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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NORTHSTAR CAPITAL INVESTMENT CORP.
(Exact name of Registrant as specified in its charter)
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527 MADISON AVENUE, 16TH FLOOR
NEW YORK, NY 10022
(212) 319-3400
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
RICHARD J. MCCREADY
CHIEF OPERATING OFFICER, VICE PRESIDENT AND SECRETARY
NORTHSTAR CAPITAL INVESTMENT CORP.
527 MADISON AVENUE, 16TH FLOOR
NEW YORK, NY 10022
(212) 319-3400
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPY TO:
STACY J. KANTER
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE (1) FEE
<S> <C> <C> <C> <C>
14,704,568
Common Stock, par value $.01 per share..... Shares $20.875 $306,957,857 $90,553
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 20, 1998
PROSPECTUS
14,704,568 SHARES
[LOGO]
COMMON STOCK
THIS PROSPECTUS RELATES TO THE COMMON STOCK, PAR VALUE $.01 PER SHARE (THE
"COMMON STOCK"), OF NORTHSTAR CAPITAL INVESTMENT CORP., A MARYLAND CORPORATION
("NSC"). THE COMMON STOCK WAS ISSUED AND SOLD (THE "ORIGINAL OFFERING") ON
DECEMBER 22, 1997 (THE "CLOSING DATE") AND JANUARY 22, 1998 (THE "SECOND CLOSING
DATE" AND, TOGETHER WITH THE CLOSING DATE, THE "ORIGINAL OFFERING DATE') TO THE
INITIAL PURCHASER (AS DEFINED HEREIN) AND WAS SIMULTANEOUSLY SOLD BY THE INITIAL
PURCHASER IN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), TO PERSONS REASONABLY
BELIEVED BY THE INITIAL PURCHASER TO BE QUALIFIED INSTITUTIONAL BUYERS AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT, TO A LIMITED NUMBER OF
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(A)(1),(2),(3) OR
(7) UNDER THE SECURITIES ACT) AND TO CERTAIN INDIVIDUAL "ACCREDITED INVESTORS"
(AS DEFINED IN RULE 501 (A)(4),(5) OR (6) UNDER THE SECURITIES ACT).
THE COMMON STOCK OFFERED HEREBY (THE "OFFERED SECURITIES") MAY BE OFFERED
AND SOLD FROM TIME TO TIME BY THE HOLDERS NAMED HEREIN OR BY THEIR TRANSFEREES,
PLEDGEES, DONEES OR THEIR SUCCESSORS (COLLECTIVELY, THE "SELLING HOLDERS")
PURSUANT TO THIS PROSPECTUS. THE OFFERED SECURITIES MAY BE SOLD BY THE SELLING
HOLDERS FROM TIME TO TIME DIRECTLY TO PURCHASERS OR THROUGH AGENTS, UNDERWRITERS
OR DEALERS. SEE "SELLING HOLDERS" AND "PLAN OF DISTRIBUTION." IF REQUIRED, THE
NAMES OF ANY SUCH AGENTS OR UNDERWRITERS INVOLVED IN THE SALE OF THE OFFERED
SECURITIES AND THE APPLICABLE AGENT'S COMMISSION, DEALER'S PURCHASE PRICE OR
UNDERWRITER'S DISCOUNT, IF ANY, WILL BE SET FORTH IN AN ACCOMPANYING SUPPLEMENT
TO THIS PROSPECTUS (THE "PROSPECTUS SUPPLEMENT"). THE SELLING HOLDERS WILL
RECEIVE ALL OF THE NET PROCEEDS FROM THE SALE OF THE OFFERED SECURITIES AND WILL
PAY ALL UNDERWRITING DISCOUNTS, SELLING COMMISSIONS AND TRANSFER TAXES, IF ANY,
APPLICABLE TO ANY SUCH SALE. THE COMPANY IS RESPONSIBLE FOR PAYMENT OF ALL OTHER
EXPENSES INCIDENT TO THE REGISTRATION OF THE OFFERED SECURITIES. THE SELLING
HOLDERS AND ANY BROKER-DEALERS, AGENTS OR UNDERWRITERS THAT PARTICIPATE IN THE
DISTRIBUTION OF THE OFFERED SECURITIES MAY BE DEEMED TO BE "UNDERWRITERS" WITHIN
THE MEANING OF THE SECURITIES ACT, AND ANY COMMISSION RECEIVED BY THEM AND ANY
PROFIT ON THE RESALE OF THE OFFERED SECURITIES PURCHASED BY THEM MAY BE DEEMED
TO BE UNDERWRITING COMMISSIONS OR DISCOUNTS UNDER THE SECURITIES ACT. SEE "PLAN
OF DISTRIBUTION" FOR A DESCRIPTION OF INDEMNIFICATION ARRANGEMENTS.
NSC IS A NEWLY-FORMED MARYLAND CORPORATION ESTABLISHED TO CONTINUE THE
OPPORTUNISTIC REAL ESTATE-RELATED INVESTMENT ACTIVITIES OF DAVID T. HAMAMOTO AND
W. EDWARD SCHEETZ. NORTHSTAR CAPITAL PARTNERS LLC ("NORTHSTAR" OR THE "MANAGER")
WILL MANAGE THE DAY-TO-DAY OPERATIONS OF NSC AND THE OPERATING PARTNERSHIP (AS
DEFINED BELOW), UNDER THE DIRECTION OF NSC'S BOARD OF DIRECTORS. NSC WILL BE THE
SOLE GENERAL PARTNER OF NORTHSTAR PARTNERSHIP, L.P. (THE "OPERATING PARTNERSHIP"
AND, COLLECTIVELY WITH NSC AND THEIR SUBSIDIARIES, THE "COMPANY"), THROUGH WHICH
THE INVESTMENTS OF THE COMPANY WILL BE MADE.
NSC EXPECTS TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST (A "REIT") UNDER
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), COMMENCING WITH ITS
TAXABLE YEAR ENDING DECEMBER 31, 1998. IT IS POSSIBLE, HOWEVER, THAT NSC MAY
ELECT TO BE TAXED AS A REIT FOR ITS TAXABLE YEAR ENDING DECEMBER 31, 1997 (THE
"1997 REIT ELECTION") IF IN THE REASONABLE JUDGEMENT OF MANAGEMENT SUCH AN
ELECTION WOULD NOT HAVE A MATERIAL ADVERSE ECONOMIC IMPACT ON EITHER NSC OR ITS
STOCKHOLDERS. IN SUCH EVENT, NSC GENERALLY WOULD BE SUBJECT TO A 4% EXCISE TAX
ON ITS UNDISTRIBUTED 1997 TAXABLE INCOME. SEE "FEDERAL INCOME TAX
CONSIDERATIONS--REQUIREMENTS FOR QUALIFICATION--DISTRIBUTION REQUIREMENTS." THE
CHARTER OF NSC, AS MAY BE AMENDED OR RESTATED FROM TIME TO TIME (THE "CHARTER"),
CONTAINS VARIOUS RESTRICTIONS ON THE OWNERSHIP AND TRANSFER OF THE COMMON STOCK
IN ORDER TO PRESERVE NSC'S STATUS AS A REIT. SEE "DESCRIPTION OF SECURITIES --
TRANSFER RESTRICTIONS."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING, AMONG OTHERS:
- CONFLICTS OF INTERESTS BETWEEN THE COMPANY AND THE MANAGER IN RELATION TO
BUSINESS DECISIONS REGARDING THE COMPANY COULD RESULT IN DECISIONS THAT DO
NOT FULLY REFLECT THE INTERESTS OF ALL OF NSC'S STOCKHOLDERS.
- THE COMPANY MUST RELY ON THE EXPERIENCE OF THE MANAGER'S EMPLOYEES
GENERALLY, AND IN PARTICULAR THE INDEPENDENT DIRECTORS (AS DEFINED HEREIN)
MUST RELY ON INFORMATION PROVIDED BY THE MANAGER TO REVIEW TRANSACTIONS OF
THE COMPANY WITH NORTHSTAR AND ITS AFFILIATES.
- THE COMPANY WILL RELY ON THE MANAGER FOR ADVISORY AND MANAGEMENT SERVICES,
AND ON KEY PERSONNEL OF THE MANAGER, INCLUDING MESSRS. HAMAMOTO AND
SCHEETZ, WHOSE CONTINUED SERVICE IS NOT GUARANTEED.
- THE COMPANY HAS A LIMITED OPERATING HISTORY AND HAS AND INTENDS TO
CONTINUE TO INVEST IN HIGHLY-COMPETITIVE BUSINESSES.
- NOT ALL OF THE COMPANY'S INVESTMENTS HAVE BEEN IDENTIFIED.
- CERTAIN ASSETS MAY BE ACQUIRED THROUGH OR TRANSFERRED TO A SISTER COMPANY
(AS DESCRIBED HEREIN), WHICH WILL NOT QUALIFY AS A REIT AND WHICH MAY BE
SUBJECT TO INCOME TAX AT REGULAR CORPORATE RATES, WHICH MAY HAVE THE
EFFECT OF REDUCING CASH AVAILABLE FOR DISTRIBUTION TO THE STOCKHOLDERS.
- CERTAIN OF THE COMPANY'S REAL ESTATE INVESTMENTS WILL REQUIRE SIGNIFICANT
MANAGEMENT RESOURCES, ARE ILLIQUID, AND MAY DECREASE IN VALUE BECAUSE OF
CHANGES IN ECONOMIC CONDITIONS.
- THE COMPANY INTENDS TO LEVERAGE THE COMPANY'S ASSETS, WHICH CAN COMPOUND
LOSSES.
- NSC MAY BE SUBJECT TO INCOME TAX AT REGULAR CORPORATE RATES IF IT FAILS TO
QUALIFY AS A REIT, WHICH MAY HAVE THE EFFECT OF REDUCING CASH AVAILABLE
FOR DISTRIBUTION TO STOCKHOLDERS.
- THERE IS NO ESTABLISHED MARKET FOR THE COMMON STOCK, WHICH MAY AFFECT THE
LIQUIDITY OF AN INVESTMENT IN THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
CAUTIONARY STATEMENTS FOR PURPOSES OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Prospectus under the captions "Offering Summary,"
"Risk Factors," "Market Trends and Investment Strategies," "The Company,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. When used in
this Prospectus, the words "anticipate," "believe," "estimate," "expect" and
similar expressions are generally intended to identify forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
important factors include, among others: general economic and business
conditions; industry trends; competition; changes in business strategy or
development plans; availability, terms and deployment of capital; availability
of qualified personnel; changes in, or the failure or inability to comply with,
government regulation; and other factors referenced in this Prospectus. See
"Risk Factors." These forward-looking statements speak only as of the date of
this Prospectus. The Company expressly disclaims any obligation or undertaking
to disseminate any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
AVAILABLE INFORMATION
NSC has filed with the Securities and Exchange Commission (the "Commission")
in Washington D.C. a Registration Statement on Form S-11 (as amended, the
"Registration Statement") of which this Prospectus is a part under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are summaries of the material terms of such contract,
agreement or other document. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved. The
Registration Statement (including the exhibits thereto) filed by the Company
with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and will also be available for inspection
and copying at the regional offices of the Commission located at Seven World
Trade Center, 13(th) Floor, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, (Suite 1400), Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a website that contains reports, proxy and
information statements and other information. The website address is
http://www.sec.gov.
Upon the effectiveness of the Registration Statement, the Company will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and, in accordance therewith, will file
reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other information
can be inspected and copied at the addresses set forth above. The Company
reports its financial statements on a year ended December 31. The Company
intends to furnish its stockholders with annual reports containing consolidated
financial statements audited by its independent certified public accountants and
with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.
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OFFERING SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION INCLUDED ELSEWHERE IN
THIS PROSPECTUS. CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE
MEANINGS SET FORTH IN THE GLOSSARY BEGINNING ON PAGE 85.
THE COMPANY
NSC, a Maryland corporation which intends to qualify as a REIT, was
established in 1997 to continue the opportunistic real estate-related investment
activities of David T. Hamamoto and W. Edward Scheetz. The activities and
operations of NSC are conducted through the Operating Partnership. NSC and the
Operating Partnership (collectively with their subsidiaries, the "Company") are
externally managed and advised by the Manager. The Company believes that the
Manager has developed an organization of investment and investment management
professionals that is well positioned to take advantage of today's real estate
and capital markets environment, where, it further believes, a more mature
market requires greater investor sophistication. The Manager's professionals
combine real estate, capital markets, and corporate expertise that the Company
believes will uniquely position it to assist the Company in capitalizing on
market and industry trends in complex real estate-related transactions across
product, geographic and industry lines. The Manager's eight most senior
investment and investment management professionals have an average of over 12
years of related experience. Since organizing the Company and completing the
Original Offering, the Manager has committed approximately $265 million of
equity on behalf of the Company in eight distinct transactions with an aggregate
initial capitalization (including debt and equity) of $577 million. See "The
Company-Acquisitions and Investments." From the formation of NorthStar in July
1997 until the organization of the Company, Mr. Hamamoto and Mr. Scheetz
developed the NorthStar organization, and committed approximately $324 million
of equity in 7 separate investments. However, the assets acquired in these prior
transactions are not currently intended to be acquired by the Company. See
"Management of Operations--The Manager's Experience." The Company believes that
the interests of the Manager are and will continue to be aligned with those of
the stockholders of NSC as the Manager acquired $10 million of Units at the
closing of the Original Offering (the "Closing"). As further incentive, the
Manager receives a preferred incentive return based on NSC's "Funds From
Operations" (as defined herein) and will be granted options to acquire
additional shares of Common Stock (or, at the option of the Company, Units) at
an exercise price, subject to adjustment, of $20.00 per share (or Unit). See
"Management of Operations -- Management Incentives" and "-- Stock Options."
Mr. Hamamoto was the co-founder and, until co-founding NorthStar in July
1997, the co-head of the Whitehall Funds at Goldman, Sachs & Co., as well as a
partner at Goldman, Sachs. Until co-founding NorthStar, Mr. Scheetz was a
partner at Apollo Real Estate Advisors. The Company believes that, at their
previous firms, Mr. Hamamoto and Mr. Scheetz were responsible for a significant
portion of all investments by opportunistic real estate investment funds
investing since 1992. Mr. Hamamoto and Mr. Scheetz collectively managed eight
opportunistic real estate investment funds and were instrumental in the
origination, structuring, and closing of approximately 190 distinct property,
portfolio, and corporate transactions representing a total investment of
approximately $16 billion, involving almost $4.7 billion in equity and over $11
billion in debt financing. See "Management of Operations -- The Manager's
Experience."
INVESTMENT STRATEGY
The Company's investment activities occur in an ever-changing environment
influenced initially by market characteristics that already have provided
numerous investment opportunities for NorthStar. As the real estate markets have
recovered from the depressed environment during the early 1990s, traditional
"distressed" investments, such as the acquisition of sub-performing and
non-performing loans and properties from the Resolution Trust Corporation (the
"RTC") and private sector lenders, have become less prevalent. The primary
market characteristics driving the recovery of the market in the U.S. are the
growth of the public real estate capital markets and the consolidation of
ownership of real estate. These characteristics have resulted in arbitrage
between private market and public market pricing of real estate.
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Despite the overall recovery, the Company believes that selected geographic
market and property type inefficiencies will continue to exist because the real
estate markets are inherently cyclical. In addition, the Company believes that
certain financial institutions and users of real estate continue to seek to
reduce their real estate holdings.
The Manager intends to identify, create, and realize value for the Company
in its real estate-related investments. Several themes underlie this strategy:
(i) relationships -- utilizing the Manager's existing extensive network of
relationships to provide proprietary access to negotiated transactions and avoid
competitive auctions; (ii) industry trends -- identifying and capitalizing on
industry trends to stay ahead of the market; and (iii) special situations --
exploiting opportunities which other investors may not pursue due to legal, tax,
financing, or other complexities and other special situations where significant
"intellectual capital" is necessary to realize value. When possible, the Manager
also intends to focus on "platform" transactions, i.e., transactions that will
provide additional investment opportunities for the Company. The Company and the
Manager also seek to create and realize value by identifying the most
advantageous financing and investment management strategies for the Company's
investments, including identifying exit strategies, when appropriate, that can
generate attractive stockholder returns.
The Company expects that its future investments will continue to target the
following principal areas of recent investment activity by the Company and
NorthStar:
- REAL ESTATE COMPANIES: investments in companies primarily engaged in the
business of real estate ownership, real estate services or other real
estate intensive operating businesses (collectively, "Real Estate
Companies");
- UNDERUTILIZED ASSETS: repositionings and recapitalizations of
under-utilized or poorly capitalized real estate-related assets
(collectively, "Underutilized Assets");
- CORPORATE DIVESTITURES: acquisitions of real estate-related assets from
users, financial institutions, and other non-strategic and inefficient
owners of real estate (collectively, "Corporate Divestitures");
- PARTNERSHIP INTERESTS: recapitalizations of real estate ventures through
the acquisition of interests in syndicated limited partnerships, general
partnerships, limited liability companies and other illiquid or
under-priced real estate securities (collectively, "Partnership
Interests"); and
- OTHER ASSETS: acquisitions of, and investments in, other real
estate-related assets, including mortgage loans and other debt and equity
investments (collectively, "Other Assets").
In addition to traditional property types and related businesses, such as
office, industrial, retail, residential, and lodging properties and businesses,
the Company intends to invest in non-traditional property types and related
businesses, such as health care, entertainment, leisure and other properties and
businesses. The Company may also invest in other areas which it deems
attractive. In addition to domestic activities, the Company may make investments
in, or related to, real estate located outside the United States. The Company
invests in a manner consistent with maintaining the status of NSC as a REIT for
United States federal income tax purposes.
Although the Company pursues a business plan that is essentially similar to
the business plans adopted by many opportunistic real estate investment funds,
the Company believes that it has distinct structural advantages over such other
funds in that the Company should have access to a broader array of capital
markets and may often be able to utilize its Common Stock and Units as
tax-advantaged acquisition currencies. In addition, the Company believes that
its stockholders, unlike investors in private opportunity funds, have enhanced
liquidity through their ability to sell their shares pursuant to this
Registration Statement. See "Risk Factors -- Other Risks -- Risk that Market for
Common Stock Will Not Develop." Furthermore, the Company believes it will not be
compelled to set or alter its business plan based on limitations which the
Company believes are currently imposed by the market on other public REITs. The
Company intends to focus more on total returns from its investments and to a
lesser degree on current cash flow. It also intends to operate, when deemed
advantageous, on a more highly-leveraged basis than
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most other REITs. No assurances can be made, however, that the Company's
business plan will be successful.
THE SISTER CORP.
The Company has made certain investments, and anticipates that it may, from
time to time, identify additional assets, that it believes may be advantageous
investments but which may be inappropriate (whether for REIT qualification, tax
or other reasons) for investment, in whole or in part, by the Company. In order
to permit stockholders to participate in the economic benefits that may be
associated with such non-qualifying REIT assets, the Company intends, from time
to time, to utilize a structure, often referred to as a "paper clip," that would
involve distributing to its stockholders the equity interests of a newly-formed
sister company (each, the "Sister Corp."), which would not elect to qualify as a
REIT, to make such investments. The Company anticipates that the equity
interests of the Sister Corp. would be distributed proportionately to the
partners in the Operating Partnership (including NSC) and thereafter NSC would
distribute its portion to the stockholders of NSC. Investments may be made by
the Sister Corp. jointly with the Company where a partial investment would be
appropriate for the Company, or entirely by the Sister Corp. if no portion of
the contemplated investment is deemed appropriate for the Company.
The Sister Corp. is intended to function primarily as an operating company,
in contrast to the Company's principal focus on investment as a REIT in real
estate assets. The Sister Corp. structure is designed to provide the Company's
existing stockholders with the long-term benefits of ownership in an entity
devoted to the conduct of operating business activities in addition to their
investment in the Company itself. A small number of REITs, operating under tax
provisions that no longer are available to newly-formed REITs, have their shares
"paired" or "stapled" with shares of a related operating company, and therefore
cannot be owned or transferred independently. The shares of the Company and the
equity interests of the Sister Corp. may or may not be paired or stapled in any
manner. With respect to the shares of the Company and the equity interests of
the Sister Corp. that may be owned and transferred, subject to applicable
securities laws restrictions, separately and independently of each other, the
Company and the Sister Corp. will not necessarily provide a paired investment
with the Company on an ongoing basis. After the initial formation of the Sister
Corp. and the distribution of its equity interests, the Sister Corp. and the
Company will pursue independent sources of financing and are expected ultimately
to have differing ownership. See "Risk Factors--Investments Made by, and
Contribution of Assets to, Sister Corp." and "Market Trends and Investment
Strategies -- The Sister Corp."
RISK FACTORS
An investment in the Common Stock involves various risks, and prospective
investors should consider carefully the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:
- Conflicts of interest between the Company and the Manager, in relation to
business decisions regarding the Company, could result in decisions that
do not fully reflect the interests of all of NSC's stockholders.
- The Company must rely on the experience of the Manager's employees
generally and, in particular, the Independent Directors must rely on
information provided by the Manager to review transactions of the Company
with NorthStar and its affiliates.
- The Company will rely on the Manager for advisory and management service,
and on key personnel of the Manager, including Messrs. Hamamoto and
Scheetz, whose continued service is not guaranteed.
- The Company has a limited operating history and has and intends to
continue to invest in highly-competitive businesses.
- Not all of the Company's investments have been identified.
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- Certain assets may be acquired through or transferred to the Sister Corp.,
which will not qualify as a REIT and which may be subject to income tax at
regular corporate rates, which may have the effect of reducing cash
available for distribution to the stockholders.
- Certain of the Company's real estate investments will require significant
management resources, are illiquid, and may decrease in value because of
changes in economic conditions.
- The Company intends to leverage the Company's assets, which can compound
losses.
- NSC may be subject to income tax at regular corporate rates if it fails to
qualify as a REIT, which may have the effect of reducing cash available
for distribution to stockholders.
- There is no established market for the Common Stock, which may affect the
liquidity of an investment in the Common Stock.
THE MANAGER
The business and investment affairs of the Company are managed by the
Manager. Messrs. Hamamoto and Scheetz, executive officers and directors of NSC,
are the founders and principal owners of the Manager. The Company believes that
the experience of the partners of the Manager and, in particular, Messrs.
Hamamoto and Scheetz, in opportunistic real estate investments should enable the
Company to identify, acquire and manage suitable assets for the Company. There
can be no assurance that the experience of the Manager and its principals will
result in attractive investments for the Company.
The Manager purchased $10 million of Units, at a price of $18.65 per Unit,
the price to investors in the Original Offering net of discounts to the Initial
Purchaser. The Manager owns approximately 3.3% of the equity interests in the
Company on a fully diluted basis. The Manager was granted certain registration
rights with respect to any Common Stock issuable to the Manager upon redemption
of such Units.
MANAGEMENT AGREEMENT AND MANAGEMENT INCENTIVES
The Company entered into a Management and Advisory Agreement, dated as of
December 22, 1997 (the "Management Agreement"), with the Manager having an
initial term of three years. The Management Agreement provides for automatic
one-year extensions after the initial three-year term, subject to certain
termination rights. After the initial three-year term, the Manager's performance
will be reviewed annually and the Management Agreement may be terminated
annually upon the affirmative vote of at least two-thirds of the Independent
Directors, or by a vote of the holders of a majority of the outstanding shares
of Common Stock, based upon unsatisfactory performance that is materially
detrimental to the Company or a determination that the compensation to the
Manager is not fair, subject to the Manager's right to prevent a compensation
termination by accepting a mutually acceptable reduction of fees. The Manager
will be provided 60 days' prior notice of any such termination and will be paid
a termination fee equal to the amount of the management fee earned by the
Manager during the twelve-month period preceding such termination. In addition,
the Management Agreement may be terminated at any time for cause, which is
defined as fraud, misappropriation of funds, willful violation of the Management
Agreement, or gross negligence, without payment of the termination fee. The
Manager, pursuant to the Management Agreement and under the direction of NSC's
Board of Directors, formulates investment strategies for the Company, arranges
for the acquisition of assets by the Company, arranges for various types of
financing for the Company, monitors the performance of the Company's assets and
provides certain advisory, administrative and managerial services in connection
with the operation of the Company. For performing these services, the Manager
receives an annual management fee in an amount equal to 1.5% of the Gross Equity
of the Company; provided, however, that during the first twelve months following
the Closing Date, the Manager shall receive an annual management fee equal to
the greater of (i) $7,500,000 and (ii) 1.5% of the Gross Equity of the Company.
The term "Gross Equity" for any period means (A) the sum of (i) total equity
capital raised by the Company, including, without limitation, the net proceeds
of the Original Offering and the net proceeds of any subsequent offering of
Common Stock or Preferred Stock by NSC, plus (ii) the value of contributions
made by partners other than the General Partner, from time to time, to the
capital of the Operating Partnership or any other subsidiary of the
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Company, less (B) any capital dividends or capital distributions made by NSC to
its stockholders. The Management Fee is calculated and paid monthly in arrears
based upon the weighted daily average of the Company's Gross Equity for such
month. The Board of Directors of the Company may adjust the management fee in
the future under certain conditions. See "Management of Operations."
The Manager may contract (including with affiliates of the Manager), on
behalf of the Company, for the provision of property and asset management,
leasing, servicing and similar tasks with respect to the assets of the Company.
In addition, because the Manager's employees or affiliates may perform certain
legal, accounting, due diligence tasks and other services that outside
professionals or consultants otherwise would perform, the Manager or such
affiliates will be reimbursed for the cost of performing such tasks, provided
that such reimbursements are at costs no greater than those which would be paid
to outside professionals or consultants on an arm's-length basis. Finally, the
Manager also will be reimbursed for out-of-pocket expenses incurred on behalf of
the Company. See "Management of Operations."
To provide an incentive for the Manager to enhance the value of the Common
Stock, the Manager receives a quarterly incentive return on its Units on a
cumulative, but not compounding, basis in an amount equal to the product of (A)
25% of the dollar amount by which (l)(a) the Funds From Operations (before the
incentive return) of the Company per share of Common Stock and per Unit (based
on the weighted average number of shares and Units outstanding) plus (b) gains
(or losses) from debt restructuring and gains (or losses) from sales of property
per share of Common Stock and per Unit (based on the weighted average number of
shares and Units outstanding), exceed (2) an amount equal to (a) the weighted
average of the price per share in the Original Offering and the prices per share
(or Unit) in any subsequent offerings by the Company (adjusted for prior capital
dividends or capital distributions) multiplied by (b) a simple interest rate of
ten percent (10%) per annum (divided by four to adjust for quarterly
calculations) multiplied by (B) the weighted average number of shares of Common
Stock and Units outstanding. See "Management of Operations -- Management
Incentives." For the purpose of compensating the Manager for its successful
efforts in raising capital for the Company and as an additional
performance-based incentive, the Company will grant to the Manager options
representing the right to acquire shares of Common Stock (or, at the election of
the Company, Units) equal to 10% of the equity interests of the Company
outstanding (from time to time), at an exercise price of $20.00 per share, with
such price subject to adjustment as necessary to preserve the value of such
options in connection with the occurrence of certain events (including capital
dividends and capital distributions made by the Company); provided that the
exercise price with respect to Options granted in connection with any future
issuance of equity interests in the Company will have an exercise price per
share equal to the initial offering price of such additional equity interests,
subject to adjustment as necessary to preserve the value of such options in
connection with the occurrence of certain events (including capital dividends
and capital distributions made by the Company). The options will not be
exercisable until the date (the "Option Effective Date") that is the earlier to
occur of (i) the effective date of this Registration Statement and (ii) the
first anniversary of the Closing Date. From and after the Option Effective Date,
one thirtieth (1/30) of the options will become exercisable on the first day of
each of the following thirty calendar months, or earlier upon the occurrence of
certain events, such as a change of control of the Company or the termination of
the Management Agreement. The options expire on the tenth anniversary of the
Closing. See "Management of Operations -- Stock Options." There can be no
assurance that the incentive return or the stock options will provide an
incentive to the Manager to both raise new capital for the Company or enhance
the value of the Common Stock.
EXCLUSIVITY
The Management Agreement generally limits the Manager's right to engage in
business or to render services to others that compete with the Company until an
amount equal to 80% of the Company's Total Equity has been invested (other than
in short-term temporary investments) by the Company (and for these purposes
contributions to a Sister Corp. shall be deemed to be "investments" of the
Company's Total Equity). As used herein, the term "Total Equity" shall mean the
sum of (i) total equity capital raised by NSC, including, without limitation,
the net proceeds of the Original Offering and the net proceeds of any
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subsequent offering of Common Stock or Preferred Stock by NSC, plus (ii) a
notional amount of debt equal to total equity capital raised by NSC.
Notwithstanding the foregoing, NorthStar is permitted at any time (i) to manage
the Sister Corp. and (ii) to manage and make investments related to "Excluded
NorthStar Investments." As used herein, the term "Excluded NorthStar
Investments" shall mean existing or future investments made by NorthStar and/or
its affiliates in connection with the Existing NorthStar Assets (see "Management
of Operations -- The Manager's Experience") or in connection with any additional
investments made by NorthStar or its affiliates during any period of time that
the exclusivity provisions of the Management Agreement are not in effect (i.e.
during any period of time in which 80% or more of the Total Equity of the
Company has been invested). In addition, in connection with existing debt of a
subsidiary of the Manager ("NorthStar Operating LLC") held by UBS Mortgage
Finance Inc. ("UBS"), the Manager was, until recently, required to present
certain investment opportunities to UBS for co-investment by UBS and/or
NorthStar Operating LLC. The Company has, to date, participated in two
Board-approved transactions involving a co-investment by subsidiaries of
NorthStar Operating LLC. The obligation to offer co-investment opportunities to
UBS and/or NorthStar Operating LLC has expired, other than opportunities related
to assets or interests previously acquired by NorthStar Operating LLC and its
subsidiaries. If, however, a majority of the Independent Directors determine
that a prospective investment is not in the best interest of the Company, the
Company will not make such investment and will agree to permit such investment
to be made by NorthStar Operating LLC or another affiliate of the Manager and
any such investment will be deemed to be an "Excluded NorthStar Investment" for
purposes of the exclusivity provisions of the Management Agreement. See "The
Company -- Acquisitions and Investments" and "Management of Operations --
Certain Relationships; Conflicts of Interest."
CONFLICTS OF INTEREST
The Company is managed by the Manager. The Sister Corp. will also be managed
by the Manager. The Company is subject to various potential conflicts of
interest arising out of the relationships with the Manager and their respective
affiliates. See "Risk Factors -- Investment Activity Risks -- Conflicts of
Interest in the Business of the Company."
To address the risks related to these potential conflicts, NSC's charter
requires that a majority of the members of NSC's Board of Directors be
unaffiliated with the Manager ("Independent Directors"). The Board of Directors
has established general guidelines for the Company's investments, borrowings and
operations (the "Guidelines") and a majority of the Independent Directors has
approved such Guidelines relating to any investments and borrowings (including
co-investments) with affiliates of the Manager. Although the Manager performs
the day-to-day operations of the Company, the Independent Directors review
transactions on a quarterly basis to ensure compliance with the Guidelines. In
such a review, the Independent Directors, however, rely primarily on information
provided by the Manager.
In the future, the Company may, but has no current plans to, acquire assets
from the Manager, or one of its affiliates, only if a majority of the
Independent Directors approve the transaction in advance. In addition, the
Company may, but has no current plans to, co-invest with the Manager or its
affiliates provided that any such co-investment is made in accordance with the
Guidelines or is approved in advance by a majority of the Independent Directors.
The Manager and its affiliates are not restricted from pursuing other
business activities and investments (i) during any period when the exclusivity
provisions of the Management Agreement are not in effect, or (ii) with respect
to any Excluded NorthStar Investments. In connection with the foregoing, the
Manager may undertake business activities which may be directly or indirectly
competitive with the Company.
RESTRICTIONS ON OWNERSHIP OF STOCK
Due to limitations on the concentration of ownership of a REIT imposed by
the Code, and to otherwise address concerns relating to the concentration of
stock ownership, the Charter prohibits any stockholder from directly or
indirectly owning more than 9.8% of the aggregate value of the outstanding
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shares of any class or series of stock of NSC (the "Aggregate Stock Ownership
Limit"). See "Description of Securities."
In addition, prior to the date the Company qualifies as an "operating
company" (within the meaning of Department of Labor Regulation Section
2510.3-101(c)) or the Common Stock qualifies as a class of "publicly-offered
securities" (within the meaning of Department of Labor Regulation Section
2510.3-101(b)(2)), the Company intends to limit equity ownership in the Company
by Plans (and similar investors) to less than 25% of the value of any class of
equity securities issued by the Company. See "ERISA Considerations -- The
Treatment of the Company's Underlying Assets Under ERISA."
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Offered Securities. The Company will not receive any proceeds from the sale of
the Offered Securities.
DISTRIBUTION POLICY
The Operating Partnership intends to make distributions to its partners,
including NSC. NSC intends to make distributions to its stockholders of all or
substantially all of its net taxable income each year (subject to certain
adjustments) so as to qualify for the tax benefits accorded to REITs under the
Code.
The declaration and payment of dividends by the Sister Corp. will be a
business decision to be made by the Sister Corp.'s board of directors from time
to time based on such considerations as the Sister Corp.'s board of directors
deems relevant, will be payable only out of funds legally available therefor
under the law of the state of the Sister Corp.'s formation and will be subject
to any limitations which may be contained in the debt instruments, if any, of
the Sister Corp.
TAX STATUS OF THE COMPANY
NSC intends to qualify and will elect to be taxed as a REIT under sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1998. It is possible, however, that NSC may make the 1997 REIT Election if
in the reasonable judgement of management such an election would not have a
material adverse economic impact on either NSC or its stockholders. In such
event, NSC generally would be subject to a 4% excise tax on its undistributed
1997 taxable income. See "Federal Income Tax Considerations -- Requirements for
Qualifications -- Distribution Requirements." If NSC qualifies for taxation as a
REIT, NSC generally will not be subject to federal corporate income tax on its
taxable income that is distributed to its stockholders. A REIT is subject to a
number of organizational and operational requirements, including a requirement
that it currently distribute at least 95% of its annual taxable income. Although
NSC does not intend to request a ruling from the Internal Revenue Service (the
"Service") as to its REIT status, NSC has received an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP that NSC will qualify as a REIT, which opinion is
based on certain assumptions and representations with respect to NSC's expected
ongoing businesses and investment activities and other matters. No complete
assurance can be given that NSC will be able to comply with such assumptions and
representations in the future. Furthermore, such opinion is not binding on the
Service or on any court. Failure to qualify as a REIT would render NSC subject
to federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates and distributions to NSC's
stockholders would not be deductible by NSC. Additionally, the Company currently
owns a significant portion of its assets indirectly through one or more
corporations. Each of such corporations is subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates and distributions by such corporations to the Company
are not deductible by the corporations. Even if NSC qualifies for taxation as a
REIT, the Company may be subject to certain federal, state and local taxes on
its income and property. NSC has adopted the calendar year as its taxable year.
In connection with NSC's election to be taxed as a REIT, NSC's Charter imposes
restrictions on the transfer of the Common Stock. See "Risk Factors -- Legal and
Tax Risks -- Tax Risks" and "Federal Income Tax Considerations -- Taxation of
the Company."
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ORGANIZATION AND RELATIONSHIPS
The relationship among NSC, the Operating Partnership and the Manager, and
the equity ownership thereof, is depicted in the picture shown below and
described in the accompanying footnotes on the following page.
[LOGO]
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(1) NSC was initially capitalized through the issuance of 1,000 shares of its
Common Stock to the Manager. NSC issued 14,703,568 shares of its Common
Stock to investors in the Original Offering.
(2) NSC (the "General Partner") contributed the net proceeds of the Original
Offering to the Operating Partnership in exchange for an approximate 91.1%
general partnership interest and serves as the sole general partner of the
Operating Partnership. The Manager (the "Initial Limited Partner")
contributed $10 million to the Operating Partnership in exchange for 536,193
Units, as a result of which, the Manager owns an approximate 3.3% limited
partnership interest, including a preferred incentive return described in
"Operating Partnership Agreement--Distributions; Incentive Return" and
"Management of Operations--Management Incentives."
(3) Contemporaneously with the Original Offering, three entities which are not
affiliated with the Initial Purchaser or the Manager contributed
approximately $18 million (less a placement fee of $1.35 per Unit payable to
the Initial Purchaser) to the Operating Partnership in exchange for 900,000
Units, which represents an approximate aggregate 5.6% limited partnership
interest.
(4) The Operating Partnership has undertaken the business of the Company,
including the acquisition of Real Estate-Related Assets and Other Assets.
The Company has formed additional subsidiaries or affiliates in cases where
the Company determines that the use of a separate entity is advisable. The
Company also expects to form a Sister Corp. that will be capitalized by the
Operating Partnership and will hold those assets that are inconsistent with
the Company's ongoing qualification as a REIT.
(5) The Manager has entered into a Management Agreement with NSC and the
Operating Partnership, pursuant to which the Manager formulates investment
strategies and provides certain advisory, managerial and administrative
functions for the Company and manages the day-to-day operations of the
Company, subject to the supervision of NSC's Board of Directors. See
"Management Agreement."
(6) The Company, through a wholly-owned corporation, purchased an 85% interest
in a limited liability company ("SBZZ") formed for the purpose of acquiring,
consolidating and growing residential brokerage companies into a national
enterprise. In connection with the formation of SBZZ, the Company
contributed $1.2 million in respect of its share of the purchase price of a
New York City based residential brokerage company. The Company is entitled
to a priority on its invested capital. Its percentage ownership interest is
variable and may be reduced as a result of incentives granted to its joint
venture partner which are tied to specified performance hurdles.
(7) The Company, through a wholly-owned corporation, purchased a 93% interest in
a limited liability company ("KN One") formed for the purpose of acquiring
and developing a parcel of land in Irvine, California. In connection with
the formation of KN One, the Company contributed $6.6 million and is
committed to fund an additional $1.0 million from time to time as necessary
to fund working capital requirements. The Company is entitled to a priority
on its invested capital. Its percentage ownership interest is variable and
may be reduced as a result of incentives granted to its joint venture
partner which are tied to specified performance hurdles.
(8) The Company, through a series of transactions, acquired the economic
benefits of ownership of two office buildings located at 417 Fifth Avenue
and 19 West 44th Street (the "New York Properties"). The acquisition was
structured in the form of a Master Lease Agreement (the "New York Master
Lease") and a loan. Under the terms of various agreements, at closing, NSC
(i) advanced $70.2 million to the owner of the New York Properties in
exchange for an initial 25 year right to operate the properties, (ii)
obtained a right to purchase the New York Properties, (iii) was admitted as
a 1% member of the entity that owns the New York Properties and (iv) was
given an option to acquire the managing member of the entity that owns the
New York Properties. In order to carry out these transactions, the Company
formed eight wholly-owned special purpose subsidiaries which, collectively,
operate the properties and provide effective ownership and control.
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(9) The Company acquired a 1% general partnership interest and a 49.5% limited
partnership interest in Frank King Associates L.P. ("King Associates"), a
Massachusetts limited partnership. The Company advanced $7.5 million to King
Associates and guaranteed approximately $2.3 million of King Associates' $25
million first mortgage loan. King Associates' partnership agreement provides
for, among other things, joint management by the two general partners.
(10) The Company formed NorthStar Golf Corp. ("NorthStar Golf") for the purpose
of entering into a golf course joint venture with several affiliates of Koll
Resorts ("Koll"). The Company contributed $7.2 million to the venture which
amounts were used to (i) purchase two golf courses and (ii) form a
management company which will manage the affairs of the golf courses.
NorthStar Golf, effectively, has a 99% economic interest in the entity that
owns the golf courses until certain investment return hurdles are achieved,
at which time its ownership interest may be reduced as a result of
incentives granted to its joint venture partner. The management company that
will operate the golf courses is owned 50% by NorthStar Golf and 50% by
Koll.
(11) The Company formed NorthStar Hospitality, LLC ("NS Hospitality"), a joint
venture with NorthStar Operating, LLC ("NS Operating"), an investment
company owned and managed by the Manager. The Company, through a
wholly-owned subsidiary, has contributed $110.8 million in exchange for a
37.1% member interest in NS Hospitality. NS Operating purchased a 62.9%
interest in NS Hospitality by contributing $120.8 million, a 49% interest in
Ian Schrager Hotel Management, LLC ("Management Co.") and a 95% interest in
West 57th Street, LLC, a company formed to redevelop a property in New York
City into a hotel. Simultaneously with the above, NS Hospitality through
West 57th Street, LLC initiated a series of transactions with Ian Schrager
("Schrager") and certain of his partners to acquire the remaining interests
of the Management Co., interests in the Schrager managed hotels (the
Paramount and Royalton in New York City, and the Mondrian in Los Angeles,
California) and interests in certain other hotel development projects
previously owned by Schrager (the "Roll Up"). Upon completion of the Roll
Up, West 57th Street, LLC, which changed its name to Ian Schrager Hotels,
LLC, was owned 84% by NS Hospitality and 16% by Schrager. The NS Hospitality
agreement provides for, among other things, joint management by the two
general partners.
(12) The Company committed $35 million to the initial capitalization of U.S.
Franchise Systems Development Fund (the "USFS Fund") in exchange for a 70%
interest in the USFS Fund.
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RISK FACTORS
An investment in the Common Stock involves various risks. Before purchasing
shares of Common Stock offered hereby, prospective investors should give special
consideration to the information set forth below, in addition to the information
set forth elsewhere in this Prospectus.
INVESTMENT ACTIVITY RISKS
CONFLICTS OF INTEREST IN THE BUSINESS OF THE COMPANY. The Company is
subject to various potential conflicts of interest arising from its relationship
with the Manager and the proposed Sister Corp.
Pursuant to the Management Agreement, after the initial three-year term, the
Manager's performance will be reviewed annually and the Management Agreement may
be terminated annually upon the affirmative vote of at least two-thirds of the
Independent Directors, or by a vote of the holders of a majority of the
outstanding shares of Common Stock, based upon unsatisfactory performance that
is materially detrimental to the Company or that the compensation to the Manager
is not fair, subject to the Manager's right to prevent a compensation
termination by accepting a mutually acceptable reduction of fees. As a result,
it may be difficult for the Company to terminate the Management Agreement. In
addition, the Manager will be provided 60 days' prior notice of any such
termination and will be paid a termination fee equal to the amount of the
management fee earned by the Manager during the twelve-month period preceding
such termination. See "Management of Operations -- The Management Agreement."
This requirement may affect adversely the Company's ability to terminate the
Manager without cause.
In addition, following any termination of the Management Agreement, the
Company must either (i) purchase the portion of the Manager's limited
partnership interest attributable to the preferred incentive return at a price
equal to the amount that would be distributed to the Manager if the Company's
assets were sold for their fair market value (as determined by an appraisal) or
(ii) continue to pay the preferred incentive return to the Manager. These
provisions may increase the effective cost to the Company of terminating the
Management Agreement. Furthermore, the presence of the incentive return may
cause the Manager to select investments for the Company that involve a higher
level of risk than otherwise would be prudent in order to increase the potential
for the Manager's receipt of an incentive return.
Messrs. Hamamoto and Scheetz, officers and directors of NSC, and each of
NSC's other executive officers serve as senior partners or partners of the
Manager. Messrs. Hamamoto and Scheetz are the founders and principal owners of
the Manager.
Pursuant to the Management Agreement, the conduct of the daily operations of
the Company and by the Manager and its affiliates are not required to be
approved by a majority of the Company's Independent Directors. The Independent
Directors review the Guidelines, the Company's investments, and the Company's
investment policies, annually. Investors should be aware that, in conducting
this review, the Independent Directors rely primarily on information provided to
them by the Manager.
The Company may acquire assets from the Manager, or one of its affiliates,
only if a majority of the Independent Directors approve the transaction in
advance. The Company may co-invest with the Manager or its affiliates provided
that any such co-investment is made in accordance with the Guidelines or is
otherwise approved in advance by a majority of the Independent Directors. In
making each decision with respect to any transaction requiring their approval,
the Independent Directors rely primarily on information provided by the Manager
in determining whether the price is fair and whether the investment is otherwise
in the best interest of the Company.
MANAGER MAY ADVISE OTHERS. The Manager is not restricted from pursuing
other business opportunities and investments which may be directly or indirectly
competitive with the Company so long as 80% of the Company's Total Equity has
been invested. In addition, the Manager is not restricted at any time from
pursuing other business opportunities in connection with the Sister Corp., the
Excluded NorthStar Investments, and permitted co-investments with UBS. See
"Management of Operations -- Certain Relationships; Conflicts of Interest." As a
result, the Manager and its affiliates may make investments directly or may
offer investments to others which are not offered to the Company.
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DEPENDENCE ON KEY PERSONNEL. The Company believes that its success depends
to a significant extent upon the experience of the founders of the Manager,
David T. Hamamoto and W. Edward Scheetz, and on other senior management
executives of the Company and the Manager whose continued service is not
guaranteed. The Company believes that Messrs. Hamamoto and Scheetz in particular
have national reputations in the real estate investment industry which are
expected to aid the Manager in obtaining investment opportunities for the
Company. While the Company believes that it could replace these key executives,
the loss of their services could have a material adverse effect on the
operations of the Company through a diminished capacity to obtain investment
opportunities and to structure and execute the Company's potential investments.
The Company may not successfully recruit additional personnel and any additional
personnel that are recruited may not have the requisite skills, knowledge or
experience necessary or desirable to enhance the incumbent management. Neither
the Company nor the Manager currently intends to maintain key man life insurance
with respect to any of its executive officers.
CONFLICTS RELATING TO THE OPERATING PARTNERSHIP. NSC, as the general
partner of the Operating Partnership, has fiduciary obligations to the limited
partners (including the Manager) in the Operating Partnership, the discharge of
which may conflict with the interests of NSC's stockholders. In addition, those
persons holding Units, as limited partners, have the right to vote as a class on
certain amendments to the Operating Partnership Agreement and individually to
approve certain amendments that would adversely affect their rights, which
voting rights may be exercised in a manner that conflicts with the interests of
NSC's stockholders. In addition, under the terms of the Operating Partnership
Agreement, the holders of Units have certain approval rights with respect to
certain transactions that affect all stockholders but which may be exercised in
a manner which does not reflect the interests of all stockholders.
APPROPRIATE INVESTMENTS MAY NOT BE AVAILABLE AND INVESTMENT OF NET PROCEEDS
WILL BE DELAYED. The Company has temporarily invested certain remaining
proceeds of the Original Offering in readily marketable, interest-bearing
securities consistent with NSC's status as a REIT until the Company finds
appropriate Real Estate-Related Assets or Other Assets in which to invest. The
Company intends to focus primarily on acquiring appropriate Real Estate-Related
Assets, although the Company may invest in Other Assets as opportunities arise.
There can be no assurance, however, that the Company will identify Real Estate-
Related Assets or Other Assets that meet its investment criteria, that the
Company will be successful in acquiring any assets that may be identified or
that any such assets will produce a return on the Company's investment.
BROAD DISCRETION ON INVESTMENTS. The Company's business plan is general in
nature and subject to change based upon changing conditions and opportunities.
The Company has broad discretion and authority to invest in whatever Real
Estate-Related Assets or Other Assets the Company deems appropriate at the time
of their acquisition. In making these investment decisions, the Company will
rely on the Manager's recommendations and on the Guidelines. The Company may
invest in highly-leveraged companies or assets, which may increase the
likelihood of a loss of the Company's property through foreclosure. The
Independent Directors will approve any acquisition from affiliates of the
Manager and monitor compliance with the Guidelines. The Manager has great
latitude in the types of Real Estate-Related Assets or Other Assets it may
decide are proper investments for the Company. No assurance can be made that the
Manager's decisions in this regard will result in a profit for the Company. The
Company intends to engage in highly-competitive businesses. The acquisition of
Real Estate-Related Assets and Other Assets is often based on competitive
bidding. In addition, the Company has entered into, and may continue to enter
into, joint venture arrangements with third parties. The Company in many
instances will not have control over the day-to-day operations of businesses and
assets in which it invests in the form of a joint venture, and will therefore be
dependent on third-party partners for the success of any such joint venture.
REAL ESTATE IS ILLIQUID AND VALUE IS DEPENDENT ON CONDITIONS BEYOND
COMPANY'S CONTROL. The Company invests in Real Estate-Related Assets and Other
Assets, which may be subject to varying degrees of risk generally incident to
the ownership of real property. Real estate investments are relatively illiquid.
The ability of the Company to vary its investments in response to changes in
economic and other conditions will be limited. No assurances can be given that
the fair market value of any Real Properties acquired by the Company will not
decrease in the future. The underlying value of the assets and the Company's
income and ability to make distributions to its stockholders are dependent upon
the ability of
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the Manager to operate the assets in a manner sufficient to maintain or increase
revenues in excess of operating expenses and debt service or, in the case of
real property leased to one or more lessees, the ability of the lessees to make
rent payments. Revenues may be adversely affected by adverse changes in national
or local economic conditions, competition from other properties offering the
same or similar services, changes in interest rates and in the availability,
cost and terms of mortgage funds, the impact of present or future environmental
legislation and compliance with environmental laws, the ongoing need for capital
improvements (particularly in older structures), changes in real estate tax
rates and other operating expenses, adverse changes in governmental rules and
fiscal policies, civil unrest, acts of God, including earthquakes, hurricanes
and other natural disasters (which may result in uninsured losses), acts of war,
adverse changes in zoning laws, and other factors which are beyond the control
of the Company.
CONFLICTS RELATING TO THE SISTER CORP. The Manager is expected to manage
the Sister Corp. after the formation of the Sister Corp. and the distribution of
the Sister Corp.'s stock to the partners and stockholders of the Company. If
ownership of the Sister Corp. and the Company differ over time, conflicts of
interest may develop. Provisions in the Sister Corp.'s formation documents are
expected to (i) provide that the Sister Corp. may enter into transactions with
the Company to the extent deemed beneficial by their respective boards of
directors (and the Company may enter into an intercompany agreement with the
Sister Corp. with respect thereto) and (ii) generally prohibit the Sister Corp.
from engaging in activities or making investments appropriate for a REIT unless
the Company was first given the opportunity but elected not to pursue such
activities or investments. The Manager and the Board of Directors may be subject
to various potential conflicts of interest as a result of the relationships with
the Sister Corp. and the Company.
INVESTMENTS MADE BY, AND CONTRIBUTION OF ASSETS TO, SISTER CORP. Certain
investments which may otherwise have been made by the Company may be made by the
Sister Corp. The Sister Corp. will be subject to income tax at regular corporate
rates, which may have the effect of reducing cash available for distribution to
stockholders. It is likely that the Company will have to contribute a
significant portion of its current assets to the Sister Corp. prior to the
distribution of shares of the Sister Corp. to the Company's stockholders because
such assets are not qualifying assets and/or do not produce qualifying income
for purposes of the REIT requirements. See "Federal Income Tax
Considerations--Requirements for Qualification." To the extent such
restructuring would require the Company to contribute assets to the Sister Corp.
that are not currently owned by the Company indirectly through a corporation,
such restructuring could result in the imposition of a corporate level federal
income tax where none is currently so imposed, which may have the effect of
reducing cash available for distribution to stockholders.
FOREIGN INVESTMENTS ARE SUBJECT TO CURRENCY CONVERSION RISKS AND UNCERTAINTY
OF FOREIGN LAWS. In addition to making investments in domestic Real
Estate-Related Assets and Other Assets, the Company may invest in Real
Estate-Related Assets and Other Assets located outside the United States.
Investing in real estate located in foreign countries creates risks associated
with the uncertainty of foreign laws and markets. Moreover, investments in
foreign assets are subject to currency conversion risks.
THE COMPANY'S INSURANCE WILL NOT COVER ALL LOSSES. The Company intends to
maintain comprehensive insurance on each of the Real Properties, including
liability and fire and extended coverage, in amounts sufficient to permit the
replacement of the properties in the event of a total loss, subject to
applicable deductibles. The Company will endeavor to obtain coverage of the type
and in the amount customarily obtained by owners of properties similar to the
applicable Real Properties. There are certain types of losses, however,
generally of a catastrophic nature, such as earthquakes, floods and hurricanes,
that may be uninsurable or not economically insurable. Inflation, changes in
building codes and ordinances, environmental considerations, and other factors
also might make it infeasible to use insurance proceeds to replace a property if
it is damaged or destroyed. Under such circumstances, the insurance proceeds
received by the Company might not be adequate to restore its economic position
with respect to the affected Real Property.
PROPERTY TAXES DECREASE RETURNS ON REAL ESTATE. Each Real Property will be
subject to real and, in some instances, personal property taxes. The real and
personal property taxes on properties in which the Company invests may increase
or decrease as property tax rates change and as the properties are assessed
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or reassessed by taxing authorities. If property taxes on the Company's
investments increase, the Company's cash available for distribution to its
stockholders will be adversely affected.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND OTHER CHANGES IN
GOVERNMENTAL RULES AND REGULATIONS MAY BE COSTLY. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all public properties are required to meet
certain federal requirements related to access and use by disabled persons. Real
Properties acquired by the Company may not be in compliance with the ADA. If a
property is not, the Company will be required to make modifications to such
property to bring it in compliance, or face the possibility of an imposition of
fines or an award of damages to private litigants. In addition, changes in
governmental rules and regulations or enforcement policies affecting the use and
operation of the Real Properties, including changes to building codes and fire
and life-safety codes, may occur. If the Company were required to make
substantial modifications at the Real Properties to comply with the ADA or other
changes in governmental rules and regulations, the Company's ability to make
expected distributions to its stockholders could be adversely affected.
REAL PROPERTIES WITH ENVIRONMENTAL PROBLEMS MAY CREATE LIABILITY FOR THE
COMPANY. The Company may invest in real estate, or mortgage loans secured by
real estate, with environmental problems that materially impair the value of the
real estate. If so, the Company will take certain steps to limit its liability
for such environmental problems, such as creating a special purpose entity to
own such real estate. Despite these steps, there are substantial risks
associated with such an investment. The Manager has only limited experience in
investing in real estate with environmental liabilities. Operating costs and the
value of Real Property may be affected by the obligation to pay for the cost of
complying with existing environmental laws, ordinances and regulations, as well
as the cost of future legislation. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. Therefore,
an environmental liability could have a material adverse effect on the
underlying value of a Real Property, the Company's income and cash available for
distribution to stockholders. The Company intends to obtain Phase I
environmental assessments on all Real Properties prior to their acquisition by
the Company. The purpose of Phase I environmental assessments is to identify
potential environmental contamination that is made apparent from historical
reviews of the properties, reviews of certain public records, preliminary
investigations of the sites and surrounding properties, and screening for the
presence of hazardous substances, toxic substances and underground storage
tanks. It is possible, however, that these reports will not reveal all
environmental liabilities or that such real property may be subject to material
environmental liabilities of which the Company is unaware.
DEFAULT RISKS ASSOCIATED WITH DISTRESSED MORTGAGE LOANS. The Company may
purchase nonperforming and subperforming mortgage loans, as well as mortgage
loans that have had a history of delinquencies. These mortgage loans may
presently be in default or may have a greater than normal risk of future
defaults and delinquencies, as compared to a pool of newly originated, high
quality loans of comparable type, size and geographic concentration. Returns on
an investment of this type depend on the borrower's ability to make required
payments or, in the event of default, the ability to foreclose and liquidate the
mortgage loan. Foreclosure and liquidation, particularly in a bankruptcy
proceeding, may be time consuming and expensive. Additionally, certain rules
related to the definition of "foreclosure property" for purposes of the taxation
of a REIT may limit the Company's ability to realize a profit on its investment
in a mortgage loan. There can be no assurance that a defaulted mortgage loan can
be liquidated successfully or in a timely fashion.
ECONOMIC AND BUSINESS RISKS
LEVERAGE CAN REDUCE INCOME AVAILABLE FOR DISTRIBUTION. The Company intends
to leverage its portfolio through borrowings, generally through the use of bank
credit facilities, mortgage loans on real estate and other borrowings. The
percentage of leverage used will vary depending on the Company's estimate of the
stability of the portfolio's cash flow. To the extent that changes in market
conditions cause the cost of such financing to increase relative to the income
that can be derived from the assets acquired, the
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Company's return on its investment and cash available for distribution to its
stockholders may be adversely affected.
Leverage creates an opportunity for increased returns on equity, but at the
same time creates risks. For example, debt service payments can reduce the net
income available for distributions to stockholders. The Company will leverage
assets only when there is an expectation that it will enhance returns, although
there can be no assurance that the Company's use of leverage will prove to be
beneficial. Moreover, there can be no assurance that the Company will be able to
meet its debt service obligations and, to the extent that it cannot, the Company
risks the loss of some or all of its assets to foreclosure or sale to satisfy
its debt obligations. Changes in the general level of interest rates can affect
the Company's income by affecting the spread between the Company's income on its
assets and interest-bearing liabilities, as well as, among other things, the
value of the Company's interest-earning assets and its ability to realize gains
from the sale of assets. There is no specified limitation on the Company's
indebtedness. The Charter and Bylaws do not limit the amount of indebtedness the
Company can incur.
In addition, changes in interest rates may adversely affect the Company's
investments. Interest rates are highly sensitive to many factors, including
governmental monetary and tax policies, domestic and international economic and
political considerations, and other factors beyond the control of the Company.
The Company may employ a hedging strategy to limit the effects of changes in
interest rates on its operations, including engaging in interest rate swaps,
caps, floors and other interest rate exchange contracts. The use of these types
of derivatives to hedge the Company's assets and liabilities carries certain
risks, including the risk that losses on a hedge position will reduce the funds
available for distribution to stockholders and, indeed, that such losses may
exceed the amount invested in such instruments. There is no perfect hedge for
any investment, and a hedge may not perform its intended use of offsetting
losses on an investment. Moreover, with respect to certain of the instruments
used as hedges for the Company's assets and liabilities, the Company is exposed
to the risk that the counterparties with which the Company trades may cease
making markets and quoting prices in such instruments, which may render the
Company unable to enter into an offsetting transaction with respect to an open
position. If the Company anticipates that the income from any such hedging
transaction will not be qualifying income for REIT income test purposes, the
Company may conduct part or all of its hedging activities through a to-be-formed
corporate subsidiary that is fully subject to federal corporate income taxation.
See "Federal Income Tax Considerations--Requirements for Qualification--Income
Tests." The profitability of the Company may be adversely affected during any
period as a result of changing interest rates.
ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS CAN ADVERSELY AFFECT
COMPANY'S BUSINESS. The Company's success is dependent upon the general
economic conditions in the geographic areas in which a substantial number of its
investments are located. Adverse changes in national economic conditions or in
the economic conditions of the regions in which the Company conducts substantial
business likely would have an adverse effect on real estate values, interest
rates and, accordingly, the Company's business.
NEED FOR ADDITIONAL CAPITAL. Certain developments in the economy in general
or in the implementation of the Company's business plan could require the
Company to seek additional capital through equity or debt offerings. There can
be no assurance that the Company will be successful in raising sufficient
additional equity or debt capital on acceptable terms.
LEGAL AND TAX RISKS
TAX RISKS. NSC intends to operate in a manner so as to qualify as a REIT
for federal income tax purposes. Although NSC does not intend to request a
ruling from the Service as to its REIT status, NSC has received an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP that, based on certain assumptions and
representations as of the Closing Date, it so qualified. Investors should be
aware, however, that opinions of counsel are not binding on the Service or any
court. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP represents only
the view of counsel to NSC based on counsel's review and analysis of existing
law, which includes no controlling precedent. Furthermore, both the validity of
the opinion and the continued qualification of NSC as a REIT will depend on
NSC's satisfaction of certain asset, income, organizational, distribution and
stockholder ownership requirements on a continuing basis. NSC's operations will
not be monitored by Skadden, Arps, Slate, Meagher & Flom LLP to ensure continued
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compliance with the REIT requirements. If NSC were to fail to qualify as a REIT
in any taxable year, NSC would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates, and distributions to stockholders would not be deductible by NSC in
computing its taxable income. Any such corporate tax liability could be
substantial and would reduce the amount of cash available for distribution to
stockholders, which in turn could have an adverse impact on the value of, and
trading prices for, the Common Stock. Unless entitled to relief under certain
Code provisions, NSC also would be disqualified from taxation as a REIT for the
four taxable years following the year during which NSC ceased to qualify as a
REIT.
NSC must distribute annually at least 95% of its net taxable income
(excluding any net capital gain) in order to avoid corporate income taxation of
the earnings that it distributes. In addition, NSC will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income for that year, (ii) 95% of its capital gain net income for
that year, and (iii) 100% of its undistributed taxable income from prior years.
The amount of any net long-term capital gains that NSC elects to retain and pay
income tax on will be treated as distributed for purposes of the 4% excise tax.
NSC intends to make distributions to its stockholders to comply with the 95%
distribution requirement and to avoid the nondeductible excise tax. However,
differences in timing between the recognition of taxable income and the actual
receipt of cash could require the Company to borrow funds or sell assets on a
short-term basis to meet the 95% distribution requirement and to avoid the
nondeductible excise tax. The requirement to distribute a substantial portion of
NSC's net taxable income could cause NSC (i) to sell assets in adverse market
conditions, (ii) to distribute amounts that represent a return of capital, or
(iii) to distribute amounts that would otherwise be spent on future
acquisitions, capital expenditures, or repayment of debt. Gains from the
disposition of any asset held primarily for sale to customers in the ordinary
course of business generally will be subject to a 100% tax. See "Federal Income
Tax Considerations--Requirements for Qualification--Income Tests."
NSC has relied on the "qualified temporary investment" provisions of the
REIT rules to a significant extent in structuring the acquisition of many of its
investments. The qualified temporary investment provisions generally provide
that the temporary investment by a REIT of newly raised capital in the stock or
debt of an issuer will qualify as a "real estate asset" for purposes of the REIT
requirements during the one-year period beginning on the date on which the REIT
received such capital even though such investments would not otherwise qualify
as real estate assets if made at a time when the qualified temporary investment
provisions were not available to the REIT, i.e., after expiration of the
one-year period. See "Federal Income Tax Considerations--Requirements for
Qualification--Asset Tests." The qualified temporary investment provisions also
provide that income from qualified temporary investments will qualify for
purposes of the 75% income test even though such income would not otherwise so
qualify if received or accrued at a time when the qualified temporary investment
provisions were not available to the REIT. See "Federal Income Tax
Considerations--Requirements for Qualification--Income Tests." Although NSC
believes that it will be able to restructure its investments prior to the end of
the applicable one-year period so that its assets and income satisfy the various
REIT requirements, no assurance can be given that NSC will be able to do so. The
failure by NSC to successfully restructure its investments could cause NSC to
fail to qualify as a REIT and to be subject to the negative United States
federal income tax consequences set forth above. Furthermore, NSC currently
contemplates that as part of the restructuring of its current asset portfolio a
significant portion of its current assets will be contributed to the Sister
Corp. prior to the distribution of the stock of the Sister Corp. to the
stockholders of NSC. The Sister Corp. will be subject to tax at regular
corporate rates, which may have the effect of reducing cash available for
distribution to stockholders. The Company currently owns a significant portion
of its assets indirectly through one or more corporations, each of which is
subject to federal income tax (including alternative minimum tax) on its taxable
income.
AGGREGATE STOCK OWNERSHIP LIMIT MAY RESTRICT BUSINESS COMBINATION
OPPORTUNITIES. In order for NSC to maintain its qualification as a REIT under
the Code, not more than 50% in value of its outstanding shares of capital stock
may be owned, directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entities) at any time during the last half of
NSC's taxable year (other than the first
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taxable year for which the election to be treated as a REIT has been made). The
Aggregate Stock Ownership Limit generally prohibits any stockholder from
directly or indirectly owning more than 9.8% of the aggregate value of the
outstanding shares of any class or series of stock of NSC, which could have the
effect of discouraging a takeover or other transaction in which holders of some,
or a majority, of the shares of Common Stock might receive a premium for their
shares of Common Stock over the then-prevailing market price or which such
holders might believe to be otherwise in their best interests. See "Description
of Securities--Transfer Restrictions" and "Federal Income Tax
Considerations--Requirements for Qualification."
PLANS SHOULD CONSIDER ERISA RISKS OF INVESTING IN COMMON STOCK. ERISA and
section 4975 of the Code prohibit certain transactions that involve (i) certain
pension, profit-sharing, employee benefit, or retirement plans or individual
retirement accounts (each a "Plan") and (ii) any person who is a "party in
interest" or "disqualified person" with respect to a Plan. Consequently, the
fiduciary of a Plan contemplating an investment in the Common Stock should
consider whether the Company, any other person associated with the issuance of
the Common Stock, or any affiliate of the foregoing is or might become a "party
in interest" or "disqualified person" with respect to the Plan and, if so,
whether an exemption from such prohibited transaction rules is applicable. In
addition, federal regulations provide that, subject to certain exceptions, the
assets of an entity in which a Plan holds an equity interest may be treated as
assets of an investing Plan, in which event, the underlying assets of such
entity (and transactions involving such assets) would be subject to such
prohibited transaction provisions. The Company intends to take such steps as may
be necessary to qualify the Company (and any Sister Corp.) for one or more of
the exceptions available under such regulations and thereby prevent the assets
of the Company from being treated as assets of any investing Plan. Specifically,
the Company intends to initially limit equity ownership in the Company by Plans
(and similar investors) to less than 25% of the value of any class of equity
issued by the Company and to subsequently qualify as an "operating company"
(within the meaning of such regulation) or take steps to qualify the Common
Stock as a class of "publicly offered securities" (as such term is defined in
such regulations) at which time the 25% limitation will cease to be applicable.
In addition, with respect to any Sister Corp., the Company will take such steps
as may be necessary to qualify such Sister Corp. as a venture capital operating
company or other available exemption under the Plan Asset Regulations prior to
distributions of its equity interests. See "ERISA Considerations--The Treatment
of the Company's Underlying Assets Under ERISA."
MARYLAND TAKEOVER STATUTES MAY RESTRICT CERTAIN OPPORTUNITIES. As a
Maryland corporation, NSC is subject to various provisions of the Maryland
General Corporation Law (the "MGCL"), which (a) impose certain restrictions and
require certain procedures with respect to certain business combinations,
including, but not limited to, transactions with holders of more than 10% of the
voting power of NSC's equity securities and (b) limit voting rights for holders
of 20% or more of the voting power of NSC's stock. These provisions could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of the shares of Common Stock might receive a premium for
their shares of Common Stock over the then-prevailing market price or which such
holders might believe to be otherwise in their best interests. See "Certain
Provisions of Maryland Law and of NSC's Charter and Bylaws--Business
Combinations" and "--Control Share Acquisitions."
BOARD OF DIRECTORS MAY CHANGE CERTAIN POLICIES WITHOUT STOCKHOLDER
CONSENT. The major policies of the Company, including its investment policy and
other policies with respect to acquisitions, financing, growth, operations, debt
and distributions, are determined by its Board of Directors. The Board of
Directors may amend or revise these and other policies, or approve transactions
that deviate from these policies, from time to time without a vote of the
stockholders. The effect of any such changes may be positive or negative. See
"Certain Provisions of Maryland Law and of NSC's Charter and Bylaws."
LOSS OF INVESTMENT COMPANY ACT EXEMPTION WOULD ADVERSELY AFFECT THE
COMPANY. The Company believes that it will not be, and intends to conduct its
operations so as not to become, regulated as an investment company under the
Investment Company Act. The Investment Company Act exempts entities that,
directly or through majority-owned subsidiaries, are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" ("Qualifying Interests"). Under current
interpretations by the staff of the Commission, in order to qualify for this
exemption, the
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Company, among other things, must maintain at least 55% of its assets in
Qualifying Interests and also may be required to maintain an additional 25% in
Qualifying Interests or other real estate-related assets. The assets that the
Company may acquire therefore may be limited by the provisions of the Investment
Company Act. In addition, the Company could, among other things, be required
either (a) to change the manner in which it conducts its operations to avoid
being required to register as an investment company or (b) to register as an
investment company, either of which could have an adverse effect on the Company
and the market price for the Common Stock.
LIMITATION ON LIABILITY OF MANAGER AND OFFICERS AND DIRECTORS OF THE
COMPANY. The Charter contains a provision which limits the liability of a
director or officer to NSC and its stockholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action.
The Company will indemnify the Manager and its partners from any action or
claim brought or asserted by any party by reason of any allegation that the
Manager or one or more of its partners is otherwise accountable or liable for
the debts or obligations of the Company or its affiliates. In addition, the
Manager and its partners will not be liable to the Company, and the Company will
indemnify the Manager and its partners, for acts performed pursuant to the
Management Agreement, except for claims arising from acts constituting bad
faith, willful misconduct, gross negligence or reckless disregard of their
duties under the Management Agreement. See "Management of Operations--Limits of
Responsibility."
OTHER RISKS
RISK THAT MARKET FOR COMMON STOCK WILL NOT DEVELOP. No assurance can be
given as to (i) the likelihood that an active market for the shares will
develop, (ii) the liquidity of any such market, (iii) the ability of the
stockholders to sell their Common Stock, or (iv) the prices that stockholders
may obtain for their Common Stock.
NEWLY-ORGANIZED CORPORATION. The Company is dependent upon the experience
and expertise of the Manager in administering its day-to-day operations.
Principals of the Manager and its affiliates have experience in investing in and
managing real estate-related assets. However, many of such officers, directors
and employees have managed a REIT only since December 1997. There can be no
assurance that the Manager will be able to implement successfully the strategies
that the Company intends to pursue.
EXTERNAL MANAGEMENT OF THE COMPANY. The Company is managed by the Manager,
subject to the supervision of the Board of Directors. Thus, the Company depends
on the services of the Manager and its partners and employees for the success of
the Company. Moreover, the Company's success depends in part on the continuing
ability of the Manager to hire and retain knowledgeable personnel. This ability
may be affected, in turn, by the Manager's continued financial condition.
Finally, the Company is subject to the risk that the Manager will terminate the
Management Agreement and that no suitable replacement can be found to manage the
Company. In the future, the Company may consider the effect of transactions
whereby the Manager could be merged into the Company, or other means by which
the Company may become self-managed and self-administered. The Company has no
current intention, however, to pursue any such transaction and there can be no
assurance that the Company will become self-managed or self-administered in the
future.
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MARKET TRENDS AND INVESTMENT STRATEGIES
MARKET TRENDS
The Company's investment activities occur in an ever-changing environment
influenced initially by market characteristics that already have provided
numerous opportunities for NorthStar and the Company. As a result of excessive
lending, speculative development, and a permissive regulatory environment during
the 1980s, in the late 1980s and early 1990s, the real estate markets, like the
broader economy, entered into a recessionary phase, resulting in a decline in
demand and depressed values. The value decline led to losses and insolvencies
among financial institutions that had been the traditional suppliers of debt
financing to the real estate industry. The supply-demand imbalances were
exacerbated by new supply from the sales of sub-performing and non-performing
loans and properties by the RTC and private sector lenders. Opportunistic real
estate investors capitalized on the illiquidity and supply-demand imbalances
during the early 1990s and were the primary acquirors at sales by the RTC and
financial institutions. As the real estate markets have recovered from the
depressed environment during the early 1990s, traditional "distressed"
investments have become less prevalent. The Company believes, however, that a
number of attractive investments opportunities remain available, with continued
upside available for investors such as the Manager with sophisticated real
estate and capital markets strategies.
The primary market characteristics driving the recovery of the real estate
markets in the U.S. are the growth of the public real estate capital markets and
the consolidation of ownership of real estate. The Company believes that there
has been a paradigm shift in the manner in which real estate is capitalized.
During the 1970s and the 1980s, real estate equity was financed primarily
through limited partnerships which often were heavily motivated by tax benefits
rather than by the returns on their investments. During the 1990s, real estate
has increasingly been financed through the public markets. Since 1991, the
equity market capitalization of publicly-traded equity REITs has increased from
approximately $8.8 billion to almost $118.5 billion as of October 31, 1997,
while the number of publicly-traded equity REITs has increased from
approximately 86 to approximately 174. While public ownership has proven highly
successful for many companies, the market has responded poorly to others. As the
public equity market for real estate stocks matures, the Company believes that
size and economies of scale are becoming increasingly important. Many existing
real estate companies, however, are small and inefficient, and lack the ability
to access the capital markets. As a result, the real estate industry has been
experiencing significant consolidation. Initially, the consolidation was
primarily between private entities, with transactions involving single assets,
portfolios of assets and entity-level acquisitions. More recently, a greater
portion of the consolidation has been public companies acquiring or merging with
privately-held companies and other public companies as well as acquiring the
assets of such companies. Since 1991, merger and acquisition activity of public
REITs has increased substantially, from 10 transactions representing
approximately $219 million in 1991 to 59 transactions representing approximately
$8.3 billion in 1996, with greater volume expected in 1997. During 1997, the
largest merger ever of two publicly-traded REITs was announced with the
announcement of the merger of Equity Office Properties Trust with Beacon
Properties Corporation in a transaction valued at approximately $4.0 billion,
eclipsing the previous record of $3.0 billion, which occurred in 1996 when Simon
Property Group merged with DeBartolo Realty Corporation. The pending acquisition
by Starwood Lodging Trust of ITT Corporation is another example of this trend.
These industry trends have resulted in a substantial arbitrage between
private market and public market pricing of real estate. Investor appetite for
public real estate securities has enhanced the opportunity to accumulate assets
in private form and then transfer them to public ownership, benefitting from the
arbitrage of differing costs of capital. In fact, the Company believes that
REITs trade at an average premium to net asset value of approximately 20% with
certain companies trading at premiums of over 50%.
Despite the overall real estate market recovery, the Company believes that
there are still sectors of the market that have not recovered. The Company
believes that geographic markets were impacted by the recession and recovered at
different times. For example, California lagged the majority of the country
through the business cycle. The Company believes that certain markets continue
to lag. Additionally,
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inefficiencies in local markets occasionally create a disparity in price among
substantially identical properties in comparable locations. Further, different
property types tend to be in different stages of the business cycle at different
times. The Company believes that these market dynamics provide the Company with
opportunities to acquire quality assets at significant discounts to replacement
cost.
In addition, the Company believes that certain users, financial institutions
and other non-strategic and inefficient owners of real estate are actively
seeking to reduce real estate holdings. The Company believes that industry
trends have magnified the inefficiencies of ownership by such owners. In
addition to real estate offered for sale by financial institutions, corporate
down-sizing and corporate divestitures of real estate are contributing to the
supply of real estate in the marketplace. Inefficient owners are, in the
Company's belief, obtaining liquidity by disposing of "non-core" assets such as
real estate. The Company believes that these sellers are often driven by
strategic or accounting concerns rather than solely price considerations. In
addition, the Company believes that inefficient owners are often motivated to
sell by the non-cash earnings impact on their financial statements of holding
real estate. The result has been, among other things, the creation of new
categories of property types. For example, REITs focusing on property types such
as golf courses, restaurants, scientific research facilities, and theaters have
emerged.
INVESTMENT STRATEGIES
The Company intends to identify, create and realize value in its real
estate-related investments. Several themes underlie this strategy:
relationships, industry trends, and special situations.
RELATIONSHIPS. The Company intends to utilize the Manager's existing
extensive network of relationships to provide proprietary access to negotiated
transactions and to avoid competitive auctions. The Company believes that
competitive auctions and widely-marketed transactions rarely offer above average
returns on capital. The professionals at the Manager have developed an extensive
network in the real estate and financial communities throughout the United
States to assist in identifying and pursuing opportunities before they are
widely-marketed. Through its affiliations, the Manager intends to capture
exclusive access to opportunities at attractive pricing. In addition, when
possible, the Company intends to focus on "platform" transactions, i.e.,
transactions that will provide additional investment opportunities. The Manager
further intends, in connection with the Company's investments, to negotiate
rights of first refusal or other options that will provide the Company with a
"first look" at future investment opportunities.
INDUSTRY TRENDS. The Company intends to identify and capitalize on industry
trends to stay ahead of the general real estate investment market. By
anticipating these trends, the Manager hopes to gain a competitive advantage in
its investing and investment management, including the identification of exit
strategies for particular investments, when appropriate. The Manager intends to
focus on property types and geographic markets that are out of favor and on
situations that are not widely understood in order to identify areas of
opportunity, and then to develop specific investment strategies to take
advantage of the opportunities. The Manager and the Company believe that this
contrarian philosophy will allow the Company to capitalize on market
inefficiencies and product type, geographic market, capital markets or other
cycles. In addition, the Manager has found that on occasion when sophisticated
opportunistic investors, such as NorthStar, identify an area for investment, the
broader investment community begins to explore opportunities in the identified
area. The resulting increased attention and demand by itself may increase the
value of the investment of early investors in the area.
SPECIAL SITUATIONS. The Company intends to exploit opportunities available
because of complexities and other special situations where significant
"intellectual capital" is necessary to realize value. The Company intends to
focus on specific opportunities involving structural and situational
inefficiencies and other impediments to investment, such as transactional
complexity, whether legal, tax, or financing complexity, or the prospect of no
or limited immediate cash flow. The Company intends to utilize the Manager's
experience with innovative structuring techniques to unlock value while limiting
risk. The Company anticipates that the Manager will continue to discover
situations involving sellers motivated not by strict price considerations but
rather by the creative solutions to difficult transactional problems that the
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Manager may offer. The Company believes it may obtain pricing advantages and
superior returns by solving complex problems and repositioning assets. The
Company believes that the complexities involved in acquiring troubled assets or
entities dissuade many potential buyers, but that the potential price discounts
often exceed the cost of solving the problems.
The Company has invested in, and intends to focus its future investment
activity in, four primary investment categories (collectively, "Real
Estate-Related Assets"): (i) Real Estate Companies, (ii) Underutilized Assets,
(iii) Corporate Divestitures, and (iv) Partnership Interests.
(i) REAL ESTATE COMPANIES: As public market ownership and consolidation
continues in the real estate industry, the Company expects to target investments
in real estate companies. Opportunities in this target area include public and
private companies, regardless of form, whether corporate, partnership, limited
liability company or otherwise, and generally fall into three types of
companies: real estate ownership companies, including REITs and non-REIT
ownership companies, homebuilders and other development companies; real estate
service companies, such as management or brokerage companies, and real estate
intensive operating companies, including any company with a strategic dependence
on real estate. The Company intends to invest in private placements of common
stock or other securities convertible into common stock. When the Company
identifies strong management teams and growth prospects, it may provide growth
capital for build-ups of companies with otherwise limited access to equity
capital and may recapitalize over-leveraged or other poorly capitalized
companies. The Company expects to take advantage of the arbitrage between
private and public market pricing of real estate with its investments in this
area. Conversely, when an entity can be acquired for less than the value of its
assets, the Company may acquire control of such entity, whether directly
(through the acquisition of a controlling equity interest) or indirectly
(through the acquisition of debt).
To date, the Company has committed a substantial portion of its equity to
opportunities associated with newly formed or reorganized companies with real
estate-related operations. The Company's largest investment is its participation
in the consolidation of the ownership interests and management operations of the
Ian Schrager hotels. Other examples include the formation of the U.S. Franchise
Systems Development Fund to develop and operate economy hotel properties; the
new venture with Koll Resorts International to acquire, develop and operate golf
courses; and the partnership with principals of Brown Harris Stevens to acquire
high-end residential brokerage operations. Each of these strategic alliances
creates a platform for new investments sourced through the Company's
relationship with experienced, well-positioned operating partners. See "The
Company--Acquisitions and Investments."
(ii) UNDERUTILIZED ASSETS. The Company expects to target investments in
repositionings and recapitalizations of under-utilized or poorly capitalized
single assets and portfolios that may be recapitalized on advantageous terms and
repositioned with the expectation of returns greater than those that could be
achieved by acquiring a stabilized property. In a dynamic environment with an
ever-changing and cyclical economy and changing demographic characteristics,
there generally will be opportunities to take better advantage of well-located
and structurally sound properties. Opportunities in this area include
acquisitions of properties and portfolios from controlling parties who are not
focused on maximizing value in assets, whether because such parties have lost
economic incentive or because they are non-strategic or inefficient owners of
the real estate. In addition, opportunities may involve substantial
rehabilitation or redevelopment and ground-up development where market
conditions warrant new construction. Investments in this area may benefit from
the Manager's value-added problem solving and structuring capabilities, as well
as from the skills of operating partners in joint venture investments. In
addition, the Company believes that investments in Underutilized Assets outside
the United States may provide opportunities for the Company to utilize the
investment and investment management expertise of the Manager developed
domestically.
The Company has identified and acquired interests in a number of properties
that it believes are underutilized and present development or repositioning
opportunities. A prime example of such an opportunity is the Henry Hudson Hotel
property, located in Manhattan, New York. Interests in this property were
acquired in conjunction with the consolidation of the Ian Schrager hotel
enterprise. Originally built as a hotel and later converted to office and
residential use, this property is slated for
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redevelopment as a moderately priced athletic/urban spa hotel. The Company
expects that the renovation of this property will be completed at an all-in cost
per room significantly below replacement cost. Teaming up again with Ian
Schrager, the Company expects to pursue a similar repositioning strategy with
respect to the Miramar hotel in Santa Barbara, California, an acquisition that
the Company hopes to complete later in 1998. Other development/repositioning
opportunities include 350 Washington Street, Boston, Massachusetts, which offers
the potential to develop 500,000 square feet of new office space in a prime
location in downtown Boston, and the land parcel recently acquired through a
joint venture with principals of The Koll Company in Irvine, California which is
currently zoned for hotel use, but is targeted by the Company for development of
a 178,000 square foot office building and parking facilities. See "The Company--
Acquisitions and Investments."
(iii) CORPORATE DIVESTITURES. The Company is expected to target investments
in corporate divestitures from users, financial institutions, and other
non-strategic and inefficient owners of real estate. Many domestic and foreign
corporations have made direct investments in U.S. real estate assets or on
occasion established full-service real estate subsidiaries. In the current era
of corporate restructuring and downsizing, many firms have chosen to liquidate
non-core businesses and assets such as real estate. As a result, the Company
believes that many opportunities will exist to acquire real estate assets, real
estate operating businesses or interests in real estate joint ventures directly
from corporations. In some instances, the selling companies may have particular
objectives, such as the need to sell assets prior to the end of a fiscal quarter
or a desire to allow an operating partner to continue to participate in an
investment, which the Company expects to be able to accommodate. The Company
believes that non-U.S. institutions may become particularly active sellers of
domestic and foreign assets in the near future. Reminiscent of the failure of
many U.S. financial institutions in the early 1990s, the Company believes that
certain financial institutions outside the U.S. are facing insolvency and
regulatory agencies are increasing pressure on such institutions to sell
sub-performing and non-performing assets.
The Company, through Koll NorthStar Golf Joint Venture, recently acquired
two golf courses near Houston, Texas as a result of a corporate divestiture of
non-strategic, non-income producing assets. The courses had been used by the
corporation exclusively for the use of its employees. The Company believes that
it obtained favorable pricing because of the motivation of the corporate seller
and the fact that these assets were not valued based on any historic operating
income. The Company intends to operate the courses as "pay-to-play" facilities,
open to the general public. See "The Company--Acquisitions and Investments--Koll
NorthStar Golf Joint Venture."
(iv) PARTNERSHIP INTERESTS. The Company expects to target the
recapitalization of syndicated limited partnerships sold primarily to
individuals and commingled, closed-end funds sold to institutions. The Company
estimates that over $100 billion was invested in syndicated real estate limited
partnerships in the 1970s and the 1980s primarily by individual investors. The
Company believes that these partnerships are often undercapitalized or
mismanaged, and general partners, whose interests generally are fee-based and
often misaligned with their limited partners, exert significant control over the
asset management and capital structure of the partnerships. The Company believes
that many limited partners acquired their interests for tax benefits that are no
longer available. Only a limited and illiquid public market for these interests
exists. As a result, the Company believes that interests in many public and
private limited partnerships can be acquired at attractive prices. The Company
believes that, although opportunistic investors have capitalized upon
opportunities in this area, selected advantageous investments may still be
available.
A number of institutions have made substantial commitments to real estate.
Leading real estate investment managers formed commingled, closed-end funds and
group trusts that were offered to institutional investors. The Company estimates
that approximately $60 billion was committed to these investment vehicles on the
part of public and private pension funds, insurance companies, and endowments.
The Company believes that many institutions may desire to sell their fund
investments, but only a limited and illiquid market for these interests exists,
particularly given the size of the typical institutional holding in this area.
In addition, investment managers are often financially motivated to hold
properties
24
<PAGE>
due to their compensation structure. The Company believes that it can capitalize
on such market opportunities by providing liquidity.
The Company intends to invest in traditional property types and the
businesses related thereto, such as office, industrial, retail, residential, and
lodging, as well as non-traditional property types and businesses, such as
health care, entertainment and leisure and other properties and businesses. Real
estate-intensive operating businesses are generally capital intensive and
characterized by substantial operating leverage due to the high proportion of
expenses that are relatively fixed during any given year. Many companies in
these businesses are positioned to benefit from their inherent operating
leverage as a result of continued growth, favorable demographic trends, and
consolidation activity within industries that are generally highly fragmented.
The Company's investment interest in select opportunities among these businesses
is further supported by valuation levels that are typically based on cash flow
multiples significantly lower than those currently seen in the REIT industry, as
well as sector volatility that can unexpectedly preclude a company from
effectively accessing public capital. The Company believes that the lower
valuation multiples across these industries are based, at least in part, on the
market's perception that capital is sub-optimally deployed in real estate
assets. Consequently, the Company believes that separating a company's real
estate assets from its operations may be an attractive investment strategy in
certain circumstances.
Although the Company expects that its primary emphasis will be on the
acquisition of such Real Estate-Related Assets, future acquisitions may include
Other Assets. The Company may decide in the future to pursue other available
acquisition opportunities it deems suitable for the Company's investments. In
making its investments, the Company intends to conduct all of its investment
activities in a manner consistent with maintaining the status of NSC as a REIT
for U.S. federal income tax purposes. To the extent any of the above-desired
investments may be inconsistent with maintaining the status of NSC as a REIT,
such investments, if otherwise attractive, would be made by the Sister Corp. To
date, the Company has relied on the "qualified temporary investment" provisions
of the REIT rules to a significant extent in structuring the acquisition of many
of its investments. The qualified temporary investment provisions generally
provide that the temporary investment by a REIT of newly raised capital in the
stock or debt of an issuer will qualify as a "real estate asset" for purposes of
the REIT requirements during the one-year period beginning on the date on which
the REIT received such capital even though such investments would not otherwise
qualify as real estate assets if made at a time when the qualified temporary
investment provisions were not available to the REIT, i.e., after expiration of
the one-year period. See "Federal Income Tax Considerations--Requirements for
Qualification--Asset Tests." The qualified temporary investment provisions also
provide that income from qualified temporary investments will qualify for
purposes of the 75% income test even though such income would not otherwise so
qualify if received or accrued at a time when the qualified temporary investment
provisions were not available to the REIT. See "Federal Income Tax
Considerations--Requirements for Qualification--Income Tests." Accordingly, the
Company currently owns a significant portion of its assets indirectly through
one or more corporations. Each of these corporations is subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income. The Company currently contemplates that as part of the restructuring of
its current asset portfolio a significant portion of its current assets,
including without limitation, the stock of the corporations described in the
immediately preceding sentence, may be contributed by the Company to the Sister
Corp. prior to the distribution of the stock of the Sister Corp. to the
stockholders of NSC.
The Company cannot anticipate with any certainty the percentage of its
assets that will be in each category of Real Estate-Related Assets or in Other
Assets. The Company has a great deal of discretion in the manner in which it
invests. There can be no assurance that the Company will be successful in its
investment strategy.
INVESTMENT MANAGEMENT
The Manager intends to create and realize value by identifying advantageous
investment management strategies for the Company's investments. The
professionals of the Manager have extensive experience in a broad range of
aspects of real estate investment management, including financing, asset and
property management, and dispositions. Each investment professional at the
Manager responsible for a particular
25
<PAGE>
investment will remain responsible for the investment management of such
investment throughout its ownership by the Company. The transaction structuring
and capital markets expertise of the Manager's professionals will allow it to
identify, when appropriate, exit strategies that seek to maximize stockholder
return, including sales for securities in public companies, initial public
offerings of securities, mergers, spin-offs and other structured transactions as
well as traditional sales of assets.
The Company intends to enhance and extend its internal management resources
through a network of strategic partners with specialized geographic and
property-type expertise and information. Through these relationships, the
Company can gain local presence in strategic markets and hands-on operational
knowledge of the assets underlying its investments, as well as access to
proprietary transactions. The Manager has developed a network of such partners
and will expand such relationships as it pursues the Company's investment
strategy. Generally, the Manager intends to structure relationships with
partners who will make meaningful equity investments and provide incentives to
its partners to ensure that the partners' interests are aligned with the
Company's, while the Company retains control over its investment.
The Company intends to finance investments with the use of leverage that
will maximize equity returns while allowing maximum flexibility and maintaining
an acceptable level of risk. As the real estate markets have improved, the debt
financing markets also have improved from the borrower's perspective. Lenders
are providing greater leverage at relatively lower cost with greater structuring
flexibility. The professionals of the Manager have extensive relationships in
the lending community, being regular users of debt financing and often employing
creative financing techniques, and the Company expects to benefit from the
Manager's lending relationships.
The Company intends to pursue a strategy of portfolio diversification in
terms of geographic location, property type, and investment type. The Company
believes that diversification is important to reducing potential downside risks.
However, the Company will have no predetermined limitations or targets for
concentration of geographic location, property type, or investment type.
Instead, the Company plans to make investment decisions on a case-by-case basis.
THE SISTER CORP.
