonably available to it for the performance of such duties, and nothing
herein contained shall be deemed to require the General Partner, in its capacity
as such, to expend its individual funds for such purpose or to undertake any
individual liability or obligation on behalf of the Partnership.
Notwithstanding anything herein to the contrary, the General Partner may, in its
sole discretion, expend its funds on behalf of the Partnership or any
Partnership-owned Entity; in which case, any funds so expended and which are not
reimbursed within sixty (60) days of such expenditure pursuant to Section 6.05
shall be deemed to be a loan by the General Partner to the Partnership or such
Partnership-owned Entity, which loan shall be on commercially reasonable terms
and shall bear interest at commercially reasonable rates consistent with terms
that could be negotiated with unaffiliated third-parties.
6.02 DELEGATION OF AUTHORITY. The General Partner may delegate any or all
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of business on
behalf of, or for the benefit of, the Partnership, which Person may, under
supervision of the General Partner, perform any acts or services as the General
Partner may approve.
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6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities (joint or several), expenses
(including reasonable 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 6.03(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 the standard of
conduct necessary for indemnification as specified in this Section 6.03(a). Any
indemnification pursuant to this Section 6.03 shall be made only out of the
assets of the Partnership.
(b) The Partnership may reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, 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
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fines within the meaning of this Section 6.03; and actions taken or omitted by
the Indemnitee with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 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.
6.04 LIABILITY OF THE GENERAL PARTNER.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith. Additionally, the General Partner shall not be in breach
of any duty that the General Partner may owe to the Limited Partners or the
Partnership or any other Persons under this Agreement or of any duty stated or
implied by law or equity, provided the General Partner, acting in good faith,
abides by the terms of this Agreement.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the Company'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 the Limited Partners) in deciding whether to cause the
Partnership to take (or decline to take) any actions. In the event of a
conflict between the interests of the shareholders of the Company on one hand
and the Limited Partners on the other, the General Partner shall endeavor in
good faith to resolve the conflict in a manner not adverse to either the
shareholders of the Company or the Limited Partners; provided the General
Partner shall not be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such decisions, provided that the General Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set
forth in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under 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.
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(d) Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the Company to
continue to qualify as a REIT or (ii) to prevent the Company from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 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 6.04 as in effect immediately prior to such
amendment, modification or repeal with respect to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
claims relating to such matters may arise or be asserted.
6.05 EXPENDITURES BY THE PARTNERSHIP. The General Partner is hereby
authorized to pay compensation for accounting, administrative, legal, technical,
management and other services rendered to the Partnership. All of the aforesaid
expenditures (including Administrative Expenses) shall be obligations of the
Partnership, and the General Partner shall be entitled to reimbursement by the
Partnership for any expenditure incurred by it on behalf or for the benefit of
the Partnership. The Partnership shall also assume, and pay when due, all
Administrative Expenses to the extent not included in the expenses described
above. This provision shall be given effect as of the date of formation of the
Partnership.
6.06 OUTSIDE ACTIVITIES. Subject to Section 6.08 hereof, the Charter and
any agreements entered into by the General Partner or its Affiliates with the
Partnership or any Partnership-owned Entity, as the case may be, any officer,
director, employee, agent, trustee, Affiliate or shareholder of the General
Partner shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership and any
Partnership-owned Entity, as the case may be, including business interests and
activities substantially similar or identical to those of the Partnership or any
Partnership-owned Entity. None of the Partnership, any Partnership-owned Entity
or any of the Limited Partners shall have any rights by virtue of this Agreement
in any such business ventures, interests or activities. 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 such business
ventures, interests or activities, and the General Partner shall have no
obligation pursuant to this Agreement to offer any interest in any such business
ventures, interests and activities to the Partnership, any Partnership-owned
Entity or any Limited Partner, even if such opportunity is of a character which,
if presented to the Partnership, any Partnership-owned Entity or any Limited
Partner, could be taken by such Person.
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6.07 EMPLOYMENT OR RETENTION OF AFFILIATES.
(a) Any Affiliate of the General Partner may be employed or retained
by the Partnership and any Partnership-owned Entity and may otherwise deal with
the Partnership and any Partnership-owned Entity (whether as a buyer, lessor,
lessee, manager, furnisher of goods or services, broker, agent, lender or
otherwise) and may receive from the Partnership and any Partnership-owned Entity
any compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to any Partnership-owned
Entity or other Persons in which it has an equity investment, and such Persons
may borrow funds from the Partnership or the General Partner, 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 Partnership-owned Entity or any other Person.
(c) The Partnership may transfer assets to joint ventures,
Partnership-owned Entities, other partnerships, corporations, limited liability
companies or other business entities in which it is or becomes a participant
upon such terms and subject to such conditions as the General Partner deems are
consistent with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates, other than the Partnership or the
Partnership-owned Entities, shall sell, transfer or convey any property or
assets to, or purchase any Property from, the Partnership or any Partnership-
owned Entity, directly or indirectly, except pursuant to transactions that are
on terms that are fair and reasonable to the Partnership.
6.08 GENERAL PARTNER PARTICIPATION. Except as set forth below, the
General Partner agrees that all business activities of the General Partner,
including activities pertaining to the acquisition, development and/or ownership
of Property, shall be conducted, directly or indirectly, through or for the
benefit of the Partnership or one or more Partnership-owned Entities.
Notwithstanding the foregoing, the General Partner may (i) own such bank
accounts or similar instruments as it deems necessary to carry out its purpose
under this Agreement and under its Charter, (ii) capitalize Subsidiaries of the
General Partner provided that such Subsidiaries have been organized and carry
out their businesses, directly or indirectly, to further the purpose of the
Partnership or any Partnership-owned Entity, (iii) acquire, directly or through
one or more Subsidiaries, ownership interests in any Partnership-owned Entity,
and (iv) enter into or assume General Partner Investment Loans. The General
Partner also agrees that all loans from the General Partner to the Partnership
shall constitute Funding Loans, subject to the exceptions set forth in Section
4.03 hereof.