The Company has made certain investments, and anticipates that it may, from
time to time, identify additional assets, that it believes may be advantageous
investments but that may be inappropriate (whether for REIT qualification, tax
or other reasons) for investment, in whole or in part, by a REIT or which may
otherwise be determined by the Manager and NSC, based on general prudent
considerations, to be inappropriate, in whole or in part, for investment by the
Company. In order to permit stockholders to participate in the economic benefits
that may be associated with such assets, the Company intends to cause the
Operating Partnership to form one or more subsidiary corporations, partnerships
or other entities (each, "NewCo"), which would not elect to be taxed as a REIT.
The Operating Partnership would initially contribute to NewCo a portion of the
net proceeds of the Original Offering or certain purchased assets which are
inappropriate for a REIT, together with, on behalf of the Initial Limited
Partner, a pro rata portion of the capital of the Operating Partnership
allocable to the Initial Limited Partner's contributed capital, which, in the
case of a cash contribution, will be sufficient to permit NewCo to make such
initially identified investments, in exchange for all of the issued and
outstanding equity interests in NewCo. The Operating Partnership would then
distribute the equity interests pro rata to NSC and the Initial Limited Partner.
NSC in turn would distribute the NewCo equity interests to its stockholders. The
Board of Directors and executive officers of NewCo will initially be identical
to the Board of Directors and executive officers of the Company. Concurrently
therewith or immediately subsequent thereto, NewCo and the Manager will form an
operating partnership (the "NewCo OP" and each, collectively with NewCo, the
"Sister Corp.") upon substantially the same terms and conditions as the
Operating Partnership Agreement (including with respect to the distribution of
the incentive return to the Manager). NewCo and NewCo OP will immediately
thereafter enter into a management agreement (or agreements) with the Manager on
substantially the same terms and conditions as the Management Agreement. The
Company anticipates that all investments determined by the Manager to be
appropriate for the Company will continue to be made by the Company but that
investment opportunities which the Manager believes are not appropriate for a
26
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REIT, but which otherwise are attractive investments, will be made by the Sister
Corp. The Company intends to structure its current investments and future
investments in such a way so that assets which are appropriate for a REIT will
remain with the Company and assets which are not appropriate for a REIT will be
contributed to the Sister Corp. Furthermore, to the extent that certain
synergies and tax efficiencies are possible between the Company and the Sister
Corp., the Company intends to maximize the opportunities presented by such
synergies and tax efficiencies. For example, the Company and the Sister Corp.
may jointly acquire investments in assets and businesses, such as hotels or
healthcare, where the Company will acquire title to underlying real property and
lease such property to the Sister Corp., at market rents (including rents based
upon a percentage of gross revenues), while the Sister Corp. acquires and
operates the operating business. The Company anticipates that such synergies and
tax efficiencies will provide the Company with substantial advantages in making
investments over other companies; however, no assurance can be made that the
Company will be successful in creating and implementing such synergies and tax
efficiencies.
The formation of the Sister Corp. will permit stockholders of the Company
who retain their shares of the Sister Corp. to participate in the real estate
operations of the Company (including ownership of real property) and the Sister
Corp.'s operation of operating businesses and other assets which may not
otherwise be appropriate for a REIT, with the Company's principal focus being on
real estate investments while the Sister Corp.'s principal function will be as
an operating company. The operating activities and operating assets made
available to the Sister Corp. by the Company are designed to provide NSC's
stockholders with the long-term benefits of ownership in an entity devoted to
the conduct of operating business activities in addition to their ownership
interest in the Company. A small number of REITs, operating under tax provisions
that no longer are available to newly-formed REITs, have their shares "paired"
or "stapled" with shares of a related operating company, and therefore cannot be
owned or transferred independently. The shares of the Company and the equity
interests of the Sister Corp. may or may not be paired or stapled in any manner.
With respect to the shares of the Company and the equity interests of the Sister
Corp. that may be owned and transferred, subject to applicable securities laws
restrictions, separately and independently of each other, the Company and the
Sister Corp. will not necessarily provide a paired investment with the Company
on an ongoing basis.
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THE COMPANY
NSC was incorporated in the State of Maryland in November 1997 and will
elect to be taxed as a REIT under the Code. The Operating Partnership was formed
in the State of Delaware in December 1997. The principal executive offices of
the Company are located at 527 Madison Avenue, 16th Floor, New York, New York
10022. The Company's telephone number is (212) 319-3400.
ACQUISITIONS AND INVESTMENTS
IAN SCHRAGER HOTELS.
On February 13, 1998, the Company and an affiliate of the Manager, in
conjunction with Ian Schrager, effected a series of simultaneous "roll-up"
transactions with third parties, resulting in the formation of Ian Schrager
Hotels LLC ("ISH"). ISH is a consolidated, fully-integrated hotel ownership and
operating company that has succeeded to the lodging-related, ownership,
development and management activities of Ian Schrager. Since the mid-1980's, Mr.
Schrager has been associated with conceiving, operating and developing a number
of upscale, chic hotel properties. The Schrager hotels feature sophisticated
award winning design and are popular among travelers who seek a fashionable
lodging alternative in major metropolitan markets. ISH is expected to benefit
from synergies and efficiencies available to the consolidated entity.
As a result of the roll-up transactions, ISH currently owns the Paramount
Hotel in New York City, the Mondrian Hotel in Los Angeles, California and a
two-thirds indirect partnership interest in the Royalton Hotel in New York City.
ISH manages these hotels as well as the Delano Hotel in Miami, the Morgans in
New York City and the Clift Hotel in San Francisco.
Additionally, ISH is in various stages of re-developing three new projects.
ISH owns and has options to purchase various interests in the Henry Hudson Hotel
in New York City. See "Management of Operations -- The Manager's Experience --
Henry Hudson Hotel." Upon exercise of these options, ISH intends to complete the
redevelopment of the Henry Hudson Hotel. ISH has also acquired a 50% voting and
an approximate 50% economic interest in, a joint venture with I.S. Europe
Limited, f/k/a Burford (Covent Garden) Limited ("I.S. Europe"). I.S. Europe,
through a wholly-owned subsidiary, owns two properties in London, England which
it anticipates re-developing into hotels (the "London Properties"). I.S. Europe
also anticipates identifying and acquiring other properties throughout Europe
for development as hotels.
Certain information with respect to each of the ISH operating assets is as
follows:
<TABLE>
<CAPTION>
ASSET LOCATION ROOMS % OWNED 1997 ADR(1) 1997 OCC. RATE 1997 REVENUE PER ROOM
- ---------------------- ---------------------- ----------- ----------- ------------ ----------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Paramount............. New York 591 100% $ 179.95 80.9% $ 145.58
Royalton.............. New York 168 67% $ 294.84 85.8% $ 252.97
Mondrian.............. Los Angeles 238 100% $ 223.11 76.1% $ 169.79
</TABLE>
- ------------------------
(1) Average Daily Rate.
The Mondrian Hotel is currently not encumbered by any mortgage debt. The
Paramount Hotel is currently encumbered by approximately $73.8 million of
amortizing mortgage debt, which bears interest at the rate of 8.26% per annum
through October 11, 2007 and matures on October 11, 2022. ISH's indirect
interests in the Paramount Hotel are encumbered by $4 million of mezzanine debt,
with an additional $3 million available to be drawn. This mezzanine debt bears
interest at the greater of 10.25% per annum and LIBOR plus 525 basis points,
matures on October 11, 2005, and may be prepaid at any time without penalty. The
Royalton Hotel is encumbered by approximately $29 million of amortizing mortgage
debt, which bears interest at a rate of 3.3% over LIBOR maturing on March 28,
1998. The Company is presently exploring re-financing alternatives with respect
to the Royalton debt and expects to obtain an extension on the term of the
existing financing.
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The Royalton, Delano and Morgans Hotels are each managed pursuant to
management agreements expiring in the years 2011, 2008 and 2004, respectively.
Each management agreement is terminable, however, upon the occurrence of certain
events, including a manager default, the sale of the applicable hotel, or the
failure of Ian Schrager to be actively involved in the management of the
applicable hotel. The Clift Hotel is managed pursuant to an oral management
agreement which is terminable at will.
In connection with the formation of ISH, Ian Schrager executed a five year
employment contract to serve as Chief Executive Officer of ISH. David T.
Hamamoto and W. Edward Scheetz, as members of the board of managers of ISH, have
a veto right over all major decisions with respect to the business and
operations of ISH.
The Company's interest in ISH is held indirectly through NorthStar
Hospitality LLC ("NH"). As described under "Management of Operations--The
Manager's Experience," affiliates of the Manager had previously purchased
interests in the Henry Hudson Hotel and had also purchased a 49% interest in Ian
Schrager's management company, ISHM. These interests were contributed at cost to
NH. Following these formation transactions and a contribution of approximately
$110.8 million by the Company, NH owns approximately an 84% membership interest
in ISH. The Company in turn, through a corporate subsidiary, owns a 37.1%
managing membership interest in NH and the Manager's affiliate holds the
remaining 62.9% managing membership interest in NH. The economics of the Company
and the affiliate of the Manager in NH are identical, except for the variance in
their respective percentage interests. Any decisions to be made by the members
of NH require unanimous vote. Substantially all of the remaining 16% ownership
of ISH is held indirectly by Ian Schrager. Upon ISH achieving certain
performance levels, Ian Schrager as well as another former owner of the
Paramount Hotel are entitled to receive certain promoted returns and Schrager
has certain fully-vested options to purchase additional interests in ISH.
NH's initial investment in ISH, as well as a subsequent investment made on
March 18, 1998, is comprised of approximately $102.5 million of equity capital
and $190 million of convertible debt (the "Convertible Debt"). NH is entitled to
a fee on the Convertible Debt equal to 100 basis points of all amounts that it
funds. The Convertible Debt is prepayable at any time without premium or penalty
and has an interest rate equal to the greater of (x) 15% per annum, compounded
quarterly, and (y) the return such debt would have received if it were instead
an initial equity investment in ISH. Any Convertible Debt held by NH on December
15, 1998 will not be repaid by ISH but will automatically be converted into
equity in ISH.
5TH AVENUE AND 44TH STREET BUILDINGS, NEW YORK, NEW YORK.
On February 9, 1998, the Company acquired effectively 100% of the economic
interest in two midtown-Manhattan office buildings located at 417 Fifth Avenue
and 19 West 44th Street for aggregate consideration of $70.5 million. 417 Fifth
Avenue is a 332,000 square foot, 21 floor Class B office building. 19 West 44th
Street is a 219,000, 18 floor Class B office building. The buildings, which are
located in the "Grand Central Station" sub-market of midtown Manhattan, contain
more than 550,000 square feet of rentable space and are over 75% occupied.
Collectively, the buildings are occupied by approximately 130 small, service
tenants, generally in spaces of from 1,000 to 2,000 square feet. Approximately
27% of the 417 Fifth Avenue building is occupied by "showroom" tenants, who
utilize the space to market various items of clothing accessories. No single
tenant occupies 10% or more of the 19 West 44th Street building. There are
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two tenants at the 417 Fifth Avenue that lease more than 10% of the gross
leasable area in the building. The principal terms of their lease arrangements
are as follows:
<TABLE>
<CAPTION>
LEASE
LEASED RENT PER PERCENTAGE TERMINATION
TENANT PREMISES SQ. FT. RENT DATE
- ------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Aris Isotoner*....................... 37,753 sq.ft. $22.25/sq.ft. N/A 07/98
GT Interactive Software.............. 90,000 sq.ft. $20.00/sq.ft. N/A 12/06
</TABLE>
- ------------------------
* This tenant has vacated, but is still paying rent.
The Company's interests in each building include (i) a master tenant
interest, whereby pursuant to a master net lease (each, a "Master Lease") the
Company leases the entire building from the fee owner and is entitled to rent
office space in the building to sub-tenants and (ii) an option to acquire the
fee ownership of each building, subject to the payment of $13.5 million over a
period of twenty-five years commencing on March 31, 2003. Base rent under each
Master Lease is equal to an annual rate of 5% of the remaining option payments,
decreasing as and to the extent that each option payment is made. In addition,
under each of the two Master Leases, the Company is responsible for all real
estate taxes, operating expenses and maintenance costs for the buildings and is
entitled to manage the buildings and retain all revenues generated therefrom. In
1997, the aggregate real estate taxes payable for both buildings totaled
$2,281,966 and the operating expenses totaled approximately $3,891,077,
exclusive of real estate taxes.
Although neither office building is currently subject to any mortgage
financing, the Company has secured the right to obtain a loan, which may, at the
Company's election, be secured by the properties, in the aggregate amount of $55
million. The loan may be made by any lender, including an affiliate of the
Company. The Company will have beneficial use of the proceeds of the loan, and
the Company effectively will pay all debt service on such loan.
USFS DEVELOPMENT FUND
On March 17, 1998, the Company committed $35 million to the initial
capitalization of U.S. Franchise Systems Development Fund (the "USFS Fund").
U.S. Franchise Systems, Inc. ("USFS") is contributing $10 million to the USFS
Fund through a loan to an entity controlled by the Company which will make the
investment to the USFS Fund. A third-party investor is contributing the
remaining $5 million of the initial capitalization to the USFS Fund. A
commercial lender is expected to initially provide approximately $50 million in
debt financing to the USFS Fund.
The $100 million of capital of the USFS Fund will be used to develop a pool
of 15-30 properties branded as Microtels or Hawthorn Suites, two brands owned by
USFS. The USFS Fund will invest in the debt and equity securities of various
limited liability companies (each, a "Project LLC") formed to build the hotel
properties. Experienced local developers will be selected to build the hotels
and are expected to contribute between 25% and 75% of the required equity. The
USFS Fund is expected to lend 75% of the Project LLC's capital structure in the
form of a mini-perm loan, and will provide the remaining equity that is not
funded by the local developers.
USFS will administer the USFS Fund and will receive an asset management fee.
In connection with the formation of the fund, David T. Hamamoto will be elected
to the USFS board of directors. USFS will be responsible for selecting
experienced, local developers with capital who control attractive sites in good
markets, and for supervising the construction process and overseeing and
assisting the developer. Microtel Hotel investments may be made by USFS on
behalf of the USFS Fund, subject to pre-approved investment criteria established
by USFS and the other investors in the USFS Fund. No less than 75% of the USFS
Fund's investments will be made in Microtel Project LLCs. Hawthorn Suites
developments require the approval of the Company and other third-party investors
on a case-by-case basis.
In addition to the investments in the USFS Fund, the Company and the other
third-party investor will purchase 500,000 shares of USFS common stock for
$5.625 million, or $11.25 per share. The USFS
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<PAGE>
common stock is listed on the Nasdaq National Market. The Company will buy
437,500 of these shares, or 87.5% of the total, for $4.9 million, resulting in a
total investment by the Company of $39.9 million between the USFS Fund
commitment and the share purchase. There are no contractual restrictions on when
such shares may be sold by the Company. Additionally, for each $10 million of
capital committed by the USFS Fund, the Company and the other third party
investor will receive options to purchase 100,000 shares of USFS common stock
(of which the Company will receive 87,500 shares and the other third party
investor will receive 12,500 shares) at a price of $11.25 per share within 18
months of the date that the options are granted. Should the Company elect to
exercise its options, there would be no contractual restrictions on the sale of
the underlying shares.
USFS, the sponsor of the USFS Fund, was formed in 1995 to acquire, market,
and expand high-quality, well-positioned brands with the potential for rapid
unit growth through the sale of franchises. USFS sells franchises for the
Microtel budget hotel brand and the Hawthorn Suites upscale, extended-stay hotel
brand to third party operators, and expects to acquire additional brands in the
future.
350 WASHINGTON STREET, BOSTON, MASSACHUSETTS.
On January 9, 1997, the Company acquired an aggregate of 50.50% co-general
and co-limited partnership interests in a partnership that owns the 350
Washington Street property. The Company paid an aggregate purchase price of
approximately $7.9 million, plus the assumption of $25 million of first mortgage
debt, for an effective transaction value of approximately $40 million. 350
Washington Street is an urban retail property with approximately 129,000
rentable square feet of retail space and an 888 space parking garage. The
property is located in the Downtown Crossing section of Boston, Massachusetts, a
vibrant retail center adjacent to the city's central financial district.
The retail space and parking facility are leased to the following tenants on
the following terms:
<TABLE>
<CAPTION>
TENANT LEASED PREMISES RENT PER SQ. FT. PERCENTAGE RENT LEASE TERMINATION DATE
- ------------------------- --------------- ------------------- --------------------- ------------------------
<S> <C> <C> <C> <C>
F.W. Woolworth Co. 102,000 sq.ft. $4.90/sq.ft. N/A 1/31/07, subject to two
additional ten year
options and two
additional 5 year
options
T.J.X. Companies, Inc. 27,000 sq.ft $49.66/sq.ft N/A 5/03/06
through 5/3/01,
$57.11/sq.ft
through 5/3/06
Meyers Parking System 335,100 sq.ft. $11.94/sq.ft. 32% of gross sales 8/31/06
over $675,000
</TABLE>
Although Woolworth's has vacated the property in connection with its
broad-based corporate restructuring, it has continued to make all payments of
rent and other sums, including 100% of the property's operating expenses and
45.92% of the assessed real estate taxes on a timely basis. The remaining
tenants pay a pro rata share of the remaining real estates taxes. The average
annual effective rent and occupancy rate for the entire property for the past
four years has been as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL EFFECTIVE
RENT OCCUPANCY RATE
--------------------------- -----------------
<S> <C> <C>
1997............................................ $ 3,246,812 100%
1996............................................ $ 2,001,524 100%
1995............................................ $ 2,208,688 100%
1994............................................ $ 2,211,231 100%
</TABLE>
In connection with the Company's acquisition of the partnership interests,
the Operating Partnership guaranteed the repayment of a $2,266,000 portion of
the existing $25 million first mortgage loan encumbering the property. The
mortgage debt bears interest at the rate of 165 basis points over the
31
<PAGE>
London Interbank Offered Rate ("LIBOR") index and includes scheduled principal
amortization payments. The debt is prepayable at any time without penalty and
matures on May 23, 2001, with a balloon principal payment due at maturity of
$20,816,645.
Possible plans for the property being considered by the Company and its
partners include restructuring of the retail space and the potential development
of approximately 500,000 square feet of office space above the existing garage
structure, for which the owning partnership is in the process of obtaining
certain development rights.
KOLL NORTHSTAR GOLF JOINT VENTURE.
In February 1998, the Company and Koll Resorts International, a Southern
California-based subsidiary of The Koll Company, formed a joint venture to
opportunistically acquire, develop and manage golf courses. The venture will
conduct its activities through two distinct joint venture entities, one of which
has been established to acquire golf course sites (the "Ownership Venture") and
the other of which will manage the operations of golf course facilities (the
"Management Venture"). The Company owns 99% of the Ownership Venture, owns 50%
of the Management Venture and is entitled to a priority return on the equity it
invests in both ventures. The percentage ownership of the Ownership Venture may
be reduced over time as a result of incentives granted to the joint venture
partner when certain investment hurdles are achieved.
Upon formation of the Ownership Venture, the Company invested $7.2 million
to fund the acquisition by the Ownership Venture of a 500-acre site including
two golf courses, as well as a right of first refusal to acquire an adjacent 250
acre site, in Hockey, Texas (approximately 40 miles northwest of Houston). The
Club at Tennwood is a 6,420 yard, par 71 golf course designed by Ralph Plummer
and The Links at Tennwood is a 6,397 yard, par 72 golf course designed by Tom
Fazio. The two golf courses have historically been operated as private courses
for the exclusive use of the prior owner's employees. The Company was able to
take advantage of a special situation--a corporation divesting itself of two
under-utilized, non-strategic assets. The Company intends to operate the clubs
as "pay for play" courses, open to the general public for a fee. The golf
courses will compete directly with several public and private courses in the
metropolitan Houston market. The Ownership Venture intends to pursue obtaining a
first mortgage loan on these properties.
Upon formation of the Management Venture, Koll contributed existing
contracts relating to the management and reservation systems for two golf
courses located in Los Cabos, Mexico, and a third course located in Orlando,
Florida. The Management Venture will also lease from the Ownership Venture and
operate the newly acquired golf course facilities in Texas. The leases will be
for a term of approximately three years and an annual rental of approximately
$500,000.
The Company expects to continue to use the two joint venture vehicles
together as a vehicle to acquire, lease and operate additional golf course
properties around the United States.
IRVINE, CALIFORNIA PROPERTY.
On February 26, 1998, a joint venture formed by a subsidiary of the Company
and an affiliate of Koll purchased 5.52 acres of unimproved land in the City of
Irvine California, situated in the Newport Beach airport submarket. The property
is at the corner of Main Street and MacArthur Boulevard, a premier location
within the Koll Center Irvine North Owner's Association ("KCINOA") and adjacent
to The Sports Club Irvine. The property is currently zoned for construction of a
551 room hotel, but Koll is in the process of attempting to obtain a zoning
modification to allow the construction of an office building. When and if this
zoning modification is obtained and upon obtaining approvals of the KCINOA's and
other governmental authorities, the joint venture plans to construct an eight
story, 178,000 square foot office building and a four story parking garage with
approximately 412 stalls, in addition to approximately 200 surface parking
spaces.
32
<PAGE>
If such approvals are obtained in a timely manner and a construction loan is
obtained, Koll has informed the Company that it currently forecasts commencing
construction in the third quarter of 1998 and anticipates completing shell
construction by the third quarter of 1999.
In connection with the acquisition, the Company contributed approximately
$6.63 million to the joint venture, approximately 93% of the capital
contributions to date to the joint venture. Koll has informed the Company that
the total cost of the project, including the land acquisition cost, is
anticipated to be approximately $40 million. The Company expects to fund all
remaining equity capital with respect to the development of this project. Each
of the Company and Koll receive a preferred return on their investments in the
joint venture and upon the joint venture achieving certain performance hurdles
the profits of the joint venture are split on the basis of a schedule of varying
percentages keyed to performance. Additionally, Koll is entitled to receive
development fees and, if the project achieves certain performance hurdles, other
fees from the joint venture associated with Koll's development and management of
the project.
SBZZ/NORTHSTAR HOLDINGS, LLC (RESIDENTIAL BROKERAGE JOINT VENTURE)
On March 6, 1998, the Company entered into a joint venture arrangement with
an entity organized by principals of the New York residential brokerage firm
Brown Harris Stevens, SBZZ Holdings ("SBZZ"). The joint venture, SBZZ/NorthStar
Holdings, LLC ("SBZZ/NorthStar"), will acquire and operate high-end residential
brokerage firms in selected cities throughout the United States. The agreement
between the Company and SBZZ provides that the Company, through a wholly-owned
subsidiary, will fund 85% of the required equity for acquisitions, with SBZZ
funding the remaining 15%. The Company will receive a priority return on its
capital and thereafter profits from the venture will be split based on varying
percentages which are tied to the achievement of specified performance hurdles.
SBZZ will direct the operations of SBZZ/NorthStar. All major decisions regarding
acquisitions and capital decisions will require unanimous approval of members of
an executive committee comprised of two members designated by the Company and
two members designated by SBZZ.
Upon formation of SBZZ/NorthStar acquired 100% of the stock of Feathered
Nest, Inc. for $1,450,000. Feathered Nest, Inc. is a leading high-end Manhattan
rental brokerage company, with strong retail on-site divisions, excellent
industry software systems and substantial name brand recognition. SBZZ/
NorthStar retained Nancy Packes, the founder of the brokerage, to run the
on-site brokerage operations. As of March 16, 1998, Feather Nest, Inc. had 78
brokers as its main Madison Avenue location. For the fiscal year ending February
28, 1998, Feathered Nest had normalized EBITDA of approximately $325,000. With
ample rental product scheduled to come on line in the next three to four years,
SBZZ believes that the Manhattan residential rental market will remain strong
for brokerage firms over the next several years.
POTENTIAL ACQUISITIONS OF MANLEY BERENSON REALTY DEVELOPMENT PROPERTIES, PUERTO
RICO.
On February 18, 1998, the Company entered into a joint venture agreement
with MB Cambridge Real Estate Services, LLC ("Cambridge"). The joint venture has
entered into four purchase agreements to acquire 100% fee ownership of four
shopping centers located in Puerto Rico that are currently owned by certain
affiliates of Manley-Berenson, for an aggregate purchase price of $117.5
million. In addition, the Company and Cambridge entered into a purchase
agreement to also acquire a management company, Manley-Berenson Associates, Inc.
("MBAI") and two affiliated management companies for an aggregate purchase price
of $5 million. The management companies provide management and leasing services
for the four Puerto Rico shopping centers, additional shopping center assets
owned by other Manley-Berenson entities, and third-party owners. The Company is
currently conducting diligence and analysis of these investments and no
assurance can be given that either the acquisition of the shopping centers or of
the management companies will be consummated. In the event that the acquisition
of the shopping centers and the management companies is not consummated, the
Company has the right to terminate the Cambridge joint venture.
33
<PAGE>
The Company believes that investments in Puerto Rico retail and retail
management assets may present the opportunity to acquire retail assets at
attractive yields with major United States-based retail anchor tenants, no
currency risk, judicial protection by the United States federal government, and
in a market with one of the highest population densities (1,069 persons per
square mile) in the world. The Company further believes that the acquisition of
the management companies may provide an important and useful platform for
further retail investments in Puerto Rico, the Caribbean and the continental
United States.
POTENTIAL ACQUISITION OF THE SANTA BARBARA MIRAMAR RESORT HOTEL, SANTA BARBARA,
CALIFORNIA.
On February 17, 1998, the Company entered into a contract to purchase the
fee interest in the Santa Barbara Miramar Resort Hotel. The Miramar is a 213
unit beachfront destination resort situated on approximately 14.0 acres of land
with 500 feet of exclusive private beach, one of very few in California, in the
community of Montecito, on the south coast of Santa Barbara County. Of the 213
units, 61 are contained in 23 sea side bungalows, each with its own fireplace.
Other amenities include a health and tennis club, two swimming pools, a 150
person capacity restaurant, a 55 person capacity hotel bar and The Railroad
Diner, an actual railroad dining car converted for use as a diner. Additionally,
the Miramar has over 12,000 square feet of convention, banquet and meeting
space. The Company intends to fund, reposition and operate the Miramar through
ISH.
The Company believes that with the operational and development capabilities
of Ian Schrager, an excellent opportunity exists to reposition and redevelop the
Miramar. The hotel has traditionally been managed as a family business and,
until recently, has lacked advertising or marketing departments and a
comprehensive reservation system. The Company believes that the hotel's
relatively low annual occupancy rate of approximately 41% over the last six
years is a function of these omissions. The recent occupancy rates of Santa
Barbara County and the Montecito Community have been approximately 75.0% and
80.0%, respectively. The Company further believes that there is significant
opportunity to raise the average daily rates at the hotel, currently
approximately $110/unit, based on rates of $185 - $500/unit at the competitive
hotel properties in the area.
The purchase contract contemplates a closing of the sale of the property in
September, 1998. During the interim period prior to closing, the Company will
continue to conduct due diligence on the feasibility of its redevelopment plans
for the property. Accordingly, there is no assurance at this time that the
acquisition of this property will be consummated.
Among the current considerations for the redevelopment of the property is
the potential to develop a world-class spa and destination resort, as well as
the refurbishment and expansion of convention and conference facilities. The
strategy will include significant redevelopment of the landscaping, refinishing
of the existing units and replacement and upgrade of existing furniture,
fixtures and equipment over the course of calendar year 1998 and the first half
of 1999. Financing of such redevelopment and repositioning may be provided
through additional equity, a line of credit, construction or permanent mortgage
financing, or a combination of the foregoing, all of which are currently being
explored by the Company.
OTHER INVESTMENTS
In addition to those investments discussed above, the Operating Partnership
has also invested funds in certain liquid securities, including (i)
approximately $35 million invested in government securities through a money
market account and (ii) an aggregate of approximately $45 million invested,
directly or indirectly, in several publicly held companies.
34
<PAGE>
MANAGEMENT OF OPERATIONS
THE MANAGER
The Manager was founded in July 1997 by David T. Hamamoto, formerly co-head
of the Whitehall Funds at Goldman, Sachs & Co., and W. Edward Scheetz, formerly
a partner of Apollo Real Estate Advisors. The Company believes that, at their
previous firms, Mr. Hamamoto and Mr. Scheetz were responsible for a significant
portion of all investments by opportunistic real estate investment funds
investing since 1992. Mr. Hamamoto and Mr. Scheetz collectively managed eight
opportunistic real estate investment funds and were instrumental in the
origination, structuring, and closing of approximately 190 distinct property,
portfolio, and corporate transactions representing a total investment of
approximately $16 billion, involving almost $4.7 billion in equity and over $11
billion in debt financing.
The Manager's executive offices are located at 527 Madison Avenue, 16th
Floor, New York, New York 10022, and the telephone number of its executive
offices is (212) 319-3400.
THE MANAGER'S EXPERIENCE
The Company believes that the Manager's principals have established
strategic relationships with operating partners, developers, and bankers, which
the Company anticipates may provide strong deal flow and deal servicing
expertise. Prior to the formation and capitalization of the Company, these
extensive relationships allowed NorthStar, together with its investment
partners, to close or place under contract approximately $832 million (including
debt and equity) in transactions consummated between July and December 1997. The
ventures entered into and assets acquired by NorthStar in these transactions
(the "Existing NorthStar Assets") are not currently anticipated to be acquired
by the Company, nor does the Company have any interest in these transactions,
with the exception of its co-investment with an affiliate of NorthStar in ISH.
These prior transactions are described below only to provide additional
illustrations of the types of investments which might be undertaken by the
Company.
PRESIDIO CAPITAL CORPORATION: Presidio Capital Corporation ("Presidio"), a
publicly-traded, externally-managed company in liquidation, is the successor
corporation to Integrated Resources, which prior to its bankruptcy was a
significant owner and syndicator of real estate limited partnerships in the
1970s and 1980s. Presidio's principal assets include general and limited
partnership interests in approximately 132 partnerships, and a pool of 112
mortgages with a face value of $579 million secured by more than 460 assets held
in approximately 111 limited partnerships syndicated by Integrated Resources and
in many cases effectively represent the "equity" in the partnerships. The assets
securing the mortgages are corporate net leased facilities, principally backed
by investment grade credits.
In a series of transactions from July 1997 through September 1997, NorthStar
purchased approximately 68% of the outstanding shares of Presidio for
approximately $169 million. The shares were purchased from former creditors of
Presidio who had obtained their shares through conversion of debt claims in
bankruptcy and in open market transactions. The principal selling stockholder,
who had a prior business relationship with NorthStar's principals, was involved
in a dispute with the company's management and wished to sell its position to a
party willing to remove management, if necessary. NorthStar acquired the shares
and subsequently replaced management with a NorthStar affiliate.
This investment is representative of NorthStar's strategy of identifying
individual situations where value can be created by quickly solving complex
problems. NorthStar believes it achieved a meaningful discount in its purchase
price due to (i) its initial purchase of non-controlling interests, (ii) the
ongoing disputes with management, and (iii) the complexity of the company's
asset base. Within several months of its initial purchase, NorthStar was able to
consolidate a controlling interest, obtain management control and begin a
program of creating and extracting value from the company's assets. Furthermore,
Presidio is representative of several of the Manager's investment strategies:
(i) it is a real estate company, (ii) it required a complex legal and ownership
restructuring, and (iii) it offers significant additional investment
opportunities because as the general partner of over 100 partnerships, Presidio
may have the opportunity to recapitalize the underlying syndicated limited
partnerships.
35
<PAGE>
IAN SCHRAGER HOTEL MANAGEMENT: Prior to the consolidation transactions
described above (see "The Company--Acquisitions and Investments--Ian Schrager
Hotels"), NorthStar, in August 1997, acquired a 49% interest in Ian Schrager's
hotel management operations, Ian Schrager Hotel Management LLC, for $20 million.
The investment was sourced in a non-competitive transaction negotiated by
NorthStar's principals, who had prior business relationships with Ian Schrager.
The investment was representative of NorthStar's strategy of making investments
in high quality real estate operating companies with proven management where
NorthStar can add value due to its financial and other business relationships.
Moreover, the investment provided NorthStar and through NorthStar, the Company,
with additional opportunities to invest in future Ian Schrager hotel development
projects, as described in "The Company--Acquisitions an Investments--Ian
Schrager Hotels" and in "--Henry Hudson Hotel", below.
HENRY HUDSON HOTEL: The Henry Hudson Hotel is a 1,154 room, 26-story
structure on 57th Street between Eighth & Ninth Avenues in Manhattan, New York
City. Originally built as a hotel in 1928, the property is currently being used
for office and residential purposes. It is anticipated that substantial
renovations will be made to the property in order to create a moderately priced
athletic/urban spa themed hotel over a two-year renovation period.
In August 1997, NorthStar purchased various interests in the property and
committed the funds necessary to renovate the structure, however in February of
1998, NorthStar's interests in the Henry Hudson were contributed to the new ISH
venture. See "The Company--Acquisitions and Investments-- Ian Schrager Hotels".
The investment is attractive in that it allows NorthStar to participate in what
it believes to be one of the country's attractive lodging markets, New York
City, at a time when the lodging market is experiencing strong occupancy and
average daily revenue figures and minimal new hotel development. NorthStar was
able to acquire the property at an attractive price because it identified and
executed a complicated, time-sensitive strategy to acquire the three
separately-owned condominium units in the property. This strategy offered
NorthStar a compelling pricing advantage as the units were less valuable
individually than collectively, since a buyer could not effectively renovate and
operate the property without restoring integrated ownership. Through this
transaction, NorthStar expects to complete the renovation at an all-in cost per
room that is significantly below current replacement costs. NorthStar believes
this will provide the hotel with a strong pricing advantage when operations
commence.
1940 CENTURY PARK EAST: 1940 Century Park East is a "class B" office
building located in Century City, Los Angeles just off Constellation Blvd. The
50,000 square foot building built in 1964 was originally occupied by NCR, but is
now vacant pending a renovation into "class A" office space. The renovation
plans are designed to appeal to the rapidly growing entertainment tenant base in
greater Los Angeles and include a new facade, new windows, new energy efficient
mechanical, electrical, and sprinkler systems, refurbished elevators, and
increased parking. Upon renovation, the property is expected to be marketed to a
single tenant who is seeking a signature building in Century City.
In September 1997, a joint venture formed by NorthStar and the Koll Real
Estate Group ("Koll") purchased the property with the intent of renovating and
leasing the building. NorthStar acquired a 95% interest for a total equity
investment, including renovation costs, estimated at $6.25 million. The
investment was sourced by Koll (with whom NorthStar's principals have had prior
business dealings) and the renovation will be supervised by Koll's development
group. The investment is attractive in that it allows NorthStar to participate
in the Century City rental market which has, in addition to high rents and
restricted supply, what NorthStar believes is one of the lowest vacancy rates of
any West Los Angeles submarket. Moreover, the investment aligns NorthStar with
Koll, a publicly-traded real estate company based in California with development
projects throughout the country. Finally, NorthStar believes that credit quality
potential tenants already have expressed interest in leasing the building.
GINSBERG PORTFOLIO: The Ginsberg Portfolio is a portfolio of mortgage loans
and REO assets, comprised of approximately 11,000 "class B and C" apartments
located in New York, New Jersey, Pennsylvania, and Florida. Certain of the notes
were initially securitized and sold in a debt transaction underwritten by a Wall
Street investment bank. As a result of the borrower's default, the investment
bank repurchased the notes
36
<PAGE>
secured by the properties from investors shortly after the securitization. While
the investment bank had invested significant equity in the form of capital
expenditures into the properties while it held the notes, significant
opportunity exists for a motivated property owner to improve property-level
operations. In October 1997, NorthStar, in conjunction with an operating partner
specializing in the workout of underutilized assets, purchased the portfolio.
NorthStar owns 60% of the venture and its equity commitment is $25.6 million.
While the lender had commenced a formal auction process to sell the portfolio,
NorthStar was able to pre-empt the auction by resolving an outstanding legal
dispute for the benefit of the lender and by completing its due diligence and
agreeing to execute quickly a binding contract. This enabled the lender to
achieve its principal goal with a certain and timely closing. NorthStar believes
that it was able to purchase a large portfolio of multi-family units at a price
below what the portfolio would likely have obtained in a competitive auction and
at a significant discount to replacement cost. Moreover, NorthStar believes
there are multiple opportunities in the portfolio for improved property
management, increased operating efficiencies and economic improvement of much of
the underlying real estate.
MCALPIN HOUSE: In October 1997, NorthStar committed approximately $22.5
million to the purchase of a 90% interest in McAlpin House, a 26-story building
containing 690 apartment units, approximately 112,000 square feet of retail
space, and a health club located in Manhattan's Herald Square district at 34th
Street and 6th Avenue. Originally built in 1913 as the McAlpin Hotel, the
structure was renovated in 1975 into a rent-regulated apartment building. The
rent regulations covering the property recently expired, allowing vacated units
to be rented at market rates. NorthStar plans to enhance performance by leasing
units as extended-stay furnished apartments. Given the strong apartment and
hotel markets in New York City, NorthStar believes that the strategy will enable
it to increase returns with limited downside risk. Furthermore, the retail
space, which includes a Gap store, may provide incremental cash flow as the
existing retail leases may be renegotiated to higher rates in return for lease
extensions. Finally, NorthStar believes that the opportunity exists to improve
inefficient building management.
EMERITUS CORPORATION: In October 1997, NorthStar, in a joint venture with
affiliates of George Soros, purchased a $25 million, 9% convertible preferred
security issued by Emeritus Corporation. Emeritus Corporation is one of the
largest operators of assisted living facilities in the United States with over
10,000 units (including units under development). Assisted living facilities,
which are residential facilities occupied by senior citizens who require
assistance with activities of daily living, are expected to benefit from the
aging of the American population, regulatory pressures which are de-emphasizing
nursing homes in favor of less costly alternatives such as assisted living
facilities, and demographic changes to the nuclear family (such as increased
numbers of working mothers) which prevent adult children from providing
full-time care for their parents. Founded by Dan Baty, who developed Hillhaven
Corporation into one of the largest owners of nursing homes in the country, and
who built Holiday Corporation into one of largest owners of independent living
facilities in the country, Emeritus is currently pursuing a business strategy of
asset aggregation as it attempts to build upon its status as the largest
operator in its industry. The non-competitive, negotiated transaction was
sourced by NorthStar's principals who had a prior relationship with Dan Baty and
his investment bankers. The investment is attractive in that it partners
NorthStar with an industry operator with a proven track record and a proven
business model in the healthcare industry. Additionally, because Emeritus's
short-term losses prevented it from accessing the public capital markets,
NorthStar was able to obtain an above-market current yield on its investment and
an ability to participate in the future stock price appreciation of Emeritus
through the security's conversion feature, while limiting downside risk by
investing in a preferred position. Finally, the investment allows NorthStar to
invest in a real estate-related industry with strong demographic and economic
fundamentals. Emeritus is an example of NorthStar's strategy of investing in
real estate intensive operating companies that have the potential to grow
rapidly as they consolidate their industries.
PARTNERS OF THE MANAGER
The following tables set forth certain information with respect to the
partners of the Manager. Each of the senior partners of the Manager is also a
director of the Company. No partner of the Manager is related
37
<PAGE>
by blood, marriage or adoption to any other director or executive officer or
principal of the Company or the Manager or any of their respective affiliates.
SENIOR PARTNERS OF THE MANAGER
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ------------------------------------------------ ----------- ----------------
<S> <C> <C>
David T. Hamamoto............................... 38 Senior Partner
W. Edward Scheetz............................... 32 Senior Partner
</TABLE>
OTHER PARTNERS OF THE MANAGER
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ------------------------------------------------ ----------- ----------------
<S> <C> <C>
Peter W. Ahl.................................... 33 Partner
Marc S. Gordon.................................. 33 Partner
David G. King, Jr............................... 35 Partner
Richard J. McCready............................. 39 Partner
Richard J. Sabella.............................. 42 Partner
</TABLE>
The principal occupation for the last five years of each partner of the
Manager, as well as other information, is set forth below.
SENIOR PARTNERS
DAVID T. HAMAMOTO co-founded NorthStar with W. Edward Scheetz in July 1997,
having co-founded and previously been a partner and co-head of the Real Estate
Principal Investment Area ("REPIA") at Goldman, Sachs & Co. ("Goldman") since
1983. In 1988, Mr. Hamamoto initiated the effort to build a real estate
principal investment business at Goldman under the auspices of the Whitehall
Funds. Today, the Whitehall Funds have $3.9 billion under management. In his
capacity as co-head of the Whitehall Funds, Mr. Hamamoto was responsible for
setting investment strategy, creating deal flow, advising on financing, asset
management, and acquisition issues, and overseeing the day-to-day activities of
47 professionals. Mr. Hamamoto was formerly a director of the Westin Hotel
Company, a global hotel management and ownership company; the George
Soros/Whitehall private REIT, a $1 billion partnership between Whitehall and
investor George Soros; Millennium Partners, an urban mixed-use development
company; and the Archon Group, Goldman Sachs' asset management company. Mr.
Hamamoto received a B.S. in civil engineering from Stanford University and an
M.B.A. from the Wharton School of the University of Pennsylvania.
W. EDWARD SCHEETZ co-founded NorthStar with David T. Hamamoto in July 1997,
having previously been a partner at Apollo Real Estate Advisors, L.P. ("Apollo")
since 1993. While at Apollo, Mr. Scheetz was responsible for directing the
evaluation and completion of all investment activities undertaken by Apollo Real
Estate Investment Fund I and Apollo Real Estate Investment Fund II. From 1989 to
1993, Mr. Scheetz was a principal with Trammell Crow Ventures, where he was
responsible for investment activities relating to public and private syndicated
partnerships, REITs, developer recapitalizations, and corporate real estate
portfolios. Prior to 1989, Mr. Scheetz was associated with various Trammell Crow
Company affiliates, including Trammell Crow Medical, Wyndham Hotel Co., and
Trammell Crow Interests, and acted as Assistant to the Chief Financial Officer
during the firm's reorganization and recapitalization. Mr. Scheetz was formerly
a director of Allright Parking Corporation, one of the nation's largest parking
lot operators; Atlantic Gulf Communities, Inc., a residential and commercial
land developer based in Miami; Capital Apartment Properties (CAPREIT), an owner
and manager of apartment communities; Koger Equity, Inc., an owner and operator
of business parks in the southeast and southwest U.S.; Koll Management Services,
one of the U.S.'s largest commercial property management companies; Meadowbrook
Golf Group, Inc., a golf management company; Metropolis Realty Trust, Inc., an
owner of high rise buildings in Manhattan; NextHealth, Inc., an owner of
wellness and spa facilities; Roland International,
38
<PAGE>
Inc., a land development company; and Western Pacific Housing, Inc., a
homebuilder in Southern California. Mr. Scheetz received an A.B. in economics
from Princeton University.
PARTNERS
PETER W. AHL joined NorthStar in November 1997 having previously been a
Director in the Alternative Investment Group of AEW Capital Management, L.P.
since 1992. Prior to joining AEW Capital Management, Mr. Ahl was in Real Estate
Finance at the First National Bank of Boston since 1988. Mr. Ahl has extensive
experience with the origination and structuring of equity investments in public
and private real estate operating companies as well as the underwriting of
traditional real estate assets. Mr. Ahl is a level 3 chartered financial analyst
candidate. Mr. Ahl graduated with a B.A. in American literature from Middlebury
College.
MARC S. GORDON joined NorthStar in October 1997, having previously been a
Vice President in the Real Estate Investment Banking Group at Merrill Lynch &
Co. since 1994, where he executed corporate finance and strategic transactions
for public and private real estate ownership companies, including REITs, real
estate service companies, and real estate intensive operating companies. Prior
to joining Merrill Lynch & Co., Mr. Gordon was in the Real Estate and Banking
Group at the law firm of Irell & Manella from 1991 to 1994. Mr. Gordon graduated
from Dartmouth College with an A.B. in economics and also holds a J.D. from the
UCLA School of Law.
DAVID G. KING, JR. joined NorthStar in July 1997, having previously been a
Senior Vice President of Finance at Olympia & York Companies (USA) and its
successor companies since 1989, where he executed a significant number of the
company's financing transactions and was a key member of the team responsible
for the successful reorganization of the company as World Financial Properties.
Prior to joining Olympia & York, Mr. King worked for Bankers Trust in its real
estate finance group where he was actively involved in both debt and equity
capital commitment as well as agency and advisory business. Mr. King graduated
from Princeton with an A.B. in classics and also holds an M.B.A. from the
Wharton School of the University of Pennsylvania.
RICHARD J. MCCREADY joined NorthStar in March 1998 having previously been
President, Chief Operating Officer and a Director of First Winthrop Corporation.
During his tenure at First Winthrop Corporation, Mr. McCready executed numerous
strategic investment and financing transactions, supervised asset management,
property management and investor relations functions and implemented a
successful reorganization and re-capitalization of the firm in 1995-1996. Prior
to joining First Winthrop Corporation in 1990, Mr. McCready was in the Corporate
and Real Estate Finance Group at the law firm Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C. Mr. McCready graduated from the University of New
Hampshire with a B.A. in English, Philosophy and Classics and also holds a J.D.
degree from Boston College Law School.
RICHARD J. SABELLA joined NorthStar in November 1997, having previously been
a partner at the law firm of Cahill Gordon & Reindel since 1989 and the head of
real estate since 1993. A significant portion of Mr. Sabella's practice involved
bankruptcy restructuring, REIT transactions and financings. Mr. Sabella has also
been associated with the law firms of Milgrim, Thomajan, Jacobs & Lee, P.C., and
Cravath, Swaine & Moore. Mr. Sabella received a B.A. in English literature from
the State University of New York at Stony Brook, and a J.D. from the Hofstra
University School of Law.
FINANCE PROFESSIONALS
KEVIN REARDON joined NorthStar in October 1997, having previously held the
position of controller at Lazard Freres Real Estate Investors from 1996 to 1997.
Prior to joining Lazard Freres, Mr. Reardon was the Director of Finance in
charge of European expansion at the law firm of Dewey Ballantine from 1993 to
1996. Mr. Reardon, who holds a CPA, graduated from Fordham University with a
B.S. in accounting.
HARRIET ZOIS joined NorthStar in November 1997. She held the position of
Manager of Financial Reporting at Cunard Line, an international luxury cruise
line from February 1997 to November 1997. Prior
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to joining Cunard, Ms. Zois was a senior financial analyst at Lifetime
Television from 1989 to 1997. Prior to joining Lifetime, Ms. Zois was at the
certified public accounting firm of Bencivenga and Company from 1988 to 1989.
Ms. Zois graduated from Pace University with a B.A. in accounting.
OTHER PROFESSIONALS
ADAM J. ANHANG joined NorthStar in August 1997, having previously worked for
The Athena Group's Russia and Former Soviet Union development team from 1996 to
1997. In 1996, Mr. Anhang graduated from The Wharton School of the University of
Pennsylvania with a B.S. in economics with concentrations in finance and real
estate.
CHARLES HUMBER joined NorthStar in September 1997, having previously worked
for Merrill Lynch's Real Estate Investment Banking group from 1996 to 1997. In
1996, Mr. Humber graduated from Brown University with a B.A. in international
relations and organizational behavior and management.
KEITH MEISTER joined NorthStar in October 1997, having previously worked for
Lazard Freres & Co. LLC in the Mergers & Acquisitions group from 1995 to 1997.
In 1995, Mr. Meister graduated from Harvard College with an A.B. in government.
GREGORY PECK joined NorthStar in July 1997, having previously worked for the
Morgan Stanley Realty Real Estate Funds ("MSREF") and Morgan Stanley's Real
Estate Investment Banking group from 1996 to 1997. Prior to joining Morgan
Stanley, Mr. Peck worked for Lazard Freres & Co. LLC in the Real Estate
Investment Banking group from 1994 to 1996. In 1996, Mr. Peck graduated from
Columbia College with an A.B. in mathematics and an A.B. in economics.
Senior Partners, partners, and other professionals have significant
experience in real estate investment, finance and the management and operation
of commercial real estate; however, none has previously managed a REIT. See
"Risk Factors--Newly Organized Corporation."
Each of Messrs. Hamamoto and Scheetz have entered into employment agreements
(each, an "Employment Agreement") with the Manager, which have a term ending
June 25, 2000 (the "Expiration Date"). Under Section 4 of each Employment
Agreement (the "Non-Competition Clause"), each of Messrs. Hamamoto and Scheetz
are precluded, until the Expiration Date, from engaging in any business which is
directly competitive with a material business in which the Manager is engaged or
from serving as a partner, officer, director, consultant, employee or equity
holder (subject to limited exceptions) of any company or business organization
which is so engaged. Each of the Employment Agreements provides (i) that the
Company shall be a third-party beneficiary of the Non-Competition Clause and
(ii) that the Non-Competition Clause may not be amended, waived, terminated or
otherwise modified without the consent of a majority of the Independent
Directors of NSC and each of UBS and NorthStar have acknowledged and agreed that
Messrs. Hamamoto and Scheetz may serve as directors and executive officers of
NSC. In addition, pursuant to an agreement dated as of June 25, 1997 (the "UBS
Agreement") among the Manager, UBS and Messrs. Hamamoto and Scheetz, (a) if
either Mr. Hamamoto or Mr. Scheetz voluntarily terminates employment with the
Manager prior to June 25, 2000, then the terminating principal shall pay
$2,500,000 to UBS and $2,500,000 to the non-terminating principal, and, further,
(b) if such terminating principal shall, prior to June 25, 2000, engage in any
business which is directly competitive with a material business in which the
Manager is engaged, such terminating principal shall (i) pay to each of UBS and
the non-terminating principal the sum of $2,500,000 and (ii) at the request of
either or both of UBS and the non-terminating principal, sell to each requesting
party one-half of the terminating principals direct and indirect ownership
interests in the Manager for a purchase price of $5,000,000.
THE MANAGEMENT AGREEMENT
The Company has entered into the Management Agreement with the Manager for
an initial term expiring on the third anniversary of the Closing Date. The
Management Agreement provides for automatic one-year extensions after the
initial three-year term. After the initial three-year term, the Manager's
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performance will be reviewed annually and the Management Agreement may be
terminated annually upon the affirmative vote of at least two-thirds of the
Independent Directors, or by a vote of the holders of a majority of the
outstanding shares of Common Stock, based upon unsatisfactory performance that
is materially detrimental to the Company or a determination that the
compensation to the Manager is not fair, subject to the Manager's right to
prevent a compensation termination by accepting a mutually acceptable reduction
of fees. The Manager will be provided 60 days' prior notice of any such
termination and will be paid a termination fee equal to the amount of the
management fee earned by the Manager during the twelve-month period preceding
such termination. In addition, the Management Agreement may be terminated at any
time for cause, which is defined as fraud, misappropriation of funds, willful
violation of the Management Agreement, or gross negligence, without payment of
the termination fee. The Manager has certain registration rights with respect to
its Units and/or Common Stock, which will be exercisable irrespective of any
termination of the Management Agreement. The Manager may at any time assign the
Management Agreement to any affiliate of the Manager provided that Messrs.
Hamamoto and Scheetz also jointly manage and supervise the day-to-day business
and operations of such affiliate.
The Manager at all times is under the direction of the Company's Board of
Directors and has only such functions and authority as the Company may delegate
to it. The Manager is responsible for the day-to-day operations of the Company
and performs (or causes to be performed) such services and activities relating
to the assets and operations of the Company as may be appropriate, including:
(i) serving as the Company's consultant with respect to formulation of
investment criteria;
(ii) investigation and selection of possible investment opportunities and
acquisitions, property and investment analysis, market and economic
surveys, on-site physical inspections, review and projection of income
and construction, renovation and/or operating expenses and supervising
and negotiating the arrangement of financing;
(iii) conducting negotiations with real estate brokers, owners of property
and their agents and representatives, investment bankers and owners of
privately and publicly held real estate companies;
(iv) engaging and supervising, on behalf of the Company and at the Company's
expense, independent contractors which provide real estate brokerage,
investment banking and leasing services, mortgage brokerage and other
financial services and such other services as may be required relating
to the Company's investments;
(v) negotiating on behalf of the Company for the sale, exchange or other
disposition of any of the Company's investments;
(vi) coordinating and managing operations of any joint venture interests
held by the Company and conducting all matters with the joint venture
partners;
(vii) coordinating and supervising, on behalf of the Company and at the
Company's expense, all property managers, leasing agents and developers
for the administration, leasing, management and/or development of any
of the Company's investments;
(viii) providing executive and administrative personnel, office space and
office services required in rendering services to the Company;
(ix) administering the day-to-day operations of the Company and performing
and supervising the performance of such other administrative functions
necessary in the management of the Company as may be agreed upon by the
Manager and the Board of Directors;
(x) communicating on behalf of the Company with the holders of any equity or
debt securities of the Company as required to satisfy the reporting and
other requirements of any governmental bodies or agencies or trading
markets and to maintain effective relations with such holders;
(xi) counseling the Company in connection with policy decisions to be made
by the Board of Directors;
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(xii) engaging in hedging activities on behalf of the Company, consistent
with the Company's status as a REIT and with the Guidelines;
(xiii) counseling the Company regarding the maintenance of its status as a
REIT and monitoring compliance with the various REIT qualification
tests and other rules set out in the Code and Treasury Regulations
thereunder; and
(xiv) counseling the Company regarding the maintenance of its exemption from
the Investment Company Act and monitoring compliance with the
requirements for maintaining an exemption from that Act.
The Manager may engage property and/or asset managers on behalf of the
Company to provide property management, leasing and/or similar services to the
Company with respect to its assets; provided that any such contracts entered
into with affiliates of the Manager shall be on terms no more favorable to such
affiliate than would be obtained from a third party on an arm's-length basis.
MANAGEMENT FEES
The Manager will receive an annual management fee (the "Management Fee")
equal to 1.5% of the Company's Gross Equity; provided, however, that during the
first twelve months following the Closing Date, the Manager shall receive a
Management Fee equal to the greater of (i) $7,500,000 and (ii) 1.5% of the
Company's Gross Equity. The Management Fee shall be calculated and paid monthly
in arrears based upon the weighted daily average of the Company's Gross Equity
for such month. The term "Gross Equity" for any period means (A) the sum of (i)
total equity capital raised by the Company, including, without limitation, the
net proceeds of the Original Offering and the net proceeds of any subsequent
offering of Common Stock or Preferred Stock by NSC, plus (ii) the value of
contributions made by partners other than the General Partner, from time to
time, to the capital of the Operating Partnership or any other subsidiary of the
Company, less (B) any capital dividends or capital distributions made by NSC to
its stockholders. The Manager will not receive any Management Fee for the period
prior to the Closing Date. The Management Fee is intended to compensate the
Manager for providing management and advisory services to the Company. Pursuant
to the Management Agreement, the Board of Directors of the Company may adjust
the Management Fee in the future if it determines that such fee is not fair to
the Company. In the event of termination of the Management Agreement, the
Company is required to pay the Manager a termination fee equal to the amount of
the Management Fee earned by the Manager during the twelve-month period
preceding such termination.
COSTS AND REIMBURSEMENTS. Because the Manager's employees or affiliates
perform certain legal, accounting, due diligence tasks and other services that
professionals or outside consultants otherwise would perform, the Manager or
such affiliates will be paid or reimbursed for the cost of performing such
tasks, provided that such costs and reimbursements are at costs no greater than
those which would be paid to outside professionals or consultants on an
arm's-length basis.
EXPENSES. The Company does not expect to maintain an office or to employ
full-time personnel. Instead it relies on the facilities and resources of the
Manager to conduct its operations, and it is required to pay out-of-pocket
expenses. Expense reimbursements to the Manager are made monthly.
PAYMENT OF FEES AND EXPENSES. The Management Fee is payable monthly in
arrears. The Company pays the Manager's fees and expenses on the first business
day of each calendar month following the Closing.
MANAGEMENT INCENTIVES
The Manager is entitled to receive a quarterly incentive return on its Units
on a cumulative, but not compounding, basis in an amount equal to the product of
(A) 25% of the dollar amount by which (l)(a) the Funds From Operations (before
the incentive return) of the Company per share of Common Stock and per Unit
(based on the weighted average number of shares and Units outstanding) plus (b)
gains (or losses)
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from debt restructuring and gains (or losses) from sales of property per share
of Common Stock and per Unit (based on the weighted average number of shares and
Units outstanding), exceed (2) an amount equal to (a) the weighted average of
the price per share in the Original Offering and the prices per share (or Unit)
in any subsequent offerings by the Company (adjusted for prior capital dividends
or capital distributions) multiplied by (b) a simple interest rate of ten
percent (10%) per annum (divided by four to adjust for quarterly calculations)
multiplied by (B) the weighted average number of shares of Common Stock and
Units outstanding. "Funds From Operations" as defined by the National
Association of Real Estate Investment Trusts ("NAREIT") means net income
(computed in accordance with GAAP) excluding gains (or losses) from debt
restructuring and gains (or losses) from sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. Funds From Operations does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
The ability of the Company to generate Funds From Operations in excess of
the 10% rate described above, and of the Manager to earn the incentive return
described in the preceding paragraph, is dependent upon the Company's ability to
execute successfully the investment strategies described herein, and other
factors, many of which are not within the Company's or the Manager's control.
Upon any termination of the Management Agreement, the Company shall be
entitled to purchase the right to receive the incentive return from the Manager
for a cash purchase price equal to the amount of the incentive return that would
be distributed to the Manager, in its capacity as the Initial Limited Partner,
if all of the Company's assets were sold for cash at their then current fair
market value. Such fair market value shall be determined by independent
appraisal to be conducted by a nationally-recognized appraisal firm mutually
agreed upon by the Company and the Manager. If the Company and the Manager are
unable to agree upon an appraisal firm, then each of the Company and the Manager
is to choose an independent appraisal firm to conduct an appraisal. In such
event, (i) if the appraisals prepared by the two appraisers so selected are the
same or differ by an amount that does not exceed 20% of the higher of the two
appraisals, such fair market value will be deemed to be the average of the
appraisals as prepared by each party's chosen appraiser, and (ii) if these two
appraisals differ by more than 20% of such higher amount, the two appraisers
together are to select a third appraisal firm to conduct an appraisal. If two
appraisers are unable to agree as to the identity of such third appraiser,
either of the Manager and the Company may request that the American Arbitration
Association ("AAA") select the third appraiser. The fair market value of the
Company's assets will then be deemed to be the amount determined by such third
appraiser, but in no event less than the lower of the two initial appraisals or
more than the higher of such two initial appraisals. Notwithstanding the
foregoing, in the event that the Management Agreement is terminated as a result
of a change of control of the Company, the appraisal of the fair market value of
the Company's assets shall be based upon the price paid (on a per share or per
Unit (as applicable) basis) by such acquiror, increased to eliminate any
discount paid by such acquiror due to the Manager's right to receive the
incentive return.
Management incentives under the partnership agreement of NewCo OP will be
substantially identical to those set forth above. The incentive return under the
NewCo OP partnership agreement will be calculated based on a measure
substantially equivalent to "Funds From Operations."
STOCK OPTIONS
The Company intends to adopt a non-qualified stock option plan (the "Option
Plan"), which will provide for options to purchase shares of Common Stock (or,
at the election of the Company, Units in the Operating Partnership that may be
redeemed for cash, or, at the election of the General Partner, shares of Common
Stock on a one-for-one basis). See "Operating Partnership -- Redemption Rights."
The Option Plan will authorize the grant of options to the Manager to acquire,
contingent upon the effectiveness of this Registration Statement, ten percent
(10%) of the outstanding equity interests in the Company (including, but not
limited to, Common Stock and Units) (as determined as of the closing date of the
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Original Offering and each subsequent date that equity interests are issued by
the Company during the term of the Option Plan). The purpose of the Option Plan
is to compensate the Manager for its successful efforts and assistance in
raising capital for the Company. The Company believes the Option Plan will also
provide an effective means of performance-based compensation in order to provide
incentive for the Manager to enhance the value of NSC's stock.
Pursuant to the Option Plan, the Company will grant to the Manager options
representing the right to acquire shares of Common Stock (or, at the election of
the Company, Units) equal to 10% of the equity interest of the Company
outstanding (from time to time). Options equalling 10% of the shares of Common
Stock and Units issued and outstanding upon completion of the Original Offering
will have an exercise price per share of $20.00, with such price subject to
adjustment as necessary to preserve the value of such options in connection with
the occurrence of certain events (including capital dividends and distributions
made by the Company). The exercise price with respect to Options granted in
connection with any future issuance of equity interests in the Company will have
an exercise price per share equal to the initial offering price of such
additional equity interests, subject to adjustment as necessary to preserve the
value of such options in connection with the occurrence of certain events
(including capital dividends and distributions made by the Company). The Options
will not be exercisable until the Option Effective Date. From and after the
Option Effective Date, one thirtieth (1/30) of the options will become
exercisable on the first day of each of the following thirty calendar months, or
earlier upon the occurrence of certain events, such as a change of control of
the Company or the termination of the Management Agreement. The options expire
on the tenth anniversary of the Closing.
The Board of Directors may amend or terminate the Option Plan at any time,
except that approval by NSC's stockholders is required for such amendments or
termination to the extent the Board of Directors determines that such approval
is necessary or desirable in order to meet certain exceptions under securities,
tax and other applicable laws. Unless previously terminated by the Board of
Directors, the Option Plan will terminate ten years from the Closing.
Stock Options in the Sister Corp. will be granted to the Manager in
substantially identical amounts, and pursuant to an Option Plan substantially
similar, to those set forth above, which option plan will be established by the
Sister Corp. upon its formation.
LIMITS OF RESPONSIBILITY
Pursuant to the Management Agreement, the Manager will not assume any
responsibility other than to render the services called for thereunder and will
not be responsible for any action of the Company's Board of Directors in
following or declining to follow its advice or recommendations. The Manager, its
directors and its officers will not be liable to the Company, any subsidiary of
the Company, the Independent Directors, NSC's stockholders or any subsidiary's
stockholders for acts performed in accordance with and pursuant to the
Management Agreement, except by reason of acts constituting bad faith, willful
misconduct, gross negligence or reckless disregard of their duties under the
Management Agreement. The Company has agreed to indemnify the Manager, its
directors and its officers with respect to all expenses, losses, damages,
liabilities, demands, charges and claims arising from acts of the Manager not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of duties, performed in good faith in accordance with and pursuant to
the Management Agreement.
CERTAIN RELATIONSHIPS; CONFLICTS OF INTEREST
The Company, on the one hand, and the Manager and its affiliates, on the
other, will enter into a number of relationships other than those governed by
the Management Agreement, some of which may give rise to conflicts of interest.
Moreover, two of the members of the Board of Directors of the Company and all of
its officers are also employed by the Manager or its affiliates.
The relationships between the Company, on the one hand, and the Manager and
its affiliates, on the other, are governed by the Guidelines. The Guidelines
establish certain parameters for the operations of
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the Company. The Guidelines are to assist and instruct the Manager and to
establish parameters applicable to investments and borrowings (including
co-investments) with affiliates of the Manager. Transactions with affiliates of
the Manager (other than the acquisition of assets from affiliates of the
Manager) that fall within the provisions of the Guidelines need not be
specifically approved by a majority of the Independent Directors. The
Independent Directors will, however, review the Company's transactions on not
less than a quarterly basis to ensure compliance with the Guidelines.
Acquisition of assets from affiliates of the Manager and transactions with the
Manager or its affiliates which do not fall within the provisions of the
Guidelines will be approved in advance by a majority of the Independent
Directors.
Although the Independent Directors will review the Guidelines periodically
and will monitor compliance with those Guidelines, investors should be aware
that, in conducting this review, the Independent Directors will rely primarily
on information provided to them by the Manager. The Manager may obtain third
party appraisals for investments purchased from the Manager or its affiliates,
but the Independent Directors are likely to rely substantially on information
and analysis provided by the Manager to evaluate the Company's Guidelines,
compliance therewith and other matters relating to the Company's investments.
Moreover, appraisals are not always reliable indicators of the value of assets.
If the Independent Directors determine in their periodic review of
transactions that a particular transaction does not comply with the Guidelines,
then the Independent Directors will consider what corrective action, if any, can
be taken. If the transaction is one with the Manager or an affiliate of the
Manager that was not approved in advance by a majority of the Independent
Directors, then the Manager may be required to repurchase the asset at the
purchase price (plus closing costs) to the Company.
The Management Agreement generally limits the Manager's right to engage in
business or to render services to others that compete with the Company until an
amount equal to 80% of the Company's Total Equity has been invested (other than
in short term temporary investments) by the Company (and for these purposes
contributions to a Sister Corp. shall be deemed to be "investments" of the
Company's Total Equity). As used herein, the term, "Total Equity" shall mean the
sum of (i) total equity capital raised by NSC, including, without limitation,
the net proceeds of the Original Offering and the net proceeds of any subsequent
offering of Common Stock or Preferred Stock by NSC, plus (ii) a notional amount
of debt equal to total equity capital raised by NSC. Notwithstanding the
foregoing, NorthStar will be permitted at any time (i) to manage the Sister
Corp. and (ii) to manage and make investments related to "Excluded NorthStar
Investments." As used herein, the term "Excluded NorthStar Investments" shall
mean existing or future investments made by NorthStar and/or its affiliates in
connection with the Existing NorthStar Assets or in connection with any
additional investments made by NorthStar or its affiliates during any period of
time that the exclusivity provisions of the Management Agreement are not in
effect (i.e. during any period of time in which 80% or more of the Total Equity
of the Company has been invested). In addition, in connection with existing debt
of NorthStar Operating LLC held by UBS, the Manager was, until recently,
required to present certain investment opportunities to UBS for co-investment by
UBS and/or NorthStar Operating LLC. The Company has, to date, participated in
two Board-approved transactions involving a co-investment by subsidiaries of
NorthStar Operating LLC. The most significant of these co-investments is the
joint participation of the Company and NorthStar Operating LLC in the formation
of ISH. The other co-investment opportunity involved the purchase of interests
in two entities whose primary asset, in each case, is common stock in a company
traded on a foreign stock exchange. The obligation to offer co-investment
opportunities to UBS and/or NorthStar Operating LLC has expired, other than
opportunities related to assets or interests previously acquired by NorthStar
Operating LLC and its subsidiaries. If, however, a majority of the Independent
Directors determine that a prospective investment is not in the best interest of
the Company, the Company will not make such investment and will agree to permit
such investment to be made by NorthStar Operating LLC or another affiliate of
the Manager and any such investment will be deemed to be an "Excluded NorthStar
Investment" for purposes of the exclusivity provisions of the Management
Agreement.
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The Manager contributed $10 million to the Operating Partnership in exchange
for 536,193 Units, and owns approximately 3.3% of the equity interests in the
Company, on a fully diluted basis. The Manager will also be granted stock
options pursuant to the Company's Option Plan. See "Management of Operations --
Management Incentives" and "-- Stock Options." The Manager financed, among other
things, its acquisition of the Units with the proceeds of a loan from one or
more lenders, including an affiliate of the Initial Purchaser (the "Agent
Lender"), which loan is secured by certain assets of the Manager, including a
pledge of the Manager's Units and its right to receive the incentive return
under the Operating Partnership Agreement and its fees under the Management
Agreement. In connection with such loan, the Agent Lender may require a waiver
of (i) the Aggregate Stock Ownership Limit with respect to the Agent Lender and
its successors and assigns and (ii) any restrictions on redemption of the Units
for shares of Common Stock.
The Manager has agreed to hold its Units until at least two years after the
Original Offering, but may cause such Units to be redeemed for shares of Common
Stock and dispose of such shares any time thereafter in accordance with the
provisions of Rule 144 of the Securities Act. Notwithstanding the foregoing, if
the Company terminates the Management Agreement, the Manager may require the
Company to register the Manager's shares of Common Stock (if any) with the
Commission (and under applicable state law).
After the formation of the Sister Corp. and the distribution of the Sister
Corp.'s equity interests to the partners and stockholders of the Company, the
Sister Corp. will rely on the Company and the Manager to provide investments to
it. Provisions in the Sister Corp.'s formation documents will (i) provide that
the Sister Corp. will enter into transactions with the Company to the extent
deemed beneficial by their respective boards of directors (and the Company may
enter into an intercompany agreement with the Sister Corp. with respect thereto)
and (ii) generally prohibit the Sister Corp. from engaging in activities or
making investments appropriate for a REIT (for a specified time period) unless
the Company was first given the opportunity but elected not to pursue such
activities or investments. The Manager and the Board of Directors may be subject
to various potential conflicts of interest as a result of the relationships with
the Sister Corp. and the Company.
The market in which the Company expects to purchase assets is characterized
by rapid evolution of products and services and, thus, there may in the future
be relationships between the Company and the Manager and its affiliates, in
addition to those described herein.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the directors and
executive officers of NSC.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ---------------------------------------------------- --------- ----------------------------------------------------
<S> <C> <C>
W. Edward Scheetz................................... 32 Co-Chief Executive Officer, Co-President, Co-
Chairman of the Board of Directors
David T. Hamamoto................................... 38 Co-Chief Executive Officer, Co-President, Co-
Chairman of the Board of Directors
Martin L. Edelman................................... 56 Independent Director
Michael D. Malone................................... 44 Independent Director
Marc S. Gordon...................................... 33 Vice President
David G. King, Jr................................... 35 Vice President and Treasurer
Richard J. McCready................................. 39 Chief Operating Officer, Vice President and
Secretary
Kevin Reardon....................................... 39 Assistant Secretary
</TABLE>
Since March 10, 1998, as a result of the resignation of Andrew L. Farkas as
a director of NSC, there has been a vacancy on the Board of Directors. In
accordance with the Company's Charter, NSC intends to fill such vacancy with the
appointment of an independent director not later than May 9, 1998. Until such
time as a third independent director is appointed, at least one of the directors
employed by the Manager will abstain from voting on matters submitted to the
Board of Directors.
The principal occupation for the last five years of each Independent
Director of NSC, as well as some other information, is set forth below.
MARTIN L. EDELMAN. Mr. Edelman has been an attorney affiliated with Battle
Fowler LLP, a law firm in New York City since 1970. He is also a partner at
Fisher Brothers, a diversified real estate and investment company. Mr. Edelman
serves as one of the Managing Partners of Chartwell Hotel Associates, a
privately owned limited and full service hotel company. He is a director of HFS
Incorporated, Avis Rent A Car, Inc., Capital Trust and Soros Realty Inc. He is a
founding director of The Jackie Robinson Foundation, which provides college
scholarships to disadvantaged youth. Mr. Edelman is a graduate of Princeton
University and Columbia Law School.
MICHAEL D. MALONE. Mr. Malone is a Senior Managing Director for NationsBanc
Montgomery Securities, Inc. and has served as head of the Real Estate Finance
Group since 1983. The Real Estate Finance Group specializes in the origination,
negotiation, and execution of real estate transactions. Mr. Malone joined
NationsBanc in 1986 as a Vice President and Co-Head of Corporate Finance and
prior to that spent eight years working in general corporate finance for other
financial institutions. He received a Bachelor of General Studies degree and
attended the Graduate School of Business at the University of Kentucky. He
serves on the Charlotte Regional Sports Commission, the ULI Urban
Development/Mixed-Use Silver Flight Council, and the Advisory Policy Board for
the Fisher Center for Real Estate and Urban Economics at the University of
California at Berkeley.
For biographical information on Messrs. Hamamoto, Scheetz, Gordon, King,
McCready, and Reardon, see "Management of Operations--The Manager."
EXECUTIVE COMPENSATION
Directors and executive officers of NSC are required to devote only so much
of their time to the Company's affairs as is necessary or required for the
effective conduct and operation of the Company's business. Because the
Management Agreement provides that the Manager will assume principal
responsibility for managing the affairs of the Company, the officers of NSC, in
their capacities as such, are not
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<PAGE>
expected to devote substantial portions of their time to the affairs of the
Company and therefore will receive no compensation directly from NSC. However,
in their capacities as officers or employees of the Manager, or its affiliates,
they will devote such portion of their time to the affairs of the Manager as is
required for the performance of the duties of the Manager under the Management
Agreement.
COMPENSATION OF DIRECTORS
The Board of Directors is divided into three classes of directors. The
initial terms of the first, second and third classes will expire in 1998, 1999
and 2000, respectively. Directors of each class will be chosen for three-year
terms upon the expiration of their current terms and each year one class of
directors will be elected by the stockholders. All officers serve at the
discretion of the Board of Directors. Although NSC may have salaried employees,
it currently does not have employees and does not expect to employ anyone as
long as the Management Agreement is in force. NSC will pay an annual director's
fee to each Independent Director equal to $15,000, with no additional fee to be
paid for the first four meetings of the Board of Directors. Each Independent
Director will be paid a fee of $1,000 for each additional meeting of the Board
of Directors attended in person by such Independent Director. All Directors will
be reimbursed for their costs and expenses in attending all meetings of the
Board of Directors. In addition, an annual fee of $1,000 will be paid to the
chair of any committee of the Board. Affiliated directors, however, will not be
separately compensated by the Company. Fees to the Independent Directors will be
made by issuance of Common Stock, based on the value of such Common Stock at the
date of issuance, rather than in cash. In addition, NSC intends to establish an
option plan whereby each Independent Director each year will be granted options
to acquire 2,000 shares of Common Stock at a price equal to the fair market
value on the date of grant.
The Charter and Bylaws of NSC provide that, except in the case of a vacancy,
the majority of the members of the Board of Directors will at all times be
Independent Directors. Vacancies occurring on the Board of Directors among the
Independent Directors will be filled by the vote of a majority of the directors,
including a majority of the Independent Directors.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter authorizes NSC, to the maximum extent permitted by Maryland law,
to obligate itself to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director of NSC and at
the request of NSC, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his or her status as a present or former director or officer of
NSC. The Bylaws obligate NSC, to the maximum extent permitted by Maryland law,
to indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity or
(b) any individual who, while a director of NSC and at the request of NSC,
serves or has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity. The Charter and Bylaws also permit NSC to indemnify
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<PAGE>
and advance expenses to any person who served a predecessor of NSC in any of the
capacities described above and to any employee or agent of NSC or a predecessor
of NSC.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. See
"Description of Securities--Limitation of Liability and Indemnification of
Directors and Officers." Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons
controlling NSC pursuant to the foregoing provisions, NSC has been informed that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 1998, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by (i) each
person known by NSC to own more than 5% of the Common Stock, (ii) each of NSC's
directors and executive officers and (iii) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP(2)
NAME AND ADDRESS OF -----------------------
BENEFICIAL OWNER(1) NUMBER PERCENT
----------------------------------------- ---------- -----------
<S> <C> <C>
NorthStar Capital Partners LLC....................................... 536,193(3) 3.3%(3)
Morgan Guaranty Trust(4)............................................. 1,250,000 8.5%
Harvard Private Capital(5)........................................... 1,000,000 6.8%
State of Wisconsin(6)................................................ 1,000,000 6.8%
Walt Disney Company(7)............................................... 1,000,000 6.8%
Dawson-Samberg Capital Management(8)................................. 750,000 5.1%
Northwestern Mutual Life(9).......................................... 750,000 5.1%
W. Edward Scheetz.................................................... 536,193 10) 3.7%
David T. Hamamoto.................................................... 536,193 10) 3.7%
Martin L. Edelman.................................................... --
Michael D. Malone.................................................... --
Marc S. Gordon....................................................... --
David G. King........................................................ --
Richard J. McCready.................................................. --
Kevin Reardon........................................................ --
All directors and executive officers as a group...................... 536,193 10) 3.3%
(seven persons)
</TABLE>
- ------------------------
* Less than 1%
(1) The address of the Manager and all officers and directors listed above are
in care of the Company.
(2) Percentage amount assumes the exercise by such persons of all options to
acquire shares of Common Stock and no exercise by any other person.
(3) Includes 536,193 shares issuable upon redemption of 536,193 Units in the
Operating Partnership (however, such Units are not redeemable for one year).
Excludes 1,614,076 shares issuable pursuant to options under the Stock
Option Plan which are not currently exercisable.
(4) The address for Morgan Guaranty Trust is 522 Fifth Avenue, 7th Floor, New
York, New York 10036.
(5) The address for Harvard Private Capital is 600 Atlantic Avenue, 26th Floor,
Boston, Massachusetts 02210.
(6) The address for State of Wisconsin is 121 East Wilson Street, Madison,
Wisconsin 53703.
(7) The address for Walt Disney Company is 500 South Buena Vista Street,
Burbank, California 91521.
(8) The address for Dawson-Samberg Capital Management is 535 Madison Avenue,
25th Floor, New York, New York 10022.
(9) The address for Northwestern Mutual Life is 720 East Wisconsin, Milwaukee,
Wisconsin 53202.
(10) Includes the shares of Common Stock beneficially owned by NorthStar.
Messrs. Scheetz and Hamamoto disclaim beneficial ownership of all shares
owned by NorthStar.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company and the Manager have entered into the Management Agreement which
has an initial term of three years and provides for one-year extensions
thereafter. Messrs. Hamamoto and Scheetz, executive officers and directors of
NSC, are the founders and principal owners of the Manager. See "Management of
Operations--The Management Agreement," "--Management Fees," "--Management
Incentives," "--Stock Options," "--Limits of Responsibility" and "--Certain
Relationships; Conflicts of Interest."
An affiliate of the Manager and the Company are co-investors in ISH. See
"The Company-- Acquisitions and Investments--Ian Schrager Hotels."
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Offered Securities. The Company will not receive any proceeds from the sale of
the Offered Securities.
DISTRIBUTION POLICY
In order to avoid corporate income taxation on the earnings that it
distributes, NSC must distribute to its stockholders an amount at least equal to
(i) 95% of its REIT taxable income (determined before the deduction for
dividends paid and excluding any net capital gain) plus (ii) 95% of the excess
of its net income from foreclosure property over the tax imposed on such income
by the Code less (iii) any excess noncash income (as determined under the Code).
See "Federal Income Tax Considerations." The actual amount and timing of
distributions, however, will be at the discretion of the Board of Directors and
will depend upon the financial condition of NSC in addition to the requirements
of the Code.
Subject to the distribution requirements referred to in the immediately
preceding paragraph, NSC intends, to the extent practicable, to invest
substantially all of the principal from repayments, sales and refinancings of
the Company's assets in Real Estate-Related Assets and Other Assets. NSC may,
however, under certain circumstances, make a distribution of principal or of
assets. Such distributions, if any, will be made at the discretion of NSC's
Board of Directors.
It is anticipated that distributions generally will be taxable as ordinary
income to non-exempt stockholders of NSC, although a portion of such
distributions may be designated by NSC as long-term capital gain or may
constitute a return of capital. NSC will furnish annually to each of its
stockholders a statement setting forth distributions paid during the preceding
year and their federal income tax status. For a discussion of the federal income
tax treatment of distributions by NSC, see "Federal Income Tax
Considerations--Taxation of the Company" and "--Taxation of Taxable U.S.
Stockholders."
The declaration and payment of dividends by the Sister Corp. will be made by
the Sister Corp.'s board of directors from time to time based on such
considerations as the Sister Corp.'s board of directors deems relevant, will be
payable only out of funds legally available therefor under the law of the state
of the Sister Corp.'s formation and will be subject to any limitations which may
be contained in the debt instruments of the Sister Corp.
PRICE RANGE OF COMMON STOCK
There is no established market for the Common Stock, which is not listed on
any securities exchange, and trading in the Common Stock has not been quoted on
any interdealer or over-the-counter bulletin board since the Original Offering.
As of March 1, 1998, there were approximately 122 holders of record of NSC's
Common Stock.
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<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The selected historical financial data set forth below presents the
historical financial data of NSC as of December 31, 1997 and for the period from
November 25, 1997 (NSC's inception) through December 31, 1997, and have been
derived from NSC's audited financial statements. The selected pro forma
financial data of NSC set forth below assumes that NSC will qualify as a REIT
and gives effect to (i) the issuance of 1,603,568 shares of Common Stock on the
Second Closing Date, (ii) the acquisition of the office buildings at 417 Fifth
Avenue and 19 West 44th Street, (iii) the acquisition of a development property
in Irvine, California, (iv) the formation and investment in joint ventures,
including the formation of NS Hospitality and completion of the "Roll-Up"
transactions described under the caption "The Company--Acquisitions and
Investments--Ian Schrager Hotels," (v) the acquisition of an interest in Frank
King Associates, L.P., which owns the 350 Washington Street property and (vi)
the purchase of marketable and non-marketable equity securities and other assets
(collectively, the "Pro Forma Transactions"). The selected pro forma income
statement data assumes the Pro Forma Transactions occurred on January 1, 1997,
and the selected pro forma balance sheet data assumes the Pro Forma Transactions
occurred on December 31, 1997. The selected pro forma financial data are not
necessarily indicative of what the actual financial position or results of
operation of NSC would have been as of or for the period ended December 31,
1997, nor do they purport to be indicative of the financial position or results
of operation of future periods. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," NSC's audited historical financial statements and
notes thereto and NSC's unaudited pro forma financial statements and notes
thereto, each included elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR
THE PERIOD ENDED
DECEMBER 31, 1997
-----------------------
HISTORICAL PRO FORMA
---------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues........................................................................ $ 387 $ 15,753
Expenses........................................................................ 345 17,221
Minority interests.............................................................. (4) 129
---------- -----------
Net income (loss)............................................................... $ 38 $ (1,339)
---------- -----------
---------- -----------
Net income (loss) per common share.............................................. $ 0.01 $ (0.09)
---------- -----------
---------- -----------
BALANCE SHEET DATA:
Assets:
Real estate..................................................................... $ -- $ 225,697
Cash and cash equivalents..................................................... 271,874 46,037
Receivables and other assets.................................................. -- 40,696
---------- -----------
Total assets................................................................ $ 271,874 $ 312,430
---------- -----------
---------- -----------
Liabilities:
Capital lease obligation...................................................... $ -- $ 10,200
Accounts payable and accrued expenses......................................... 595 845
---------- -----------
Total liabilities........................................................... 595 11,045
Minority interest............................................................... 26,789 27,239
Stockholders' Equity............................................................ 244,490 274,146
---------- -----------
Total liabilities and partners' capital..................................... $ 1271,874 $ 312,430
---------- -----------
---------- -----------
</TABLE>
52
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of NSC as of December 31,
1997, and on a pro forma basis to reflect the Pro Forma Transactions.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Long-Term Obligations......................................................... $ -- $ 10,200
---------- ----------
Minority Interest in Consolidated Partnership................................. 26,789 27,239
---------- ----------
Common Stock, par value $.01 per share........................................ $ 131 $ 147
Authorized--1,000 shares, 500,000,000 shares as adjusted
Outstanding--1,000 shares, 14,704,568 shares as adjusted
Additional Paid-in Capital.................................................... 244,321 273,961
Retained Earnings............................................................. 38 38
---------- ----------
Total..................................................................... $ 271,279 $ 311,545
---------- ----------
---------- ----------
</TABLE>
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following should be read in conjunction with the Consolidated Financial
Statements and notes thereto of NSC and the unaudited Pro Forma Condensed
Consolidated Financial Statements of NSC, each contained elsewhere herein. The
Consolidated Financial Statements of the Company include the NSC and the
Operating Partnership, its majority-owned subsidiary. Due to its recent
formation and the relatively short period of operations presented in the
Consolidated Financial Statements, Management does not believe that the
information presented therein is indicative of expected financial performance.
LIQUIDITY AND CAPITAL RESOURCES
On December 22, 1997 and January 22, 1997, NSC consummated the Original
Offering by issuing an aggregate of 14,703,568 shares of Common Stock (the
"Offering"), subject to an over-allotment option granted to the Initial
Purchaser. The proceeds of the Original Offering, net of expenses, were
approximately $274.1 million.
In connection with the Original Offering, NSC formed the Operating
Partnership and contributed the net proceeds of the Original Offering to the
Operating Partnership. NSC is the sole General Partner of the Operating
Partnership. In addition, the Manager and several other investors contributed
cash to the Operating Partnership in exchange for Units representing a 3.3% and
a 5.6% limited partner interest, respectively. Net proceeds to the Company from
the issuance of such Units amounted to approximately $26.8 million, after all
costs and expenses. At December 31, 1997, cash and cash equivalents amounted to
$271.9 million which represented the Company's primary source of liquidity. As
adjusted to reflect the sale of 1,603,568 shares of Common Stock on the Second
Closing Date, at December 31, 1997, cash and cash equivalents would have
amounted to $301.5 million.
Since December 31, 1997 the Company has used a significant amount of its
cash and cash equivalents to fund investments in real estate and real estate
related companies and expects to be able to continue its investing activity with
the funds raised from the Offering. To the extent that the Company accelerates
or expands its contemplated investment activity, additional capital may be
required. The Company expects that a portion of such additional capital
requirements will be funded through acquisition indebtedness and/ or unsecured
lines of credit. Thereafter, the Company expects that capital needs will be met
through a combination of net cash provided by operations, borrowings and
additional debt and equity issuances.
The Company also expects to make distributions to its stockholders primarily
based on the distributions received from the Operating Partnership or, if
necessary, from working capital or borrowings.
RESULTS OF OPERATIONS
The Company's principal source of income was interest on its invested cash
and cash equivalents, which amounted to $387,000 for the period ended December
31, 1997. In view of its recent investment activity, the Company expects that
cash provided by operating activities will increase, although such expected cash
flow may not be recognized immediately after consummation of any particular
transaction. As such, the Company's operating income is expected to be derived
primarily from its proportionate share of cash flow arising from its acquisition
of real estate related investments and, to a lesser extent, temporary investment
income.
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<PAGE>
DESCRIPTION OF SECURITIES
The following summary of the terms of the stock of NSC does not purport to
be complete and is subject to and qualified in its entirety by reference to the
Charter and the Bylaws.
GENERAL
The Charter provides that NSC may issue up to 500,000,000 shares of common
stock, $.01 par value per share, and 100,000,000 shares of preferred stock, $.01
par value per share ("Preferred Stock"). Currently, 14,704,568 shares of Common
Stock are issued and outstanding and no shares of Preferred Stock are issued and
outstanding. Under Maryland law, stockholders generally are not liable for the
corporation's debts or obligations.
COMMON STOCK
All shares of Common Stock of NSC are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series
of stock and to the provisions of the Charter regarding the restrictions on
transfer of stock, holders of shares of Common Stock are entitled to receive
dividends on such stock if, as and when authorized and declared by the Board of
Directors of NSC out of assets legally available therefor and to share ratably
in the assets of NSC legally available for distribution to its stockholders in
the event of its liquidation, dissolution or winding up after payment of or
adequate provision for all known debts and liabilities of NSC.
Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, each outstanding share of Common Stock entitles the holder to
one vote on all matters submitted to a vote of stockholders, including the
election of directors and, except as provided with respect to any other class or
series of stock, the holders of such shares will possess the exclusive voting
power. There is no cumulative voting in the election of directors, which means
that the holders of a majority of the outstanding shares of Common Stock can
elect all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund or redemption rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Charter
regarding the restrictions on transfer of stock, shares of Common Stock will
have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter provides
that any such action shall be effective and valid if taken or authorized by the
affirmative vote of holders of shares entitled to cast a majority of all votes
entitled to be cast on the matter.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
PREFERRED STOCK
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of any series, as authorized by the Board of Directors. Prior to
issuance of shares of each series, the Board is required by the MGCL and the
Charter
55
<PAGE>
to set, subject to the provisions of the Charter regarding the restrictions on
transfer of stock, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. Thus,
the Board could authorize the issuance of shares of Preferred Stock with terms
and conditions which could have the effect of delaying, deferring or preventing
a transaction or a change of control of NSC that might involve a premium price
for holders of Common Stock or otherwise be in their best interest. As of the
date hereof, no shares of Preferred Stock are outstanding.
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
NSC believes that the power of the Board of Directors to issue additional
authorized but unissued shares of Common Stock or Preferred Stock and to
classify or reclassify unissued shares of Common or Preferred Stock and
thereafter to cause NSC to issue such classified or reclassified shares of stock
will provide NSC with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs which might arise. The
additional classes or series, as well as the Common Stock, will be available for
issuance without further action by NSC's stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which NSC's securities may be listed or traded. Although the
Board of Directors has no intention at the present time of doing so, it could
authorize NSC to issue a class or series that could, depending upon the terms of
such class or series, delay, defer or prevent a transaction or a change in
control of NSC that might involve a premium price for holders of Common Stock or
otherwise be in their best interest.
DIVIDEND REINVESTMENT PLAN
NSC may implement a dividend reinvestment plan whereby stockholders may
automatically reinvest their dividends in the Common Stock. Details about any
such plan would be sent to NSC's stockholders following adoption thereof by the
Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York (the "Transfer Agent").
TRANSFER RESTRICTIONS
RESTRICTIONS UNDER CHARTER. For NSC to qualify as a REIT under the Code,
its shares of stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months (other than the first year for
which an election to be a REIT has been made) or during a proportionate part of
a shorter taxable year. Also, not more than 50% of the value of the outstanding
shares of stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities such as
qualified pension plans) at any time during the last half of a taxable year
(other than the first year for which an election to be a REIT has been made).
The Charter, subject to certain exceptions, contains certain restrictions on
the number of shares of stock of NSC that a person may own. The Aggregate Stock
Ownership Limit prohibits any person from acquiring or holding, directly or
indirectly, shares of stock in excess of 9.8% in value of the aggregate of the
outstanding shares of stock of NSC.
NSC's Board of Directors, in its sole discretion, may exempt a person from
the Aggregate Stock Ownership Limit (an "Excepted Holder"). However, the Board
may not grant such an exemption to any person whose ownership, direct or
indirect, of in excess of 9.8% of the value of the outstanding shares of stock
of NSC would result in NSC being "closely held" within the meaning of Section
856(h) of the Code or otherwise would result in NSC failing to qualify as a
REIT. In order to be considered by the Board as an Excepted Holder, a person
also must not own, directly or indirectly, an interest in a tenant of NSC (or a
56
<PAGE>
tenant of any entity owned or controlled by the Company) that would cause NSC to
own, directly or indirectly, more than a 9.9% interest in such a tenant. The
person seeking an exemption must represent to the satisfaction of the Board that
it will not violate the two aforementioned restrictions. The person also must
agree that any violation or attempted violation of any of the foregoing
restrictions will result in the automatic transfer of the shares of stock
causing such violation to the Trust (as defined below). The Board of Directors
may require a ruling from the Service or an opinion of counsel, in either case
in form and substance satisfactory to the Board of Directors in its sole
discretion, in order to determine or ensure NSC's status as a REIT.