6.09 TITLE TO PARTNERSHIP ASSETS. Title to Partnership Property, 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 Property or
any portion thereof. Title to any or all of the Partnership Property may be
held in the name of the Partnership, the General Partner or one or more
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nominees, as the General Partner may determine, including Subsidiaries or other
Affiliates of the General Partner. The General Partner hereby declares and
warrants that any Partnership Property for which legal title is held in the name
of the General Partner or any nominee, including any Subsidiary or Affiliate of
the General Partner shall be held by the General Partner for the use and benefit
of the Partnership in accordance with the provisions of this Agreement;
PROVIDED, HOWEVER, that, if and when it shall become necessary or advisable and
in the best interests of the Partnership, in the reasonable judgment of the
General Partner, 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. Such Partnership Property 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. Notwithstanding
anything herein to the contrary, nothing herein shall be construed to limit the
rights, powers or privileges of the Partnership to organize, acquire or hold
ownership interests in, or otherwise hold Property indirectly through, one or
more Partnership-owned Entities in the sole discretion of the General Partner.
6.10 MISCELLANEOUS. In the event the Company redeems any REIT Shares,
then the General Partner shall cause the Partnership to purchase from the
Company a number of Partnership Units as determined based on the application of
the Conversion Factor on the same terms that the Company redeemed such REIT
Shares. Moreover, if the Company makes a cash tender offer or other offer to
acquire REIT Shares, then the General Partner shall cause the Partnership to
make a corresponding offer to the Company to acquire an equal number of
Partnership Units held by the Company. In the event any REIT Shares are redeemed
by the Company pursuant to such offer, the Partnership shall redeem an
equivalent number of the Company's Partnership Units for an equivalent purchase
price based on the application of the Conversion Factor.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
(a) The General Partner may not transfer or assign any of its
General Partnership Interest or withdraw as General Partner except as provided
in Section 7.01(c) or in connection with a transaction described in Section
7.01(d).
(b) The Company agrees that it will at all times own, through its
General Partnership Interest and Limited Partnership Interest, in the aggregate
at least a 20% Percentage Interest in the Partnership.
(c) Except as otherwise provided in Section 6.07(c) or Section
7.01(d) hereof, the Company shall not engage in any merger, consolidation or
other combination with or into another Person or sale of all or substantially
all of its assets, or any reclassification, or any recapitalization or change of
outstanding REIT 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 of REIT Shares) (a
"Transaction"), unless (i) the Transaction also includes a merger of the
Partnership or sale of
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substantially all of the assets of the Partnership as a result of which all
Limited Partners will receive for each Partnership Unit an amount of cash,
securities, or other property equal to the product of the Conversion Factor and
the greatest amount of cash, securities or other property paid in the
Transaction to a holder of one REIT Share in consideration of one REIT Share,
PROVIDED THAT if, in connection with the Transaction, a purchase, tender or
exchange offer ("Offer") shall have been made to and accepted by the holders of
more than 50% of the outstanding REIT Shares, each holder of Partnership Units
shall be given the option to exchange its Partnership Units for the greatest
amount of cash, securities, or other property which a Limited Partner would have
received had it (A) exercised its Redemption Right and received REIT Shares and
(B) sold, tendered or exchanged pursuant to the Offer the REIT Shares received
upon exercise of the Redemption Right immediately prior to the expiration of the
Offer; and (ii) no more than 75% of the equity securities of the acquiring
Person in such Transaction shall be owned, after consummation of such
Transaction, by the General Partner or Persons who were Affiliates of the
Partnership or the General Partner immediately prior to the date on which the
Transaction is consummated.
(d) Notwithstanding Section 7.01(c), the Company may merge into or
consolidate with another entity if immediately after such merger or
consolidation (i) substantially all of the assets of the successor or surviving
entity (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 value of
the assets so contributed as determined by the Surviving Entity in good faith
and (ii) the Surviving Entity expressly agrees to assume, or acknowledge and
ratify, all obligations of the General Partner under the Partnership Agreement.
Upon such contribution and assumption, the Surviving Entity shall have the right
and duty to amend this Agreement as set forth in this Section 7.01(d). The
Surviving Entity shall in good faith arrive at a new method for the calculation
of the Cash Amount and Conversion Factor for a Partnership Unit after any such
merger or consolidation so as to approximate the existing method for such
calculation as closely as reasonably possible. Such calculation shall take into
account, among other things, the kind and amount of securities, cash and other
property that was receivable upon such merger or consolidation by a holder of
REIT Shares and/or options, warrants or other rights relating thereto, and to
which a holder of Partnership Units could have acquired had such Partnership
Units been redeemed immediately prior to such merger or consolidation. Such
amendment to this Agreement shall provide for adjustment to such method of
calculation which shall be as nearly equivalent as may be practicable to the
adjustments provided for with respect to the Conversion Factor. The above
provisions of this Section 7.01(d) shall similarly apply to successive mergers
or consolidations permitted hereunder.
7.02 ADMISSION OF A SUBSTITUTE OR SUCCESSOR GENERAL PARTNER. A Person shall
be admitted as a substitute or successor General Partner of the Partnership only
if the following terms and conditions are satisfied:
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(a) a majority in interest of the Limited Partners (other than the
Company in its capacity as a Limited Partner) shall have consented in writing to
the admission of the substitute or successor General Partner;
(b) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
(c) if the Person to be admitted as a substitute or additional
General Partner is a corporation, partnership or limited liability company it
shall have provided the Partnership with evidence satisfactory to counsel for
the Partnership of such Person's authority to become a General Partner and to be
bound by the terms and provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the withdrawal,
death or dissolution of a General Partner (except that, if a General Partner is
on the date of such occurrence a partnership, the withdrawal, death,
dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof.
(b) Following the occurrence of an Event of Bankruptcy as to a
General Partner (and its removal pursuant to Section 7.04(a) hereof) or the
death, withdrawal, removal or dissolution of a General Partner (except that, if
a General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after such
occurrence, may elect to reconstitute the Partnership and continue the business
of the Partnership for the balance of the term specified in Section 2.04 hereof
by selecting, subject to Section 7.02 hereof and any other provisions of this
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Agreement, a substitute General Partner by unanimous consent of the Limited
Partners. If the Limited Partners elect to reconstitute the Partnership and
admit a substitute General Partner, the relationship with the Partners and of
any Person who has acquired an interest of a Partner in the Partnership shall be
governed by this Agreement.