The Charter further prohibits (a) any person from beneficially or
constructively owning shares of stock of NSC that would result in NSC being
"closely held" under Section 856(h) of the Code or otherwise cause NSC to fail
to qualify as a REIT and (b) any person from transferring shares of stock of NSC
if such transfer would result in shares of stock of NSC being owned by fewer
than 100 persons. Any person who acquires or attempts or intends to acquire
beneficial or constructive ownership of shares of stock of NSC that will or may
violate any of the foregoing restrictions on transferability and ownership, or
any person who would have owned shares of the stock of NSC that resulted in a
transfer of shares to the Trust (as defined herein), is required to give notice
immediately to NSC and provide NSC with such other information as NSC may
request in order to determine the effect of such transfer on NSC's status as a
REIT. The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best interests
of NSC to attempt to qualify, or to continue to qualify, as a REIT.
If any transfer of shares of stock of NSC occurs which, if effective, would
result in any person beneficially or constructively owning shares of stock of
NSC in excess or in violation of the above transfer or ownership limitations (a
"Prohibited Owner"), then that number of shares of stock of NSC the beneficial
or constructive ownership of which otherwise would cause such person to violate
such limitations (rounded to the nearest whole share) shall be automatically
transferred to a trust (the "Trust") for the exclusive benefit of one or more
charitable beneficiaries (the "Charitable Beneficiary"), and the Prohibited
Owner shall not acquire any rights in such shares. Such automatic transfer shall
be deemed to be effective as of the close of business on the Business Day (as
defined in the Charter) prior to the date of such violative transfer. Shares of
stock held in the Trust shall be issued and outstanding shares of stock of NSC.
The Prohibited Owner shall not benefit economically from ownership of any shares
of stock held in the Trust, shall have no rights to dividends and shall not
possess any rights to vote or other rights attributable to the shares of stock
held in the Trust. The trustee of the Trust (the "Trustee") shall have all
voting rights and rights to dividends or other distributions with respect to
shares of stock held in the Trust, which rights shall be exercised for the
exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by NSC that shares of stock have been
transferred to the Trustee shall be paid by the recipient of such dividend or
distribution to the Trustee upon demand, and any dividend or other distribution
authorized but unpaid shall be paid when due to the Trustee. Any dividend or
distribution so paid to the Trustee shall be held in trust for the Charitable
Beneficiary. The Prohibited Owner shall have no voting rights with respect to
shares of stock held in the Trust and, subject to Maryland law, effective as of
the date that such shares of stock have been transferred to the Trust, the
Trustee shall have the authority (at the Trustee's sole discretion) (i) to
rescind as void any vote cast by a Prohibited Owner prior to the discovery by
NSC that such shares have been transferred to the Trust and (ii) to recast such
vote in accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary. However, if NSC has already taken irreversible corporate
action, then the Trustee shall not have the authority to rescind and recast such
vote.
Within 20 days of receiving notice from NSC that shares of stock of NSC have
been transferred to the Trust, the Trustee shall sell the shares of stock held
in the Trust to a person, designated by the Trustee, whose ownership of the
shares will not violate the ownership limitations set forth in the Charter. Upon
such sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall
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distribute the net proceeds of the sale to the Prohibited Owner and to the
Charitable Beneficiary as follows. The Prohibited Owner shall receive the lesser
of (i) the price paid by the Prohibited Owner for the shares or, if the
Prohibited Owner did not give value for the shares in connection with the event
causing the shares to be held in the Trust (e.g., a gift, devise or other such
transaction), the Market Price (as defined in the Charter) of such shares on the
day of the event causing the shares to be held in the Trust and (ii) the price
per share received by the Trustee from the sale or other disposition of the
shares held in the Trust. Any net sale proceeds in excess of the amount payable
to the Prohibited Owner shall be paid immediately to the Charitable Beneficiary.
If, prior to the discovery by NSC that shares of stock have been transferred to
the Trust, such shares are sold by a Prohibited Owner, then (i) such shares
shall be deemed to have been sold on behalf of the Trust and (ii) to the extent
that the Prohibited Owner received an amount for such shares that exceeds the
amount that such Prohibited Owner was entitled to receive pursuant to the
aforementioned requirement, such excess shall be paid to the Trustee upon
demand.
In addition, shares of stock of NSC held in the Trust shall be deemed to
have been offered for sale to NSC, or its designee, at a price per share equal
to the lesser of (i) the price per share in the transaction that resulted in
such transfer to the Trust (or, in the case of a devise or gift, the Market
Price at the time of such devise or gift) and (ii) the Market Price on the date
NSC, or its designee, accepts such offer. NSC shall have the right to accept
such offer until the Trustee has sold the shares of stock held in the Trust.
Upon such a sale to NSC, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of
the sale to the Prohibited Owner.
All certificates representing shares of Common Stock and Preferred Stock
will bear a legend referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of
NSC's stock, including shares of Common Stock, within 30 days after the end of
each taxable year, is required to give written notice to NSC stating the name
and address of such owner, the number of shares of each class and series of
stock of NSC which the owner beneficially owns and a description of the manner
in which such shares are held. Each such owner shall provide to NSC such
additional information as NSC may request in order to determine the effect, if
any, of such beneficial ownership on NSC's status as a REIT and to ensure
compliance with the Aggregate Stock Ownership Limit. In addition, each
stockholder shall upon demand be required to provide to NSC such information as
NSC may request, in good faith, in order to determine NSC's status as a REIT and
to comply with the requirements of any taxing authority or governmental
authority or to determine such compliance.
These ownership limits could delay, defer or prevent a change in control or
other transaction of NSC that might involve a premium price for the Common Stock
or otherwise be in the best interest of the stockholders.
OTHER TRANSFER RESTRICTIONS. Purchasers are advised to consult legal
counsel prior to making any offer, resale, pledge or transfer of any of the
Common Stock.
Each purchaser of Common Stock will be deemed to have represented and agreed
as follows:
1. It shall not sell or otherwise transfer such Common Stock to, and each
purchaser represents and covenants that it is not acquiring the Common Stock for
or on behalf of, and will not transfer the Common Stock to, any pension or
welfare plan (as defined in Section 3 of ERISA), except that such a purchase for
or on behalf of a pension or welfare plan shall be permitted:
a. to the extent such purchase is made by or on behalf of a bank
collective investment fund maintained by the purchaser in which, at any time
while the Common Stock is held by the purchaser, no plan (together with any
other plans maintained by the same employer or employee organization) has an
interest in excess of 10% of the total assets in such collective investment
fund and the
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conditions of Section III of Prohibited Transaction Class Exemption 91-38
issued by the Department of Labor are satisfied;
b. to the extent such purchase is made by or on behalf of an insurance
company pooled separate account maintained by the purchaser in which, at any
time while the Common Stock is held by the purchaser, no plan (together with
any other plans maintained by the same employer or employee organization)
has an interest in excess of 10% of the total of all assets in such pooled
separate account and the conditions of Section III of Prohibited Transaction
Class Exemption 90-1 issued by the Department of Labor are satisfied;
c. to the extent such purchase is made by or on behalf of an insurance
company general account maintained by the purchaser in which, at any time
while the Common Stock is held by the purchaser, the conditions of
Prohibited Transaction Class Exemption 95-60 issued by the Department of
Labor are satisfied;
d. to the extent such purchase is made on behalf of a plan by (i) an
investment adviser registered under the Investment Advisers Act of 1940 that
had as of the last day of its most recent fiscal year total assets under its
management and control in excess of US$50,000,000 and had stockholders' or
partners' equity in excess of US$750,000, as shown in its most recent
balance sheet prepared in accordance with GAAP, (ii) a bank as defined in
Section 202(a)(2) of the Investment Advisers Act of 1940 with equity capital
in excess of US$1,000,000 as of the last day of its most recent fiscal year,
(iii) an insurance company which is qualified under the laws of more than
one state to manage, acquire or dispose of any assets of a plan, which
insurance company has, as of the last day of its most recent fiscal year,
net worth in excess of US$1,000,000 and which is subject to supervision and
examination by a state authority having supervision over insurance
companies, or (iv) a savings and loan association, the accounts of which are
insured by the Federal Savings and Loan Insurance Corporation, that has made
application for and been granted trust powers to manage, acquire or dispose
of assets of a plan by a State or Federal authority having supervision over
savings and loan associations, which savings and loan association has, as of
the last day of its most recent fiscal year, equity capital or net worth in
excess of US$1,000,000 and, in any case, such investment adviser, bank,
insurance company or savings and loan is otherwise a qualified professional
asset manager, as such term is used in Prohibited Transaction Exception
84-14 issued by the Department of Labor, and the assets of such plan when
combined with the assets of other plans established or maintained by the
same employer (or affiliate thereof) or employee organization and managed by
such investment adviser, bank, insurance company or savings and loan do not
represent more than 20% of the total client assets managed by such
investment adviser, bank, insurance company or savings and loan and the
conditions of Section I of such exemption are otherwise satisfied;
e. to the extent such plan is a governmental plan (as defined in
Section 3 of ERISA) which is not subject to the provisions of Title I of
ERISA or Section 4975 of the Code, if such purchase does not violate any
other rule or regulation applicable to such governmental plan;
f. to the extent such purchase is made by or on behalf of a plan by an
in-house manager and the conditions of Prohibited Transaction Class
Exemption 96-23 issued by the Department of Labor are otherwise satisfied;
or
g. to the extent such purchase is exempt under another applicable
exemption.
2. It acknowledges that the Transfer Agent for the Common Stock will not be
required to accept for registration of transfer any Common Stock acquired by it,
except upon presentation of evidence satisfactory to the Company and the
Transfer Agent that the restrictions set forth herein have been complied with.
3. It acknowledges that the Company and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations and agreements and
agrees that if any of the acknowledgments, representations or agreements deemed
to have been made by its purchase of the Common Stock
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are no longer accurate, it shall promptly notify the Company. If it is acquiring
the Common Stock as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such
account and it has full power to make the foregoing acknowledgments,
representations and agreements on behalf of each account.
RESTRICTION ON OWNERSHIP BY PLANS. Prior to the date the Company qualifies
as an "operating company" (within the meaning of Department of Labor Regulation
Section 2510.3-101(c)) or the Common Stock qualifies as a class of "publicly
offered securities" (within the meaning of Department of Labor Regulation
Section 2510.3-101(b)(2)), the Company intends to limit equity ownership in the
Company by Plans (and similar investors) to less than 25% of the value of any
class of equity issued by the Company. See "ERISA Considerations--The Treatment
of the Company's Underlying Assets Under ERISA."
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The description of book-entry procedures in this Offering Memorandum
includes summaries of certain rules and operating procedures of DTC that affect
transfers of interest in the global certificate or certificates issued in
connection with sales of Common Stock to qualified institutional buyers pursuant
to Rule 144A under the Securities Act. Except as described in the next
paragraph, the shares of Common Stock will be issued only as fully registered
securities registered in the name of Cede & Co. (as nominee for DTC). One or
more fully registered global Common Stock certificates (the "Global
Certificates") will be issued, representing, in the aggregate, Common Stock sold
in reliance on Rule 144A, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Common Stock within the DTC system must be made by or through
Participants, which will receive a credit for the Common Stock on DTC's records.
The ownership interest of each actual purchaser of Common Stock ("Beneficial
Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Participants or Indirect Participants
through which the Beneficial Owners purchased Common Stock. Transfers of
ownership interests in the Common Stock are to be accomplished by entries made
on the books of Participants and Indirect Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Common Stock, except in the event that use of the
book-entry system for the Common Stock is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Common Stock;
DTC's records reflect only the identity of the Participants to whose accounts
such shares of Common Stock are credited, which
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may or may not be the Beneficial Owners. The Participants and Indirect
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices will be sent to Cede & Co. If less than all of the shares
of Common Stock are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Common Stock is limited to the holders
of record of the Common Stock, in those cases where a vote is required, neither
DTC nor Cede & Co. will itself consent or vote with respect to Common Stock.
Under its usual procedures, DTC would mail an omnibus proxy to the registrar as
soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Participants to whose accounts the shares
of Common Stock are credited on the record date (identified in a listing
attached to such omnibus proxy).
Distributions on the Common Stock held in a book-entry form will be made to
DTC in immediately available funds. DTC's practice is to credit Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payments on such payment date. Payments by Participants and Indirect
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participants and
Indirect Participants and not of DTC or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the Company, disbursement of such
payments to Participants is the responsibility of DTC and disbursement of such
payments to the Beneficial Owners is the responsibility of Participants and
Indirect Participants.
Except as provided herein, a Beneficial Owner of the Common Stock will not
be entitled to receive physical delivery of Common Stock. Accordingly, each
Beneficial Owner must rely on the procedures of DTC to exercise any rights under
the Common Stock.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. The Company will not have any
responsibility for the performance by DTC or its Participants or Indirect
Participants under the rules and procedures governing DTC. DTC may discontinue
providing its services as securities depository with respect to the Preferred
Securities at any time by giving notice to the registrar and the Company. Under
such circumstances, in the event that a successor securities depository is not
obtained, Common Stock certificates are required to be printed and delivered.
Additionally, the Company may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depository). In that event,
certificates for the Common Stock will be printed and delivered. In each of the
above circumstances, the Company will appoint a paying agent with respect to the
Common Stock.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Common Stock as
represented by a Global Certificate.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or
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(b) active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Charter contains such a provision which
eliminates such liability to the maximum extent permitted by the MGCL.
The Charter authorizes NSC, to the maximum extent permitted by Maryland law,
to obligate itself to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director of NSC and at
the request of NSC, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his or her status as a present or former director or office of NSC.
The Bylaws obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity or
(b) any individual who, while a director of NSC and at the request of NSC,
serves or has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity. The Charter and Bylaws also permit NSC to indemnify
and advance expenses to any person who served a predecessor of NSC in any of the
capacities described above and to any employee or agent of NSC or a predecessor
of NSC.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF NSC'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS OF NSC DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND THE CHARTER AND
BYLAWS OF NSC.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Bylaws provide that the number of directors of NSC may be established,
increased or decreased by the Board of Directors but may not be fewer than three
nor more than fifteen. Any vacancy will be filled, at any regular meeting by a
majority of the remaining directors, even if such a majority constitutes less
than a quorum except that a vacancy resulting from an increase in the number of
directors must be filled by a majority of the entire Board of Directors. The
Charter provides that a majority of the Board of Directors must be Independent
Directors.
Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third classes
will expire in 1998, 1999 and 2000, respectively. Beginning in 1998, directors
of each class will be chosen for three-year terms upon the expiration of their
current terms and each year one class of directors will be elected by the
stockholders. The Company believes that classification of the Board of Directors
will help to assure the continuity and stability of the Company's business
strategies and policies as determined by the Board of Directors. Holders of
shares of Common Stock will have no right to cumulative voting in the election
of directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of the shares of Common Stock will be able to elect all of the
successors of the class of directors whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors. Thus, the classified
board provision could increase the likelihood that incumbent directors will
retain their positions. The staggered terms of directors may delay, defer or
prevent a tender offer or an attempt to change control of the Company, even
though a tender offer or change in control might be in the best interest of the
stockholders.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed only for cause (as
defined in the Charter) and only by the affirmative vote of at least two-thirds
of the votes entitled to be cast generally in the election of directors. This
provision, when coupled with the provision in the Bylaws authorizing the Board
of Directors to fill vacant directorships, precludes stockholders from removing
incumbent directors except upon the existence of cause for removal and a
substantial affirmative vote and filling the vacancies created by such removal
with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the
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corporation and (b) two-thirds of the votes entitled to be cast by holders of
voting stock of the corporation other than shares held by the Interested
Stockholder with whom (or with whose affiliate) the business combination is to
be effected, unless, among other conditions, the corporation's common
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of the MGCL do
not apply, however, to business combinations that are approved or exempted by
the board of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The Bylaws of NSC contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of NSC's shares of
stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.
AMENDMENT TO THE CHARTER
The Charter, including its provisions on classification of the Board of
Directors and removal of directors, may be amended only by the affirmative vote
of the holders of not less than a majority of all of the votes entitled to be
cast on the matter.
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DISSOLUTION OF NSC
The dissolution of NSC must be approved by the affirmative vote of the
holders of not less than a majority of all of the votes entitled to be cast on
the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of NSC provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (i)
pursuant to NSC's notice of the meeting, (ii) or at the direction of the Board
of Directors or (iii) by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice procedures set forth in the Bylaws and
(b) with respect to special meetings of stockholders, only the business
specified in NSC's notice of meeting may be brought before the meeting of
stockholders and nominations of persons for election to the Board of Directors
may be made only (i) pursuant to NSC's notice of the meeting, (ii) by or at the
direction of the Board of Directors or (iii) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on classification of the Board of Directors and
removal of directors and the advance notice provisions of the Bylaws could
delay, defer or prevent a change in control or other transaction of NSC that
might involve a premium price for holders of Common Stock or otherwise be in
their best interest.
COMMON STOCK AVAILABLE FOR FUTURE SALE
As of the date of this Prospectus, NSC has outstanding (or reserved for
issuance upon exercise of options or redemption of Units) 17,754,837 shares of
Common Stock, all of which are "restricted" securities under the meaning of Rule
144 promulgated under the Securities Act ("Rule 144"), but will be freely
transferable when sold pursuant to this Prospectus.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, as defined in Rule 144 (an "Affiliate"), the
acquiror or subsequent holder thereof is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding Common Stock or the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 also are subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company which will require NSC to file
periodic reports under the Exchange Act. If two years have elapsed since the
date of acquisition of restricted shares from the Company or from any Affiliate
of the Company, and the acquiror or subsequent holder thereof is deemed not to
have been an Affiliate of the Company at any time during the three months
preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
No assurance can be given as to (i) the likelihood that an active market for
the shares will develop, (ii) the liquidity of any such market, (iii) the
ability of the stockholders to sell their Common Stock, or (iv) the prices that
stockholders may obtain for their Common Stock.
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OPERATING PARTNERSHIP AGREEMENT
The Operating Partnership has been organized as a Delaware limited
partnership, the general partner of which is NSC, and the initial limited
partner of which is the Manager. NSC organized the Operating Partnership for a
variety of reasons, including in order to provide future sellers of assets with
the opportunity to transfer those assets to the Company in a tax-deferred
exchange of property for Units. The following summary of certain provisions of
the Partnership Agreement of the Operating Partnership (the "Operating
Partnership Agreement") does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Operating Partnership Agreement.
GENERAL
Pursuant to the Operating Partnership Agreement, the General Partner, as the
sole general partner of the Operating Partnership, has full, exclusive and
complete responsibility and discretion in the management and control of the
Operating Partnership. The limited partners of the operating partnership (the
"Limited Partners") have no authority in their capacity as Limited Partners to
transact business for, or participate in the management activities or decisions
of, the Operating Partnership except as required by applicable law.
Consequently, NSC, by virtue of its position as the General Partner, controls
the assets and business of the Operating Partnership. However, any amendment to
the Operating Partnership Agreement that would (i) affect the Redemption Rights
(as defined below), (ii) adversely affect the Limited Partners' rights to
receive cash distributions, (iii) convert a limited partner interest into a
general partner interest, or (iv) modify the limited liability of a limited
partner, will require the consent of each Partner adversely affected (on a non
uniform basis) thereby or else shall be effective against only those partners
who shall have consented thereto.
GENERAL PARTNER NOT TO WITHDRAW
The General Partner is not able to voluntarily withdraw from the Operating
Partnership or transfer or assign its interest in the Operating Partnership
unless the transaction in which such withdrawal or transfer occurs results in
the Limited Partners receiving property in an amount equal to the amount they
would have received had they exercised the Redemption Rights immediately prior
to such transaction, or unless the successor to the General Partner contributes
substantially all of its assets to the Operating Partnership in return for an
interest in the Operating Partnership.
CAPITAL CONTRIBUTIONS
NSC contributed, in its capacity as General Partner, all of the net proceeds
of the Original Offering to the Operating Partnership in exchange for an
approximate 90.1% general partnership interest in the Operating Partnership. The
Initial Limited Partner contributed cash in the amount of $10 million to the
Operating Partnership in exchange for 536,193 Units, which represents an
approximate 3.3% limited partnership interest in the Operating Partnership.
Certain entities which are not affiliated with the Initial Purchaser or the
Manager contributed $18 million to the Operating Partnership (less a placement
fee of $1.35 per Unit payable to the Initial Purchaser) for 900,000 Units, in
exchange for, in the aggregate, an approximate 5.6% limited partnership interest
in the Operating Partnership.
Although the Operating Partnership received the net proceeds of the Original
Offering, the General Partner is deemed to have made a capital contribution to
the Operating Partnership in the aggregate amount of the gross proceeds of the
Original Offering and the Operating Partnership is deemed simultaneously to have
paid the Initial Purchaser' discount and other expenses paid or incurred in
connection with the Original Offering.
The Operating Partnership Agreement provides that if the Operating
Partnership requires additional funds at any time or from time to time in excess
of funds available to the Operating Partnership from borrowing or capital
contributions, the General Partner may borrow such funds from a financial
institution
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or other lender and lend such funds to the Operating Partnership on the same
terms and conditions as are applicable to the General Partner's borrowing of
such funds.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
NSC is authorized, without the consent of the Limited Partners, to cause the
Operating Partnership to issue additional Units to NSC, to the Limited Partners
or to other persons for such consideration and on such terms and conditions as
NSC deems appropriate. If additional Units are issued to NSC, then NSC must (i)
issue additional shares of Common Stock and must contribute to the Operating
Partnership the entire proceeds received by NSC from such issuance or (ii) issue
additional Units to all partners in proportion to their respective interests in
the Operating Partnership. In addition, NSC may cause the Operating Partnership
to issue to NSC additional partnership interests in different series or classes,
which may be senior to the Units, in conjunction with an offering of securities
of NSC having substantially similar rights, in which the proceeds thereof are
contributed to the Operating Partnership. Consideration for additional
partnership interests may be cash or other property or assets. No Limited
Partner has preemptive, preferential or similar rights with respect to
additional capital contributions to the Operating Partnership or the issuance or
sale of any partnership interests therein.
REDEMPTION RIGHTS
Pursuant to the Operating Partnership Agreement, the Limited Partners
(including the Initial Limited Partner) have the right (the "Redemption Rights")
to cause the Operating Partnership to redeem their Units for cash or, at the
election of the General Partner, shares of Common Stock on a one-for-one basis.
The redemption price will be paid in cash in the discretion of NSC or in the
event that the issuance of shares of Common Stock to the redeeming Limited
Partner would (i) result in any person owning, directly or indirectly, shares of
Common Stock in excess of the Ownership Limitation, (ii) result in shares of
securities of NSC being owned by fewer than 100 persons (determined without
reference to any rules of attribution), (iii) result in NSC being "closely held"
within the meaning of section 856(h) of the Code, (iv) cause NSC to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of NSC's or the Operating Partnership's real property, within the meaning of
section 856(d)(2)(B) of the Code, or (v) cause the acquisition of shares of
Common Stock by such redeeming Limited Partner to be "integrated" with any other
distribution of shares of Common Stock for purposes of complying with the
Securities Act. The Manager holds options to acquire shares of Common Stock (or,
at the option of the Company, Units), none of which is exercisable until the
Option Effective Date. Upon an acquisition of Units pursuant to such options,
the Manager may immediately exercise its Redemption Rights.
OPERATIONS
The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable NSC to satisfy the requirements for
being classified as a REIT for federal tax purposes, to avoid any federal income
or excise tax liability imposed by the Code, and to ensure that the Operating
Partnership will not be classified as a "publicly traded partnership" for
purposes of section 7704 of the Code.
In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, it is anticipated that the Operating Partnership
will pay all administrative costs and expenses of the Company (collectively, the
"Company Expenses") and the Company Expenses will be treated as expenses of the
Operating Partnership. The Company Expenses generally will include (i) all
expenses relating to the continuity of existence of the Company, (ii) all
expenses relating to this and any further registration of securities by the
Company, (iii) all expenses associated with the preparation and filing of any
periodic reports by the Company under federal, state or local laws or
regulations, (iv) all expenses
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associated with compliance by the Company with laws, rules and regulations
promulgated by any regulatory body, and (v) all other operating or
administrative costs of the Company incurred in the ordinary course of its
business on behalf of the Operating Partnership.
DISTRIBUTIONS; INCENTIVE RETURN
The Operating Partnership Agreement provides that the Operating Partnership
shall distribute cash from operations (including net sale or refinancing
proceeds, but excluding net proceeds from the sale of the Operating
Partnership's property in connection with the liquidation of the Operating
Partnership) on a quarterly (or, at the election of the General Partner, more or
less frequent) basis, in amounts determined by the General Partner in its sole
discretion, to the partners in accordance with their respective percentage
interests in the Operating Partnership. In addition, the Operating Partnership
will distribute the incentive return to the Manager in its capacity as the
Initial Limited Partner. See "Management of Operations -- Management
Incentives." Upon liquidation of the Operating Partnership, after payment of, or
adequate provision for, debts and obligations of the Operating Partnership,
including any partner loans, it is anticipated that any remaining assets of the
Operating Partnership will be distributed to all partners with positive capital
accounts in accordance with their respective positive capital account balances.
If the General Partner has a negative balance in its capital account following a
liquidation of the Operating Partnership, it will be obligated to contribute
cash to the Operating Partnership equal to the negative balance in its capital
account.
ALLOCATIONS
It is anticipated that income, gain and loss of the Operating Partnership
for each fiscal year generally will be allocated among the partners in
accordance with their respective interests in the Operating Partnership, subject
to compliance with the provisions of Code sections 704(b) and 704(c) and
Treasury regulations ("Treasury Regulations") promulgated thereunder and subject
to the Manager's quarterly incentive return described in "Management of
Operations--Management Incentives."
TERM
The Operating Partnership shall continue until December 31, 2050, or until
sooner terminated as provided in the Operating Partnership Agreement or by
operation of law.
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the General Partner is the
tax matters partner of the Operating Partnership and, as such, has authority to
handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.
SISTER CORP.
The Company anticipates that the terms of the partnership agreement of NewCo
OP will be substantially identical to the Operating Partnership Agreement.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations is based
upon current law and is for general information purposes only. The discussion
contained herein does not address all aspects of taxation that may be relevant
to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including, without
limitation, insurance companies, tax-exempt organizations (except as described
below), financial institutions or broker-dealers, and, except as discussed
below, foreign corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the Service, and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of any statements in this Prospectus with respect to the transactions
entered into or contemplated prior to the effective date of such changes.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND SALE OF THE
COMMON STOCK AND OF NSC'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
NSC plans to make an election to be taxed as a REIT under sections 856
through 860 of the Code, commencing with its taxable year ending on December 31,
1998. It is possible, however, that NSC may make the 1997 REIT Election if in
the reasonable judgement of management such an election would not have a
material adverse economic impact on either NSC or its stockholders.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth only the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its stockholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
Skadden, Arps, Slate, Meagher & Flom LLP has acted as counsel to NSC in
connection with the Original Offering and NSC's election to be taxed as a REIT.
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP (the "Opinion"),
provided that the elections and other procedural steps described in this
discussion of "Federal Income Tax Considerations" are completed by NSC in a
timely fashion, NSC will qualify to be taxed as a REIT pursuant to sections 856
through 860 of the Code, and NSC's organization and proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code. Investors should be aware, however, that
opinions of counsel are not binding upon the Service or any court. It must be
emphasized that the Opinion is based on various assumptions and is conditioned
upon certain representations made by NSC as to factual matters, including
representations regarding the nature of NSC's properties and the future conduct
of its business. Such factual assumptions and representations are described
below in this discussion of "Federal Income Tax Considerations" and are set out
in the Opinion. Moreover, such qualification and taxation as a REIT depends upon
NSC's ability to meet on a continuing basis, through actual annual operating
results, distribution levels, and stock ownership, the various qualification
tests imposed under the Code discussed below. Skadden, Arps, Slate, Meagher &
Flom LLP will not review NSC's compliance with those tests on a continuing
basis. Accordingly, no assurance can be given that the actual results of NSC's
operations for any particular taxable year will satisfy any such requirements.
For a discussion of the tax consequences of failure to qualify as a REIT. See
"Federal Income Tax Considerations--Failure to Qualify."
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If NSC qualifies for taxation as a REIT, it generally will not be subject to
federal corporate income tax on its net income that is distributed currently to
its stockholders. That treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) that generally
results from an investment in a corporation. However, NSC will be subject to
federal income tax in the following circumstances. First, NSC will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, NSC may be
subject to the "alternative minimum tax" on its undistributed items of tax
preference, if any. Third, if NSC has (i) net income from the sale or other
disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if NSC has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if NSC
should fail to satisfy the 75% gross income test or the 95% gross income test
(as discussed below), but has maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on
the gross income attributable to the greater of the amount by which NSC fails
the 75% or 95% gross income test, multiplied by a fraction intended to reflect
NSC's profitability. Sixth, if NSC should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year (other than
such capital gain net income which NSC elects to retain and pay tax on) , and
(iii) any undistributed taxable income from prior periods, NSC would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if NSC 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 the basis of the asset in NSC's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of a "C" corporation and NSC recognizes gain on the disposition of such
asset during the 10-year period beginning on the date on which it acquired such
asset, then to the extent of such asset's "built-in-gain" (i.e., the excess of
the fair market value of such asset at the time of acquisition by NSC over the
adjusted basis in such asset at such time), NSC will be subject to tax at the
highest regular corporate rate applicable (as provided in Treasury Regulations
that have not yet been promulgated). The results described above with respect to
the tax on "built-in-gain" assume that NSC will elect pursuant to IRS Notice
88-19 to be subject to the rules described in the preceding sentence if it were
to make any such acquisition.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election 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 in order
to elect and maintain REIT status; (viii) that uses a calendar year for federal
income tax purposes and complies with the recordkeeping requirements of the Code
and Treasury Regulations promulgated thereunder; and (ix) that meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (i) to (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met 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. Conditions (v) and (vi) will not apply until after the
first taxable year for which an election is made by NSC to be taxed as a REIT.
For purposes of determining stock ownership under the 5/50 Rule, a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of a
trust permanently set aside or used
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exclusively for charitable purposes generally is considered an individual. A
trust that is a qualified trust under Code section 401(a), however, generally is
not considered an individual and beneficiaries of such trust are treated as
holding shares of a REIT in proportion to their actuarial interests in such
trust for purposes of the 5/50 Rule. If NSC complies with all the requirements
for ascertaining the ownership of its outstanding stock in a taxable year and
does not know or have reason to know that it violated the 5/50 Rule, NSC will be
deemed to have complied with the 5/50 Rule for such taxable year.
Prior to the consummation of the Original Offering, NSC did not satisfy
conditions (v) and (vi) in the preceding paragraph. NSC issued sufficient Common
Stock with sufficient diversity of ownership pursuant to the Offering to allow
it to satisfy requirements (v) and (vi). In addition, NSC's Charter provides for
restrictions regarding the transfer of the Common Stock that are intended to
assist NSC in continuing to satisfy the share ownership requirements described
in clauses (v) and (vi) above. Such transfer restrictions are described in
"Description of Common Stock--Transfer Restrictions."
Code section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" shall be 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 held by the REIT. If NSC
acquires a corporation already in existence at the time of acquisition, such
corporation would be treated as liquidating on the date or acquisition and NSC
would be required to distribute any C corporation earnings and profits of the
corporation before the end of the taxable year. Thus, in applying the
requirements described herein, any "qualified REIT subsidiaries" of NSC will be
ignored, and all assets, liabilities, and items of income, deduction, and credit
of such subsidiaries will be treated as assets, liabilities, and items of
income, deduction, and credit of NSC.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. NSC's proportionate share of the
assets and gross income of the Operating Partnership will be treated as assets
and gross income of NSC for purposes of applying the requirements described
herein.
INCOME TESTS
In order for NSC to qualify and to maintain its qualification as a REIT, two
requirements relating to NSC's gross income must be satisfied annually. First,
at least 75% of NSC's gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and interest on
obligations secured by mortgages on real property or on interests in real
property, and dividends or other distributions on and gain from the sale of
stock in other REITs) or in cases where NSC raises new capital through stock or
long-term (at least five-year) debt offerings, income attributable to temporary
investments in stock or debt instruments during the one-year period following
NSC's receipt of such capital; provided that, such income will not qualify for
purposes of the 75% gross income test if it is received or accrued after the
expiration of such one-year period. Second, at least 95% of NSC's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property, mortgages on real property, or temporary
investments, and from dividends, other types of interest, and gain from the sale
or disposition of stock or securities, or from any combination of the foregoing.
The rent received by NSC from the tenants of the Real Property ("Rent") will
qualify as "rents from real property" in satisfying the gross income tests for a
REIT described above only if several conditions are met. First, the amount of
Rent must not be based, in whole or in part, on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales or
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solely by reason of being based on the income or profits of a tenant if such
tenant derives substantially all of its gross income from the related property
through the sub-leasing of substantially all of its interest in the property to
the extent the amounts received by such tenant would be characterized as rents
from real property by the REIT. Second, the Code provides that the Rent received
from a tenant will not qualify as "rents from real property" in satisfying the
gross income tests if NSC, or a direct or indirect owner of 10% or more of NSC,
owns 10% or more of such tenant, both actually and constructively (a "Related
Party Tenant"). Third, if Rent attributable to personal property, leased in
connection with a lease of Real Property, is greater than 15% of the total Rent
received under the lease, then the portion of Rent attributable (taking into
account both actual and constructive ownership) to such personal property will
not qualify as "rents from real property." Finally, for the Rent to qualify as
"rents from real property," NSC generally must not operate or manage the Real
Property or furnish or render services to the tenants of such Real Property,
other than through an "independent contractor" who is adequately compensated by
the tenants and from whom NSC derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent that the services provided by
NSC are "usually or customarily rendered" in connection with the rental of space
for occupancy only and are not otherwise considered "rendered to the occupant."
NSC has represented that it will not charge Rent for any portion of any Real
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 fixed percentage or percentages of
receipts or sales, as described above) to the extent that the receipt of such
Rent would jeopardize NSC's status as a REIT. In addition, NSC has represented
that, to the extent that it receives Rent from a Related Party Tenant, such Rent
will not cause NSC to fail to satisfy either the 75% or 95% gross income test.
NSC also has represented that it will not allow the Rent attributable to
personal property leased in connection with any lease of Real Property to exceed
15% of the total Rent received under the lease, if the receipt of such Rent
would cause NSC to fail to satisfy either the 75% or 95% gross income test.
Finally, NSC has represented that it will not operate or manage its Real
Property or furnish or render noncustomary services to the tenants of its Real
Property other than through an "independent contractor," to the extent that such
operation or the provision of such services would jeopardize NSC's status as a
REIT.
The term "interest," as defined for purposes of the 75% and 95% gross income
tests, generally does not include any amount received or accrued (directly or
indirectly) if the determination of such amount depends in whole or in part on
the income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. In
addition, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based 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, 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 will qualify as "interest on obligations secured by mortgages on
real property or on interests in real property" if the obligation is secured by
a mortgage on real property having a fair market value at the time of
acquisition of the obligation at least equal to the principal amount of the
loan. However, if NSC receives interest income with respect to a mortgage 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 NSC acquired or originated the
mortgage loan, the interest income will be apportioned between the real property
and the other property, which apportionment may cause NSC to recognize income
that is not qualifying income for purposes of the 75% gross income test.
NSC may receive income not described above that is not qualifying income for
purposes of one or both of the 75% and 95% gross income tests. For example, it
is possible that certain fees for services
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rendered by the Operating Partnership will not be qualifying income for purposes
of either gross income test. It is not anticipated that the Operating
Partnership will receive a significant amount of such fees. In addition,
dividends received from Real Estate Companies that are C corporations generally
will be qualifying income for purposes of the 95% gross income test, but not the
75% gross income test. NSC will monitor the amount of nonqualifying income
produced by its assets and has represented that it will manage its portfolio in
order to comply at all times with the two gross income tests.
REITs generally are 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 with the production of such income. "Foreclosure property" is defined
as any real property (including interests in real property) and any personal
property incident to such real property (i) that is acquired by a REIT as the
result of such REIT having bid in such property at foreclosure, or having
otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default (or default was imminent) on a lease
of such property or on an indebtedness owed to the REIT that such property
secured, (ii) for which the related loan was acquired by the REIT at a time when
default was not imminent or anticipated, and (iii) for which such REIT makes a
proper election to treat such property as foreclosure property. NSC does not
anticipate that it will receive any income from foreclosure property that is not
qualifying income for purposes of the 75% gross income test, but, if NSC does
receive any such income, NSC will make an election to treat the related property
as foreclosure property.
Property acquired by NSC will not be eligible for the election to be treated
as foreclosure property ("Ineligible Property") if the related loan was acquired
by NSC at a time when default was imminent or anticipated. In addition, income
received with respect to such Ineligible Property may not be qualifying income
for purposes of the 75% or 95% gross income tests.
Net income derived from a prohibited transaction is subject to a 100% tax.
The term "prohibited transaction" generally includes a sale or other disposition
of property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of a trade or business. NSC intends to conduct
its operations so that no asset owned by NSC or the Operating Partnership will
be held for sale to customers and that a sale of any such asset will not be in
the ordinary course of NSC's or the Operating Partnership's business. Whether
property is held "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 property.
Nevertheless, NSC will attempt to comply with the terms of safe-harbor
provisions in the Code prescribing when asset sales will not be characterized as
prohibited transactions. Complete assurance cannot be given, however, that NSC
can comply with the safe-harbor provisions of the Code or avoid owning property
that may be characterized as property held "primarily for sale to customers in
the ordinary course of a trade or business."
From time to time, NSC may enter into hedging transactions with respect to
one or more of its assets or liabilities. Any such hedging transactions could
take a variety of forms, including, without limitation, interest rate swap
contracts, interest rate cap or floor contracts, futures or forward contracts,
and options. To the extent that NSC enters into such a contract to hedge any
indebtedness incurred to acquire or carry real estate assets, any periodic
income or gain from the disposition of such contract should be qualifying income
for purposes of the 95% gross income test, but not the 75% gross income test. To
the extent that NSC hedges with other types of financial instruments or in other
situations, it may not be entirely clear how the income from those transactions
will be treated for purposes of the various income tests that apply to REITs
under the Code. NSC intends to structure any hedging transactions in a manner
that does not jeopardize its status as a REIT. Accordingly, NSC may conduct some
or all of its hedging activities through a corporate subsidiary that is fully
subject to federal corporate income tax.
If NSC 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
is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if NSC's failure to meet such tests is
due to reasonable cause and not due to willful neglect, NSC attaches a schedule
of the sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances NSC would be entitled to the
benefit of those
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relief provisions. As discussed above in "Federal Income Tax
Considerations--Taxation of the Company," even if those relief provisions apply,
a 100% tax would be imposed on the net income attributable to the greater of the
amount by which NSC fails the 75% or 95% gross income test.
ASSET TESTS
NSC, at the close of each quarter of each taxable year, also must satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of NSC's total assets must be represented by cash or cash items (including
certain receivables), government securities, "real estate assets," or, in cases
where NSC raises new capital through stock or long-term (at least five-year)
debt offerings, temporary investments in stock or debt instruments during the
one-year period following NSC's receipt of such capital; provided that, such
assets will not qualify for purposes of the 75% assets test if held by the
Company after the expiration of such one-year period. The term "real estate
assets" includes interests in real property, interests in mortgages on real
property to the extent the principal balance of a mortgage does not exceed the
fair market value of the associated real property, and shares of other REITs.
For purposes of the 75% asset test, the term "interest in real property"
includes an interest in mortgage loans or land or 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). An "interest" in real property also generally includes an interest in
mortgage loans secured by controlling equity interests in entities treated as
partnerships for federal income tax purposes that own real property, to the
extent that the principal balance of the mortgage does not exceed the fair
market value of the real property that is allocable to the equity interest.
Second, not more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
not included in the 75% asset class, the value of any one issuer's securities
owned by NSC may not exceed 5% of the value of NSC's total assets, and NSC may
not own more than 10% of any one issuer's outstanding voting securities (except
for its interests in the Operating Partnership, the General Partner, the Limited
Partner, any qualified REIT subsidiaries, and other qualified REITs).
NSC expects that any interests in Real Estate Companies and interests in
Real Property that it acquires generally will be qualifying assets for purposes
of the 75% asset test. If NSC acquires any interest in a Real Estate Company
that is a C corporation, such interest may not (i) represent more than 5% of the
value of NSC's total assets or (ii) constitute more than 10% of the Real Estate
Company's outstanding voting securities. NSC will monitor the status of the
assets that it acquires for purposes of the various asset tests and has
represented that it will manage its portfolio in order to comply at all times
with such tests.
If NSC should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause it to 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 NSC's 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 condition described in clause (ii) of the preceding sentence were not
satisfied, NSC still could avoid disqualification by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which it arose.
DISTRIBUTION REQUIREMENTS
NSC, in order to avoid corporate income taxation of the earnings that it
distributes, is required to distribute with respect to each taxable year
dividends (other than capital gain dividends) to its stockholders in an
aggregate amount at least equal to (i) the sum of (A) 95% of its "REIT taxable
income" (computed without regard to the dividends paid deduction and its net
capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before NSC timely files its federal
income tax return for such year and if paid on or before the first regular
dividend payment date after such declaration. To the extent that NSC does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gains corporate tax rates.
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Furthermore, if NSC should fail to distribute during each 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 the January immediately
following such year) at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain income for such year (other than
capital gain not income which NSC elects to retain and pay tax on), and (iii)
any undistributed taxable income from prior periods, NSC would be subject to a
4% nondeductible excise tax on the excess of such required distribution over the
amounts actually distributed. Pursuant to recently enacted legislation, NSC may
elect to retain, rather than distribute its net long-term capital gains. The
effect of such an election is that (i) NSC is required to pay the tax on such
gains, (ii) U.S. Stockholders, while required to include their proportionate
share of the undistributed long-term capital gains in income, will receive a
credit or refund for their share of the tax paid by NSC and (iii) the basis of
U.S. Stockholder's Common Stock would be increased by the amount of the
undistributed long-term capital gains (minus the amount of capital gains tax
paid by NSC) included in the U.S. Stockholder's long-term capital gains.
In certain circumstances, the Company's investments may generate income for
federal income tax purposes without a corresponding receipt of cash ("Phantom
Income"). In order for NSC to meet REIT qualifications and/or avoid tax at the
REIT level on such Phantom Income, NSC may be forced to use cash generated from
other sources, including, without limitation, asset sales and borrowings, to
make required distributions.
Under certain circumstances, NSC may be able to rectify a failure to meet
the distribution requirements for a year by paying "deficiency dividends" to its
stockholders in a later year, which may be included in NSC's deduction for
dividends paid for the earlier year. Although NSC may be able to avoid being
taxed on amounts distributed as deficiency dividends, it will be required to pay
to the Service interest based upon the amount of any deduction taken for
deficiency dividends.
RECORDKEEPING REQUIREMENTS
Pursuant to applicable Treasury Regulations, NSC must maintain certain
records and request on an annual basis certain information from its stockholders
designed to disclose the actual ownership of its outstanding stock. Failure to
comply with such record keeping requirements could result in substantial
monetary penalties to NSC. NSC intends to comply with such requirements.
FAILURE TO QUALIFY
If NSC fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, NSC will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to NSC's stockholders in any year in which NSC fails to
qualify will not be deductible by NSC nor will they be required to be made. In
such event, to the extent of NSC's current and accumulated earnings and profits,
all distributions to stockholders will be taxable as ordinary income and,
subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, NSC also will be disqualified from taxation as a
REIT for the four taxable years following the year during which NSC ceased to
qualify as a REIT. It is not possible to state whether in all circumstances NSC
would be entitled to statutory relief from its failure to qualify as a REIT.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used herein, the term "U.S. stockholder" means a holder of Common Stock
that for U.S. federal income tax purposes is (i) a citizen or resident of the
U.S., (ii) a corporation, partnership, or other entity created or organized in
or under the laws of the U.S. or of any political subdivision thereof, (iii) an
estate whose income from sources without the United States is includible in
gross income for U.S. federal income tax purposes regardless of its connection
with the conduct of a trade or business within the United States, or (iv) 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.
fiduciaries have the authority to control all substantial decisions of the
trust.
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As long as NSC qualifies as a REIT, distributions (including distributions
of Sister Corp. equity interests by NSC upon the formation of Sister Corp.) made
to NSC's taxable U.S. stockholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends or retained capital gains)
will be taken into account by such U.S. stockholders as ordinary income and will
not be eligible for the dividends received deduction generally available to
corporations. Distributions that are designated as capital gain dividends by NSC
will be taxed as long-term capital gains (to the extent that they do not exceed
NSC's actual net capital gain for the taxable year) without regard to the period
for which the stockholder has held his Common Stock. Pursuant to recently
enacted legislation, in the case of a stockholder who is an individual, an
estate or a trust, long-term capital gains and losses are separated into three
tax rate groups: a 20% group, a 25% group and a 28% group and subject to tax at
the rate effective for each group. Pursuant to Notice 97-64, 1997-47 IRB 1, the
Company will designate capital gain dividends, if any, as 20% rate gain
distributions, 25% rate gain distributions or 28% rate distributions and detail
such designations in a manner intended to comply with applicable requirements.
If NSC elects to retain capital gains rather than distribute them, a U.S.
stockholder will be deemed to receive a capital gain dividend equal to the
amount of such retained capital gains. A U.S. stockholder will be allowed a
credit against its federal income tax liability for its proportionate share of
tax paid by NSC on retained capital gains. See "Federal Income Tax
Considerations--Requirements for Qualifications--Distribution Requirements."
Such gains are subject to apportionment among the three tax rate groups as set
forth above. Corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
stock. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a stockholder's
Common Stock, such distributions will be included in income as long-term capital
gain (or short-term capital gain if the Common Stock had been held for one year
or less), provided that the Common Stock is a capital asset in the hands of the
stockholder. In addition, any distribution declared by NSC in October, November,
or December of any year and payable to a stockholder of record on a specified
date in any such month shall be treated as both paid by NSC and received by the
stockholder on December 31 of such year, provided that the distribution is
actually paid by NSC during January of the following calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of NSC. Instead, such losses would be carried
over by NSC for potential offset against its future income (subject to certain
limitations). Taxable distributions from NSC and gain from the disposition of
the Common Stock will not be treated as passive activity income and, therefore,
stockholders generally will not be able to apply any "passive activity losses"
(such as losses from certain types of limited partnerships in which a
stockholder is a limited partner) against such income. In addition, taxable
distributions from NSC generally will be treated as investment income for
purposes of the investment interest limitations. Capital gains from the
disposition of Common Stock (or distributions treated as such), however, will be
treated as investment income only if the stockholder so elects, in which case
such capital gains will be taxed at ordinary income rates. NSC will notify
stockholders after the close of NSC's taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income or
capital gain dividends.
It is possible that NSC may invest in certain types of mortgage loans that
may cause it under certain circumstances to recognize taxable income in excess
of its economic income (also known as "Phantom Income") and to experience an
offsetting excess of economic income over its taxable income in later years. As
a result, stockholders may from time to time be required to pay federal income
tax on distributions that economically represent a return of capital, rather
than a dividend. Such distributions would be offset in later years by
distributions representing economic income that would be treated as returns of
capital for federal income tax purposes. Accordingly, if NSC receives Phantom
Income, its stockholders may be required to pay federal income tax with respect
to such income on an accelerated basis, i.e., before such income is realized by
the stockholders in an economic sense. If there is taken into account the time
value of money, such an acceleration of federal income tax liabilities would
cause stockholders to receive an after-tax rate of return on an investment in
NSC that would be less than the after-tax rate of return on an
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investment with an identical before-tax rate of return that did not generate
Phantom Income. In general, as the ratio of NSC's Phantom Income to its total
income increases, the after-tax rate of return received by a taxable stockholder
of NSC will decrease. NSC will consider the potential effects of Phantom Income
on its taxable stockholders in managing its investments.
TAXATION OF STOCKHOLDERS ON THE DISPOSITION OF THE COMMON STOCK
In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a U.S. stockholder who is not a dealer in securities will be
treated as capital gain or loss. Any such capital gain or loss generally will
(x) in the case of U.S. stockholders which are corporations, be long-term
capital gain or loss if the Common Stock has been held for more than 12 months,
and (y) in the case of U.S. stockholders who are non-corporate tax payers, be
long-term capital gain or loss taxed at a maximum federal income tax rate of (i)
20% if the U.S. stockholder's holding period in such Common Stock was more than
18 months at the time of such disposition or (ii) 28% if the U.S. stockholder's
holding period was more than one year but not more than 18 months at the time of
such distribution.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
NSC will report to its U.S. stockholders and to the Service the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide NSC with his correct taxpayer
identification number also may be subject to penalties imposed by the Service.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("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 Service has issued a published ruling that
dividend distributions from a REIT to an exempt employee pension trust do not
constitute UBTI, provided that the shares of the REIT are not otherwise used in
an unrelated trade or business of the exempt employee pension trust. Based on
that ruling, amounts distributed by NSC to Exempt Organizations generally should
not constitute UBTI. However, if an Exempt Organization finances its acquisition
of the Common Stock with debt, a portion of its income from NSC will constitute
UBTI pursuant to the "debt-financed property" rules. In addition, in certain
circumstances, a pension trust that owns more than 10% of NSC's stock is
required to treat a percentage of the dividends from NSC as UBTI. This rule
applies to a pension trust holding more than 10% of NSC's stock only if (i) the
percentage of income of NSC that is UBTI (determined as if NSC were a pension
trust) is at least 5%, (ii) NSC 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 shares of NSC in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns more
than 25% of the value of NSC's stock or (B) a group of pension trusts
individually holding more than 10% of the value of NSC's stock collectively owns
more than 50% of the value of NSC's stock.
TAXATION OF NON-US. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH
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REGARD TO AN INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING
REQUIREMENTS.
Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges by NSC of U.S. real property interests and are not
designated by NSC as capital gains dividends or returned capital gains will be
treated as dividends of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of NSC. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross amount
of the distribution unless an applicable tax treaty reduces or eliminates that
tax. However, if income from the investment in the Common Stock is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business, the Non-U.S. Stockholder generally will be subject to federal income
tax at graduated rates, in the same manner as U.S. stockholders 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. Stockholder that is a non-U.S. corporation). NSC
expects to withhold U.S. income tax at the rate of 30% on the gross amount of
any such distributions made to a Non-U.S. Stockholder unless (i) a lower treaty
rate applies and any required form evidencing eligibility for that reduced rate
is filed with NSC or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with
NSC claiming that the distribution is effectively connected income. Furthermore,
on October 6, 1997, the U.S. Treasury Department issued final Treasury
regulations governing information reporting and the certification procedures
regarding withholding and backup withholding on certain amounts paid to Non-U.S.
Stockholders after December 31, 1998 (the "New Withholding Regulations"). The
New Withholding Regulations may alter the procedure for claiming the benefits of
an income tax treaty.
Distributions in excess of current and accumulated earnings and profits of
NSC will not be taxable to a Non-U.S. Stockholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Stockholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Stock, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, amounts so withheld are refundable to the extent it is
determined subsequently that such distribution was, in fact, in excess of
current and accumulated earnings and profits of NSC. NSC is required to withhold
10% of any distribution in excess of NSC's current and accumulated earnings and
profits. Consequently, although NSC intends to withhold at a rate of 30% on the
entire amount of any distribution, to the extent that NSC does not do so, any
portion of a distribution not subject to withholding at a rate of 30% will be
subject to withholding at a rate of 10%.
For any year in which NSC qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by NSC of U.S. real property
interests (i.e., interests in real property located in the United States and
interests in U.S. corporations at least 50% or whose assets consist of U.S. real
property interests) will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Stockholder as if such gain were effectively
connected with a U.S. trade or business. Non-U.S. Stockholders thus would be
taxed at the normal capital gain rates applicable to U.S. stockholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to the 30% branch profits tax in the hands of a non-U.S.
corporate stockholder not entitled to treaty relief or exemption. NSC is
required to withhold 35% of any distribution that is designated by NSC as a
capital gains dividend. The amount withheld is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of his Common Stock
generally will not be taxed under FIRPTA if NSC is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by non-U.S. persons. Although, it is currently anticipated that NSC
will be a "domestically controlled
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REIT" and, therefore, the sale of the Common Stock will not be subject to
taxation under FIRPTA, there can be no assurance that NSC will be a
"domestically-controlled REIT." Even if such gain is not subject to FIRPTA, such
gain will be taxable to a Non-U.S. Stockholder if (i) investment in the Common
Stock is effectively connected with the Non-U.S. Stockholder's U.S. trade or
business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain, or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the U.S. for
183 days or more during the taxable year and certain other conditions apply, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of the Common Stock were to
be subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject
to the same treatment as U.S. stockholders 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).
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Stockholders. The New Withholding
Regulations alter the application of the information reporting and backup
withholding rules to Non-U.S. Stockholders. Non-U.S. Stockholders should consult
with a tax advisor with respect to any such information reporting and backup
withholding requirements. Backup withholding with respect to a Non-U.S.
Stockholder is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Non-U.S. Stockholder will be allowed
as a credit against any United States federal income tax liability of such
Non-U.S. Stockholder. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the Internal Revenue Service.
OTHER TAX CONSEQUENCES
NSC, the General Partner, the Limited Partner, the Operating Partnership or
NSC's stockholders may be subject to state and local tax in various states and
localities, including those states and localities in which it or they transact
business, own property, or reside. The state and local tax treatment of the
Company and its stockholders in such jurisdictions may differ from the federal
income tax treatment described above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws upon an investment in the Common Stock. In addition, the Taxpayer
Relief Act of 1997 includes several provisions, some of which have been
described in the discussion above, that will liberalize certain of the
requirements for qualification as a REIT. However, these provisions will have
neither a material beneficial effect nor a material adverse effect on NSC's
ability to operate as a REIT.
SISTER CORP.; NEWCOS
Each NewCo organized as a corporation and the Sister Corp. will pay federal,
state and local income taxes on its taxable income at regular corporate rates.
Any such taxes will reduce amounts available for distribution by NewCo to its
shareholders.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended (the "Code"), impose certain
restrictions on (a) employee benefit plans (as defined in Section 3(3) of
ERISA), (b) plans described in section 4975(e)(1) of the Code, including
individual retirement accounts or Keogh plans, (c) any entities whose underlying
assets include plan assets by reason of a plan's investment in such entities
(each a "Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties-in-Interest" under ERISA and "Disqualified Persons" under the
Code). Moreover, based on the reasoning of the United States Supreme Court in
JOHN HANCOCK LIFE INS. CO. V. HARRIS TRUST AND SAV. BANK, 114 S. Ct. 517 (1993),
an insurance company's general account may be deemed to include assets of the
Plans investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party-in-Interest or
Disqualified Person with respect to a Plan by virtue of such investment. ERISA
also imposes certain duties on persons who are fiduciaries of Plans subject to
ERISA and prohibits certain transactions between a Plan and Parties-in-Interest
or Disqualified Persons with respect to such Plans.
THE ACQUISITION AND HOLDING OF COMMON STOCK
The Initial Purchaser, the Manager, or certain affiliates thereof may be
"Parties-in-Interest" or "Disqualified Persons" with respect to a number of
Plans. Accordingly, investment in the Common Stock by a Plan that has such a
relationship could be deemed to constitute a transaction prohibited under Title
I of ERISA or Section 4975 of the Code (e.g., the indirect transfer to or use by
Party-in-Interest or Disqualified Person of assets of a Plan). Such transactions
may, however, be subject to one or more statutory or administrative exemptions
such as Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts
certain transactions involving insurance company pooled separate accounts; PTCE
91-38, which exempts certain transactions involving bank collective investment
funds; and PTCE 84-14, which exempts certain transactions effected on behalf of
a Plan by a "qualified professional asset manager;" PTCE 95-60, which exempts
certain transactions involving insurance company general accounts; PTCE 96-23,
which exempts certain transactions effected on behalf of a Plan by an "in-house
asset manager;" or another available exemption. Such exemptions may not,
however, apply to all of the transactions that could be deemed prohibited
transactions in connection with a Plan's investment.
THE TREATMENT OF THE COMPANY'S UNDERLYING ASSETS UNDER ERISA
The United States Department of Labor (the "DOL") has issued a regulation
(29 C.F.R. Section 2510.3-101) concerning the definition of what constitutes the
assets of a Plan (the "Plan Asset Regulations"). This regulation provides that,
as a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan purchases an
"equity interest" will be deemed for purposes of ERISA to be assets of the
investing Plan unless certain exceptions apply. The Plan Asset Regulations
define an "equity interest" as any interest in an entity other than an
instrument that is treated as indebtedness under applicable local law and which
has no substantial equity features. The Common Stock offered hereby should be
treated as "equity interests" for purposes of the Plan Asset Regulations.
One exception under the Plan Asset Regulations provides that an investing
Plan's assets will not include any of the underlying assets of an entity if at
all times less than 25% of each class of "equity" interests in the entity is
held by "benefit plan investors," which is defined to include Plans that are not
subject to ERISA such as governmental pension plans and individual retirement
accounts as well as Plans that are subject to ERISA. Another exception is
provided for an investment in an "operating company," which is defined in the
Plan Asset Regulations to include a "venture capital operating company" and a
"real estate operating company." To be a "venture capital operating company," an
entity must have at least 50% of its assets (other than short term investments
pending long-term commitment or distribution to investors), valued at cost,
invested in "venture capital investments," which are defined as companies in the
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business of selling goods or services (other than the investment of capital)
with respect to which the entity has or obtains management rights. To be a "real
estate operating company" an entity must have at least 50% of its assets (other
than short term investments pending long-term commitment or distribution to
investors), valued at cost, invested in real estate that is managed or developed
and with respect to which such entity has the right to substantially participate
in such management or development activities. Another exception under the Plan
Asset Regulations provides that an investing Plan's assets will not include any
of the underlying assets of an entity if the class of "equity" interests in
question is (i) widely held (i.e., held by 100 or more investors who are
independent of the issuer and each other), (ii) freely transferable, and (iii)
part of a class of securities registered under Section 12(b) or 12(g) of the
Exchange Act, (the "Publicly Offered Securities Exception").
The Board of Directors of the Company will take such steps as may be
necessary to qualify for one or more of the exceptions available under the Plan
Asset Regulations and thereby prevent the assets of the Company or any Sister
Corp. from being treated as assets of any investing Plan. Specifically, the
Company intends to initially limit equity ownership in the Company by benefit
plan investors to less than 25% of the value of any class of equity securities
issued by the Company and to subsequently qualify as a venture capital operating
company or a real estate operating company or take steps to qualify the Common
Stock as a class of publicly offered securities at which time the 25% limitation
will cease to be applicable. In addition, with respect to any Sister Corp., the
Company will take such steps as may be necessary to qualify such Sister Corp. as
a venture capital operating company or other available exception under the Plan
Asset Regulations prior to distribution of its equity interests.
If, however, none of the exceptions under the Plan Asset Regulations were
applicable and the Company were deemed to hold Plan assets by reason of a Plan's
investment in Common Stock (or other equity security of the Company), such
Plan's assets would include an undivided interest in the assets held by the
Company. In such event, such assets, transactions involving such assets and the
persons with authority or control over and otherwise providing services with
respect to such assets would be subject to the fiduciary responsibility
provisions of Title I of ERISA and the prohibited transaction provisions of
ERISA and Section 4975 of the Code and there is no assurance that any statutory
or administrative exemption from the application of such rules would be
available.
Accordingly, prior to the date (i) the Company qualifies as a venture
capital operating company or a real estate operating company, (ii) the Common
Stock qualifies as a class of publicly offered securities, or (iii) the Company
complies with another available exception under the Plan Asset Regulations, the
Company will not approve the sale, transfer or disposition of the Common Stock
or other equity security of the Company unless, following such sale, transfer or
disposition, less than twenty-five percent (25%) of the value of such Common
Stock and any other class of security that is treated as an equity interests in
the Company for purposes of the Plan Asset Regulations is held by (i) employee
benefit plans (as defined in section 3(3) of ERISA, whether or not it is subject
to Title I of ERISA; (ii) Plans described in section 4975 of the Code; (iii)
entities whose underlying assets include Plan assets by reason of a Plan's
investment in such entities; or (iv) entities that otherwise constitute "benefit
plan investors" within the meaning of the Plan Asset Regulations determined
without regard to the value of any such interests held by affiliates of the
Manager or other persons with authority or control with respect to the assets of
the Company other than benefit plan investors.
As noted above, based on the reasoning of the United States Supreme Court in
JOHN HANCOCK LIFE INS. CO. V. HARRIS TRUST AND SAV. BANK, 114 S. Ct. 517 (1993),
an insurance company's general account may be deemed to include assets of the
Plans investing in the general account (e.g., through the purchase of an annuity
contract), and the insurance company might be treated as a Party-in-Interest
with respect to a Plan by virtue of such investment. Any purchaser that is an
insurance company using the assets of an insurance company general account
should note that the Small Business Job Protection Act of 1996 added new Section
401(c) of ERISA relating to the status of the assets of insurance company
general accounts under ERISA and Section 4975 of the Code. Pursuant to Section
401(c), the Department of Labor is required to
81
<PAGE>
issue final regulations (the "General Account Regulations") not later than
December 31, 1997 with respect to insurance policies issued on or before
December 31, 1998 that are supported by an insurer's general account. The
General Account Regulations are to provide guidance on which assets held by the
insurer constitute "plan assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code. Section 401(c) also provides
that, except in the case of avoidance of the General Account Regulation and
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or federal criminal law,
until the date that is 18 months after the General Account Regulations become
final, no liability under the fiduciary responsibility and prohibited
transaction provisions of ERISA and Section 4975 may result on the basis of a
claim that the assets of the general account of an insurance company constitute
the plan assets of any such plan. The plan asset status of insurance company
separate accounts is unaffected by new Section 401(c) of ERISA, and separate
account assets continue to be treated as the plan assets of any such plan
invested in a separate account.
Any Plan fiduciary that proposes to cause a Plan to purchase Common Stock
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment and determine on its own whether any
exceptions or exemptions are applicable and whether all conditions of any such
exceptions or exemptions have been satisfied.
Moreover each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the Common Stock is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
The sale of the Common Stock is in no respect a representation by the
Company or any other person that such an investment meets all relevant legal
requirements with respect to investments by Plans generally or that such an
investment is appropriate for any particular Plan.
82
<PAGE>
SELLING HOLDERS
The Common Stock was originally issued by NSC and sold by NationsBanc
Montgomery Securities, Inc. (the "Initial Purchaser"), in a transaction exempt
from registration requirements of the Securities Act, to persons reasonably
believed by the Initial Purchaser to be "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act), to a limited number of
institutional "accredited investors" (as defined in Rule 501 (a) (1), (2), (3)
or (7) under the Securities Act) and to individual "accredited investors" (as
defined in Rule 501 (a) (4), (5) or (6) under the Securities Act). The Selling
Holders may from time to time offer and sell pursuant to this Prospectus any or
all of the Common Stock. The term Selling Holders, includes the holders listed
below and the beneficial owners of the Common Stock and their transferees,
pledgees, donees or other successors.
The following table sets forth information with respect to the Selling
Holders of the Common Stock and the respective number of shares of Common Stock
beneficially owned by each Selling Holder that may be offered pursuant to this
Prospectus.
SELLING HOLDER NUMBER OF SHARES
- ---------------------------------------- ------------------------------
None of the Selling Holders has, or within the past three years has had, any
position, office or other material relationship with the NSC or any of its
predecessors or affiliates. Because the Selling Holders may, pursuant to this
Prospectus, offer all or some portion of the Common Stock, no estimate can be
given as to the amount of the Common Stock that will be held by the Selling
Holders upon termination of any such sales. In addition, the Selling Holders
identified above may have sold, transferred or otherwise disposed of all or a
portion of their Common Stock since the date on which they provided the
information regarding their Common Stock, in transactions exempt from the
registration requirements of the Securities Act.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the
83
<PAGE>
Selling Holders and any discounts, commissions or concessions allowed or
reallowed or paid to broker/ dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of the purchases and sales of any of the Offered Securities by the
Selling Holders. The foregoing may affect the marketability of such securities.
All expenses of the registration of the Offered Securities will be paid by
the Company, including, without limitation, Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however, that
the Selling Holders will pay all the underwriting discounts and selling
commissions, if any. The Selling Holders will be indemnified by the Company
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company will be indemnified by the Selling Holders severally against certain
civil liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York, and Ballard Spahr Andrews and
Ingersoll, Baltimore, Maryland.
84
<PAGE>
GLOSSARY OF TERMS
Except as otherwise specified or as the context may otherwise require, the
following terms used herein shall have the meanings assigned to them below. All
terms in the singular shall have the same meanings when used in the plural and
vice-versa.
"AAA" shall mean the American Arbitration Association.
"ADA" shall mean the Americans with Disabilities Act of 1990, as amended.
"Affiliate" shall mean (i) any person directly or indirectly owning,
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other person, (iii) any person
directly or indirectly controlling, controlled by, or under common control with
such other person, (iv) any executive officer, director, trustee or general
partner of such other person, and (v) any legal entity for which such person
acts as an executive officer, director, trustee or general partner. The term
"person" means and includes any natural person, corporation, partnership,
association, limited liability company or any other legal entity. An indirect
relationship shall include circumstances in which a person's spouse, children,
parents, siblings or mothers-, fathers-, sisters- or brothers-in-law is or has
been associated with a person.
"Board of Directors" shall mean the Board of Directors of NSC.
"Bylaws" shall mean the Bylaws of NSC.
"Charter" shall mean the Charter of NSC, as may be amended or restated from
time to time.
"Closing" shall mean the closing of the Original Offering.
"Closing Date" shall mean December 22, 1997, the date of payment for and
delivery of the shares of Common Stock issued in the Original Offering.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the Common Stock, par value $0.01 per share, of
NSC.
"Company" shall mean NorthStar Capital Investment Corp., a Maryland
corporation, together with its subsidiaries, including the Operating
Partnership, unless the context indicates otherwise.
"Company Expenses" shall mean all administrative costs and expenses of the
Company and the General Partner.
"Directors" means the members of NSC's Board of Directors.
"DOL" shall mean the Department of Labor.
"Employment Agreement" shall mean the employment agreements of each of
Messrs. Hamamoto and Scheetz with NorthStar.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded NorthStar Investments" shall mean existing or future investments
made by NorthStar and/ or its affiliates in connection with the Existing
NorthStar Assets or in connection with any additional investments made by
NorthStar or its affiliates during any period of time that the exclusivity
provisions of the Management Agreement are not in effect (i.e. during any period
of time in which 80% or more of the Total Equity of the Company has been
invested). "Excluded NorthStar Investments" shall also include
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<PAGE>
certain investments made by NorthStar or NorthStar Operating LLC to the extent
that such investments were permitted by a majority of the Independent Directors.
"Exempt Organizations" shall mean tax-exempt entities, including, but not
limited to, charitable organizations, qualified employee pension and profit
sharing trusts and individual retirement accounts.
"Existing NorthStar Assets" shall mean investments made by the Manager or
its affiliates prior to the Closing Date in Presidio Capital Corporation, the
Henry Hudson Hotel, 1940 Century Park East, the Ginsberg Portfolio, McAlpin
House and Emeritus Corporation.
"Expiration Date" shall mean June 25, 2000.
"FIRPTA" shall mean the Foreign Investment in Real Property Tax Act of 1980.
"Formation Transactions" shall mean transactions relating to the formation
of the Company as described in "Offering Summary--Organization and
Relationships."
"Funds From Operations" shall mean net income (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring or sales of property,
plus depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"General Partner" shall mean NSC, as the sole general partner of the
Operating Partnership.
"Gross Equity" shall mean the total equity raised by the Company, including,
without limitation, the proceeds of this Offering and the proceeds of any
subsequent offering of Common Stock or Preferred Stock by NSC, plus the amount
of cash or the fair market value of property contributed by partners (other than
the General Partner) from time to time, to the capital of the Operating
Partnership or any other subsidiary of the Company, less any capital dividends
or distributions made by NSC to its stockholders.
"Guidelines" shall mean guidelines that set forth general parameters for the
Company's investments, borrowings and operations which are approved by a
majority of the Independent Directors.
"Independent Director" shall mean a director of NSC who is not an affiliate
of the Manager or Messrs. Hamamoto or Scheetz.
"Initial Limited Partner" shall mean the Manager, as initial limited partner
of the Operating Partnership.
"Initial Purchaser" shall mean NationsBanc Montgomery Securities, Inc., as
initial purchaser in connection with the Original Offering.
"Interested Stockholder" shall mean any holder of more than 10% of any class
of outstanding voting shares of the Company.
"Limited Partners" shall mean the Initial Limited Partner and any additional
persons admitted as limited partners of the Operating Partnership.
"Management Agreement" shall mean an agreement or agreements between the
Company and the Manager pursuant to which the Manager will perform various
services for the Company.
"Management Fee" shall mean the management fee paid to the Manager under the
Management Agreement.
"Manager" shall mean NorthStar Capital Partners, LLC.
"MGCL" shall mean the Maryland General Corporation Law, as amended.
"NAREIT" shall mean the National Association of Real Estate Investment
Trusts, Inc.
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<PAGE>
"Net Income" shall mean the income of the Company as reported for federal
income tax purposes before distribution of the Manager's incentive return, net
operating loss deductions arising from losses in prior periods and the deduction
for dividends paid.
"NewCo" shall mean one or more sister corporations formed by the Operating
Partnership to act as a "paper clip" corporation with the Company.
"NewCo OP" shall mean the operating partnership of NewCo.
"Non-Competition Clause" shall mean Section 4 of each Employment Agreement.
"NorthStar" shall mean NorthStar Capital Partners LLC.
"NorthStar Operating LLC" shall mean the subsidiary of NorthStar that is
party to an existing loan agreement with UBS.
"NSC" shall mean NorthStar Capital Investment Corp.
"Offering" shall mean the offering of Common Stock hereby.
"Offering Price" shall mean the $20.00 Price to Investors of the shares of
Common Stock offered hereby.
"Operating Partnership" shall mean NorthStar Partnership, L.P.
"Operating Partnership Agreement" shall mean the partnership agreement of
the Operating Partnership, as amended from time to time.
"Opinion" shall mean the legal opinion of Skadden, Arps, Slate, Meagher &
Flom LLP regarding the REIT qualification of NSC.
"Option Effective Date" shall mean the date that is the earlier to occur of
(i) the date that a registration statement filed by NSC under the Securities
Act, registering the sale of any common stock of NSC, is declared effective by
the Commission and (ii) the first anniversary of the Closing Date.
"Option Plan" shall mean a plan which provides for options to purchase
Common Stock and/or Units.
"Other Assets" shall mean assets and investments other than Real
Estate-Related Assets.
"Partnership Interests" shall mean interests in limited partnerships,
general partnerships, limited liability companies and other "pass through"
entities primarily engaged in the business of real estate.
"Plan" shall mean certain pension, profit-sharing, employee benefit, or
retirement plans or individual retirement accounts.
"Plan Asset Regulations" shall mean regulations of the Department of Labor
that define "plan assets."
"PORTAL Market" shall mean the Private Offering, Resales and Trading through
Automated Linkages Market of the National Association of Securities Dealers,
Inc.
"Preferred Stock" shall mean the preferred stock of the Company.
"Prohibited Owner" shall mean the record holder of the shares of Common
Stock or Preferred Stock that are designated as Shares-in-Trust.
"Purchase Agreement" shall mean the agreement pursuant to which the Initial
Purchaser will purchase the Common Stock.
"Qualifying Interests" shall mean mortgages and other liens on and interests
in real estate.
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<PAGE>
"Real Estate Companies" shall mean companies primarily engaged in the
business of real estate ownership, real estate management, and real estate
services and other real estate intensive operating companies.
"Real Estate-Related Assets" shall mean (i) Real Estate Companies, (ii)
Distressed Assets, (iii) Corporate Divestitures, and (iv) Limited Partnerships,
and other real estate-related assets.
"Real Property" shall mean real property owned by the Company.
"Redemption Rights" shall mean the rights that the Limited Partners
(including the Initial Limited Partner) will have pursuant to the Operating
Partnership Agreement to cause the Operating Partnership to redeem all or a
portion of their Units for Common Stock on a one-for-one basis or, at the option
of the Company, an equivalent amount of cash.
"Registration Rights Agreement" shall mean the agreement pursuant to which
the Company agreed to file this Registration Statement.
"REIT" shall mean real estate investment trust, as defined in section 856 of
the Code.
"Related Party Tenant" shall mean a tenant of NSC or the Operating
Partnership in which NSC owns 10% or more of the ownership interests, taking
into account both direct ownership and constructive ownership.
"Rent" shall mean rent received by the Company from tenants of Real
Property.
"Rule 144" shall mean the rule promulgated under the Securities Act that
permits holders of restricted securities as well as affiliates of an issuer of
the securities, pursuant to certain conditions and subject to certain
restrictions, to sell their securities publicly without registration under the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Service" shall mean the Internal Revenue Service.
"Shares-in-Trust" shall mean shares of Common Stock or Preferred Stock the
purported transfer of which would result in a violation of the Ownership
Limitation, result in the stock of NSC being held by fewer than 100 persons,
result in NSC being "closely held," or cause NSC to own 10% or more of the
ownership interests in a tenant of the Company's Real Property.
"Shelf Registration Statement" shall mean this Registration Statement.
"Sister Corp." shall mean, collectively, NewCo and NewCo OP.
"Total Equity" shall mean the sum of (i) total equity raised by the Company,
including, without limitation, the net proceeds of this Offering and the net
proceeds of any subsequent offering of Common Stock or Preferred Stock by NSC,
plus (ii) a notional amount equal to debt on the amount of such total equity,
assuming a fifty percent (50%) leverage ratio.
"Transfer Agent" shall mean American Stock Transfer & Trust Company.
"Transferee Letter" shall mean a letter substantially in the form of Annex I
attached hereto.
"Treasury Regulations" shall mean the income tax regulations promulgated
under the Code.
"Trust" shall mean a trust created in the event of an impermissible transfer
of shares of Common Stock.
"UBS" shall mean UBS Mortgage Finance Inc.
"UBS Agreement" shall mean the agreement, dated as of June 25, 1997 among
NorthStar, UBS and Messrs. Hamamoto and Scheetz.
"UBTI" shall mean unrelated business taxable income.
"Underutilized Assets" shall mean under-utilized or poorly capitalized
assets.
"Units" shall mean units of limited partnership interest in the Operating
Partnership.
88
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
NORTHSTAR CAPITAL INVESTMENT CORP. UNAUDITED PRO FORMA FINANCIAL INFORMATION
NorthStar Capital Investment Corp. Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1997
(unaudited)............................................................................................ F-2
Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)...................................... F-4
NorthStar Capital Investment Corp. Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 1997 (unaudited).................................................................... F-6
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)............................ F-8
NORTHSTAR CAPITAL INVESTMENT CORP.
Independent Auditor's Report............................................................................. F-12
Consolidated Balance Sheet as of December 31, 1997....................................................... F-13
Consolidated Statement of Operations From November 25, 1997 (date of inception) to December 31, 1997..... F-14
Consolidated Statement of Stockholders' Equity From November 25, 1997 (date of inception) to December 31,
1997................................................................................................... F-15
Consolidated Statement of Cash Flows From November 25, 1997 (date of inception) to December 31, 1997..... F-16
Notes to Consolidated Financial Statements............................................................... F-17
NORTHSTAR HOSPITALITY LLC
Independent Auditor's Report............................................................................. F-24
Balance Sheet as of February 2, 1998..................................................................... F-25
Notes to Combined Financial Statements................................................................... F-26
BUSINESS TO BE ACQUIRED BY NORTHSTAR HOSPITALITY LLC
Independent Auditor's Report............................................................................. F-28
Combined Balance Sheets as of December 31, 1997 and 1996................................................. F-29
Combined Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995................... F-30
Combined Statements of Changes in Owners' Equity for the Years Ended December 31, 1997, 1996 and 1995.... F-31
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995................... F-32
Notes to Combined Financial Statements................................................................... F-34
FRANK KING ASSOCIATES, L.P.
Independent Auditors Report.............................................................................. F-45
Balance Sheets as of December 31, 1997 and 1996.......................................................... F-46
Statement of Operations for the Years Ended December 31, 1997, 1996 and 1995............................. F-47
Statement of Changes in Partners' Equity (Deficit) for the Years Ended December 31, 1997, 1996 and
1995................................................................................................... F-48
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995............................ F-49
Notes to Financial Statements............................................................................ F-50
PROPERTIES ACQUIRED -- NEW YORK
Independent Auditor's Report............................................................................. F-54
Combined Statement of Excess of Revenues Over Specific Operating Expenses for the Year Ended December 31,
1997................................................................................................... F-55
Notes to Combined Statement of Excess of Revenues Over Specific Operating Expenses for the Year Ended
December 31, 1997...................................................................................... F-56
</TABLE>
F-1
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
PRO FORMA CONSENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
(000'S OMITTED)
This unaudited Pro Forma Condensed Consolidated Balance Sheet assumes (i)
REIT qualification, (ii) acquisition of the New York Operating Properties, as
defined, (iii) acquisition of a development property, (iv) formation and
investment in joint ventures, including the formation of NorthStar Hospitality
and completion of the "Roll Up Transaction" as described under "Acquisitions and
Investments -- Ian Schrager Hotels", the acquisition of an interest in Frank
King Associates, L.P. and other joint ventures, (v) Purchase of marketable and
non-marketable equity securities and other assets and (vi) the issuance of
shares pursuant to the Initial Purchaser's over-allotment option, (collectively,
"Pro Forma Adjustments"). Pro forma financial results are not necessarily
indicative of what the actual financial position of the Company would have been
as of December 31, 1997, nor does it purport to represent the future financial
position. Pro forma information should be read in conjunction with all of the
financial statements and notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. Capitalized terms not defined herein are used as defined in the
Prospectus of which these financial statements are a part.
F-2
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------
PURCHASE OTHER
HISTORICAL TRANSACTIONS ADJUSTMENTS
(NOTE 1) (NOTE 2) (NOTE 3) PRO FORMA
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Real Estate:
Operating properties........................................ $ -- $ 88,655 $ -- $ 88,655
Development property........................................ -- 7,077 -- 7,077
Investment in joint ventures................................ -- 129,965 -- 129,965
---------- ------------ ----------- -----------
Total real estate......................................... -- 225,697 -- 225,697
Cash and cash equivalents..................................... 271,874 (215,047) (10,790) 46,037
Receivables and other assets.................................. -- -- 40,696(a) 40,696
---------- ------------ ----------- -----------
Total assets.............................................. $ 271,874 $ 10,650 $ 29,906 $ 312,430
---------- ------------ ----------- -----------
---------- ------------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Capital lease obligation.................................... $ -- $ 10,200 $ -- $ 10,200
Accounts payable and accrued expenses....................... 595 -- 250(b) 845
---------- ------------ ----------- -----------
Total liabilities......................................... 595 10,200 250 11,045
Minority interest............................................. 26,789 450 -- 27,239
Stockholders' Equity.......................................... 244,490 -- 29,656(b) 274,146
---------- ------------ ----------- -----------
Total liabilities and partners' capital................... $ 271,874 $ 10,650 $ 29,906 $ 312,430
---------- ------------ ----------- -----------
---------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
balance sheet.
F-3
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
(000's OMITTED)
Note (1) Reflects the historical financial position of NorthStar Capital
Investment Corp. as of December 31, 1997.
Note (2) The following is a summary of the Pro Forma adjustments related to
purchase transactions as if they occurred on December 31, 1997.
<TABLE>
<CAPTION>
NEW YORK FRANK KING NORTHSTAR OTHER
PROPERTIES ASSOCIATES LP HOSPITALITY LLC ADJUSTMENTS
(A) (B) (C) (D) TOTAL
---------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Real Estate:
Operating properties..................... $ 80,741 $ -- $ -- $ 7,914(i) $ 88,655
Development property..................... -- -- -- 7,077(ii) 7,077
Investment in joint ventures............. -- 7,905 110,827 11,233( ii) 129,965
---------- ------------- --------------- ----------- -----------
Total real estate...................... 80,741 7,905 110,827 26,224 225,697
Cash and cash equivalents.................. (70,541) (7,905) (110,827) (25,774) $ (215,047)
---------- ------------- --------------- ----------- -----------
Total assets........................... $ 10,200 $ -- $ -- $ 450 $ 10,650
---------- ------------- --------------- ----------- -----------
---------- ------------- --------------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Capital lease obligation................. $ 10,200 $ -- $ -- $ -- $ 10,200
---------- ------------- --------------- ----------- -----------
Total liabilities...................... 10,200 -- -- -- 10,200
Minority interest.......................... -- -- -- 450(b) 450
Stockholders' Equity....................... -- -- -- -- --
---------- ------------- --------------- ----------- -----------
Total liabilities and stockholders'
equity............................... $ 10,200 $ -- $ -- $ 450 $ 10,650
---------- ------------- --------------- ----------- -----------
---------- ------------- --------------- ----------- -----------
</TABLE>
- ------------------------
(A) Reflects the effective acquisition of two New York office buildings for
$80.7 million through a structured capital lease transaction. The effective
cost of the acquisition is comprised of $70.5 million advanced at closing
and the present value of future minimum lease payments of $10.2 million.
(B) Reflects the acquisition of a 50.5% interest in Frank King Associates L.P.,
a partnership which owns a retail shopping center and parking garage in
Boston, for $7.9 million
(C) Reflects contributions made by the company in exchange for a 37.1% interest
in NorthStar Hospitality LLC, which in turn, owns 84% of Ian Schrager Hotels
LLC.
F-4
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(000'S OMITTED)
(D) These adjustments are to reflect the following transactions as if they
occurred as of December 31, 1997:
(i) The Company's purchase of operating properties as follows:
<TABLE>
<CAPTION>
Condominium located in New York............................. $ 127
<S> <C>
Two golf courses............................................ 7,787
---------
$ 7,914
---------
---------
</TABLE>
The condominium is located in New York and the Company plans to lease it
for residential use. The two Golf courses are located in a suburb of
Houston, Texas. The golf courses, which were previously held for private
use, are expected to be leased to a management company and operated as a
"pay for play" facility.
(ii) The Company's purchase of development property consists of an effective
93% interest in a development company that purchased a parcel of land
which it plans to develop. The cost of the Company's interest was
approximately $6.6 million and the related minority interest in the
venture amounts to $450.
(iii) The Company's investment in joint ventures is as follows:
<TABLE>
<S> <C>
Purchase of a Limited Partnership Interest......................... $ 10,000
Purchase of a Brokerage joint venture.............................. 1,233
---------
$ 11,233
---------
---------
</TABLE>
The Company invested in a Limited Partnership whose principal asset is
common stock of a French hospitality company traded on Paris (France)
stock exchange. The Company purchased an 85% non-controlling interest in
a residential brokerage company that it plans to operate. The cost of
such interest was $1.2 million.
Note (3) (a) The adjustment to receivables and other assets is comprised of the
following:
<TABLE>
<S> <C>
(1) Purchase of marketable and non-marketable equity securities.... $ 35,196
(2) Deposits on potential acquisitions............................. 5,500
---------
$ 40,696
---------
---------
</TABLE>
(1) The common stocks purchased are in 3 public U.S. companies. Of the
total amount, $4.9 million is invested in restricted securities
which, upon request by the Company, must be registered by the issuer.
(2) Reflects refundable deposits on certain transactions the Company is
exploring.
Note (3) (b) The adjustment to stockholders' equity and accounts payable and
accrued expenses is to reflect the exercise of the over allotment
option for the issuance of 1,603,568 shares of common stock in
January 1998 and the related unpaid issuance costs, as if it
occurred on December 31, 1997.
F-5
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(000'S OMITTED)
This unaudited Pro Forma Condensed Consolidated Statement of Income assumes
(i) REIT qualification, (ii) acquisition of the New York Operating Properties,
as defined, (iii) acquisition of a development property, (iv) formation and
investment in joint ventures, including the formation of NorthStar Hospitality
and completion of the "Roll Up Transaction" as described under "Acquisitions and
Investments -- Ian Schrager Hotels", the acquisition of an interest in Frank
King Associates, L.P., and other joint ventures, (v) purchase of marketable and
non-marketable equity securities and other assets and (vi) the issuance of
shares pursuant to the Initial Purchaser's over-allotment option (collectively,
"Pro Forma Adjustments") as of the beginning of the period presented for the
operating data. The pro forma financial results are not necessarily indicative
of what the actual results of operations and cash flows of the Company would
have been as of and for the period indicated, nor does it purport to represent
the future results of operations and cash flows. Pro forma information should be
read in conjunction with all of the Financial Statements and notes thereto and
with "Management's Discussions and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus. Capitalized terms not
defined herein are used as defined in the Prospectus of which these financial
statements are a part.
F-6
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(000'S OMITTED, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------
ACQUISITION OTHER
HISTORICAL PROPERTIES ADJUSTMENTS CONSOLIDATED
(NOTE A) (NOTE B) (NOTE C) PRO FORMA
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Rental revenue............................................. $ -- $ 10,275 $ -- $ 10,275
Equity in earnings of joint ventures before extraordinary
item..................................................... -- 5,083 -- 5,083
Investment income.......................................... 387 -- -- 387
Other revenues............................................. -- 8 -- 8
----- ----------- ----------- -------------
Total revenues........................................... 387 15,366 -- 15,753
EXPENSES:
Property operating......................................... -- 6,050 -- 6,050
General and administrative................................. 140 -- -- 140
Depreciation and amortization.............................. -- 2,358 -- 2,358
Management fees............................................ 205 357 7,295 7,857
Interest expense........................................... -- 816 -- 816
----- ----------- ----------- -------------
Total expenses........................................... 345 9,581 7,295 17,221
----- ----------- ----------- -------------
Income (loss) before minority interests...................... 42 5,785 (7,295) (1,468)
Minority interests......................................... (4) (515) 648 129
----- ----------- ----------- -------------
Net income (loss)............................................ $ 38 $ 5,270 $ (6,647) $ (1,339)
----- ----------- ----------- -------------
----- ----------- ----------- -------------
Pro forma net (loss) per share............................... $ (.09)
-------------
-------------
Weighted average number of common shares outstanding......... 14,704,568
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the Pro Forma Consolidated
Statement of Income.
F-7
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
Note A: Reflects the historical operations of NorthStar Capital Investment Corp.
for the period from November 25, 1997 (date of inception) through
December 31, 1997.
Note B: The pro forma consolidated statement of income reflects the operations
of the New York Properties, the investment in Frank King Associates
L.P., the investment in Northstar Hospitality LLC and the investment in
a brokerage joint venture as if they had been acquired on January 1,
1997 and the pro forma adjustments related to each property or business.
<TABLE>
<CAPTION>
NEW YORK FRANK KING NORTHSTAR
PROPERTIES ASSOCIATES LP HOSPITALITY LLC BROKERAGE JOINT
(1) (2) (3) VENTURE (4) TOTAL
------------- ---------------- ------------------ ----------------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental revenue............... $ 10,275 $ -- $ -- $ -- $ 10,275
Equity in earnings of joint
ventures before
extraordinary item......... -- 179 4,820 84 5,083
Other revenues............... 8 -- -- -- 8
------------- ------- ------- ----- ---------
Total revenues........... 10,283 179 4,820 84 15,366
EXPENSES:
Property operating........... 6,050 -- -- -- 6,050
Depreciation and
amortization............... 1,938 360 -- 60 2,358
Management fees.............. 357 -- -- -- 357
Interest expense............. 816 -- -- -- 816
------------- ------- ------- ----- ---------
Total expenses........... 9,161 360 -- 60 9,581
------------- ------- ------- ----- ---------
Operating income
(loss)................. $ 1,122 $ (181) $ 4,820 $ 24 $ 5,785
------------- ------- ------- ----- ---------
------------- ------- ------- ----- ---------
</TABLE>
(1) Adjustments to reflect acquisition of the New York Properties is as follows:
<TABLE>
<CAPTION>
RENTAL OTHER PROPERTY DEPRECIATION AND INTEREST
REVENUE REVENUES OPERATING MANAGEMENT FEES AMORTIZATION EXPENSE
--------- ----------- ----------- --------------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical operating results.... $ 10,215 $ 8 $ 6,050 $ 122 $ -- $ --
B-1a Straight line rental income..... 60 -- -- -- -- --
Interest on capital lease
B-1b debt............................ -- -- -- -- -- 816
B-1c Management fees................. -- -- -- 235 -- --
B-1d Depreciation.................... -- -- -- -- 1,938 --
--------- --- ----------- ----- ------ ---------
$ 10,275 $ 8 $ 6,050 $ 357 $ 1,938 $ 816
--------- --- ----------- ----- ------ ---------
--------- --- ----------- ----- ------ ---------
</TABLE>
Note B-1a: Adjustment to reflect to straight line rent based on the acquisition
of the properties on January 1, 1997.
Note B-1b: Adjustment to reflect additional interest expense related to a $10.2
million capital lease obligation at 8% interest.
Note B-1c: Reflects management fees to be paid to third party manager based upon
a new contract.
F-8
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
Note B-1d: To reflect depreciation of buildings over their estimates useful
lives of 30 years, as follows:
<TABLE>
<S> <C>
Capital Lease Property Carrying Value.............................. $ 80,200
Less Portion Allocable to Land................................. 22,055
---------
Depreciable Basis.............................................. 58,145
Estimated Useful Life...................................... 30 Yrs.