7.04 REMOVAL OF A GENERAL PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; PROVIDED, HOWEVER, that if a General Partner is on the
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners.
(b) If a General Partner has been removed pursuant to this Section
7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners (excluding the Company in its
capacity as a Limited Partner) in accordance with Section 7.03(b) hereof and
otherwise admitted to the Partnership in accordance with Section 7.02 hereof.
At the time of assignment, the removed General Partner shall be entitled to
receive from the substitute General Partner the fair market value of the General
Partnership Interest of such removed General Partner as reduced by any damages
caused to the Partnership Interest of such removed General Partner. Such fair
market value shall be determined by an appraiser mutually agreed upon by the
General Partner and a majority in interest of the Limited Partners (excluding
the Company in its capacity as a Limited Partner) within 10 days following the
removal of the General Partner. In the event that the parties are unable to
agree upon an appraiser, the removed General Partner and a majority in interest
of the Limited Partners (excluding the Company in its capacity as a Limited
Partner) each shall select an appraiser. Each such appraiser shall complete an
appraisal of the fair market value of the removed General Partner's General
Partnership Interest within 30 days of the General Partner's removal, and the
fair market value of the removed General Partner's General Partnership Interest
shall be the average of the two appraisals; PROVIDED, HOWEVER, that if the
higher appraisal exceeds the lower appraisal by more than 20% of the amount of
the lower appraisal, the two appraisers, no later than 40 days after the removal
of the General Partner, shall select a third appraiser who shall complete an
appraisal of the fair market value of the removed General Partner's General
Partnership Interest no later than 60 days after the removal of the General
Partner. In such case, the fair market value of the removed General Partner's
General Partnership Interest shall be the average of the two appraisals closest
in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; PROVIDED, HOWEVER, such removed
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead,
such removed General Partner
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shall receive and be entitled only to retain distributions or allocations of
such items that it would have been entitled to receive in its capacity as
General Partner, until the transfer is effective pursuant to Section 7.04(b).
(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
8.01 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.02 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints
the General Partner his true and lawful attorney-in-fact, who may act for each
Limited Partner and in his name, place and stead, and for his use and benefit,
to sign, acknowledge, swear to, deliver, file and record, at the appropriate
public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of his Partnership Interest.
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner shall
be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of his Capital Contribution, if any, as and when due hereunder. After
his Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 [RESERVED.]
8.05 REDEMPTION RIGHT.
(a) Subject to Sections 8.05(b)-(f), on or after the Redemption
Eligibility Date, each Limited Partner (other than the Company in its capacity
as a Limited Partner) shall have the right (the "Redemption Right") to require
the Partnership to redeem on a Specified Redemption Date all or a portion of the
Partnership Units held by such Limited Partner at a redemption price equal to
and in the form of the Cash Amount to be paid by the Partnership. The
Redemption Right shall be exercised pursuant to a Notice of Redemption delivered
to the Partnership (with a copy to the General Partner) by the Limited Partner
who is exercising the Redemption Right (the "Redeeming Partner"); provided,
however, that the Partnership shall not
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be obligated to satisfy such Redemption Right if the Company elects to purchase
the Partnership Units subject to the Notice of Redemption pursuant to Section
8.05(b); and provided, further, that no Limited Partner may deliver to the
General Partner more than four (4) Notices of Redemption during each calendar
year. In addition to the restrictions on redemption set forth in Section
8.05(f), a Limited Partner may not exercise the Redemption Right for less than
one thousand (1,000) Partnership Units or, if such Limited Partner holds less
than one thousand (1,000) Partnership Units, all of the Partnership Units held
by such Partner. Notwithstanding the foregoing provisions of this Section
8.05(a), the Company agrees to use its best efforts to cause the closing of the
acquisition of redeemed Partnership Units hereunder to occur as quickly as
reasonably possible. The Redeeming Partner shall have no right, with respect to
any Partnership Units so redeemed, to receive any distribution paid with respect
to Partnership Units if the record date for such distribution is on or after the
Specified Redemption Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited
Partner that exercises the Redemption Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Redemption to the Company,
and the Company may, in its sole and absolute discretion, elect to purchase
directly and acquire such Partnership Units by paying to the Redeeming Partner
either the Cash Amount, or, the REIT Shares Amount, as elected by the Company
(in its sole and absolute discretion), on the Specified Redemption Date,
whereupon the Company shall acquire the Partnership Units offered for redemption
by the Redeeming Partner and shall be treated for all purposes of this Agreement
as the owner of such Partnership Units. If the Company shall elect to exercise
its right to purchase Partnership Units under this Section 8.05(b) with respect
to a Notice of Redemption, it shall so notify the Redeeming Partner within five
Business Days after the receipt by the General Partner of such Notice of
Redemption. Unless the Company (in its sole and absolute discretion) shall
exercise its right to purchase Partnership Units from the Redeeming Partner
pursuant to this Section 8.05(b), the Company shall not have any obligation to
the Redeeming Partner or the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. In the event the Company shall exercise its
right to purchase Partnership Units with respect to the exercise of a Redemption
Right in the manner described in the first sentence of this Section 8.05(b), the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership, and the Company, as the case may
be, shall treat the transaction between the Company and the Redeeming Partner
for federal income tax purposes as a sale of the Redeeming Partner's Partnership
Units to the Company. Each Redeeming Partner agrees to execute such documents
as the Company and the General Partner may reasonably require in connection with
the issuance of REIT Shares upon exercise of the Redemption Right.
(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b),
the Company shall not exercise its rights under Section 8.05(b) to deliver the
REIT Shares Amount, if the delivery of REIT Shares to a Redeeming Partner on the
Specified Redemption Date by the Company pursuant to Section 8.05(b) would (i)
result in such Partner or any other person owning, directly or indirectly, REIT
Shares in excess of the Ownership Limit (as defined in the Charter) and
calculated in accordance therewith, except as provided in the Charter, (ii)
result in REIT Shares being owned by fewer than 100 persons (determined without
reference to any rules
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of attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iv) cause the Company to own, directly
or constructively, 10% or more of the ownership interests in a tenant of the
Company's, the Partnership's, or a Partnership-owned Entity's , real property,
within the meaning of Section 856(d)(2)(B) of the Code, (v) cause the
acquisition of REIT Shares by such Partner to be "integrated" with any other
distribution of REIT Shares for purposes of complying with the registration
provisions of the Securities Act, or (vi) otherwise violate the Charter or any
law.
(d) Any Cash Amount to be paid to a Redeeming Partner pursuant to
this Section 8.05 shall be paid within 30 days after the initial date of receipt
by the Partnership (with a copy to the General Partner) of the Notice of
Redemption relating to the Partnership Units to be redeemed. Notwithstanding the
foregoing, the Partnership and the General Partner agree to use their best
efforts to cause the closing of the acquisition of redeemed Partnership Units
hereunder to occur as quickly as reasonably possible.
(e) In the event that the General Partner permits the pledge of a
Limited Partner's Partnership Units to a lender, the General Partner may agree,
in its sole discretion, to allow such lender, upon a default by the applicable
Limited Partner under a loan made by such lender, to redeem such Partnership
Units (prior to or after the expiration of the one-year period described in
Section 8.05(a)); provided, that any such redemption shall be effected by the
Partnership in the form of the Cash Amount.
(f) Notwithstanding any other provision of this Agreement, the
General Partner shall place appropriate restrictions on the ability of the
Limited Partners to exercise their Redemption Rights as and if deemed necessary
to ensure that the Partnership does not constitute a "publicly traded
partnership" under Section 7704 of the Code.
8.06 REGISTRATION.
(a) SHELF REGISTRATION. Subject to the provisions of applicable
securities laws and the interpretations of the Commission, prior to or on the
first date upon which the Partnership Units owned by any Limited Partner may be
redeemed, at the request of a Limited Partner or, at the option of the Company
prior to such request, the Company agrees to file with the Commission, a shelf
registration statement on Form S-3 under Rule 415 of the Securities Act, or any
similar rule that may be adopted by the Commission (the "Shelf Registration"),
with respect to all of the REIT Shares issued to such Limited Partners pursuant
to Section 8.05(b) hereof (the "Redemption Shares"). The Company will use its
best efforts to have the Shelf Registration declared effective under the
Securities Act and to keep the Shelf Registration continuously effective until a
date agreed upon by the Company and such Limited Partners or until such time as
all of the securities registered pursuant to such Shelf Registration (i) have
been disposed of pursuant to such Shelf Registration, (ii) have otherwise been
distributed pursuant to Rule 144 promulgated under the Securities Act ("Rule
144"), or (iii) have been otherwise transferred in a transaction resulting in
the transferee receiving REIT Shares not deemed to be "restricted securities"
under Rule 144. The Company further agrees to supplement or make amendments to
the Shelf Registration, if required by the rules, regulations or
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instructions applicable to the registration form utilized by the Company or by
the Securities Act or rules and regulations thereunder for the Shelf
Registration. No provision of this Agreement shall require the Company to file a
registration statement on any form other than Form S-3. The Company, in the
exercise of its reasonable judgment, shall have the right to delay the filing of
the Shelf Registration for up to 120 days.
(b) REGISTRATION AND QUALIFICATION PROCEDURES. The Company, upon the
written request of a Limited Partner, is required by the provisions of Section
8.06(a) hereof to use its best efforts to have the Shelf Registration declared
effective under the Securities Act. Accordingly, the Company will:
(i) prepare and file with the Commission a registration
statement, including amendments thereof and supplements relating thereto,
with respect to the Redemption Shares;
(ii) use its best efforts to cause the Shelf Registration to be
declared effective by the Commission;
(iii) keep the Shelf Registration effective and the related
prospectus current as described in Section 8.05(a) hereof; provided,
however, that the Company shall have no obligation to file any amendment or
supplement at its own expense or the Partnership's expense more than 90
days after the effective date of the Shelf Registration;
(iv) furnish to each holder of Redemption Shares such numbers
of copies of prospectuses, and supplements or amendments thereto, and such
other documents as such holder reasonably requests;
(v) register or qualify the Redemption Shares covered by the
registration statement under the securities or blue sky laws of such
jurisdictions within the United States as any holder of Redemption Shares
shall reasonably request, and do such other reasonable acts and things as
may be required of it to enable such holders to consummate the sale or
other disposition in such jurisdictions of the Redemption Shares; provided,
however, that the Company shall not be required to (i) qualify as a foreign
corporation or consent to a general and unlimited service or process in any
jurisdictions in which it would not otherwise be required to be qualified
or so consent or (ii) qualify as a dealer in securities; and
(vi) keep the holders of Redemption Shares advised as to the
initiation and progress of the registration.
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(c) ALLOCATION OF EXPENSES. The Partnership shall pay all expenses in
connection with the Shelf Registration, including without limitation (i) all
expenses incident to filing with the National Association of Securities Dealers,
Inc., (ii) registration fees, (iii) printing expenses, (iv) accounting and legal
fees and expenses, except to the extent holders of Redemption Shares elect to
engage accountants or attorneys in addition to the accountants and attorneys
engaged by the Partnership or the Company, (v) accounting expenses incident to
or required by any such registration or qualification and (vi) expenses of
complying with the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided, however, the
Partnership shall not be liable for (A) any discounts or commissions to any
broker attributable to the sale of Redemption Shares, or (B) any fees or
expenses incurred by holders of Redemption Shares in connection with such
registration which, according to the written instructions of any regulatory
authority, the Partnership is not permitted to pay.
(d) SALE OF REDEMPTION SHARES. The Company may require in its sole
discretion that the Redemption Shares be sold in block trades through
underwriters or broker-dealers or that the sale of the Redemption Shares be
underwritten by investment banking firms selected by the Company.
(e) LISTING ON SECURITIES EXCHANGE. If the Company shall list or
maintain the listing of any REIT Shares on any securities exchange or national
market system, it will at its expense and as necessary to permit the
registration and sale of the Redemption Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Redemption Shares.