---------
Annual Depreciation................................................ $ 1,938
---------
---------
</TABLE>
(2) Adjustments to reflect the acquisition of the Frank King Associates L.P.,
Ian Schrager Hotels LLC through NorthStar Hospitality and the Brokerage
joint venture are as follows:
<TABLE>
<CAPTION>
DEPRECIATION
EQUITY IN AND
INCOME AMORTIZATION
--------- ---------------
<S> <C> <C> <C>
(2) Frank King Associates L.P. ................................... $ 179 $ 360
(3) Ian Schrager Hotels LLC....................................... 4,820 --
(4) Brokerage Joint Venture....................................... 84 60
--------- -----
$ 5,083 $ 420
--------- -----
--------- -----
</TABLE>
Note 2: Adjustment to reflect the historical operations of Frank King Associates
as follows:
<TABLE>
<CAPTION>
Frank King Associates L.P. net income for the year ended December 31, 1997.... $ 355
<S> <C>
---------
Company's allocable share of net income....................................... $ 179
---------
---------
Company's allocable share of the net income of Frank King Associates L.P. per the Frank
King Associates L.P. Partnership Agreement is 50.5%
</TABLE>
<TABLE>
<S> <C>
Adjustment to amortize difference between outside and inside basis as follows:
Company's investment in Frank King Associates L.P. ................ $ 7,905
Company's allocable share of partners deficit as of January 1,
1997............................................................. (2,899)
---------
Inside vs. Outside Basis Difference................................ $ 10,804
---------
---------
Annual Amortization of Difference Over Life of Property (30
Years)........................................................... $ 360
---------
---------
</TABLE>
Note 3: The following is the pro forma adjustment to equity in net income of
unconsolidated joint ventures related to the Company's acquisition of an
interest in NorthStar Hospitality LLC and in turn the businesses
acquired by NorthStar Hospitality LLC, as if all such acquisitions
occurred on January 1, 1997.
<TABLE>
<S> <C>
NorthStar Hospitality pro forma income before extraordinary
item.......................................................... $ 12,993(i)
Company's proportionate share................................... 37.1%
---------
Company's proportionate share of Pro Forma income............... $ 4,820
---------
---------
</TABLE>
F-9
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
Note (i) The following is a summary of NorthStar Hospitality LLC pro forma
income:
<TABLE>
<CAPTION>
BUSINESSES
TO BE ACQUIRED PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------------- -------------- ------------
<S> <C> <C> <C>
(A) (f)
REVENUES:
Rooms.................................... $ 45,853 -- $ 45,853
Other revenues........................... 18,034 -- 18,034
Equity in earnings of unconsolidated
subsidiary............................. 2,891 (838 (g) 2,053
---------------- -------------- ------------
Total revenues......................... 66,778 (838) 65,940
---------------- -------------- ------------
EXPENSES:
Rooms...................................... 11,885 -- 11,885
Hotel operating.......................... 13,893 -- 13,893
General and administrative............... 4,908 250(b) 5,158
Other.................................... 6,817 -- 6,817
---------------- -------------- ------------
Total expenses......................... 37,503 250 37,753
---------------- -------------- ------------
Operating income....................... 29,275 (1,088) 28,187
OTHER EXPENSES:
Depreciation and amortization............ 3,421 4,884(c) 8,305
Interest................................. 7,824 (935 (d) 6,889
Other.................................... -- -- --
---------------- -------------- ------------
Net Income before minority interest and
extraordinary item................... 18,030 (5,037) 12,993
Minority interest.......................... -- -- (e) --
---------------- -------------- ------------
Net Income before extraordinary item... 18,030 (5,037) 12,993
Extraordinary item......................... (776) -- (776)
---------------- -------------- ------------
Net income............................. $ 18,806 $ (5,037) $ 13,769
---------------- -------------- ------------
---------------- -------------- ------------
</TABLE>
(a) Reflects the historical combined results of operations of the Businesses to
be acquired by NorthStar Hospitality LLC.
(b) Reflects occupancy cost for new corporate offices of the management company.
(c) Adjustment to depreciation and amortization to reflect increased carrying
amount of assets due to purchase price adjustments as a result of the Roll
Up transaction.
(d) Reflects elimination of interest on debt to related parties of the Mondrian
hotel which was repaid as part of the Roll Up transaction.
(e) The minority interest of Ian Schrager Hotels LLC has not been allocated a
portion of Ian Schrager Hotels LLC's net income because of preferences due
to NorthStar Hospitality LLC.
F-10
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(000'S OMITTED)
(f) Reflects pro forma results of operations of NorthStar Hospitality LLC for
the year ended December 31, 1997, as if the Roll up transaction had occurred
as of January 1, 1997.
(g) Reflects an adjustment to equity in earnings of Royalton LLC for the
additional amortization on the difference between the carrying amount of
ISH's investment account, as adjusted to reflect the Roll up transaction,
and its capital account as reflected by Royalton LLC
<TABLE>
<S> <C> <C>
Historical investment in unconsolidated subsidiary at January 1,
1997............................................................... $ 4,476
Pro forma carrying amount of investment.............................. 38,000
---------
Pro forma purchase price step up..................................... 33,524
Depreciable life............................................. 40 years
---------
Annual amortization of difference.................................... $ 838
</TABLE>
Note 4: Adjustments to reflect the historical operations of the Brokerage
joint venture are as follows:
<TABLE>
<S> <C> <C>
Brokerage joint venture net income........................... $ 99
---------
Company's allocable share of net income...................... $ 84
---------
---------
</TABLE>
The Company's allocable share of net income of the Brokerage joint
venture is 85%.
<TABLE>
<S> <C> <C>
Purchase price in excess of identifiable assets.............. $ 1,200
Amortization period.......................................... 20 years
---------
Annual amortization.......................................... $ 60
---------
---------
</TABLE>
Note C: Reflects adjustment to reflect the Management fee arrangement with the
Manager and the related effect on the minority interest.
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
NorthStar Capital Investment Corp.:
We have audited the accompanying consolidated balance sheet of NorthStar Capital
Investment Corp. (a Maryland Corporation) and subsidiaries as of December 31,
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the period from November 25,1997 (inception) through December
31, 1997. These financial statements are the responsibility of NSC's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NorthStar Capital
Investment Corp. and subsidiaries as of December 31, 1997, and the results of
their operations and their cash flows for the period from November 25,1997
(inception) through December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New York, New York
March 1, 1998
F-12
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents..................................................... $271,874,391
-----------
Total assets............................................................ $271,874,391
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued expenses....................................... $ 390,000
Management fees payable to related party.................................... 205,479
-----------
Total liabilities....................................................... 595,479
-----------
Minority interest in consolidated partnership................................. 26,789,116
-----------
Stockholders' Equity:
Common stock; $.01 par value, 500,000,000 shares authorized, 13,101,000
shares issued and outstanding............................................. 131,010
Preferred stock; $.01 par value, 100,000,000 shares authorized, none issued
and outstanding........................................................... --
Additional paid-in capital.................................................. 244,321,242
Retained earnings........................................................... 37,544
-----------
Total stockholders' equity.............................................. 244,489,796
-----------
Total liabilities and stockholders' equity.............................. $271,874,391
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 25, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
REVENUES:
Interest income................................................................ $ 387,139
---------
Total revenues............................................................... 387,139
---------
EXPENSES:
Management fees (Note 3)....................................................... 205,479
General and administrative..................................................... 140,000
---------
Total expenses............................................................... 345,479
---------
Income before minority interest.............................................. 41,660
Minority interest in consolidated partnership.................................. (4,116)
---------
NET INCOME................................................................... $ 37,544
---------
---------
NET INCOME PER COMMON SHARE...................................................... $ 0.011
---------
---------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................. 3,541,540
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-14
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM NOVEMBER 25, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------------- ---------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock, net............. 13,101,000 $ 131,010 $ 244,321,242 $ -- $ 244,452,252
Net Income................................ -- -- -- 37,544 37,544
------------- ---------- -------------- --------- --------------
BALANCE, DECEMBER 31, 1997................ $ 13,101,000 $ 131,010 $ 244,321,242 $ 37,544 $ 244,489,796
------------- ---------- -------------- --------- --------------
------------- ---------- -------------- --------- --------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-15
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM NOVEMBER 25, 1997 (INCEPTION) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 37,544
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase in accounts payable and accrued expenses......................... 140,000
Increase in management fees payable to related party...................... 205,479
Increase in minority interest in consolidated partnership................. 4,116
-----------
Net cash provided by operating activities............................... 387,139
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from issuance of common stock, net................................. 244,452,252
Increase in accrued costs for issuance of common stock...................... 250,000
Proceeds from sale of limited partnership units............................. 26,785,000
-----------
Net cash provided by financing activities............................... 271,487,252
-----------
Net increase in cash and cash equivalents................................... 271,874,391
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................ --
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................................... $271,874,391
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-16
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND PURPOSE
FORMATION AND CAPITALIZATION
NorthStar Capital Investment Corp. ("NSC") was incorporated in Maryland on
November 25, 1997 and was initially capitalized through the sale of 1,000 shares
of Common Stock for $20,000. NSC will primarily seek to acquire investments in
(i) Real Estate Companies, (ii) Distressed Assets, (iii) Corporate Divestitures,
and (iv) Partnership Interests and may also invest in other assets.
In December 1997, NSC increased the number of its authorized shares to
500,000,000 of Common Stock (the "Common Stock") and 100,000,000 Preferred
Shares. On December 22, 1997 (the "Effective Date"), NSC completed a private
offering for the sale of 13,100,000 shares of Common Stock (the "Offering"),
subject to an over-allotment option granted to the Initial Purchaser. The
proceeds of the Offering, net of expenses, were $244,432,252. In January 1998,
the Initial Purchaser exercised its over-allotment option and purchased an
additional 1,603,568 shares of Common Stock (Note 7). Subsequent to the
Offering, the Initial Purchaser was obligated to sell the Common Shares to
qualified institutional buyers as required by Rule 144A of the Securities Act.
OPERATING PARTNERSHIP
In connection with the Offering, NSC formed NorthStar Partnership L. P. (the
"Operating Partnership"). NSC and the Operating Partnership are collectively
referred to as the "Company". NSC contributed the net proceeds of the Offering
to the Operating Partnership for a 90.1% interest. NSC is the sole General
Partner of the Operating Partnership. NorthStar Capital Partners LLC (the
"Manager" or the "Special Limited Partner") and several other investors
contributed cash to the Operating Partnership in exchange for a 3.7% Special
Limited Partner interest and a 6.2% Limited Partner interest, respectively
(collectively, the "L.P. Units"). Such limited partner interests are presented
as minority interest in the accompanying consolidated financial statements. The
term of the Operating Partnership commenced on December 16, 1997 and shall
continue until December 31, 2097 or until such time as a Liquidating Event, as
defined, has occurred.
The Partnership Agreement (the "Agreement") provides for, among other
things, the distribution of Available Cash, as defined, the allocation of profit
and loss, redemption rights of certain limited partners and distributions upon
liquidation as follows:
DISTRIBUTION OF AVAILABLE CASH
Available Cash shall be distributed on a quarterly basis, first, to the
Special Limited Partner in an amount equal to the cumulative unpaid Special
Limited Partner Preferred Distributions, as defined below (the "SLP Promote");
second, with respect to any other Partnership Interests which may be entitled to
any preference in distribution, pro rata in accordance with the rights of such
class(es) of Partnership Interests; as defined, and, third, prorata in
proportion to the respective Partnership Interests of each Partner. The General
Partner shall administer the Partnership's distribution policy in a manner
consistent with the General Partner's qualification as a real estate investment
trust and its objective to satisfy the requirements for qualification as a real
estate investment trust and to avoid incurring federal income or excise tax
liability.
The SLP Promote is a preferred distribution equal to 25% of the amount by
which Funds From Operations, as defined, plus certain gains (losses) on
refinancings or sales of NSC's investments exceed a
F-17
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND PURPOSE (CONTINUED)
10% return on the weighted average Equity Invested, as defined, in NSC. Upon any
termination of the management agreement described below, the General Partner
shall be entitled to receive the SLP Promote based upon its then fair market
value.
ALLOCATION OF PROFIT AND LOSS
Net income is to be allocated first, to the Special Limited Partner in an
amount equal to the SLP Promote; second, with respect to any other Partnership
Interests which may be entitled to any preference in distribution, pro rata in
accordance with the rights of such class(es) of Partnership Interests; and,
third, pro rata in proportion to the respective Partnership Interests of each
Partner.
REDEMPTION RIGHTS
After the first anniversary of the Effective Date, a Qualifying Partner, as
defined, shall have the right to require the Operating Partnership to redeem for
NSC Stock or, at the option of the General Partner, for cash, all or a portion
of the L.P. Units held by such Limited Partner. A Qualifying Partner generally
includes the Special Limited Partner, other initial Limited Partners and certain
Permitted Transferees, as defined. Furthermore, certain Limited Partners shall
have no right to effect a redemption prior to the expiration of a period ending
10 years after the Effective Date, except in certain specific circumstances,
including a Triggering Event, as defined.
DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION AND TERMINATION
Upon liquidation, dissolution and termination, distributions of net assets
shall be made first, to the Special Limited Partner in an amount equal to the
SLP Promote; second, with respect to any other Partnership Interests that are
entitled to any preference in distribution, pro rata in accordance with the
rights of such class(es) of Partnership Interests; and third, prorata in
proportion to the respective Partnership Interests of each Partner.
MANAGEMENT AGREEMENT
NSC will be managed by NorthStar Capital Partners LLC under a management
agreement (the "Management Agreement") for an initial term of three years,
subject to certain termination rights. The Management Agreement provides for,
among other things, use of the Investment Guidelines, as defined, in determining
appropriate investments, the duties of the Manager, the rights of an affiliate
of the Manager to co-invest in certain investment opportunities and the
compensation of the Manager (Note 3).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles and include the
accounts of NSC and its majority-owned subsidiary NorthStar Partnership L.P. NSC
consolidates all wholly-owned subsidiaries and those majority-owned subsidiaries
in which it can exercise significant control. Investor entities over which NSC
can exercise significant influence, but does not control, are accounted for on
the equity method. All significant intercompany transactions and balances have
been eliminated in consolidation.
F-18
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
FEDERAL INCOME TAXES
During 1997, NSC had limited operations and, as a result, expects to report
an immaterial amount of taxable income. In addition, NSC has not yet elected to
be taxed as a real estate investment trust ("REIT") under the Internal Revenue
Code for the taxable year ended December 31, 1997. However, NSC does expect to
make an election to be taxed as a real estate investment trust under the
Internal Revenue Code in the future. As a result of such election, NSC will not
be subject to federal income taxation in such taxable years that NSC distributes
its predistribution taxable income.
In connection with its formation, NSC has indicated that it intends to
acquire and operate businesses, which are not consistent with its qualification
as a REIT. Transactions that give rise to assets and income that are
inconsistent with NSC's qualification as a REIT are expected to be structured in
such a way as to meet the standards for REIT qualification. Any residual assets
or activities which remain inconsistent with NSC's qualification as a REIT are
expected to be transferred to a Sister Corporation, which is expected to be
subject to regular federal, state and local taxation (Note 5).
REVENUE RECOGNITION
Revenues are recognized when earned and the amounts can be reasonably
estimated on the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in banks and investments in money
market fund accounts offered by a major financial institution. The amounts on
deposit with these financial institutions exceed insured limits.
NSC considers all highly liquid short-term investments purchased with a
maturity of 90 days or less to be cash equivalents.
STOCK OPTIONS
NSC accounts for stock options granted to non-employees in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, the fair value of the options NSC is obligated to
grant to the Manager (Note 4) will be provided for when all contingencies
associated with granting the Options are satisfied. As such options are issued
as compensation to the Manager for its efforts in raising capital for the
Company, the value of options granted will be recorded as a reduction of capital
proceeds received.
F-19
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
NSC is required to disclose the fair value of financial instruments, for
which it is practicable to estimate such fair value. The fair values of
financial instruments are estimates based upon market conditions and perceived
risks at December 31, 1997 and require varying degrees of management judgement.
The fair values of financial instruments presented may not be indicative of
amounts NSC could realize on the disposition of the financial instruments.
Cash and cash equivalents are carried at an amount, which due to their
nature, approximates fair value.
NET INCOME PER COMMON SHARE
Computation of net income per common share is based upon the weighted
average number of shares of Common Stock outstanding during the period. The
additional shares issuable upon the exercise of stock options (Note 4) have not
been included in the computation as the granting of these options is contingent
upon future events.
NOTE 3 -- MANAGEMENT AGREEMENT
NSC has entered into the Management Agreement with the Manager, which
provides for an initial term of three years with automatic one-year extensions,
subject to certain termination rights. After the initial three-year term, the
Manager's performance will be reviewed annually and the Management Agreement may
be terminated by NSC by payment of a Termination Fee, as defined, upon the
affirmative vote of at least two-thirds of the Independent Directors, or by a
vote of the holders of Common Stock. Pursuant to the Management Agreement, the
Manager, under the supervision of NSC's Board of Directors, will formulate
investment strategies, arrange for the acquisition of assets, arrange for
financing, monitor the performance of NSC's assets and provide certain advisory,
administrative and managerial services in connection with the operation of NSC.
For performing these services, NSC will pay the Manager an annual management fee
equal to 1.5% of the Gross Equity of NSC, as defined, provided, however, that
during the first twelve months following the Offering, the Manager will be paid
the greater of $7,500,000 or 1.5% of the Gross Equity of NSC.
NOTE 4 -- STOCK OPTION PLANS
In 1997, NSC, subject to board approval, adopted a non-qualified stock
option plan (the "Option Plan") for non-employee directors and the Manager. For
the purpose of compensating the Manager for its successful efforts in raising
Capital for the Company, the Manager will be granted options representing the
right to acquire shares of common stock (or at the election of the Company, L.P.
units) in an amount necessary to provide and maintain a 10% interest in the
Company. During 1997, NSC agreed to grant to the Manager, options to acquire
1,310,100 shares of Common Stock (or, at the election of NSC, L.P. Units) at an
exercise price of $20 per share, contingent upon the first effectiveness of a
registration statement filed with the Securities and Exchange Commission. The
Options, once granted, are not exercisable until the date (the "Option Exercise
Date") that is the earlier to occur of (i) the date that a registration
statement filed by NSC under the Securities Act, registering the sale of any
Common Stock of NSC, is
F-20
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 4 -- STOCK OPTION PLANS (CONTINUED)
declared effective by the Securities and Exchange Commission and (ii) the first
anniversary of the date of the Offering. From and after the Option Exercise
Date, one thirtieth of the Options will become exercisable on the first day of
each of the following thirty calendar months, or earlier upon the occurrence of
certain events such as a change of control of NSC or the termination of the
Management Agreement. The Options expire on the tenth anniversary of the date of
the Offering. At December 31, 1997, none of the Manager's options were
exercisable.
In connection with the Initial Purchaser's exercise of the over-allotment
option in January 1998, NSC is obligated to grant the Manager additional options
to purchase 160,357 shares of Common Stock (or, at the election of NSC, L.P.
Units) at $20 per share (Note 7).
The fair value of the options NSC is obligated to grant to the Manager at
December 31, 1997 amounted to $2,292,675. The fair value of such options was
determined using highly subjective assumptions, including the expected
volatility of NSC's stock, the period in which the exercise of the Options may
occur and the expected dividend yield on the Common Stock. Since NSC's Common
Stock is not publicly traded and the Option Plan has characteristics
significantly different from those of traded options, the actual value of the
options could vary materially from management's estimate.
NOTE 5 -- INCOME TAXES
NSC has not filed its initial federal income tax return and, as such, has
not yet elected to be treated as a REIT for the period ended December 31, 1997.
However, NSC does expect to make an election to be taxed as a real estate
investment trust under the Internal Revenue Code in the future. For 1997, NSC
has recorded a current provision for income taxes due to federal and state
taxing authorities of $10,000, which is included in general and administrative
expenses in the accompanying statement of operations. NSC has recorded no
deferred tax assets or liabilities as of December 31, 1997, because there are no
differences between net income recorded for financial reporting purposes and
taxable income for the period ended December 31, 1997.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
In connection with the Offering, NSC has entered into a Registration Rights
Agreement which, among other things, requires NSC to (a) file a Shelf
Registration Statement (the "Shelf Registration") with respect to the resale of
Common Stock issued in the Offering within 90 days following the Effective Date,
(b) use its best efforts to cause such Shelf Registration to be declared
effective by the Securities and Exchange Commission, and (c) use its best
efforts to cause such Shelf Registration to remain continuously effective until
the second anniversary of the Effective Date.
In connection with several of NSC's investments and its intention to invest
in assets that would give rise to income that does not meet the qualification
tests for a real estate investment trust (the "Non-qualifying Assets"), NSC
expects to form a Sister Corporation. The Sister Corporation will be capitalized
by NSC and is expected to own most Non-qualifying Assets. Prior to the first
anniversary of the Effective Date, NSC intends to distribute to its shareholders
of record all voting shares of the Sister Corporation in the form of a non-cash
dividend in order to preserve its qualification as a real estate investment
trust.
F-21
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 7 -- SUBSEQUENT EVENTS
BOSTON PROPERTY
On January 9, 1998, NSC acquired a 1% general partnership interest and a
49.5% limited partnership interest in Frank King Associates L.P. ("King
Associates"), a Massachusetts limited partnership. King Associates owns two
adjacent parcels of land, on which a 129,000 square foot retail building and an
888 space-parking garage are situated. In addition, King Associates is in the
process of obtaining the right to develop an additional 500,000 square feet of
office space on the site. The property is located in the Downtown Crossing area
of Boston, Massachusetts. At closing, NSC advanced $7.5 million to King
Associates and guaranteed approximately $2.3 million of King Associates' $25
million first mortgage loan. King Associates' partnership agreement provides
for, among other things, joint management by the two general partners. In
addition, the allocation of net income and loss and the distribution of cash
flow is to be based upon each partner's respective partnership interest.
ISSUANCE OF ADDITIONAL COMMON STOCK
On January 22, 1998, the Initial Purchaser exercised the over-allotment
option and purchased an additional 1,603,568 shares of Common Stock bringing the
total shares issued and outstanding at January 22, 1998 to 14,704,568. NSC
received proceeds of $29,656,543, net of expenses, from the issuance of the
additional Common Stock.
NEW YORK PROPERTIES
On February 9, 1998, NSC, through a series of transactions, effectively
acquired two office building located at 417 Fifth Avenue and 19 West 44th Street
(the "New York Properties"). 417 Fifth Avenue is a 332,000 square foot, 21 floor
Class B office building and 19 West 44th Street is a 219,000 square foot, 18
floor Class B office building. Both properties are located in the Grand Central
Station section of New York City. The acquisition was structured in the form of
a Master Lease Agreement (the "New York Master Lease") and a loan. Under the
terms of various agreements, at closing, NSC advanced approximately $70 million
to the owner of the New York Properties in exchange for an initial 25 year right
to operate the properties, obtained a right to purchase the New York Properties,
was admitted as a 1% member of the entity that owns the New York Properties and
was given an option to acquire the managing member of the entity that owns the
New York Properties. NSC is obligated to make Master Lease payments which range
between $681,816 and $98,928 per annum and to make additional advances under the
Option Agreement aggregating $13.5 million over a period of 20 years, commencing
on March 31, 2003.
GOLF COURSE JOINT VENTURE
On February 9, 1998, the Company together with an affiliate of Koll Resorts
("Koll") formed a joint venture, Koll Northstar Houston Oaks, L.P. The Company
contributed $7.2 million to the venture, which was used by the partnership to
purchase two golf courses ("Houston Oaks") located in Houston, Texas. The
Company effectively has a 99% economic interest in the partnership until certain
investment return hurdles are achieved. In addition, NSC formed a management
company ("KN Operating") that will operate Houston Oaks, which is owned 50% by a
subsidiary of the Company and 50% by Koll.
F-22
<PAGE>
NORTHSTAR CAPITAL INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 7 -- SUBSEQUENT EVENTS (CONTINUED)
IAN SCHRAGER HOTELS, LLC
On February 13, 1998, NSC formed NorthStar Hospitality, LLC ("NS
Hospitality"), a joint venture with NorthStar Operating, LLC ("NS Operating"),
an investment company owned and managed by the Manager. NSC contributed $93.3
million in exchange for a 36.25% member interest in NS Hospitality. NS Operating
contributed $103 million, a 49% interest in Ian Schrager Hotel Management, LLC
("Management Co.") and a 95% interest in West 57th Street, LLC, a company formed
to redevelop a property on West 57th Street in New York into a hotel, for a
63.75% interest in NS Hospitality.
Simultaneously with the above, NS Hospitality through West 57th Street, LLC
initiated a series of transactions with Ian Schrager ("Schrager") and certain of
his partners to acquire the remaining interests of the Management Co., interests
in the Schrager managed hotels (the Paramount and Royalton in New York City, and
the Le Mondrian in Los Angeles, California) and interests in certain other hotel
development projects previously owned by Schrager (the "Roll Up"). Upon
completion of the Roll Up, West 57th Street, LLC, which changed its name to Ian
Schrager Hotels, LLC, was owned 84% by NS Hospitality and 16% by Schrager.
The NS Hospitality operating agreement provides for, among other things,
joint management by the two members and the allocation of net income and loss to
the members is in accordance with their respective member interests.
DEVELOPMENT JOINT VENTURE
On February 26, 1998, NSC purchased a 93% interest in a limited liability
company formed for the purpose of acquiring and developing a parcel of land in
Irvine, California. In connection with the formation of the limited liability
company, NSC contributed $6.6 million and is committed to fund an additional
$1.0 million from time to time as necessary to fund working capital
requirements.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
NorthStar Hospitality LLC:
We have audited the accompanying balance sheet of NorthStar Hospitality LLC
(a Delaware limited liability company) (the "Company") as of February 2, 1998.
This balance sheet is the responsibility of the management of the Company. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of NorthStar Hospitality LLC as of
February 2, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
March 1, 1998
F-24
<PAGE>
NORTHSTAR HOSPITALITY LLC
BALANCE SHEET
FEBRUARY 2, 1998
<TABLE>
<S> <C>
ASSETS
CASH............................................................................... $ --
---------
Total assets............................................................... $ --
---------
---------
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES........................................................................ $ --
---------
MEMBERS' EQUITY:
Members' equity................................................................ 1,000
Contributions receivable....................................................... (1,000)
---------
Total members' equity...................................................... --
---------
Total liabilities and members' equity...................................... $ --
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-25
<PAGE>
NORTHSTAR HOSPITALITY LLC
NOTES TO BALANCE SHEET
FEBRUARY 2, 1998
1. ORGANIZATION AND BUSINESS
NorthStar Hospitality LLC (the "Company"), a Delaware limited liability
company, was formed on February 2, 1998 by CapellaStar LLC ("Capella") and
PoleStar Hotel Corp. ("Polestar") (collectively the "Members"). Capella and
Polestar hold 63.75% and 36.25% member interests, respectively ("Members'
Interests"). The Company was formed to acquire interests in Ian Schrager Hotels
LLC, a hotel owner, manager and developer (Note 3).
The Members were obligated to contribute $1,000 upon formation of the
Company, but such contributions were not made until February 19, 1998 (Note 3).
Allocation of net income or loss shall be made pro rata in accordance with
the respective Members' Interests.
Cash available for distribution, as defined, shall be distributed to the
Members in the following order of priority:
a. First, to the extent that there are any outstanding loans of the
Members to the Company, to repay such Member loans, first in
reduction of accrued interest thereon and then in reduction of
principal, pro rata in accordance with the respective amounts
thereof;
b. Second, to the Members proportionately in accordance with their
relative Capital Contributions, as defined, until each Member has
received a return of its Capital Contribution; and
c. Third, to the Members proportionately in accordance with their
respective Members' Interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying balance sheet is prepared in accordance with generally
accepted accounting principles.
The Company's sole activity on February 2, 1998, consisted of the
organization of the Company. Accordingly, no statement of operations is
presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company is not subject to federal and state income taxes as the members
are individually responsible for reporting their share of the Company's taxable
income or loss on their income tax returns.
F-26
<PAGE>
NORTHSTAR HOSPITALITY LLC
NOTES TO BALANCE SHEET (CONTINUED)
FEBRUARY 2, 1998
3. SUBSEQUENT EVENTS
On February 19, 1998, Polestar contributed cash of $93.3 million to the
Company and Capella contributed to the Company cash of $103.3 million, a 49%
interest in Ian Schrager Hotel Management LLC (the "Management Co."), and a 95%
interest in West 57th Street, LLC, a company formed to redevelop a property on
West 57th Street in New York into a hotel.
Simultaneously with the above, the Company through West 57th Street, LLC
initiated a series of transactions with Ian Schrager ("Schrager") and certain of
his partners to acquire the remaining interest of Management Co., interests in
certain Schrager-managed hotels (the Paramount and Royalton in New York City and
Mondrian in Los Angeles, California) and interests in certain other hotel
development projects previously owned by Schrager (the "Roll up"). Upon
completion of the Roll up, West 57th Street, LLC, which changed its name to Ian
Schrager Hotels, LLC, was owned 84% by the Company and 16% by Schrager.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
NorthStar Hospitality, LLC:
We have audited the accompanying combined balance sheets of the businesses
to be acquired by NorthStar Hospitality, LLC (the "Companies") as of December
31, 1997 and 1996, and the related statements of operations, owners' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1997. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the businesses to be
acquired by NorthStar Hospitality, LLC as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New York, New York
March 16, 1998
F-28
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(000'S OMITTED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................................... $ 929 $ 1,509
Accounts receivable, net--
Trade....................................................................................... 1,480 1,632
Related party............................................................................... 349 558
Escrow deposits............................................................................... 3,776 1,212
Inventories................................................................................... 780 696
Prepaid expenses and other current assets..................................................... 1,384 1,440
---------- ----------
Total current assets...................................................................... 8,698 7,047
---------- ----------
PROPERTY AND EQUIPMENT:
Land.......................................................................................... $ 20,496 $ 12,724
Building and building improvements............................................................ 85,435 63,471
Property subject to capital lease............................................................. 3,917 --
Furniture and equipment....................................................................... 14,673 11,699
---------- ----------
124,521 87,894
Less--Accumulated depreciation................................................................ (20,210) (17,104)
---------- ----------
Net property and equipment................................................................ 104,311 70,790
---------- ----------
OPTION AND PURCHASE DEPOSITS (Note 4)........................................................... 10,750 --
DEFERRED COSTS, net of accumulated amortization of $391 and $187 in 1997 and 1996,
respectively.................................................................................. 3,828 664
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (Note 5)................................................ 6,575 4,476
OTHER ASSETS.................................................................................... 377 54
---------- ----------
Total assets.............................................................................. $ 134,539 $ 83,031
---------- ----------
---------- ----------
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities...................................................... 8,366 6,367
Current portion of long-term debt (Note 6).................................................... 1,735 1,350
Current portion of loans payable to related party (Note 7).................................... 10,226 --
Other liabilities............................................................................. 300 1,097
---------- ----------
Total current liabilities................................................................. 20,627 8,814
LONG-TERM DEBT (Note 6)......................................................................... 75,688 75,511
CAPITAL LEASE OBLIGATION........................................................................ 3,916 --
LOANS PAYABLE TO RELATED PARTY (Note 7)......................................................... 23,994 10,000
---------- ----------
Total liabilities......................................................................... 124,225 94,325
COMMITMENTS AND CONTINGENCIES (Notes 9, 10 and 11)
OWNERS' EQUITY (DEFICIT)........................................................................ 10,314 (11,294)
---------- ----------
Total liabilities and owners' equity...................................................... $ 134,539 $ 83,031
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-29
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(000'S OMITTED)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Rooms.......................................................................... $ 45,853 $ 36,293 $ 43,351
Food and beverage.............................................................. 3,819 4,173 4,912
Telephone...................................................................... 3,239 2,561 3,246
Rental......................................................................... 4,714 1,621 1,888
Management and incentive fees (Note 8)......................................... 3,545 1,589 732
Reimbursements (Note 8)........................................................ 1,235 882 235
Equity in earnings of unconsolidated subsidiary................................ 2,891 1,308 --
Other.......................................................................... 1,482 263 281
--------- --------- ---------
Total revenues............................................................. 66,778 48,690 54,645
--------- --------- ---------
EXPENSES:
Rooms.......................................................................... 11,885 10,460 12,923
Food and beverage.............................................................. 2,986 3,697 4,154
Telephone...................................................................... 1,344 1,231 1,638
Hotel operating expenses....................................................... 9,563 8,958 10,537
Advertising and promotion...................................................... 2,808 2,479 1,872
Real estate taxes.............................................................. 1,975 2,034 2,557
General and administrative..................................................... 4,908 2,319 1,694
Other.......................................................................... 2,034 1,456 766
--------- --------- ---------
Total expenses............................................................. 37,503 32,634 36,141
--------- --------- ---------
Operating income............................................................. 29,275 16,056 18,504
INTEREST EXPENSE................................................................. 7,824 6,714 6,846
DEPRECIATION AND AMORTIZATION.................................................... 3,421 2,358 3,688
--------- --------- ---------
Income before extraordinary item............................................. 18,030 6,984 7,970
EXTRAORDINARY ITEM (Notes 5 and 6):
Gain on forgiveness of debt.................................................... 776 13,742 3,055
--------- --------- ---------
Net income................................................................. $ 18,806 $ 20,726 $ 11,025
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-30
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(000'S OMITTED)
<TABLE>
<S> <C>
BALANCE, January 1, 1995 $ (40,939)
Capital contributions........................................................... 15,901
Capital distributions........................................................... (4,584)
Net income for the period....................................................... 11,025
---------
BALANCE, December 31, 1995........................................................ (18,597)
Capital contributions........................................................... 13,300
Capital distributions........................................................... (26,723)
Net income for the period....................................................... 20,726
---------
BALANCE, December 31, 1996........................................................ (11,294)
Capital contributions........................................................... 37,455
Capital distributions........................................................... (34,653)
Net income for the period....................................................... 18,806
---------
BALANCE, December 31, 1997........................................................ $ 10,314
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-31
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(000'S OMITTED)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 18,806 $ 20,726 $ 11,025
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization................................................ 3,421 2,358 3,688
Equity in earnings of unconsolidated subsidiary.............................. (2,891) (1,308) --
Gain on forgiveness of debt.................................................. (776) (13,742) (3,055)
Other........................................................................ -- 377 --
Changes in assets and liabilities--
(Increase) decrease in accounts receivable................................... 695 (104) (17)
(Increase) decrease in escrow deposits....................................... (2,819) (1,212) --
(Increase) decrease in inventories........................................... (84) (169) 22
(Increase) decrease in prepaid expenses and other current assets............. (735) (22) 578
Increase (decrease) in accounts payable and accrued liabilities.............. 1,881 (2,458) (3,978)
Increase (decrease) in other liabilities..................................... (367) 292 1,810
--------- --------- ---------
Net cash provided by operating activities.................................. 17,131 4,738 10,073
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment............................................ (8,313) (8,244) (18,521)
Distributions from unconsolidated subsidiary................................... 792 516 --
Payments for option and purchase deposits...................................... (10,750) -- --
Payments for deferred costs.................................................... (3,402) (204) (647)
--------- --------- ---------
Net cash used in investing activities...................................... (21,673) (7,932) (19,168)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital distributions.......................................................... (34,653) (6,318) (4,584)
Capital contributions.......................................................... 37,455 13,300 9,105
Proceeds from long-term debt................................................... 78,047 2,000 10,000
Payments of long-term debt..................................................... (76,887) (10,303) (3,120)
--------- --------- ---------
Net cash provided by (used in) financing activities........................ 3,962 (1,321) 11,401
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents....................... (580) (4,515) 2,306
CASH AND CASH EQUIVALENTS, beginning of year..................................... 1,509 6,024 3,718
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year........................................... $ 929 $ 1,509 $ 6,024
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-32
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(000'S OMITTED)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.......................................................... $ 7,394 $ 7,248 $ 5,759
Cash paid for taxes............................................................. 514 507 410
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITY:
Assumption of debt in connection with acquisition of First Unit................. $ 24,397 $ -- $ --
Capital lease obligation........................................................ 3,917 -- --
Contribution of loan payable by partners reflected as deemed distributions...... -- 20,404 --
Distribution of long-term debt to partners reflected as deemed contributions.... -- -- 6,795
Contribution of properties and equipment and other assets and liabilities to
Royalton LLC, net............................................................. -- 3,683 --
Conversion of related party debt to owners' equity.............................. -- -- 1,500
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-33
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND BUSINESS
NorthStar Hospitality, LLC ("NSH") was formed as a Delaware limited
liability company on February 2, 1998. In February 1998, NSH, in conjunction
with Ian Schrager, recapitalized Ian Schrager Hotels LLC ("ISH"), through a
series of simultaneous transactions ("Roll Up" transaction), in order to create
a full service hotel ownership, development and management company as successor
to the lodging-related activities of Ian Schrager and his affiliates. The Roll
Up transaction included the contribution to ISH (formerly West 57th Street LLC)
by Ian Schrager and his affiliates of interests in a number of hotel projects
and his hotel management company, as well as the purchase of that portion of
these hotel ventures which Ian Schrager did not own.
Upon completion of the Roll Up transaction, ISH held a 100% interest in the
Paramount and Mondrian hotels, a 67% interest in the Royalton hotel, a 100%
interest in Ian Schrager Hotel Management LLC (the "Management Company"), and a
condominium interest in and options on additional condominiums interests in a
building on West 57th Street in New York City (the "Building"), which ISH plans
to redevelop into a hotel known as the Henry Hudson Hotel (collectively the
"Businesses Acquired"). Subsequent to the Roll Up transaction, ISH is owned 84%
by NSH and 16% by Ian Schrager.
The Paramount and Royalton are full service hotels located in New York City
with 591 and 168 rooms, respectively. The Mondrian Hotel is located in Los
Angeles and has 238 rooms.
The Mondrian, Royalton, Paramount and Henry Hudson hotels (collectively the
"Hotels") are managed by the Management Company. The Management Company also
manages three other hotels owned by affiliates of Ian Schrager ("Schrager"),
including the Morgans hotels in New York City, which ISH has an option to
purchase.
2. BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for businesses acquired.
The accompanying combined financial statements include the historical
financial statements, in accordance with generally accepted accounting
principles, of the Businesses Acquired.
F-34
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. BASIS OF PRESENTATION (CONTINUED)
The owners of the Hotels and the Management Company (collectively the
"Companies") prior to the Roll Up transaction and the period of operations for
the Businesses Acquired presented in the accompanying combined financial
statements are as follows:
<TABLE>
<CAPTION>
PERIOD OF OPERATIONS PRESENTED IN
THE ACCOMPANYING COMBINED
BUSINESSES ACQUIRED OWNER FINANCIAL STATEMENTS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Paramount Hotel Century Paramount Associates ("CP For the three-year period ended
Associates", an affiliate of Ian December 31, 1997
Schrager)
Royalton Hotel 44th Hotel Associates II For the three-year period ended
("Associates II", an affiliate of December 31, 1997
Ian Schrager)
Mondrian Hotel A/FC Properties, Ltd. For the period from February 1, 1995
(inception) through December 31,
1997
Hotel Management Company Ian Schrager Hotels, Inc.* For the period from January 1, 1995
through August 12, 1997
Ian Schrager Hotel Management, LLC* For the period from August 13, 1997
through December 31, 1997
Henry Hudson Hotel Ian Schrager Hotels LLC For the period from August 12, 1997
(Predevelopment project) (formerly West 57th LLC) (inception) through December 31,
1997
</TABLE>
- ------------------------
* On August 13, 1997, the hotel management business of Ian Schrager Hotels,
Inc. was transferred to Ian Schrager Hotel Management, LLC.
All interentity balances and transactions have been eliminated in
combination.
All intercompany balances and transactions have been eliminated in
consolidation.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid short-term investments purchased
with a maturity of 90 days or less to be cash equivalents.
F-35
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The two-third investment in Royalton LLC held by Associates II (Note 5) is
accounted for on the equity method as Associates II does not exercise control
over this venture. Under the equity method, only the net investment in Royalton
LLC and Associates II's proportionate share of Royalton LLC's net income is
reflected in the accompanying combined financial statements. Differences between
Associates II's investment basis in Royalton LLC and its capital account on
Royalton LLC's books are amortized on a straight-line basis over forty years.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist primarily of china, glassware and silver, linens, food and
beverages, guest amenities, supplies and stationary.
PROPERTY AND EQUIPMENT
Costs related to the acquisition, development and improvement of a property
are capitalized. Costs of normal repairs and maintenance are expensed as
incurred.
The Companies have adopted Statement of Financial Accounting Standards No.
121 ("SFAS No. 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of," which requires that long-lived assets to
be held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If such review indicates that the carrying amount of an asset
exceeds the sum of its expected future cash flows, on an undiscounted basis, the
asset's carrying amount should be written down to fair value. Additionally, SFAS
No. 121 requires that long-lived assets to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. There was no material
financial statement impact to the Companies upon adoption.
DEPRECIATION AND AMORTIZATION
Building and building improvements are depreciated on a straight-line method
over their estimated useful lives which range from 39 to 40 years. Furniture and
fixtures are depreciated on a straight-line method using periods ranging from
three to seven years.
Deferred costs include deferred financing costs, organization costs,
preopening costs and other deferred costs. Deferred financing costs are
amortized on a straight-line basis over the terms of the respective agreements
to which they relate, which range from eight to ten years. Organization costs
are deferred and amortized on a straight-line basis over five years. Preopening
expenses have been deferred and are being amortized on a straight-line basis
over five years.
Deferred costs also include preacquisition and related costs, which have
been incurred by the Management Company in connection with certain acquisition
and development projects the Management Company is evaluating. Such costs will
be deferred until such time as an acquisition or development is commenced and
then will be included as part of the Management Company's investment basis, or
will be expensed if the Management Company believes it is probable that the
transaction will not be consummated.
F-36
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized on the accrual basis when the amounts are earned and
can reasonably be estimated.
Fixed minimum rents from leases are recognized on a straight-line basis over
the terms of the related leases. The effect of this straight-lining is recorded
in other assets on the accompanying combined balance sheets. Additional rents,
which are provided for in leases, are recognized as income when earned, and
their amounts can be reasonably estimated.
INCOME TAXES
The entities contained in the accompanying combined financial statements are
either partnerships or limited liability companies, which are treated similarly
to partnerships for tax reporting purposes. Accordingly, federal and state
income taxes have not been provided for in the accompanying financial statements
since the partners or members are responsible for reporting their allocable
share of the Companies' income, gains, deductions, losses and credits on their
individual income tax returns.
However, certain of the Companies are subject to the New York City
Unincorporated Business Tax ("UBT"). UBT amounted to $457,000, $259,000 and
323,000 in 1997, 1996 and 1995 and is included in other expenses in the
accompanying combined statements of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies' financial instruments consist of cash and cash equivalents,
accounts receivable, escrow deposits, option and purchase deposits, accounts
payable, accrued liabilities, capital lease obligation and long-term debt. With
exception of long-term debt, management believes their carrying amounts are
reasonable estimates of their fair value. Management believes that the fair
value of the long-term debt due to third parties was approximately $77.4 million
and $75.6 million as of December 31, 1997 and 1996, respectively, and the fair
value of the loans payable to related parties was approximately $34.4 million
and $10 million as of December 31, 1997 and 1996, respectively.
4. HENRY HUDSON HOTEL
Ownership of the Building is divided amongst six condominium units of
varying size. Through a series of transactions in 1997, ISH acquired a
condominium unit (the "First Unit") representing approximately 46.9% of the
Building, entered into an option to acquire a second condominium unit (the
"Second Unit") representing approximately 44% of the Building and entered into a
lease with an option to acquire a third condominium unit (the "Third Unit")
representing 3.8% of the Building. ISH also has a first right of refusal on a
fourth condominium unit (the "Fourth Unit"), which is subordinate to a first
right of refusal of the existing tenant. The Fourth Unit represents
approximately 3.92% of the Building.
Once all four units are controlled, ISH intends to redevelop the acquired
condominium units into an upscale hotel. Prior to ISH's acquisition, the First
Unit was operated as residential housing. ISH is attempting to wind down the
residential operation by allowing tenants to vacate and in some cases, buying
out existing leases to prepare for redevelopment.
F-37
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. HENRY HUDSON HOTEL (CONTINUED)
ISH paid approximately $26 million for the First Unit. ISH also has made
deposits of $10,250,000 toward the purchase of the Second Unit for approximately
$21 million. The Company also paid a third party $500,000 to forgo its first
right of refusal on the Second Unit. These amounts have been reflected as option
and purchase deposits on the accompanying combined balance sheets.
5. ASSOCIATES II BANKRUPTCY (ROYALTON)
In July 1994, Associates II, which directly owned the Royalton hotel, filed
a petition for relief under Chapter 11 of the federal bankruptcy laws of the
United States Bankruptcy Court. This filing created a stay on claims of
creditors existing prior to the petition. As a result of the bankruptcy,
Associates II ceased to pay and accrue interest on the first mortgage loan and
the note payable.
Associates II continued to operate the Royalton hotel as
debtor-in-possession through March 28, 1996, the date of reorganization. The
following occurred pursuant to the plan of reorganization:
Associates II repaid $34 million to its first mortgage lender in full
satisfaction of the then outstanding principal and accrued interest on the
first mortgage in the aggregate amount of $47.7 million. This transaction,
which resulted in a gain on debt forgiveness of $13.7 million, was financed
with the proceeds of a new first mortgage of $28.6 million and a loan of
$5.4 million from Apollon LLC (collectively the "Loans").
Upon the effective date of the reorganization, a new entity, Royalton
LLC, comprising Associates II, as a 2/3 owner, and Apollon LLC ("Apollon"),
as a 1/3 owner, was formed. Apollon contributed capital of approximately
$1.8 million and Associates II contributed the hotel property subject to the
Loans, and certain working capital to Royalton LLC in return for their
ownership interests.
In 1995, a note payable of Associates II in the amount of $7,055,000 was
restructured whereby $1.0 million was paid, $3 million of the note payable was
retained by Associates II and $3,055,000 was forgiven by the lender, resulting
in a gain on debt forgiveness.
The management of Royalton LLC is controlled by a board of managers with two
individuals appointed by each of Associates II and Apollon. As a result,
subsequent to March 28, 1996, Associates II accounted for its investment in
Royalton LLC on the equity method. Accordingly, the financial statements of
Associates II, which are combined herein, only include the full revenues and
expenses of the Royalton hotel for the period January 1, 1995 to March 28, 1996.
Subsequent to March 28, 1996, the Associates II financial statements, combined
herein, reflect its investment in Royalton LLC on the equity method.
F-38
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. ASSOCIATES II BANKRUPTCY (ROYALTON) (CONTINUED)
The summarized financial statements of Royalton LLC are as follows: (000's
omitted)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Assets:
Property and equipment, net............................................................... $ 36,639 $ 37,329
Other assets.............................................................................. 3,910 4,927
--------- ---------
Total Assets............................................................................ $ 40,549 $ 42,256
--------- ---------
--------- ---------
Liabilities:
Mortgage notes payable.................................................................... $ 29,138 $ 28,713
Loans payable to related party............................................................ -- 4,730
Other liabilities......................................................................... 1,590 2,140
--------- ---------
Total Liabilities....................................................................... 30,728 35,583
Owners' equity............................................................................ 9,821 6,673
--------- ---------
Total Liabilities and Owners, Equity.................................................... $ 40,549 $ 42,256
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED MARCH 28, 1996 TO
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues.................................................................... $ 18,595 $ 13,246
Expenses.................................................................... 10,539 8,282
------- -------
Operating income........................................................ 8,056 4,964
Interest expense............................................................ 3,047 2,562
Depreciation and amortization............................................... 1,859 1,214
------- -------
Net income.............................................................. $ 3,150 $ 1,188
------- -------
------- -------
Associates II allocable share............................................... $ 2,100 $ 792
------- -------
------- -------
</TABLE>
F-39
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996, consists of the following
(000's omitted):
<TABLE>
<CAPTION>
DEBT BALANCE
-------------------- LIEN
HOTEL 1997 1996 POSITION MATURITY DATE INTEREST RATE
- ------------------- --------- --------- ------------ ------------------ --------------------------------------------
<S> <C> <C> <C> <C> <C>
Paramount.......... $ -- $ 54,750 1st Lien April 1997 LIBOR+1.75% or Prime+.50%
-- 20,711 2nd Lien April 2001 Treasury Rate + 1.50%
73,850 -- 1st Lien October 2007 8.26% (fixed)
3,573 -- 2nd Lien October 2005 Greater of LIBOR+5.25% or 10.25%
Associates II...... -- 1,400 Unsecured December 1997 6.00%(fixed)
--------- ---------
Total.............. $ 77,423 $ 76,861
--------- ---------
--------- ---------
</TABLE>
The long-term portion of the total debt balance was $75,688,000 and
$75,111,000 at December 31, 1997 and 1996, respectively.
Scheduled principal payments on the long-term debt are as follows (000's
omitted):
<TABLE>
<S> <C>
1998............................................................... $ 1,735
1999............................................................... 1,810
2000............................................................... 1,873
2001............................................................... 1,978
2002............................................................... 2,074
Thereafter......................................................... 67,953
---------
$ 77,423
---------
---------
</TABLE>
PARAMOUNT
In 1994, as a result of a debt default, a restructuring of the first
mortgage was proposed. This proposal was formally agreed to in June 1996,
pursuant to which certain terms of the first mortgage were amended. CP
Associates was required to make interest payments monthly at either London
Interbank Offering Rate (LIBOR) + 1.75% or Prime + .5%, to make principal
payments of between $500,000 and $750,000 each quarter, the maturity date was
extended to April 1997, and CP Associates was obligated to establish an escrow
account for real estate taxes.
In 1996, CP Associates also reached a new agreement with its second mortgage
lender whereby the loans of approximately $20 million previously made to the
partners of CP Associates were assumed by CP Associates and consolidated into a
new second mortgage with a face amount totaling approximately $22.7 million,
including accrued interest.
In 1997, CP Associates refinanced its existing mortgages with a new first
mortgage loan in the amount of $74 million and a new mezzanine loan secured by a
pledge of the owners' interest with a total commitment of $7 million. At
closing, approximately $3.4 million of the mezzanine loan was advanced. The
remaining commitments on the second mortgage loan can be drawn upon to fund
certain renovation costs, as defined in the agreement. The first mortgage loan
can effectively be extended to October 11, 2022, however, the interest rate on
the loan would be increased to 13.26%. The first mortgage loan contains
F-40
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. LONG-TERM DEBT (CONTINUED)
certain restrictive financial covenants, including but not limited to, requiring
CP Associates to maintain debt service coverage ratios of between 1.35 to 1 to
1.20 to 1, over the term of the loan. If the first mortgage loan is prepaid
prior to maturity, CP Associates will be subject to a penalty of between 1% and
5% of the loan balance.
In connection with the first and mezzanine loan agreements, CP Associates
entered into a cash management agreement, as defined, which requires
substantially all of the Paramount hotel's cash flow to be deposited in escrow
accounts established in favor of the lender. If the Paramount hotel's cash flow
exceeds the reserve requirement of the cash management agreement, the excess
funds can be released from the escrow accounts to CP Associates.
7. LOANS PAYABLE TO RELATED PARTY
HENRY HUDSON
In connection with the acquisition of the First Unit (Note 4), ISH assumed a
mortgage note payable related thereto, which is payable to an affiliate of the
managing member of ISH. The mortgage note payable is due on July 1, 2023, bears
interest at 10%, requires monthly payments of principal and interest and is
secured by the First Unit.
Scheduled principal payments on the loan payable to related party are as
follows (000's omitted):
<TABLE>
<S> <C>
1998............................................................... $ 226
1999............................................................... 250
2000............................................................... 276
2001............................................................... 305
2002............................................................... 337
Thereafter......................................................... 22,826
---------
$ 24,220
---------
---------
</TABLE>
Interest paid to the related party under this mortgage note was $706,522 for
the period ended December 31, 1997.
MONDRIAN
In February 1995, A/FC Properties, Ltd., the owner of the Mondrian hotel,
obtained financing of $10,000,000 from a related party.
The loan was collateralized by the real and personal property of the
Mondrian hotel, bears interest, payable monthly, at LIBOR plus 4% (which
approximated 9.97% and 9.50% at December 31, 1997 and 1996) and was to mature on
February 3, 1998, but was extended through February 13, 1998, the date of the
sale of the hotel to ISH, at which time it was repaid in full.
Interest paid to the related party under this mortgage loan was $934,000,
$936,000 and $923,000 in 1997, 1996 and 1995, respectively.
F-41
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
8. RELATED-PARTY TRANSACTIONS
Substantially all of the Management Company's revenues are earned from
related parties since the Management Company serves as hotel manager for the
Businesses Acquired and certain properties owned by affiliates of ISH.
Generally, these management contracts are for a period of five to fifteen years.
The Management Company generally earns hotel management fees between 3% and 4%
of the Gross Revenues, as defined, of each of the hotels managed. The Management
Company is also paid incentive fees, is reimbursed for chain services fees,
technical service fees and out-of-pocket expenses.
A summary of fees earned from related parties in 1997, 1996 and 1995, is as
follows (000's omitted):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Management and incentive fees...................................... $ 3,545 $ 1,589 $ 732
Reimbursements..................................................... 1,235 882 235
</TABLE>
9. EMPLOYEE RETIREMENT PLANS
MULTIEMPLOYER RETIREMENT PLAN
The Companies are participants, through their collective bargaining
agreement, in the Hotel and Motel Trade Council Multiemployers Defined
Contribution Retirement Plan covering union employees. Plan contributions are
based on a percentage of employee wages.
The Companies' contributions to the multiemployer retirement plan for the
years ended December 31, 1997, 1996 and 1995 were $251,000, $239,000 and
$224,000, respectively.
In connection with the acquisition of the First Unit, the Company agreed to
indemnify the First Unit seller for the withdrawal liability from a
multiemployer pension plan. The Company has placed in escrow $290,000 related to
this contingent obligation. If the Company is required to make a payment to the
multiemployer pension plan, management believes, based upon the advice of legal
counsel, that the escrow established will be adequate to fund such cost. If such
a payment is made, it will be treated as additional purchase price for the First
Unit.
DEFINED CONTRIBUTION PLAN
Certain of the Companies have 401(k) plans covering certain of their
full-time employees. Eligible employees may contribute up to 15% of their annual
compensation to the plan. The companies do not contribute to the 401(k) plan.
10. LEASES
OPERATING LEASES
LESSOR
The Companies lease commercial space in the hotels to various tenants under
operating leases. In general, these leases provide for minimum rental payments,
payments of additional rents based upon a percentage of tenant's sales and for
reimbursement for real estate taxes, electricity and other operating expenses.
F-42
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. LEASES (CONTINUED)
Future minimum lease payments from noncancellable leases in effect as of
December 31, 1997, are as follows (000's omitted):
<TABLE>
<S> <C>
1998................................................................ $ 1,536
1999................................................................ 1,198
2000................................................................ 1,015
2001................................................................ 1,015
2002................................................................ 1,021
Thereafter.......................................................... 3,595
---------
$ 9,380
---------
---------
</TABLE>
Future minimum lease payments do not include amounts for renewal periods or
amounts, which may be received from tenants for percentage rents and recoveries
of certain operating costs.
LESSEE
The Companies lease office and other space under arrangements classified as
operating leases. In general, these leases provide for minimum rental payments
and reimbursement for real estate taxes, electricity and other operating
expenses.
Future minimum lease payments from noncancellable leases in effect as of
December 31, 1997, are as follows (000's omitted):
<TABLE>
<S> <C>
1998................................................................ $ 159
1999................................................................ 235
2000................................................................ 217
2001................................................................ 224
2002................................................................ 230
Thereafter.......................................................... 1,490
---------
$ 2,555
---------
---------
</TABLE>
Future minimum lease payments do not include amounts for renewal periods or
amounts, which may need to be paid to landlords for certain operating costs.
CAPITAL LEASE
ISH has entered into a lease agreement for the Third Unit, which is
reflected as a capital lease. The lease agreement requires ISH to make annual
payments of $450,000 from acquisition through November 2096. This lease
agreement also allows ISH to purchase the Third Unit, at fair market value,
after November 2015. ISH has allocated the lease payments between the land and
building based on their estimated fair values. The portion of the payment
allocated to building has been capitalized at the present value of the future
minimum lease payments. The portion of the payment allocated to land is treated
as an operating lease and is included in other expense in the combined
statements of operations.
F-43
<PAGE>
BUSINESSES TO BE ACQUIRED BY NORTHSTAR HOSPITALITY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. LEASES (CONTINUED)
Scheduled principal payments under the capital lease obligation are as
follows (000's omitted):
<TABLE>
<S> <C>
1998................................................................ $ 1
1999................................................................ 1
2000................................................................ 1
2001................................................................ 1
2002................................................................ 1
Thereafter.......................................................... 3,685
---------
$ 3,690
---------
---------
</TABLE>
11. CONTINGENCIES AND COMMITMENTS
HENRY HUDSON
ISH acquired the First Unit through the assignment and exercise of a right
of first refusal from one of the unit owners. A certain party claims that it had
contracted to purchase the unit from the First Unit owner. As a result, the
other party has filed suit seeking specific performance to nullify the sale to
ISH and acquire the First Unit. That party's claim was denied in Supreme Court,
however, they have filed an appeal, which is pending. The ultimate outcome of
this matter cannot be determined at this time.
In order to proceed with the purchase of the First Unit, ISH was required to
establish a $700,000 escrow account as security to indemnify one of the unit
owners related to the litigation described in the previous paragraph. In
addition, affiliates of the members have indemnified the seller of the First
Unit and the other unit owners in the Building against any losses from
third-party claims as a result of this litigation.
BARTER TRANSACTIONS
The Companies are involved in various barter arrangements with advertising
agencies, wherein the Companies agreed to establish irrevocable hotel
accommodation credits in return for advertising media credits. At December 31,
1997 and 1996, the unused balance of hotel accommodation credits available to
certain advertising agencies and others was $273,000 and $657,000, respectively,
and is included in other liabilities.
LITIGATION
The Companies are involved in various lawsuits in the normal course of
business. Management believes that the settlement of such litigation or claims
will not have a material impact upon their financial position or results of
operations.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Frank-King Associates Limited Partnership:
We have audited the accompanying balance sheets of Frank-King Associates
Limited Partnership as of December 31, 1997 and 1996, and the related statements
of operations, changes in partners' equity (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Frank-King Associates
Limited Partnership as of December 31, 1997, and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, New York
March 13, 1998
F-45
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
ASSETS:
Real estate, net of accumulated depreciation of $4,402,599 in 1997 and $3,512,733
in 1996........................................................................ $ 17,250,108 $ 18,075,346
Cash and cash equivalents........................................................ 603,088 729,219
Escrow deposit................................................................... -- 603,543
Due from tenants................................................................. 619,719 471,017
Deferred financing costs, net of accumulated amortization of $74,388 in 1997 and
$6,646 in 1996................................................................. 230,447 232,624
Deferred leasing costs, net of accumulated amortization of $89,992 in 1997 and
$49,643 in 1996................................................................ 373,586 413,786
Prepaid expenses and other assets................................................ 30,693 16,750
------------- -------------
Total assets................................................................. $ 19,107,641 $ 20,542,285
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Mortgage note payable............................................................ $ 25,050,000 $ 22,875,000
Lease buyout obligation.......................................................... -- 2,625,000
Loan payable--land............................................................... 20,000 40,000
Accounts payable and accrued expenses............................................ 138,206 658,149
------------- -------------
Total liabilities............................................................ 25,208,206 26,198,149
PARTNERS' DEFICIT.................................................................. (6,100,565) (5,655,864)
------------- -------------
Total liabilities and partners' deficit...................................... $ 19,107,641 $ 20,542,285
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-46
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
REVENUES:
Rental income....................................................... $ 2,365,403 $ 1,099,063 $ 1,367,346
Percentage rent..................................................... 983,675 873,846 931,726
Real estate tax reimbursements...................................... 1,030,356 975,195 991,807
Utilities reimbursements............................................ 338,325 365,672 461,606
Operating expense reimbursements.................................... 133,780 120,199 108,662
Other income........................................................ 10,727 11,680 4,128
------------ ------------- -------------
Total revenues.................................................. 4,862,266 3,445,655 3,865,275
------------ ------------- -------------
EXPENSES:
Real estate taxes................................................... 1,017,582 991,968 993,242
Utilities........................................................... 343,361 412,986 479,581
Operating........................................................... 158,237 189,661 169,553
Administrative...................................................... 113,449 125,276 77,379
Interest............................................................ 1,876,531 1,379,373 1,395,107
Depreciation and amortization....................................... 997,807 553,738 518,040
------------ ------------- -------------
Total expenses.................................................. 4,506,967 3,653,002 3,632,902
------------ ------------- -------------
Net income (loss)............................................... $ 355,299 $ (207,347) $ 232,373
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
KINGSTON
WASHINGTON BOWO
ASSOCIATES, ASSOCIATES,
L.P. L.P. TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1994........................................... $ (1,931,584) $ (2,018,664) $ (3,950,248)
Capital contributions.............................................. 95,000 95,000 190,000
Distributions to partners.......................................... (85,000) (85,000) (170,000)
Net income for the period.......................................... 116,187 116,186 232,373
------------- ------------- -------------
BALANCE, December 31, 1995........................................... (1,805,397) (1,892,478) (3,697,875)
Capital contributions.............................................. 24,679 24,679 49,358
Distributions to partners.......................................... (900,000) (900,000) (1,800,000)
Net loss for the period............................................ (103,674) (103,673) (207,347)
------------- ------------- -------------
BALANCE, December 31, 1996........................................... (2,784,392) (2,871,472) (5,655,864)
Distributions to partners.......................................... (400,000) (400,000) (800,000)
Net income for the period.......................................... 177,650 177,649 355,299
------------- ------------- -------------
BALANCE, December 31, 1997........................................... $ (3,006,742) $ (3,093,823) $ (6,100,565)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 355,299 $ (207,347) $ 232,373
Adjustments to reconcile net income (loss) to net cash provided by
operating activities--
Depreciation and amortization................................... 997,807 553,738 518,040
Changes in operating assets and liabilities--
(Increase) decrease in due from tenants....................... (148,702) 219,436 (597,805)
(Increase) decrease in prepaid expenses and other assets...... (13,943) 59,611 (48,255)
(Decrease) increase in accounts payable and accrued
expenses.................................................... (519,943) 169,146 304,530
------------- ------------- ------------
Net cash provided by operating activities................... 670,518 794,584 408,883
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for real estate and tenant improvements.................... (2,689,627) (2,064,586) --
Payments for deferred leasing costs................................. -- (1,258,614) --
------------- ------------- ------------
Net cash used in investing activities....................... (2,689,627) (3,323,200) --
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners........................................... (800,000) (1,800,000) (170,000)
Principal repayment of loan payable -- land......................... (20,000) (20,000) (20,000)
Capital contributions............................................... -- 49,358 190,000
Principal payments on mortgage note payable......................... (450,000) (200,000) (477,780)
Payments for deferred financing costs............................... (65,565) (239,268) (202,095)
Decrease (increase) in escrow deposit............................... 603,543 (603,543) --
Proceeds from mortgage note payable................................. 2,625,000 6,008,355 --
------------- ------------- ------------
Net cash provided by (used in) financing activities........... 1,892,978 3,194,902 (679,875)
------------- ------------- ------------
Net (decrease) increase in cash and cash equivalents.......... (126,131) 666,286 (270,992)
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, beginning of year.......................... 729,219 62,933 333,925
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, end of year................................ $ 603,088 $ 729,219 $ 62,933
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.............................. $ 1,860,757 $ 1,415,682 $ 1,409,132
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. THE PARTNERSHIP
Frank-King Associates Limited Partnership (the "Partnership"), which was
organized under the laws of the Commonwealth of Massachusetts in October 1984,
owns a commercial property at 350 Washington Street, Boston, Massachusetts and
an adjacent parcel of land.
The property consists of 3 floors of retail space (approximately 129,000
square feet) and 6 floors of garage space with parking for approximately 888
cars. The partners of the Company and their respective interests are as follows:
<TABLE>
<S> <C>
Kingston Washington Associates, L.P................ 50%
Bowo Associates, L.P............................... 50%
</TABLE>
The Partnership agreement provides for the allocation of net income, losses
and cash distributions to partners in accordance with their percentage
interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The Partnership prepares its financial statements in accordance with
generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REAL ESTATE
The Partnership capitalizes all direct and indirect costs related to the
development or improvement of its real estate, including tenant improvements
paid for by the Partnership.
Real estate is recorded at historical cost, net of depreciation. The
Partnership periodically reviews its investment in real estate for declines in
net realizable value based upon its investment strategy. When the Partnership
determines that the property is recorded at an amount in excess of net
realizable value, a writedown is recorded to reflect the property at its fair
value. Future changes in investment strategy and other circumstances may affect
this estimate of net realizable value and therefore, the carrying amount of real
estate investment.
The building and building improvements are depreciated on a straight-line
basis over their estimated useful lives of 40 years. Tenant improvements are
depreciated on a straight-line basis over the term of the respective leases,
which range from 10 to 33 years.
DEFERRED COSTS
Deferred financing costs are amortized over the term of the related
financing. Deferred leasing costs are amortized on a straight-line basis over
the term of the respective leases. During 1996, $172,623 of
F-50
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred financing costs were written off to depreciation and amortization in
connection with the mortgage modification (Note 4).
CASH AND CASH EQUIVALENTS
The Partnership defines cash equivalents as highly liquid assets with
maturities when purchased of 90 days or less.
REVENUE RECOGNITION
Minimum rents are recognized on a straight-line basis over the terms of the
related leases. Operating expense, utility and, real estate tax reimbursements
and percentage rents, which are provided for in the leases, are recognized as
income when earned and their amounts can be reasonably estimated.
Straight-line rental income recorded in excess of the contractual rent due
amounted to approximately $100,495, $5,122 and $0 in 1997, 1996 and 1995,
respectively.
INCOME TAXES
No provision has been made in the accompanying financial statements for any
income taxes since, pursuant to provisions of the Internal Revenue Code, the
partners are responsible for reporting their allocated share of each item of
income, gain, loss, deduction or credit on their individual tax returns.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable are reasonable estimates of their fair value. As the
Partnership's mortgage note has an adjustable interest rate, management believes
that the carrying amount of this obligation approximates the fair value at
December 31, 1997 and 1996.
3. REAL ESTATE
The Partnership's investment in real estate consists of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Land........................................................... $ 4,085,765 $ 4,085,765
Building and building improvements............................. 11,545,728 11,545,728
Tenant improvements............................................ 6,021,214 5,956,586
------------- -------------
21,652,707 21,588,079
Accumulated depreciation and amortization...................... (4,402,599) (3,512,733)
------------- -------------
$ 17,250,108 $ 18,075,346
------------- -------------
------------- -------------
</TABLE>
4. MORTGAGE NOTE PAYABLE
During 1996, the Partnership modified and restated the mortgage note. For
the period January 1, 1995 through November 25, 1996, the mortgage note payable,
in the principal amount of $17,066,645, bore
F-51
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. MORTGAGE NOTE PAYABLE (CONTINUED)
interest at LIBOR plus 1.75%. On November 25, 1996, the amount available under
the mortgage note payable was increased to $25,500,000. At December 31, 1996,
the outstanding principal balance was $22,875,000.
The mortgage note payable is due on May 23, 2001, and requires monthly
payments of interest at LIBOR plus 1.65%. In 1997, the Partnership borrowed an
additional $2,625,000 to reach the maximum mortgage principal amount of
$25,500,000. The additional funds were used to satisfy the obligations incurred
with the modification of an existing tenant's lease and the execution of a new
lease (see Note 6).
In addition, on February 3, 1997, the Partnership received $603,543 of
funds, which had been held in escrow by the title company. The title company was
holding these funds pending completion of all obligations specified in the loan
documents relating to the aforementioned tenant lease modification. The restated
mortgage note payable requires principal payments as follows:
<TABLE>
<S> <C>
1998........................................................... $ 500,000
1999........................................................... 600,000
2000........................................................... 700,000
2001........................................................... 23,250,000
----------
$25,050,000
----------
----------
</TABLE>
The loan is collateralized by the Partnership's real estate, as well as an
assignment of leases and rent, and is guaranteed by the partners. At December
31, 1997, 1996 and 1995 the effective interest rate on the mortgage note payable
was 7.56%, 7.31% and 7.43%, respectively.
5. LOAN PAYABLE--LAND
In 1991, the Partnership purchased an additional parcel of vacant land from
the Boston Redevelopment Authority ("BRA") for $500,000. The Partnership paid
$200,000 during 1991 and an additional $200,000 during 1993. The remaining
$100,000 is payable in five equal annual installments commencing in September
1994. The loan bears interest based upon the annual CPI index. The agreement
also calls for additional payments to the BRA in the event the Partnership is
(a) issued a building permit to construct a project, as defined, and (b) the
project is completed and a certificate of completion is issued. The maximum
amount payable, if the Partnership does proceed with a project, is $1,360,000.
F-52
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. TENANT LEASES
As of December 31, 1997, the Partnership had entered into three operating
leases which terminate in 2006, 2007 and 2020 and contains renewal options. As
of December 31, 1997 the future minimum lease payments required under the terms
of the leases are summarized as follows:
<TABLE>
<S> <C>
1998........................................................... $2,241,000
1999........................................................... 2,241,000
2000........................................................... 2,241,000
2001........................................................... 2,268,000
2002........................................................... 2,442,000
Thereafter..................................................... 15,406,000
----------
$26,839,000
----------
----------
</TABLE>
The leases also provide for reimbursement of real estate taxes, operating
and utility expenses and additional rentals based upon tenant sales.
One tenant accounts for approximately 60% of the minimum future rental
payments through November 2006. The same tenant which began occupancy in
November 1996, accounted for 34% of rental revenue in 1997. In addition, another
tenant accounts for 41%, 57% and 50% of rental revenue in 1997, 1996 and 1995,
respectively. The remaining tenant which accounts for approximately 25%, 36% and
39% of rental revenue in 1997, 1996 and 1995, respectively, has filed for
bankruptcy. This tenant is currently making rent payments, but has vacated the
premises and therefore, the future payments of rent are not assured.
LEASE BUYOUT
In 1996, the Partnership entered into an agreement with an existing tenant
to buyout a portion of their space to provide for the needs of a new tenant. The
amount of the buyout was $3,500,000, of which $875,000 was paid in 1996 and the
remaining $2,625,000 was paid in 1997. The buyout of the tenant lease has been
capitalized as a tenant improvement and is being amortized over the life of the
new tenant's lease.
7. RELATED PARTY TRANSACTION
An administrative fee was paid to an affiliate of one of the partners for
services rendered in connection with the management of the Partnership. This fee
amounted to $25,000 in 1997 and 1996 and $18,000 in 1995.
8. SUBSEQUENT EVENTS
On January 9, 1998, NorthStar Capital Investment Corp., through a
wholly-owned subsidiary, acquired a 1% general partnership interest and a 49.5%
limited partnership interest in the Partnership.
F-53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Northstar Capital Investment Corp.:
We have audited the accompanying combined statement of excess of revenues
over specific operating expenses of 19 West 44th Street and 417 Fifth Avenue
(the "Properties") for the year ended December 31, 1997. This financial
statement is the responsibility of management of the Properties. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of excess of revenues
over specific operating expenses is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined statement of excess of revenues over specific
operating expenses. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As described in Note 2, this combined financial statement excludes certain
expenses that would not be comparable with those resulting from the operations
of the property after acquisition by Northstar Capital Investment Corp. The
accompanying combined financial statement was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-11 of
Northstar Capital Investment Corp.) and are not intended to be a complete
presentation of the Properties' revenues and expenses.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the excess of revenues over specific operating expenses
of 19 West 44th Street and 417 Fifth Avenue for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
March 9, 1998
F-54
<PAGE>
19 WEST 44TH STREET AND 417 FIFTH AVENUE
COMBINED STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES (NOTE 2)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
REVENUES:
Rental income................................................................ $8,824,111
Tenant recoveries............................................................ 1,391,358
Other........................................................................ 7,787
----------
Total revenues........................................................... 10,223,256
----------
SPECIFIC OPERATING EXPENSES:
Real estate taxes............................................................ 2,281,966
Utilities.................................................................... 1,470,236
Repairs and maintenance...................................................... 1,449,946
Payroll...................................................................... 507,147
Other property operating..................................................... 341,448
Management fees.............................................................. 122,300
----------
Total specific operating expenses........................................ 6,173,043
----------
Excess of revenues over specific operating expenses...................... $4,050,213
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-55
<PAGE>
19 WEST 44TH STREET AND 417 FIFTH AVENUE
NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES
DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF PROPERTIES
19 West 44th Street and 417 Fifth Avenue are two office buildings of
approximately 219,000 and 332,000 square feet, respectively located in New York
City (the "Properties"). The Properties are owned by 44 B.C. Realty Corp. ("44
BC") and F.S. Realty Corp. ("FS Realty"), respectively, who are related parties.
REVENUE RECOGNITION
Minimum rents are recognized on a straight-line basis over the terms of the
related leases. Tenant recoveries and other rents which are provided for in
leases are recognized as income when earned and their amounts can be reasonably
estimated.
Minimum rents recognized on a straight-line basis in excess of the
contractual amounts due in 1997 amounted to $1,666,953.
USE OF ESTIMATES
The preparation of statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. BASIS OF ACCOUNTING
The accompanying combined statement of excess of revenues over specific
operating expenses is presented on the accrual basis. This statement has been
prepared in accordance with the applicable rules and regulations of the
Securities and Exchanges Commission for real estate properties acquired.
Accordingly, the statement excludes certain historical expenses not comparable
to the operations of the property after acquisition such as depreciation,
interest on mortgage debt and partnership level general and administrative
expenses.
3. LEASES
Minimum future rental revenue from noncancellable leases in effect at
December 31, 1997, is as follows (000's omitted):
<TABLE>
<S> <C>
For the year ending December 31:
1998........................................................... $ 9,273
1999........................................................... 8,448
2000........................................................... 8,159
2001........................................................... 6,855
2002........................................................... 6,491
Thereafter..................................................... 22,720
</TABLE>
Future minimum rentals do not include amounts for renewal periods or which
may be received from tenants for recoveries of certain operating costs.
F-56
<PAGE>
19 WEST 44TH STREET AND 417 FIFTH AVENUE
NOTES TO COMBINED STATEMENT OF EXCESS OF REVENUES OVER
SPECIFIC OPERATING EXPENSES (CONTINUED)
DECEMBER 31, 1997
4. SUBSEQUENT EVENT
In February 1998, the Properties were master leased to affiliates of
NorthStar Capital Investment Corp. ("NSC"), an unrelated third party, in a
series of structured transactions accounted for by NSC as capital leases.
F-57
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
OFFERING SUMMARY........................ 3
RISK FACTORS............................ 13
MARKET TRENDS AND INVESTMENT
STRATEGIES............................ 21
THE COMPANY............................. 28
MANAGEMENT OF OPERATIONS................ 35
MANAGEMENT.............................. 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................. 50
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS.......................... 51
USE OF PROCEEDS......................... 51
DISTRIBUTION POLICY..................... 51
PRICE RANGE OF COMMON STOCK............. 51
SELECTED HISTORICAL AND UNAUDITED PRO
FORMA FINANCIAL DATA.................. 52
CAPITALIZATION.......................... 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................ 54
DESCRIPTION OF SECURITIES............... 55
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF NSC'S CHARTER AND BYLAWS........... 63
COMMON STOCK AVAILABLE FOR FUTURE
SALE.................................. 65
OPERATING PARTNERSHIP AGREEMENT......... 66
FEDERAL INCOME TAX CONSIDERATIONS....... 69
ERISA CONSIDERATIONS.................... 80
SELLING HOLDERS......................... 83
PLAN OF DISTRIBUTION.................... 83
LEGAL MATTERS........................... 84
GLOSSARY OF TERMS....................... 85
FINANCIAL STATEMENTS.................... F-1
</TABLE>
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHILE
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
14,704,568 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1998
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses expected to be
incurred in connection with the sale and distribution of the securities being
registered.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 90,553
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 250,000
Miscellaneous..................................................... 100,000
---------
Total........................................................... $ 840,553
---------
---------
</TABLE>
ITEM 32. SALES TO SPECIAL PARTIES
None.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
On November 25, 1997, in connection with the Registrant's incorporation, the
Registrant issued 1,000 shares of Common Stock to NorthStar Capital Partners
LLC, a Delaware limited liability company, for $20,000. Such issuance was exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof.
On December 22, 1997, NSC issued an aggregate of 13,100,000 shares of Common
Stock to Qualified Institutional Buyers (as defined in Rule 144A under the
Securities Act) in reliance on the exemption from the registration requirements
of the Securities Act provided by Rule 144A under the Securities Act and to a
limited number of "accredited investors" (as defined in Rule 501 under the
Securities Act) in reliance on the exemption from the registration requirements
of the Securities Act provided by Regulation D under the Securities Act. The
initial purchaser of such shares of Common Stock was NationsBanc Montgomery
Securities, Inc. The aggregate proceeds to NSC from such offering and the
aggregate initial purchaser's discount were $244,315,000 and $17,685,000,
respectively.
On January 22, 1998, NSC issued an aggregate of 1,603,568 shares of Common
Stock pursuant to an over-allotment option granted to NationsBanc Montgomery
Securities, Inc. in connection with the Original Offering, to Qualified
Institutional Buyers (as defined in Rule 144A under the Securities Act) in
reliance on the exemption from the registration requirements of the Securities
Act provided by Rule 144A under the Securities Act and to a limited number of
"accredited investors" (as defined in Rule 501 under the Securities Act) in
reliance on the exemption from the registration requirements of the Securities
Act provided by Regulation D under the Securities Act. The aggregate proceeds to
NSC from such offering and the aggregate initial purchaser's discount were
$29,906,543.20 and $2,164,816.80, respectively.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
II-1
<PAGE>
The Charter authorizes NSC, to the maximum extent permitted by Maryland law,
to obligate itself to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director of NSC and at
the request of NSC, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his or her status as a present or former director or officer of
NSC. The Bylaws obligate NSC, to the maximum extent permitted by Maryland law,
to indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity or
(b) any individual who, while a director of NSC and at the request of NSC,
serves or has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity. The Charter and Bylaws also permit NSC to indemnify
and advance expenses to any person who served a predecessor of NSC in any of the
capacities described above and to any employee or agent of NSC or a predecessor
of NSC.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling NSC pursuant to the
foregoing provisions, NSC has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
No portion of the proceeds of the sale of the shares of Common Stock being
registered hereunder will be received by the Registrant.
II-2
<PAGE>
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following financial statements are being filed as part of this
Registration Statement:
<TABLE>
<S> <C>
NORTHSTAR CAPITAL INVESTMENT CORP. UNAUDITED PRO FORMA FINANCIAL INFORMATION
NorthStar Capital Investment Corp. Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 1997 (unaudited)
Notes to Pro Forma Condensed Consolidated Balance Sheet (unaudited)
NorthStar Capital Investment Corp. Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1997 (unaudited)
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited)
NORTHSTAR CAPITAL INVESTMENT CORP.
Independent Auditor's Report
Consolidated Balance Sheet as of December 31, 1997
Consolidated Statement of Operations From November 25, 1997 (date of inception) to
December 31, 1997
Consolidated Statement of Stockholders' Equity From November 25, 1997 (date of
inception) to December 31, 1997
Consolidated Statement of Cash Flows From November 25, 1997 (date of inception) to
December 31, 1997
Notes to Consolidated Financial Statements
NORTHSTAR HOSPITALITY LLC
Independent Auditor's Report
Balance Sheet as of February 2, 1998
Notes to Combined Financial Statements
BUSINESS TO BE ACQUIRED BY NORTHSTAR HOSPITALITY LLC
Independent Auditor's Report
Combined Balance Sheets as of December 31, 1997 and 1996
Combined Statements of Operations for the Years Ended December 31, 1997, 1996 and
1995
Combined Statements of Changes in Owners' Equity for the Years Ended December 31,
1997, 1996 and 1995
Combined Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995
Notes to Combined Financial Statements
FRANK KING ASSOCIATES, L.P.
Independent Auditors Report
Balance Sheets as of December 31, 1997 and 1996
Statement of Operations for the Years Ended December 31, 1997, 1996 and 1995
Statement of Changes in Partners' Equity (Deficit) for the Years Ended December 31,
1997, 1996 and 1995
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
PROPERTIES ACQUIRED -- NEW YORK
Independent Auditor's Report
Combined Statement of Excess of Revenues Over Specific Operating Expenses for the
Year Ended December 31, 1997
Notes to Combined Statement of Excess of Revenues Over Specific Operating Expenses
for the Year Ended December 31, 1997
</TABLE>
II-3
<PAGE>
(b) The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------
<C> <S>
3.1 Articles of Amendment and Restatement of the Registrant
3.2 By-laws of the Registrant
4.1 Form of Certificate for Common Stock
4.2 Registration Rights Agreement, dated as of December 22, 1997, by and among the
Registrant and NationsBanc Montgomery Securities, Inc.
5.2 Opinion of Ballard, Spahr, Andrews & Ingersoll relating to the legality of the
Common Stock*
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
10.1 Management and Advisory Agreement, dated as of December 22, 1997, by and among the
Registrant, NorthStar Partnership, L.P. and NorthStar Capital Partners LLC, a
Delaware limited liability company.
10.2 Agreement of Limited Partnership of NorthStar Partnership, L.P., dated as of
December 16, 1997, by and among the Registrant, NorthStar Capital Partners LLC and
the limited partners described herein.
10.3 Form of Noncompetition Agreements between NorthStar Capital Partners LLC and each of
Ed Scheetz and David Hamamoto*
10.4 Form of NCIC Non-Qualified Stock Option and Incentive Award Plan*
10.5 Amended and Restated Limited Liability Company Agreement of Ian Schrager Hotels LLC
Operating dated as of February 13, 1998
10.6 Agreement, made as of the 14th day of January, by and between F.S. Realty Corp., The
44th B.C. Realty Corp. and NS 417/44 LLC.
10.7 Amended and Restated Limited Liability Company Operating Agreement of The 44 BC
Realty LLC, made as of February 9, 1998, by and between The 44th B.C. Realty Corp.
and Polestar Forty-Fourth Holding LLC.
10.8 Amended and Restated Limited Liability Company Operating Agreement of 417 F.S.
Realty LLC, made as of February 9, 1998, by and between F.S. Realty Corp. and
Polestar Fifth Holding LLC.
10.9 Form of Lease, between The 44 BC Realty LLC and Polestar Forty-Fourth Associates
LLC.
10.10 Form of Lease, between 417 F.S. Realty LLC and Polestar Fifth Property Associates
LLC.
10.11 Option Agreement, made as of the 9th day of February, 1998, by and between The 44 BC
Realty LLC and Polestar Forty-Fourth Optionee LLC.
10.12 Option Agreement, made as of the 9th day of February, 1998, by and between 417 F.S.
Realty LLC and Polestar Fifth Optionee LLC.
10.13 Third Amended and Restated Limited Partnership Agreement of Frank-King Associates,
made as of January 9, 1998, among Kingston Washington Associates Limited
Partnership, NorthStar Washington Street, LLC and NorthStar Washington Street II,
LLC.
10.14 Development Agreement, dated as of December 1997 between Frank-King Associates
Limited Partnership and Kingston Construction Company, LLC.
10.15 Guaranty, dated as of January 9, 1998, made by NorthStar Partnership, L.P. and
Kingston Washington Associates Limited Partnership.
10.16 Limited Liability Company Agreement of KN One, LLC, made and entered into as of
February 26, 1998, by and between KREG-OC, L.P. and KN Star Corp.
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of Ballard, Spahr, Andrews & Ingersoll (contained in Exhibit 5.2)*
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in Exhibit 8.1)*
24.1 Power of Attorney (included on the signature page of this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 37. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(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;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective 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
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, on March 20, 1998.
<TABLE>
<S> <C> <C>
NORTHSTAR CAPITAL INVESTMENT CORP.
By: /s/ RICHARD J. MCCREADY
-----------------------------------------
Name: Richard J. McCready
Title: Chief Operating Officer,
Vice President and
Secretary
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
EACH PERSON IN SO SIGNING, ALSO MAKES, CONSTITUTES AND APPOINTS W. EDWARD
SCHEETZ, DAVID T. HAMAMOTO AND RICHARD J. MCCREADY, AND EACH OF THEM ACTING
ALONE, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO
EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, ANY AND ALL AMENDMENTS AND
POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, WITH EXHIBITS THERETO
AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND ANY RELATED REGISTRATION
STATEMENT AND ITS AMENDMENTS AND POST-EFFECTIVE AMENDMENTS FILED PURSUANT TO
RULE 462(B) UNDER THE ACT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID
ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY
VIRTUE THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Co-Chief Executive
Officer, Co-President
/s/ W. EDWARD SCHEETZ and Co-Chairman of the
---------------------------- Board of Directors March 20, 1998
W. Edward Scheetz (principal executive
officer)
Co-Chief Executive
Officer, Co-President
/s/ DAVID T. HAMAMOTO and Co-Chairman of the
---------------------------- Board of Directors March 20, 1998
David T. Hamamoto (principal executive
officer)
/s/ MARTIN L. EDELMAN
---------------------------- Director March 20, 1998
Martin L. Edelman
/s/ MICHAEL D. MALONE
---------------------------- Director March 20, 1998
Michael D. Malone
/s/ KEVIN J. REARDON
---------------------------- Principal financial March 20, 1998
Kevin J. Reardon (accounting) officer
</TABLE>
<PAGE>
Exhibit 3.1
NORTHSTAR CAPITAL INVESTMENT CORP.
----------------------------------
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: NorthStar Capital Investment Corp., a Maryland corporation (the
"Corporation"), desires to amend and restate its charter as currently in effect
and as hereinafter amended.
SECOND: The following provisions are all the provisions of the charter
currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, James J. Hanks, Jr., whose address is c/o Ballard Spahr
Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202, being
at least 18 years of age, does hereby form a corporation under the general laws
of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
NorthStar Capital Investment Corp.
<PAGE>
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")) for which corporations
may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of these Articles, "REIT" means a real estate
investment trust under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of
Maryland is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202, Attention: James J. Hanks, Jr. The name of the
resident agent of the Corporation in the State of Maryland is James J. Hanks,
Jr., whose post address is c/o Ballard Spahr Andrews & Ingersoll, 300 East
Lombard Street, Baltimore, Maryland 21202. The resident agent is a citizen of
and resides in the State of Maryland.
2
<PAGE>
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 Number and Classification of Directors. The business and
affairs of the Corporation shall be managed under the direction of the Board of
Directors. The number of directors of the Corporation initially shall be five
(5), which number may be increased or decreased pursuant to the Bylaws, but
shall never be less than the minimum number required by the Maryland General
Corporation Law. The names of the directors who shall serve until the first
annual meeting of stockholders and until their successors are duly elected and
qualify are:
DAVID T. HAMAMOTO
W. EDWARD SCHEETZ
MARTIN L. EDELMAN
MICHAEL D. MALONE
ANDREW L. FARKAS
Notwithstanding anything herein to the contrary, at all times (except
during a period not to exceed sixty (60) days following the death, resignation,
incapacity or removal from office of a director prior to expiration of the
director's term of office), a majority of the Board of Directors shall be
comprised of persons ("Independent
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<PAGE>
Directors") who are not officers or employees of the Corporation or "Affiliates"
of (i) any advisor to the Corporation pursuant to an advisory agreement, (ii)
any subsidiary of the Corporation or (iii) any manager of the Corporation's
business or assets pursuant to a management agreement. The foregoing provision
may not be amended, altered, changed or repealed without the affirmative vote of
85% of the members of the Board of Directors or the affirmative vote of
two-thirds of the shares of capital stock of the Corporation then outstanding
and entitled to vote on such matter at a meeting of stockholders.
For purposes of the foregoing subsection, "Affiliates" of a person shall
mean (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, ten percent (10%) or more of the
outstanding capital shares, shares or equity interests of such person, or (iii)
any officer, director, employee, partner or trustee of such person or of 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). The term "person" means and includes
individuals, corporations, general and limited partnerships, stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof. For the purpose of this
definition, "control" (including the
4
<PAGE>
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.
The directors may increase the number of directors and may fill any
vacancy, whether resulting from an increase in the number of directors or
otherwise, on the Board of Directors occurring before the first annual meeting
of stockholders in the manner provided in the Bylaws.
At any meeting of stockholders, the directors (other than any director
elected solely by holders of one or more classes or series of Preferred Stock)
may be classified, with respect to the terms for which they severally hold
office, into three classes, as nearly equal in number as possible, one class to
hold office initially for a term expiring at the next succeeding annual meeting
of stockholders, another class to hold office initially for a term expiring at
the second succeeding annual meeting of stockholders and another class to hold
office initially for a term expiring at the third succeeding annual meeting of
stockholders, with the members of each class to hold office until their
successors are duly elected and qualify. At each annual meeting of the
stockholders, the successors to the class of directors whose term expires at
such meeting shall be elected
5
<PAGE>
to hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
Section 5.2 Extraordinary Actions. Notwithstanding any provision of law
permitting or requiring any action to be taken or approved by the affirmative
vote of the holders of shares entitled to cast a greater number of votes, any
such action shall be effective and valid if taken or approved by the affirmative
vote of holders of shares entitled to cast a majority of all the votes entitled
to be cast on the matter.
Section 5.3 Authorization by Board of Stock Issuance. The Board of
Directors may authorize the issuance from time to time of shares of stock of the
Corporation of any class or series, whether now or hereafter authorized, or
securities or rights convertible into shares of its stock of any class or
series, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable (or without consideration in the case of a stock
split or stock dividend), subject to such restrictions or limitations, if any,
as may be set forth in the charter or the Bylaws.
Section 5.4 Preemptive Rights. Except as may be provided by the Board of
Directors in setting the terms of classified or reclassified shares of stock
pursuant to Section 6.4, or as may otherwise be provided by contract, no holder
of shares of stock of the Corporation shall, as such holder, have any preemptive
right to purchase or subscribe for any additional shares of stock of the
Corporation or any other security of the Corporation which it may issue or sell.