8.07 "PIGGYBACK" REGISTRATION RIGHTS.
(a) NOTICE OF REGISTRATION. If, at any time commencing upon the date
upon which all or any portion of the Partnership Units may be redeemed for the
Redemption Shares (but not if such Partnership Units shall have been redeemed
for cash in accordance with the provisions hereof), the Company files a
registration statement under the Securities Act with respect to a firm
commitment underwritten public offering of any securities of the Company, the
Company shall give thirty (30) days prior written notice thereof to each Limited
Partner and shall, upon the written request of any or all of the Limited
Partners, upon exercise of the Redemption Right and upon election by the Company
to deliver the REIT Share Amount include in the underwritten public offering the
number of Redemption Shares that each such Limited Partner may request (except
as set forth in Section 8.07(b) below). The Company will keep such registration
statement effective and current under the Securities Act permitting the sale of
Redemption Shares covered thereby for the same period that the registration
statement is maintained effective for the other persons (including the Company)
selling thereunder. In any underwritten offering, however, the Redemption
Shares to be included will be sold at the same time and at the same price as the
Company's securities. In the event that the Company fails to receive a written
request from a Limited Partner within thirty (30) days of its written notice,
then the Company shall have no obligation to include any of the Redemption
Shares in the offering. In connection with any registration statement or
subsequent amendment or similar document
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filed pursuant to this Section 8.07, the Company shall take all reasonable steps
to make the securities covered thereby eligible for public offering and sale
under the securities or blue sky laws of the applicable jurisdictions by the
effective date of such registration statement; provided that in no event shall
the Company be obligated to qualify to do business in any jurisdiction where it
is not so qualified at the time of filing such documents or to take any action
which would subject it to unlimited service of process in any jurisdiction where
it is not so subject at such time. The Company shall keep such filing current
for the length of time it must keep any registration statement, post-effective
amendment, prospectus or offering circular effective pursuant hereto.
(b) UNDERWRITING. In the event of an offering by the Company in which
one or more Limited Partners wishes to include Redemption Shares under this
Section 8.07, and it is determined in good faith by the managing underwriter of
such offering, giving effect to the number of REIT Shares to be offered by the
Company, that the total number of Redemption Shares that would consequently be
offered is in excess of the number of Redemption Shares that can be sold at the
proposed price, then the number of Redemption Shares of the Limited Partners to
be offered will be reduced ratably, based upon the number of Redemption Shares
each Limited Partner has requested to include in such registration; provided,
however, that notwithstanding anything in this Section 8.07(b) to the contrary,
the Limited Partners shall have the right to contribute, on a pro-rata basis as
described above, an aggregate of Redemption Shares equaling at least fifteen
percent (15%) of the total value of such offering.
(c) OBLIGATION OF LIMITED PARTNERS UPON REGISTRATION. To include
Redemption Shares in any registration, each Limited Partner shall:
(i) Cooperate with the Company in preparing each such
registration and execute all such agreements as any underwriter may deem
reasonably necessary in favor of such underwriter;
(ii) Promptly supply the Company with all information,
documents, representations and agreements as such underwriter may deem
reasonably necessary in connection with such registration; and
(iii) Agree in writing not to sell or transfer any share of the
Redemption Shares not included in such underwritten offering for a period
of seven (7) days prior to and thirty (30) days after the effective date of
such registration without the underwriters' consent, but no Limited Partner
shall be required to make such agreement unless the other Limited Partners
included in any offering covered by such registration shall similarly
agree.
(d) COMPANY'S OBLIGATIONS UPON REGISTRATION. If and whenever the
Company is obligated by the provisions of this Section 8.07 to effect the
registration of any offering of REIT Shares under the Securities Act, as
expeditiously as possible the Company will, or will use its best efforts to, as
the case may be:
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(i) Prepare and file with the SEC a registration statement
with respect to such REIT Shares and, use its best efforts to cause such
registration statement to become effective;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until the earlier of the sale of all securities covered
thereby or the date on which such REIT Shares may be sold into the market
without restriction under Rule 144;
(iii) Furnish to each Limited Partner so many copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such
Limited Partner may reasonably request; and
(iv) Register or qualify the Redemption Shares covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as such Limited Partner shall reasonably request, and do any
and all other acts and things that may be reasonably necessary or advisable
to enable the Limited Partners to consummate the disposition in such
jurisdictions of such securities.
(e) EXPENSES. In connection with any filing or other registration
hereunder the Partnership shall bear all the expenses and professional fees
which arise in connection with such filings or registration (except for the
Limited Partner's pro rata share of any underwriters' discount) and all expenses
incurred in making such filings and keeping them effective and correct as
provided hereunder and shall also provide each Limited Partner with a reasonable
number of printed copies of the prospectus, offering circulars and/or
supplemental prospectuses or amended prospectuses in final and preliminary form;
PROVIDED, HOWEVER, each Limited Partner will pay its own direct out-of-pocket
costs incurred with the registration of REIT Shares, including but not limited
to Limited Partner's attorney and accountants fees, travel expenses and any
consulting fees.
(f) INDEMNIFICATION BY THE COMPANY. The Company will indemnify each
Limited Partner, each of its officers and trustees, and each person controlling
the Limited Partner, with respect to which registration, qualification or
compliance has been effected pursuant to this Section 8.07, against all claims,
losses, damages, costs, expenses and liabilities whatsoever (or actions in
respect thereof) arising out of or based on (i) any untrue statement, (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other similar document (including
any related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made or (ii) any violation by the Company of
the Securities Act or any state securities law or of any rule or regulation
promulgated under the Securities Act or any state
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securities law applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse the Limited Partner, each of its officers and
trustees, and each person controlling the Limited Partner, for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, provided, however, that (x)
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability, or action arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged omission)
based upon written information furnished to the Company by an instrument duly
executed by the Limited Partner and stated to be specifically for use therein or
furnished by the Limited Partner to the Company in response to a request by the
Company stating specifically that such information will be used by the Company
therein, and (y) such indemnity agreement shall not inure to the benefit of the
Limited Partner, insofar as it relates to any such untrue statement (or alleged
untrue statement) or omission (or alleged omission) made in the preliminary
prospectus or prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective or in the amended prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act or in any subsequent amended prospectus
filed with the Commission prior to the written confirmation of the sale of the
Registrable Securities at issue (collectively, the "Final Prospectus"), if a
copy of the Final Prospectus was not furnished to the person or entity asserting
the loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(g) INDEMNIFICATION BY THE LIMITED PARTNERS. The Limited Partners
will, if Redemption Shares held by or issuable to such Limited Partners are
included in the REIT Shares to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its trustees and
officers, each underwriter, if any, of the REIT Shares covered by such
registration statement, and each person who controls the Company within the
meaning of the Securities Act against all claims, losses, damages, costs,
expenses and liabilities whatsoever (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other similar document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
and will reimburse the Company, such trustees, officers, persons or underwriters
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, costs, expense,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by the Limited Partners
and stated to be specifically for use therein or furnished by any Limited
Partner to the Company in response to a request by the Company stating
specifically that such information will be used by the Company therein,
provided, however, that the foregoing indemnity agreement is subject to the
condition that, such indemnity agreement shall not inure to
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the benefit of the Company or any underwriter insofar as it relates to any such
untrue statements (or alleged untrue statements) or omission (or alleged
omission) made in the preliminary prospectus or prospectus but eliminated or
remedied in the Final Prospectus, if a copy of the Final Prospectus was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Securities Act.
(h) INDEMNIFICATION PROCEDURES. Each party entitled to
indemnification under this Section 8.07 (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld). The failure of any Indemnified
Party to give notice as provided herein shall relieve the Indemnifying Party of
its obligations under this Agreement only to the extent that such failure to
give notice shall materially prejudice the Indemnifying Party in the defense of
any such claim or any such litigation. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement that
attributes any liability to the Indemnified Party, unless the settlement
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. If any such Indemnified Party shall have been
advised by counsel chosen by it that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the Indemnifying Party, the Indemnifying Party shall not have
the right to assume the defense of such action on behalf of such Indemnified
Party and will reimburse such Indemnified Party and any person controlling such
Indemnified Party for the reasonable fees and expenses of any counsel retained
by the Indemnified Party, it being understood that the Indemnifying Party shall
not, in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for each Indemnified Party or controlling person (and
all other Indemnified Parties and controlling persons which may be represented
without conflict by one counsel), which firm shall be designated in writing by
the Indemnified Party (or Indemnified Parties, if more than one Indemnified
Party is to be represented by such counsel) to the Indemnifying Party. The
Indemnifying Party shall not be subject to any liability for any settlement made
without its consent, which shall not be unreasonably withheld.
If the indemnification provided for in this Section 8.07 from the
Indemnifying Party is unavailable to an Indemnified Party hereunder in respect
of any losses, claims, damages, labilities or expenses referred to therein, then
the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, labilities or expenses in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such
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Indemnifying Party and Indemnified Parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Parties, and the parties, relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8.07 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby represents and warrants to the
Company and to the Partnership that the acquisition of his Partnership Interest
is made as a principal for his account for investment purposes only and not with
a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the Company set
forth in Section 9.01(a) above and similarly agree not to sell, assign or
transfer such Partnership Interest or fraction thereof to any Person who does
not similarly represent, warrant and agree.
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
(a) Except as otherwise provided in Section 9.02(d) hereof and except
for the pledge rights contained in Section 9.02(f) hereof, no Limited Partner
(other than the General Partner) may offer, sell, assign, hypothecate, pledge or
otherwise transfer his Limited Partnership Interest, in whole or in part,
whether voluntarily or by operation of law or at judicial sale or otherwise
(collectively, a "Transfer") without the written consent of the General Partner,
which consent may be withheld in the reasonable discretion of the General
Partner. The General Partner may require, as a condition of any Transfer, that
the transferor assume all costs incurred by the Partnership in connection
therewith.
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(b) No Limited Partner may effect a Transfer of his Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
reasonably acceptable to the Partnership, such proposed Transfer would require
the registration of the Limited Partnership Interest under the Securities Act or
would otherwise violate any applicable federal or state securities or "Blue Sky"
law (including investment suitability standards).
(c) No transfer by a Limited Partner of his Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), 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.
(d) Section 9.02(a) shall not apply to the following transactions,
except that the General Partner may require that the transferor assume all costs
incurred by the Partnership in connection therewith:
(i) any Transfer by a Limited Partner pursuant to the exercise
of his Redemption Right under Section 8.05 hereof;
(ii) any Transfer by a Limited Partner that is a corporation or
other business entity to any of its Affiliates or subsidiaries or to any
successor in interest of such Limited Partner; or
(iii) any donative Transfer (including for such purposes
transfers at death) by an individual Limited Partner to his immediate
family members or any trust in which the individual or his immediate family
members own, collectively, 100% of the beneficial interests. For purposes
of this Section 9.02(d)(iii), the term "immediate family member" shall be
deemed to include only an individual Limited Partner's spouse, children,
grandchildren, nieces and nephews,
provided that such Limited Partner shall give 30 days notice of any transfer
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under this Section 9.02(d) to the General Partner so that a determination can be
made whether the transfer otherwise is prohibited under Sections 9.02(b) or
9.02(c).
(e) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
(f) Notwithstanding Section 9.02(a), the Limited Partner may pledge
any or all of its Partnership Units as collateral in any borrowing from an
institutional lender upon receiving the consent of the General Partner to such
pledge. The Limited Partner must seek such consent in writing and provide to
the General Partner complete copies of the commitment letter, all loan
documentation and any other materials deemed necessary in the General Partner's
discretion. Upon granting its consent, the General Partner will agree to issue
a letter to such lender agreeing to exchange or redeem such Limited Partner's
Partnership Units for the Cash
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Amount upon a default by the applicable Limited Partner under such loan if (i)
the lender and the applicable Limited Partner each request that such letter be
issued; (ii) such loan transaction is deemed by the General Partner to be arm's-
length and not designed to circumvent the Agreement or restrictions contained
herein; and (iii) the applicable Limited Partner acknowledges that any such
exchange or redemption could potentially cause a taxable event to such Limited
Partner. In no event will the Company or the Partnership guarantee or be liable
to the lender or others for any such permissible loans wherein the Limited
Partner's Partnership Units are used as collateral.