6
<PAGE>
Section 5.5 Indemnification. The Corporation shall have the power, to the
maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former director or officer of the Corporation or (b) any individual
who, while a director of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his status as a present or former director or officer of the
Corporation. The Corporation shall have the power, with the approval of the
Board of Directors, to provide such indemnification and advancement of expenses
to a person who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation or
a predecessor of the Corporation.
Section 5.6 Determinations by Board. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of its stock:
the amount of the net income of the
7
<PAGE>
Corporation for any period and the amount of assets at any time legally
available for the payment of dividends, redemption of its stock or the payment
of other distributions on its stock; the amount of paid-in surplus, net assets,
other surplus, annual or other net profit, net assets in excess of capital,
undivided profits or excess of profits over losses on sales of assets; the
amount, purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof (whether or
not any obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged); the fair value, or any sale,
bid or asked price to be applied in determining the fair value, of any asset
owned or held by the Corporation; any matter relating to the acquisition,
holding and disposition of any assets by the Corporation; or any matter relating
to the business and affairs of the Corporation.
Section 5.7 REIT Qualification. The Corporation shall seek to elect and
maintain status as a REIT under Sections 856-860 of the Code. The Board of
Directors shall use its reasonable best efforts to cause the Corporation to
satisfy the requirements for qualification as a REIT under the Code, including,
but not limited to, the ownership of its outstanding stock, the nature of its
assets, the sources of its income, and the amount and timing of its
distributions to its stockholders; however, if the Board of Directors
determines that it is no longer in the best interests of the Corporation to
continue to be qualified as a REIT, the Board of Directors may revoke or
otherwise terminate the Corporation's REIT election pursuant to Section 856(g)
of the Code. The
8
<PAGE>
Board of Directors also may determine that compliance with any restriction or
limitation on stock ownership and transfers set forth in Article VII is no
longer required for REIT qualification.
Section 5.8 Removal of Directors. Subject to the rights of holders of one
or more classes or series of Preferred Stock to elect or remove one or more
directors, any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and then only by the affirmative vote of
at least two thirds of the votes entitled to be cast generally in the election
of directors. For the purpose of this paragraph, "cause" shall mean with respect
to any particular director a final judgment of a court of competent jurisdiction
holding that such director caused demonstrable, material harm to the Corporation
through bad faith or active and deliberate dishonesty.
Section 5.9 Advisor Agreements. Subject to such approval of stockholders
and other conditions, if any, as may be required by any applicable statute, rule
or regulation, the Board of Directors may authorize the execution and
performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization (including, without limitation, any affiliate of the
Corporation and/or its directors) whereby, subject to the supervision and
control of the Board of Directors, any such other person, corporation,
association, company, trust, partnership (limited or general) or other
organization
9
<PAGE>
(including, without limitation, any affiliate of the Corporation and/or its
directors) shall render or make available to the Corporation managerial,
investment, advisory and/or related services, office space and other services
and facilities (including, if deemed advisable by the Board of Directors, the
management or supervision of the investments of the Corporation) upon such terms
and conditions as may be provided in such agreement or agreements (including, if
deemed fair and equitable by the Board of Directors, the compensation payable
thereunder by the Corporation).
ARTICLE VI
STOCK
Section 6.1 Authorized Shares. The Corporation has authority to issue
600,000,000 shares of stock, consisting of 500,000,000 shares of Common Stock,
$0.01 par value per share ("Common Stock") and 100,000,000 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"). The aggregate par value
of all authorized shares of stock having par value is $6,000,000. If shares of
one class of stock are classified or reclassified into shares of another class
of stock pursuant to Sections 6.2, 6.3 or 6.4 of this Article VI, the number of
authorized shares of the former class shall be automatically decreased and the
number of shares of the latter class shall be automatically increased, in each
case by the number of shares so classified or reclassified, so that the
aggregate number of shares of stock of all classes that the Corporation has
authority to
10
<PAGE>
issue shall not be more than the total number of shares of stock set forth in
the first sentence of this paragraph.
Section 6.2 Common Stock. Subject to the provisions of Article VII, each
share of Common Stock shall entitle the holder thereof to one vote. The Board
of Directors may reclassify any unissued shares of Common Stock from time to
time in one or more classes or series of stock.
Section 6.3 Preferred Stock. The Board of Directors may classify any
unissued shares of Preferred Stock and reclassify any previously classified but
unissued shares of Preferred Stock of any series from time to time, in one or
more classes or series of stock.
Section 6.4 Classified or Reclassified Shares. Prior to issuance of
classified or reclassified shares of any class or series, the Board of Directors
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of stock of the Corporation; (b) specify the number
of shares to be included in the class or series; (c) set or change, subject to
the provisions of Article VII and subject to the express terms of any class or
series of stock of the Corporation outstanding at the time, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption for each class or series; and (d) cause the Corporation to file
articles supplementary with the State Department of Assessments and Taxation of
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<PAGE>
Maryland ("SDAT"). Any of the terms of any class or series of stock set or
changed pursuant to clause (c) of this Section 6.4 may be made dependent upon
facts or events ascertainable outside the charter (including determinations by
the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
class or series of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.
Section 6.5 Charter and Bylaws. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions of the charter and
the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII, the following
terms shall have the following meanings:
Aggregate Stock Ownership Limit. The term "Aggregate Stock Ownership Limit"
shall mean not more than 9.8 percent of the aggregate value of the outstanding
shares of any class or series of Capital Stock of the Corporation. The value of
the outstanding shares of a class or series of Capital Stock shall be determined
by the Board of Directors of the Corporation in good faith, which determination
shall be conclusive for all purposes hereof.
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<PAGE>
Beneficial Ownership. The term "Beneficial Ownership" shall mean ownership
of Capital Stock by a Person, whether the interest in the shares of Capital
Stock is held directly or indirectly (including by a nominee), and shall include
interests that would be treated as owned through the application of Section 544
of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall have the
correlative meanings.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes or series
of stock of the Corporation, including, without limitation, Common Stock and
Preferred Stock.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean one
or more beneficiaries of a Trust as determined pursuant to Section 7.3.6,
provided that each such organization must be described in Section 501(c)(3) of
the Code and contributions to each such organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
Charter. The term "Charter" shall mean the charter of the Corporation, as
that term is defined in the MGCL.
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Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.
Excepted Holder. The term "Excepted Holder" shall mean a stockholder of
the Corporation for whom an Excepted Holder Limit is created by these Articles
or by the Board of Directors pursuant to Section 7.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section 7.2.7,
and subject to adjustment pursuant to Section 7.2.8, the percentage limit
established by the Board of Directors for such an exempted holder pursuant to
Section 7.2.7.
Initial Date. The term "Initial Date" shall mean the date upon which the
Articles of Amendment containing this Article VII are filed with the SDAT.
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Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding shares of Capital Stock, the
Closing Price for such Capital Stock on such date. The "Closing Price" on
any date shall mean the last sale price for such Capital Stock, regular way,
or, in case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, for such Capital Stock, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the NYSE or, if such
Capital Stock is not listed or admitted to trading on the NYSE, as reported
on the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
Capital Stock is listed or admitted to trading or, if such Capital Stock is
not listed or admitted to trading on any national securities exchange, the
last quoted price, or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or, if
such system is no longer in use, the principal other automated quotation
system that may then be in use or, if such Capital Stock is not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such Capital
Stock selected by the Board of Directors of the Corporation or, in the event
that no trading price is available for such Capital Stock, the fair market
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value of the Capital Stock, as determined in good faith by the Board of
Directors of the Corporation.
MGCL. The term "MGCL" shall mean the Maryland General Corporation Law, as
amended from time to time.
NYSE. The term "NYSE" shall mean the New York Stock Exchange, Inc.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a)
or 501(c)(17) of the Code), a portion of a trust permanently set aside for or
to be used exclusively for the purposes described in Section 642(c) of the
Code, association, private foundation within the meaning of Section 509(a) of
the Code, joint stock company or other entity and also includes a group as
that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect
to any purported Transfer, any Person who, but for the provisions of Section
7.2.1, would Beneficially Own or Constructively Own shares of Capital Stock,
and if appropriate in the context, shall also mean any Person who would have
been the record owner of the shares that the Prohibited Owner would have so
owned.
REIT. The term "REIT" shall mean a real estate investment trust within the
meaning of Section 856 of the Code.
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Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Corporation
determines pursuant to Section 5.7 of the Charter that it is no longer in the
best interests of the Corporation to attempt to, or continue to, qualify as a
REIT or that compliance with the restrictions and limitations on Beneficial
Ownership, Constructive Ownership and Transfers of shares of Capital Stock set
forth herein is no longer required in order for the Corporation to qualify as a
REIT.
Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event
that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement to take any such actions or cause any such
events, of Capital Stock or the right to vote or receive dividends on Capital
Stock, including (a) the granting or exercise of any option (or any
disposition of any option), (b) any disposition of any securities or rights
convertible into or exchangeable for Capital Stock or any interest in Capital
Stock or any exercise of any such conversion or exchange right and (c)
Transfers of interests in other entities that result in changes in Beneficial
or Constructive Ownership of Capital Stock; in each case, whether voluntary
or involuntary, whether owned of record, Constructively Owned or Beneficially
Owned and whether by operation of law or otherwise. The terms "Transferring"
and "Transferred" shall have the correlative meanings.
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Trust. The term "Trust" shall mean any trust provided for in
Section 7.3.1.
Trustee. The term "Trustee" shall mean a Person unaffiliated with the
Corporation and a Prohibited Owner, that is appointed by the Corporation to
serve as trustee of a Trust.
Section 7.2 Capital Stock.
Section 72.1 Ownership Limitations. During the period commencing on
the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i)(1) No Person, other than an Excepted Holder, shall
Beneficially Own or Constructively Own shares of Capital Stock in excess of the
Aggregate Stock Ownership Limit and (2) no Excepted Holder shall Beneficially
Own or Constructively Own shares of Capital Stock in excess of the Excepted
Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own
shares of Capital Stock to the extent that such Beneficial or Constructive
Ownership of Capital Stock would result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code (without regard to whether the
ownership interest is held during the last half of a taxable year), or otherwise
failing to qualify as a REIT (including, but not limited to, Beneficial or
Constructive Ownership that would
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result in the Corporation owning (actually or Constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Code if the income
derived by the Corporation from such tenant would cause the Corporation to fail
to satisfy any of the gross income requirements of Section 856(c) of the Code).
(iii) Notwithstanding any other provisions contained herein,
any Transfer of shares of Capital Stock (whether or not such Transfer is the
result of a transaction entered into through the facilities of the NYSE or any
other national securities exchange or automated inter-dealer quotation system)
that, if effective, would result in the Capital Stock being beneficially owned
by less than 100 Persons (determined under the principles of Section 856(a)(5)
of the Code) shall be void ab initio, and the intended transferee shall acquire
no rights in such shares of Capital Stock.
(b) Transfer in Trust. If any Transfer of shares of Capital
Stock (whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE or any other national securities exchange or
automated inter-dealer quotation system) occurs which, if effective, would
result in any Person Beneficially Owning or Constructively Owning shares of
Capital Stock in violation of Section 7.2.1(a)(i), (ii) or (iii),
(i) then that number of shares of the Capital Stock the
Beneficial or Constructive Ownership of which otherwise would cause such Person
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to violate Section 7.2.1(a)(i), (ii) or (iii) (rounded to the nearest whole
share) shall be automatically transferred to a Trust for the benefit of a
Charitable Beneficiary, as described in Section 7.3, effective as of the close
of business on the Business Day prior to the date of such Transfer, and such
Person shall acquire no rights in such shares; or
(ii) if the transfer to the Trust described in clause (i) of
this sentence would not be effective for any reason to prevent the violation of
Section 7.2.1(a)(i) or (ii), then the Transfer of that number of shares of
Capital Stock that otherwise would cause any Person to violate
Section 7.2.1(a)(i) or (ii) shall be void ab initio, and the intended transferee
shall acquire no rights in such shares of Capital Stock.
Section 7.2.2 Remedies for Breach. If the Board of Directors of the
Corporation or any duly authorized committee thereof shall at any time determine
in good faith that a Transfer or other event has taken place that results in a
violation of Section 7.2.1 or that a Person intends to acquire or has attempted
to acquire Beneficial or Constructive Ownership of any shares of Capital Stock
in violation of Section 7.2.1 (whether or not such violation is intended), the
Board of Directors or a committee thereof shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or other
event, including, without limitation, causing the Corporation to redeem shares,
refusing to give effect to such Transfer on the books of the Corporation or
instituting proceedings to enjoin such Transfer or other event;
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provided, however, that any Transfer or attempted Transfer or other event in
violation of Section 7.2.1 shall automatically result in the transfer to the
Trust described above, and, where applicable, such Transfer (or other event)
shall be void ab initio as provided above irrespective of any action (or
non-action) by the Board of Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person who acquires
or attempts or intends to acquire Beneficial Ownership or Constructive Ownership
of shares of Capital Stock that will or may violate Section 7.2.1(a) or any
Person who would have owned shares of Capital Stock that resulted in a transfer
to the Trust pursuant to the provisions of Section 7.2.1(b) shall immediately
give written notice to the Corporation of such event, or in the case of such a
proposed or attempted transaction, give at least 15 days prior written notice,
and shall provide to the Corporation such other information as the Corporation
may request in order to determine the effect, if any, of such Transfer on the
Corporation's status as a REIT.
Section 7.2.4 Owners Required To Provide Information. From the
Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of Capital Stock, within 30 days after the
end of each taxable year, shall give written notice to the Corporation stating
the name and
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address of such owner, the number of shares of Capital Stock Beneficially Owned
and a description of the manner in which such shares are held. Each such owner
shall provide to the Corporation such additional information as the Corporation
may request in order to determine the effect, if any, of such Beneficial
Ownership on the Corporation's status as a REIT and to ensure compliance with
the Aggregate Stock Ownership Limit; and
(b) each Person who is a Beneficial or Constructive Owner of
Capital Stock and each Person (including the stockholder of record) who is
holding Capital Stock for a Beneficial or Constructive Owner shall provide to
the Corporation such information as the Corporation may request, in good faith,
in order to determine the Corporation's status as a REIT and to comply with
requirements of any taxing authority or governmental authority or to determine
such compliance.
Section 7.2.5 Remedies Not Limited. Subject to Section 5.7 of the
Charter, nothing contained in this Section 7.2 shall limit the authority of the
Board of Directors of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 7.2, Section 7.3, or any
definition contained in Section 7.1, the Board of Directors of the Corporation
shall have the power
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to determine the application of the provisions of this Section 7.2 or
Section 7.3 with respect to any situation based on the facts known to it. In
the event Section 7.2 or 7.3 requires an action by the Board of Directors and
the Charter fails to provide specific guidance with respect to such action, the
Board of Directors shall have the power to determine the action to be taken so
long as such action is not contrary to the provisions of Sections 7.1, 7.2 or
7.3.
Section 7.2.7 Exceptions.
(a) Subject to Section 7.2.1(a)(ii), the Board of Directors of
the Corporation, in its sole discretion, may exempt a Person from the Aggregate
Stock Ownership Limit with respect to one or more classes or series of Capital
Stock and may establish or increase an Excepted Holder Limit for such Person if:
(i) the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain that no
individual's Beneficial or Constructive Ownership of such shares of Capital
Stock will violate Section 7.2.1(a)(ii);
(ii) such Person does not and represents that it will not
own, actually or Constructively, an interest in a tenant of the Corporation (or
a tenant of any entity owned or controlled by the Corporation) that would cause
the Corporation to own, actually or Constructively, more than a 9.9% interest
(as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Board
of Directors obtains
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such representations and undertakings from such Person as are reasonably
necessary to ascertain this fact (for this purpose, a tenant from whom the
Corporation (or an entity owned or controlled by the Corporation) derives (and
is expected to continue to derive) a sufficiently small amount of revenue such
that, in the opinion of the Board of Directors of the Corporation, rent from
such tenant would not adversely affect the Corporation's ability to qualify as a
REIT, shall not be treated as a tenant of the Corporation); and
(iii) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other action which is
contrary to the restrictions contained in Sections 7.2.1 through 7.2.6) will
result in such shares of Capital Stock being automatically transferred to a
Trust in accordance with Sections 7.2.1(b) and 7.3.
(iv) notwithstanding the provisions of this Section 7.2.7,
NationsBank, N.A. and each of its successors and assigns (collectively, the
"Lender") shall be permitted an exception from the Aggregate Stock Ownership
Limit, to the extent that the Lender's violation of the Aggregate Stock
Ownership Limit is a result of the Lender's exercise of any of the Lender's
remedies under the Pledge Agreement, dated as of December 22, 1997, by and
between NorthStar Capital Partners LLC in favor of the Lender, as agent, as in
effect from time to time, without being
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required to comply with the representations and undertakings in subparagraphs
(i) through (iii), above.
(b) Prior to granting any exception pursuant to Section 7.2.7(a),
the Board of Directors of the Corporation may require a ruling from the Internal
Revenue Service, or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors in its sole discretion, as it may deem
necessary or advisable in order to determine or ensure the Corporation's status
as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of
Directors may impose such conditions or restrictions as it deems appropriate in
connection with granting such exception.
(c) Subject to Section 7.2.1(a)(ii), an underwriter which
participates in a public offering or a private placement of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) may Beneficially
Own or Constructively Own shares of Capital Stock (or securities convertible
into or exchangeable for Capital Stock) in excess of the Aggregate Stock
Ownership Limit, but only to the extent necessary to facilitate such public
offering or private placement.
(d) The Board of Directors may only reduce the Excepted Holder
Limit for an Excepted Holder: (1) with the written consent of such Excepted
Holder at any time, or (2) pursuant to the terms and conditions of the
agreements and undertakings entered into with such Excepted Holder in connection
with the establishment
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of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit
with respect to a class or series of Capital Stock shall be reduced to a
percentage that is less than the Aggregate Stock Ownership Limit.
Section 7.2.8 Legend. Each certificate for shares of Capital Stock
shall bear substantially the following legend:
The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose
of the Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Person may
Beneficially or Constructively Own shares of any class or series of
the Corporation's Capital Stock in excess of 9.8 percent of the value
of the outstanding shares of such class or series of Capital Stock
unless such Person is an Excepted Holder (in which case the Excepted
Holder Limit shall be applicable); (ii) no Person may Beneficially or
Constructively Own Capital Stock that would result in the Corporation
being "closely held" under Section 856(h) of the Code or otherwise
cause the Corporation to fail to qualify as a REIT; and (iii) no
Person may Transfer shares of Capital Stock if such Transfer would
result in the Capital Stock of the Corporation being owned by fewer
than 100 Persons. Any Person who Beneficially or Constructively Owns
or attempts to Beneficially or Constructively Own shares of Capital
Stock which causes or will cause a Person to Beneficially or
Constructively Own shares of Capital Stock in excess or in violation
of the above limitations must immediately notify the Corporation. If
any of the restrictions on transfer or ownership are violated, the
shares of Capital Stock represented hereby will be automatically
transferred to a Trustee of a Trust
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for the benefit of one or more Charitable Beneficiaries. In addition,
upon the occurrence of certain events, attempted Transfers in
violation of the restrictions described above may be void ab initio.
All capitalized terms in this legend have the meanings defined in the
charter of the Corporation, as the same may be amended from time to
time, a copy of which, including the restrictions on transfer and
ownership, will be furnished to each holder of Capital Stock of the
Corporation on request and without charge.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
Section 7.3 Transfer of Capital Stock in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported Transfer or other
event described in Section 7.2.1(b) that would result in a transfer of shares of
Capital Stock to a Trust, such shares of Capital Stock shall be deemed to have
been transferred to a Trustee as trustee of such Trust for the exclusive benefit
of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be
deemed to be effective as of the close of business on the Business Day prior to
the purported Transfer or other event that results in the transfer to the Trust
pursuant to Section 7.2.1(b). The Trustee shall be appointed by the Corporation
and shall be a Person unaffiliated with the Corporation and any Prohibited
Owner. Each Charitable Beneficiary shall be designated by the Corporation as
provided in Section 7.3.6.
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Section 7.3.2 Status of Shares Held by the Trustee. Shares of Capital
Stock held by the Trustee shall be issued and outstanding shares of Capital
Stock of the Company. The Prohibited Owner shall have no rights in the shares
held by the Trustee. The Prohibited Owner shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have no rights to
dividends or other distributions and shall not possess any rights to vote or
other rights attributable to the shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee shall have all
voting rights and rights to dividends or other distributions with respect to
shares of Capital Stock held in the Trust, which rights shall be exercised for
the exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee shall be paid by the
recipient of such dividend or distribution to the Trustee upon demand and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Trustee. Any dividend or distribution so paid to the Trustee shall be held
in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares held in the Trust and, subject to Maryland
law, effective as of the date that the shares of Capital Stock have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Owner prior to the discovery by the
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Corporation that the shares of Capital Stock have been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary; provided, however,
that if the Corporation has already taken irreversible corporate action, then
the Trustee shall not have the authority to rescind and recast such vote.
Notwithstanding the provisions of this Article VII, until the Corporation has
received notification that shares of Capital Stock have been transferred into a
Trust, the Corporation shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20 days of receiving
notice from the Corporation that shares of Capital Stock have been transferred
to the Trust, the Trustee of the Trust shall sell the shares held in the Trust
to a person, designated by the Trustee, whose ownership of the shares will not
violate the ownership limitations set forth in Section 7.2.1(a). Upon such
sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner and to the Charitable Beneficiary as provided in this
Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the price
paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not
give value for the shares in connection with the event causing the shares to be
held in
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the Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price of the shares on the day of the event causing the shares to be held
in the Trust and (2) the price per share received by the Trustee from the sale
or other disposition of the shares held in the Trust. Any net sales proceeds in
excess of the amount payable to the Prohibited Owner shall be immediately paid
to the Charitable Beneficiary. If, prior to the discovery by the Corporation
that shares of Capital Stock have been transferred to the Trustee, such shares
are sold by a Prohibited Owner, then (i) such shares shall be deemed to have
been sold on behalf of the Trust and (ii) to the extent that the Prohibited
Owner received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to this Section 7.3.4, such
excess shall be paid to the Trustee upon demand.
Section 7.3.5 Purchase Right in Stock Transferred to the Trustee.
Shares of Capital Stock transferred to the Trustee shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share equal
to the lesser of (i) the price per share in the transaction that resulted in
such transfer to the Trust (or, in the case of a devise or gift, the Market
Price at the time of such devise or gift) and (ii) the Market Price on the date
the Corporation, or its designee, accepts such offer. The Corporation shall
have the right to accept such offer until the Trustee has sold the shares held
in the Trust pursuant to Section 7.3.4. Upon such a sale to the Corporation,
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the interest of the Charitable Beneficiary in the shares sold shall terminate
and the Trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.
Section 7.3.6 Designation of Charitable Beneficiaries. By written
notice to the Trustee, the Corporation shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Trust such
that (i) the shares of Capital Stock held in the Trust would not violate the
restrictions set forth in Section 7.2.1(a) in the hands of such Charitable
Beneficiary and (ii) each such organization must be described in
Section 501(c)(3) of the Code and contributions to each such organization must
be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of
the Code.
Section 7.4 NYSE Transactions. Nothing in this Article VII shall preclude
the settlement of any transaction entered into through the facilities of the
NYSE or any other national securities exchange or automated inter-dealer
quotation system. The fact that the settlement of any transaction is so
permitted shall not negate the effect of any other provision of this Article VII
and any transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Article VII.
Section 7.5 Enforcement. The Corporation is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article VII.
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Section 7.6 Non-Waiver. No delay or failure on the part of the Corporation
or the Board of Directors in exercising any right hereunder shall operate as a
waiver of any right of the Corporation or the Board of Directors, as the case
may be, except to the extent specifically waived in writing.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in this
charter, of any shares of outstanding stock. All rights and powers conferred by
the charter on stockholders, directors and officers are granted subject to this
reservation.
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers of a corporation,
no director or officer of the Corporation shall be liable to the Corporation or
its stockholders for money damages. Neither the amendment nor repeal of this
Article IX, nor the adoption or amendment of any other provision of the charter
or Bylaws inconsistent with this Article IX, shall apply to or affect in any
respect the applicability of the preceding
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sentence with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
THIRD: The amendment to and restatement of the charter as hereinabove set
forth have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation is
as set forth in Article IV of the foregoing amendment and restatement of the
charter.
FIFTH: The name and address of the Corporation's current resident agent is
as set forth in Article IV of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Article V of the foregoing amendment and
restatement of the charter.
SEVENTH: The undersigned President acknowledges these Articles of
Amendment and Restatement to be the corporate act of the Corporation and as to
all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
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EIGHTH: The total number of shares of stock which the Corporation had the
authority to issue immediately prior to this Amendment and Restatement was 1,000
shares of common stock, $.01 par value per share. The aggregate par value of
all shares of stock having par value was $10.00.
The total number of shares of stock which the Corporation has authority to
issue is 600,000,000 shares, consisting of 500,000,000 shares of common stock,
par value $.01 per share, and 100,000,000 shares of preferred stock, par value
$.01 per share. The aggregate par value of all shares having par value is
$6,000,000.
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IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its President and
attested to by its Secretary on this 22nd day of December, 1997.
ATTEST: NORTHSTAR CAPITAL
INVESTMENT CORP.
/s/ Marc S. Gordon By: /s/ W. Edward Scheetz (SEAL)
- ------------------------- -----------------------
Secretary President
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Exhibit 3.2
NORTHSTAR CAPITAL INVESTMENT CORP.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corpo
ration shall be located at such place or places as the Board of Directors may
designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
offices at such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stock holders
for the election of directors and the transaction of any business within the
powers of the Corporation shall be held on a date and at the time set by the
Board of Directors during the month of __________ in each year.
Section 3. SPECIAL MEETINGS. The president, chief executive officer
or Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on at such meeting. The secretary shall inform such stockholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting.
<PAGE>
Section 4. NOTICE. Not less than ten nor more than 90 days before
each meeting of stockholders, the secretary shall give to each stockholder
entitled to vote at such meeting and to each stockholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting is
called, either by mail or by presenting it to such stockholder personally or by
leaving it at his residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the stockholder at his post office address as it appears on the records of
the Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stock holders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the
chairman of the board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the chairman of the board, one of the
following officers present shall conduct the meeting in the order stated: the
vice chairman of the board, if there be one, the president, the vice presidents
in their order of rank and seniority, or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in his absence, an assistant secretary, or in the absence of both
the secretary and assistant secretaries, a person appointed by the chairman
shall act as secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of stockholders 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 charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
stockholders 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.
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Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called and
at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each outstand ing share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Section 9. PROXIES. A stockholder may cast the votes entitled to be
cast by the shares of the stock owned of record by him either in person or by
proxy executed in writing by the stockholder or by his duly authorized agent.
Such proxy shall be filed with the secretary of the Corporation before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Corporation 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 stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by
it shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by which
a stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
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specified person other than the stockholder. The resolution shall set forth the
class of stock holders 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 stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Notwithstanding any other provision of the charter of the
Corporation or these Bylaws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of stock of
the Corporation. This section may be repealed, in whole or in part, at any time,
whether before or after an acquisition of control shares and, upon such repeal,
may, to the extent provided by any successor bylaw, apply to any prior or
subsequent control share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman
of the meeting may 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 stockholders.
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 12. NOMINATIONS AND PROPOSALS BY STOCK HOLDERS.
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(a) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any stockholder of the Corporation who was a
stockholder of record both at the time of giving of notice provided for in this
Section 12(a) and at the time of the annual meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 12(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(a)(1) of this Section 12, the stockholder must have given timely notice thereof
in writing to the secretary of the Corporation and such other business must
otherwise be a proper matter for action by stockholders. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such anniversary date or if the
Corporation has not previously held an annual meeting, notice by the stock
holder to be timely must be so delivered not earlier than the close of business
on the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the tenth
day following the day on which public announcement of the date of such meeting
is first made by the Corporation. In no event shall the public announcement of a
postponement or adjournment of an annual meeting to a later date or time
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nomi nate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
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made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (y) the number of shares of each class of stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is increased and
there is no public announcement by the Corporation naming all of the nominees
for director or specify ing the size of the increased Board of Directors at
least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 12(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announce ment
is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record both at the time of giving of notice
provided for in this Section 12(b) and at the time of the special meeting, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 12(b). In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be) for election to such position as specified in the Corporation's
notice of meeting, if the stockholder's notice containing the information
required by paragraph (a)(2) of this Section 12 shall be delivered to the
secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and
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of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of a postponement or
adjournment of a special meeting to a later date or time commence a new time
period for the giving of a stockholder's notice as described above.
(c) General. (1) Only such persons who are nominated in accor dance
with the procedures set forth in this Section 12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the proce dures set forth in this Section 12 and, if any
proposed nomination or business is not in compliance with this Section 12, to
declare that such nomination or proposal shall be disregarded.
(2) For purposes of this Section 12, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
12, a stockholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 12. Nothing in this Section 12
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in, nor the rights of the Corporation to omit a proposal from, the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 13. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any stock
holder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
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Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting
or at any special meeting called for that purpose, a majority of the entire
Board of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Board of Directors shall be held immediately after and at the same place as the
annual meeting of stockholders, no notice other than this Bylaw being necessary.
The Board of Directors may provide, by resolution, the time and place, either
within or without the State of Maryland, for the holding of regular meetings of
the Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the chairman of the board,
president or by a majority of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
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 and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a
quorum for transaction of business at any meeting of the Board of Directors,
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provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute.
Section 8. TELEPHONE MEETINGS. Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 10. VACANCIES. If for any reason any or all the directors
cease to be directors, such event shall not terminate the Corporation or affect
these Bylaws or the powers of the remaining directors hereunder (even if fewer
than three directors remain). Any vacancy on the Board of Directors for any
cause other than an increase in the number of directors shall be filled by a
majority of the remaining directors, even if such majority is less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as director shall hold office until the
next annual meeting of stockholders and until his successor is elected and
qualifies.
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Section 11. COMPENSATION. Directors shall not receive any stated
salary for their services as directors but, by resolution of the Board of Direc
tors, may receive compensation per year and/or per meeting and/or per visit to
real property or other facilities owned or leased by the Corporation and for any
service or activity they performed or engaged in as directors. Directors may be
reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director 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 stock
have been deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall
be obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of
the Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the advisers, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time to
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
ARTICLE IV
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COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors
may appoint from among its members an Executive Committee, an Audit Committee,
and other committees, composed of one or more directors, to serve at the
pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in
the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transac tion of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or any two members of any committee may fix the time and place of
its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they consti tute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board
of Directors 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 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
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ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation
shall include one or more co-chief executive officers, one or more
co-presidents, a secretary and a treasurer and may include one or more
co-chairmen of the board, a vice chairman of the board, one or more vice
presidents, a chief operating officer, a chief financial officer, one or more
assistant secretaries and one or more assistant treasurers. In addition, the
Board of Directors 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
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
stockholders, except that the chief executive officer may appoint one or more
vice presidents, assistant secretaries and assistant treasurers. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter pro vided. Any two or more offices except president and
vice president may be held by the same person. In its discretion, the Board of
Directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation 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 Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, 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 Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Board of Directors for the balance of the term.
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Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate one or more co-chief executive officers. In the absence of such
designation, the chairman of the board shall be the chief executive officer of
the Corporation. The chief executive officer shall have general responsibility
for implementation of the policies of the Corporation, as determined by the
Board of Directors, and for the management of the business and affairs of the
Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
execu tive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
execu tive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate one or more co-chairmen of the board. The chairman of the board shall
preside over the meetings of the Board of Directors and of the stockholders at
which he shall be present. The chairman of the board shall perform such other
duties as may be assigned to him or them by the Board of Directors.
Section 8. PRESIDENT. The president or chief executive officer, as
the case may be, shall in general supervise and control all of the business and
affairs of the Corporation. In the absence of a designation of a chief operating
officer by the Board of Directors, the president shall be the chief operating
officer. He may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the Board of Directors from time to time.
Section 9. 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
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perform such other duties as from time to time may be assigned to him by the
president or by the Board of Directors. The Board of Directors may designate one
or more vice presidents as executive vice president or as vice president for
particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of
the proceedings of the stockholders, the Board of Directors and committees of
the Board of Directors 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 corporate records and of
the seal of the Corporation; (d) keep a register of the post office address of
each stockholder which shall be furnished to the secretary by such stockholder;
(e) have general charge of the share transfer books of the Corporation; 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 Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transac tions as treasurer and of the financial condition of
the Corporation.
If required by the Board of Directors, the treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfac tory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, 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 Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall
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perform such duties as shall be assigned to them by the secretary or treasurer,
respectively, or by the president or the Board of Directors. The assistant
treasurers shall, if required by the Board of Directors, give bonds for the
faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors 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 Corporation 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 directors or by an
authorized person shall be valid and binding upon the Board of Directors and
upon the Corporation when authorized or ratified by action of the Board of
Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent of the Corpora
tion in such manner as shall from time to time be determined by the Board of
Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to
either a certificate or certificates which shall represent and certify the
number of shares of
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each class of stock held by him in the Corporation or an interest in a global
certificate or certificates, which interest will represent and certify the
number of shares of each class of stock held by him in the Corporation. Each
certificate shall be signed by the chief executive officer, the president or a
vice president and counter signed 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 Corporation. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Corporation shall, from
time to time, issue several classes of stock, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, 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
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemp tion of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transfer ability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the
transfer agent of the Corporation of a stock certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certifi cate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of
any share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on
16
<PAGE>
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any class of
stock will be subject in all respects to the charter of the Corporation and all
of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer desig nated by the
Board of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation 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, an officer designated by the Board of Directors
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 Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockhold ers for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining stockhold ers entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not
closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
17
<PAGE>
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders 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 directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting
of stockholders 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 5. STOCK LEDGER. The Corporation 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
stock holder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
Directors may issue fractional stock 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 charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to
fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
18
<PAGE>
Section 1. AUTHORIZATION. Dividends and other distributions upon the
stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the
Board of Directors may from time to time adopt, amend, revise or terminate any
policy or policies with respect to investments by the Corporation as it shall
deem appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption
of a seal by the Corporation. The seal shall contain the name of the Corporation
and the year of its incorporation and the words "Incorporated Maryland." The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent
19
<PAGE>
to the signature of the person authorized to execute the document on behalf of
the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time
to time, the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his service
in that capacity or (b) any individual who, while a director of the Corporation
and at the request of the Corporation, serves or has served another corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or trustee
of such corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Corporation may, with
the approval of its Board of Directors, provide such indemnification and advance
for expenses to a person who served a predecessor of the Corporation in any of
the capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption
or amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter
of the Corporation or these Bylaws or pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance
20
<PAGE>
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 XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt,
alter or repeal any provision of these Bylaws and to make new Bylaws.
21
<PAGE>
EXHIBIT 4.1
NORTHSTAR CAPITAL INVESTMENT CORP. a Corporation Formed Under the Laws
of the State of Maryland THIS CERTIFICATE IS TRANSFERABLE IN THE CITY OF NEW
YORK SEE REVERSE FOR IMPORTANT NOTICE ON TRANSFER RESTRICTIONS AND OTHER
INFORMATION CUSIP 66704F 20 5 THIS CERTIFIES THAT is the owner of FULLY PAID
AND NONASSESABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE, OF the
"Corporation") transferable on the books of the Corporation by the holder
hereof in person or by its duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
charter of the Corporation (the "Charter") and the Bylaws of the Corporation
and any amendments thereto. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
to be executed on its behalf by its duly authorized officers.
DATED (Secretary Signature)
SECRETARY (C0-President Signature)
CO-PRESIDENT (Seal)
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR BY:
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, ON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE INFORMATION REQUIRED BY SECTION 2-211(b) OF
THE CORPORATIONS AND ASSOCIATIONS ARTICLE OF THE ANNOTATED CODE OF MARYLAND
WITH RESPECT TO THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION OF THE
STOCK OF EACH CLASS WHICH THE CORPORATION HAS AUTHORITY TO ISSUE AND (i) THE
DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH
SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD OF DIRECTORS TO
SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. THE FOREGOING SUMMARY
DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE CHARTER OF THE CORPORATION (THE "CHARTER"), A
COPY OF WHICH WILL BE SENT WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS. SUCH REQUEST MUST BE MADE TO THE SECRETARY OF THE CORPORATION AT
ITS PRINCIPAL OFFICE OR TO THE TRANSFER AGENT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO
CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (i) NO PERSON MAY
<PAGE>
BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S COMMON STOCK
IN EXCESS OF 9.8 PERCENT (IN VALUE OR NUMBER OF SHARES) OF THE OUTSTANDING
SHARES OF COMMON STOCK OF THE CORPORATION UNLESS SUCH PERSON IS AN EXCEPTED
HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (ii) NO
PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK OF THE
CORPORATION IN EXCESS OF 9.8 PERCENT OF THE VALUE OF THE TOTAL OUTSTANDING
SHARES OF CAPITAL STOCK OF THE CORPORATION, UNLESS SUCH PERSON IS AN EXCEPTED
HOLDER (IN WHICH CASE THE EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (iii)
NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN CAPITAL STOCK THAT WOULD
RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE
CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND
(iv) NO PERSON MAY TRANSFER SHARES OF CAPITAL STOCK IF SUCH TRANSFER WOULD
RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100
PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO
BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK WHICH CAUSES OR
WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF CAPITAL
STOCK IN EXCESS OR IN VIOLATION OF THE ABOVE LIMITATIONS MUST IMMEDIATELY
NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP
ARE VIOLATED, THE SHARES OF CAPITAL STOCK REPRESENTED HEREBY WILL BE
AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR
MORE CHARITABLE BENEFICIARIES. IN ADDITION, UPON THE OCCURRENCE OF CERTAIN
EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE
MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS
DEFINED IN THE CHARTER OF THE CORPORATION, AS THE SAME MAY BE AMENDED FROM
TIME TO TIME, A COPY
<PAGE>
OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE
FURNISHED TO EACH HOLDER OF CAPITAL STOCK OF THE CORPORATION ON REQUEST AND
WITHOUT CHARGE.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) AND IS
ACQUIRING AT LEAST $500,000 WORTH OF COMMON STOCK, (C) IT IS AN INDIVIDUAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(4), (5) OR (6) UNDER THE
SECURITIES ACT) AND (i) AN EMPLOYEE OF THE CORPORATION OR NORTHSTAR CAPITAL
PARTNERS LLC AND IS ACQUIRING AT LEAST $75,000 WORTH OF COMMON STOCK OR (ii)
AN EMPLOYEE OF THE INITIAL PURCHASER OR ONE OF ITS AFFILIATES AND IS
ACQUIRING $10,000 WORTH OF COMMON STOCK OR (D) IT IS AN INDIVIDUAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(5) OF THE SECURITIES ACT,
EXCEPT SUBSTITUTING "$10,000,000" FOR "$1,000,000" IN SUCH RULE) AND AN
EMPLOYEE OF THE INITIAL PURCHASER OR ITS AFFILIATES AND IS ACQUIRING AT LEAST
$500,000 WORTH OF COMMON STOCK, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER THEREOF OR ANY SUBSIDIARY THEREOF, (B)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, OR(C) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.
BY ITS ACQUISITION HEREOF, THE HOLDER AGREES (1) TO BE BOUND BY
<PAGE>
THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 22,
1997, BY AND BETWEEN THE CORPORATION AND NATIONSBANC MONTGOMERY SECURITIES,
INC. (THE "REGISTRATION RIGHTS AGREEMENT") AND (2) THAT UPON RECEIPT OF
NOTICE FROM THE CORPORATION OF THE OCCURRENCE OF ANY EVENT WHICH MAKES A
STATEMENT IN A PROSPECTUS WHICH IS PART OF A REGISTRATION STATEMENT RELATING
TO THIS SECURITY UNTRUE IN ANY MATERIAL RESPECT OR WHICH REQUIRES THE MAKING
OF ANY CHANGES IN SUCH PROSPECTUS IN ORDER TO MAKE THE STATEMENT THEREIN NOT
MISLEADING, OR OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS
AGREEMENT, THE HOLDER WILL SUSPEND THE SALE OF THE SHARES OF COMMON STOCK
REPRESENTED BY THIS CERTIFICATE UNTIL THE CORPORATION HAS AMENDED OR
SUPPLEMENTED SUCH PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE HOLDER OR
THE CORPORATION HAS GIVEN NOTICE THAT THE SALE OF COMMON STOCK MAY BE RESUMED.
PRIOR TO THE DATE (I) THE CORPORATION QUALIFIES AS A "VENTURE CAPITAL
OPERATING COMPANY" OR A "REAL ESTATE OPERATING COMPANY," (II) THE COMMON
STOCK QUALIFIES AS A CLASS OF "PUBLICLY-OFFERED SECURITIES," OR (III) THE
CORPORATION COMPLIES WITH ANOTHER AVAILABLE EXCEPTION UNDER THE PLAN ASSET
REGULATIONS ISSUED BY THE DEPARTMENT OF LABOR, THE CORPORATION WILL NOT
APPROVE THE SALE, TRANSFER OR DISPOSITION OF THE COMMON STOCK OR INTERESTS
THEREIN UNLESS, FOLLOWING SUCH SALE, TRANSFER OR DISPOSITION, LESS THAN
TWENTY-FIVE PERCENT (25%) OF THE VALUE OF THE COMMON STOCK AND ANY OTHER
CLASS OF SECURITY THAT IS TREATED AS AN EQUITY INTEREST IN THE CORPORATION
FOR PURPOSES OF THE PLAN ASSET REGULATIONS IS HELD BY (I) EMPLOYEE BENEFIT
PLANS (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO TITLE I OF
ERISA); (II) PLANS DESCRIBED IN SECTION 4975 OF THE CODE; (III)
<PAGE>
ENTITIES WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S
INVESTMENT IN SUCH ENTITIES; OR (IV) ENTITIES THAT OTHERWISE CONSTITUTE
"BENEFIT PLAN INVESTORS" WITHIN THE MEANING OF THE PLAN ASSET REGULATIONS
DETERMINED WITHOUT REGARD TO THE VALUE OF ANY SUCH INTERESTS HELD BY
AFFILIATES OF NORTHSTAR CAPITAL PARTNERS LLC OR OTHER PERSONS WITH AUTHORITY
OR CONTROL WITH RESPECT TO THE ASSETS OF THE CORPORATION OTHER THAN BENEFIT
PLAN INVESTORS.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR DESTROYED,
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACT:
Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF
ASSIGNEE)
<PAGE>
Shares of the capital stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint Attorney to transfer the said stock
on the books of the within named Corporation with full power of substitution
in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
Dated as of December 22, 1997
by and between
NORTHSTAR CAPITAL INVESTMENT CORP.
as the Company,
and
NATIONSBANC MONTGOMERY SECURITIES, INC.
as the Initial Purchaser
This Registration Rights Agreement is made and entered into as of December
22, 1997, by and between NorthStar Capital Investment Corp., a Maryland
corporation (the "Company"), and NationsBanc Montgomery Securities, Inc. (the
"Initial Purchaser").
This Agreement is entered into pursuant to the purchase agreement (the
"Purchase Agreement"), dated December 17, 1997, between the Company and the
Initial Purchaser. In order to induce the Initial Purchaser to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
provided for in this Agreement to the Initial Purchaser and its direct and
indirect transferees. The execution of this Agreement is a condition to the
closing of the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
AFFILIATE: As to any specified person shall mean any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
AGREEMENT: This Registration Rights Agreement, as the same may be amended,
supplemented or modified from time to time in accordance with the terms hereof.
BUSINESS DAY: With respect to any act to be performed hereunder, each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in New York, New York or other applicable place where such
act is to occur are authorized or obligated by applicable law, regulation or
executive order to close.
<PAGE>
CLOSING DATE: December 22, 1997, or such other time or such other date as
the Initial Purchaser and the Company may agree.
COMMISSION: The United States Securities and Exchange Commission.
COMMON STOCK: Common stock, $0.01 par value per share, of the Company.
COMPANY: NorthStar Capital Investment Corp., a Maryland corporation, and
any successor corporation thereto.
CONTROLLING PERSON: As defined in Section 8(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission thereunder.
HOLDER: Each registered holder of any Registrable Shares from time to
time, including the Initial Purchaser and its Affiliates.
INITIAL PURCHASER: NationsBanc Montgomery Securities, Inc.
NASD: National Association of Securities Dealers, Inc.
OFFERING MEMORANDUM: The Offering Memorandum of the Company dated December
17, 1997 pursuant to which the Shares are offered and sold.
OPERATING PARTNERSHIP: NorthStar Partnership, L.P., a Delaware limited
partnership for which the Company serves as sole general partner.
PERSON: An individual, partnership, corporation, trust, or unincorporated
organization, or government and agency or political subdivision thereof.
PROCEEDING: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or, to the knowledge of the person subject thereto,
threatened.
PROSPECTUS: The prospectus included in any Registration Statement,
including any preliminary Prospectus, and all other amendments and supplements
to any such prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus.
PURCHASE AGREEMENT: As defined in the preamble.
REDEMPTION SHARES: Up to 536,193 shares of Common Stock issuable upon
redemption of up to 536,193 Units issued to NorthStar Capital Partners, LLC
pursuant to the terms of the Agreement of Limited Partnership of the Operating
Partnership.
2
<PAGE>
REGISTER, REGISTERED and REGISTRATION: Such terms shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
REGISTRABLE SHARES: The Shares and the Redemption Shares, upon original
issuance thereof, and at all times subsequent thereto, until, in the case of any
Share or Redemption Share, the earliest to occur of (i) the date on which it has
been registered effectively pursuant to the Securities Act and disposed of in
accordance with the Registration Statement relating to it, (ii) the date on
which either it is transferred in compliance with Rule 144 (or any similar
provisions then in effect) or is eligible for resale pursuant to Rule 144(k)
promulgated by the Commission pursuant to the Securities Act or (iii) the date
on which it is eligible for resale, without restriction, pursuant to an
available exemption from registration under the Securities Act, or (iv) the date
on which it is sold to the Company.
REGISTRATION EXPENSES: Any and all expenses incident to performance of or
compliance with this Agreement, including without limitation: (i) all
Commission, stock exchange, NASD registration, listing and filing fees, (ii) all
fees and expenses incurred in connection with compliance with federal or state
securities or blue sky laws (including any registration, listing and filing fees
and reasonable fees and disbursements of counsel in connection with blue sky
qualification of any of the Registrable Shares and the preparation of a Blue Sky
Memorandum and compliance with the rules of the NASD), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, duplicating,
printing, delivering and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements, certificates and other documents relating to the
performance of and compliance with this Agreement, (iv) all fees and expenses
incurred in connection with the listing of any of the Registrable Shares on any
securities exchange or The Nasdaq Stock Market pursuant to SECTION 6(K) hereof,
(v) the fees and disbursements of counsel for the Company and of the independent
public accountants (including without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance) of
the Company (provided that Registration Expenses shall not include the fees and
expenses of any counsel to the Holders) and (vi) any fees and disbursements
customarily paid by issuers or sellers of securities (including the fees and
expenses of any experts retained by the Company in connection with any
Registration Statement), but excluding brokers' commissions and transfer taxes,
if any, relating to the sale or disposition of Registrable Shares by a Holder.
REGISTRATION STATEMENT: Any registration statement of the Company that
covers the resale of any of the Registrable Shares pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement.
RULE 144: Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
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RULE 144A: Rule 144A promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
RULE 158: Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
RULE 424: Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations promulgated by the Commission thereunder.
SHARES: The shares of Common Stock being offered and sold pursuant to the
terms and conditions of the Purchase Agreement.
UNDERWRITTEN OFFERING: A sale of securities of the Company to an
underwriter or underwriters for reoffering to the public.
UNITS: Units of limited partnership interest in the Operating Partnership.
2. SHELF REGISTRATION. As set forth in Section 6 hereof, the Company agrees
to file with the Commission as soon as reasonably practicable, but in no event
later than 90 days after the date of this Agreement, one or more shelf
Registration Statements with respect to the sale from time to time by the
Holders of any and all Registrable Shares.
3. EXPENSES. As between the Company and the Holders, the Company shall pay
all Registration Expenses in connection with the registration of the shares
pursuant to this Agreement. The Holder or Holders shall pay all broker's
commissions and transfer taxes, if any, and any other expense not specifically
allocated to the Company pursuant to this Agreement relating to the sale or
disposition of such Holder's Registrable Shares pursuant to any Registration
Statement.
4. RULES 144 AND 144A. The Company shall file the reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner in
accordance with Rule 144, and, prior to the effectiveness of the Registration
Statement, if it is not required to file such reports, will make available other
information as required by, and so long as necessary to permit sales of the
Registrable Shares pursuant to, Rule 144A.
5. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to any
registration pursuant to this Agreement, the Company shall use its best efforts
to effect or cause to be
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effected the registration of the Registrable Shares under the Securities Act to
permit the sale of such Registrable Shares by the Holder or Holders in
accordance with customary methods of sale or distribution, including through
brokers' transactions and block trades, as well as any other intended method or
methods of distribution reasonably requested by the Initial Purchaser or any
Holder by notice to the Company prior to the filing of the Registration
Statement, and the Company shall:
(a) prepare and file with the Commission, as specified in this Agreement,
a Registration Statement, which Registration Statement shall comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be filed
therewith, and use its best efforts to cause such Registration Statement to
become effective as soon as possible after filing and remain effective, subject
to Section 7 hereof, until the earliest to occur of (i) the second annual
anniversary of the latest date of original issuance of the Shares, (ii) such
time as all outstanding Registrable Shares have been sold pursuant to a
Registration Statement or have been transferred pursuant to Rule 144 or
otherwise transferred in a manner that results in the transferred security being
delivered not being subject to transfer restrictions under the Securities Act,
(iii) such time as, in the opinion of counsel to the Company, all outstanding
Registrable Shares held by Persons who are not Affiliates of the Company may be
resold without registration under the Securities Act pursuant to Rule 144(k) (or
any successor or analogous rule) under the Securities Act or (iv) there are no
longer any outstanding Registrable Securities.
(b) subject to SECTION 6(H) hereof, prepare and file with the Commission
such amendments and post-effective amendments to each such Registration
Statement as may be necessary to keep such Registration Statement effective for
the period described in SECTION 6(A); cause each such Prospectus contained
therein to be supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 or any similar rule that may be
adopted under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holder thereof;
(c) furnish to any Holder named in any Prospectus without charge, as many
copies of such Prospectus, and any amendment or supplement thereto and such
other documents as such Holder may reasonably request, in order to facilitate
the public sale or other disposition of the Registrable Shares; the Company
consents to the use of any such Prospectus by such Holder in connection with the
offering and sale of the Registrable Shares covered by any such Prospectus;
(d) use its best efforts to register or qualify, or obtain exemption from
registration or qualification for, all Registrable Shares by the time the
applicable Registration Statement is declared effective by the Commission under
all applicable state securities or "blue sky" laws of such jurisdictions as the
Initial Purchaser or any Holder shall reasonably request in writing, keep each
such registration or qualification or exemption effective during the period such
Registration Statement is required to be kept effective pursuant to Section 6(a)
and do any and all other acts and things which may be reasonably necessary or
advisable to enable each Holder to
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consummate the disposition in each such jurisdiction of such Registrable Shares
owned by such Holder; PROVIDED, HOWEVER, that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction or to register as a
broker or dealer in such jurisdiction where it would not otherwise be required
to qualify or register but for this SECTION 6(D), (ii) subject itself to
taxation in any such jurisdiction, or (iii) submit to the general service of
process in any such jurisdiction;
(e) notify the Initial Purchaser and each Holder promptly and, if
requested by the Initial Purchaser or any Holder, confirm such advice in writing
(i) when a Registration Statement has become effective and when any post-
effective amendments and supplements thereto become effective, (ii) of the
issuance by the Commission or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, and (iii) of the happening of any event during
the period a Registration Statement is effective as a result of which such
Registration Statement or the related Prospectus contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (which advice
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made);
(f) during the period of time referred to in Section 6(a), use its
reasonable efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of any enjoining order suspending the use or effectiveness of a
Registration Statement or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the Registrable Shares for sale in any
jurisdiction, at the earliest possible moment;
(g) upon request, furnish to each requesting Holder, without charge, at
least one conformed copy of each Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(h) except as provided in Section 7 hereof, upon the occurrence of any
event contemplated by SECTION 6(E) (III) hereof, use its best efforts to
promptly prepare a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Shares, such Prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(i) if requested by the representative underwriters, if any, or any
Holders of Registrable Shares being sold in connection with an underwritten
offering, (i) promptly incorporate in a prospectus supplement or post-effective
amendment such information as the representative of the underwriters, if any, or
such Holders indicate relates to them or otherwise reasonably request be
included therein, and (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has
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received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
(j) in connection with an Underwritten Offering of Registrable Shares,
make available to inspection by representatives of the Holders and the
representative of any underwriters participating in any disposition pursuant to
a Registration Statement and any special counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent corporate
documents and properties of the Company and cause the respective officers,
directors and employees of the Company to supply all information reasonably
requested by any such representatives, the representative of the underwriters,
the special counsel or accountants in connection with a Registration Statement;
PROVIDED, HOWEVER, that such records, documents or information which the Company
determines, in good faith, to be confidential and notifies such representatives,
representative of the underwriters, special counsel or accountants are
confidential shall be kept confidential and shall not be disclosed by the
representatives, representative of the underwriters, special counsel or
accountants unless (i) subject to the provisions of Section 7 hereof, the
disclosure of such records, documents or information is necessary to avoid or
correct a misstatement or omission in a Registration Statement or Prospectus,
(ii) the release of such records, documents or information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction, or (iii)
such records, documents or information have been generally made available to the
public and provided, that the foregoing inspection and information gathering
shall, to the greatest extent possible, be coordinated on behalf of the Holders
and the other parties entitled thereto by one counsel designated by and on
behalf of such Holders and other parties reasonably acceptable to the Company;
(k) if the Company has listed its Common Stock on an exchange or market,
use its best efforts (including, without limitation, seeking to cure any
deficiencies (within the Company's control) cited by the exchange or market in
the Company's listing application) to list all Registrable Shares on such
exchange or market;
(l) prepare and file in a timely manner all documents and reports pursuant
to the Exchange Act which are incorporated by reference into any Registration
Statement;
(m) provide a CUSIP number for all Registrable Shares, not later than the
effective date of the Registration Statement;
(n) use its best efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its
securityholders, as soon as reasonably practicable, earnings statements covering
at least 12 months which satisfy the provisions of Section 1l(a) of the
Securities Act and Rule 158 (or any similar rule promulgated under the
Securities Act) thereunder;
(o) provide and cause to be maintained a transfer agent for all
Registrable Shares covered by any Registration Statement from and after a date
not later than the effective date of such Registration Statement;
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(p) in connection with any sale or transfer of the Registrable Shares that
will result in such securities no longer being restricted from resale without
registration under the Securities Act, cooperate with the Holders and the
representative of the underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing the Registrable Shares to be sold,
which certificates shall not bear any restrictive legends, and to enable such
Registrable Shares to be in such denominations and registered in such names as
the representative of the underwriters, if any, or Holders may request at least
two Business Days prior to any sale of the Registrable Shares; and
(q) upon effectiveness of the first Registration Statement filed
hereunder, the Company will take such actions and make such filings as are
necessary to effect the registration of the Common Stock under the Exchange Act
simultaneously with or immediately following the effectiveness of the
Registration Statement.
The Company may require each Holder to furnish to the Company such
information regarding the proposed distribution by such Holder of Registrable
Shares as the Company may from time to time reasonably request in writing and no
Holder shall be entitled to be named as a selling securityholder in any
Registration Statement and no Holder shall be entitled to use the Prospectus
forming a part thereof if such Holder does not provide such information to the
Company.
Upon receipt of written notice from the Company of the happening of any
event of the kind described in SECTION 6(E)(III) hereof, the Holders will
immediately discontinue disposition of Registrable Shares pursuant to a
Registration Statement until the Holders' receipt of the copies of a
supplemented or amended Prospectus. If so requested by the Company, the Holders
will deliver to the Company (at the expense of the Company) all copies in their
possession, other than permanent file copies then in the Holders' possession, of
the Prospectus covering such Registrable Shares current at the time of receipt
of such notice.
6. BLACK-OUT PERIOD. Subject to the provision of this Section 7, following
the effectiveness of a Registration Statement (and the filings with any state
securities commissions), the Company, by written notice to the Initial Purchaser
and to the Holders, may direct the Holders to suspend sales of the Registrable
Shares pursuant to the Registration Statement, if any of the following events
shall occur: (i) an Underwritten Offering by the Company where the Company is
advised by the representative of underwriters for such Underwritten Offering
that the sale of Registrable Shares pursuant to the Registration Statement would
have a material adverse effect on the Company's primary offering; or (ii)
pending negotiations relating to, or consummation of, a transaction or the
occurrence of an event that requires additional disclosure of material
information by the Company in the Registration Statement and which has not been
so disclosed; or (iii) a material corporate transaction is pending or has
occurred, the disclosure of which should be set forth in the Registration
Statement and the Board of Directors of the Company shall have determined in
good faith would not be in the best interests of the Company and its
stockholders. Upon the occurrence of such event, the Company shall use its best
efforts to cause the Registration Statement to become effective or to promptly
amend or supplement the Registration
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Statement on a post-effective basis, as applicable, so as to permit the Holders
to resume sales of the Registrable Shares.
In the case of an event which causes the Company to suspend the
effectiveness of a Registration Statement (a "Suspension Event"), the Company
may give written notice (a "Suspension Notice") to the Holders at the addresses
set forth in the stock transfer records of the Company and to the Initial
Purchaser (Attention: Revel Horsey) to suspend sales of the Registrable Shares
so that the Company may amend or update the Registration Statement; provided,
however, that such suspension shall continue only for so long as the Suspension
Event or its effect is continuing and the Company is taking all reasonable steps
to terminate suspension of the effectiveness of the Registration Statement as
promptly as possible. The Holders shall not effect any sales of the Registrable
Shares pursuant to such Registration Statement at any time after receipt of a
Suspension Notice from the Company (and prior to receipt of an End of Suspension
Notice (defined below)). If so requested by the Company, the Holders will
deliver to the Company (at the expense of the Company) all copies in their
possession, other than permanent file copies then in the Holders' possession, of
the Prospectus covering such Registrable Shares at the time of receipt of the
Suspension Notice. The Holders may recommence effecting sales of the
Registrable Shares pursuant to the Registration Statement (or such filings)
following further notice to such effect (an "End of Suspension Notice") from the
Company, which End of Suspension Notice shall be given by the Company to the
Holders and the Initial Purchaser in the manner described above promptly
following the conclusion of any Suspension Event.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless (i) the Initial Purchaser, (ii) each Holder, (iii) each Person, if
any, who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) any of the foregoing (any of the persons
referred to in this clause (iii) being hereinafter referred to as a "controlling
person"), and (iv) the respective officers, directors, partners, employees,
representatives and agents of the Initial Purchaser and each Holder or any
controlling person as follows:
(i) from and against any and all loss, claim, liability and ,
damage whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement (or
any amendment thereto) pursuant to which Registrable Shares were registered
under the Securities Act including all documents incorporated therein by
reference, or the omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact contained in
any Prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that such indemnity with respect to any
Registration
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Statement or Prospectus shall not inure to the benefit of any Holder or the
Initial Purchaser (or any controlling person thereof) to the extent that any
such loss, claim, liability, damage or expense arises out of such indemnified
person's failure to send or give a copy of the revised Registration Statement or
final Prospectus, as the same may be then supplemented or amended, to the Person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Shares to such Person if such statement or omission was corrected in such
revised Registration Statement or such final Prospectus and the Company shall
have made available to such indemnified person a sufficient number of copies of
such revised Registration Statement or such final Prospectus in a timely manner
so as to permit such Holder or the Initial Purchaser to send or give a copy of
the revised Registration Statement or such final Prospectus containing such
correction prior to the written confirmation of the purchase and sale of such
Registrable Shares;
(ii) from and against any and all loss, liability, claim and,
damage whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, if such settlement is effected with the
written consent of the Company; and
(iii) from and against any and all expense reasonably incurred
(including reasonable fees and disbursements of counsel), in investigating,
preparing or defending against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, in each case whether
or not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement does not apply to any
Holder with respect to any loss, liability, claim, damage or expense to the
extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in a
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(b) INDEMNIFICATION BY HOLDERS. Each Holder, on a pro rata basis, agrees
to indemnify and hold harmless the Company, and directors, officers, partners,
employees, representatives and agents (including each officer of the Company who
signed the Registration Statement), and each Person, if any, who controls the
Company, within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any and all loss, liability, claim, damage and
expenses described in the indemnity contained in SECTION 8(A) hereof (PROVIDED,
HOWEVER, that any settlement described in SECTION 8(A) (II) hereof is effected
with the written consent of such Holder), as incurred, but only with respect to
such untrue statements or omissions, or alleged untrue statements or omissions,
made in a Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by the Holder expressly for use in
such Registration Statement (or any amendment thereto) or such Prospectus
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(or any amendment or supplement thereto), and PROVIDED FURTHER, that no Holder
shall be liable for any amount in excess of the net proceeds received by such
Holder from the sale of such Holder's Registrable Shares pursuant to a
Registration Statement or a Prospectus, as the case may be.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Each indemnified party shall
give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve it
from any liability which it may have under this indemnity agreement except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. If the indemnifying party so elects within a reasonable time
after receipt of such notice, the indemnifying party may assume the defense of
such action or proceeding at such indemnifying party's own expense with counsel
chosen by the indemnifying party and approved by the indemnified parties
defendant in such action or proceeding, which approval shall not be unreasonably
withheld; PROVIDED, HOWEVER, that, if such indemnified party or parties
reasonably determined that a conflict of interest exists where it is advisable
for such indemnified party or parties to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to them
which are different from or in addition to those available to the indemnifying
party, then the indemnifying party shall not be entitled to assume such defense
and the indemnified party or parties shall be entitled to one separate counsel
(and any necessary local counsel) at the indemnifying party's expense. If an
indemnifying party is not entitled to assume the defense of such action or
proceeding as a result of the proviso to the preceding sentence, such
indemnifying party's counsel shall be entitled to conduct such indemnifying
party's defense and counsel for the indemnified party or parties shall be
entitled to conduct the defense of such indemnified party or parties, it being
understood that both such counsel will cooperate with each other to conduct the
defense of such action or proceeding as efficiently as possible. If an
indemnifying party is not so entitled to assume the defense of such action or
does not assume such defense, after having received the notice referred to in
the first sentence of this paragraph, the indemnifying party or parties will pay
the reasonable fees and expenses of not more than one counsel (and any necessary
local counsel) for the indemnified party or parties. In such event, however, no
indemnifying party will be liable for any settlement effected without the
written consent of such indemnifying party. No indemnifying party shall,
without the consent of the indemnified party, consent to entry of any judgment
or enter into a settlement which does not include 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 an
indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, such indemnifying party
shall not be liable for any fees and expenses for counsel for the indemnified
parties incurred thereafter in connection with such action or proceeding.
(d) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this SECTION 8 is for any reason held to be unenforceable, unavailable or
insufficient although applicable in accordance with it terms; the Company and a
Holder shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
the
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Company and the Holder in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the Holder on the other
(taking into consideration the fact that the provisions of the registration
rights hereunder are a material inducement to the Initial Purchaser, and the
Holders to purchase the Registrable Shares), in connection with the statement or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. Relative
fault shall be determined by reference to, among other things, whether an untrue
or alleged untrue statement of a material fact or an omission or alleged
omission of a material fact relates to information supplied by or available to
the Company on the one hand, or the Holder, on the other hand, and by the
parties relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the foregoing,
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. No Holder shall be
liable for any amount in excess of the net proceeds received from such Holder
from the sale of such Holder's Registrable Shares pursuant to a Registration
Statement or a Prospectus, as the case may be. For purposes of this SECTION 8,
each Person, if any, who controls a Holder within the meaning of Section 15 of
the Securities Act shall have the same rights to contribution as such Holder,
and each director of the Company, each officer of the Company who signed the
Registration Statement and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act and each partner, employee, representative or agent of the Company shall
have the same rights to contribution as the Company. Each party entitled to
contribution agrees that upon the service of a summons or other initial legal
process upon it in any action instituted against it in respect of which
contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought from any obligation it
may have hereunder or otherwise.
8. SISTER CORP. If the Company causes to be formed one or more Sister Corps.
(as defined in the Offering Memorandum), the equity interests in which are
distributed to the stockholders of the Company as described in the Offering
Memorandum other than in a transaction which results in the recipients of such
equity interests being entitled to sell or transfer such equity interests
without restriction under federal and applicable state securities laws, in
connection with such distribution of equity interests, the Company shall cause
the Sister Corp. to enter into a registration rights agreement with respect to
the equity interests of the Sister Corp. in substantially the same form as this
Agreement.
9. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by the Company, or by a Holder of
any of their obligations under this Agreement, each Holder or the Company, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. It is agreed that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for
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specific performance in respect of such breach, the parties shall waive the
defense that a remedy at law would be adequate.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, without the written consent of the Company and Holders owning not less
than 50% of the then outstanding Registrable Shares; PROVIDED, HOWEVER, that,
for the purposes of this Agreement, Registrable Shares that are owned, directly
or indirectly, by either the Company or an Affiliate of the Company shall not be
deemed to be outstanding. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of a Holder whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect the
rights of any other Holder may be given by such Holder; PROVIDED, HOWEVER, that
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(c) NOTICES. All notices and other communications provided for herein
shall be made in writing by hand-delivery, next-day air courier, certified
first-class mail, return receipt requested, telex or telecopy;
(i) if to the Company, as provided in the Purchase Agreement,
(ii) if to the Initial Purchaser, as provided in the Purchase
Agreement, or
(iii) if to any Holder, to the address of such Holder as it appears
in the Common Stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given when (v) delivered by hand, if
personally delivered, (w) one Business Day after being timely delivered to a
next-day air courier, (x) five Business Days after being deposited in the mail,
postage prepaid, if mailed, (y) when answered back, if telexed or (z) when
receipt is acknowledged by the recipient's telecopier machine, if telecopied.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. Each Holder shall be deemed a
third party beneficiary of this Agreement. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Notwithstanding the foregoing, no assignee of the Company shall have
any of the rights granted under this Agreement until such assignee shall
acknowledge its rights and obligations hereunder by a signed written agreement
pursuant to which such assignee accepts such rights and obligations.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
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(f) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York without regard to principles of
conflicts of law.
(g) SEVERABILITY. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the provisions hereof.
All references made in this Agreement to "Section" refer to such Section of this
Agreement, unless expressly stated otherwise.
(i) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
(j) LENDER. The Company hereby acknowledges and agrees that the
provisions of this Agreement shall inure to the benefit of any lender to
NorthStar Capital Partners, LLC which holds Units as collateral for a loan to
NorthStar Capital Partners, LLC in the event such lender becomes a Holder of
Registrable Shares issued upon redemption of the Units following a default by
NorthStar Capital Partners, LLC, or otherwise.
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
NORTHSTAR CAPITAL INVESTMENT CORP.
By: /s/ Marc S. Gordon
--------------------------------------
Name: Marc S. Gordon
Title: Vice President and Secretary
The foregoing Registration Rights Agreement
is hereby confirmed and accepted as of the date
first above written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: /s/ Karl Mathies
-----------------------------------------
Name: Karl Mathies
Title: Senior Managing Director and
Executive Director of Corporate Finance
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Exh. 10.1
THIS MANAGEMENT AND ADVISORY AGREEMENT
THIS MANAGEMENT AND ADVISORY AGREEMENT, is made as of December 22, 1997 (the
"Agreement") by and among NORTHSTAR CAPITAL INVESTMENT CORP. , a Maryland
corporation (the "REIT"), NORTHSTAR PARTNERSHIP, L. P., a Delaware limited
partnership (the "Operating Partnership," and, collectively with the REIT, the
"Company"), and NORTHSTAR CAPITAL PARTNERS LLC, a Delaware limited liability
company (together with its permitted assignees, the "Manager").
W I T N E S S E T H :
WHEREAS, the REIT expects to qualify for the tax benefits accorded by
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code");
WHEREAS, the REIT is the sole general partner of the Operating Partnership
and has contributed (or will contribute) to the Operating Partnership all or
substantially all of its assets and will conduct substantially all of its
operations through the Operating Partnership;
WHEREAS, the Company desires to avail itself of the experience, sources of
information, advice, assistance and certain facilities of or available to the
Manager and to have the Manager undertake the duties and responsibilities
hereinafter set forth, on behalf of the Company and subject to the supervision
of the REIT, as provided in this Agreement; and
WHEREAS, the Manager is willing to undertake to render such services,
subject to the supervision of the REIT, on the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:
SECTION 1. Definitions. Capitalized terms used but not defined herein shall
have the respective meanings assigned them in the Offering Memorandum of the
REIT dated December 17, 1997 (the "Offering Memorandum"). In addition, the
following terms have the meanings assigned them.
<PAGE>
(a) "Agreement" means this Management and Advisory Agreement, as amended
from time to time.
(b) "Board of Directors" means the Board of Directors of the REIT.
(c) "Closing Date" means the date of closing of the REIT's private
placement of common stock identified in the Offering Memorandum.
(d) "Governing Instruments" means the articles of incorporation and
bylaws in the case of a corporation, certificate of limited partnership (if
applicable) and the partnership agreement in the case of a general or limited
partnership or the articles of formation and the operating agreement in the
case of a limited liability company.
(e) "REIT Investments" means the assets of the Company.
(f) "Sister Corp." means any sister company (whether a corporation,
partnership, limited liability company or other entity), as described in the
Offering Memorandum.
(g) "Subsidiary" means any subsidiary of the REIT and any partnership, the
general partner of which is the REIT or any subsidiary of the REIT.
SECTION 2. Appointment and Duties of the Manager.
(a) The REIT and the Operating Partnership hereby appoint the Manager to
manage the assets of the Company subject to the further terms and conditions set
forth in this Agreement and the Manager shall use its commercially reasonable
efforts to perform each of the duties set forth herein. The appointment of the
Manager shall be exclusive to the Manager except to the extent that the Manager
otherwise agrees, in its sole and absolute discretion, and except to the extent
that the Manager elects, pursuant to the terms hereof, to cause the duties of
the Manager hereunder to be provided by third parties.
(b) The Manager at all times will be subject to the supervision of the
REIT's Board of Directors and will have only such functions and authority as the
REIT may delegate to it including, without limitation, the functions and
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authority identified herein and delegated to the Manager hereby. The Manager
will be responsible for the day-to-day operations of the Company and will
perform (or cause to be performed) such services and activities relating to
the assets and operations of the Company as may be appropriate, including,
without limitation:
(i) serving as the Company's consultant with respect to
formulation of investment criteria and preparation of policy
guidelines (the "Guidelines") by the Board of Directors;
(ii) investing and re-investing any moneys and securities
of the Company in short-term investments pending investment in
REIT Investments, payment of fees, costs and expenses, or
payments of dividends or distributions to stockholders and
partners of the Company;
(iii) investigation and selection of possible investment
opportunities and acquisitions, property and investment
analysis, market and economic surveys, on-site physical
inspections, review and projection of income and construction,
renovation and/or operating expenses and supervising and
negotiating the arrangement of financing;
(iv) conducting negotiations with real estate brokers,
owners of property and their agents and representatives,
investment bankers and owners of privately and publicly held
real estate companies;
(v) engaging and supervising, on behalf of the Company and
at the Company's expense, independent contractors which provide
real estate brokerage, investment banking and leasing services,
mortgage brokerage and other financial services and such other
services as may be required relating to the Company's
investments;
(vi) negotiating on behalf of the Company for the sale,
exchange or other disposition of any of the Company's
investments;
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(vii) coordinating and managing operations of any joint
venture interests held by the Company and conducting all
matters with the joint venture partners;
(viii) coordinating and supervising, on behalf of the Company
and at the Company's expense, all property managers, leasing
agents and developers for the administration, leasing,
management and/or development of any of the Company's
investments;
(ix) providing executive and administrative personnel,
office space and office services required in rendering services
to the Company;
(x) administering the day-to-day operations of the Company
and performing and supervising the performance of such other
administrative functions necessary in the management of the
Company as may be agreed upon by the Manager and the Board of
Directors;
(xi) communicating on behalf of the Company with the
holders of any equity or debt securities of the Company as
required to satisfy the reporting and other requirements of any
governmental bodies or agencies or trading markets and to
maintain effective relations with such holders;
(xii) counseling the Company in connection with policy
decisions to be made by the Board of Directors;
(xiii) engaging in hedging activities on behalf of the
Company, consistent with the Company's status as a REIT and
with the Guidelines;
(xiv) counseling the REIT regarding the maintenance of its
status as a real estate investment trust and monitoring
compliance with the various real estate investment trust
qualification tests and other rules set out in the Code and
Treasury Regulations thereunder; and
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(xv) counseling the Company regarding the maintenance of its
exemption from the Investment Company Act and monitoring
compliance with the requirements for maintaining an exemption
from that Act.
(c) The Manager may enter into agreements with other parties, including its
affiliates, for the purpose of engaging one or more property and/or asset
managers for and on behalf, and at the sole cost and expense, of the Company to
provide property management, asset management, leasing, development and/ or
similar services to the Company with respect to the REIT Investments, pursuant
to property management agreement(s) and/or asset management agreement(s) with
terms which are then customary for agreements regarding the management of assets
similar in type, quality and value to the assets of the Company; provided, that
any such agreements entered into with affiliates of the Manager shall be on
terms no more favorable to such affiliate then would be obtained from a third
party on an arms'-length basis.
(d) The Manager may retain, for and on behalf, and at the sole cost and
expense, of the Company, such services of accountants, legal counsel,
appraisers, insurers, brokers, transfer agents, registrars, developers,
investment banks, financial advisors, banks and other lenders and others as the
Manager deems necessary or advisable in connection with the management and
operations of the Company. Notwithstanding anything contained herein to the
contrary, the Manager shall have the right to cause any such services to be
rendered by its employees or affiliates. The Company shall pay or reimburse the
Manager or its affiliates performing such services for the cost thereof;
provided that such costs and reimbursements are no greater than those which
would be payable to outside professionals or consultants engaged to perform such
services pursuant to agreements negotiated on an arm's-length basis.
(e) As frequently as the Manager may deem necessary or advisable, or at the
direction of the Board of Directors, the Manager shall, at the sole cost and
expense of the Company, prepare, or cause to be prepared, with respect to any of
the REIT Investments (i) an appraisal prepared by an independent real estate
appraiser, (ii) reports and information on the Company's operations and asset
performance and (iii) other information reasonably requested by the Company.
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(f) The Manager shall prepare, or cause to be prepared, at the sole cost and
expense of the Company, all reports, financial or otherwise, with respect to the
Company reasonably required by the Board of Directors in order for the Company
to comply with its Governing Instruments or any other materials required to be
filed with any governmental body or agency, and shall prepare, or cause to be
prepared, all materials and data necessary to complete such reports and other
materials including, without limitation, an annual audit of the Company's books
of account by a nationally recognized independent accounting firm.
(g) Notwithstanding anything contained herein to the contrary, except to the
extent that the payment of additional monies is proven by the Company to have
been required as a direct result of the Manager's acts or omissions which result
in the right of the Company to terminate this Agreement pursuant to Section 15
hereof, the Manager shall not be required to expend money ("Excess Funds") in
excess of that contained in any applicable Company Account (as herein defined)
or otherwise made available by the Company to be expended by the Manager
hereunder. Failure of the Manager to expend Excess Funds out-of-pocket shall not
give rise or be a contributing factor to the right of the Company under Section
13(a) hereof to terminate this Agreement due to the Manager's unsatisfactory
performance.
(h) In performing its duties under this Section 2, the Manager shall be
entitled to rely reasonably on qualified experts hired by the Manager.
SECTION 3. Additional Activities of Manager.
(a) The Manager hereby agrees not to engage in business or to render
services to others that compete with the Company until an amount equal to 80%
of the Company's Total Equity has been invested (other than in short-term
temporary investments) by the Company (and for these purposes contributions
to a Sister Corp. shall be deemed to be "investments" of the Company's Total
Equity). As used herein, the term "Total Equity" shall mean the sum of (i)
total equity capital raised by the REIT, including, without limitation, the
net proceeds of the Offering contemplated by the Offering Memorandum and the
net proceeds of any subsequent offering of Common Stock or Preferred Stock by
the REIT, plus (ii) a notional amount of debt equal to such total equity
capital raised by the REIT. Notwithstanding the foregoing, the Manager and
its affiliates will be permitted at any time (i) to manage the Sister Corp.
and (ii) to manage and make investments related to "Ex-
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cluded NorthStar Investments." As used herein, the term "Excluded NorthStar
Investments" shall mean existing or future investments made by the Manager
and/or its affiliates in connection with the Existing NorthStar Assets or in
connection with any additional investments made by NorthStar or its
affiliates during any period of time that the exclusivity provisions of this
Agreement are not in effect (i.e. during any period of time in which 80% or
more of the Total Equity of the Company has been invested). In addition, the
Manager has informed the Company that, in connection with existing debt of a
subsidiary of the Manager ("NorthStar Operating LLC") held by UBS Mortgage
Finance Inc. ("UBS"), NorthStar Operating LLC and/or the Manager may be
required to present certain investment opportunities to UBS for co-investment
by UBS and/or NorthStar Operating LLC. The Company has agreed to permit UBS
and/or NorthStar Operating LLC to co-invest with the Company in such
situations or, in the alternative, if a majority of the Independent Directors
determine that such co-investment is not in the best interest of the Company,
the Company will not make such investment and will agree to permit such
investment to be made by NorthStar Operating LLC or another affiliate of the
Manager and such investments will be deemed to be "Excluded NorthStar
Investments" for purposes of this Agreement.
(b) Except to the extent set forth in clause (a) above, nothing herein shall
prevent the Manager or any of its affiliates from engaging in other businesses
or from rendering services of any kind to any other person or entity, including
investment in, or advisory service to others investing in, any type of real
estate investment, including investments which meet the principal investment
objectives of the Company.
(c) Managers, members, partners, officers, employees and agents of the
Manager or affiliates of the Manager may serve as directors, officers,
employees, agents, nominees or signatories for the REIT, the Operating
Partnership or any other Subsidiary, to the extent permitted by their Governing
Instruments, as from time to time amended, or by any resolutions duly adopted by
the Board of Directors pursuant to the REIT's Governing Instruments. When
executing documents or otherwise acting in such capacities for the REIT, such
persons shall use their respective titles in the REIT.
SECTION 4. Agency. The Manager shall act as agent of the Company in making,
acquiring, financing and disposing of investments, disbursing and collecting the
Company's funds, paying the debts and fulfilling the obligations of the Company,
supervising the performance of professionals engaged by or on behalf of the
Company and handling, prosecuting and settling any claims of or against the
Company, the Board of Directors, holders of the Company's securities or the
Company's representatives or properties.
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<PAGE>
SECTION 5. Bank Accounts. At the direction of the Board of Directors, the
Manager may establish and maintain one or more bank accounts in the name of the
REIT, the Operating Partnership, or any other Subsidiary (any such account, a
"Company Account"), and may collect and deposit funds into any such Company
Account or Company Accounts, and disburse funds from any such Company Account or
Company Accounts, under such terms and conditions as the Board of Directors may
approve; and the Manager shall from time to time render appropriate accountings
of such collections and payments to the Board of Directors and, upon request, to
the auditors of the REIT, the Operating Partnership or any other Subsidiary.
SECTION 6. Records; Confidentiality. The Manager shall maintain appropriate
books of accounts and records relating to services performed hereunder, and such
books of account and records shall be accessible for inspection by
representatives of the REIT, the Operating Partnership, or any other Subsidiary
at any time during normal business hours upon one (1) business day's advance
written notice. The Manager shall keep confidential any and all information
obtained in connection with the services rendered hereunder and shall not
disclose any such information to nonaffiliated third parties except with the
prior written consent of the Board of Directors.
SECTION 7. Obligations of Manager; Restrictions.
(a) The Manager shall require each seller or transferor of REIT Investments
to the Company to make such representations and warranties regarding such REIT
Investments as may, in the judgment of the Manager, be necessary and
appropriate. In addition, the Manager shall take such other action as it deems
necessary or appropriate with regard to the protection of the Company's
investments.
(b) The Manager shall refrain from any action that, in its sole judgment
made in good faith, (i) is not in compliance with the Guidelines or (ii) would
adversely affect the status of the REIT as a REIT or that, in its sole judgment
made in good faith, would violate any law, rule or regulation of any
governmental body or agency having jurisdiction over the REIT, the Operating
Partnership, or any
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Subsidiary or that would otherwise not be permitted by such entity's
Governing Instruments. If the Manager is ordered to take any such action by
the Board of Directors, the Manager shall promptly notify the Board of
Directors of the Manager's judgment that such action would adversely affect
such status or violate any such law, rule or regulation or the Governing
Instruments. Notwithstanding the foregoing, the Manager, its directors,
officers, stockholders and employees shall not be liable to the REIT, the
Operating Partnership or any other Subsidiary, the Independent Directors, or
the REIT's or the Operating Partnership's stockholders or partners for any
act or omission by the Manager, its directors, officers, stockholders or
employees except as provided in Section 11 of this Agreement.
(c) The Manager shall not consummate any transaction which would involve the
acquisition by the Company of property in which the Manager or any affiliate
thereof has an ownership interest or the sale by the Company of property to the
Manager or any affiliate thereof, unless such transaction is approved by a
majority of the Independent Directors.
(d) The Company shall not invest in joint ventures with the Manager or any
affiliate thereof, unless (i) such investment is made in accordance with the
Guidelines or (ii) such investment is approved in advance by a majority of the
Independent Directors.
(e) The Independent Directors will review the transactions of the Company
quarterly. If the Independent Directors determine in their periodic review of
transactions that a particular transaction does not comply with the Guidelines,
then the Independent Directors will consider what corrective action, if any, can
be taken. If the transaction involved the acquisition of an asset from the
Manager or an affiliate of the Manager that was not approved in advance by a
majority of the Independent Directors, then the Manager may be required to
repurchase the asset at the purchase price (plus closing costs) to the Company.
SECTION 8. Compensation.
(a) Commencing on the Closing Date, the Manager will receive an annual
management fee (the "Management Fee") equal to 1.50% of the Company's "Gross
Equity;" provided, however, that during the first twelve months following the
Closing Date, the Manager shall receive a Management Fee equal to the greater of
(i) $7,500,000 and (ii) 1.50% of the Company's Gross Equity. The Management Fee
shall be calculated and paid monthly in arrears based upon the
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weighted average Gross Equity of the Company for such month (except during
the first twelve months following the Closing Date, when such monthly amount
shall be calculated and paid based on the greater of $7,500,000 and 1.50% of
Gross Equity). The term "Gross Equity" for any period means (A) the sum of
(i) total equity capital raised by the Company, including, without
limitation, the net proceeds of the Offering contemplated by the Offering
Memorandum and the net proceeds of any subsequent offering of Common Stock or
Preferred Stock by the REIT, plus (ii) the value of contributions made by
partners other than the REIT, from time to time, to the capital of the
Operating Partnership or any other Subsidiary (reduced proportionately in the
case of a Subsidiary to the extent that the Operating Partnership owns,
directly or indirectly, less than 100% of the equity interests in such
Subsidiary), less (B) any capital dividends or capital distributions made by
the REIT to its stockholders. The Manager will not receive any Management Fee
for the period prior to the Closing Date.
(b) The Manager shall compute each installment of the Management Fee
within 15 days after the end of the calendar month with respect to which such
installment is payable. A copy of the computations made by the Manager to
calculate the such installment shall thereafter promptly be delivered to the
Board of Directors and, upon such delivery, payment of such installment of
the Management Fee shown therein shall be due and payable no later than the
earlier to occur of (i) the date which is 20 days after the end of the
calendar month with respect to which such installment is payable and (ii) the
date which is two (2) business days after the date of delivery to the Board
of Directors of such computations.
(c) The Management Fee is subject to adjustment pursuant to and in
accordance with the provisions of Section 13(a) hereof.
SECTION 9. Expenses of the Company. The Company shall pay all of its
expenses and shall reimburse the Manager for documented expenses of the Manager
incurred on its behalf (collectively, the "Expenses"). Expenses include all
costs and expenses which are expressly designated elsewhere in this Agreement as
the Company's, together with the following:
(a) travel and other out-of-pocket expenses incurred by managers, officers,
employees and agents of the Manager in connection with the purchase, financing,
refinancing, sale or other disposition of a REIT Investment;
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(b) costs of legal, accounting, tax, administrative and other similar
services rendered for the Company by providers retained by the Manager or, if
provided by the Manager's employees, in amounts which are no greater than those
which would be payable to outside professionals or consultants engaged to
perform such services pursuant to agreements negotiated on an arm's-length
basis.
(c) all other costs and expenses relating to the Company's business and
investment operations, including, without limitation, the costs and expenses of
acquiring, owning, protecting, maintaining, developing and disposing of the
Company's investments, including appraisal, reporting, audit and legal fees;
(d) all insurance costs incurred in connection with the operation of the
Company's business;
(e) expenses relating to any office or office facilities maintained for the
Company or the REIT Investments separate from the office or offices of the
Manager;
(f) expenses connected with the payments of interest, dividends or
distributions in cash or any other form made or caused to be made by the Board
of Directors to or on account of the holders of securities or Units of the
Company, including, without limitation, in connection with any dividend
reinvestment plan;
(g) expenses connected with communications to holders of securities or Units
of the Company and other bookkeeping and clerical work necessary in maintaining
relations with holders of securities or Units and in complying with the
continuous reporting and other requirements of governmental bodies or agencies,
including, without limitation, all costs of preparing and filing required
reports with the Securities and Exchange Commission, the costs payable by the
Company to any transfer agent and registrar in connection with the listing
and/or trading of the REIT's stock on any exchange, the fees payable by the REIT
to any such exchange in connection with its listing, costs of preparing,
printing and mailing the REIT's annual report to its shareholders and proxy
materials with respect to any meeting of the shareholders of the REIT; and
(h) all other expenses actually incurred by the Manager which are reasonably
necessary for the performance by the Manager of its duties and functions
hereunder.
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Without regard to the amount of compensation received hereunder by the
Manager, the Manager shall bear the following expenses: (i) wages and salaries
of the Manager's officers and employees; and (ii) rent and other "overhead"
expenses of the Manager.
SECTION 10. Calculations of Expenses. The Manager shall prepare a
statement documenting the Expenses of the Company and the Expenses incurred
by the Manager on behalf of the Company during each calendar month, and shall
deliver such statement to the Company within 20 days after the end of each
calendar month. Expenses incurred by the Manager on behalf of the Company
shall be reimbursed monthly to the Manager on the first business day of the
month immediately following the date of delivery of such statement.
SECTION 11. Limits of Manager Responsibility; Indemnification. The Manager
assumes no responsibility under this Agreement other than to render the services
called for hereunder in good faith and shall not be responsible for any action
of the Board of Directors in following or declining to follow any advice or
recommendations of the Manager, including as set forth in Section 7(b) of this
Agreement. The Manager, its members, managers, officers and employees will not
be liable to the REIT, the Operating Partnership or any other Subsidiary, to the
Independent Directors, or the REIT's, the Operating Partnership's or any
Subsidiary's stockholders or partners for any acts or omissions by the Manager,
its members, managers, officers or employees, under or in connection with this
Agreement, except by reason of acts constituting willful misconduct or gross
negligence. The REIT and/or the Operating Partnership shall, to the full extent
lawful, reimburse, indemnify and hold the Manager, its members, managers,
officers and employees and each other Person, if any, controlling the Manager
(each, an "Indemnified Party"), harmless of and from any and all expenses,
losses, damages, liabilities, demands, charges and claims of any nature
whatsoever (including attorneys' fees) in respect of or arising from any acts or
omissions of such Indemnified Party made in good faith in the performance of the
Manager's duties under this Agreement and not constituting willful misconduct or
gross negligence of such Indemnified Party.
SECTION 12. No Joint Venture. Nothing herein shall be construed to make the
Company and the Manager partners or joint venturers or impose any liability as
such on either of them.
SECTION 13. Term; Termination.
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(a) The term of this Agreement shall commence on the Closing Date and
this Agreement shall continue in force until the third anniversary of the
Closing Date (such three-year period, the "Initial Term"). Thereafter, until
this Agreement is terminated in accordance with its terms, this Agreement
shall be deemed renewed automatically each year for an additional one-year
period unless a majority of the Independent Directors (as such term is
defined in the Charter of the REIT) or a majority of the holders of
outstanding shares of Common Stock, agree that either (i) there has been
unsatisfactory performance that is materially detrimental to the Company or
(ii) the Management Fee payable to the Manager is unfair, provided that the
Company shall not have the right to terminate this Agreement under clause
(ii) above if the Manager agrees to continue to provide the services
hereunder at a fee that the Independent Directors have determined to be fair.