(g) No transfer of any Partnership Units may be made to a lender to
the Partnership or to any Person who is related (within the meaning of
Regulations Section 1.752-4(b)) to any lender to the Partnership whose loan
constitutes a non-recourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion; PROVIDED, HOWEVER, 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 Cash Amount any Partnership Units in which a security interest is held
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
(h) No Limited Partner may effect a Transfer of any warrant held by
such Limited Partner, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), determined as
if such warrant had been exercised. Such Limited Partner shall give 30 days
notice of any transfer under this Section 9.02(h) to the General Partner so that
a determination can be made whether the transfer otherwise is prohibited under
Sections 9.02(b) or 9.02(c).
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
(a) Subject to the other provisions of this Article IX, an assignee
of the Limited Partnership Interest of a Limited Partner (which shall be
understood to include any purchaser, transferee, donee, or other recipient of
any disposition of such Limited Partnership Interest) shall be deemed admitted
as a Limited Partner of the Partnership only upon the satisfactory completion of
the following:
(i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart or an
amendment thereof, including a revised EXHIBIT A, and such other documents
or instruments as the General Partner may require in order to effect the
admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been signed,
acknowledged and filed for record in accordance with the Act.
<PAGE>
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement set
forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust,
the assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's authority to
become a Limited Partner under the terms and provisions of this Agreement.
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all reasonable legal fees of
the Partnership and the General Partner and filing and publication costs in
connection with his substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of the
General Partner to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of General Partner's sole
and absolute discretion.
(viii) In the case of an assignee of the Limited Partnership
Interest of the General Partner except in the case of a transaction
described in Section 7.01(c) or (d) (in which case no consent is
necessary), the assignee has obtained the prior written consent of a
majority-in-interest of the Limited Partners (other than the General
Partner) to its admission as a Substitute Limited Partner, which consent
may be given or denied in the exercise of such Limited Partners' sole and
absolute discretion.
(b) For the purpose of allocating profits and losses and distributing
cash received by the Partnership, a Substitute Limited Partner shall be treated
as having become, and appearing in the records of the Partnership as, a Partner
upon the filing of the Certificate described in Section 9.03(a)(ii) hereof or,
if no such filing is required, the later of the date specified in the transfer
documents or the date on which the General Partner has received all necessary
instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
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9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof,
except as required by operation of law, the Partnership shall not be obligated
for any purposes whatsoever to recognize the assignment by any Limited Partner
of his Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute Limited
Partner and desires to make a further assignment of such Limited Partnership
Interest, shall be subject to all the provisions of this Article IX to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of his Limited Partnership Interest.
9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED
PARTNER. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner. The trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee or, if he is finally
adjudicated incompetent, his committee, guardian or conservator shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the bankrupt, deceased or incompetent Limited
Partner possessed to assign all or any part of his Partnership Interest and to
join with the assignee in satisfying conditions precedent to the admission of
the assignee as a Substitute Limited Partner.
9.06 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such Partnership Interest; provided, however, that the written
consent of only one joint owner will be required if the Partnership has been
provided with evidence satisfactory to the counsel for the Partnership that the
actions of a single joint owner can bind both owners under the applicable laws
of the state of residence of such joint owners. Upon the death of one owner of a
Partnership Interest held in a joint tenancy with a right of survivorship, the
Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
45
<PAGE>
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
10.01 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the General Partner shall keep or cause to be kept at the
Partnership's specified office true and complete books of account in accordance
with generally accepted accounting principles, including: (a) a current list of
the full name and last known business address of each Partner, (b) a copy of the
Certificate of Limited Partnership and all certificates of amendment thereto,
(c) copies of the Partnership's federal, state and local income tax returns and
reports, (d) copies of the Agreement and any financial statements of the
Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or his duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.
10.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations, certificates of deposit, bankers' acceptances
and municipal notes and bonds and other similar investments. The funds of the
Partnership shall not be commingled with the funds of any other Person except
for such commingling as may necessarily result from an investment in those
investment companies permitted by this Section 10.02(b).
10.03 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.
10.04 ANNUAL TAX INFORMATION AND REPORT. Within 90 days after the end of
each fiscal year of the Partnership, the General Partner shall furnish to each
person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
10.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax Matters
Partner, the General Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the Tax Matters
Partner. The General Partner shall have the right to retain professional
assistance in respect of any audit of the Partnership by the Service and all
out-
46
<PAGE>
of-pocket expenses and fees incurred by the General Partner on behalf of the
Partnership as Tax Matters Partner shall constitute Partnership expenses. In the
event the General Partner receives notice of a final Partnership adjustment
under Section 6223(a)(2) of the Code, the General Partner shall either (i) file
a court petition for judicial review of such final adjustment within the period
provided under Section 6226(a) of the Code, a copy of which petition shall be
mailed to all Limited Partners on the date such petition is filed, or (ii) mail
a written notice to all Limited Partners, within such period, that describes the
General Partner's reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the
Partnership under the Code or under any applicable state law shall be made by
the General Partner in its sole discretion.
(c) In the event of a transfer of all or any part of the
Partnership Interest of any Partner, the Partnership, at the option of the
General Partner, may elect pursuant to Section 754 of the Code to adjust the
basis of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only the
successor in interest to the transferring Partner and in no event shall be taken
into account in establishing, maintaining or computing Capital Accounts for the
other Partners for any purpose under this Agreement. Each Partner will furnish
the Partnership with all information necessary to give effect to such election.
10.06 REPORTS TO LIMITED PARTNERS.
(a) As soon as practicable after the close of each fiscal quarter,
but in no event later than 45 days (other than the last quarter of the fiscal
year), the General Partner shall cause to be mailed to each Limited Partner a
quarterly report containing financial statements of the Partnership, or of the
Company if such statements are prepared solely on a consolidated basis with the
Company, for such fiscal quarter, presented in accordance with generally
accepted accounting principles. As soon as practicable after the close of each
fiscal year, the General Partner shall cause to be mailed to each Limited
Partner an annual report containing financial statements of the Partnership, or
of the Company if such statements are prepared solely on a consolidated basis
with the Company for such fiscal year, prepared in accordance with generally
accepted accounting principles. The annual financial statements shall be audited
by accountants selected by the General Partner.