If the Company elects not to renew this Agreement at the expiration of the
Initial Term or any extended term as set forth above, the REIT shall deliver
to the Manager prior written notice (the "Termination Notice") of the
Company's intention not to renew this Agreement based upon the terms set
forth in this clause (a) not less than 60 days prior to the expiration of the
then existing term. If the Company so elects not to renew this Agreement, the
Company shall designate the date (the "Effective Termination Date"), not less
than 60 nor more than 180 days from the date of the notice, on which the
Manager shall cease to provide services hereunder and this Agreement shall
terminate on such date; provided, however, that in the event that such
Termination Notice is given in connection with a determination that the
compensation payable to the Manager is unfair, the Manager shall have the
right to renegotiate the Management Fee by delivering to the Company, no
fewer than forty-five (45) days prior to the prospective Effective
Termination Date, written notice of its intention to renegotiate its
compensation hereunder. Thereupon, the Company and the Manager shall enter
into good faith negotiation of the compensation payable to the Manager
hereunder. Provided that the Manager and the Company agree to a revised
Management Fee (or other compensation structure) within 30 days following the
commencement of such negotiation, the Termination Notice shall be deemed of
no force and effect and this Agreement shall continue in full force and
effect on the terms stated herein, except that the Management Fee shall be
the revised Management Fee (or other compensation structure) then agreed upon
by the parties hereto. The REIT and the Manager agree to execute and deliver
an amendment to this Agreement setting forth such revised Management Fee
promptly upon reaching an agreement regarding same. In the event that the
Company and the Manager are unable to agree to a revised Management Fee
during such 30 day period, this Agreement shall terminate, such termination
to be effective on the date which is the later of (A) ten (10) days
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following the end of such 30 day period and (B) the Effective Termination
Date originally set forth in the Termination Notice.
(b) In the event that this Agreement is terminated in accordance with the
provisions of Section 13(a) hereof, the Company shall pay to the Manager, on the
date on which such termination is effective, a termination fee (the "Termination
Fee") equal to the amount of the Management Fee earned by the Manager during the
period consisting of twelve (12) full calendar months immediately preceding such
termination. The obligation of the Company to pay the Termination Fee shall
survive the termination of this Agreement.
(c) No later than 60 days prior to the third or any subsequent anniversary
of the Closing Date, the Manager may deliver written notice to the REIT
informing it of the Manager's intention not to renew the Term, whereupon the
Term hereof shall not be renewed and extended and this Agreement shall terminate
effective on the anniversary of the Closing Date next following the delivery of
such notice.
(d) If this Agreement is terminated pursuant to this Section 13, such
termination shall be without any further liability or obligation of either party
to the other, except as provided in Section 13(b) and Section 16 of this
Agreement.
SECTION 14. Assignment.
(a) Except as set forth in Section 14(b) of this Agreement, this Agreement
shall terminate automatically in the event of its assignment, in whole or in
part, by the Manager, unless such assignment is consented to in writing by the
REIT with the consent of a majority of the Independent Directors, provided,
however, that no such consent shall be required in the case of an assignment by
the Manager to an entity whose day-to-day business and operations is managed and
supervised jointly by David T. Hamamoto and W. Edward Scheetz. Any such
assignment shall bind the assignee hereunder in the same manner as the Manager
is bound. In addition, the assignee shall execute and deliver to the REIT a
counterpart of this Agreement naming such assignee as Manager. This Agreement
shall not be assigned by the REIT without the prior written consent of the
Manager, except in the case of assignment by the REIT to another REIT or other
organization which is a successor (by merger, consolidation or purchase of
assets) to the REIT, in which case such successor organization shall be bound
hereunder and by the terms of such assignment in the same manner as the REIT is
bound hereunder.
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(b) Notwithstanding any provision of this Agreement, the Manager may
subcontract and assign any or all of its responsibilities under Sections 2(b),
2(c) and 2(d) of this Agreement to any of its affiliates, and the REIT hereby
consents to any such assignment and subcontracting. In addition, nothing
contained herein shall preclude any pledge, hypothecation or other transfer of
any amounts payable to the Manager hereunder.
SECTION 15. Termination for Cause.
(a) The Company may terminate this Agreement effective upon sixty (60) days
prior written notice of termination from the Company to the Manager, without
payment of any Termination Fee, if any act of fraud, misappropriation of funds,
embezzlement or theft constituting a felony against the Company (as finally
determined by a court of competent jurisdiction) or other willful violation of
this Agreement is perpetrated by the Manager in its corporate capacity (as
distinguished from the acts of any employees of the Manager which are taken
without the complicity of W. Edward Scheetz or David T. Hamamoto) under this
agreement or in the event of any gross negligence on the part of the Manager in
the performance of its duties hereunder.
(b) The Manager may terminate this Agreement effective upon sixty (60)
days prior written notice of termination to the Company in the event that the
Company shall default in the performance or observance of any material term,
condition or covenant contained in this Agreement and such default shall
continue for a period of 30 days after written notice thereof specifying such
default and requesting that the same be remedied in such 30 day period.
SECTION 16. Action Upon Termination. From and after the effective date of
termination of this Agreement, pursuant to Sections 13, 14, or 15 hereof, the
Manager shall not be entitled to compensation for further services hereunder,
but shall be paid all compensation accruing to the date of termination and, if
terminated pursuant to Section 13, the applicable Termination Fee. Upon such
termination, the Manager shall forthwith:
(a) after deducting any accrued compensation and reimbursement for its
expenses to which it is then entitled, pay over to the Company or a Subsidiary
all money collected and held for the account of the Company or a Subsidiary
pursuant to this Agreement;
15
<PAGE>
(b) deliver to the Board of Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money held
by it, covering the period following the date of the last accounting furnished
to the Board of Directors with respect to the Company or a Subsidiary; and
(c) deliver to the Board of Directors all property and documents of the
Company or any Subsidiary then in the custody of the Manager.
SECTION 17. Release of Money or Other Property Upon Written Request. The
Manager agrees that any money or other property of the Company or Subsidiary
held by the Manager under this Agreement shall be held by the Manager as
custodian for the Company or Subsidiary, and the Manager's records shall be
appropriately marked clearly to reflect the ownership of such money or other
property by the Company or such Subsidiary. Upon the receipt by the Manager of a
written request signed by a duly authorized officer of the Company requesting
the Manager to release to the Company or any Subsidiary any money or other
property then held by the Manager for the account of the Company or any
Subsidiary under this Agreement, the Manager shall release such money or other
property to the Company or any Subsidiary within a reasonable period of time,
but in no event later than 60 days following such request. The Manager shall not
be liable to the Company, any Subsidiary, the Independent Directors, or the
Company's or a Subsidiary's stockholders or partners for any acts performed or
omissions to act by the Company or any Subsidiary in connection with the money
or other property released to the Company or any Subsidiary in accordance with
this Section. The Company and any Subsidiary shall indemnify the Manager and its
members, managers, officers and employees against any and all expenses, losses,
damages, liabilities, demands, charges and claims of any nature whatsoever,
which arise in connection with the Manager's release of such money or other
property to the Company or any Subsidiary in accordance with the terms of this
Section 17. Indemnification pursuant to this provision shall be in addition to
any right of the Manager to indemnification under Section 11 of this Agreement.
SECTION 18. Notices. Unless expressly provided otherwise herein, all
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given,
made and received when delivered against receipt or upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:
16
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(a) If to the Company:
NorthStar Capital Investment Corp.
527 Madison Avenue, 17th Floor
New York, New York 10022
Attention: Mr. David T. Hamamoto
(b) If to the Manager:
NorthStar Capital Partners LLC
527 Madison Avenue, 17th Floor
New York, New York 10022
Attention: Mr. W. Edward Scheetz
Either party may alter the address to which communications or copies are to
be sent by giving notice of such change of address in conformity with the
provisions of this Section 18 for the giving of notice.
SECTION 19. Binding Nature of Agreement; Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and permitted
assigns as provided herein.
SECTION 20. Entire Agreement. This Agreement contains the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
SECTION 21. Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of Delaware, notwithstanding any Delaware or other conflict-of-law provisions to
the contrary.
17
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SECTION 22. Indulgences, Not Waivers. Neither the failure nor any delay on
the part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
SECTION 23. Titles Not to Affect Interpretation. The titles of paragraphs
and subparagraphs contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.
SECTION 24. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
SECTION 25. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
SECTION 26. Gender. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
NORTHSTAR CAPITAL INVESTMENT CORP.
By: /s/ Marc S. Gordon
------------------------------------
Its: Vice President and Secretary
-----------------------------------
NORTHSTAR PARTNERSHIP, L.P.
By: NorthStar Capital Investment Corp.,
its general partner
By: /s/ Marc S. Gordon
------------------------------
Its: Vice President and Secretary
-----------------------------
NORTHSTAR CAPITAL PARTNERS LLC
By: NorthStar Capital Holdings I, LLC,
its managing member
By: /s/ W. Edward Scheetz
------------------------------
Name: W. Edward Scheetz
Title: Manager
<PAGE>
Exhibit 10.2
- --------------------------------------------------------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
NORTHSTAR PARTNERSHIP, L.P.
a Delaware limited partnership
----------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP
AN OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM
AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO THE EFFECT
THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND
UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
dated as of December 16, 1997
- --------------------------------------------------------------------------------
<PAGE>
Page
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TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS.......................................................... 1
ARTICLE 2
ORGANIZATIONAL MATTERS................................................. 17
Section 2.1 Organization........................................ 17
Section 2.2 Name................................................ 17
Section 2.3 Registered Office and Agent; Principal Office....... 17
Section 2.4 Power of Attorney................................... 17
Section 2.5 Term................................................ 18
ARTICLE 3
PURPOSE................................................................ 18
Section 3.1 Purpose and Business................................ 18
Section 3.2 Powers.............................................. 19
Section 3.3 Partnership Only for Partnership Purposes........... 19
Section 3.4 Representations and Warranties by the Parties....... 19
ARTICLE 4
CAPITAL CONTRIBUTIONS.................................................. 21
Section 4.1 Capital Contributions of the Partners............... 21
Section 4.2 Issuances of Additional Partnership Interests....... 21
Section 4.3 Additional Funds and Capital Contributions.......... 22
Section 4.4 Stock Option Plan................................... 23
Section 4.5 No Interest; No Return.............................. 24
Section 4.6 Conversion or Redemption of Preferred Shares........ 24
Section 4.7 Conversion or Redemption of Junior Shares........... 25
Section 4.8 Other Contribution Provisions....................... 25
Section 4.9 Not Publicly Traded................................. 25
ARTICLE 5
DISTRIBUTIONS.......................................................... 25
Section 5.1 Requirement and Characterization of Distributions... 25
Section 5.2 Distributions in Kind............................... 26
Section 5.3 Amounts Withheld.................................... 26
Section 5.4 Distributions Upon Liquidation...................... 26
Section 5.5 Distributions to Reflect Issuance of Additional
Partnership Units................................... 26
Section 5.6 Restricted Distributions............................ 26
Section 5.7 Special Limited Partner Preferred Distributions..... 26
Section 5.8 Right to Purchase Special Limited Partner's
Preferred Distributions............................. 27
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ARTICLE 6
ALLOCATIONS............................................................ 27
Section 6.1 Timing and Amount of Allocations of Net Income and
Net Loss............................................ 27
Section 6.2 General Allocations................................. 27
Section 6.3 Additional Allocation Provisions.................... 28
Section 6.4 Tax Allocations..................................... 30
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS.................................. 31
Section 7.1 Management.......................................... 31
Section 7.2 Certificate of Limited Partnership.................. 34
Section 7.3 Restrictions on General Partner's Authority......... 34
Section 7.4 Reimbursement of the General Partner................ 36
Section 7.5 Outside Activities of the General Partner........... 36
Section 7.6 Contracts with Affiliates........................... 37
Section 7.7 Indemnification..................................... 37
Section 7.8 Liability of the General Partner.................... 39
Section 7.9 Other Matters Concerning the General Partner........ 40
Section 7.10 Title to Partnership Assets........................ 41
Section 7.11 Reliance by Third Parties.......................... 41
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................. 41
Section 8.1 Limitation of Liability............................. 41
Section 8.2 Management of Business.............................. 41
Section 8.3 Outside Activities of Limited Partners.............. 41
Section 8.4 Return of Capital................................... 42
Section 8.5 Rights of Limited Partners Relating to the
Partnership......................................... 42
Section 8.6 Redemption Rights of Qualifying Parties............. 43
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS................................. 47
Section 9.1 Records and Accounting.............................. 47
Section 9.2 Partnership Year.................................... 47
Section 9.3 Reports............................................. 47
ARTICLE 10
TAX MATTERS............................................................ 48
Section 10.1 Preparation of Tax Returns......................... 48
Section 10.2 Tax Elections...................................... 48
Section 10.3 Tax Matters Partner................................ 48
Section 10.4 Withholding........................................ 49
Section 10.5 Organizational Expenses............................ 50
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ARTICLE 11
TRANSFERS AND WITHDRAWALS.............................................. 50
Section 11.1 Transfer.......................................... 50
Section 11.2 Transfer of General Partner's Partnership
Interest.......................................... 51
Section 11.3 Limited Partners' Rights to Transfer.............. 51
Section 11.4 Substituted Limited Partners...................... 53
Section 11.5 Assignees......................................... 53
Section 11.6 General Provisions................................ 54
ARTICLE 12
ADMISSION OF PARTNERS.................................................. 55
Section 12.1 Admission of Successor General Partner............ 55
Section 12.2 Admission of Additional Limited Partners.......... 55
Section 12.3 Amendment of Agreement and Certificate............ 56
Section 12.4 Admission of Initial Limited Partners............. 56
Section 12.5 Limit on Number of Partners....................... 56
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION............................... 56
Section 13.1 Dissolution....................................... 56
Section 13.2 Winding Up........................................ 57
Section 13.3 Deemed Distribution and Recontribution............ 58
Section 13.4 Rights of Limited Partners........................ 59
Section 13.5 Notice of Dissolution............................. 59
Section 13.6 Cancellation of Certificate of Limited Partnership 59
Section 13.7 Reasonable Time for Winding-Up.................... 59
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS...................................... 59
Section 14.1 Procedures for Actions and Consents of Partners... 59
Section 14.2 Amendments........................................ 59
Section 14.3 Meetings of the Partners.......................... 60
ARTICLE 15
GENERAL PROVISIONS..................................................... 60
Section 15.1 Addresses and Notice.............................. 60
Section 15.2 Titles and Captions............................... 60
Section 15.3 Pronouns and Plurals.............................. 61
Section 15.4 Further Action.................................... 61
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Section 15.5 Binding Effect.................................... 61
Section 15.6 Waiver............................................ 61
Section 15.7 Counterparts...................................... 61
Section 15.8 Applicable Law.................................... 61
Section 15.9 Entire Agreement.................................. 61
Section 15.10 Invalidity of Provisions......................... 61
Section 15.11 Limitation to Preserve REIT Status............... 62
Section 15.12 No Partition..................................... 62
Section 15.13 No Third-Party Rights Created Hereby............. 62
Section 15.14 No Rights as Stockholders........................ 63
Exhibit A
PARTNERS AND PARTNERSHIP UNITS........................................ A-1
Exhibit B
EXAMPLES REGARDING ADJUSTMENT FACTOR.................................. B-1
Exhibit C
NOTICE OF REDEMPTION.................................................. C-1
Exhibit D
FORM OF UNIT CERTIFICATE.............................................. D-1
iv
<PAGE>
AGREEMENT OF
LIMITED PARTNERSHIP OF NORTHSTAR PARTNERSHIP, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF NORTHSTAR PARTNERSHIP,
L.P., dated as of December 16, 1997 is entered into by and among NorthStar
Capital Investment Corp., a Maryland corporation (the "General Partner"), the
Special Limited Partner (as defined below), and the other Limited Partners (as
defined below).
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as
it may be amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Section 7.7 hereof.
"Additional Funds" has the meaning set forth in Section 4.3.A
hereof.
"Additional Limited Partner" means a Person who is admitted to the
Partnership as a Limited Partner pursuant to Section 4.2 and Section 12.2 hereof
and who is shown as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant Partnership Year, after giving effect to the following
adjustments:
(i) decrease such deficit by any amounts that such Partner is
obligated to restore pursuant to this Agreement or by operation of law
upon liquidation of such Partner's Partnership Interest or is deemed to be
obligated to restore pursuant to the penultimate sentence of each of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) increase such deficit by the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account Deficit" is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that in the event
that:
<PAGE>
(i) the General Partner (a) 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, (b)
splits or subdivides its outstanding REIT Shares or (c) effects a
reverse stock split or otherwise combines its outstanding REIT
Shares into a smaller number of REIT Shares, the Adjustment Factor
shall be adjusted by multiplying the Adjustment Factor previously in
effect by a fraction, (i) the numerator of which shall be the number
of REIT Shares issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend,
distribution, split, subdivision, reverse split or combination has
occurred as of such time) and (ii) the denominator of which shall be
the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or
combination;
(ii) the General Partner distributes any rights, options or
warrants to all holders of its REIT Shares to subscribe for or to
purchase or to otherwise acquire REIT Shares (or other securities or
rights convertible into, exchangeable for or exercisable for REIT
Shares) at a price per share less than the Value of a REIT Share on
the record date for such distribution (each a "Distributed Right"),
then the Adjustment Factor shall be adjusted by multiplying the
Adjustment Factor previously in effect by a fraction (a) the
numerator of which shall be the number of REIT Shares issued and
outstanding on the record date plus the maximum number of REIT
Shares purchasable under such Distributed Rights and (b) the
denominator of which shall be the number of REIT Shares issued and
outstanding on the record date plus a fraction (1) the numerator of
which is the maximum number of REIT Shares purchasable under such
Distributed Rights times the minimum purchase price per REIT Share
under such Distributed Rights and (2) the denominator of which is
the Value of a REIT Share as of the record date; provided, however,
that, if any such Distributed Rights expire or become no longer
exercisable, then the Adjustment Factor shall be adjusted, effective
retroactive to the date of distribution of the Distributed Rights,
to reflect a reduced maximum number of REIT Shares or any change in
the minimum purchase price for the purposes of the above fraction;
and
(iii) the General Partner shall, by dividend or otherwise,
distribute to all holders of its REIT Shares evidences of its
indebtedness or assets (including securities, but excluding any
dividend or distribution referred to in subsection (i) above), which
evidences of indebtedness or assets relate to assets not received by
the General Partner and/or any Special Limited Partner pursuant to a
pro rata distribution by the Partnership, then the Adjustment Factor
shall be adjusted to equal the amount determined by multiplying the
Adjustment Factor in effect immediately prior to the close of
business on the date fixed for determination of shareholders
entitled to receive such distribution by a fraction (i) the
numerator of which shall be such Value of a REIT Share on the date
fixed for such determination and (ii) the denominator of which shall
be the Value of a REIT Share on the dates fixed for such
determination less the then fair market value (as determined by the
General Partner, whose determination shall be conclusive) of the
portion of the evidences of indebtedness or assets so distributed
applicable to one REIT Share.
Any adjustments to the Adjustment 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 any Limited Partner may waive, by
written
2
<PAGE>
notice to the General Partner, the effect of any adjustment to the Adjustment
Factor applicable to the Partnership Common Units held by such Limited Partner,
and, thereafter, such adjustment will not be effective as to such Partnership
Common Units. For illustrative purposes, examples of adjustments to the
Adjustment Factor are set forth on Exhibit B attached hereto.
"Affiliate" means, with respect to any Person, any Person directly
or indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement of Limited Partnership of NorthStar
Partnership, L.P., as it may be amended, supplemented or restated from time to
time.
"Applicable Percentage" has the meaning set forth in Section 8.6.B
hereof.
"Appraisal" means, with respect to any assets, the written opinion
of an independent third party experienced in the valuation of similar assets,
selected by the General Partner in good faith. Such opinion may be in the form
of an opinion by such independent third party that the value for such property
or asset as set by the General Partner is fair, from a financial point of view,
to the Partnership.
"Assignee" means a Person to whom one or more Partnership Common
Units have been Transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(1) the Partnership's Net Income or Net Loss (as the
case may be) for such period,
(2) Depreciation and all other noncash charges to the
extent deducted in determining Net Income or Net Loss for such
period,
(3) the amount of any reduction in reserves of the
Partnership referred to in clause (ii)(6) below (including, without
limitation, reductions resulting because the General Partner
determines such amounts are no longer necessary),
(4) the excess, if any, of the net cash proceeds from
the sale, exchange, disposition, financing or refinancing of
Partnership property for such period over the gain (or loss, as the
case may be) recognized from such sale, exchange, disposition,
financing or refinancing during such period (excluding Terminating
Capital Transactions), and
(5) all other cash received (including amounts
previously accrued as Net Income and amounts of deferred income) or
any net amounts borrowed by the
3
<PAGE>
Partnership for such period that was not included in determining Net
Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(1) all principal debt payments made during such period
by the Partnership,
(2) capital expenditures made by the Partnership during
such period,
(3) investments in any entity (including loans made
thereto) to the extent that such investments are not otherwise
described in clause (ii)(1) or clause (ii)(2) above,
(4) all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period (including
amounts paid in respect of expenses previously accrued),
(5) any amount included in determining Net Income or Net
Loss for such period that was not received by the Partnership during
such period,
(6) the amount of any increase in reserves (including,
without limitation, working capital reserves) established during
such period that the General Partner determines are necessary or
appropriate in its sole and absolute discretion, and
(7) any amount distributed or paid in redemption of any
Limited Partner Interest or Partnership Units including, without
limitation, any Cash Amount paid.
Notwithstanding the foregoing, Available Cash shall not include (a) any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Partnership or (b) any Capital Contributions,
whenever received.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to close.
"Capital Account" means, with respect to any Partner, the Capital
Account maintained by the General Partner for such Partner on the Partnership's
books and records in accordance with the following provisions:
(a) To each Partner's Capital Account, there shall be added
such Partner's Capital Contributions, such Partner's distributive share of Net
Income and any items in the nature of income or gain that are specially
allocated pursuant to Section 6.3 hereof, and the principal amount of any
Partnership liabilities assumed by such Partner or that are secured by any
property distributed to such Partner.
(b) From each Partner's Capital Account, there shall be
subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Net Losses and any items in the nature of
expenses or losses that are specially allocated
4
<PAGE>
pursuant to Section 6.3 hereof, and the principal amount of any liabilities of
such Partner assumed by the Partnership or that are secured by any property
contributed by such Partner to the Partnership.
(c) In the event any interest in the Partnership is
Transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent that it relates
to the Transferred interest.
(d) In determining the principal amount of any liability for
purposes of subsections (a) and (b) hereof, there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
(e) The provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulations Sections
1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner
consistent with such Regulations. If the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts are maintained in
order to comply with such Regulations, the General Partner may make such
modification provided that such modification will not have a material effect on
the amounts distributable to any Partner without such Partner's Consent. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q) and (ii) make any appropriate modifications in the event
that unanticipated events might otherwise cause this Agreement not to comply
with Regulations Section 1.704-1(b) or Section 1.704-2.
"Capital Account Deficit" has the meaning set forth in Section
13.2.C hereof.
"Capital Contribution" means, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any Contributed Property
that such Partner contributes to the Partnership pursuant to Section 4.1, 4.2 or
4.3 hereof or is deemed to contribute pursuant to Section 4.4 hereof.
"Cash Amount" means the lesser of (a) an amount of cash equal to the
product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount
determined as of the applicable Valuation Date or (b) in the case of a
Declination followed by an Offering Funding, the Offering Funding Amount.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Charter" means the Amended and Restated Articles of Incorporation
of the General Partner filed with the State Department of Assessments and
Taxation of Maryland, on the Effective Date, as amended, supplemented or
restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time or any successor statute thereto, as interpreted by the
applicable Regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
5
<PAGE>
"Consent" means the consent to, approval of, or vote in favor of a
proposed action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a Majority in
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and, except as
otherwise provided in this Agreement, may be given or withheld by a Majority in
Interest of the Limited Partners.
"Contributed Property" means each item of Property or other asset,
in such form as may be permitted by the Act, but excluding cash, contributed or
deemed contributed to the Partnership (or deemed contributed by the Partnership
to a "new" partnership pursuant to Code Section 708).
"Controlled Entity" means, as to any Limited Partner, (a) any
corporation more than fifty percent (50%) of the outstanding voting stock of
which is owned by such Limited Partner or such Limited Partner's Family Members,
(b) any trust, whether or not revocable, of which such Limited Partner or such
Limited Partner's Family Members are the sole beneficiaries, (c) any partnership
of which such Limited Partner is the managing partner and in which such Limited
Partner or such Limited Partner's Family Members hold partnership interests
representing at least twenty-five percent (25%) of such partnership's capital
and profits and (d) any limited liability company of which such Limited Partner
is the manager and in which such Limited Partner or such Limited Partner's
Family Members hold membership interests representing at least twenty-five
percent (25%) of such limited liability company's capital and profits.
"Cut-Off Date" means the fifth (5th) Business Day after the General
Partner's receipt of a Notice of Redemption.
"DCI Limited Partner" means each of the following, individually: BT
Alex Brown Exchange Fund, L.P, a Delaware limited partnership; Alex Brown
Exchange Fund, L.P., a Delaware limited partnership; and DC Investment Partners
Exchange Fund, L.P., a Tennessee limited partnership, and the term "DCI Limited
Partners" means all of the foregoing entities, collectively.
"DCI Limited Partner Partnership Unit" shall mean that class of
Partnership Common Units acquired by the DCI Limited Partners. Except to the
extent otherwise provided herein, the term "Partnership Common Units" shall
include DCI Limited Partnership Common Units.
"Debt" means, as to any Person, as of any date of determination, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
that, in accordance with generally accepted accounting principles, should be
capitalized.
"Declination" has the meaning set forth in Section 8.6.D hereof.
"Depreciation" means, for each Partnership Year or other applicable
period, an amount equal to the federal income tax depreciation, amortization or
other cost recovery deduction allowable with respect to an asset for such year
or other period, except that if the Gross Asset Value of an asset differs from
its adjusted basis for federal
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income tax purposes at the beginning of such year or period, Depreciation shall
be in an amount that bears the same ratio to such beginning Gross Asset Value as
the federal income tax depreciation, amortization or other cost recovery
deduction for such year or other period bears to such beginning adjusted tax
basis; provided, however, that if the federal income tax depreciation,
amortization or other cost recovery deduction for such year or period is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the General Partner.
"Distributed Right" has the meaning set forth in the definition of
"Adjustment Factor."
"Effective Date" means December 22, 1997.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"Family Members" means, as to a Person that is an individual, such
Person's spouse, ancestors, descendants (whether by blood or by adoption),
brothers and sisters and inter vivos or testamentary trusts of which only such
Person and his spouse, ancestors, descendants (whether by blood or by adoption),
brothers and sisters are beneficiaries.
"Funding Debt" means any Debt incurred by or on behalf of the
General Partner or any Special Limited Partner for the purpose of providing
funds to the Partnership.
"Funds from Operations" is as defined by the National Association of
Real Estate Investment Trusts ("NAREIT") and means net income (computed in
accordance with GAAP) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization on real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures.
"General Partner" means NorthStar Capital Investment Corp., a
Maryland corporation, and its successors and assigns, as the general partner of
the Partnership in their capacities as general partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by
the General Partner, which Partnership Interest is an interest as a general
partner under the Act. A General Partner Interest may be expressed as a number
of Partnership Common Units, Partnership Preferred Units or any other
Partnership Units.
"General Partner Loan" has the meaning set forth in Section 4.3.D
hereof.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be the gross fair market value of such asset
as determined by the General Partner and agreed to by the contributing Partner.
In any case in which the General Partner and the contributing Partner are unable
to agree as to the gross fair market value of any contributed asset or assets,
such gross fair market value shall be determined by Appraisal.
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(b) The Gross Asset Values of all Partnership assets
immediately prior to the occurrence of any event described in clause (i), clause
(ii), clause (iii), clause (iv) or clause (v) hereof shall be adjusted to equal
their respective gross fair market values, as determined by the General Partner
using such reasonable method of valuation as it may adopt, as of the following
times:
(i) the acquisition of an additional interest in the
Partnership (other than in connection with the execution of this Agreement
but including, without limitation, acquisitions pursuant to Section 4.2
hereof or contributions or deemed contributions by the General Partner
pursuant to Section 4.2 hereof) by a new or existing Partner in exchange
for more than a de minimis Capital Contribution, if the General Partner
reasonably determines that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property as consideration for
an interest in the Partnership, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership;
(iii) the liquidation of the Partnership within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General Partner
pursuant to Section 12.1 hereof; and
(v) at such other times as the General Partner shall
reasonably determine necessary or advisable in order to comply with
Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed
to a Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner provided
that, if the distributee is the General Partner or if the distributee and the
General Partner cannot agree on such a determination, such gross fair market
value shall be determined by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
subsection (d) to the extent that the General Partner reasonably determines that
an adjustment pursuant to subsection (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subsection (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or subsection
(d) above, such Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for purposes of
computing Net Income and Net Losses.
"Holder" means either (a) a Partner or (b) an Assignee, owning a
Partnership Unit, that is treated as a member of the Partnership for federal
income tax purposes.
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"Incapacity" or "Incapacitated" means, (i) as to any Partner who is
an individual, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her person
or his or her estate; (ii) as to any Partner that is a corporation or limited
liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; (iii) as to
any Partner that is a partnership, the dissolution and commencement of winding
up of the partnership; (iv) as to any Partner that is an estate, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust that is a Partner, the termination
of the trust (but not the substitution of a new trustee); or (vi) as to any
Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Partner under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt
or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment, or (h) an appointment referred to in clause (g)
above is not vacated within ninety (90) days after the expiration of any such
stay.
"Indemnitee" means (i) any Person made a party to a proceeding by
reason of its status as (A) the General Partner or (B) a director of the General
Partner or an officer or employee of the Partnership or the General Partner and
(ii) such other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time (whether
before or after the event giving rise to potential liability), in its sole and
absolute discretion.
"Independent Director" has the meaning ascribed thereto in the
Charter.
"Interest" means interest, original issue discount and other similar
payments or amounts paid by the Partnership for the use or forbearance of money.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Junior Share" means a share of capital stock of the General Partner
now or hereafter authorized or reclassified that has dividend rights, or rights
upon liquidation, winding up and dissolution, that are inferior or junior to the
REIT Shares.
"Limited Partner" means the Special Limited Partner and any Person
named as a Limited Partner in Exhibit A attached hereto, as such Exhibit A may
be amended from time to time, or any Substituted Limited Partner or Additional
Limited Partner, in such Person's capacity as a Limited Partner in the
Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Limited Partners and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all
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obligations of such Person to comply with the terms and provisions of this
Agreement. A Limited Partner Interest may be expressed as a number of
Partnership Common Units, Partnership Preferred Units or other Partnership
Units.
"Liquidating Event" has the meaning set forth in Section 13.1
hereof.
"Liquidator" has the meaning set forth in Section 13.2.A hereof.
"Majority in Interest of the Limited Partners" means Limited
Partners holding more than fifty percent (50%) of the outstanding Partnership
Common Units held by all Limited Partners.
"Management Agreement" shall mean the Management Agreement, dated as
of the Effective Date, among the General Partner, the Partnership and the
Manager, as such Management Agreement may be amended, modified, supplemented,
replaced or restated, from time to time.
"Manager" shall mean NorthStar Capital Partners LLC, a Delaware
limited liability company or any affiliate of NorthStar Capital Partners LLC who
shall succeed to its interest as "manager" under the Management Agreement.
"Net Income" or "Net Loss" means, for each Partnership Year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such year, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Net Income (or Net
Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be added
to (or subtracted from, as the case may be) such taxable income (or loss);
(b) Any expenditure of the Partnership described in Code
Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Net Income (or Net Loss) pursuant to this definition
of "Net Income" or "Net Loss," shall be subtracted from (or added to, as the
case may be) such taxable income (or loss);
(c) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subsection (b) or subsection (c) of the definition
of "Gross Asset Value," the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost
recovery deductions that would otherwise be taken into account in computing such
taxable income or loss, there shall be taken into account Depreciation for such
Partnership Year;
(f) To the extent that an adjustment to the adjusted tax basis
of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b)
is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's
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interest in the Partnership, the amount of such adjustment shall be treated as
an item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Net Income or
Net Loss; and
(g) Notwithstanding any other provision of this definition of
"Net Income" or "Net Loss," any item that is specially allocated pursuant to
Section 6.3 hereof shall not be taken into account in computing Net Income or
Net Loss. The amounts of the items of Partnership income, gain, loss or
deduction available to be specially allocated pursuant to Section 6.3 hereof
shall be determined by applying rules analogous to those set forth in this
definition of "Net Income" or "Net Loss."
"New Securities" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase REIT Shares or Preferred Shares, excluding Preferred Shares, Junior
Shares and grants under the Stock Option Plans, or (ii) any Debt issued by the
General Partner that provides any of the rights described in clause (i).
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption substantially
in the form of Exhibit C attached to this Agreement.
"Offering Funding" has the meaning set forth in Section 8.6.D(2)
hereof.
"Offering Funding Amount" means the dollar amount equal to (i) the
product of (x) the number of Offering Funding Shares sold in an Offering Funding
and (y) the offering price per share of such Offering Funding Shares in such
Offering Funding, less (ii) the aggregate underwriting discounts and commissions
in such Offering Funding.
"Offering Funding Shares" has the meaning set forth in Section
8.6.D(2) hereof.
"Ownership Limit" means the applicable restriction or restrictions
on ownership of shares of the General Partner imposed under the Charter.
"Partner" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
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"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Common Unit" means a fractional share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2
hereof, but does not include any Partnership Preferred Unit or any other
Partnership Unit specified in a Partnership Unit Designation as being other than
a Partnership Common Unit; provided, however, that the General Partner Interest
and the Limited Partner Interests shall have the differences in rights and
privileges as specified in this Agreement. The ownership of Partnership Common
Units may (but need not, in the sole and absolute discretion of the General
Partner) be evidenced by the form of certificate for Partnership Common Units
attached hereto as Exhibit D.
"Partnership Interest" means an ownership interest in the
Partnership held by either a Limited Partner or the General Partner and includes
any and all benefits to which the holder of such a Partnership Interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. A Partnership
Interest may be expressed as a number of Partnership Common Units, Partnership
Preferred Units or other Partnership Units.
"Partnership Junior Unit" means a fractional share of the
Partnership Interests that the General Partner has authorized pursuant to
Section 4.1 or Section 4.2 or Section 4.3 hereof that has distribution rights,
or rights upon liquidation, winding up and dissolution, that are inferior or
junior to the Partnership Common Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"Partnership Preferred Unit" means a fractional share of the
Partnership Interests that the General Partner has authorized pursuant to
Section 4.1 or Section 4.2 or Section 4.3 hereof that has distribution rights,
or rights upon liquidation, winding up and dissolution, that are superior or
prior to the Partnership Common Units.
"Partnership Record Date" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1
hereof, which record date shall generally be the same as the record date
established by the General Partner for a distribution to its shareholders of
some or all of its portion of such distribution.
"Partnership Unit" shall mean a Partnership Common Unit, a
Partnership Preferred Unit, a Partnership Junior Unit or any other fractional
share of the Partnership Interests that the General Partner has authorized
pursuant to Section 4.1 or Section 4.2 or Section 4.3 hereof.
"Partnership Unit Designation" shall have the meaning set forth in
Section 4.2 hereof.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
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"Percentage Interest" means, as to each Partner, its interest in the
Partnership Units as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding.
"Permitted Transfer" has the meaning set forth in Section 11.3.A
hereof.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Pledge" has the meaning set forth in Section 11.3.A hereof.
"Preferred Share" means a share of capital stock of the General
Partner now or hereafter authorized or reclassified that has dividend rights, or
rights upon liquidation, winding up and dissolution, that are superior or prior
to the REIT Shares.
"Primary Offering Notice" has the meaning set forth in Section
8.6.F(4) hereof.
"Private Placement" means the private placement of REIT Shares
pursuant to exemption from registration under the Securities Act, as described
in the Offering Memorandum dated December 17, 1997.
"Properties" means any assets and property of the Partnership such
as, but not limited to, interests in real property and personal property,
including, without limitation, fee interests, interests in ground leases,
interests in limited liability companies, joint ventures or partnerships,
interests in mortgages, and Debt instruments as the Partnership may hold from
time to time and "Property" shall mean any one such asset or property.
"Qualified REIT Subsidiary" means a qualified REIT subsidiary of the
General Partner within the meaning of Code Section 856(i)(2).
"Qualified Transferee" means an "accredited investor" as defined in
Rule 501 promulgated under the Securities Act.
"Qualifying Party" means (a) the Special Limited Partner or any DCI
Limited Partner, (b) an Additional Limited Partner, (c) a Family Member, or a
lending institution as the pledgee of a Pledge, who is the transferee in a
Permitted Transfer or (d) a Substituted Limited Partner succeeding to all or
part of the Limited Partner Interest of (i) the Special Limited Partner or any
DCI Limited Partner, (ii) an Additional Limited Partner, or (iii) a Family
Member, or a lending institution who is the pledgee of a Pledge, who is the
transferee in a Permitted Transfer.
"Redemption" has the meaning set forth in Section 8.6.A hereof.
"Regulations" means the applicable income tax regulations under the
Code, whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section
6.3.B(viii) hereof.
"REIT" means a real estate investment trust qualifying under Code
Section 856.
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"REIT Partner" means (a) a Partner, including, without limitation,
the General Partner, that is, or has made an election to qualify as, a REIT, (b)
any Qualified REIT Subsidiary of any Partner that is, or has made an election to
qualify as, a REIT and (c) any Partner that is a Qualified REIT Subsidiary of a
REIT.
"REIT Payment" has the meaning set forth in Section 15.11 hereof.
"REIT Requirements" has the meaning set forth in Section 5.1 hereof.
"REIT Share" means a share of the General Partner's Common Shares,
par value $.01 per share. Where relevant in this Agreement, "REIT Shares"
includes shares of the General Partner's Common Shares, par value $.01 per
share, issued upon conversion of Preferred Shares or Junior Shares.
"REIT Shares Amount" means a number of REIT Shares equal to the
product of (a) the number of Tendered Units and (b) the Adjustment Factor;
provided, however, that, in the event that the General Partner issues to all
holders of REIT Shares as of a certain record date rights, options, warrants or
convertible or exchangeable securities entitling the General Partner's
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), with the record date for such Rights
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the General
Partner in good faith.
"Related Party" means, with respect to any Person, any other Person
whose ownership of shares of the General Partner's capital stock would be
attributed to the first such Person under Code Section 544 (as modified by Code
Section 856(h)(1)(B)).
"Rights" has the meaning set forth in the definition of "REIT Shares
Amount."
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Services Agreement" means any management, development or advisory
agreement with a property and/or asset manager for the provision of property
management, asset management, leasing, development and/or similar services with
respect to the Properties and any agreement for the provision of services of
accountants, legal counsel, appraisers, insurers, brokers, transfer agents,
registrars, developers, financial advisors and other professional services.
"Single Funding Notice" has the meaning set forth in Section
8.6.D(3) hereof.
"Special Limited Partner" means NorthStar Capital Partners, LLC, a
Delaware limited liability company.
"Specified Redemption Date" means the later of (a) the tenth (10th)
Business Day after the receipt by the General Partner of a Notice of Redemption
or (b) in the case of a Declination followed by an Offering Funding, the
Business Day next following the date of the closing of the Offering Funding;
provided, however, that no Specified Redemption Date shall occur during the
first Twelve Month Period; provided, further, that the Specified Redemption
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Date, as well as the closing of a Redemption, or an acquisition of Tendered
Units by the General Partner pursuant to Section 8.6.B hereof, on any Specified
Redemption Date, may be deferred, in the General Partner's sole and absolute
discretion, for such time (but in any event not more than one hundred fifty
(150) days in the aggregate) as may reasonably be required to effect, as
applicable, (i) an Offering Funding or other necessary funding arrangements,
(ii) compliance with the Securities Act or other law (including, but not limited
to, (a) state "blue sky" or other securities laws and (b) the expiration or
termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii)
satisfaction or waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature.
"Stock Option Plan" means any stock option plan hereafter adopted by
the Partnership or the General Partner.
"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; provided, however, that, with respect to the
Partnership, "Subsidiary" means solely a partnership or limited liability
company (taxed, for federal income tax purposes, as a partnership and not as an
association or publicly traded partnership taxable as a corporation) of which
the Partnership is a member unless the General Partner has received an
unqualified opinion from independent counsel of recognized standing, or a ruling
from the IRS, that the ownership of shares of stock of a corporation or other
entity will not jeopardize the General Partner's status as a REIT, in which
event the term "Subsidiary" shall include the corporation or other entity which
is the subject of such opinion or ruling.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4 hereof.
"Tax Items" has the meaning set forth in Section 6.4.A hereof.
"Ten Year Period" means, as to any DCI Limited Partner, a period of
ten years ending on the day before the tenth (10th) anniversary of the Effective
Date.
"Tendered Units" has the meaning set forth in Section 8.6.A hereof.
"Tendering Party" has the meaning set forth in Section 8.6.A hereof.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Transfer," when used with respect to a Partnership Unit, or all or
any portion of a Partnership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), Pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law; provided,
however, that when the term is used in Article 11 hereof, "Transfer" does not
include (a) any Redemption of Partnership Common Units by the Partnership, or
acquisition of Tendered Units by the General Partner, pursuant to Section 8.6
hereof or (b) any redemption of Partnership Units pursuant to any Partnership
Unit Designation. The terms "Transferred" and "Transferring" have correlative
meanings.
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"Triggering Event" means any change in law or regulation or
applicable court decision or administrative ruling the application of which, in
the opinion of any reputable independent counsel to the affected DCI Limited
Partner, would result in a substantial risk that the DCI Limited Partner
Partnership Common Units would be treated as "stock or securities" within the
meaning of Section 351(e)(1) in their entirety after such time as less than
ninety percent (90%) of the Partnership's assets are "stock or securities"
within the meaning of Section 351(e)(1) of the Code.
"Twelve-Month Period" means (a) as to the Special Limited Partner,
each DCI Limited Partner or any successor-in-interest of either of them that is
a Qualifying Party, a twelve-month period ending on the day before the first
(1st) anniversary of the Effective Date or on the day before a subsequent
anniversary thereof and (b) as to any other Qualifying Party, a twelve-month
period ending on the day before the first (1st) anniversary of such Qualifying
Party's becoming a Holder of Partnership Common Units or on the day before a
subsequent anniversary thereof; provided, however, that the General Partner may,
in its sole and absolute discretion, by written agreement with a Qualifying
Party, shorten or lengthen the first Twelve-Month Period to a period of shorter
or longer than twelve (12) months with respect to a Qualifying Party.
"Unitholder" means the General Partner or any Holder of Partnership
Units.
"Valuation Date" means the date of receipt by the General Partner of
a Notice of Redemption or, if such date is not a Business Day, the immediately
preceding Business Day.
"Value" means, on any Valuation Date with respect to a REIT Share,
the average of the daily Market Prices for ten (10) consecutive trading days
immediately preceding the Valuation Date (except that, as provided in Section
4.4.C. hereof, the Market Price for the trading day immediately preceding the
date of exercise of a stock option under any Stock Option Plans shall be
substituted for such average of daily market prices for purposes of Section 4.4
hereof). The term "Market Price" on any date shall mean, with respect to any
class or series of outstanding REIT Shares, the Closing Price for such REIT
Shares on such date. The "Closing Price" on any date shall mean the last sale
price for such REIT Shares, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, for such
REIT Shares, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if such REIT Shares are not listed or
admitted to trading on the New York Stock Exchange, as reported on the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such REIT Shares are listed
or admitted to trading or, if such REIT Shares are not listed or admitted to
trading on any national securities exchange, the last quoted price, or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotation system that may then be in use or, if
such REIT Shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such REIT Shares selected by the Board of Directors of the General
Partner or, in the event that no trading price is available for such REIT
Shares, the fair market value of the REIT Shares, as determined in good faith by
the Board of Directors of the General Partner.
In the event that the REIT Shares Amount includes Rights (as defined in
the definition of "REIT Shares Amount") that a holder of REIT Shares would be
entitled to receive, then the Value of such Rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
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ARTICLE 3
ORGANIZATIONAL MATTERS
Section 2.1 Organization. The Partnership is a limited partnership
organized pursuant to the provisions of the Act and upon the terms and subject
to the conditions set forth in this Agreement. Except as expressly provided
herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name. The name of the Partnership is "NorthStar
Partnership, L.P." The Partnership's business may be conducted under any other
name or names deemed advisable by the General Partner, including the name of the
General Partner or any Affiliate thereof. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purposes of complying with the laws
of any jurisdiction that so requires. The General Partner in its sole and
absolute discretion may change the name of the Partnership at any time and from
time to time and shall notify the Partners of such change in the next regular
communication to the Partners.
Section 2.3 Registered Office and Agent; Principal Office. The
address of the registered office of the Partnership in the State of Delaware is
located at Corporation Service Company, 1013 Centre Road, Wilmington, Delaware
19805, and the registered agent for service of process on the Partnership in the
State of Delaware at such regis tered office is Corporation Service Company,
1013 Centre Road, Wilmington Delaware, 19805. The principal office of the
Partnership is located at 527 Madison Avenue, 17th Floor, New York, New York
10022 or such other place as the General Partner may from time to time designate
by notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 Power of Attorney.
A. Each Limited Partner and each Assignee hereby irrevocably
constitutes and appoints the General Partner, any Liquidator, and authorized
officers and attorneys-in-fact of each, and each of those acting singly, in each
case with full power of substitution, as its true and lawful agent and
attorney-in-fact, with full power and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement and the
Certificate and all amendments, supplements or restatements thereof) that
the General Partner or the Liquidator deems appropriate or necessary to
form, qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability to the extent provided by
applicable law) in the State of Delaware and in all other jurisdictions in
which the Partnership may conduct business or own property; (b) all
instruments that the General Partner or the Liquidator deems appropriate
or necessary to reflect any amendment, change, modification or restatement
of this Agreement in accordance with its terms; (c) all conveyances and
other instruments or documents that the General Partner or the Liquidator
deems appropriate or necessary to reflect the dissolution and liquidation
of the Partnership pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation; (d) all conveyances and
other instruments or documents that the General Partner or the Liquidator
deems appropriate or necessary to reflect the distribution or exchange of
assets of the Partnership pursuant to the terms of this Agreement; (e) all
instruments relating to the admission, withdrawal, removal or substitution
of any Partner pursuant to, or other events described in, Article 11,
Article 12 or Article 13 hereof or the Capital Contribution
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of any Partner; and (f) all certificates, documents and other instruments
relating to the determination of the rights, preferences and privileges
relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner or
the Liquidator, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action that is made or given by the
Partners hereunder or is consistent with the terms of this Agreement or
appropriate or necessary, in the sole and absolute discretion of the
General Partner or the Liquidator, to effectu ate the terms or intent of
this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or the Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a special power coupled with an interest, in recognition of the
fact that each of the Limited Partners and Assignees will be relying upon the
power of the General Partner or the Liquidator to act as contemplated by this
Agreement in any filing or other action by it on behalf of the Partnership, and
it shall survive and not be affected by the subsequent Incapacity of any Limited
Partner or Assignee and the Transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Units or Partnership Interest and shall
extend to such Limited Partner's or Assignee's heirs, successors, assigns and
personal representatives. Each such Limited Partner or Assignee hereby agrees to
be bound by any representation made by the General Partner or the Liquidator,
acting in good faith pursuant to such power of attorney; and each such Limited
Partner or Assignee hereby waives any and all defenses that may be available to
contest, negate or disaffirm the action of the General Partner or the
Liquidator, taken in good faith under such power of attorney. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or the
Liquidator, within fifteen (15) days after receipt of the General Partner's or
the Liquidator's request therefor, such further designation, powers of attorney
and other instruments as the General Partner or the Liquidator, as the case may
be, deems necessary to effectuate this Agreement and the purposes of the
Partnership.
Section 2.5 Term. The term of the Partnership commenced on December
16, 1997, the date that the original Certificate was filed in the office of the
Secretary of State of Delaware in accordance with the Act, and shall continue
until December 31, 2097 unless the Partnership is dissolved sooner pursuant to
the provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the
Partnership is to conduct any business, enterprise or activity permitted by or
under the Act; provided, however, such business and arrangements and interests
may be limited to and conducted in such a manner as to permit the General
Partner, in the sole and absolute discretion of the General Partner, at all
times to be classified as a REIT. The Partnership shall have all powers
necessary or desirable to accomplish the purposes enumerated. In connection with
the foregoing, the Partnership shall have full power and authority to enter
into, perform and carry out contracts of any kind, to borrow and lend money and
to issue evidence of indebtedness, whether or not secured by mortgage, deed of
trust, pledge or other lien and, directly or indirectly, to acquire and
construct additional Properties necessary, useful or desirable in connection
with its business.
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Section 3.2 Powers.
A. The Partnership shall be empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership.
B. The Partnership may contribute from time to time Partnership
capital to one or more newly formed entities solely in exchange for equity
interests therein (or in a wholly-owned subsidiary entity thereof). Such equity
interests may not be distributed by the Partnership to any Partner unless,
immediately after such distribution, each of the DCI Limited Partners holds
equity interest in such entity (or wholly-owned subsidiary entity thereof)
representing a proportionate interest in such entity (or wholly-owned subsidiary
entity thereof) equal to such DCI Limited Partner's Percentage Interest.
C. Notwithstanding any other provision in this Agreement, the
General Partner may cause the Partnership not to take, or to refrain from
taking, any action that, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the General
Partner to continue to qualify as a REIT, (ii) could subject the General Partner
to any additional taxes under Code Section 857 or Code Section 4981 or any other
related or successor provision of the Code, or (iii) could violate any law or
regulation of any governmental body or agency having jurisdiction over the
General Partner, its securities or the Partnership, unless such action (or
inaction) under clause (i), clause (ii) or clause (iii) above shall have been
specifically consented to by the General Partner in writing.
Section 3.3 Partnership Only for Partnership Purposes. This
Agreement shall not be deemed to create a company, venture or partnership
between or among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agree ment, shall
be responsible or liable for any indebtedness or obligation of another Partner,
and the Partnership shall not be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4 Representations and Warranties by the Parties.
A. Each Partner (including, without limitation, each Additional
Limited Partner or Substituted Limited Partner as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner) that is an
individual represents and warrants to each other Partner(s) that (i) the
consummation of the transactions contemplated by this Agreement to be performed
by such Partner will not result in a breach or violation of, or a default under,
any material agreement by which such Partner or any of such Partner's property
is bound, or any statute, regulation, order or other law to which such Partner
is subject, (ii) subject to the last sentence of this Section 3.4.A, such
Partner is neither a "foreign person" within the meaning of Code Section 1445(f)
nor a "foreign partner" within the meaning of Code Section 1446(e), (iii) such
Partner does not own, directly or indirectly, (a) nine and eight tenths percent
(9.8%) or more of the total combined voting power of all classes of stock
entitled to vote, or nine and eight tenths percent (9.8%) or more of the total
number of shares of all classes of stock, of any corporation that is a tenant of
either (I) the General Partner or any Qualified REIT Subsidiary , (II) the
Partnership or (III) any partnership, venture or limited liability company of
which the General Partner, any Qualified REIT Subsidiary or the Partnership is a
member or (b) an interest of nine and eight tenths percent (9.8%) or more in the
assets or net profits of any tenant of either (I) the General Partner
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or any Qualified REIT Subsidiary, (II) the Partnership or (III) any partnership,
venture, or limited liability company of which the General Partner, any
Qualified REIT Subsidiary or the Partnership is a member and (iv) this Agreement
is binding upon, and enforceable against, such Partner in accordance with its
terms. Notwithstanding anything contained herein to the contrary, in the event
that the representation contained in clause (ii) foregoing would be inaccurate
if given by a Partner, such Partner (w) shall not be required to make and shall
not be deemed to have made such representation, (x) shall deliver to the General
Partner in connection with or prior to its execution of this Agreement written
notice that it may not truthfully make such representation, (y) hereby agrees
that it is subject to, and hereby authorizes the General Partner to withhold,
all withholdings to which such a "foreign person" or "foreign partner", as
applicable, is subject under the Code and (z) hereby agrees to cooperate fully
with the General Partner with respect to such withholdings, including by
effecting the timely completion and delivery to the General Partner of all
internal revenue forms required in connection therewith.
B. Each Partner (including, without limitation, each Additional
Limited Partner or Substituted Limited Partner as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner) that is not an
individual represents and warrants to each other Partner(s) that (i) all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including, without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership or operating agreement, trust agreement, articles, charter or
bylaws, as the case may be, any material agreement by which such Partner or any
of such Partner's properties or any of its partners, members, beneficiaries,
trustees or shareholders, as the case may be, is or are bound, or any statute,
regulation, order or other law to which such Partner or any of its partners,
members, trustees, beneficiaries or shareholders, as the case may be, is or are
subject, (iii) subject to the last sentence of this Section 3.4.B, such Partner
is neither a "foreign person" within the meaning of Code Section 1445(f) nor a
"foreign partner" within the meaning of Code Section 1446(e), (iv) such Partner
does not own, directly or indirectly, (a) nine and eight tenths percent (9.8%)
or more of the total combined voting power of all classes of stock entitled to
vote, or nine and eight tenths percent (9.8%) or more of the total number of
shares of all classes of stock, of any corporation that is a tenant of either
(I) the General Partner, or any Qualified REIT Subsidiary , (II) the Partnership
or (III) any partnership, venture or limited liability company of which the
General Partner, any Qualified REIT Subsidiary or the Partnership is a member or
(b) an interest of nine and eight tenths percent (9.8%) or more in the assets or
net profits of any tenant of either (I) the General Partner or any Qualified
REIT Subsidiary , (II) the Partnership or (III) any partnership, venture or
limited liability company for which the General Partner, any Qualified REIT
Subsidiary or the Partnership is a member and (v) this Agreement is binding
upon, and enforceable against, such Partner in accordance with its terms.
Notwithstanding anything contained herein to the contrary, in the event that the
representation contained in clause (iii) foregoing would be inaccurate if given
by a Partner, such Partner (w) shall not be required to make and shall not be
deemed to have made such representation, (x) shall deliver to the General
Partner in connection with or prior to its execution of this Agreement written
notice that it may not truthfully make such representation, (y) hereby agrees
that it is subject to, and hereby authorizes the General Partner to withhold,
all withholdings to which such a "foreign person" or "foreign partner", as
applicable, is subject under the Code and (z) hereby agrees to cooperate fully
with the General Partner with respect to such withholdings, including by
effecting the timely completion and delivery to the General Partner of all
internal revenue forms required in connection therewith.
C. Each Partner (including, without limitation, each Substituted
Limited Partner as a condition to becoming a Substituted Limited Partner)
represents, warrants and agrees that it has acquired and continues to hold its
interest in the Partnership for its own account for investment purposes only and
not for the purpose of, or with a view toward, the resale or distribution of all
or any part thereof, and not with a view toward selling or otherwise
distributing such interest or any part thereof at any particular time or under
any predetermined circumstances. Each Partner further represents and warrants
that it is a sophisticated investor, able and accustomed to handling
sophisticated financial
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matters for itself, particularly real estate investments, and that it has a
sufficiently high net worth that it does not anticipate a need for the funds
that it has invested in the Partnership in what it understands to be a highly
speculative and illiquid investment.
D. The representations and warranties contained in Sections 3.4.A,
3.4.B and 3.4.C hereof shall survive the execution and delivery of this
Agreement by each Partner (and, in the case of an Additional Limited Partner or
a Substituted Limited Partner, the admission of such Additional Limited Partner
or Substituted Limited Partner as a Limited Partner in the Partnership) and the
dissolution, liquidation and termination of the Partnership.
E. Each Partner (including, without limitation, each Substituted
Limited Partner as a condition to becoming a Substituted Limited Partner) hereby
acknowledges that no representations as to potential profit, cash flows, funds
from operations or yield, if any, in respect of the Partnership or the General
Partner have been made by any Partner or any employee or representative or
Affiliate of any Partner, and that projections and any other information,
including, without limitation, financial and descriptive information and
documentation, that may have been in any manner submitted to such Partner shall
not constitute any representation or warranty of any kind or nature, express or
implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners. The Partners
shall, concurrently with the Private Placement, make Capital Contributions to
the Partnership, whereupon each Partner shall own Partnership Units in the
amount set forth for such Partner on Exhibit A, as the same may be amended from
time to time by the General Partner to the extent necessary to reflect
accurately sales, exchanges or other Transfers, redemptions, Capital
Contributions, the issuance of additional Partnership Units, or similar events
having an effect on a Partner's ownership of Partnership Units. Except as
provided by law or in Section 4.2, 4.3 or 10.4 hereof, the Partners shall have
no obligation or right to make any additional Capital Contributions or loans to
the Partnership.
Section 4.2 Issuances of Additional Partnership Interests.
A. General. The General Partner is hereby authorized to cause the
Partnership to issue 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 General Partner and the Special Limited
Partner) or to other Persons, and to admit such Persons as Additional Limited
Partners, 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. Without limiting the foregoing,
the General Partner is expressly authorized to cause the Partnership to issue
Partnership Units (i) upon the conversion, redemption or exchange of any Debt,
Partnership Units or other securities issued by the Partnership, (ii) for less
than fair market value, so long as the General Partner concludes in good faith
that such issuance is in the best interests of the General Partner and the
Partnership, and (iii) in connection with any merger of any other Person into
the Partnership if the applicable merger agreement provides that Persons are to
receive Partnership Units in exchange for their interests in the Person merging
into the Partnership. Subject to Delaware law, any additional Partnership
Interests 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 as shall be deter mined by
the General Partner, in its sole and absolute discretion without the approval of
any Limited Partner, and set forth in a written document thereafter attached to
and made an exhibit to this Agreement (each, a "Partnership Unit Designation").
Without limiting the generality of the foregoing, the General Partner shall have
authority to specify (a)
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the allocations of items of Partnership income, gain, loss, deduction and credit
to each such class or series of Partnership Interests; (b) the right of each
such class or series of Partnership Interests to share in Partnership
distributions; (c) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; (d) the voting
rights, if any, of each such class or series of Partnership Interests; and (e)
the conversion, redemption or exchange rights applicable to each such class or
series of Partnership Interests. Upon the issuance of any additional Partnership
Interest, the General Partner shall amend Exhibit A as appropriate to reflect
such issuance.
B. Issuances to the General Partner. No additional Partnership Units
shall be issued to the General Partner unless (i) the additional Partnership
Units are issued to all Partners in proportion to their respective Percentage
Interests with respect to the class of Partnership Units so issued, (ii) (a) the
additional Partnership Units are (x) Partnership Common Units issued in
connection with an issuance of REIT Shares, or (y) Partnership Units (other than
Partnership Common Units) issued in connection with an issuance of Preferred
Shares, New Securities or other interests in the General Partner (other than
REIT Shares), which Preferred Shares, New Securities or other interests have
designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of the additional Partnership Units issued to the General
Partner, and (b) the General Partner contributes to the Partnership the cash
proceeds or other consideration received in connection with the issuance of such
REIT Shares, Preferred Shares, New Securities or other interests in the General
Partner, (iii) the additional Partnership Units are issued upon the conversion,
redemption or exchange of Debt, Partnership Units or other securities issued by
the Partnership, or (iv) the additional Partnership Units are issued pursuant to
Section 4.6 or Section 4.7.
C. No Preemptive Rights. No Person, including, without limitation,
any Partner or Assignee, shall have any preemptive, preferential, participation
or similar right or rights to subscribe for or acquire any Partnership Interest.
Section 4.3 Additional Funds and Capital Contributions.
A. General. The General Partner may, at any time and from time to
time, determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition or development of additional Properties, for the
redemption of Partnership Units or for such other purposes as the General
Partner may determine in its sole and absolute discretion. Additional Funds may
be obtained by the Partnership, at the election of the General Partner, in any
manner provided in, and in accordance with, the terms of this Section 4.3
without the approval of any Limited Partners.
B. Additional Capital Contributions. The General Partner, on behalf
of the Partnership, may obtain any Additional Funds by accepting Capital
Contributions from any Partners or other Persons. In connection with any such
Capital Contribution (of cash or property), the General Partner is hereby
authorized to cause the Partnership from time to time to issue additional
Partnership Units (as set forth in Section 4.2 above) in consideration therefor
and the Percentage Interests of the General Partner and the Limited Partners
(including the Special Limited Partner) shall be adjusted to reflect the
issuance of such additional Partnership Units.
C. Loans by Third Parties. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to incur
Debt to any Person upon such terms as the General Partner deter mines
appropriate, including making such Debt convertible, redeemable or exchangeable
for Partnership Units; provided, however, that the Partnership shall not incur
any such Debt if (i) a breach, violation or default of such Debt would be deemed
to occur by virtue of the Transfer of any Partnership Interest, or (ii) such
Debt is recourse to any Partner (unless the Partner otherwise agrees).
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D. General Partner Loans. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to incur
Debt with the General Partner (each, a "General Partner Loan") if (i) such Debt
is, to the extent permitted by law, on substantially the same terms and
conditions (including interest rate, repayment schedule, and conversion,
redemption, repurchase and exchange rights) as Funding Debt incurred by the
General Partner, the net proceeds of which are loaned to the Partnership to
provide such Additional Funds, or (ii) such Debt is on terms and conditions no
less favorable to the Partnership than would be available to the Partnership
from any third party; provided, however, that the Partnership shall not incur
any such Debt if (a) a breach, violation or default of such Debt would be deemed
to occur by virtue of the Transfer of any Partnership Interest, or (b) such Debt
is recourse to any Partner (unless the Partner otherwise agrees).
E. Issuance of Securities by the General Partner. The General
Partner shall not issue any additional REIT Shares, Preferred Shares, Junior
Shares or New Securities unless the General Partner contributes the cash
proceeds or other consideration received from the issuance of such additional
REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case may
be, and from the exercise of the rights contained in any such additional New
Securities, to the Partnership in exchange for (x) in the case of an issuance of
REIT Shares, Partnership Common Units, or (y) in the case of an issuance of
Preferred Shares, Junior Shares or New Securities, Partnership Units with
designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of such Preferred Shares, Junior Shares or New Securities;
provided, however, that notwithstanding the foregoing, the General Partner may
issue REIT Shares, Preferred Shares, Junior Shares or New Securities (a)
pursuant to Section 4.4 or Section 8.6.B hereof, (b) pursuant to a dividend or
distribution (including any stock split) of REIT Shares, Preferred Shares,
Junior Shares or New Securities to all of the holders of REIT Shares, Preferred
Shares, Junior Shares or New Securities, as the case may be, (c) upon a
conversion, redemption or exchange of Preferred Shares, (d) upon a conversion of
Junior Shares into REIT Shares, (e) upon a conversion, redemption, exchange or
exercise of New Securities, or (f) in connection with an acquisition of a
property or other asset to be owned, directly or indirectly, by the General
Partner if the General Partner determines that such acquisition is in the best
interests of the Partnership. In the event of any issuance of additional REIT
Shares, Preferred Shares, Junior Shares or New Securities by the General
Partner, and the contribution to the Partnership, by the General Partner, of the
cash proceeds or other consideration received from such issuance, the
Partnership shall pay the General Partner's expenses associated with such
issuance, including any underwriting discounts or commissions.
Section 4.4 Stock Option Plan.
A. Options Granted to Special Limited Partner. If at any time or
from time to time, in connection with the Stock Option Plan, a stock option
granted to the Special Limited Partner is duly exercised:
(1) the General Partner shall, as soon as practicable after such
exercise, make a Capital Contribution to the Partnership in an amount
equal to the exercise price paid to the General Partner by such exercising
party in connection with the exercise of such stock option.
(2) Notwithstanding the amount of the Capital Contribution actually
made pursuant to Section 4.4.A(1) hereof, the General Partner shall be
deemed to have contributed to the Partnership as a Capital Contribution,
in consideration of an additional Limited Partner Interest (expressed in
and as additional Partnership Common Units), an amount equal to the Value
of a REIT Share as of the date of exercise multiplied by the number of
REIT Shares then being issued in connection with the exercise of such
stock option.
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(3) An equitable Percentage Interest adjustment shall be made in
which the General Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.A(2) hereof.
B. Options Granted to Independent Directors. If at any time or from
time to time, in connection with the Stock Option Plan, a stock option granted
to an Independent Director is duly exercised:
(1) the General Partner shall, as soon as practicable after such
exercise, make a Capital Contribution to the Partnership in an amount
equal to the exercise price paid to the General Partner by such exercising
party in connection with the exercise of such stock option.
(2) Notwithstanding the amount of the Capital Contribution actually
made pursuant to Section 4.4.B(1) hereof, the General Partner shall be
deemed to have contributed to the Partnership as a Capital Contribution,
in consideration of an additional Limited Partner Interest (expressed in
and as additional Partnership Common Units), an amount equal to the Value
of a REIT Share as of the date of exercise multiplied by the number of
REIT Shares then being issued in connection with the exercise of such
stock option.
(3) An equitable Percentage Interest adjustment shall be made in
which the General Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.B(2) hereof.
C. Special Valuation Rule. For purposes of this Section 4.4, in
determining the Value of a REIT Share, only the trading date immediately
preceding the exercise of the relevant stock option under the Stock Option Plan
shall be considered.
D. Future Stock Incentive Plans. Nothing in this Agreement shall be
construed or applied to preclude or restrain the General Partner from adopting,
modifying or terminating stock incentive plans, in addition to the Stock Option
Plan, for the benefit of employees, directors or other business associates of
the General Partner, the Partnership or any of their Affiliates. The Limited
Partners acknowledge and agree that, in the event that any such plan is adopted,
modified or terminated by the General Partner amendments to this Section 4.4 may
become necessary or advisable and that any approval or consent to any such
amendments requested by the General Partner shall not be unreasonably withheld
or delayed.
Section 4.5 No Interest; No Return. No Partner shall be entitled to
interest on its Capital Contribution or on such Partner's Capital Account.
Except as provided herein or by law, no Partner shall have any right to demand
or receive the return of its Capital Contribution from the Partnership.
Section 4.6 Conversion or Redemption of Preferred Shares.
A. Conversion of Preferred Shares. If, at any time, any of the
Preferred Shares are converted into REIT Shares, in whole or in part, then a
number of Partnership Preferred Units equal to the number of Preferred Shares so
converted shall automatically be converted into a number of Partnership Common
Units equal to (i) the number of REIT Shares issued upon such conversion divided
by (ii) the Adjustment Factor then in effect, and the Percentage Interests of
the General Partner and the Limited Partners (including the Special Limited
Partner) shall be adjusted to reflect such conversion.
B. Redemption of Preferred Shares. If, at any time, any Preferred
Shares are redeemed (whether by exercise of a put or call, automatically or by
means of another arrangement) by the General Partner for cash, the
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Partnership shall, immediately prior to such redemption of Preferred Shares,
redeem an equal number of Partnership Preferred Units held by the General
Partner, upon the same terms and for the same price per Partnership Preferred
Unit, as such Preferred Shares are redeemed.
Section 4.7 Conversion or Redemption of Junior Shares.
A. Conversion of Junior Shares. If, at any time, any of the Junior
Shares are converted into REIT Shares, in whole or in part, then a number of
Partnership Common Units equal to (i) the number of REIT Shares issued upon such
conversion divided by (ii) the Adjustment Factor then in effect shall be issued
to the General Partner, and the Percentage Interests of the General Partner and
the Limited Partners (including the Special Limited Partner) shall be adjusted
to reflect such conversion.
B. Redemption of Junior Shares. If, at any time, any Junior Shares
are redeemed (whether by exercise of a put or call, automatically or by means of
another arrangement) by the General Partner for cash, the Partnership shall,
immediately prior to such redemption of Junior Shares, redeem an equal number of
Partnership Junior Units held by the General Partner, upon the same terms and
for the same price per Partnership Junior Unit, as such Junior Shares are
redeemed.
Section 4.8 Other Contribution Provisions. In the event that any
Partner is admitted to the Partnership and is given a Capital Account in
exchange for services rendered to the Partnership, such transaction shall be
treated by the Partnership and the affected Partner as if the Partnership had
compensated such partner in cash and such Partner had contributed the cash to
the capital of the Partnership. In addition, with the consent of the General
Partner, one or more Limited Partners (including the Special Limited Partner)
may enter into contribution agreements with the Partnership which have the
effect of providing a guarantee of certain obligations of the Partnership.
Section 4.9 Not Publicly Traded. The General Partner, on behalf of
the Partnership, shall use its best efforts not to take any action which would
result in the Partnership being a "publicly traded partnership" under and as
such term is defined in Section 7704(b) of the Code.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions.
Subject to the terms of any Partnership Unit Designation, the General Partner
shall cause the Partnership to distribute quarterly, after payments of
distributions pursuant to Section 5.7 hereof, all, or such portion as the
General Partner may in its sole and absolute discretion determine, of Available
Cash generated by the Partnership during such quarter to the Holders of
Partnership Units on such Partnership Record Date with respect to such quarter:
(i) first, with respect to any Partnership Interests that are entitled to any
preference in distribution, in accordance with the rights of such class(es) of
Partnership Interests (and, within such class(es), pro rata in proportion to the
respective Percentage Interests on such Partnership Record Date), and (ii)
second, with respect to any Partnership Interests that are not entitled to any
preference in distribution, in accordance with the rights of such class of
Partnership Interests (and, within such class, pro rata in proportion to the
respective Percentage Interests on such Partnership Record Date). Distributions
payable with respect to any Partnership Units that were not outstanding during
the entire quarterly period in respect of which any distribution is made shall
be prorated based on the portion of the period that such units were outstanding.
The General Partner in its sole and absolute discretion may distribute to the
Unitholders Available Cash on a more frequent basis and provide for an
appropriate record date. The General Partner shall make such reasonable efforts,
as determined by it in its sole and absolute discretion and consistent with the
General Partner's qualification as a REIT, to cause the Partnership to
distribute
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sufficient amounts to enable the General Partner to pay shareholder dividends
that will (a) satisfy the requirements for qualification as a REIT under the
Code and Regulations (the "REIT Requirements") and (b) except to the extent
otherwise determined by the General Partner, avoid any federal income or excise
tax liability of the General Partner.
Section 5.2 Distributions in Kind. No right is given to any
Unitholder to demand and receive property other than cash as provided in this
Agreement. The General Partner may determine, in its sole and absolute
discretion, to make a distribution in kind of Partnership assets to the
Unitholders, and such assets shall be distributed in such a fashion as to ensure
that the fair market value is distributed and allocated in accordance with
Articles 5, 6 and 10 hereof.
Section 5.3 Amounts Withheld. All amounts withheld pursuant to the
Code or any provisions of any state or local tax law and Section 10.4 hereof
with respect to any allocation, payment or distribution to any Unitholder shall
be treated as amounts paid or distributed to such Unitholder pursuant to Section
5.1 hereof for all purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation. Notwithstanding the
other provisions of this Article 5, net proceeds from a Terminating Capital
Transaction, and any other cash received or reductions in reserves made after
commencement of the liquidation of the Partnership, shall be distributed to the
Unitholders in accordance with Section 13.2 hereof.
Section 5.5 Distributions to Reflect Issuance of Additional
Partnership Units. In the event that the Partnership issues additional
Partnership Units pursuant to the provisions of Article 4 hereof, Subject to
Section 7.3.D, the General Partner is hereby authorized to make such revisions
to this Article 5 as it determines are necessary or desirable to reflect the
issuance of such additional Partnership Units, including, without limitation,
making preferential distributions to certain classes of Partnership Units.
Section 5.6 Restricted Distributions. Notwithstanding any provision
to the contrary contained in this Agreement, neither the Partnership nor the
General Partner, on behalf of the Partnership, shall make a distribution to any
Unitholder on account of its Partnership Interest or interest in Partnership
Units if such distribution would violate Section 17-607 of the Act or other
applicable law.
Section 5.7 Special Limited Partner Preferred Distributions. In
addition to any and all distributions to be made pursuant to Section 5.1 hereof,
the Special Limited Partner shall be entitled to receive a preferred
distribution from the Partnership for each fiscal quarter, on a cumulative, but
not compounding, basis, in an amount equal to the product of (A) 25% of the
dollar amount by which (1)(a) the Funds from Operations (before such preferred
distribution) of the General Partner and the Partnership, per REIT Share and per
Partnership Common Unit (based on the weighted average number of REIT Shares and
Partnership Common Units outstanding), plus (b) gains (or losses) from debt
restructuring and gains (or losses) from sales of property per REIT Share and
per Partnership Common Unit (based on the weighted average number of shares and
Partnership Common Units outstanding), exceed (2) an amount equal to (a) the
weighted average of the price per REIT Share at the initial offering of the
General Partner's REIT Shares and the prices per REIT Share (or Partnership
Common Units) at any subsequent offerings by the General Partner or the
Partnership (adjusted for any prior capital dividends or capital distributions)
multiplied by (b) a simple interest rate of ten percent (10%) per annum (divided
by four to adjust for quarterly calculations) multiplied by (B) the weighted
average number of REIT Shares and Partnership Common Units outstanding during
such period. It is intended that the preferred distributions payable to the
Special Limited Partner pursuant to this Section 5.7 shall be treated as a
preferred return of partnership income and not as a guaranteed payment for
services pursuant to Code Section 707(c).
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Section 5.8 Right to Purchase Special Limited Partner's Preferred
Distributions. Upon any termination of the Management Agreement, the General
Partner shall be entitled to purchase the right to receive the preferred
distributions pursuant to Section 5.7 from the Special Limited Partner for a
purchase price equal to the amount of such preferred distributions that would be
distributed to the Special Limited Partner if all of the Properties and assets
of the Partnership and the General Partner were sold for cash at their then fair
market value. Such fair market value shall be determined by an independent
appraisal to be conducted by a nationally-recognized appraisal firm mutually
agreed upon by the General Partner and the Special Limited Partner. If the
General Partner and the Special Limited Partner are unable to agree upon an
appraisal firm, then each of the General Partner and the Special Limited Partner
shall choose an independent appraisal firm to conduct such appraisal. In such
event, (i) if the appraisals prepared by the two appraisers so selected are the
same or differ by an amount that does not exceed twenty percent (20%) of the
higher of the two appraisals, such fair market value will be deemed to be the
average of the appraisals as prepared by each party's chosen appraiser, and (ii)
if the two appraisals differ by more than twenty percent (20%) of such higher
amount, the two appraisers shall jointly select a third independent appraisal
firm to conduct an appraisal. If the two appraisers are unable to agree as to
the identity of such third appraiser, either of the Special Limited Partner or
the General Partner may request that the American Arbitration Association select
the third appraisal firm. The fair market value of all of the Properties and
assets of the Partnership and the General Partner will then be deemed to be the
amount determined by such third appraiser, but in no event less than the lower
of the two initial appraisals. Notwithstanding the foregoing, in the event that
the Management Agreement is terminated as a result of a change of control of the
General Partner or the Partnership, the appraisal of the fair market value of
all of the Properties and assets of the Partnership and the General Partner
shall be based upon the price paid (on a per share or per Partnership Unit, as
applicable, basis) by the Person acquiring control, increased to eliminate any
discount paid by such Person due to the Special Limited Partner's right to
receive the preferred distributions described in Section 5.7.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net
Loss. Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each Partnership Year of the Partnership as of the end
of each such year. Except as otherwise provided in this Article 6, and subject
to Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income
or Net Loss shall be treated as an allocation of the same share of each item of
income, gain, loss or deduction that is taken into account in computing Net
Income or Net Loss.
Section 6.2 General Allocations.
A. In General. Subject to the terms of any Partnership Unit
Designation, except as otherwise provided in this Article 6 and subject to
Section 11.6.C hereof, Net Income and Net Loss shall be allocated to each of the
Holders of Partnership Units holding the same class of Partnership Units in
accordance with their respective Percentage Interests in such class at the end
of each Partnership Year.
B. Allocations to Reflect Issuance of Additional Partnership Units.
In the event that the Partnership issues additional Partnership Units pursuant
to the provisions of Article 4 hereof, the General Partner is hereby authorized
to make such revisions to this Section 6.2 as it determines are necessary or
desirable to reflect the terms of the issuance of such additional Partnership
Units, including, without limitation, making preferential allocations to certain
classes of Partnership Units.
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C. Allocations to Reflect Special Limited Partner's Preferred
Distributions. Prior to any allocation of Net Income or Net Loss pursuant to
Section 6.2.A hereof, an amount of gross income equal to the amount distributed
to the Special Limited Partner pursuant to Section 5.7 hereof shall first be
allocated to the Special Limited Partner.
Section 6.3 Additional Allocation Provisions. Notwithstanding the
foregoing provisions of this Article 6:
A. Special Allocations Regarding Partnership Preferred Units. If any
Partnership Preferred Units are redeemed pursuant to Section 4.6.B hereof
(treating a full liquidation of the General Partner Interest for purposes of
this Section 6.3.A as including a redemption of any then outstanding Partnership
Preferred Units pursuant to Section 4.6.B hereof), for the Partnership Year that
includes such redemption (and, if necessary, for subsequent Partnership Years)
(a) gross income and gain shall be allocated to the General Partner to the
extent that the Redemption Amounts paid or payable with respect to the
Partnership Preferred Units so redeemed (or treated as redeemed) exceeds the
aggregate Capital Contributions (net of liabilities assumed or taken subject to
by the Partnership) per Partnership Pre ferred Unit allocable to the Partnership
Preferred Units so redeemed (or treated as redeemed) and (b) deductions and
losses shall be allocated to the General Partner to the extent that the
aggregate Capital Contributions (net of liabilities assumed or taken subject to
by the Partnership) per Partnership Preferred Unit allocable to the Partnership
Preferred Units so redeemed (or treated as redeemed) exceeds the Redemption
Amount paid or payable with respect to the Partner ship Preferred Units so
redeemed (or treated as redeemed).
B. Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of Section
6.2 hereof, or any other provision of this Article 6, if there is a net
decrease in Partnership Minimum Gain during any Partnership Year, each
Holder of Partnership Common Units shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Holder's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section 1.704-
2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Holder pursuant thereto. The items to be allocated shall be determined in
accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This
Section 6.3.B(i) is intended to qualify as a "minimum gain chargeback"
within the meaning of Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
(ii) Partner Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(i)(4) or in Section 6.3.B(i)
hereof, if there is a net decrease in Partner Minimum Gain attributable to
a Partner Nonrecourse Debt during any Partnership Year, each Holder of
Partnership Common Units who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(5), shall be specially allocated items
of Partnership income and gain for such year (and, if necessary, subse
quent years) in an amount equal to such Holder's share of the net decrease
in Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each General
Partner, Limited Partner and other Holder pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations
Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.B(ii) is
intended to qualify as a
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"chargeback of partner nonrecourse debt minimum gain" within the meaning
of Regulations Section 1.704-2(i) and shall be interpreted consistently
therewith.
(iii) Nonrecourse Deductions and Partner Nonrecourse
Deductions. Any Nonrecourse Deductions for any Partnership Year shall be
specially allocated to the Holders of Partnership Common Units in
accordance with their Partnership Common Units. Any Partner Nonre course
Deductions for any Partnership Year shall be specially allocated to the
Holder(s) who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable, in accordance with Regulations Section 1.704-2(i).
(iv) Qualified Income Offset. If any Holder of Partnership
Common Units unexpectedly receives an adjustment, allocation or
distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5)
or (6), items of Partnership income and gain shall be allocated, in
accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder
in an amount and manner sufficient to eliminate, to the extent required by
such Regulations, the Adjusted Capital Account Deficit of such Holder as
quickly as possible, provided that an allocation pursuant to this Section
6.3.B(iv) shall be made if and only to the extent that such Holder would
have an Adjusted Capital Account Deficit after all other allocations
provided in this Article 6 have been tentatively made as if this Section
6.3.B(iv) were not in the Agreement. It is intended that this Section
6.3.B(iv) qualify and be construed as a "qualified income offset" within
the meaning of Regulations Section 1.704- 1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
(v) Gross Income Allocation. In the event that any Holder of
Partnership Common Units has a deficit Capital Account at the end of any
Partnership Year that is in excess of the sum of (1) the amount (if any)
that such Holder is obligated to restore to the Partnership upon complete
liquidation of such Holder's Partnership Interest (including, the Holder's
interest in outstanding Partnership Preferred Units and other Partnership
Units) and (2) the amount that such Holder is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially
allocated items of Partnership income and gain in the amount of such
excess to eliminate such deficit as quickly as possible, provided that an
allocation pursuant to this Section 6.3.B(v) shall be made if and only to
the extent that such Holder would have a deficit Capital Account in excess
of such sum after all other allocations provided in this Article 6 have
been tentatively made as if this Section 6.3.B(v) and Section 6.3.B(iv)
hereof were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent that
any allocation of Net Loss would cause or increase an Adjusted Capital
Account Deficit as to any Holder of Partnership Common Units, such
allocation of Net Loss shall be reallocated among the other Holders of
Partnership Common Units in accordance with their respective Partnership
Common Units, subject to the limitations of this Section 6.3.B(vi).
(vii) Section 754 Adjustment. To the extent that an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2) (iv)(m)(2) or Regulations Section 1.704-
1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Holder of Partnership Common
Units in complete liquidation of its interest in the Partnership, the
amount of such adjustment to the Capital Accounts shall be treated as an
item of gain
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(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss shall be specially
allocated to the Holders in accordance with their Partnership Common Units
in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or
to the Holders to whom such distribution was made in the event that
Regulations Section 1.704- 1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocations. The allocations set forth in
Sections 6.3.B(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the
"Regulatory Allocations") are intended to comply with certain regulatory
requirements, including the requirements of Regulations Sections
1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.1
hereof, the Regulatory Allocations shall be taken into account in
allocating other items of income, gain, loss and deduction among the
Holders of Partnership Common Units so that to the extent possible without
violating the requirements giving rise to the Regulatory Allocations, the
net amount of such allocations of other items and the Regulatory
Allocations to each Holder of a Partnership Common Unit shall be equal to
the net amount that would have been allocated to each such Holder if the
Regulatory Allocations had not occurred.
C. Special Allocations Upon Liquidation. Notwithstanding any
provision in this Article VI to the contrary, in the event that the Partnership
disposes of all or substantially all of its assets in a transaction that will
lead to a liquidation of the Partnership pursuant to Article 13 hereof, then any
Net Income or Net Loss realized in connection with such transaction and
thereafter (and, if necessary, constituent items of income, gain, loss and
deduction) shall be specially allocated among the Partners as required so as to
cause liquidating distributions pursuant to Section 13.2.A(4) hereof to be made
in the same amounts and proportions as would have resulted had such
distributions instead been made pursuant to Article 5 hereof.
D. Allocation of Excess Nonrecourse Liabilities. For purposes of
determining a Holder's proportional share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), each Holder's interest in Partnership profits shall be equal to
such Holder's share of Partnership Common Units.
Section 6.4 Tax Allocations.
A. In General. Except as otherwise provided in this Section 6.4, for
income tax purposes under the Code and the Regulations each Partnership item of
income, gain, loss and deduction (collectively, "Tax Items") shall be allocated
among the Holders of Partnership Common Units in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated pursuant
to Sections 6.2 and 6.3 hereof.
B. Allocations Respecting Section 704(c) Revaluations.
Notwithstanding Section 6.4.A hereof, Tax Items with respect to Property that is
contributed to the Partnership with a Gross Asset Value that varies from its
basis in the hands of the contributing Partner immediately preceding the date of
contribution shall be allocated among the Holders of Partnership Common Units
for income tax purposes pursuant to Regulations promulgated under Code Section
704(c) so as to take into account such variation. The Partnership shall account
for such variation under any method approved under Code Section 704(c) and the
applicable Regulations as chosen by the General Partner, including, without
limitation, the "remedial allocation method" as described in Regulations Section
1.704-3(d). In the event that the Gross Asset Value of any partnership asset is
adjusted pursuant to subsection (b) of the definition of "Gross Asset Value"
(provided in Article 1 hereof), subsequent allocations of Tax Items with respect
to such asset shall take account of the variation, if any, between the adjusted
basis of such asset and its Gross Asset Value in the same manner as under Code
Section 704(c) and the applicable Regulations.
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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Partners with or without cause, except with the Consent of the General
Partner. In addition to the powers now or hereafter granted a general partner of
a limited partnership under applicable law or that are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to the other provisions hereof including Section 7.3, shall have full
power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing
of money (including, without limitation, making prepayments on loans and
borrowing money or selling assets to permit the Partnership to make
distributions to its Partners in such amounts as will permit the General
Partner (so long as the General Partner qualifies as a REIT) to avoid the
payment of any federal income tax (including, for this purpose, any excise
tax pursuant to Code Section 4981) and to make distributions to its
shareholders sufficient to permit the General Partner to maintain REIT
status or otherwise to satisfy the REIT Requirements), the assumption or
guarantee of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of indebtedness (including the
securing of same by deed to secure debt, mortgage, deed of trust or other
lien or encumbrance on the Partnership's assets) and the incurring of any
obligations that it deems necessary for the conduct of the activities of
the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the Partnership;
(3) the acquisition, sale, transfer, exchange or other
disposition of any, all or substantially all of the assets of the
Partnership (including, but not limited to, the exercise or grant of any
conversion, option, privilege or subscription right or any other right
available in connection with any assets at any time held by the
Partnership) or the merger, consolidation, reorganization or other
combination of the Partnership with or into another entity;
(4) the mortgage, pledge, encumbrance or hypothecation of any
assets of the Partnership, the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose consistent
with the terms of this Agreement and on any terms that it sees fit,
including, without limitation, the financing of the operations and
activities of the General Partner, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to other Persons
(including, without limitation, the Partnership's Subsidiaries) and the
repayment of obligations of the Partnership, its Subsidiaries and any
other Person in which the Partnership has an equity investment, and the
making of capital contributions to and equity investments in the
Partnership's Subsidiaries;
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(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any Property,
including, without limitation, any Contributed Property, or other asset of
the Partnership or any Subsidiary, whether pursuant to a Management
Agreement or otherwise;
(6) the negotiation, execution and performance of any
contracts, leases, conveyances or other instruments that the General
Partner considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's powers under
this Agreement, including contracting with contractors, developers,
consultants, accountants, legal counsel, other professional advisors and
other agents (including, without limitation, the Manager) and the payment
of their expenses and compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement, the holding, management,
investment and reinvestment of cash and other assets of the Partnership,
and the collection and receipt of revenues, rents and income of the
Partnership;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate,
including, without limitation, (i) casualty, liability and other insurance
on the Properties of the Partnership and (ii) liability insurance for the
Indemnitees hereunder;
(9) the formation of, or acquisition of an interest in, and
the contribution of property to, any further limited or general
partnerships, limited liability companies, joint ventures or other
relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, any
Subsidiary and any other Person in which it has an equity investment from
time to time); provided, however, that, as long as the General Partner has
determined to continue to qualify as a REIT, the General Partner may not
engage in any such formation, acquisition or contribution that would cause
the General Partner to fail to qualify as a REIT within the meaning of
Code Section 856(a);
(10) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement, compromise,
submission to arbitration or any other form of dispute resolution, or
abandonment, of any claim, cause of action, liability, debt or damages,
due or owing to or from the Partnership, the commencement or defense of
suits, legal proceedings, admin istrative proceedings, arbitrations or
other forms of dispute resolution, and the representation of the
Partnership in all suits or legal proceedings, administrative proceedings,
arbitrations or other forms of dispute resolution, the incurring of legal
expense, and the indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Subsidiary or any other
Person (including, without limitation, the contribution or loan of funds
by the Partnership to such Persons);
(12) except as otherwise specifically set forth in this
Agreement, the determination of the fair market value of any Partnership
property distributed in kind using such
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reasonable method of valuation as it may adopt; provided that such methods
are otherwise consistent with the requirements of this Agreement;
(13) the enforcement of any rights against any Partner
pursuant to represen tations, warranties, covenants and indemnities
relating to such Partner's contribution of property or assets to the
Partnership;
(14) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(15) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the Partnership
has a direct or indirect interest, or jointly with any such Subsidiary or
other Person;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest, pursuant to contractual or other
arrangements with such Person;
(17) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or legal instruments or agreements in writing necessary
or appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner enumerated in
this Agreement;
(18) the issuance of additional Partnership Units, as
appropriate and in the General Partner's sole and absolute discretion, in
connection with Capital Contributions by Additional Limited Partners and
additional Capital Contributions by Partners pursuant to Article 4 hereof;
and
(19) an election to dissolve the Partnership pursuant to
Section 13.1.C hereof.
B. Each of the Limited Partners agrees that, except as provided in
Section 7.3 hereof, the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner
may cause the Partnership to establish and maintain working capital and other
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
D. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner (including the General Partner and the Special
Limited Partner) of any action taken by it. The General Partner and the
Partnership shall not have liability to a Limited
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Partner under any circumstances as a result of an income tax liability incurred
by such Limited Partner as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement.
E. Within a reasonable time prior to an anticipated acquisition by
the General Partner, on behalf of the Partnership, of assets of a type which
would qualify as "stock or securities" under and as such term is defined in
Section 351(e) of the Code, the General Partner shall give notice thereof to the
DCI Limited Partners, which notice shall set forth, in reasonable detail based
on relevant information reasonably available at the time such notice is given, a
description of such assets and the percentage that such assets will represent of
all of the assets of the Partnership immediately following such acquisition.
Section 7.2 Certificate of Limited Partnership. To the extent that
such action is determined by the General Partner to be reasonable and necessary
or appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state, the
District of Columbia or any other jurisdiction, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner shall not be required, before or after filing, to
deliver or mail a copy of the Certificate or any amendment thereto to any
Limited Partner. The General Partner shall use all reasonable efforts to cause
to be filed such other certificates or documents as may be reasonable and
necessary or appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability to the extent provided by applicable law) in the
State of Delaware and any other state, or the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3 Restrictions on General Partner's Authority.
A. The General Partner may not take any action in contravention of
this Agreement, including, without limitation:
(1) taking any action that would make it impossible to carry
on the ordinary business of the Partnership, except as otherwise provided
in this Agreement;
(2) possessing Partnership property, or assigning any rights
in specific Partnership property, for other than a Partnership purpose
except as otherwise provided in this Agree ment, including, without
limitation, Section 7.10;
(3) admitting a Person as a Partner, except as otherwise
provided in this Agreement;
(4) performing any act that would subject a Limited Partner to
liability as a general partner in any jurisdiction or any other liability
except as provided Section 10.4 hereof or under the Act; or
(5) entering into any contract, mortgage, loan or other
agreement that prohibits or restricts, or has the effect of prohibiting or
restricting, the ability of (a) the General Partner, or the Partnership
from satisfying its obligations under Section 8.6 hereof in full or (b) a
Limited Partner from exercising its rights under Section 8.6 hereof to
effect a Redemption in full, except, in either case, with the written
consent of such Limited Partner affected by the prohibition or
restriction.
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B. The General Partner shall not, without the prior Consent of the
Limited Partners, undertake, on behalf of the Partnership, any of the following
actions or enter into any transaction that would have the effect of such
transactions:
(1) except as provided in Sections 4.2.A, 5.5, 6.2.B and 7.3.C
hereof, amend, modify or terminate this Agreement other than to reflect
the admission, substitution, termination or withdrawal of Partners
pursuant to Article 11 or Article 12 hereof;
(2) make a general assignment for the benefit of creditors or
appoint or acquiesce in the appointment of a custodian, receiver or
trustee for all or any part of the assets of the Partnership; or
(3) institute any proceeding for bankruptcy on behalf of the
Partnership.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall
have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General Partner or any
Affiliate of the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution or withdrawal of
Partners or the termination of the Partnership in accordance with this
Agreement, and to amend Exhibit A in connection with such admission,
substitution or withdrawal;
(3) to reflect a change that is of an inconsequential nature
and does not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any provision in
this Agreement not inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this Agreement that
will not be inconsistent with law or with the provisions of this
Agreement;
(4) to satisfy any requirements, conditions or guidelines
contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law;
(5) (a) to reflect such changes as are reasonably necessary
(i) for the General Partner to maintain its status as a REIT or to satisfy
the REIT Requirements; (b) to reflect the Transfer of all or any part of a
Partnership Interest between the General Partner and any Qualified REIT
Subsidiary;
(6) to modify the manner in which Capital Accounts are
computed (but only to the extent set forth in the definition of "Capital
Account" or contemplated by the Code or the Regulations); and
(7) to issue additional Partnership Interests in accordance
with Section 4.2.
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The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement
shall not be amended, and no action may be taken by the General Partner, without
the Consent of each Partner adversely affected thereby, if such amendment or
action would (i) convert a Limited Partner Interest in the Partnership into a
General Partner Interest (except as a result of the General Partner acquiring
such Partnership Interest), (ii) modify the limited liability of a Limited
Partner, (iii) alter the rights of any Partner to receive the distributions to
which such Partner is entitled, pursuant to Article 5 or Section 13.2.A(4)
hereof, or alter the allocations specified in Article 6 hereof (except, in any
case, as permitted pursuant to Sections 4.2, 5.5, 6.2.B and 7.3.C hereof), (iv)
alter or modify the Redemption rights, Cash Amount or REIT Shares Amount as set
forth in Sections 8.6 and 11.2 hereof, or amend or modify any related
definitions, or (v) amend this Section 7.3.D; provided, however, that the
Consent of each Partner adversely affected shall not be required for any
amendment or action that affects all Partners holding the same class or series
of Partnership Units on a uniform or pro rata basis. Further, no amendment may
alter the restrictions on the General Partner's authority set forth elsewhere in
this Section 7.3 without the Consent specified therein. Any such amendment or
action consented to by any Partner shall be effective as to that Partner,
notwithstanding the absence of such consent by any other Partner.
Section 7.4 Reimbursement of the General Partner.
A. The General Partner shall not be compensated for its services as
general partner of the Partnership except as provided in this Agreement
(including the provisions of Articles 5 and 6 hereof regarding distributions,
payments and allocations to which it may be entitled in its capacity as the
General Partner).
B. Subject to Sections 7.4.C and 15.11 hereof, the Partnership shall
be liable for, and shall reimburse the General Partner on a monthly basis, or
such other basis as the General Partner may determine in its sole and absolute
discretion, for all sums expended in connection with the Partnership's business,
including, without limitation, (i) expenses relating to the ownership of
interests in and management and operation of, or for the benefit of, the
Partnership, (ii) compensation of officers and employees, including, without
limitation, payments under future compensation plans of the General Partner that
may provide for stock units, or phantom stock, pursuant to which employees of
the General Partner will receive payments based upon dividends on or the value
of REIT Shares, (iii) director fees and expenses and (iv) all costs and expenses
of the General Partner being a public company, including costs of filings with
the SEC, reports and other distributions to its shareholders; provided, however,
that the amount of any reimbursement shall be reduced by any interest earned by
the General Partner with respect to bank accounts or other instruments or
accounts held by it on behalf of the Partnership as permitted pursuant to
Section 7.5 hereof. Such reimbursements shall be in addition to any
reimbursement of the General Partner as a result of indemnification pursuant to
Section 7.7 hereof.
C. To the extent practicable, Partnership expenses shall be billed
directly to and paid by the Partnership and, subject to Section 15.11 hereof,
reimbursements to the General Partner or any of its Affiliates by the
Partnership pursuant to this Section 7.4 shall be treated as non-income
reimbursements, and not as "guaranteed payments" within the meaning of Code
Section 707(c) or other form of gross income.
Section 7.5 Outside Activities of the General Partner. The General
Partner shall not directly or indirectly enter into or conduct any business,
other than in connection with (a) the ownership, acquisition and disposition of
Partnership Interests as General Partner, (b) the management of the business of
the Partnership, (c) the operation of the General Partner as a reporting company
with a class (or classes) of securities registered under the Exchange Act, (d)
the General Partner's operations as a REIT, (e) the offering, sale, syndication,
private placement or public offering of stock, bonds, securities or other
interests, (f) financing or refinancing of any type related to the Partnership
or its
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assets or activities, (g) any of the foregoing activities as they relate to a
Subsidiary of the Partnership or of the General Partner and (h) such activities
as are incidental thereto. Nothing contained herein shall be deemed to prohibit
the General Partner from executing guarantees of Partnership debt for which it
would otherwise be liable in its capacity as General Partner. Subject to Section
7.3.B hereof, the General Partner shall not own any assets or take title to
assets (other than temporarily in connection with an acquisition prior to
contributing such assets to the Partnership) other than interests in
Subsidiaries of the Partnership and the General Partner and Partnership
Interests as the General Partner and other than such cash and cash equivalents,
bank accounts or similar instruments or accounts as the General Partner deems
reasonably necessary, taking into account Section 7.1.D hereof and the
requirements necessary for the General Partner to carry out its responsibilities
contemplated under this Agreement and the Charter and to qualify as a REIT.
Notwithstanding the foregoing, if the General Partner acquires assets in its own
name and owns Property other than through the Partnership, the Partners agree to
negotiate in good faith to amend this Agreement, including, without limitation,
the definition of "Adjustment Factor," to reflect such activities and the direct
ownership of assets by the General Partner. The General Partner and any
Affiliates of the General Partner may acquire Limited Partner Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partner Interests.
Section 7.6 Contracts with Affiliates.
A. The Partnership may lend or contribute funds or other assets to
its Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5 hereof and subject to Section
3.1 hereof, the Partnership may transfer assets to joint ventures, limited
liability companies, partnerships, corporations, business trusts or other
business entities in which it is or thereby becomes a participant upon such
terms and subject to such conditions consistent with this Agreement and
applicable law as the General Partner, in its sole and absolute discretion,
believes to be advisable.
C. Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to the Partnership, directly or indirectly, except pursuant to
transactions that are determined by the General Partner in good faith to be fair
and reasonable.
D. The General Partner, in its sole and absolute discretion and
without the approval of the Limited Partners, may propose and adopt on behalf of
the Partnership employee benefit plans funded by the Partnership for the benefit
of employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership or any of the
Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, any Services Agreement with Affiliates of
any of the Partnership or the General Partner or the Special Limited Partner, on
such terms as the General Partner, in its sole and absolute discretion, believes
are advisable.
Section 7.7 Indemnification.
A. To the fullest extent permitted by applicable law, the
Partnership shall indemnify each Indemnitee from and against any and all losses,
claims, damages, liabilities (whether joint or several), expenses (including,
without limitation, attorney's fees and other legal fees and expenses),
judgments, fines, settlements and other
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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 ("Actions") as set forth in this Agreement in which such
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise; provided, however, that the Partnership shall not indemnify an
Indemnitee (i) for willful misconduct or a knowing violation of the law or (ii)
for any transaction for which such Indemnitee received an improper personal
benefit in violation or breach of any provision of this Agreement. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements consistent with the provisions of this Section 7.7 in
favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee prior to
judgment, does not create a presumption that such Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the Indemnitee in advance of the final disposition of the Action
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 7.7.A has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee unless otherwise provided in a
written agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any 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. Any liabilities which an Indemnitee incurs as a result of acting
on behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the IRS, penalties
assessed by the Department of Labor, restitutions to such a plan or trust or
other funding mechanism or to a participant or beneficiary of such plan, trust
or other funding mechanism, or otherwise) shall be treated as liabilities or
judgments or fines under this Section 7.7, unless such liabilities arise as a
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result of (i) such Indemnitee's intentional misconduct or knowing violation of
the law, or (ii) any transaction in which such Indemnitee received a personal
benefit in violation or breach of any provision of this Agreement or applicable
law.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. It is the intent of the Partners that any amounts paid by the
Partnership to the General Partner pursuant to this Section 7.7 shall be treated
as "guaranteed payments" within the meaning of Code Section 707(c).
Section 7.8 Liability of the General Partner.
A. Notwithstanding anything to the contrary set forth in this
Agreement, neither the General Partner nor any of its directors or officers
shall be liable or accountable in damages or otherwise to the Partnership, any
Partners or any Assignees for losses sustained, liabilities incurred or benefits
not derived as a result of errors in judgment or mistakes of fact or law or of
any act or omission if the General Partner or such director or officer acted in
good faith.
B. The Limited Partners expressly acknowledge that the General
Partner is acting for the benefit of the Partnership, the Limited Partners and
the General Partner's shareholders collectively and that the General Partner is
under no obligation to give priority to the separate interests of the Limited
Partners or the General Partner's shareholders (including, without limitation,
the tax consequences to Limited Partners, Assignees or the General Partner's
shareholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions.
C. Subject to its obligations and duties as General Partner set
forth in Section 7.1.A hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its employees or agents
(subject to the supervision and control of the General Partner). The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
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E. Notwithstanding anything herein to the contrary, except for
fraud, willful misconduct or gross negligence, or pursuant to any express
indemnities given to the Partnership by any Partner pursuant to any other
written instrument, no Partner shall have any personal liability whatsoever, to
the Partnership or to the other Partner(s), for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partner(s) shall be limited to the interest of that Partner in the
Partnership. To the fullest extent permitted by law, no officer, director or
shareholder of the General Partner shall be liable to the Partnership for money
damages except for (i) active and deliberate dishonesty established by a
non-appealable final judgment or (ii) actual receipt of an improper benefit or
profit in money, property or services. Without limitation of the foregoing, and
except for fraud, willful misconduct or gross negligence, or pursuant to any
such express indemnity, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) in favor of any other Partner(s) and arising out of, or in connection
with, this Agreement. This Agreement is executed by the officers of the General
Partner solely as officers of the same and not in their own individual
capacities.
F. To the extent that, at law or in equity, the General Partner has
duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or the Limited Partners, the General Partner shall not be liable to
the Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of the General Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such General Partner.
Section 7.9 Other Matters Concerning the General Partner.
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters that the General Partner reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty that
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provision of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT, (ii) for the General Partner otherwise to satisfy the REIT
Requirements, (iii) to avoid the General Partner incurring any taxes under Code
Section 857 or Code Section 4981, is expressly authorized under this Agreement
and is deemed approved by all of the Limited Partners.
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Section 7.10 Title to Partnership Assets. Title to Partnership
assets, whether real, personal or mixed and whether tangible or intangible,
shall be deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively with other Partners or Persons, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to
the contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without the consent or approval of any other Partner or Person, to encumber,
sell or otherwise use in any manner any and all assets of the Partnership and to
enter into any contracts on behalf of the Partnership, and take any and all
actions on behalf of the Partnership, and such Person shall be entitled to deal
with the General Partner as if it were the Partnership's sole party in interest,
both legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner in connection with any
such dealing. In no event shall any Person dealing with the General Partner or
its representatives be obligated to ascertain that the terms of this Agreement
have been complied with or to inquire into the necessity or expediency of any
act or action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying in good faith thereon or claiming
thereunder that (i) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (ii) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (iii) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have
no liability under this Agreement (other than for breach thereof) except as
expressly provided in Section 10.4 or under the Act.
Section 8.2 Management of Business. No Limited Partner or Assignee
(other than the General Partner, any of its Affiliates or any officer, director,
member, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such) shall take
part in the operations, management or control (within the meaning of the Act) of
the Partnership's business, transact any business in the Partnership's name or
have the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, member, employee, partner, agent, representative, or
trustee of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners. Subject to any
agreements entered into pursuant to Section 7.6.E hereof and any other
agreements entered into by a Limited Partner or its Affiliates with the General
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Partner, the Partnership or a Subsidiary (including, without limitation, any
employment agreement), any Limited Partner and any Assignee, officer, director,
employee, agent, trustee, Affiliate, member or shareholder of any Limited
Partner shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities that are in direct or indirect competition
with the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partner shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner, to the extent expressly provided herein), and such Person shall
have no obligation pursuant to this Agreement, subject to Section 7.6.E hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the General Partner, the Partnership or a Subsidiary, to offer any interest
in any such business ventures to the Partnership, any Limited Partner or any
such other Person, even if such opportunity is of a character that, if presented
to the Partnership, any Limited Partner or such other Person, could be taken by
such Person.
Section 8.4 Return of Capital. Except pursuant to the rights of
Redemption set forth in Section 8.6 hereof, no Limited Partner shall be entitled
to the withdrawal or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided in Article 6
hereof or otherwise expressly provided in this Agreement, no Limited Partner or
Assignee shall have priority over any other Limited Partner or Assignee either
as to the return of Capital Contributions or as to profits, losses or
distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of (i) the most recent annual and
quarterly reports filed with the SEC by the General Partner pursuant to
the Exchange Act and (ii) each report or other written communication sent
to the shareholders of the General Partner;
(2) to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount
of cash and a description and statement of any other property or services
contributed by each Partner and that each Partner has agreed to contribute
in the future, and the date on which each became a Partner.
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B. The Partnership shall notify any Limited Partner that is a
Qualifying Party, on request, of the then current Adjustment Factor or any
change made to the Adjustment Factor.
C. Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that (i) the General Partner believes to be in
the nature of trade secrets or other information the disclosure of which the
General Partner in good faith believes is not in the best interests of the
Partnership or the General Partner or (ii) the Partnership or the General
Partner is required by law or by agreements with unaffiliated third parties to
keep confidential.
Section 8.6 Redemption Rights of Qualifying Parties.
A. After the applicable Twelve-Month Period, a Qualifying Party, but
no other Limited Partner or Assignee, shall have the right (subject to the terms
and conditions set forth herein) to require the Partnership to redeem all or a
portion of the Partnership Common Units held by such Tendering Party (such
Partnership Common Units being hereafter "Tendered Units") in exchange (a
"Redemption") for the Cash Amount payable on the Specified Redemption Date. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Qualifying Party when exercising the Redemption right
(the "Tendering Party"). The Partnership's obligation to effect a Redemption,
however, shall not arise or be binding against the Partnership (i) until and
unless there has been a Declination and (ii) before the Business Day following
the Cut-Off Date. Regardless of the binding or non-binding nature of a pending
Redemption, a Tendering Party shall have no right to receive distributions with
respect to any Tendered Units (other than the Cash Amount) paid after delivery
of the Notice of Redemption, whether or not the Partnership Record Date for such
distribution precedes or coincides with such delivery of the Notice of
Redemption; provided, however, that in the event that the General Partner on
behalf of the Partnership elects to fund the Cash Amount with the proceeds of an
Offering Funding pursuant to Section 8.6.D hereof, the Tendering Party's right
to receive distributions shall not be suspended as hereinbefore provided and
such Tendering Party shall have the right to receive distributions actually made
hereunder prior to the date of the closing of the Offering Funding whose
proceeds are used to pay the Cash Amount. In the event of a Redemption, the Cash
Amount shall be delivered as a certified check payable to the Tendering Party
or, in the General Partner's sole and absolute discretion, in immediately
available funds. Notwithstanding any of the foregoing to the contrary, each of
the DCI Limited Partners shall have no right to require the Partnership to
effect a Redemption (i) prior to the expiration of the Ten Year Period, (ii)
prior to the expiration of such shorter period ending not prior to the seventh
anniversary of the Effective Date as, in the opinion of reputable independent
counsel to the DCI Limited Partner in question, would not cause the DCI Limited
Partner Partnership Common Units held by such DCI Limited Partner to be
considered to be readily convertible into, or exchangeable for, "stock or
securities" within the meaning of Section 351(e)(1) of the Code, (iii) prior to
the expiration of such shorter period as shall, under regulations or published
administrative guidance that may be issued by the Treasury Department or
Internal Revenue Service, be deemed consistent with the DCI Limited Partner
Partnership Common Units not being readily convertible into, or exchangeable
for, "stock or securities" within the meaning of Section 351(e)(1) of the Code,
or (iv) except in connection with the occurrence of a Triggering Event; provided
that such Redemption is otherwise in compliance with the provisions of this
Article 8. Notwithstanding any of the foregoing or the General Partner's
election right contained in the first sentence of Section 8.6.B to the contrary,
but subject in any event to the provisions of Section 8.6.C, in the event the
Tendering Party is the Special Limited Partner, the General Partner shall be
required to acquire all of the Special Limited Partner's Tendered Units in
exchange for the applicable REIT Shares Amount.
B. Notwithstanding the provisions of Section 8.6.A hereof other than
the last sentence thereof, on or before the close of business on the Cut-Off
Date, the General Partner may, in its sole and absolute discretion but subject
to the Ownership Limit and the transfer restrictions and other limitations of
the Charter, elect to acquire some
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or all (such percentage being referred to as the "Applicable Percentage") of the
Tendered Units from the Tendering Party in exchange for the REIT Shares Amount
calculated based on the portion of Tendered Units it elects to acquire in
exchange for REIT Shares. In making such election, the General Partner shall act
in a fair, equitable and reasonable manner that neither prefers one group or
class of Qualifying Parties over another nor discriminates against a group or
class of Qualifying Parties. If the General Partner so elects, on the Specified
Redemption Date the Tendering Party shall sell such number of the Tendered Units
to the General Partner in exchange for a number of REIT Shares equal to the
product of the REIT Shares Amount and the Applicable Percentage. The Tendering
Party shall submit (i) such information, certification or affidavit as the
General Partner may reasonably require in connection with the application of the
Ownership Limit and other restrictions and limitations of the Charter to any
such acquisition and (ii) such written representations, investment letters,
legal opinions or other instruments necessary, in the General Partner's view, to
effect compliance with the Securities Act. In the event of a purchase of the
Tendered Units by the General Partner pursuant to this Section 8.6.B, the
Tendering Party shall no longer have the right to cause the Partnership to
effect a Redemption of such Tendered Units, and, upon notice to the Tendering
Party by the General Partner, given on or before the close of business on the
Cut-Off Date, that the General Partner has elected to acquire some or all of the
Tendered Units pursuant to this Section 8.6.B, the obligation of the Partnership
to effect a Redemption of the Tendered Units as to which the General Partner's
notice relates shall not accrue or arise. The product of the Applicable
Percentage and the REIT Shares Amount, if applicable, shall be delivered by the
General Partner as duly authorized, validly issued, fully paid and accessible
REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or
restriction, other than the Ownership Limit and other restrictions provided in
the Charter, the Bylaws of the General Partner, the Securities Act and relevant
state securities or "blue sky" laws. Neither any Tendering Party whose Tendered
Units are acquired by the General Partner pursuant to this Section 8.6.B, any
Partner, any Assignee nor any other interested Person shall have any right to
require or cause the General Partner to register, qualify or list any REIT
Shares owned or held by such Person, whether or not such REIT Shares are issued
pursuant to this Section 8.6.B, with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between the General Partner and any such Person.
Notwithstanding any delay in such delivery, the Tendering Party shall be deemed
the owner of such REIT Shares and Rights for all purposes, including, without
limitation, rights to vote or consent, receive dividends, and exercise rights,
as of the Specified Redemption Date. REIT Shares issued upon an acquisition of
the Tendered Units by the General Partner pursuant to this Section 8.6.B may
contain such legends regarding restrictions under the Securities Act and
applicable state securities laws as the General Partner in good faith determines
to be necessary or advisable in order to ensure compliance with such laws. The
Special Limited Partner will be granted registration rights with respect to the
REIT Shares Amount, if any, delivered pursuant hereto to the Special Limited
Partner in exchange for Tendered Units.
C. Notwithstanding the provisions of Section 8.6.A and 8.6.B hereof,
the Tendering Parties shall have no rights under this Agreement that would
otherwise be prohibited under the Charter with respect to the Ownership Limit.
To the extent that any attempted Redemption or acquisition of the Tendered Units
by the General Partner pursuant to Section 8.6.B hereof would be in violation of
this Section 8.6.C, it shall be null and void ab initio, and the Tendering Party
shall not acquire any rights or economic interests in REIT Shares otherwise
issuable by the General Partner under Section 8.6.B hereof.
D. In the event that the General Partner declines or fails to
exercise its purchase rights pursuant to Section 8.6.B hereof following receipt
of a Notice of Redemption (a "Declination"):
(1) The General Partner shall give notice of such Declination
to the Tendering Party on or before the close of business on the Cut-Off
Date. The failure of the General Partner to give
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notice of such Declination by the close of business on the Cut-Off Date
shall itself constitute a Declination.
(2) Subject to Section 11.6.D, the General Partner on behalf
of the Partnership may elect to raise funds for the payment of the Cash
Amount either (a) by contribution by the General Partner of funds from the
proceeds of a private placement or registered public offering (each, an
"Offering Funding") by the General Partner of a number of REIT Shares or
other securities of the REIT ("Offering Funding Shares") equal to the REIT
Shares Amount with respect to the Tendered Units or (b) from any other
sources (including, but not limited to, the sale of any Property and the
incurrence of additional Debt) available to the Partnership.
(3) Promptly upon the General Partner's receipt of the Notice
of Redemption and the General Partner giving notice of its Declination,
the General Partner shall give notice (a "Single Funding Notice") to all
Qualifying Parties then holding a Partnership Interest (or an interest
therein) and having Redemption rights pursuant to this Section 8.6 and
require that all such Qualifying Parties elect whether or not to effect a
Redemption of their Partnership Common Units to be funded through an
Offering Funding (if an Offering Funding has been elected by the General
Partner) or otherwise. In the event that any such Qualifying Party elects
to effect such a Redemption, it shall give notice thereof and of the
number of Partnership Common Units to be made subject thereto in writing
to the General Partner within ten (10) Business Days after receipt of the
Single Funding Notice, and such Qualifying Party shall be treated as a
Tendering Party for all purposes of this Section 8.6. In the event that a
Qualifying Party does not so elect, it shall be deemed to have waived its
right to effect a Redemption for the current Twelve-Month Period;
provided, however, that the General Partner shall not be required to
acquire Partnership Common Units pursuant to this Section 8.6.D more than
twice within a calendar year.
Any proceeds from an Offering Funding that are in excess of the Cash Amount
shall be for the sole benefit of the General Partner. The General Partner shall
make a Capital Contribution of such amounts to the Partnership for an additional
General Partner Interest and/or Limited Partner Interest. Any such contribution
shall entitle the General Partner to an equitable Percentage Interest
adjustment.
E. Notwithstanding the provisions of Section 8.6.B hereof, the
General Partner shall not, under any circumstances, elect to acquire Tendered
Units in exchange for the REIT Shares Amount if such exchange would be
prohibited under the Charter.
F. Notwithstanding anything herein to the contrary (but subject to
Section 8.6.C hereof), with respect to any Redemption (or any tender of
Partnership Common Units for Redemption if the Tendered Units are acquired by
the General Partner pursuant to Section 8.6.B hereof) pursuant to this Section
8.6:
(1) All Partnership Common Units acquired by the General
Partner pursuant to Section 8.6.B hereof shall automatically, and without
further action required, be converted into and deemed to be a General
Partner Interest comprised of the same number of Partnership Common Units.
(2) Subject to the Ownership Limit, no Tendering Party may
effect a Redemption for less than five hundred (500) Partnership Common
Units or, if such Tendering Party holds (as a Limited Partner or,
economically, as an Assignee) less than five
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hundred (500) Partnership Common Units, all of the Partnership Common
Units held by such Tendering Party.
(3) Each Tendering Party (a) may effect a Redemption only once
in each fiscal quarter of a Twelve-Month Period and (b) may not effect a
Redemption during the period after the Partnership Record Date with
respect to a distribution and before the record date established by the
General Partner for a distribution to its shareholders of some or all of
its portion of such Partnership distribution.
(4) Notwithstanding anything herein to the contrary, with
respect to any Redemption or acquisition of Tendered Units by the General
Partner pursuant to Section 8.6.B hereof, in the event that the General
Partner gives notice to all Limited Partners (but excluding any Assignees)
then owning Partnership Interests (a "Primary Offering Notice") that the
General Partner desires to effect a primary offering of its equity
securities then, unless the General Partner otherwise consents,
commencement of the actions denoted in Section 8.6.D hereof as to an
Offering Funding, if any, with respect to any Notice of Redemption
thereafter received, whether or not the Tendering Party is a Limited
Partner, may be delayed until the earlier of (a) the completion of the
primary offering or (b) ninety (90) days following the giving of the
Primary Offering Notice.
(5) Without the Consent of the General Partner, no Tendering
Party may effect a Redemption within ninety (90) days following the
closing of any prior Offering Funding.
(6) The consummation of such Redemption (or an acquisition of
Tendered Units by the General Partner pursuant to Section 8.6.B hereof, as
the case may be) shall be subject to the expiration or termination of the
applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(7) The Tendering Party shall continue to own (subject, in the
case of an Assignee, to the provision of Section 11.5 hereof) all
Partnership Common Units subject to any Redemption, and be treated as a
Limited Partner or an Assignee, as applicable, with respect to such
Partnership Common Units for all purposes of this Agreement, until such
Partnership Common Units are either paid for by the Partnership pursuant
to Section 8.6.A hereof or transferred to the General Partner and paid
for, by the issuance of the REIT Shares, pursuant to Section 8.6.B hereof
on the Specified Redemption Date. Until a Specified Redemption Date and an
acquisition of the Tendered Units by the General Partner pursuant to
Section 8.6.B hereof, the Tendering Party shall have no rights as a
shareholder of the General Partner with respect to the REIT Shares
issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 8.6.F, all Partnership Common Units beneficially owned by a Related
Party of a Tendering Party shall be considered to be owned or held by such
Tendering Party.
G. In connection with an exercise of Redemption rights pursuant to
this Section 8.6, the Tendering Party shall submit the following to the General
Partner, in addition to the Notice of Redemption:
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(1) A written affidavit, dated the same date as the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as
determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT
Shares by (i) such Tendering Party and (ii) any Related Party and (b)
representing that, after giving effect to the Redemption or an acqui
sition of the Tendered Units by the General Partner pursuant to Section
8.6.B hereof, neither the Tendering Party nor any Related Party will own
REIT Shares in excess of the Ownership Limit;
(2) A written representation that neither the Tendering Party
nor any Related Party has any intention to acquire any additional REIT
Shares prior to the closing of the Redemption or an acquisition of the
Tendered Units by the General Partner pursuant to Section 8.6.B hereof on
the Specified Redemption Date; and
(3) An undertaking to certify, at and as a condition to the
closing of (i) the Redemption or (ii) the acquisition of the Tendered
Units by the General Partner pursuant to Section 8.6.B hereof on the
Specified Redemption Date, that either (a) the actual and constructive
ownership of REIT Shares by the Tendering Party and any Related Party
remain unchanged from that disclosed in the affidavit required by Section
8.6.G(1) or (b) after giving effect to the Redemption or an acquisition of
the Tendered Units by the General Partner pursuant to Section 8.6.B
hereof, neither the Tendering Party nor any Related Party shall own REIT
Shares in violation of the Ownership Limit.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
A. The General Partner shall keep or cause to be kept at the
principal office of the Partnership those records and documents required to be
maintained by the Act and other books and records deemed by the General Partner
to be appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 8.5.A or Section 9.3 hereof. Any records maintained by or on behalf
of the Partnership in the regular course of its business may be kept on, or be
in the form for, punch cards, magnetic tape, photographs, micrographics or any
other information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time.
B. The books of the Partnership shall be maintained, for financial
and tax reporting purposes, on an accrual basis in accordance with generally
accepted accounting principles, or on such other basis as the General Partner
determines to be necessary or appropriate. To the extent permitted by sound
accounting practices and principles, the Partnership and the General Partner may
operate with integrated or consolidated accounting records, operations and
principles.
Section 9.2 Partnership Year. The Partnership Year of the
Partnership shall be the calendar year.
Section 9.3 Reports.
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A. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each Partnership Year, the General Partner
shall cause to be mailed to each Limited Partner, of record as of the close of
the Partnership Year, an annual report containing financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, for such Partnership Year,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be mailed to
each Limited Partner, of record as of the last day of the calendar quarter, a
report containing unaudited financial statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, and such other information as may be required by
applicable law or regulation or as the General Partner determines to be
appropriate. At the request of any Limited Partner, the General Partner shall
provide access to the books, records and workpapers upon which the reports
required by this Section 9.3 are based, to the extent required by the Act.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall
arrange for the preparation and timely filing of all returns with respect to
Partnership income, gains, deductions, losses and other items required of the
Partnership for federal and state income tax purposes and shall use all
reasonable effort to furnish, within ninety (90) days of the close of each
taxable year, the tax information reasonably required by Limited Partners for
federal and state income tax reporting purposes. The Limited Partners shall
promptly provide the General Partner with such information relating to the
Contributed Properties, including tax basis and other relevant information, as
may be reasonably requested by the General Partner from time to time.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code, including, but not limited to,
the election under Code Section 754 and the election to use the "recurring item"
method of accounting provided under Code Section 461(h) with respect to property
taxes imposed on the Partnership's Properties; provided, however, that, if the
"recurring item" method of accounting is elected with respect to such property
taxes, the Partnership shall pay the applicable property taxes prior to the date
provided in Code Section 461(h) for purposes of determining economic
performance. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, any election under Code Sections 461(h)
and 754) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. The tax matters partner shall
receive no compensation for its services. All third-party costs and expenses
incurred by the tax matters partner in performing its duties as such (including
legal and accounting fees and expenses) shall be borne by the Partnership in
addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, so long
as the compensation paid by the Partnership for such services is reasonable. At
the request of any Limited Partner, the General Partner agrees to consult with
such Limited Partner with respect to the preparation
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and filing of any returns and with respect to any subsequent audit or litigation
relating to such returns; provided, however, that the filing of such returns
shall be in the sole and absolute discretion of the General Partner.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judi cial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes (such administrative proceedings being referred to as
a "tax audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners, except that
such settlement agreement shall not bind any Partner (i) who (within the
time prescribed pursuant to the Code and Regulations) files a statement
with the IRS providing that the tax matters partner shall not have the
authority to enter into a settlement agreement on behalf of such Partner
or (ii) who is a "notice partner" (as defined in Code Section 6231) or a
member of a "notice group" (as defined in Code Section 6223(b)(2));
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken into
account by a Partner for tax purposes (a "final adjustment") is mailed to
the tax matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the United States
Tax Court or the United States Claims Court, or the filing of a complaint
for refund with the District Court of the United States for the district
in which the Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is not allowed by the
IRS, to file an appropriate pleading (petition or complaint) for judicial
review with respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax that is attributable to any item required to
be taken into account by a Partner for tax purposes, or an item affected
by such item; and
(6) to take any other action on behalf of the Partners in
connection with any tax audit or judicial review proceeding to the extent
permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters
partner in connection with any such proceeding, except to the extent required by
law, is a matter in the sole and absolute discretion of the tax matters partner
and the provisions relating to indemnification of the General Partner set forth
in Section 7.7 hereof shall be fully applicable to the tax matters partner in
its capacity as such.
Section 10.4 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Code Section 1441, Code
Section 1442, Code Section 1445 or Code Sec tion 1446. Any amount paid on behalf
of or with respect to a Limited Partner shall constitute a loan by the
Partnership
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to such Limited Partner, which loan shall be repaid by such Limited Partner
within fifteen (15) days after notice from the General Partner that such payment
must be made unless (i) the Partnership withholds such payment from a
distribution that would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the Available Funds of the Partnership that
would, but for such payment, be distributed to the Limited Partner. Each Limited
Partner hereby unconditionally and irrevocably grants to the Partnership a
security interest in such Limited Partner's Partnership Interest to secure such
Limited Partner's obligation to pay to the Partnership any amounts required to
be paid pursuant to this Section 10.4. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 10.4 when
due, the General Partner may, in its sole and absolute discretion, elect to make
the payment to the Partnership on behalf of such defaulting Limited Partner, and
in such event shall be deemed to have loaned such amount to such defaulting
Limited Partner and shall succeed to all rights and remedies of the Partnership
as against such defaulting Limited Partner (including, without limitation, the
right to receive distributions). Any amounts payable by a Limited Partner
hereunder shall bear interest at the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
the Wall Street Journal, plus four (4) percentage points (but not higher than
the maximum lawful rate) from the date such amount is due (i.e., fifteen (15)
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
Section 10.5 Organizational Expenses. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60 month period as provided in Section 709 of the Code.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
A. No part of the interest of a Partner shall be subject to the
claims of any creditor, to any spouse for alimony or support, or to legal
process, and may not be voluntarily or involuntarily alienated or encumbered
except as may be specifically provided for in this Agreement.
B. No Partnership Interest shall be Transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article 11. Any Transfer or purported Transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void ab initio.
C. Notwithstanding the other provisions of this Article 11 (other
than Section 11.6.D hereof), the Partnership Interests of the General Partner
may be Transferred, in whole or in part, at any time or from time to time, to
any Person that is, at the time of such Transfer, a Qualified REIT Subsidiary.
Any transferee of the entire General Partner Interest pursuant to this Section
11.1.C shall automatically become, without further action or Consent of any
Limited Partners, the sole general partner of the Partnership, subject to all
the rights, privileges, duties and obligations under this Agreement and the Act
relating to a general partner. Upon any Transfer permitted by this Section
11.1.C, the transferor Partner shall be relieved of all its obligations under
this Agreement. The provisions of Section 11.2.B (other than the last sentence
thereof), 11.3, 11.4.A and 11.5 hereof shall not apply to any Transfer permitted
by this Section 11.1.C.
D. No Transfer of any Partnership Interest may be made to a lender
to the Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership
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whose loan constitutes a Nonrecourse Liability, without the consent of the
General Partner in its sole and absolute discretion; provided that as a
condition to such consent, the lender will be required to enter into an
arrangement with the Partnership and the General Partner to redeem or exchange
for the REIT Shares Amount any Partnership Units in which a security interest is
held by such lender simultaneously with the time at which such lender would be
deemed to be a partner in the Partnership for purposes of allocating liabilities
to such lender under Section 752 of the Code.
Section 11.2 Transfer of General Partner's Partnership Interest.
A. The General Partner may not Transfer any of its General Partner
Interest or withdraw from the Partnership except as provided in Sections 11.1.C,
11.2.B and 11.2.C hereof.
B. Except as set forth in Section 11.2.C below, the General Partner
shall not withdraw from the Partnership and shall not Transfer all or any
portion of its interest in the Partnership (whether by sale, disposition, statu
tory merger or consolidation, liquidation or otherwise) without the Consent of
the Limited Partners, which Consent may be given or withheld in the sole and
absolute discretion of the Limited Partners. Upon any Transfer of such a
Partnership Interest pursuant to the Consent of the Limited Partners and
otherwise in accordance with the provisions of this Section 11.2.B, the
transferee shall become a successor General Partner for all purposes herein, and
shall be vested with the powers and rights of the transferor General Partner,
and shall be liable for all obligations and responsible for all duties of the
General Partner, once such transferee has executed such instruments as may be
necessary to effectuate such admission and to confirm the agreement of such
transferee to be bound by all the terms and provisions of this Agreement with
respect to the Partnership Interest so acquired. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assumes, by operation
of law or express agreement, all of the obligations of the transferor General
Partner under this Agreement with respect to such Transferred Partnership
Interest, and such Transfer shall relieve the transferor General Partner of its
obligations under this Agreement without the Consent of the Limited Partners. In
the event that the General Partner withdraws from the Partnership, in violation
of this Agreement or otherwise, or otherwise dissolves or terminates, or upon
the bankruptcy of the General Partner, a Majority in Interest of the Limited
Partners may elect to continue the Partnership business by selecting a successor
General Partner in accordance with the Act.
C. The General Partner may merge with another entity if immediately
after such merger substantially all of the assets of the surviving entity, other
than the General Partner Interest held by the General Partner, are contributed
to the Partnership as a Capital Contribution in exchange for Partnership Units.
Section 11.3 Limited Partners' Rights to Transfer.
A. General. Prior to the end of the first Twelve-Month Period, no
Limited Partner shall Transfer all or any portion of its Partnership Interest to
any transferee without the Consent of the General Partner, which Consent may be
withheld in its sole and absolute discretion; provided, however, that any
Limited Partner may, at any time, without the consent of the General Partner,
(i) Transfer all or part of its Partnership Interest to any Family Member, any
Controlled Entity or any Affiliate, provided that the transferee is, in any such
case, a Qualified Transferee, or (ii) pledge (a "Pledge") all or any portion of
its Partnership Interest to a lending institution, that is not an Affiliate of
such Limited Partner, as collateral or security for a bona fide loan or other
extension of credit, and Transfer such pledged Partnership Interest to such
lending institution in connection with the exercise of remedies under such loan
or extension or credit (any Transfer or Pledge permitted by this proviso is
hereinafter referred to as a "Permitted Transfer"). After such first
Twelve-Month Period, each Limited Partner, and each transferee of Partnership
Units or Assignee pursuant to a Permitted Transfer, shall have the right to
Transfer all or any portion of its Partnership Interest to any Person, subject
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to the provisions of Section 11.6 hereof and the satisfaction of each of the
following conditions (except in the case of a Transfer pursuant to clauses (i)
or (ii) above):
(1) Qualified Transferee. Any Transfer of a Partnership
Interest shall be made only to a single Qualified Transferee; provided,
however, that, for such purposes, all Qualified Transferees that are
Affiliates, or that comprise investment accounts or funds managed by a
single Qualified Transferee and its Affiliates, shall be considered
together to be a single Qualified Transferee; provided, further, that each
Transfer meeting the minimum Transfer restriction of Section 11.3.A(2)
hereof may be to a separate Qualified Transferee.
(2) Minimum Transfer Restriction. Any Transferring Partner
must Transfer not less than the lesser of (i) the greater of five hundred
(500) Partnership Units or one-third (1/3) of the number of Partnership
Units owned by such Partner as of the Effective Date or (ii) all of the
remaining Partnership Units owned by such Transferring Partner; provided,
however, that, for purposes of determining compliance with the foregoing
restriction, all Partnership Units owned by Affiliates of a Limited
Partner shall be considered to be owned by such Limited Partner.
(3) Exception for Permitted Transfers. The conditions of
Sections 11.3.A(1) and 11.3.A(2) hereof shall not apply in the case of a
Permitted Transfer.
It is a condition to any Transfer otherwise permitted hereunder (whether or not
such Transfer is effected during or after the first Twelve-Month Period) that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such Transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Notwithstanding the foregoing, any transferee of any
Transferred Partnership Interest shall be subject to any and all ownership
limitations (including, without limitation, the Ownership Limit) contained in
the Charter that may limit or restrict such transferee's ability to exercise its
Redemption rights, including, without limitation, the Ownership Limit. Any
transferee, whether or not admitted as a Substituted Limited Partner, shall take
subject to the obligations of the transferor hereunder. Unless admitted as a
Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by
operation of law or otherwise, shall have any rights hereunder, other than the
rights of an Assignee as provided in Section 11.5 hereof. Notwithstanding any of
the foregoing to the contrary, each of the DCI Limited Partners shall have no
right to effect a Transfer prior to the expiration of the Ten Year Period except
that at any time in connection with a Triggering Event affecting a DCI Limited
Partner, such DCI Limited Partner shall have the right to effect a Transfer to
the extent necessary to enable such DCI Limited Partner to avoid the adverse tax
consequences which would otherwise result from such Triggering Event; provided
that such Transfer is otherwise in compliance with the provisions of this
Article 11.
B. Incapacity. If a Limited Partner is subject to Incapacity, the
executor, administrator, trustee, committee, guardian, conservator or receiver
of such Limited Partner's estate shall have all the rights of a Limited Partner,
but not more rights than those enjoyed by other Limited Partners, for the
purpose of settling or managing the estate, and such power as the Incapacitated
Limited Partner possessed to Transfer all or any part of its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. Opinion of Counsel. In connection with any proposed Transfer of a
Limited Partner Interest, the General Partner shall have the right to receive an
opinion of counsel reasonably satisfactory to it to the effect that
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the proposed Transfer may be effected without registration under the Securities
Act and will not otherwise violate any federal or state securities laws or
regulations applicable to the Partnership or the Partnership Interests
Transferred. If, in the opinion of such counsel, such Transfer would require the
filing of a registration statement under the Securities Act or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units, the General Partner may prohibit any
Transfer otherwise permitted under this Section 11.3 by a Limited Partner of
Partnership Interests.
D. Adverse Tax Consequences. No Transfer by a Limited Partner of its
Partnership Interests (including any Redemption, any other acquisition of
Partnership Units by the Partnership or the General Partner) may be made to or
by any person if (i) in the opinion of legal counsel for the Partnership, it
would result in the Partnership being treated as an association taxable as a
corporation or would result in a termination of the Partnership under Code
Section 708, or (ii) such Transfer would be effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Code Section 7704.
Section 11.4 Substituted Limited Partners.
A. No Limited Partner shall have the right to substitute a
transferee (including transferees pursuant to Transfers permitted by Section
11.3 hereof) as a Limited Partner in its place. A transferee of the interest of
a Limited Partner may be admitted as a Substituted Limited Partner only with the
Consent of the General Partner, which Consent may be given or withheld by the
General Partner in its sole and absolute discretion. The failure or refusal by
the General Partner to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or the General Partner. Subject to the foregoing, an Assignee
shall not be admitted as a Substituted Limited Partner until and unless it
furnishes to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all the terms, conditions and
applicable obligations of this Agreement, (ii) a counterpart signature page to
this Agreement executed by such Assignee and (iii) such other documents and
instruments as may be required or advisable, in the sole and absolute discretion
of the General Partner, to effect such Assignee's admission as a Substituted
Limited Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address and number of
Partnership Units of such Substituted Limited Partner and to eliminate or
adjust, if necessary, the name, address and number of Partnership Units of the
predecessor of such Substituted Limited Partner.
Section 11.5 Assignees. If the General Partner, in its sole and
absolute discretion, does not consent to the admission of any permitted
transferee under Section 11.3 hereof as a Substituted Limited Partner, as
described in Section 11.4 hereof, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be entitled to all
the rights of an assignee of a limited partnership interest under the Act,
including the right to receive distributions from the Partnership and the share
of Net Income, Net Losses and other items of income, gain, loss, deduction and
credit of the Partnership attributable to the Partnership Units assigned to such
transferee and the rights to Transfer the Partnership Units provided in this
Article 11, but shall not be deemed to be a holder of Partnership Units for any
other purpose under this Agreement, and shall not be entitled to effect a
Consent or vote or effect a Redemption with respect to such Partnership Units on
any matter presented to the Limited Partners for approval (such right to Consent
or vote or effect a Redemption, to the extent provided in this Agreement or
under the Act, fully remaining with
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the transferor Limited Partner). In the event that any such transferee desires
to make a further assignment of any such Partnership Units, such transferee
shall be subject to all the provisions of this Article 11 to the same extent and
in the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.
Section 11.6 General Provisions.
A. No Limited Partner may withdraw from the Partnership other than
as a result of a permitted Transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11, with respect to which the transferee
becomes a Substituted Limited Partner, or pursuant to a redemption (or
acquisition by the General Partner) of all of its Partnership Units pursuant to
a Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit
Designation.
B. Any Limited Partner who shall Transfer all of its Partnership
Units in a Transfer (i) permitted pursuant to this Article 11 where such
transferee was admitted as a Substituted Limited Partner, (ii) pursuant to the
exercise of its rights to effect a redemption of all of its Partnership Units
pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any
Partnership Unit Designation or (iii) to the General Partner, whether or not
pursuant to Section 8.6.B hereof, shall cease to be a Limited Partner.
C. If any Partnership Unit is Transferred in compliance with the
provisions of this Article 11, or is redeemed by the Partnership, or acquired by
the General Partner pursuant to Section 8.6 hereof, on any day other than the
first day of a Partnership Year, then Net Income, Net Losses, each item thereof
and all other items of income, gain, loss, deduction and credit attributable to
such Partnership Unit for such Partnership Year shall be allocated to the
transferor Partner or the Tendering Party, as the case may be, and, in the case
of a Transfer or assignment other than a Redemption, to the transferee Partner,
by taking into account their varying interests during the Partnership Year in
accordance with Code Section 706(d), using the "interim closing of the books"
method or another permissible method selected by the General Partner. Solely for
purposes of making such allocations, each of such items for the calendar month
in which a Transfer occurs shall be allocated to the transferee Partner and none
of such items for the calendar month in which a Transfer or a Redemption occurs
shall be allocated to the transferor Partner or the Tendering Party, as the case
may be, if such Transfer occurs on or before the fifteenth (15th) day of the
month, otherwise such items shall be allocated to the transferor. All
distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
Transfer, assignment or Redemption shall be made to the transferor Partner or
the Tendering Party, as the case may be, and, in the case of a Transfer other
than a Redemption, all distributions of Available Cash thereafter attributable
to such Partnership Unit shall be made to the transferee Partner.
D. In addition to any other restrictions on Transfer herein
contained, in no event may any Transfer or assignment of a Partnership Interest
by any Partner (including any Redemption, any acquisition of Partnership Units
by the General Partner or any other acquisition of Partnership Units by the
Partnership) be made (i) to any person or entity who lacks the legal right,
power or capacity to own a Partnership Interest; (ii) in violation of applicable
law; (iii) of any component portion of a Partnership Interest, such as the
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) in the event that such Transfer would
cause the General Partner to cease to comply with the REIT Requirements; (v) if
such Transfer would, in the opinion of counsel to the Partnership or the General
Partner, cause a termination of the Partnership for federal or state income tax
purposes (except as a result of the Redemption (or acquisition by the General
Partner) of all Partnership Common Units held by all Limited Partners); (vi) if
such Transfer would, in the opinion of legal counsel to the Partnership, cause
the Partnership to cease to be classified as a partnership for federal income
tax purposes (except as a result of the Redemption (or acquisition by the
General Partner) of all Partnership Common Units held by all Limited Partners);
(vii) if such Transfer would cause the Partnership to become, with respect to
any employee benefit plan
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subject to Title I of ERISA, a "party-in-interest" (as defined in ERISA Section
3(14)) or a "disqualified person" (as defined in Code Section 4975(c)); (viii)
if such Transfer would, in the opinion of legal counsel to the Partnership,
cause any portion of the assets of the Partnership to constitute assets of any
employee benefit plan pursuant to Department of Labor Regulations Section
2510.2-101; (ix) if such Transfer requires the registration of such Partnership
Interest pursuant to any applicable federal or state securities laws; (x) if
such Transfer causes the Partnership to become a "publicly traded partnership,"
as such term is defined in Code Section 469(k)(2) or Code 7704(b); (xi) if such
Transfer would cause the Partnership to have more than five hundred (500)
partners (including as partners those persons indirectly owning an interest in
the Partnership through a partnership, limited liability company, subchapter S
corporation or grantor trust); (xii) if such Transfer causes the Partnership (as
opposed to the General Partner) to become a reporting company under the Exchange
Act; or (xiii) if such Transfer subjects the Partnership to regulation under the
Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA,
each as amended.
E. Transfers pursuant to this Article 11 may only be made on the
first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to
all of the General Partner's General Partner Interest pursuant to Section 11.2
hereof who is proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective immediately prior
to such Transfer. Any such successor shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject to
the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners.
A. After the admission to the Partnership of the Special Limited
Partner and the DCI Limited Partners on the date hereof, a Person (other than an
existing Partner) who makes a Capital Contribution to the Partnership in
accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance, in form and substance satisfactory to the General
Partner, of all of the terms and conditions of this Agreement, including,
without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a
counterpart signature page to this Agreement executed by such Person and (iii)
such other documents or instruments as may be required in the sole and absolute
discretion of the General Partner in order to effect such Person's admission as
an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership
on any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items of income, gain, loss, deduction
and credit allocable among Partners and Assignees for such Partnership Year
shall be allocated pro rata among such Additional Limited Partner and all other
Partners and Assignees by taking into account their varying
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interests during the Partnership Year in accordance with Code Section 706(d),
using the "interim closing of the books" method or another permissible method
selected by the General Partner. Solely for purposes of making such allocations,
each of such items for the calendar month in which an admission of any
Additional Limited Partner occurs shall be allocated among all the Partners and
Assignees including such Additional Limited Partner, in accordance with the
principles described in Section 11.6.C hereof. All distributions of Available
Cash with respect to which the Partnership Record Date is before the date of
such admission shall be made solely to Partners and Assignees other than the
Additional Limited Partner, and all distributions of Available Cash thereafter
shall be made to all the Partners and Assignees including such Additional
Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership. For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
Section 12.4 Admission of Initial Limited Partners. The Persons
listed on Exhibit A as limited partners of the Partnership shall be admitted to
the Partnership as Limited Partners upon their execution and delivery of this
Agreement.
Section 12.5 Limit on Number of Partners. Unless otherwise permitted
by the General Partner, no Person shall be admitted to the Partnership as an
Additional Limited Partner if the effect of such admission would be to cause the
Partnership to have a number of Partners (including as Partners for this purpose
those Persons indirectly owning an interest in the Partnership through another
partnership, a limited liability company, a subchapter S corporation or a
grantor trust) that would cause the Partnership to become a reporting company
under the Exchange Act.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by
the admission of Additional Limited Partners or by the admission of a successor
General Partner in accordance with the terms of this Agreement. Upon the
withdrawal of the General Partner, any successor General Partner shall continue
the business of the Partnership without dissolution. However, the Partnership
shall dissolve, and its affairs shall be wound up, upon the first to occur of
any of the following (each a "Liquidating Event"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal, as defined in the Act (including, without
limitation, bankruptcy), of the sole General Partner unless, within ninety (90)
days after the withdrawal, a "majority in interest" (as such phrase is used in
Section 17-801(3) of the Act) of the remaining Partners agree in writing, in
their sole and absolute discretion, to continue the business of the Partnership
and to the appointment, effective as of the date of withdrawal, of a successor
General Partner:
C. an election to dissolve the Partnership made by the General
Partner in its sole and absolute discretion, with or without the Consent of the
Limited Partners;
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D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
E. the occurrence of a Terminating Capital Transaction; or
F. the Redemption (or acquisition by the General Partner) of all
Partnership Units other than Partnership Units held by the General Partner.
Section 13.2 Winding Up.
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its creditors and Partners.
After the occurrence of a Liquidating Event, no Partner shall take any action
that is inconsistent with, or not necessary to or appropriate for, the winding
up of the Partnership's business and affairs. The General Partner (or, in the
event that there is no remaining General Partner or the General Partner has
dissolved, become bankrupt within the meaning of the Act or ceased to operate,
any Person elected by a Majority in Interest of the Limited Partners (the
General Partner or such other Person being referred to herein as the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property, and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and distributed
in the following order:
(1) First, to the satisfaction of all of the Partnership's
debts and liabilities to creditors other than the Partners and their
Assignees (whether by payment or the making of reasonable provision for
payment thereof);
(2) Second, to the satisfaction of all of the Partnership's
debts and liabilities to the General Partner (whether by payment or the
making of reasonable provision for payment thereof), including, but not
limited to, amounts due as reimbursements under Section 7.4 hereof;
(3) Third, to the satisfaction of all of the Partnership's
debts and liabilities to the other Partners and any Assignees (whether by
payment or the making of reasonable provision for payment thereof);
(4) Fourth, to the payment of any unpaid preferred
distributions to the Special Limited Partner; and
(5) Subject to the terms of any Partnership Unit Designation,
the balance, if any, to the General Partner, the Limited Partners and any
Assignees in accordance with and in proportion to their positive Capital
Account balances, after giving effect to all contributions, distributions
and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof that
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the
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liquidation of any assets except those necessary to satisfy liabilities of the
Partnership (including to those Partners as creditors) and/or distribute to the
Partners, in lieu of cash, as tenants in common and in accordance with the
provisions of Section 13.2.A hereof, undivided interests in such Partnership
assets as the Liquidator deems not suitable for liquidation. Any such
distributions in kind shall be made only if, in the good faith judgment of the
Liquidator, such distributions in kind are in the best interest of the Partners,
and shall be subject to such conditions relating to the disposition and
management of such properties as the Liquidator deems reasonable and equitable
and to any agreements governing the operation of such properties at such time.
The Liquidator shall determine the fair market value of any property distributed
in kind using such reasonable method of valuation as it may adopt.
C. In the event that the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article 13 to the Partners and Assignees that have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
to the extent of, and in proportion to, positive Capital Account balances. If
the General Partner has a deficit balance in its Capital Account (after giving
effect to all contributions, distributions and allocations for all taxable
years, including the year during which such liquidation occurs) (a "Capital
Account Deficit"), the General Partner shall make a contribution to the capital
of the Partnership equal to the amount of such deficit. No Partner other than
the General Partner shall be required to make any contribution to the capital of
the Partnership with respect to a Capital Account Deficit, if any, of such
Partner, and such Capital Account Deficit shall not be considered a debt owed to
the Partnership or any other person for any purpose whatsoever. In the sole and
absolute discretion of the General Partner or the Liquidator, a pro rata portion
of the distributions that would otherwise be made to the Partners pursuant to
this Article 13 may be:
1. distributed to a trust established for the benefit of the
General Partner and the Limited Partners for the purpose of liquidating
Partnership assets, collecting amounts owed to the Partnership, and paying
any contingent or unforeseen liabilities or obligations of the Partnership
or of the General Partner arising out of or in connection with the
Partnership and/or Partnership activities. The assets of any such trust
shall be distributed to the General Partner and the Limited Partners, from
time to time, in the reasonable discretion of the General Partner, in the
same proportions and amounts as would otherwise have been distributed to
the General Partner and the Limited Partners pursuant to this Agreement;
or
2. withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed to
the General Partner and Limited Partners in the manner and order of
priority set forth in Section 13.2.A hereof as soon as practicable.
Section 13.3 Deemed Distribution and Recontribution. Notwithstanding
any other provision of this Article 13, in the event that the Partnership is
liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but
no Liquidating Event has occurred, the Partnership's Property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged and
the Partnership's affairs shall not be wound up. Instead, for federal income tax
purposes the Partnership shall be deemed to have distributed the Property in
kind to the Partners and the Assignees, who shall be deemed to have contributed
all of its assets and liabilities to a new partnership in exchange for an
interest in the new partnership; and, immediately thereafter, distributed
interests in the new partnership to the Partners in accordance with their
respective Capital Accounts in liquidation of the Partnership, and the new
partnership is deemed to continue the business of the Partnership. Nothing in
this Section 13.3 shall be deemed to have constituted any Assignee as a
Substituted Limited Partner without compliance with the provisions of Section
11.4 hereof.
Section 13.4 Rights of Limited Partners. Except as otherwise
provided in this Agreement, (a) each Limited Partner shall look solely to the
assets of the Partnership for the return of its Capital Contribution, (b) no
Limited
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Partner shall have the right or power to demand or receive property other than
cash from the Partnership and (c) no Limited Partner shall have priority over
any other Limited Partner as to the return of its Capital Contributions,
distribu tions or allocations.
Section 13.5 Notice of Dissolution. In the event that a Liquidating
Event occurs or an event occurs that would, but for an election or objection by
one or more Partners pursuant to Section 13.1 hereof, result in a dissolution of
the Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and, in the General
Partner's sole and absolute discretion or as required by the Act, to all other
parties with whom the Partnership regularly conducts business (as determined in
the sole and absolute discretion of the General Partner), and the General
Partner may, or, if required by the Act, shall, publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the sole and absolute discretion
of the General Partner).
Section 13.6 Cancellation of Certificate of Limited Partnership.
Upon the completion of the liquidation of the Partnership cash and property as
provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed with the State of Delaware, all
qualifications of the Partnership as a foreign limited partnership or
association in jurisdictions other than the State of Delaware shall be
cancelled, and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.7 Reasonable Time for Winding-Up. A reasonable time shall
be allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS
Section 14.1 Procedures for Actions and Consents of Partners. The
actions requiring consent or approval of Limited Partners pursuant to this
Agreement, including Section 7.3 hereof, or otherwise pursuant to applicable
law, are subject to the procedures set forth in this Article 14.
Section 14.2 Amendments. Amendments to this Agreement may be
proposed by the General Partner or by a Majority in Interest of the Limited
Partners. Following such proposal, the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
consent of the Limited Partners on the proposed amendment or shall call a
meeting to vote thereon and to transact any other business that the General
Partner may deem appropriate. For purposes of obtaining a written consent, the
General Partner may require a response within a reasonable specified time, but
not less than fifteen (15) days, and failure to respond in such time period
shall constitute a consent that is consistent with the General Partner's
recommendation with respect to the proposal; provided, however, that an action
shall become effective at such time as requisite consents are received even if
prior to such specified time.
Section 14.3 Meetings of the Partners.
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
a Majority in Interest of the Limited Partners. The call shall state
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the nature of the business to be transacted. Notice of any such meeting shall be
given to all Partners not less than seven (7) days nor more than thirty (30)
days prior to the date of such meeting. Partners may vote in person or by proxy
at such meeting. Whenever the vote or Consent of Partners is permitted or
required under this Agreement, such vote or Consent may be given at a meeting of
Partners or may be given in accordance with the procedure prescribed in Section
14.3.B hereof.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement
for the action in question). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act
for it by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy (or there is
receipt of a proxy authorizing a later date). Every proxy shall be revocable at
the pleasure of the Limited Partner executing it, such revocation to be
effective upon the Partnership's receipt of written notice of such revocation
from the Limited Partner executing such proxy.
D. Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate in its sole and absolute discretion. Without limitation,
meetings of Partners may be conducted in the same manner as meetings of the
General Partner's shareholders and may be held at the same time as, and as part
of, the meetings of the General Partner's shareholders.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. Any notice, demand, request or
report required or permitted to be given or made to a Partner or Assignee under
this Agreement shall be in writing and shall be deemed given or made when
delivered in person or when sent by first class United States mail or by other
means of written communication (including by telecopy, facsimile, or commercial
courier service) to the Partner or Assignee at the address set forth in Exhibit
A or such other address of which the Partner shall notify the General Partner in
writing.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" or "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require,
any pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
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Section 15.4 Further Action. The parties shall execute and deliver
all documents, provide all information and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver.
A. No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
B. The restrictions, conditions and other limitations on the rights
and benefits of the Limited Partners contained in this Agreement, and the
duties, covenants and other requirements of performance or notice by the Limited
Partners, are for the benefit of the Partnership and, except for an obligation
to pay money to the Partnership, may be waived or relinquished by the General
Partner, in its sole and absolute discretion, on behalf of the Partnership in
one or more instances from time to time and at any time; provided, however, that
any such waiver or relinquishment may not be made if it would have the effect of
(i) creating liability for any other Limited Partner, (ii) causing the
Partnership to cease to qualify as a limited partnership, (iii) reducing the
amount of cash otherwise distributable to the Limited Partners, (iv) resulting
in the classification of the Partnership as an association or publicly traded
partnership taxable as a corporation or (v) violating the Securities Act, the
Exchange Act or any state "blue sky" or other securities laws; provided,
further, that any waiver relating to compliance with the Ownership Limit or
other restrictions in the Charter shall be made and shall be effective only as
provided in the Charter.
Section 15.7 Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
Section 15.8 Applicable Law. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware,
without regard to the principles of conflicts of law. In the event of a conflict
between any provision of this Agreement and any non-mandatory provision of the
Act, the provisions of this Agreement shall control and take precedence.
Section 15.9 Entire Agreement. This Agreement contains all of the
understandings and agree ments between and among the Partners with respect to
the subject matter of this Agreement and the rights, interests and obligations
of the Partners with respect to the Partnership.
Section 15.10 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
Section 15.11 Limitation to Preserve REIT Status. Notwithstanding
anything else in this Agreement, to the extent that the amount paid, credited,
distributed or reimbursed by the Partnership to any REIT Partner or its
officers, directors, employees or agents, whether as a reimbursement, fee,
expense or indemnity (a
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"REIT Payment"), would constitute gross income to the REIT Partner for purposes
of Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any
other provision of this Agreement, the amount of such REIT Payments, as selected
by the General Partner in its discretion from among items of potential
distribution, reimbursement, fees, expenses and indemnities, shall be reduced
for any Partnership Year so that the REIT Payments, as so reduced, for or with
respect to such REIT Partner shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) four and
nine-tenths percent (4.9%) of the REIT Partner's total gross income (but
excluding the amount of any REIT Payments) for the Partnership Year that
is described in subsections (A) through (H) of Code Section 856(c)(2) over
(b) the amount of gross income (within the meaning of Code Section
856(c)(2)) derived by the REIT Partner from sources other than those
described in subsections (A) through (H) of Code Section 856(c)(2) (but
not including the amount of any REIT Payments); or
(ii) an amount equal to the excess, if any, of (a) twenty-four
percent (24%) of the REIT Partner's total gross income (but excluding the
amount of any REIT Payments) for the Partnership Year that is described in
subsections (A) through (I) of Code Section 856(c)(3) over (b) the amount
of gross income (within the meaning of Code Section 856(c)(3)) derived by
the REIT Partner from sources other than those described in subsections
(A) through (I) of Code Section 856(c)(3) (but not including the amount of
any REIT Payments);
provided, however, that REIT Payments in excess of the amounts set forth in
clauses (i) and (ii) above may be made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that the receipt of such excess
amounts shall not adversely affect the REIT Partner's ability to qualify as a
REIT. To the extent that REIT Payments may not be made in a Partnership Year as
a consequence of the limitations set forth in this Section 15.11, such REIT
Payments shall carry over and shall be treated as arising in the following
Partnership Year. The purpose of the limitations contained in this Section 15.11
is to prevent any REIT Partner from failing to qualify as a REIT under the Code
by reason of such REIT Partner's share of items, including distributions,
reimbursements, fees, expenses or indemnities, receivable directly or indirectly
from the Partnership, and this Section 15.11 shall be interpreted and applied to
effectuate such purpose.
Section 15.12 No Partition. No Partner nor any successor-in-interest
to a Partner shall have the right while this Agreement remains in effect to have
any property of the Partnership partitioned, or to file a complaint or institute
any proceeding at law or in equity to have such property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors and
assigns hereby waives any such right. It is the intention of the Partners that
the rights of the parties hereto and their successors-in-interest to Partnership
property, as among themselves, shall be governed by the terms of this Agreement,
and that the rights of the Partners and their successors-in-interest shall be
subject to the limitations and restrictions as set forth in this Agreement.
Section 15.13 No Third-Party Rights Created Hereby. The provisions
of this Agreement are solely for the purpose of defining the interests of the
Partners, inter se; and no other person, firm or entity (i.e., a party who is
not a signatory hereto or a permitted successor to such signatory hereto) shall
have any right, power, title or interest by way of subrogation or otherwise, in
and to the rights, powers, title and provisions of this Agreement. No creditor
or other third party having dealings with the Partnership (other than as
expressly set forth herein with respect to Indemnitees) shall have the right to
enforce the right or obligation of any Partner to make Capital Contributions or
loans to the Partnership or to pursue any other right or remedy hereunder or at
law or in equity. None of the rights or obligations of the Partners herein set
forth to make Capital Contributions or loans to the Partnership shall be deemed
an asset of the Partnership for any purpose by any creditor or other third
party, nor
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may any such rights or obligations be sold, transferred or assigned by the
Partnership or pledged or encumbered by the Partnership to secure any debt or
other obligation of the Partnership or any of the Partners.
Section 15.14 No Rights as Stockholders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders of Partnership Units
any rights whatsoever as stockholders of the General Partner, including without
limitation any right to receive dividends or other distributions made to
stockholders of the General Partner or to vote or to consent or receive notice
as stockholders in respect of any meeting of stockholders for the election of
directors of the General Partner or any other matter.
[the next page is the signature page]
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IN WITNESS WHEREOF, this Agreement has been executed as of the date
first written above.
GENERAL PARTNER:
NORTHSTAR CAPITAL INVESTMENT CORP.
By: /s/ Marc S. Gordon
---------------------------------
Name: Marc S. Gordon
Title: Vice President and Secretary
SPECIAL LIMITED PARTNER:
NORTHSTAR CAPITAL PARTNERS LLC
By: /s/ W. Edward Scheetz
---------------------------------
Name: W. Edward Scheetz
Title: Manager
<PAGE>
LIMITED PARTNERS:
BT ALEX BROWN EXCHANGE FUND, L.P.
By: DC Investment Partners, LLC
By: /s/ Doctor R. Crants, III
---------------------------------
Name: Doctor R. Crants, III
Title: Chief Manager
ALEX BROWN EXCHANGE FUND, L.P.
By: Alex Brown Management Services, Inc.
By: /s/ Richard T. Hale
---------------------------------
Name: Richard T. Hale
Title: Chairman
DC INVESTMENT PARTNERS EXCHANGE FUND, L.P.
By: DC Investment Partners, LLC
By: /s/ Doctor R. Crants, III
---------------------------------
Name: Doctor R. Crants, III
Title: Chief Manager
<PAGE>
As of January 22, 1998
Exhibit A
PARTNERS AND PARTNERSHIP UNITS
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Name and Address of Partners Partnership Units (Type and Amount)
================================================================================
General Partner:
NORTHSTAR CAPITAL INVESTMENT CORP. 14,704,568 Partnership Common Units
527 Madison Avenue
New York, New York 10022
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Special Limited Partner:
NORTHSTAR CAPITAL PARTNERS LLC 536,193 Partnership Common Units
527 Madison Avenue
New York, New York 10022
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Limited Partners:
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BT ALEX BROWN EXCHANGE FUND, L.P. 500,000 Partnership Common Units
c/o DC Investment Partners
10 Burton Hills
Suite 120
Nashville, Tennessee 37215
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ALEX BROWN EXCHANGE FUND, L.P. 250,000 Partnership Common Units
c/o DC Investment Partners
10 Burton Hills
Suite 120
Nashville, Tennessee 37215
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DC INVESTMENT PARTNERS EXCHANGE 150,000 Partnership Common Units
FUND, L.P.
c/o DC Investment Partners
10 Burton Hills
Suite 120
Nashville, Tennessee 37215
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A-1
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Name and Address of Partners Partnership Units (Type and Amount)
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A-2
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Name and Address of Partners Partnership Units (Type and Amount)
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A-3
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Name and Address of Partners Partnership Units (Type and Amount)
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A-4
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Name and Address of Partners Partnership Units (Type and Amount)
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A-5
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Name and Address of Partners Partnership Units (Type and Amount)
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A-6
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Name and Address of Partners Partnership Units (Type and Amount)
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A-7
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Name and Address of Partners Partnership Units (Type and Amount)
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TOTALS 16,140,761 Partnership Common Units
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A-8
<PAGE>
Exhibit B
EXAMPLES REGARDING ADJUSTMENT FACTOR
For purposes of the following examples, it is assumed that (a) the
Adjustment Factor in effect on December 30, 1997 is 1.0 and (b) on January 1,
1998 (the "Partnership Record Date" for purposes of these examples), prior to
the events described in the examples, there are 100 REIT Shares issued and
outstanding.
Example 1
On the Partnership Record Date, the General Partner declares a
dividend on its outstanding REIT Shares in REIT Shares. The amount of the
dividend is one REIT Share paid in respect of each REIT Share owned. Pursuant to
Paragraph (i) of the definition of "Adjustment Factor," the Adjustment Factor
shall be adjusted on the Partnership Record Date, effective immediately after
the stock dividend is declared, as follows:
1.0 * 200 / 100 = 2.0
Accordingly, the Adjustment Factor after the stock dividend is
declared is 2.0.
Example 2
On the Partnership Record Date, the General Partner distributes
options to purchase REIT Shares to all holders of its REIT Shares. The amount of
the distribution is one option to acquire one REIT Share in respect of each REIT
Share owned. The strike price is $4.00 a share. The Value of a REIT Share on the
Partnership Record Date is $5.00 per share. Pursuant to Paragraph (ii) of the
definition of "Adjustment Factor," the Adjustment Factor shall be adjusted on
the Partnership Record Date, effective immediately after the options are
distributed, as follows:
1.0 * (100 + 100) / (100 + (100 * $4.00) / $5.00) = 1.1111
Accordingly, the Adjustment Factor after the options are distributed
is 1.1111. If the options expire or become no longer exercisable, then the
retroactive adjustment specified in Paragraph (ii) of the definition of
"Adjustment Factor" shall apply.
Example 3
On the Partnership Record Date, the General Partner distributes
assets to all holders of its REIT Shares. The amount of the distribution is one
asset with a fair market value (as determined by the General Partner) of $1.00
in respect of each REIT Share owned. It is also assumed that the assets do not
relate to assets received by the General Partner pursuant to a pro rata
distribution by the Partnership. The Value of a REIT Share on the Partnership
B-1
<PAGE>
Record Date is $5.00 a share. Pursuant to Paragraph (iii) of the definition of
"Adjustment Factor," the Adjustment Factor shall be adjusted on the Partnership
Record Date, effective immediately after the assets are distributed, as follows:
1.0 * $5.00 / ($5.00 - $1.00) = 1.25
Accordingly, the Adjustment Factor after the assets are distributed
is 1.25.
B-2
<PAGE>
Exhibit C
NOTICE OF REDEMPTION
To: NorthStar Capital Investment Corp.
c/o _______________________
___________________________
___________________________
___________________________
The undersigned Limited Partner or Assignee hereby irrevocably
tenders for Redemption _______ Partnership Common Units in NorthStar
Partnership, L.P. in accordance with the terms of the Agreement of Limited
Partnership of NorthStar Partnership, L.P., dated as of, 1997 as amended (the
"Agreement"), and the Redemption rights referred to therein. The undersigned
Limited Partner or Assignee:
(a) undertakes (i) to surrender such Partnership Common Units and
any certificate therefor at the closing of the Redemption and (ii) to
furnish to the General Partner, prior to the Specified Redemption Date,
the documentation, instruments and information required under Section
8.6.G of the Agreement;
(b) directs that the certified check representing the Cash Amount,
or the REIT Shares Amount, as applicable, deliverable upon the closing of
such Redemption be delivered to the address specified below;
(c) represents, warrants, certifies and agrees that:
(i) the undersigned Limited Partner or Assignee is a
Qualifying Party,
(ii) the undersigned Limited Partner or Assignee has, and at
the closing of the Redemption will have, good, marketable and
unencumbered title to such Partnership Common Units, free and clear
of the rights or interests of any other person or entity,
(iii) the undersigned Limited Partner or Assignee has, and at
the closing of the Redemption will have, the full right, power and
authority to tender and surrender such Partnership Common Units as
provided herein, and
(iv) the undersigned Limited Partner or Assignee has obtained
the consent or approval of all persons and entities, if any, having
the right to consent to or approve such tender and surrender; and
(d) acknowledges that he will continue to own such Partnership
Common Units until and unless either (1) such Partnership Common Units are
acquired by the General Partner pursuant to Section 8.6.B of the Agreement
or (2) such redemption transaction closes.
C-1
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All capitalized terms used herein and not otherwise defined shall
have the same meaning ascribed to them respectively in the Agreement.
Dated: __________________
Name of Limited Partner or Assignee:
--------------------------------------------
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(Signature of Limited Partner or Assignee)
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(Street Address)
--------------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
--------------------------------------------
Issue Check Payable to:
--------------------------------------------
Please insert social security
or identifying number:
--------------------------------------------
C-2
<PAGE>
Exhibit D
FORM OF UNIT CERTIFICATE
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF
COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM AND SUBSTANCE SATISFACTORY TO
THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER
DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. IN ADDITION, THE LIMITED
PARTNERSHIP INTEREST EVIDENCED BY THIS CERTIFICATE MAY BE SOLD OR OTHERWISE
TRANSFERRED ONLY IN COMPLI ANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN
THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF NORTHSTAR
PARTNERSHIP, L.P., DATED AS OF ___________, 1997 A COPY OF WHICH MAY BE OBTAINED
FROM NORTHSTAR CAPITAL INVESTMENT CORP., THE GENERAL PARTNER, AT ITS PRINCIPAL
EXECUTIVE OFFICE.
Certificate Number ________
NORTHSTAR PARTNERSHIP, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that __________________________________________________
is the owner of ______________________________________________________
FULLY PAID PARTNERSHIP COMMON UNITS
OF
NORTHSTAR PARTNERSHIP, L.P.,
transferable on the books of the Partnership in person or by duly authorized
attorney on the surrender of this Certificate properly endorsed. This
Certificate and the Partnership Common Units represented hereby are issued and
shall be held subject to all of the provisions of the Agreement of Limited
Partnership, as the same may be amended and/or supplemented from time to time.
IN WITNESS WHEREOF, the undersigned has signed this Certificate.
Dated:
By________________________________
D-1
<PAGE>
Exhibit 10.5
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT OF
IAN SCHRAGER HOTELS LLC
This LIMITED LIABILITY COMPANY AGREEMENT of IAN SCHRAGER HOTELS LLC, a
New York limited liability company (the "Company"), is made as of February 13,
1998 among NORTHSTAR HOSPITALITY LLC, a Delaware limited liability company
("NorthStar"), MHG ASSOCIATES, L.P., a Delaware limited partnership ("Schrager")
and CENTURY OPERATING ASSOCIATES, a New York limited partnership ("Pilevsky"),
as initial Members of the Company, and any Persons who become Members of the
Company in accordance with the provisions hereof and whose names are set forth
as Members on Schedule A hereto.
RECITALS:
WHEREAS, the Members have heretofore formed a limited liability
company pursuant to the New York Limited Liability Company Law,
- -section- 203, as amended from time to time (the "New York Act"), by filing a
Certificate of Formation of the Company with the office of the Secretary of
State of the State of New York on August 11, 1997;
WHEREAS, the Company was previously known as West 57th LLC;
WHEREAS, on January 27, 1998, the name of the Company was changed to Ian
Schrager Hotels LLC; and
WHEREAS, the Members desire to operate the Company as a limited liability
company under the New York Act and to amend and restate the prior operating
agreement of the Company in its entirety and the terms of such prior agreement
are hereby superceded in their entirety.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
<PAGE>
ARTICLE I
DEFINED TERMS
Section Definitions. Unless the context otherwise requires, the terms
defined in this Article I shall, for the purposes of this Agreement, have the
meanings herein specified.
"Accrued Developing Hotel Return Amount" means, with respect to each
Developing Hotel for each calendar year (or portion thereof) for which such
hotel is a Developing Hotel, a (A) an amount which would yield a return equal to
twelve percent (12%) per annum, compounded quarterly on the Unreturned Capital
Contribution attributable to such Developing Hotel minus (B) any Distributions
attributable to such Developing Hotel pursuant to Section 7.1(e).
"Accrued Shortfall Amount" means, with respect to any calendar year in
which NorthStar did not receive a non-cumulative return equal to 12% per annum,
the positive excess of (A) an amount which would yield to the Members a return
equal to twelve percent (12%) per annum, not compounded, on the Unreturned
Capital Contribution attributable to Operating Assets (plus any Accrued
Shortfall Amount for any prior years), minus (B) any amounts distributed to the
Members pursuant to Section 7.1(d).
"Additional Capital Contributions" shall mean Capital Contributions made
by the Members after the date hereof.
"Additional Members" has the meaning set forth in Section 11.8 hereof.
"Adjusted Operating Equity" means for any Payment Period (i) the sum of
the total Weighted Unreturned Capital Contributions of the Members plus the
Weighted Convertible Loan Amount, in each case allocable to all investments and
operations of the Company other than Developing Hotels, plus (ii) any Accrued
Developing Hotel Return.
"Adjusted Ordinary Cash Flow" means for any Payment Period during the
Convertible Loan Term, Ordinary Cash Flow of the Company, calculated prior to
any Convertible Loan Interest Payment, which would be distributable to the
Members pursuant to Sections 7.1(d)(i), 7.1(d)(ii)(B) and 7.1(d)(iii)(B) and 7.1
(e)(i), 7.1 (e)(ii)(B) and 7.1 (e)(iii)(B) after substituting (1) in Section
7.1(d)(i) and 7.1 (e)(i) the phrase "the sum of the total Weighted Unreturned
Capital Contributions of the Members and the Weighted Convertible Loan Amount
for such Payment Period" for the phrase "Unreturned Capital Contributions," (2)
in Section 7.1(d)(ii)(B) and 7.1(e)(ii)(B) the phrase "the sum of the total
Weighted Unreturned Capital Contributions of the Members and the Weighted
Convertible Loan Amount for such Payment Period" for the phrase "based upon the
Members' respective
2
<PAGE>
Percentage Interests" and (3) in Sections 7.1(d)(i)(B) and 7.1(d)(ii)(B) the
phrase "Adjusted Operating Equity" for the phrase "Operating Equity".
"Advance" has the meaning set forth in Section 4.5 hereof.
"Affiliate" means, with respect to a Person, (i) any other Person
directly or indirectly Controlling, Controlled by or under common Control with
such Person, (ii) any other Person owning or Controlling fifteen percent (15%)
or more of the outstanding voting interests of such Person, (iii) any officer,
director, general partner, shareholder, member or manager of such Person, or
(iv) any other Person who is an officer, director, general partner, shareholder,
member, manager, trustee, or holder of fifty percent (50%) or more of the voting
interests, of any Person described in clauses (i) through (iii) of this
sentence; provided, that with respect to NorthStar, Affiliates shall also
include any Person that acts as an investment manager or investment advisor for
NorthStar or any Person described in clauses (i) through (iii) of this sentence.
"Agreement" means this Limited Liability Company Agreement, as amended,
modified, supplemented or restated from time to time, and the Bylaws. Any
reference to "this Agreement," "herein" or words having a similar meaning in the
context, shall be deemed to include the Bylaws, provided that, in the event of
any inconsistency between the terms hereof and the terms of the Bylaws, the
terms hereof shall control.
"Bankruptcy" means, with respect to any Person, a "Voluntary Bankruptcy"
or an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with respect to
any Person, (i) the inability of such Person generally to pay its debts as such
debts become due or an admission in writing by such Person of its inability to
pay its debts generally or a general assignment by such Person for the benefit
of creditors; (ii) the filing of any petition or answer by such Person seeking
to adjudicate it a bankrupt or insolvent or seeking for itself any liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of such Person or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking, consenting to or
acquiescing in the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for such Person or for
any substantial part of its property; or (iii) corporate action taken by such
Person to authorize any of the actions set forth above. An "Involuntary
Bankruptcy" means, with respect to any Person, without the consent or
acquiescence of such Person, the entering of an order for relief or approving a
petition for relief or reorganization or any other petition seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or other similar relief under any present or future bankruptcy, insolvency or
similar statute, law or regulation or the filing of any such petition against
such Person which petition shall not be dismissed within 90 days or, without the
consent or acquiescence of such Person or the entering of an order appointing a
trustee, custodian, receiver or liquidator of such Person or of all or any
substantial part of the property of such Person which order shall not be
dismissed within 60 days. "Bankrupt" shall have a correlative meaning.
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"Base Interest" means, with respect to Schrager and Pilevsky, all of such
Members' interests in the Distributions of the Company, excluding therefrom the
Carried Interest.
"Board of Managers" has the meaning set forth in 6.1(a) hereof.
"Budget" means an economic forecast of amounts to be expended by the
Company as a whole and for each Separate Business conducted by the Company, in
such detail and with such line items as the Board of Managers may reasonably
require, over a designated period of time, prepared by the Chief Executive
Officer and submitted to and approved by the Board of Managers. The Budget for
the calendar year 1998, as approved by the Members, is annexed hereto as
Exhibit A, provided, The Members acknowledge that the form of the Budget will be
revised for future calendar years as is reasonably required by NorthStar to
reflect a consolidated Company wide budget.
"Business Plan" means a narrative description of the proposed business
activities of the Company as a whole and for each Separate Business conducted by
the Company, in such detail as the Board of Managers may reasonably require,
prepared by the Chief Executive Officer and submitted to and approved by the
Board of Managers, as same may be amended by the Supermajority Decision of the
Board of Managers from time to time. The Business Plan for the calendar year
1998, as approved by the Members, is annexed hereto as Exhibit A.
"Bylaws" means the Bylaws of the Company as amended from time to time,
which Bylaws are expressly incorporated herein by reference as part of this
Agreement, and may only be amended in accordance with the terms of this
Agreement. The initial Bylaws of the Company are attached hereto as Schedule B
and are hereby adopted and approved as a Supermajority Decision of the Board of
Managers.
"Capital Account" means, with respect to any Member, the account
maintained for such Member in accordance with the provisions of Section 4.4
hereof.
"Capital Contribution" means, with respect to any Member, the aggregate
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the Company in accordance with the terms of this Agreement
with respect to such Member's Interest (net of any liabilities to which such
property may be subject or as to which the Company may assume liability in
connection with such contribution). In the case of a Member who acquires an
interest in the Company by virtue of a Transfer in accordance with the terms of
this Agreement, "Capital Contribution" has the meaning set forth in
Section 4.4(a) hereof.
"Capital Event" shall mean, with respect to the Company or any
Subsidiary, any event not occurring in the ordinary course of business, pursuant
to which the Company or
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its Subsidiary (as the case may be) receive any consideration with respect to
its assets or the disposition thereof, whether in connection with any
recapitalization or restructuring of equity in, or debt of, the Company; any
Transfer of any property held directly by the Company or indirectly through any
Subsidiary; any refinancing of outstanding indebtedness or indebtedness of any
entity in which the Company or its Subsidiary (as the case may be) holds an
equity interest; any casualty or condemnation of any property in which the
Company or its Subsidiary has an interest, as well as termination payments under
any agreements pursuant to which the Company or any Subsidiary of the Company
manages hotel properties and any distributions made by a Subsidiary out of net
proceeds received by such Subsidiary from any of the foregoing transactions to
the extent same occur in respect of such Subsidiary.
"Carried Interest" has the meaning set forth in Section 11.12.
"Cash Available for Distribution" for any period, as determined by the
Managers in their reasonable good faith discretion, shall mean the difference
for such period between (i) the sum of (A) the Company's gross receipts from its
operations, including dividends, interest or other income derived from the
investments of the Company, any Capital Event Proceeds of the Company, and
(B) any amounts withdrawn from the reserves of the Company at the discretion of
the Managers, and (ii) the sum of (A) all cash disbursements of the Company,
including, without limitation, principal and interest payable by the Company in
respect of any of its debt obligations, and (B) the amount of any additional
reserves of the Company set aside during such period.
"Certificate" means the Certificate of Formation and any and all
amendments thereto filed on behalf of the Company with the office of the
Secretary of State of the State of New York pursuant to the New York Act.
"Class A Managers" and "Class B Managers" when used in reference to
members of the Board of Managers shall have the meanings set forth in Section
6.1(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any corresponding federal tax statute enacted after the date of
this Agreement. A reference to a specific section (-section-) of the Code
refers not only to such specific section but also to any corresponding
provision of any federal tax statute enacted after the date of this
Agreement, as such specific section or corresponding provision is in effect
on the date of application of the provisions of this Agreement containing
such reference.
"Company" means Ian Schrager Hotels LLC, the limited liability company
heretofore formed under and pursuant to the New York Act and this Agreement.
"Controls," "is Controlled by" or "is under common Control with" shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the
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management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Convertible Loan" means that certain loan, made on the date hereof from
the Convertible Member to the Company, in the initial principal amount of the
Convertible Loan Amount.
"Convertible Loan Amount" means ONE HUNDRED THIRTY MILLION SEVEN HUNDRED
NINETY TWO THOUSAND NINETY THREE DOLLARS AND 27 CENTS ($130,792,093.27).
"Convertible Loan Interest Payment" has the meaning set forth in Section
7.1(g)(i).
"Convertible Loan Interest Payment Date" means (i) the tenth day of each
month, or if such day is not a business day, the next succeeding business day
and (ii) the Mandatory Conversion Date.
"Convertible Loan Interest Rate" means a rate equal to the greater of (i)
the Minimum Convertible Loan Interest Rate and (ii) the Equity Return Rate;
provided, however, that the Convertible Loan Interest Rate shall be adjusted
with respect to each Payment Period during the Convertible Loan Term to ensure
that the amounts paid to date to the Convertible Member, in the aggregate
(taking into account all interest payments made to such member on the Henry
Hudson Loan), do not exceed the greater of (i) the Minimum Convertible Loan
Interest Rate and (ii) the Equity Return Rate, in each case for the portion of
the Convertible Loan Term elapsed.
"Convertible Loan Principal Payment" has the meaning set forth in Section
7.1(g)(ii).
"Convertible Loan Term" means the period commencing on the date hereof,
and expiring on the Mandatory Conversion Date.
"Convertible Member" means NorthStar, solely as the holder of the
Convertible Loan, and not as a Member of the Company. On the earlier to occur of
(a) the date on which the remaining principal of the Convertible Loan (and all
accrued and unpaid interest thereon, if any) is repaid and (b) the Mandatory
Conversion Date, all references to the Convertible Member shall be deemed
deleted and any Percentage Interest held by the Convertible Member shall be
deemed a Percentage Interest held by NorthStar.
"Covered Person" means a Member, any Affiliate of any such Member, any
officers, directors, shareholders, partners, employees, representatives or
agents of any such
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Member, or their respective Affiliates, or any employee or agent of the Company
or its Affiliates.
"Default Rate" means the lesser of (a) the sum of (i) the prime lending
rate as announced by Citibank, N.A. and (ii) five percent (5.0%) and (b) the
maximum rate permitted by applicable law.
"Depreciation" means, for each Fiscal Year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such Fiscal Year or other period;
provided, however, that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such Fiscal
Year or other period, Depreciation shall be an amount that bears the same ratio
to such Gross Asset Value which the asset had when its value was last adjusted,
as the federal income tax depreciation, amortization or other cost recovery
deduction with respect to such asset for such Fiscal Year or other period bears
to the adjusted tax basis which the asset had when its value was last adjusted;
and provided, further, that if the federal income tax depreciation, amortization
or other cost recovery deduction for such Fiscal Year or other period is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the Board of Managers.
"Developing Hotel" means (A) any Hotel Property owned or managed by the
Company or any Subsidiary of the Company that is not yet open for business as a
hotel operating in accordance with the Company's customary hotel operating
standards, provided such Hotel Property shall be deemed an Operating Asset, upon
the earlier to occur of (1) the Company owning such Hotel Property for thirty
(30) months or (2) the Hotel Property opening as a renovated Hotel Property in
accordance with the Company's customary hotel operating standards, or (B) such
Hotel Property which is otherwise designated by a Supermajority Decision of the
Board of Managers as a Developing Hotel; provided, further, if a Hotel Property
generates a return of 12% per annum (not compounded) on its Operating Equity for
a calendar year, such Hotel Property shall automatically become an Operating
Asset retroactively for such calendar year during which such return is achieved
and, to the extent necessary, Distributions to Members pursuant to Section 7.1
shall be recalculated and adjusted immediately following the conclusion of such
calendar year.
"Distributions" shall mean any distributions of cash or other assets of
the Company to the Members.
"Equity Return Rate" means (calculated for a particular Payment Period) a
fraction, expressed in percentage terms, the numerator of which is the total
Adjusted Ordinary Cash Flow of the Company, calculated prior to taking into
account any Convertible Loan Interest Payments or interest payments on the Henry
Hudson Loan made during such Payment Period, and the denominator of which is the
sum of (A) the total Weighted Unreturned Capital
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Contributions of the Members and (B) the Weighted Adjusted Convertible Loan
Amount for such Payment Period.
"Fair Market Value" means, with respect to the Company or substantially
all of the Company's assets or investments, (i) for the purposes of Section
10.1(b)(iv), the fair market value of the Company as determined by the
Defaulting Member and the Non- Defaulting Member within thirty (30) days after
the date of any Defaulted Additional Capital Contribution, provided that if the
Members are unable to so agree, such fair market value shall be determined by an
appraisal conducted by an appraiser selected by the Member making such Defaulted
Additional Capital Contribution with the approval of all members of the Board of
Managers, such approval not to be unreasonably withheld or delayed and (ii) for
purposes of Section 11.4(b), the fair market value of such assets or
investments, as determined by the Offering Member and the Offeree Member within
thirty (30) days after the First Interest Election Date, provided that if the
Members are unable to so agree, such fair market value shall be determined by an
appraisal conducted by an appraiser selected by the Offering Member with the
approval of all members of the Board of Managers, such approval not to be
unreasonably withheld or delayed.
"First Interest Election Date" has the meaning set forth in 11.4(b)
hereof.
"Fiscal Year" means (i)the period commencing upon the formation of the
Company and ending on December 31, 1998, (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31, or (iii) any portion
of the period described in clause (ii) of this sentence for which the Company is
required to allocate Profits, Losses and other items of Company income, gain,
loss or deduction pursuant to Article VII hereof.