(b) Any Partner shall further have the right to a private audit of
the books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
47
<PAGE>
ARTICLE XI
AMENDMENT OF AGREEMENT;
SALE OF ALL OR SUBSTANTIALLY ALL OF COMPANY'S ASSETS
11.01 AMENDMENT OF AGREEMENT. The General Partner, without the consent of
the Limited Partners, may amend this Agreement in any respect; provided,
however, that the following amendments shall require the consent of Limited
Partners (other than the Company in its capacity as a Limited Partner) holding
at least two-thirds (2/3rds) of the Percentage Interests of the Limited Partners
(other than the Company in its capacity as a Limited Partner):
(a) any amendment affecting the operation of the Conversion Factor
or Redemption Right (except as provided in Section 8.05(d) hereof) in a manner
adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of the
Limited Partners to receive the distributions payable to them hereunder other
than with respect to the issuance of additional Partnership Units pursuant to
Section 4.02 of this Agreement;
(c) any amendment that would alter the Partnership's allocations of
Profit and Loss to the Limited Partners in a manner adverse to Limited Partners,
other than with respect to the issuance of additional Partnership Units pursuant
to Section 4.02 of this Agreement;
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership;
(e) any amendment to Section 8.07 above in a manner adverse to any
Limited Partner; and
(f) any amendment to this Article XI.
11.02 SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP;
CHANGE IN CONTROL. The General Partner, without the consent of the Limited
Partners (including the Company in its capacity as a Limited Partner) holding at
least two-thirds (2/3rds) of the Percentage Interests of the Limited Partners
(including the Company in its capacity as a Limited Partner), may not sell,
transfer, or convey all or substantially all of the assets of the Partnership,
including, without limitation, a sale, assignment or transfer to another public
or private company, or approve a merger or consolidation of the Partnership.
ARTICLE XII
GENERAL PROVISIONS
12.01 NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in EXHIBIT A hereto; PROVIDED, HOWEVER, that any Partner may
48
<PAGE>
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
12.02 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.03 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.04 SEVERABILITY. If any provision of this Agreement shall be declared
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
12.05 ENTIRE AGREEMENT. This Agreement and Exhibits hereto constitute the
entire Agreement of the Partners and supersede all prior written agreements and
prior and contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof.
12.06 PRONOUNS AND PLURALS. When the context in which words are used in
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 HEADINGS. The Article headings or sections in this Agreement are for
convenience only and shall not be used in construing the scope of this Agreement
or any particular Article.
12.08 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
12.09 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
12.10 GUARANTY BY COMPANY. The Company unconditionally and irrevocably
guarantees to the Limited Partners the performance by the Company of its
respective obligations as the General Partner and a Limited Partner under this
Agreement. This guaranty is exclusively for the benefit of the Limited Partners
and shall not extend to the benefit of any creditor of the Partnership.
(Remainder of Page Intentionally Left Blank)
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement of Limited Partnership.
GENERAL PARTNER
CAPITAL AUTOMOTIVE REIT, a
Maryland real estate investment trust
By: /s/ Thomas D. Eckert
---------------------------------------
Name: Thomas D. Eckert
Its: President and Chief Executive Officer
LIMITED PARTNERS
CAPITAL AUTOMOTIVE REIT, a
Maryland real estate investment trust
By: /s/ Thomas D. Eckert
---------------------------------------
Name: Thomas D. Eckert
Its: President and Chief Executive Officer
[Signature Blocks of Other Limited Partners]
SIGNATURE PAGE TO AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPITAL AUTOMOTIVE L.P.
50
<PAGE>
SCHEDULE A
SCHEDULE OF PARTNERS,
NUMBER OF PARTNERSHIP UNITS AND
CAPITAL CONTRIBUTIONS
[Exhibit Information Not Filed Herewith]
A-1
<PAGE>
EXHIBIT B
[RESERVED]
B-2
<PAGE>
EXHIBIT C
---------
NOTICE OF EXERCISE OF REDEMPTION RIGHT
In accordance with Section 8.05 of the Agreement of Limited Partnership (the
"Agreement") of Capital Automotive L.P., the undersigned hereby irrevocably (i)
presents for redemption ________ units of limited partnership interest ("Units")
in Capital Automotive L.P. (the "Partnership") in accordance with the terms of
the Agreement and the "Redemption Right" referred to in Section 8.05 thereof,
(ii) surrenders such Units and all right, title and interest therein, (iii)
surrenders herewith any certificate or other writing evidencing the Units (and
requests that any Units so evidenced that are not redeemed be evidenced by the
issuance of a new certificate or writing) and (iv) directs that the "Cash
Amount" or "REIT Shares Amount" (as determined by the General Partner), as
defined in the Agreement, deliverable upon exercise of the Redemption Rights be
delivered to the address specified below, and if REIT Shares are to be
delivered, such REIT Shares be registered or placed in the name(s) and at the
address(es) specified below.
Dated: _______________________
Name of Limited Partner:
______________________________
(Signature of Limited Partner)
______________________________
(Mailing Address)
______________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
______________________________
If REIT Shares are to be issued, issue to:
______________________________
______________________________
______________________________
Please insert social security or identifying number:
______________________________
C-1
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
Capital Automotive REIT (and to all references to our firm) included in or made
a part of this Registration Statement.
/s/ Arthur Andersen LLP
Washington, D.C.,
March 1, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our
report on the 1997 Geneva Enterprises, Inc. and Affiliated Company (and to all
references to our firm) included in or made a part of this Registration
Statement.
Baltimore, Maryland WALPERT, SMULLIAN &
BLUMENTHAL, P.A.
March 1, 1999
By: /s/ Jacob Cohen
-------------------------
Name: JACOB COHEN, CPA
Title: PARTNER