"Gross Asset Value" means, with respect to any asset, such asset's
adjusted basis for federal income tax purposes, except as follows:
(i) the initial Gross Asset Value of any asset contributed
by a Member of the Company shall be the fair market value of such
asset, as agreed to by the contributing Member and the Board of
Managers;
(ii) the Gross Asset Value of all Company assets shall be
adjusted to equal their respective fair market values, as
determined by the Board of Managers, as of the following times:
(a) the acquisition of an additional interest in the Company by any
new or existing Member in exchange for more than a de minimis
Capital Contribution; and (b) the distribution by the Company to a
Member of more than a de minimis amount of Company assets as
consideration for an interest in the Company; provided, however,
that adjustments pursuant to this sentence shall be made only if
the Board of Managers reasonably determines that such adjustments
are
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necessary or appropriate to reflect the relative economic
interests of the Members in the Company; and
(iii) the Gross Asset Value of any Company asset distributed
to any Member shall be the fair market value of such asset on the
date of distribution, as determined by the distributee Member and
the Board of Managers, or if such parties are unable to agree upon
a determination, as determined pursuant to Section 13.3 hereof.
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
paragraph (i) or paragraph (ii) above, such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect to such asset
for purposes of computing Profits and Losses.
"Henry Hudson Loan Amount" means the principal balance outstanding under
that certain Note, dated as of June 23, 1993, given by St. Luke's-Roosevelt
Hospital Center in favor of Irving Schatz, as amended by that First Amendment to
Mortgage Note, dated as of the date hereof, by and between NorthStar, as lender
and the Company, as borrower, which principal balance the parties hereto agree
is $24,207,906.73 on the date hereof.
"Hotel Property" shall mean each parcel of land, improved and unimproved,
acquired or leased by the Company for the purpose of constructing, renovating,
developing or operating a hotel thereon.
"Incapacitated," with respect to any Person, means either (i) the
inability of the Person to perform his duties under any applicable agreement or
appointment, whether due to physical or mental incapacity or otherwise, for a
period of ninety (90) consecutive calendar days, provided that after ninety (90)
consecutive calendar days, there is no reasonable likelihood of recovery from
such condition or termination of such inability or (ii) a final judicial
determination that such Person is not mentally competent to handle his or her
own affairs.
"Interest" means (i) a Member's share of the profits and losses of the
Company and a Member's rights to receive distributions of the Company's assets
in accordance with the provisions of this Agreement and the New York Act,
(ii) such Member's right to vote or grant or withhold consents, if any, with
respect to Company matters as provided herein or in the New York Act and (iii)
such Member's other rights and privileges as herein provided.
"Interest Sale Notice" has the meaning set forth in Section 11.4(a)
hereof.
"Internal Rate of Return" means the annual rate, compounded quarterly, at
which the net present value, of all Distributions, from all sources, to a Member
(discounted at such rate from the dates such Distributions are actually received
by such Member), is equal to
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the net present value, as of the date of the first Capital Contribution, of the
Capital Contributions made by such Member to the Company or any Subsidiary of
the Company (discounted at such rate from the dates such Capital Contributions
were made by such Member). Except with respect to Capital Contributions made by
NorthStar prior to the date hereof with respect to the Henry Hudson Hotel (and
no other contributed asset), no Capital Contributions or Distributions shall be
deemed to have been made prior to the date hereof. For purposes of calculating
an Internal Rate of Return hereunder all Capital Contributions and all
Distributions shall be deemed made as of the date such Capital Contributions and
Distributions are actually made to or by the Company.
"Liquidating Trustee" has the meaning set forth in Section 12.4(a)
hereof.
"Lockout Period" shall mean the period commencing on the date hereof and
expiring on the day immediately preceding the fourth (4th) anniversary of the
date hereof.
"Major Decision" means any of the following actions of the Company,
directly on behalf of the Company or indirectly on behalf of any Subsidiary:
(a) to add to or increase the capital of the Company, to issue Interests
representing additional capital investment in the Company, to determine the
Gross Asset Value of any Additional Capital Contribution to the Company or to
cause the Company to accept an Advance;
(b) to do anything that would cause a Member, or to require any Member,
to guaranty or otherwise to become personally liable for any indebtedness
incurred by the Company, without the prior consent of such Member, other than as
such guarantee or liability may relate to customary exceptions from exculpation
clauses or provisions in any loan or similar agreement approved by the Board of
Managers;
(c) to sell, exchange, finance, refinance, convey or otherwise dispose of
any asset, business, investment, property or project directly or indirectly
owned by the Company or any Subsidiary, including, without limitation,
permitting any Subsidiary of the Company to cancel, terminate or otherwise
materially modify any existing management agreement;
(d) to undertake an initial public offering of Interests or other
securities of the Company or any Subsidiary, or securities of any Person into
which the Company is proposed to be merged or consolidated in contemplation of
such an initial public offering;
(e) to commence, invest in or engage in business activities other than
the business activities described in clauses (i) and (ii) of Section 3.1 below;
(f) to Transfer, directly or indirectly, an Interest to a Person other
than in accordance with Article XI hereof;
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(g) to merge or to consolidate the Company with, or sell substantially
all of the Company's assets to, any other Person;
(h) to amend the Agreement;
(i) to authorize and approve the dissolution of the Company;
(j) to admit any new Member to the Company (and in connection therewith,
the designation of additional members of the Board of Managers to represent the
interests of any such new member) or accept the resignation of any existing
Member of the Company;
(k) to appoint, or approve the appointment of, a member of the Board of
Managers, other than the initial members thereof (except as such decision may be
made by NorthStar as expressly set forth in Section 6.1);
(l) acquire, by purchase, lease or otherwise, any interest in real or
personal property, including, without limitation, any direct or indirect
interest in any entity that owns or is to acquire any interest in real or
personal property other than in the ordinary course of business;
(m) give or grant any deeds of trust, mortgages, pledges, ground leases,
security interests or otherwise encumber any real property or any portion
thereof, except the granting of utility easements, the filing of the plat for a
property or project of the Company or any Subsidiary and such other encumbrances
in accordance with a development plan approved by the Board of Managers by a
Supermajority Decision;
(n) confess a judgment against the Company or any Subsidiary in an amount
in excess of $200,000;
(o) undertake any other matter that would constitute or cause a material
change in, including any material revision to, a Budget or the Business Plan;
(p) to commence a Voluntary Bankruptcy or to decide not to contest an
Involuntary Bankruptcy;
(q) in connection with the admission of any new Member, to allocate or
reallocate indebtedness of the Company for guaranty by the continuing Members in
accordance with Section 7.9 hereof;
(r) to establish general policies for the investment of Company funds,
including, without limitation, the types and maturities of such investments; and
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(s) the sale, dissemination, licensing, or the granting of any right to
use, to third parties, of any trade secrets, customer lists or other
intellectual property of the Company and the decision not to seek enforcement of
a violation of the intellectual property rights of the Company (e.g. a trademark
infringement);
(t) those matters specified in Section 3.3;
(u) the determination of Cash Available for Distribution, Ordinary Cash
Flow, reserves and the amount of any distributions pursuant to Section 7.1;
(v) the selection of law firms or accounting firms to render services on
behalf of the Company (subject to Section 8.3); and
(w) the restructuring of the Company or the ownership of assets by the
Company, as is prudent, advisable or necessary in connection with the
qualification of certain of the beneficial owners of NorthStar as a "real estate
investment trust" pursuant to Sections 856 through 860 of the Code (with the
costs and expenses of the Company in connection with such restructuring being
paid by the Company).
"Manager" means any member of the Board of Managers.
"Mandatory Conversion Date" means December 15, 1998.
"Member" means any Person named as a member of the Company on Schedule A
hereto and includes any Person admitted as an Additional Member or a Substitute
Member pursuant to the provisions of this Agreement, in such Person's capacity
as a member of the Company, and "Members" means two (2) or more of such Persons
when acting in their capacities as Members of the Company.
"Minimum Convertible Loan Interest Rate" means a rate of fifteen percent
(15%) per annum, compounded quarterly and calculated on the basis of the actual
number of days elapsed over a 365 day year.
"Net Capital Proceeds" means the cash proceeds received by the Company
from any Capital Event, minus
(i) the unpaid principal balance of, any accrued interest on,
prepayment cost of or other fees and expenses incident to, any indebtedness
of the Company or Subsidiary required to be paid out of such proceeds,
including, without limitation, indebtedness due to Members;
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(ii) the costs and expenses incurred by the Company or any
Subsidiary (including brokerage commissions, attorneys' fees, appraisal
fees, collection costs, closing expenses and other customary sales costs
and fees) in connection with such sale, financing or other disposition;
(iii) all cash expenditures (including capital expenditures) to be
incurred subsequent to the capital transaction to be funded out of the net
proceeds thereof and made necessary by such Capital Event, as reasonably
determined by the Board of Managers; and
(iv) such reserves as are established in connection with any Capital
Event as determined by the Supermajority Decision of the Board of Managers.
"New York Act" means the New York Limited Liability Company Law,
- -section- 203, as amended from time to time.
"Offered Interest" has the meaning set forth in Section 11.4(a) hereof.
"Offeree Member" has the meaning set forth in Section 11.4(a) hereof.
"Offering Member" has the meaning set forth in Section 11.4(a) hereof.
"Officers" means the officers of the Company selected as provided in the
Bylaws.
"Operating Asset" means any asset of the Company which is not a
Developing Hotel.
"Operating Equity" means (i) those Unreturned Capital Contributions
allocable to all investments and operations of the Company other than Developing
Hotels, plus (ii) any Accrued Developing Hotel Return Amount, plus (iii) any
Accrued Shortfall Amount.
"Ordinary Cash Flow" means (i) Cash Available For Distribution less (ii)
any proceeds received by the Company with respect to a Capital Event which are
included in such Cash Available For Distribution.
"Outstanding Interests" shall mean any equity interests of any Person in
the following hotel properties to the extent not already contributed to the
Company by the Members as of the date hereof: the Royalton Hotel, the Morgans
Hotel, the Delano Hotel in Miami Beach, and the Clift Hotel in San Francisco.
"Payment Period" means each calendar month or part thereof during the
Convertible Loan Term.
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"Percentage Interest" means the Interest of a Member, expressed as a
percentage of one hundred percent, as shown on Schedule A hereto and as such
Schedule shall be amended from time to time in accordance with the provisions
hereof, and as adjusted pursuant to Section 10.1.
"Person" includes any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
or other legal entity or organization.
"Pilevsky Debt Amount" means $24,000,000.
"Profits" and "Losses" means, for each Fiscal Year, an amount equal to
the Company's taxable income or loss for such Fiscal Year, determined in
accordance with -section- 703(a) of the Code (but including in taxable income
or loss, for this purpose, all items of income, gain, loss or deduction
required to be stated separately pursuant to -section- 703(a)(1) of the Code),
with the following adjustments:
(i) any income of the Company exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses pursuant to
this definition shall be added to such taxable income or loss;
(ii) any expenditures of the Company described in
-section- 705(a)(2)(B) of the Code (or treated as expenditures described
in -section- 705(a)(2)(B) of the Code pursuant to Treasury Regulation
-section- 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account
in computing Profits or Losses pursuant to this definition shall be
subtracted from such taxable income or loss;
(iii) in the event the Gross Asset Value of any Company asset is
adjusted in accordance with the definition of "Gross Asset Value" above,
the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Profits or
Losses;
(iv) gain or loss resulting from any disposition of any asset of the
Company with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset
Value of the asset disposed of, notwithstanding that the adjusted tax
basis of such asset differs from its Gross Asset Value; and
(v) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Fiscal
Year or other period, computed in accordance with the definition of
"Depreciation" above.
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"Remaining Debt Amount" means all indebtedness of the Company or its
Affiliates available for guaranty in excess of the aggregate of the Schrager
Debt Amount and the Pilevsky Debt Amount.
"Schrager Affiliate" means, with respect to a Person, any other Person
which Ian Schrager, his spouse or children own any legal or beneficial interest
in.
"Schrager Outside Date" has the meaning set forth in Section 6.10(a)
hereof.
"Schrager Competitor" means any Person which engages in the business of
managing or operating Hotel Properties.
"Schrager Debt Amount" means $40,000,000.
"Securities Act" means the Securities Exchange Act of 1934, and the rules
and regulations promulgated thereunder.
"Separate Business" means each hotel, or interest therein, owned or
managed by the Company, whether directly or indirectly; any Social
Establishment, or interest therein, owned by the Company and any other asset,
business or investment, or interest therein, owned or held by the Company that
is either owned or operated independently of the other assets, businesses or
investments of the Company.
"Social Establishment" means a restaurant, timeshare facility, gaming or
merchandising related facility, bar, nightclub, beach club, pool, golf, tennis
or polo club, or other social establishment, to the extent located in, or to the
extent providing services integral to, a particular hotel, motel, or other
lodging facility.
"Substitute Member" means a Person who is admitted to the Company as a
Member pursuant to Section 11.1 hereof, and who is named as a Member on
Schedule A to this Agreement.
"Subsidiary" of a Person means another Person in which the first Person
owns, directly or indirectly, an equity interest. Unless the context otherwise
requires, all references herein to Subsidiaries shall be to Subsidiaries of the
Company.
"Supermajority Decision" shall mean (i) all of those actions of the
Company identified in the definition of Major Decisions except for those
identified in clauses (a), (c), (m), (p) , (q) and (w) of said definition; (ii)
the incurrence of any indebtedness other than in the ordinary course of business
as well as all of those actions identified in clauses (c) and (m) of the
definition of Major Decisions, other than the financing and collateralization of
the contribution of assets contributed to the Company on the date hereof as well
as any Outstanding Interests contributed to the Company, provided that, with
respect to the decision
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to incur debt other than in the ordinary course of business or to finance or
collateralize assets initially or subsequently contributed to, or acquired by,
the Company, such decisions shall be Supermajority Decisions from and after the
first date that NorthStar (x) does not have any Unreturned Capital Contributions
and (y) has received an Internal Rate of Return of twelve percent (12%) per
annum on all of its Capital Contributions; (iii) all actions identified in
clause (p) of the definition of Major Decisions at a time when the name of the
Company includes the name "Ian Schrager" or any derivation thereof; (iv) those
actions identified in Section 3.3 (except, with respect to subsection (i)
thereof, in the case of a Transfer which occurs as a result of the exercise of
lender's remedies in connection with a Loan properly entered into by the
Company); (v) any of the actions identified in clause (a) of the definition of
Major Decisions, except if (I) such Additional Capital Contribution, investment
or loan in the reasonable opinion of the Class B Managers, is necessary for the
Company to continue operating in compliance with all of its contractual and
other legal obligations or (II) is being made in connection with an acquisition
of an Outstanding Interest or other investment previously approved by a
Supermajority Decision of the Board of Managers; (vi) any action by the Company
in connection with clause (w) of the definition of Major Decisions which would
(a) cause the Company to be required to file periodic reports under the
Securities Act, (b) result in adverse tax consequences to Schrager or the
Company or (c) diminish the Chief Executive's powers with respect to the
operations of the Company, or (vii) any other action expressly identified herein
as requiring the Supermajority Decision of the Board of Managers. The taking of
any action identified in clauses (i) through (vii) of the prior sentence or any
other decision identified as a Supermajority Decision herein, shall require the
consent of both the Class A Manager and a majority of the Class B Managers.
"Tag-Along Exercise Notice" has the meaning set forth in Section
11.5(a)(i) hereof.
"Tag-Along Right" has the meaning set forth in Section 11.5(a)(i) hereof.
"Targeted Amount" has the meaning set forth in Section 6.10(f)
"Target Interest Price" has the meaning set forth in Section 11.4(a)
hereof.
"Tax Matters Member" has the meaning set forth in Section 6.11 hereof.
"Transfer" means, as a noun, any voluntary or involuntary assignment,
transfer, syndication, sale or other disposition or purported disposition, and,
as a verb, voluntarily or involuntarily to assign, syndicate, transfer, sell or
otherwise dispose of.
"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
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"Unreturned Capital Contribution" means the excess, if any, of a Member's
Capital Contributions over the amount previously distributed to such Member
pursuant to Section 7.1(c)(i), excluding any amount constituting a return on a
Capital Contribution, as distinguished from a return of a Capital Contribution.
"Warrant Co." means the entity designated as such by NorthStar at such
time as a transfer is effected by NorthStar pursuant to Section 11.6(c) hereof.
"Weighted Adjusted Convertible Loan Amount" means the amount equal to the
sum of the Weighted Convertible Loan Amount plus the Weighted Henry Hudson Loan
Amount for the applicable Payment Period.
"Weighted Convertible Loan Amount" means the amount equal to (a) the sum
of the Convertible Loan Amount outstanding on each day of the applicable Payment
Period, divided by (b) the total number of days in such Payment Period.
"Weighted Henry Hudson Loan Amount" means the amount equal to the sum of
(a) the principal balance of the Henry Hudson Loan outstanding on each day of
the applicable Payment Period, divided by (b) the total number of days in such
Payment Period.
"Weighted Unreturned Capital Contributions" means the amount equal to (a)
the sum of the Unreturned Capital Contributions outstanding on each day of the
applicable Payment Period, divided by (b) the total number of days in such
Payment Period.
Section 1.2 Headings. The headings and subheadings in this Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
ARTICLE II
OPERATION; TERM; ETC.
Section 2.1 Operation.
(a) The Members hereby agree to operate the Company as a limited
liability company under and pursuant to the provisions of the New York Act
and agree that the rights, duties and liabilities of the members shall be as
provided in the New York Act, except as otherwise provided herein.
(b) The name and mailing address of each Member and the amount
contributed to the capital of the Company shall be listed on Schedule A attached
hereto. The Board of Managers shall update Schedule A from time to time as
necessary to accurately
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reflect the information therein. Any amendment or revision to Schedule A made in
accordance with this Agreement shall not be deemed an amendment to this
Agreement. Any reference in this Agreement to Schedule A shall be deemed to be a
reference to Schedule A as amended and in effect from time to time.
Section 2.2 Name. The name of the Company heretofore formed and governed
hereby is Ian Schrager Hotels LLC. The business of the Company may be conducted
under any other name designated by the Board of Managers upon compliance with
all applicable laws.
Section 2.3 Term. The term of the Company commenced on the date the
Certificate was filed in the office of the Secretary of State of the State of
New York and shall continue until the Company is dissolved in accordance with
the provisions of this Agreement.
Section 2.4 Principal Place of Business. The principal place of business
of the Company shall be at c/o Ian Schrager Hotels LLC, 235 West 46th Street,
New York, New York 10036. At any time, the Chief Executive Officer may change
the location of the Company's principal place of business, subject to approval
by the Board of Managers.
Section 2.5 Qualification in Other Jurisdictions. The Board of Managers
shall cause the Company to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Company transacts business. Each of the Officers of the Company, as an
authorized person within the meaning of the New York Act, shall execute, deliver
and file any certificates (and any amendments and/or restatements thereof)
necessary for the Company to qualify to do business in a jurisdiction in which
the Company may wish to conduct business.
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section 3.1 Purpose. The Company is formed for the object and purpose of,
and the nature of the business to be conducted and promoted by the Company is,
engaging in any lawful act or activity for which limited liability companies may
be formed under the New York Act and engaging in any and all activities
necessary, convenient, desirable or incidental to the foregoing, including,
without limitation, such business activities as may be determined by the Board
of Managers from time to time. Such activities shall include, but not be limited
to (i) acquiring various direct and indirect interests in hotel properties and
other properties or businesses, including management of hotels and appurtenant
or related facilities, wherever located and (ii) owning, managing, operating,
developing, franchising and receiving management and licensing fees with respect
to any trade or business.
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Section 3.2 Powers of the Company.
(a) The Company shall have the power and authority to take any and all
actions necessary, appropriate, proper, advisable, incidental or convenient to
or for the furtherance of the purpose set forth in Section 3.1 hereof,
including, but not limited to, the power:
(i) to conduct its business, carry on its operations and have and
exercise the powers granted to a limited liability company by
the New York Act in any state, territory, district or
possession of the United States, or in any foreign country
that may be necessary, convenient or incidental to the
accomplishment of the purpose of the Company;
(ii) to acquire by purchase, lease, contribution of property or
otherwise, own, hold, operate, maintain, finance, improve,
lease, sell, convey, mortgage, transfer, demolish or dispose
of any real or personal property that may be necessary,
convenient or incidental to the accomplishment of the purpose
of the Company, including without limitation, the acquisition
of the Outstanding Interests;
(iii) to form subsidiary corporations, partnerships and limited
liability companies and hold interests therein;
(iv) to act as general partner of partnerships and a member or
manager of limited liability companies, and to exercise all
of the powers, duties, rights and responsibilities associated
therewith;
(v) to take any and all actions necessary, convenient or
appropriate as a general partner, as a stockholder of a
general partner, or as a limited partner of a partnership, or
as a member or manager of a limited liability company,
including the granting or approval of waivers, consents or
amendments of rights or powers relating thereto and the
execution of appropriate documents to evidence such waivers,
consents or amendments;
(vi) to enter into, perform and carry out contracts of any kind,
including, without limitation, contracts with any Member, any
Affiliate thereof, or any agent of the Company necessary to,
in connection with, convenient to, or incidental to the
accomplishment of the purpose of the Company;
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(vii) to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend,
pledge, or otherwise dispose of, and otherwise use and deal
in and with, shares or other interests in or obligations of
domestic or foreign corporations, associations, general or
limited partnerships (including, without limitation, the
power to be admitted as a partner thereof and to exercise the
rights and perform the duties created thereby), trusts,
limited liability companies (including, without limitation,
the power to be admitted as a member or appointed as a
manager thereof and to exercise the rights and perform the
duties created thereof), or individuals or direct or indirect
obligations of the United States or of any government, state,
territory, governmental district or municipality or of any
instrumentality of any of them;
(viii) to lend money, to invest and reinvest its funds, to take and
hold real and personal property for the payment of funds so
loaned or invested;
(ix) to sue and be sued, complain and defend, and participate in
administrative or other proceedings, in its name;
(x) to appoint employees and agents of the Company, and define
their duties and fix their compensation;
(xi) to indemnify any Person in accordance with the New York Act
and to obtain any and all types of insurance;
(xii) to cease its activities and cancel its Certificate;
(xiii) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take
any other action with respect to any lease, contract or
security agreement in respect of any assets of the Company;
(xiv) to borrow money and issue evidences of indebtedness, and to
secure the same by a mortgage, pledge or other lien on the
assets of the Company;
(xv) to pay, collect, compromise, litigate, arbitrate or otherwise
adjust or settle any and all other claims or demands of or
against the Company or to hold such proceeds against the
payment of contingent liabilities; and
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(xvi) to make, execute, acknowledge and file any and all documents
or instruments necessary, convenient or incidental to the
accomplishment of the purpose of the Company.
(b) The Board of Managers may authorize any Person (including, without
limitation, any Officer or Member) to enter into and perform any document on
behalf of the Company, provided that if such entry or performance is in
furtherance of a matter requiring a Supermajority Decision such authorization
shall require the affirmative Supermajority Decision of the Board of Managers.
(c) The Company may merge with, or consolidate into, another New York
limited liability company or other entity.
Section 3.3 Limitations on Company Powers. Notwithstanding the foregoing
provisions of Section 3.2 hereof, the Company shall have no power or authority,
without the approval of the Class B Managers, or to the extent same constitute
Supermajority Decisions, without the approval of the Class A Manager and a
majority of the Class B Managers:
(i) to make a Transfer for the benefit of creditors or cause a
Voluntary Bankruptcy to occur;
(ii) to apply for the entry of a decree of judicial dissolution
under Section 18-802 of the New York Act or otherwise;
(iii) to confess a judgment on behalf of the Company for more than
$200,000;
(iv) to do any act in contravention of this Agreement;
(v) to commingle the funds of the Company with those of any other
Person;
(vi) to change the purpose of the Company;
(vii) except as set forth herein, to dissolve or liquidate the
Company, seek a partition of the assets of the Company or a
judicial dissolution of the Company; or
(viii) to approve a trustee, custodian or receiver for the Company
or its assets.
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ARTICLE IV
CAPITAL CONTRIBUTIONS, INTERESTS,
CAPITAL ACCOUNTS AND ADVANCES
Section 4.1 Capital Contributions.
(a) Each Member has contributed or is deemed to have contributed to the
capital of the Company the amount set forth opposite the Member's name on
Schedule A attached hereto. The agreed value of the Capital Contributions made
or deemed to have been made by each Member shall be set forth on Schedule A.
(b) No Member shall be required to make any Additional Capital
Contribution to the Company, provided, however, that the failure to make an
Additional Capital Contribution may result in the dilution of a Member's
Percentage Interest pursuant to the terms hereof. Members may make Additional
Capital Contributions to the Company pro rata or otherwise, if approved as a
Supermajority Decision by the Board of Managers. Except as otherwise provided
herein, no Member shall be required to lend any funds to the Company. No Member
shall have any personal liability for the repayment of any Capital Contribution
of any other Member.
Section 4.2 Member's Interest. A Member's Interest shall for all purposes
be personal property. A Member has no interest in specific Company property.
Section 4.3 Status of Capital Contributions.
(a) Except as otherwise provided in this Agreement, the amount of a
Member's Capital Contributions may be returned to it, in whole or in part, at
any time, but only with the consent of the Board of Managers. Other than as
provided in Section 7.1, any such returns of Capital Contributions shall be made
to all Members in proportion to their Unreturned Capital Contributions.
Notwithstanding the foregoing, no return of a Member's Capital Contributions
shall be made hereunder if such distribution would violate applicable state law.
Under circumstances requiring a return of any Capital Contribution, no Member
shall have the right to demand or receive property other than cash, except as
may be specifically provided in this Agreement.
(b) No Member shall receive any interest, salary or drawing with respect
to its Capital Contributions or its Capital Account or for services rendered on
behalf of the Company or otherwise in its capacity as a Member (including as a
member of the Board of Managers), except as otherwise specifically provided in
this Agreement or as otherwise agreed by the Board of Managers.
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Section 4.4 Capital Accounts.
(a) An individual Capital Account shall be established and maintained for
each Member, which Capital Account shall initially be in the amount of the
Member's Capital Contributions set forth in Schedule A hereto. The original
Capital Account established for any Member who acquires an interest in the
Company by virtue of a Transfer in accordance with the terms of this Agreement
shall be in the same amount as, and shall replace, the Capital Account of the
transferor of such interest, and, for purposes of this Agreement, such Member
shall be deemed to have made the Capital Contributions made by the transferor of
such interest (or made by such transferor's predecessor in interest). To the
extent such Member acquires less than the entire interest in the Company of the
transferor of the interest so acquired by such Member, the original Capital
Account of such Member and its Capital Contributions shall be in proportion to
the interest it acquires, and the Capital Account of the transferor who retains
a partial interest in the Company, and the amount of its Capital Contributions,
shall be reduced in proportion to the interest it retains.
(b) Anything in this Agreement to the contrary notwithstanding, it is the
Company's intention to maintain the Member's Capital Accounts in accordance with
Section 704(b) of the Code and Treasury Regulations Section 1.704-1(b). The
Capital Account of each Member shall be maintained in accordance with the
following provisions:
(i) to such Member's Capital Account there shall be credited such
Member's Capital Contributions (which shall not include the
Convertible Loan Amount prior to the Mandatory Conversion
Date), such Member's distributive share of Profits (as
determined pursuant to Section 7.5 through Section 7.8
hereof) and the amount of any Company liabilities that are
assumed by such Member or that are secured by any Company
assets distributed to such Member;
(ii) to such Member's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Company
assets distributed to such Member pursuant to any provision
of this Agreement (other than Convertible Loan Interest
Payments and Convertible Loan Principal Payments made
pursuant to Sections 7.1(g)(i) and (ii), respectively), such
Member's distributive share of Losses (as determined pursuant
to Section 7.5 through Section 7.8 hereof) and the amount of
any liabilities of such Member that are assumed by the
Company or that are secured by any property contributed by
such Member to the Company; and
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(iii) in determining the amount of any liability for purposes of
this Section 4.4(b), there shall be taken into account
-section- 752(c) of the Code and any other applicable
provisions of the Code and the Treasury Regulations.
Section 4.5 Loans; Advances. If any Member shall advance any funds to, or
for the account or benefit of the Company (whether by way of a loan, by payment
on a guarantee issued by such Member covering obligations of the Company, by
forbearance from collecting any amount due, by payment of expenses on behalf of
the Company or otherwise) in excess of Capital Contributions (an "Advance"), the
amount of such Advance shall neither increase its Capital Account nor entitle it
to any increase in its share of the distributions of the Company.
Notwithstanding anything to the contrary contained herein, the Convertible Loan
and the Henry Hudson Loan shall not be considered an Advance hereunder. The
amount of any such Advance shall be a debt obligation of the Company to such
Member and shall be repaid to it by the Company with interest at the Default
Rate, or upon such interest rate and upon such other terms and conditions as
shall be determined by the Board of Managers and agreed to by such Member. Any
such Advance shall be payable and collectible only out of Company assets, and
the other Members shall not be personally obligated to repay any part thereof,
except as otherwise agreed by such other Members. Furthermore, in no event shall
any Member be required to pledge its Membership Interest or any other collateral
as security for such Advance, nor shall the Member making any such Advance be
entitled to compel the Company or any of the Members to repay any such Advance;
provided, however that Advances made pursuant to this Section 4.5, and the
interest due thereon, shall be repayable out of the first Cash Available For
Distribution of the Company (computed without taking into account payment of
interest on such Advances or repayment of such Advances).
ARTICLE V
MEMBERS
Section 5.1 Powers of Members. Except as otherwise specifically provided
by this Agreement or the Bylaws, or required by the New York Act, no Member
shall have the power to act for or on behalf of, or to bind, the Company.
Section 5.2 Reimbursements and Payments of Expenses.
(a) The Company shall reimburse the Members, the Managers and the
Officers for all ordinary and necessary out-of- pocket expenses incurred by the
Members, the Managers and the Officers on behalf of the Company in accordance
with the Budget. The Board of Managers' determination to reimburse a Member,
Manager or Officer for any additional expenses not in the Budget, and the amount
of such expenses, shall be conclusive. From time to time, the Board of Managers,
as a Supermajority Decision, will select one or more law firms and, subject to
Section 8.3, accounting firms, to render services on behalf
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of the Company, and no Member will be entitled to reimbursement from the Company
for separate representation. The Company shall pay for the expenses arising out
of or incidental to discussions, evaluation and negotiation of this Agreement
and the transactions contemplated hereby, including without limitation legal
costs and expenses.
(b) The Company's offices shall be located c/o Ian Schrager Hotels, LLC,
235 West 46th Street, New York, New York 10036 and the actual cost of providing
office services shall be an expense borne by the Company, including, without
limitation, the use of office space, and accounting, bookkeeping and occasional
mail room services. In the event, for any reason, the Chief Executive Officer,
with the approval of the Board of Managers, decides to have NorthStar provide
the Company with such office services, NorthStar or its Affiliate shall be paid
for such services at current market rates from time to time for the provision of
same in transactions negotiated on an arm's length basis. In all events, the
cost of office services to the Company, as an expense of the Company, shall be
deducted in computing Cash Available For Distribution and shall not be deemed to
constitute a distributive share of Profits or a distribution or return of
capital to any Member.
Section 5.3 Partition. Each Member waives any and all rights that it may
have to maintain an action for partition of the Company's property.
Section 5.4 Pilevsky's Membership Interest. Notwithstanding anything
herein to the contrary, in no event shall Pilevsky's interest in the Company as
a Member hereunder carry with it any right to vote on or approve any decision,
action or inaction on the part of the Company. Pilevsky hereby grants to the
Board of Managers an irrevocable power of attorney, coupled with an interest, to
execute any documents on Pilevsky's behalf to effectuate any decisions of the
Board of Managers made in accordance with the terms of this Agreement, provided,
that the Company's use of such power of attorney shall not be deemed a waiver by
Pilevsky of any rights hereunder, nor shall any use of such power of attorney
increase Pilevsky's obligations hereunder. Additionally, the Board of Managers,
by Supermajority Decision, may amend or modify this Agreement (and MHG and
NorthStar may execute documentation to effectuate such amendment) without the
consent of or notice to Pilevsky, provided, that such modification does not (a)
decrease Pilevsky's Distribution percentages pursuant to Section 7.1(c)(ii)(A),
7.1(c)(iii)(A), 7.1(d)(ii)(A), 7.1(d)(iii)9A), 7.1(e)(ii)(A) or 7.1(e)(iii)(A)
or (b) diminish Pilevsky's rights under Section 11.7.
ARTICLE VI
MANAGEMENT
Section 6.1 Management of the Company.
(a) The initial board of managers of the Company, and any successor board
of managers of the Company selected in accordance with this Agreement and with
the Bylaws
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(the "Board of Managers"), shall be divided into two classes, designated the
Class A Manager ("Class A Manager") and the Class B Managers ("Class B
Managers"). Class A shall consist of Ian Schrager and Class B shall be comprised
of individuals designated by NorthStar. The following individuals shall be the
initial Board of Managers of the Company:
Class A Manager: Ian Schrager
Class B Managers: W. Edward Scheetz
David Hamamoto
Wes Edens
As set forth in the By-laws, one of the Managers shall be the Chairman,
President and Chief Executive Officer, and initially such Manager shall be Ian
Schrager. The other three Managers are the initial designees of NorthStar to the
Board of Managers. The Board of Managers shall manage the Company in accordance
with this Agreement and the actions of the Board of Managers taken in such
capacity and in accordance with this Agreement shall bind the Company, provided,
however, that the Chief Executive Officer may bind the Company with respect to
matters that are not Major Decisions and, with respect to Major Decisions, to
the extent same have been expressly included in and budgeted for in the Business
Plan or Budget or otherwise consented to by the Board of Managers. Each of the
Class B Managers shall serve until he resigns, dies, becomes Incapacitated or is
removed by NorthStar. The Chairman, President and Chief Executive Officer shall
serve on the Board of Managers until he resigns, dies or becomes Incapacitated;
provided, however, that in the event that Ian Schrager is no longer the
Chairman, President and Chief Executive Officer other than as the result of his
death or Incapacitation, he shall still be entitled to serve on the Board until
such time as he or the Member controlled by him holds less than ten percent
(10%) of the Percentage Interests. Upon the death or Incapacitation of Ian
Schrager, the resulting vacancy on the Board of Managers as well as the position
of Chief Executive Officer or other positions held by Ian Schrager at such time
shall be filled by the remaining members of the Board of Mangers in their sole
discretion.
(b) In the event Additional Members are admitted to the Company, such
Additional Members may, upon the affirmative Supermajority Decision of the Board
of Managers, be granted the right to designate additional members of the Board
of Managers, however, notwithstanding the foregoing, the Board of Managers shall
be constituted in such a manner that at all times NorthStar (as Class B
Managers) shall maintain majority representation thereon.
(c) All Major Decisions, including all Supermajority Decisions, shall be
made at a regular or special meeting of the Board of Managers or upon the
necessary consent of the Board of Managers without a meeting. Each Major
Decision shall require the affirmative vote of a majority of both the Class A
Manager and a majority of the Class B Managers, or the affirmative vote of a
majority of the Class B Managers alone, absent
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the consent of the Class A Manager; provided, further, however, that the Chief
Executive Officer shall be advised and consulted regarding any Major Decision
within five (5) business days prior to the meeting of the Board of Managers at
which such Decision is to be considered. All Supermajority Decisions shall
require the consent of the Class A Manager and a majority of the Class B
Managers. Any action to be taken by the Board of Managers at a meeting may be
taken without such meeting by the written consent of the Class A Manager and a
majority of the Class B Managers. Any such written consent may be executed and
given by telecopy or similar electronic means. Such written consents shall be
filed with the minutes of the proceedings of the Board of Managers.
(d) Subject to the delegation of rights and powers as provided for herein
and in the Bylaws, the Board of Managers shall have the sole right to manage the
business of the Company and shall have all powers and rights necessary,
appropriate or advisable to effectuate and carry out the purposes and business
of the Company. No Member, by reason of its status as such, shall have any
authority to act for or bind the Company, but shall have only the right, to vote
on or approve the actions specified in this Agreement to be voted on or approved
by the Members.
(e) The Officers of the Company shall be elected and removed as provided
for in the Bylaws. The Officers of the Company shall be responsible for ensuring
that the Company operates within the parameters of the Budget, and shall perform
such other functions as are provided in the Bylaws. The Board of Managers may
appoint, employ or otherwise contract with such other Persons for the
transaction of the business of the Company or the performance of services for or
on behalf of the Company as it shall determine in its sole discretion. The Board
of Managers may delegate to any Officer of the Company or to any other Person
authority to act on behalf of the Company as the Board of Managers may, from
time to time, deem appropriate in its sole discretion.
(f) Except as otherwise provided by the Board of Managers or in the
Bylaws, when the taking of any action has been authorized by the Board of
Managers, any Officer of the Company or any other Person authorized by the Board
of Managers may execute any document, agreement or instrument on behalf of the
Company, and may execute and file on behalf of the Company with the Secretary of
State of the State of New York any certificates of amendment to the Company's
Certificate, certificates of merger and, upon the dissolution and completion of
the winding up of the Company, a certificate of cancellation canceling the
Company's Certificate.
(g) All members of the Board of Managers shall be entitled to receive
managers' fees in an amount equal to $10,000 per annum, plus $2,000 for each
meeting of the Board of Managers or a committee thereof attended.
Section 6.2 Powers of the Chief Executive Officer. Subject to the
limitations and restrictions set forth in this Agreement (including, without
limitation, those set forth in
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this Section 6.2), and provided that the actions of the Chief Executive Officer
are in accordance with the Business Plan and Budget, the Chief Executive Officer
may bind the Company with respect to all matters expressly included and budgeted
for in the Business Plan and Budget, as well as other matters that are not Major
Decisions. These include, without limitation and without expanding the powers of
the Chief Executive Officer beyond those set forth in the preceding sentence,
the following specific rights and powers:
(a) to operate, maintain, and improve any real or personal property held
by the Company or any Subsidiary to the extent necessary, convenient or
incidental to the accomplishment of the purposes of the Company and its
Subsidiaries. To this end, the Chief Executive Officer shall have available a
working capital fund as set forth in the Budget, from which expenditures may be
made in the reasonable discretion of the Chief Executive Officer and shall, from
time to time, be replenished by the Board of Managers upon satisfactory review
and accounting by the Chief Executive Officer;
(b) to execute leases and any other agreements, contracts, documents,
certifications and instruments necessary or convenient in connection with the
management, maintenance and operation of a property or project of the Company or
any Subsidiary or in connection with managing the business and affairs of the
Company and its Subsidiaries, including, without limitation, the authorization
of the Company or any Subsidiary to enter into any new, or to renew any
existing, management contracts with respect to any hotel, provided, however,
that the Board of Managers shall be consulted prior to entry into any such new
or renewed contracts and that cancellation, termination or the material
modification of any existing management agreement shall be a Supermajority
Decision requiring consent of the Board of Managers and Schrager;
(c) to contract on behalf of the Company and its Subsidiaries for the
employment and services of employees, consultants and independent contractors,
such as architects, engineers, computer or software developers, political
advisers, lawyers and accountants, and delegate to such Persons the duty to
manage or supervise any of the assets or operations of the Company and its
Subsidiaries;
(d) to ask for, collect and receive any rents, royalties, fees,
distributions, issues and profits or income from the real property of the
Company and its Subsidiaries and to disburse the funds of the Company and its
Subsidiaries for proper purposes to those Persons entitled to receive same;
(e) to distribute the Cash Available For Distribution and Net Capital
Proceeds to the Members in accordance with Article VII;
(f) to purchase, from or through others, contracts of liability, casualty
or other insurance for the protection of the properties or affairs of the
Company, its Subsidiaries,
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its Members, Managers, officers, employees and consultants, or for any purpose
convenient or beneficial to the Company and its Subsidiaries;
(g) to pay all taxes, licenses or assessments of whatever kind or nature
imposed upon or against the Company or its Subsidiaries, any real property owned
by the Company or its Subsidiaries and, for such purposes, to make such returns
and do all other such acts or things as may be deemed necessary and advisable by
the Company;
(h) to establish after consultation with the Board of Managers, maintain
and supervise the deposit of any monies or securities of the Company and its
Subsidiaries with insured banking institutions or other institutions as may be
selected by the Chief Executive Officer, in accounts in the name of the Company
or its Subsidiaries with such institutions;
(i) to institute, prosecute, defend, settle, compromise and dismiss
lawsuits or other judicial or administrative proceedings brought on behalf of,
or against, the Company, its Subsidiaries or the Members in connection with
activities arising out of, or connected with or incidental to this Agreement and
to engage counsel or others in connection therewith, subject to approval by the
Board of Managers in matters involving payment to or by the Company or a
Subsidiary of an amount in excess of $200,000;
(j) to execute, for and on behalf of the Company or its Subsidiaries, all
such applications for permits and licenses as the Chief Executive Officer deems
necessary and advisable; and
(k) to perform all ministerial and other acts and duties relating to the
business and affairs of the Company and its Subsidiaries, provided same do not
constitute a Major Decision(s), and to execute, acknowledge and deliver any and
all instruments to effectuate any and all of the foregoing.
Section 6.3 Restrictions on the Chief Executive Officer. Except as
expressly provided in this Agreement, the Chief Executive Officer shall not have
any authority to take any action not expressly delegated to the Chief Executive
Officer by the Board of Managers. Without limiting the generality of the
preceding sentence, the Chief Executive Officer shall not have the authority to,
and the Chief Executive Officer covenants and agrees that he shall not, make or
implement any decision that, directly or indirectly, would constitute a Major
Decision (except to the extent that the matter is expressly included and
budgeted for in the Business Plan or the Budget).
Section 6.4 Rights, Duties and Obligations of the Chief Executive
Officer.
(a) The Chief Executive Officer shall devote substantially all of his
business time to the management of the business of the Company.
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(b) The Chief Executive Officer further agrees:
(i) to obtain and maintain in effect adequate general liability
insurance for the Company, its Subsidiaries and the Projects
and to cause all Members to be named as additional insureds
in such insurance policies;
(ii) to use his good faith efforts to maintain good relations with
all lenders, the surrounding community and all local
government authorities and others having jurisdictions over
any real property acquired by the Company or a Subsidiary;
and
(iii) to use his good faith efforts, to the extent within the
authority granted to the Chief Executive Officer hereunder,
to protect all real property acquired by the Company or its
Subsidiaries against liens (other than liens granted in
accordance with this Agreement or existing on the date
hereof).
Section 6.5 Consent of Members Not Required. No Member in its capacity as
a Member shall have any right to participate in or exercise control or
management power over the business and affairs of the Company. Each Member
agrees that each of the Chief Executive Officer and the Board of Managers are
authorized to carry on and conduct the business and affairs of the Company in
accordance with the terms of this Agreement and to authorize, approve, execute,
deliver and perform all agreements and transactions on behalf of the Company
without any further act, approval or vote of the Members, notwithstanding any
other provision of this Agreement, the Act or other applicable law. The
execution, delivery or performance by the Chief Executive Officer or the Company
of any agreement authorized or permitted under this Agreement shall not
constitute a breach by the Chief Executive Officer of any duty that the Chief
Executive Officer may owe the Company or the Members or any other Persons under
this Agreement or of any duty stated or implied by law or equity.
Section 6.6 Reliance by Third Parties. Any Person dealing with the
Company may rely upon a certificate signed by the Secretary or Assistant
Secretary of the Company as to:
(i) the identity of any Manager, Member or Officer;
(ii) the existence or non-existence of any fact or facts which
constitute a condition precedent to acts by the Board of
Managers, Members or Officers or which are in any other
manner germane to the affairs of the Company; or
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(iii) the identity of Officers, Managers or other Persons who are
authorized to execute and deliver any document, agreement or
instrument of or on behalf of the Company.
Section 6.7 Transactions with Affiliates. No contract or transaction
between the Company and one or more of its Members, Managers or Officers, or
between the Company and any officer, director, employee or Affiliate of a
Member, Manager or Officer, shall be void or voidable solely for this reason, or
solely because the Member, Manager or Officer is present at or participates in
the meeting of the Board of Managers which authorizes the contract or
transaction, or solely because his votes are counted for such purpose, if
(i) the material facts of his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Managers and the Board of
Managers authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested Managers, even though the disinterested Managers
be less than a quorum and (ii) the contract or transaction is fair as to the
Company as of the time it is authorized, approved or ratified by the Board of
Managers.
Section 6.8 Confidentiality; Exclusivity. The Members will, and will
cause their officers, directors, employees and Affiliates to, preserve the
confidential nature of all material confidential and proprietary information of
the Company (including, without limitation, the confidential nature of any and
all new developments proposed to be effected by the Company). Pilevsky shall not
be bound by such obligations and shall not have any rights or obligations to
inspect the books and records of the Company, provided, however, Pilevsky's
designated accountant shall have the right, in accordance with Article VIII
hereof, to inspect the books of account of the Company, provided that such
accountant agrees in writing to be bound by the terms and conditions of this
Section 6.8.
Section 6.9 Outside Businesses. Except as otherwise provided herein,
including without limitation Section 6.10 hereof, nothing herein shall prohibit
any Member or Affiliate thereof, solely by virtue of his or its status as a
Member or an Affiliate of a Member, from engaging in or possessing an interest
in any other business ventures of any nature or description, independently or
with others, competitive, similar or dissimilar to the business of the Company,
and the Company and the Members shall have no rights by virtue of this Agreement
in and to such independent ventures or the income or profits derived therefrom,
and the pursuit of any such venture, even if competitive with the business of
the Company, shall not be deemed wrongful or improper. Subject to Section 6.10
hereof, no Member or Affiliate thereof shall be obligated to present any
particular investment opportunity to the Company even if such opportunity is of
a character that, if presented to the Company, could be taken by the Company,
and any Member or Affiliate thereof shall have the right to take for its own
account (individually or as a partner, member or fiduciary) or to recommend to
others any such particular investment opportunity.
Section 6.10 Non-Competition and Other Schrager Related Matters.
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(a) Notwithstanding Section 6.9 to the contrary, without the consent of
the Class B Managers, until the later to occur of (A) the fifth (5th)
anniversary of the date hereof and (B) the second (2nd) anniversary of the date
upon which Ian Schrager is no longer the Chief Executive Officer of the Company
(such later date, the "Schrager Outside Date"), Ian Schrager, Schrager and the
other holders of any equity interest in Schrager, as well as the respective
Affiliates of any of the foregoing, shall not, directly or indirectly, through
any legal or beneficial ownership interest, debt or equity investment or
contractual or other arrangement with any other Person, conduct or perform, or
hold any interest or investment in any Person that conducts or performs, any
hotel management or franchising services or activities, including, without
limitation, the management of any Social Establishment (other than in connection
with the Delano and Morgans Hotels). Notwithstanding the foregoing, however, the
foregoing Persons may own, collectively, five percent (5%) or less of the
outstanding common stock of any entity which is a reporting company pursuant to
the Securities Exchange Act of 1934 and which conducts or performs hotel
management or franchising services or activities, provided said investment is at
all times passive in nature and Ian Schrager is not represented on the Board of
Directors. In addition to the foregoing, nothing in this Section 6.10 shall
prohibit Ian Schrager, Schrager or any Affiliate of Ian Schrager from holding
passive investments in non-public companies, whatever the business of such
companies, so long as (i) the total capital contributions of Ian Schrager,
Schrager or any other Schrager Affiliates in connection with such investment do
not exceed $500,000, (ii) Schrager notifies the Company of any such initial
investment in a non-public company and subsequent investments therein, (iii)
such investment is not intended to circumvent any other restrictions on Ian
Schrager, Schrager or any Schrager Affiliate contained in this agreement and
(iv) Ian Schrager continues to spend substantially all of his time discharging
his duties to the Company. For purposes of this Agreement, in no event shall
either Pilevsky or Schrager be deemed Affiliates of one another.
(b) Additional Restrictions on Schrager. In addition to the restrictions
set forth in subsection (a) of this Section 6.10, from and after the date of
Transfer by Schrager of all or substantially all of its Base Interest in the
Company pursuant to the terms of this Agreement (the "Transfer Date") and until
a date which is the later to occur of (x) one year after Schrager Outside Date
and (y) three (3) years from the Transfer Date, neither Schrager nor Ian
Schrager nor any Schrager Affiliate (other than a Person in which Schrager is
permitted to own an interest pursuant to the third sentence of Section 6.10(a))
shall (i) purchase, offer or agree to purchase, directly or indirectly, any
securities or assets of the Company or its Affiliates; (ii) to the extent then
relevant (a) sponsor or engage, directly or any "solicitation" or "proxies" to
vote or "consents" (as such terms are used in the rules and regulations of the
Securities and Exchange Commission), or to seek to advise or influence any
person with respect to the voting of any voting securities of the Company and
its Affiliates; (b) initiate or support, directly on indirectly, any
"stockholder proposal" with respect to the Company or its Affiliates; or (c)
form, join or in any way participate in a "group" as defined in Section 13(d)(3)
of the Exchange Act in connection with any of the foregoing. Additionally, until
the later to occur of (x) the Schrager Outside Date and (y) two
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(2) years from the Transfer Date, neither Schrager, Ian Schrager nor any
Schrager Affiliate (other than a Person which Schrager is permitted to own an
interest in pursuant to the third sentence of Section 6.10(a)) shall solicit the
employment services of any then current employee of the Company or contractually
induce any employee of the Company to leave the employment of the Company.
(c) Clift Hotel. Schrager hereby agrees that to the extent Schrager or
any Affiliate of Schrager (excluding the Company or its Subsidiaries) receives
any interest in or derives any fee or other income, directly or indirectly, from
the Clift Hotel, or proceeds with respect to the disposition thereof, Schrager
shall cause the contribution of any such interest or proceeds to the Company,
provided that the Company pays all tax liabilities associated with such receipt
or contribution.
(d) Outstanding Royalton Interests. With respect to the remaining
one-third equity interest in Royalton, LLC held by Apollon, LLC, the Board of
Mangers hereby consents, as a Supermajority Decision, to the acquisition thereof
by the Company at a price not to exceed the price paid to Affiliates of Schrager
and Pilevsky on the date hereof for their respective one-third interests in
Royalton, LLC (held through 44th Hotel Associates II).
(e) Morgans Hotel. If requested in writing by NorthStar, prior to
September 30, 1998, Schrager agrees to cause MHG (New York) Corp. and MHG (New
York) Associates, L.P. to sell up to 49% of their respective interests in MHG
Hotel Associates, L.P. to the Company. The purchase price for such interests
shall be equal to that amount that would be realized by such entities for the
sale of such interests in connection with the sale of the Morgans Hotel to a
third party for $30 million, subject to customary New York hotel closing
adjustments and payment of transfer and sales taxes, to the extent applicable,
and if in conjunction with the sale of other interests in the Morgans Hotel,
only if such amounts are paid by the other sellers.
(f) Delano Hotel. If requested by NorthStar, Schrager agrees to use
reasonable efforts to cause Jack Dushey, Suzan Evans, Aby Rosen and Michael
Fuchs (the "Investors") to sell to the Company their respective interests
(collectively, the "Investor Interests") in MHG Beach Associates, L.P. ("MHG
Beach"). Schrager also agrees to sell to the Company any such Investor
Interests, to the extent acquired by Ian Schrager, Schrager or their respective
Affiliates, prior to June 30, 1999, at a price equal to the Targeted Amount,
subject to the adjustments provided for in the next sentence. To the extent that
the amount such Investors Interests are purchased for is less than the amount
that such Investor Interests would be entitled to receive if the Delano Hotel
were sold to a third party for $65 million, subject to customary New York hotel
closing adjustments and Beach Hotel Associates Limited Partnership and MHG Beach
were both liquidated on the date of purchase by such third party (such amount,
the "Targeted Amount"), then, upon acquisition of the Investor Interests by the
Company, the Company shall pay to Schrager an amount equal to one-half of the
difference between the Targeted Amount and the amount actually paid for such
Investor Interests by the
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Company (either directly to the Investors or to Ian Schrager, Schrager or their
respective Affiliates for the purchase of such Investor Interests). Schrager
also agrees, to the extent same would not be in violation of, or subject Ian
Schrager to any penalty under, the Partnership Agreement of MHG Beach, to
negotiate in good faith to sell to the Company, prior to June 30, 1999, a
portion of the Class B Limited Partnership Interests in MHG Beach now owned or
hereafter acquired by Ian Schrager or his Affiliates for a purchase price equal
to that amount that would be realized by such entities for the sale of such
interests in connection with the sale of the Delano Hotel to a third party for
$65 million, subject to customary New York hotel closing adjustments, as of the
date of transfer.
(g) Reimbursement of Schrager Costs. With respect to any of the
contributions set forth in Sections 6.10(b) through (e) hereof, the Company
shall pay all of Schrager's out-of-pocket costs, reimbursable to third-party
professionals, in connection therewith.
(h) Key Man Life Insurance. Ian Schrager agrees to give the Company (i) a
collateral assignment of Massachusetts Mutual Life Insurance Company Policy
#6,179,903, which policy has a face amount of $4,000,000 and Metropolitan
Insurance and Annuity Company Policy #940550003p, which policy has a face amount
of $4,000,000 (and the Company agrees to pay all premiums due with respect to
such policies and Ian Schrager shall not incur any out-of-pocket costs in
connection with maintaining the coverage afforded under such policies), and,
(ii) a secondary collateral assignment, to the extent that he is able to do so,
in Massachusetts Mutual Life Policy # 6199081 and Aetna Life Insurance Policy #
W4314476, each in the face amount of five million dollars ($5,000,000), which
have been previously collaterally assigned to CS First Boston Mortgage Capital
Corp.("CSFB"), in connection with a loan related to the Delano Hotel and, (iii)
when and if the purchase of the Morgans Hotel by the company occurs, a
collateral assignment of Massachusetts Mutual Life Insurance Company Policy #
6090455, to the extent the current collateral assignee of such policy releases
same. As between the Company and Schrager, such assignment shall be effective as
of the date hereof. To the extent CSFB or the owner of the Morgans Hotel
releases the collateral assignment of the insurance policies described in (ii)
and (iii), Ian Schrager shall not collaterally assign them to any other Person
and the Company shall pay all costs and expenses in connection with maintaining
the insurance coverage under such policies and Ian Schrager shall not incur any
out-of-pocket costs in connection with maintaining the coverage afforded under
such policies. Ian Schrager also agrees to reasonably cooperate with the Company
in obtaining additional key man life insurance policies for the benefits of
Company, including taking physical examinations reasonably consented to by Ian
Schrager.
Section 6.11 Tax Matters Member. NorthStar is hereby authorized to act
as the "tax matters partner" under the Code and in any similar capacity under
state or local law. As such, NorthStar (the "Tax Matters Member") is
authorized, to the extent provided in Code -sections-6221 through 6231, to
represent the Company (and all Subsidiaries) and the Members (other than
Pilevsky) before taxing authorities or courts of competent jurisdiction in
tax matters
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affecting the Company and its Members and to file any tax returns and to execute
any agreements or other documents relating to or affecting such tax matters,
including agreements or other documents that bind the Members with respect to
such tax matters or otherwise affect the rights of the Company and its Members,
provided, the Tax Matters Member shall reasonably consult with Schrager and its
representatives (including its accountants) with respect to its representation
of the Company, with respect to all tax matters and Schrager shall have the
right to represent Schrager with respect to any tax matters solely applicable to
Schrager and not NorthStar. The Tax Matters Member shall not be liable,
responsible or accountable in damages or otherwise to the Company or any Member
for any action taken in good faith and without negligence as Tax Matters Member
in connection with the examination by the Internal Revenue Service of the
Company's Federal partnership tax return or the determination, protest or
adjudication of any Federal or state income tax liability of any Member
resulting from the Company. Notwithstanding the foregoing to the contrary,
however, the Tax Matters Member shall use all reasonable efforts to avoid taking
any action that would result in a materially adverse tax consequence to any
Member so long as the consequence of refraining from such action would not
materially prejudice the rights or tax position of any other Member and would
not have a potentially adverse affect on the rights or tax position of the
Company, such determination to be made by the Tax Matters Member in its sole and
absolute discretion.
ARTICLE VII
DISTRIBUTIONS AND ALLOCATIONS
Section 7.1 Distributions.
(a) All distributions of Net Capital Proceeds pursuant to this
Section 7.1 shall be made at such times and in such amounts as shall be
determined by the Supermajority Decision of the Board of Managers. All
distributions of Ordinary Cash Flow shall be made monthly and reconciled on an
annual basis.
(b) All amounts withheld pursuant to the Code or any provision of any
foreign, state or local tax law with respect to any payment, distribution or
allocation to the Company or the Members shall be treated as amounts distributed
to the Members pursuant to this Article VII for all purposes of this Agreement.
The Board of Managers is authorized to withhold from distributions made pursuant
to this Article VII, or with respect to allocations, to the Members and to pay
over to any Federal, foreign, state or local government, any amounts required to
be so withheld pursuant to the Code or any provision of any other Federal,
foreign, state or local law and shall allocate such amounts to those Members
with respect to which such amounts were withheld.
(c) Subject to Section 7.2, Net Capital Proceeds received by the Company
shall be distributed to the Members on the following basis:
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(i) First, pro rata to the Members based on Unreturned Capital
Contributions until NorthStar has received an Internal Rate
of Return equal to 12% per annum; then
(ii) Second, (A) 4.125% to Schrager and .875% to Pilevsky, less,
with respect to Pilevsky, any amounts theretofore paid or
payable to Pilevsky pursuant to Sections 7.1(c)(i) and
7.1(c)(ii)(B), to the extent such amounts have not previously
been offset against amounts paid under this Section and (B)
95% to the Members (including Schrager and Pilevsky) on a pro
rata basis based upon the Members' respective Percentage
Interests, until NorthStar has received an Internal Rate of
Return of 15%; then
(iii) Lastly, (A) 8.25% to Schrager and 1.75% to Pilevksy, less,
with respect to Pilevsky, any amounts theretofore paid or
payable to Pilevsky pursuant to Sections 7.1(c)(i),
7.1(c)(ii)(B) and
7.1(c)(iii)(B), to the extent such amounts have not
previously been offset against amounts paid under this
Section and (B) 90% to the Members (including Schrager and
Pilevsky) on a pro rata basis based upon the Members'
respective Percentage Interests.
(d) Subject to Section 7.2, Ordinary Cash Flow received by the Company
with respect to Operating Assets shall be distributed to the Members on the
following basis:
(i) First, pro rata to the Members based on Unreturned Capital
Contributions until NorthStar has received a non-cumulative
return on Operating Equity equal to 12% per annum, not
compounded; then
(ii) Second, (A) 4.125% to Schrager and .875% to Pilevsky, less,
with respect to Pilevsky, any amounts theretofore paid or
payable to Pilevsky pursuant to Sections 7.1(d)(i) and
7.1(d)(ii)(B), to the extent such amounts have not previously
been offset against amounts paid under this Section and (B)
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95% to the Members (including Schrager and Pilevsky) on a pro
rata basis based upon the Members' respective Percentage
Interests, until NorthStar has received a simple annual
return of 15% on its Capital Contributions constituting
Operating Equity; then
(iii) Lastly, (A) 8.25% to Schrager and 1.75% to Pilevsky, less,
with respect to Pilevsky, any amounts therefore paid or
payable to Pilevsky pursuant to Sections 7.1(d)(i),
7.1(d)(ii)(B) and 7.1(d)(iii)(B), to the extent such amounts
have not previously been offset against amounts paid under
this Section and (B) 90% to the Members (including Schrager
and Pilevsky) on a pro rata basis based upon the Members'
respective Percentage Interests.
(e) Subject to Section 7.2, Ordinary Cash Flow received by the Company
with respect to Developing Hotels shall be distributed to the Members on the
following basis:
(i) First, pro rata to the Members based on Unreturned Capital
Contributions until NorthStar has received a non-cumulative
return on its Unreturned Capital Contributions with
respect to Developing Hotels equal to 12% per annum, not
compounded; then
(ii) Second, (A) 4.125% to Schrager and .875% to Pilevsky, less,
with respect to Pilevsky, any amounts theretofore paid or
payable to Pilevsky pursuant to Sections 7.1(e)(i) and
7.1(e)(ii)(B), to the extent such amounts have not previously
been offset against amounts paid under this Section and (B)
95% to the Members (including Schrager and Pilevsky) on a pro
rata basis based upon the Members' respective Percentage
Interests, until NorthStar has received a simple annual
return of 15% on its Capital Contributions with respect to
Developing Hotels; then
(iii) Lastly, (A) 8.25% to Schrager and 1.75% to Pilevsky, less,
with respect to Pilevsky, any amounts theretofore paid or
payable to Pilevsky pursuant to Sections 7.1(e)(i),
7.1(e)(ii)(B) and 7.1(e)(iii)(B), to the extent such amounts
have not previously been offset against amounts paid under
this Section and (B) 90% to the Members (including Schrager
and Pilevsky) on a pro rata basis based upon the Members'
respective Percentage Interests.
(f) Intentionally Omitted.
(g) Rights and Obligations of Convertible Member. On the date hereof, the
Convertible Member has loaned the Convertible Loan Amount to the Company. The
Convertible Loan Amount shall bear interest on the daily outstanding principal
amount thereof, for each day from the date the Loan is made until the Mandatory
Conversion Date, at a rate per annum equal to the Convertible Loan Interest
Rate.
(i) Interest Payments. On each Convertible Loan Interest Payment
Date, the Convertible Loan Member shall receive an interest
payment from the Company, computed on the Weighted
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Convertible Loan Amount outstanding during the immediately
prior Payment Period, at a rate equal to the Convertible Loan
Interest Rate for such Payment Period (the "Convertible Loan
Interest Payments").
(ii) Distributions of Capital Event Proceeds. Notwithstanding
anything to the contrary contained in Section 7.1(c), during
the Convertible Loan Term, all Capital Event Proceeds shall
be distributed solely to the Convertible Member (the
"Convertible Loan Principal Payments"), until the principal
balance of the Convertible Loan (and any accrued but unpaid
Convertible Loan Interest Payment) has been repaid in full.
(iii) Distributions of Ordinary Cash Flow. Notwithstanding anything
to the contrary contained herein, for purposes of calculating
Distributions under Sections 7.1(d) and (e), the amount of
Ordinary Cash Flow shall be calculated taking into account
the amount of any Convertible Loan Interest payments due.
Ordinary Cash Flow of the Company shall not be used to
amortize the Convertible Loan.
(iv) Mandatory Conversion. On the Mandatory Conversion Date, the
then outstanding principal balance of the Convertible Loan
(and any accrued but unpaid Convertible Loan Interest
Payment), if any (after giving effect to any Capital Event
Proceeds Distributed to the Convertible Member on such date),
shall be deemed a Capital Contribution of the Convertible
Member, deemed to have been made on a pari passu basis with
the Capital Contributions made on the date hereof and the
Convertible Member shall be allocated a Percentage Interest
in the Company based on such deemed Contribution. Thus, the
Percentage Interest of the Convertible Member on the
Mandatory Conversion Date shall be a fraction, the numerator
of which is the Convertible Loan Amount (and any accrued but
unpaid Convertible Loan Interest Payment) outstanding on the
Mandatory Conversion Date (after giving effect to any Capital
Event Proceeds Distributed to the Convertible Member or
Convertible Loan Interest Payments made on such date) and the
denominator of which is the total of all Capital
Contributions made on the date hereof (including the deemed
Capital Contribution of the Convertible Member on the
Mandatory Conversion Date, after giving effect to any Capital
Event Proceeds Distributed to the Convertible Member on such
date), and the Percentage Interest of each other Member (a
"Non-
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Convertible Member") shall be decreased by an amount equal
to the product of (i) the Percentage Interest of the
Convertible Member immediately following the conversion of
the Convertible Loan into an Interest in the Company and (ii)
a fraction the numerator of which is the Percentage Interest
of the Non- Convertible Member, immediately prior to such
conversion, and the denominator of which is one hundred
percent (100%). Notwithstanding anything to the contrary
contained herein, it is the intention of the Members that all
Convertible Loan Interest Payments be made on or prior to the
Mandatory Conversion Date, and that there be no accrued but
unpaid Convertible Loan Interest Payments when the balance of
the Convertible Loan is converted into a Percentage Interest
in the Company. For purposes of calculating the Internal Rate
of Return with respect to deemed Capital Contributions of the
Convertible Member, all Convertible Loan Interests Payments
and the origination fee attributable to such deemed Capital
Contribution shall be included as Distributions to the
Convertible Member, made as of the date actually paid to the
Convertible Member.
(v) Origination Fee. On the date hereof the Convertible Member
shall be deemed to have earned a loan structuring and
origination fee equal to 1% of (x) the initial principal
balance of the Convertible Loan and (y) the outstanding
principal balance of the Henry Hudson Loan, which fee shall
not be paid by the Company, but shall be added to the
principal balance of the Convertible Loan.
(vi) Excess Interest. The Members intend and believe that each
provision of this Section 7.1 comports with all applicable
law, it being the intention of the Members to comply with the
laws of the State of New York with regard to the rate of
interest charged hereunder. It is agreed that if any
provision of this Section 7.1(g) providing for the payment of
interest or other charges, shall require the payment or
permit the collection of any amount in excess of the maximum
amount of interest permitted by law to be charged ("Excess
Interest"), then any Excess Interest that the Convertible
Member may have received hereunder shall be applied as a
credit against the unpaid Convertible Loan Amount and the
applicable interest rate or rates provided for herein shall
be automatically subject to reduction to the maximum lawful
rate allowed to be contracted for in writing under the
applicable usury laws of the State of New York, and this
Agreement shall be
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deemed to have been, and shall be, reformed and modified to
reflect such reduction in such interest rate or rates; and
the Company shall not have any action or remedy against the
Convertible Member for any damages whatsoever arising out of
the payment or collection of any Excess Interest.
(h) For purposes of Sections 7.1(c), (d) and (e), the Percentage Interest
and Capital Account of Warrant Co. shall be as specified by NorthStar at such
time as the transfer permitted by Section 11.6(c) hereof takes place and when
such transaction takes place, the Percentage Interest and Capital Account of
NorthStar shall be reduced by the Percentage Interest and Capital Account
allocated, respectively, to Warrant Co.
Section 7.2 Limitations on Distribution. Notwithstanding any provision to
the contrary contained in this Agreement, the Company shall not make a
distribution to any Member on account of his or its interest in the Company if
such distribution would violate Section 508 of the New York Act or other
applicable law.
Section 7.3 Intentionally Omitted.
Section 7.4 Mandatory Tax Distributions.
(a) Notwithstanding any provision to the contrary contained in this
Article VII, to the extent that the Company has sufficient Cash Available for
Distribution, to facilitate the payment by the Members of their income tax
liability attributable to the Company's Profits for a calendar year, within 60
days after the end of the Company's fiscal year, the Board of Managers shall
distribute to each Member the amount, if any, by which (I)the product of such
Member's allocable share of taxable income for such fiscal year as will be
required to be shown on the U.S. federal information return of the Company for
such fiscal year (other than income or gain that is specifically allocated
pursuant to Section 704(c) of the Code or other comparable provisions of the
Code) multiplied by the sum of the maximum federal, New York State and New York
City personal income tax rates (taking into account the deductibility of state
and local taxes), exceeds (II) the amount, if any, of Cash Available for
Distribution distributed to such Member pursuant to Section 7.1 for such fiscal
year.
(b) In the event that the Company does not have sufficient Cash Available
for Distribution to make all distributions required by Section 7.4(a), the
Company shall distribute any Cash Available for Distribution to the Members in
proportion to the Members' respective distributable amounts thereunder.
Section 7.5 Profits and Losses. Subject to Section 7.6 hereof relating to
allocations in the case of Members admitted during the period as to which such
allocation applies:
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(a) if the Company shall have an aggregate Profit from the date of its
inception to the end of the period for which an allocation is being made,
Profits for the period shall be allocated as follows:
(i) To the extent that Profits shall be less than the total of
all previous distributions (other than distributions
constituting a return of Capital Contributions or Additional
Capital Contributions, Convertible Loan Interest Payments,
and Convertible Loan Principal Payments), then, to the extent
possible, Profits for the period shall be allocated first to
the Members in such proportion as would cause the aggregate
amount of Profit allocated to each Member to equal the amount
of such prior distributions (other than distributions
constituting a return of Capital Contributions or Additional
Capital Contributions, Convertible Loan Interest Payments,
and Convertible Loan Principal Payments) made to such Member,
and
(ii) The remainder shall be allocated among the Members in the
same manner as if such excess had been distributed pursuant
to Sections 7.1(c), 7.1(d) and 7.1(e) hereof, as applicable,
other than distributions constituting a return of Capital
Contributions or Additional Capital Contributions,
Convertible Loan Interest Payments, and Convertible Loan
Principal Payments made to such Member
(b) if the Company shall have an aggregate Profit from the date of its
inception to the end of the period for which an allocation is being made, Loss
for the period shall be allocated in proportion to the cumulative previous
allocations to each Member of Profits and Losses;
(c) if the Company shall have an aggregate Loss from the date of its
inception to the end of the period for which an allocation is being made,
Profits for the period shall be allocated in proportion to the cumulative
previous allocations to each Member of Profits and Losses;
(d) if the Company shall have an aggregate Loss from the date of its
inception to the end of the period for which an allocation is being made, Loss
for the period shall be allocated in proportion to the Capital Accounts of the
Members until each Member's Capital Account has been reduced to zero and,
thereafter, in accordance with each Member's respective Percentage Interest;
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(e) Notwithstanding anything contained in this Article VII to the
contrary, if there is a net decrease in partnership minimum gain during any
Fiscal Year, except as otherwise permitted by Sections 1.704-2(f)(2), (3), (4)
and (5) of the Regulations, items of Company income and gain for such taxable
year (and subsequent years, if necessary) in the order provided in
Section 1.704-2(j)(2)(i) of the Regulations shall be allocated among all Members
whose shares of partnership minimum gain decreased during that year in
proportion to and to the extent of such Member's share of the net decrease in
partnership minimum gain during such year, it being understood that the
allocation contained in this Section 7.5(e) is intended to be a minimum gain
chargeback within the meaning of Section 1.704-2 of the Regulations, and shall
be interpreted consistently therewith;
(f) Notwithstanding anything contained in this Article VII to the
contrary, if there is a net decrease in partner nonrecourse debt minimum gain,
except as provided in Section 1.704-2(i) of the Regulations, items of Company
income and gain for such taxable year (and subsequent years, if necessary) in
the order provided in Section 1.704-2(j)(2)(ii) of the Regulations shall be
allocated among all Members whose share of partner nonrecourse debt minimum gain
decreased during that year in proportion to and to the extent of such Member's
share of the net decrease in partner nonrecourse debt minimum gain during such
year, it being understood that this Section 7.5(f) is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2 of the Regulations
and shall be interpreted consistently therewith;
(g) Notwithstanding any provisions of this Article VII to the contrary,
in the event any Member unexpectedly receives any adjustments, allocations, or
distributions described in Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of
Company income and gain (including gross income) shall be specially allocated to
each such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the adjusted capital account deficit of such Member
as quickly as possible, provided that an allocation pursuant to this Section
7.5(g) shall be made only if and to the extent that such Member would have an
adjusted capital account deficit, it being understood that the allocation
contained in this Section 7.5(g) is intended to be a "qualified income offset"
within the meaning of Section 1.704-1(b)(2)(ii)(d) of the Regulations, and shall
be subject thereto;
(h) In accordance with Section 1.704-2(i)(1) of the Regulations, any item
of Company loss or deduction which is attributable to partner nonrecourse debt
for which a Member bears the economic risk of loss (such as a non-recourse loan
made by a Member to the Company or an otherwise non-recourse loan to the Company
that has been guaranteed by a Member) shall first be allocated to that Member to
the extent of the economic risk of loss that such Member bears with respect to
such partner non- recourse debt.
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(i) In accordance with Section 1.704-2(b)(1) of the Regulations,
nonrecourse deductions (as defined in Section 1.704- 2(c) of the Regulations)
shall be allocated among the Members in proportion to their respective
Percentage Interests.
Section 7.6 Allocation Rules.
(a) In the event Members are admitted to the Company pursuant to this
Agreement on different dates, the Profits (or Losses) allocated to the
Members for each Fiscal Year during which Members are so admitted shall be
allocated among the Members in proportion to the Percentage Interests during
such Fiscal Year in accordance with -section- 706 of the Code, using any
convention permitted by law and selected by the Board of Managers.
(b) For purposes of determining the Profits, Losses or any other items
allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly or other basis, as determined by the Board of
Managers using any method that is permissible under -section- 706 of the
Code and the Treasury Regulations thereunder.
(c) Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction and any other allocations not otherwise
provided for shall be divided among the Members in the same proportions as
they share Profits and Losses for the Fiscal Year in question.
Section 7.7 Members' Share of Company Recourse Liabilities. In accordance
with Section 1.752-2 of the Regulations, each Member's share of the Company's
recourse liabilities (as defined in Section 1.752-1(a)(1) of the Regulations)
will be determined based on the extent, if any, to which such Member bears the
economic risk of loss (including through a guarantee of all or any portion of
outstanding Company or Subsidiary debt) with respect to such liabilities (as
determined in accordance with Section 1.752-2 of the Regulations). Neither the
Company nor any Member shall take any position inconsistent with the foregoing
in any filing, return, tax audit, tax controversy, closing agreement or
otherwise.
Section 7.8 Tax Allocation; Section 704(c) of the Code.
(a) In accordance with -section- 704(c) of the Code and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for income
tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value (computed in
accordance with the definition thereof in Section 1.1 hereof).
(b) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to paragraph (ii) of the definition of "Gross Asset Value" contained in
Section 1.1 hereof, subsequent allocations of income, gain, loss and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset
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for federal income tax purposes and its Gross Asset Value in the same manner
as under -section- 704(c) of the Code and the Treasury Regulations
thereunder.
(c) Any elections or other decisions relating to allocations under
this Section 7.8, including the selection of any allocation method permitted
under proposed Treasury Regulation -section- 1.704-3, shall be made by the
Board of Managers in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 7.8 are
solely for purposes of federal, state and local income taxes and shall not
affect, or in any way be taken into account in computing, any Member's
Capital Account or share of Profits, Losses, other items or distributions
pursuant to any provision of this Agreement.
Section 7.9 Guaranty.
(a) As of the date hereof, in accordance with certain contribution
agreements of even date herewith, Schrager and Pilevsky (or principals or
Affiliates thereof) will guarantee a portion of the indebtedness of the Company
currently outstanding on the Paramount Hotel, in an amount equal to the Schrager
Debt Amount and the Pilevsky Debt Amount, respectively, from the date hereof
through the date of their respective deaths. Schrager and Pilevsky acknowledge
that there can be no assurance that such lenders will accommodate the Board's
request or, if accommodated, the length and terms of such accommodation. The
Board of Managers, Schrager, and Pilevsky acknowledge that Schrager and Pilevsky
will bear the economic risk of loss (within the meaning of Section 1.752-2 of
the Regulations) with respect to that portion of the indebtedness of the Company
so guaranteed and agree to treat such guaranty consistently therewith in
accordance with Section 1.752-2 of the Regulations and Section 7.7 hereof.
(b) Schrager and Pilevsky acknowledge that subsequent to the date hereof,
the Company may permit NorthStar or any Additional Member to guarantee a portion
of the indebtedness of the Company in connection with the contribution of assets
by NorthStar or such Additional Member. In such event, the amount of debt
available for guaranty by Schrager and Pilevsky, if there be insufficient debt
available for guarantee by NorthStar or Additional Member, shall be reduced so
that the proportion of debt available for guaranty by Schrager, Pilevsky and
NorthStar or such Additional Member, respectively, shall be in the ratio of each
guarantor's share of the income that would be recognized if such guarantor could
not guaranty any debt to the entire amount of income that would be so recognized
by all of the guarantors if none of them could guaranty any debt.
Notwithstanding the foregoing, if the mortgage loan secured by the Paramount
Hotel is discharged prior to January 1, 2000 and the payment pursuant to Section
11.7 has not been made to Pilevsky, the Company shall make available to Pilevsky
and Schrager debt with a comparable risk factor for Pilevsky and Schrager to
guaranty, in an amount up to the Pilevsky Debt Amount and the Schrager Debt
Amount, if Pilevsky and Schrager so choose to guaranty such debt.
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(c) Any guarantees provided by Schrager, Pilevsky and, if applicable,
NorthStar or any Additional Member, pursuant to this Section 7.9 shall be
provided pari passu with respect to one another.
(d) The Members hereby agree that, notwithstanding anything in this
Section 7.9 to the contrary, the Company shall maintain indebtedness in an
amount at least equal to the aggregate of the Pilevsky Debt Amount and the
Schrager Debt Amount for period commencing on the date hereof and ending no
earlier than January 1, 2000, subject to the Company's option to reduce such
debt amount pursuant to Section 11.7(b) hereof.
ARTICLE VIII
BOOKS AND RECORDS; REPORTING
Section 8.1 Books, Records and Financial Statements.
(a) At all times during the continuance of the Company, the Company shall
maintain, at its principal place of business, separate books of account for the
Company that shall show a true and accurate record of all costs and expenses
incurred, all charges made, all credits made and received and all income derived
in connection with the operation of the Company business in accordance with
generally accepted accounting principles consistently applied, and, to the
extent inconsistent therewith, in accordance with this Agreement. Such books of
account, together with a certified copy of this Agreement, the Bylaws and the
Certificate, shall at all times be maintained at the principal place of business
of the Company and shall be open to inspection and examination at reasonable
times upon reasonable notice given not more than once per year by any Member or
Additional Member and their respective duly authorized representatives for any
purpose reasonably related to such Member's interest in the Company.
(b) The Company shall maintain at its principal place of business a
record of its Members, giving the names and addresses of all Members and the
Interest held by each Member. Subject to such reasonable standards (including
standards governing what information and documents are to be furnished and at
whose expense) as may be established by the Board of Managers from time to time,
each Member will have the right to obtain from the Company, from time to time
upon reasonable demand for any purpose reasonably related to the Member's
Interest, a record of the Company's Members.
Section 8.2 Accounting Method. For both financial and tax reporting
purposes and for purposes of determining Profits and Losses, the books and
records of the Company shall be kept on the accrual method of accounting applied
in a consistent manner and shall reflect all Company transactions and be
appropriate and adequate for the Company's business.
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The books of account and records of the Company shall be maintained in
accordance with generally accepted accounting principles consistently applied
during the term of the Company, wherein all transactions, matters and things
relating to the business and properties of the Company shall be currently
entered.
Section 8.3 Audits. The financial statements of the Company shall be
audited each year by either Arthur Anderson LLP, David Berdon & Co. LLP or any
other independent certified "big six" public accounting firm, as selected by the
Board of Managers as a Supermajority Decision, with such audit to be accompanied
by a report of such accountant containing its opinion. The cost of such audit
will be an expense of the Company. A copy of any such audited financial
statements and accountant's report will be made available to the Members within
sixty (60) days after the close of each Fiscal Year, together with a statement
of such Member's Capital Account as of the close of such Fiscal Year, and
changes therein during such Fiscal Year; and a statement indicating such
Member's share of each item of Company income, gain, loss, deduction or credit
for such Fiscal Year for income tax purposes. Immediately after execution of
this Agreement, and thereafter as necessary, with respect to any Hotel Property
or other asset contributed to or acquired by the Company that does not have
audited historical financial statements appropriate for a public reporting real
estate investment trust, the Company shall retain an independent certified "big
six" public accounting firm, selected by the Board of Managers as a
Supermajority Decision, to conduct an audit of such Hotel Property or other
asset in order that the Company be provided with the requisite financial
information. The cost of such audit shall be an expense of the Company.
Section 8.4 Other Reports.
(a) Within forty-five (45) days after the end of each fiscal quarter, the
Officers of the Company shall prepare and transmit to each member of the Board
of Managers a status report and financials for the Company for such quarter and
the fiscal period then ended. Such report and financials shall include (a) an
unaudited balance sheet and statement of income, changes in equity and cash
flows for the Company as of and for the fiscal period then ended, (b) a report
analyzing and comparing the actual results of operations with the current annual
Budget, together with a narrative explanation of any significant variances, and
(c) a summary of prospective investments and their status.
(b) Within thirty (30) days after the end of each month, the Officers of
the Company shall prepare and transmit to each member of the Board of Managers
an executive summary and description of operations and financial results.
(c) On or before January 31 of each year beginning with 1998, the Chief
Executive Officer and the Company's other Officers shall prepare and submit the
Budget and Business Plan for the coming year to the Board of Managers for its
approval. If the Board of Managers withholds its approval of either said Budget
or Business Plan, the Company shall operate pursuant to the Budget and Business
Plan for the prior year, except that with respect to
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any line item in the previous year's Budget, the Company may spend one hundred
five percent (105%) of the amount corresponding to such line item during the
period prior to the approval of the Budget for such year.
ARTICLE IX
TAX MATTERS
Section 9.1 Certain Notices. The Tax Matters Member shall, within 10 days
of the receipt of any notice from the Internal Revenue Service in any
administrative proceeding at the Company level relating to the determination of
any Company item of income, gain, loss, deduction or credit, mail a copy of such
notice to each Partner.
Section 9.2 Right to Make Section 754 Election. The Class B Managers
may vote to make or revoke, on behalf of the Company, an election in
accordance with -section- 754 of the Code, so as to adjust the basis of
Company property in the case of a distribution of property within the meaning
of -section- 734 of the Code, and in the case of a transfer of a Company
interest within the meaning of -section- 743 of the Code. Each Member shall,
upon request of the Tax Matters Member, supply the information necessary to
give effect to such an election.
Section 9.3 Taxation as Partnership. The Company shall be treated as a
partnership for U.S. federal income tax purposes. The Members agree to take all
reasonable actions, including the amendment of this Agreement and the execution
of such other documents, agreements and instruments as may reasonably be
required in order for the Company to qualify for and receive "partnership"
treatment for federal, state and local income tax purposes.
ARTICLE X
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 10.1 Liability; Adjustment of Percentage Interests upon Defaulted
Additional Capital Contributions.
(a) Except as otherwise provided by the New York Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Covered Person shall be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a Covered
Person.
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(b) (i) Except as otherwise provided by the New York Act or this
paragraph (b), a Member shall have no liability in excess of (A) the amount
of its Capital Contributions, (B) its share of any assets and undistributed
profits of the Company, and (C) the amount of any distributions wrongfully
distributed to it. Additional Capital Contributions to the Company shall
not be mandatory, but the Board of Managers (by approval of a the Class A
Member and a majority of the Class B Member unless such call does not
constitute a Supermajority Decision) may issue calls for Additional Capital
Contributions from Members, any such call not to require such Additional
Capital Contributions on less than five (5) business days' prior written
notice.
(ii) If made, calls (each, a "Capital Call") for Additional Capital
Contributions shall be funded by the Members pro rata based upon the
Members' Percentage Interests and similarly, the Members shall be permitted
to fund any Additional Capital Contribution not funded by a Defaulting
Member pursuant to subparagraph (iii) of this Section 10.1(b) pro rata
based upon the non-Defaulting Members' Percentage Interests.
(iii) If a Member (a "Defaulting Member") does not meet a call for
Additional Capital Contributions, either Schrager or NorthStar may pay to
the Company the amount of such noncontributing Member's Additional Capital
Contribution, which amount shall be an Additional Capital Contribution on
the part of NorthStar or Schrager, as applicable.
(iv) Notwithstanding anything to the contrary set forth herein, in the
event that a Defaulting Member fails to make all or a portion of its pro
rata share of an Additional Capital Contribution and such default continues
for a period of seven business days after the receipt of notice from a
non-defaulting Member requiring such contributions (the "Default Date"),
then the Members' Percentage Interests shall be adjusted as set forth in
the next sentence. The Percentage Interest of each Defaulting Member, with
respect to each Additional Capital Contribution where such Member does not
fund its pro rata share, shall be decreased by an amount equal to (A) such
Defaulting Member's Percentage Interest, immediately prior to the
applicable Capital Call, multiplied by (B) a fraction, the numerator of
which is the total of all Additional Capital Contributions made by the
Members pursuant to the applicable Capital Call and the denominator of
which is the sum of (A) the Fair Market Value of the equity of the Company
determined as of the Default Date plus (B) the total of all Additional
Capital Contributions made by the Members pursuant to the applicable
Capital Call. The Percentage Interest of each non-Defaulting Member shall
be increased by an amount equal to the product of (A) the amount by which
the Defaulting Member's Percentage Interest was decreased and (B) a
fraction the numerator of which is the Additional Capital Contribution made
by such non-Defaulting Member pursuant to the applicable
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Capital Call and the denominator of which is the total of all Additional
Capital Contributions made by all of the Members pursuant to the applicable
Capital Call.
Section 10.2 Exculpation.
(a) No Covered Person shall be liable to the Company or any other Covered
Person for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the
Company and in a manner reasonably believed to be within the scope of authority
conferred on such Covered Person by this Agreement.
(b) A Covered Person shall be fully protected in relying in good faith
upon the records of the Company and upon such information, opinions, reports or
statements presented to the Company by any Person as to matters the Covered
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, Profits, Losses, Capital Event Proceeds
or Cash Available For Distribution or any other facts pertinent to the existence
and amount of assets from which distributions to Members might properly be paid.
Section 10.3 Fiduciary Duty.
(a) Subject to the relevant provisions of the New York Act and other
applicable law, to the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting under this
Agreement shall not be liable to the Company or to any other Covered Person for
its good faith reliance on the provisions of this Agreement. The provisions of
this Agreement, to the extent that they restrict the duties and liabilities of a
Covered Person otherwise existing at law or in equity, are agreed by the parties
hereto to replace such other duties and liabilities of such Covered Person.
(b) Unless otherwise expressly provided herein, (i) whenever a conflict
of interest exists or arises between Covered Persons, or (ii) whenever this
Agreement or any other agreement contemplated herein or therein provides that a
Covered Person shall act in a manner that is, or provides terms that are, fair
and reasonable to the Company or any Member, the Covered Person shall resolve
such conflict of interest, taking such action or providing such terms,
considering in each case the relative interest of each party (including its own
interest) to such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting practices or
principles. In the absence of bad faith by the Covered Person, the resolution,
action or term so made, taken or provided by the Covered Person shall not
constitute a breach of this Agreement or any other agreement contemplated herein
or of any duty or obligation of the Covered Person at law or in equity or
otherwise.
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Nothing in this Section 10.3 shall be deemed to otherwise limit the rights of
the Members under Sections 6.3, 6.4 and 6.5 hereof.
(c) Whenever in this Agreement a Covered Person is permitted or required
to make a decision (a) in its "discretion" or under a grant of similar authority
or latitude, the Covered Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no duty or
obligation to give any consideration to any interest of or factors affecting the
Company or any other Person, or (b) in its "good faith" or under another express
standard, the Covered Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this Agreement or other
applicable law.
(d) Notwithstanding anything herein to the contrary, Pilevsky shall have
no fiduciary duties to the Company.
Section 10.4 Indemnification. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered Person by reason
of any act or omission performed or omitted by such Covered Person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such Covered Person by this Agreement; provided,
however, that any indemnity under this Section 10.4 shall be provided out of and
to the extent of Company assets only, and no Covered Person shall have any
personal liability on account thereof. The rights to indemnification and to the
advancement of expenses conferred in this Article X shall be contract rights and
such rights shall continue as to a Covered Person who has ceased to be a Covered
Person, shall inure to the benefit of the Covered Person's heirs, executors and
administrators, and shall not be exclusive of any other right that any Covered
Person may have or hereafter acquire under any statute, agreement, vote of the
Board of Managers or otherwise.
Section 10.5 Expenses. To the fullest extent permitted by applicable law,
expenses (including legal fees, disbursements and court costs) incurred by a
Covered Person in defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Company prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Company of an
undertaking by or on behalf of the Covered Person to repay such amount if it
shall be determined that the Covered Person is not entitled to be indemnified as
authorized in Section 10.4 hereof.
Section 10.6 Insurance. The Company may purchase and maintain insurance,
to the extent and in such amounts as the Board of Managers shall, in its sole
discretion, deem reasonable, on behalf of Covered Persons and such other Persons
as the Board of Managers shall determine, against any liability that may be
asserted against or expenses that may be incurred by any such Person in
connection with the activities of the Company or such indemnities, regardless of
whether the Company would have the power to indemnify such
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Person against such liability under the provisions of this Agreement. In
particular, the Company shall obtain, to the extent available at commercially
reasonable rates, insurance in favor of the Board of Managers and the Officers
of the Company with respect to actions and omissions by them in the fulfillment
of their respective duties hereunder. The Board of Managers and the Company may
enter into indemnity contracts with Covered Persons and such other Persons as
the Board of Managers shall determine and adopt written procedures pursuant to
which arrangements are made for the advancement of expenses and the funding of
obligations under Section 10.5 hereof and containing such other procedures
regarding indemnification as are appropriate.
ARTICLE XI
TRANSFERABILITY AND SUBSTITUTE MEMBERS;
RIGHT OF FIRST OFFER; TAG-ALONG RIGHT;
TRANSFERS AFFECTING PILEVSKY
Section 11.1 Transferability of Interests.
(a) A Member may Transfer its Interest or any direct or indirect interest
in its Interest only by complying with this Section 11.1. Neither Schrager nor
Pilevsky may Transfer all or any portion of their respective Interests during
the Lockout Period, except as set forth in Section 11.1(c) below.
(b) Except as otherwise provided in this Article XI, any Transfer by a
Member shall be a Supermajority Decision. If all approvals required hereby are
obtained, or if no approval is required, for any Transfer, such Transfer shall,
nevertheless, not entitle the transferee to become a Substitute Member or to be
entitled to exercise or receive any of the rights, powers or benefits of a
Member other than the right to receive distributions to which the transferring
Member would be entitled, unless or until the following conditions are
satisfied:
(i) The transferor and the transferee execute such documents and
instruments of conveyance and such amendments to this Agreement as may be
necessary or appropriate in the opinion of counsel to the Company to effect
such Transfer, to confirm the transferee's agreement to be bound by the
provisions of this Article XI and, if the Board of Managers consents, to
reflect the admission of the Transferee as a Member.
(ii) The Company shall receive, prior to such Transfer, an opinion
of counsel reasonably satisfactory to the Company confirming that such
Transfer (A) is not contrary to, or in violation of, any applicable
securities law, (B) is permitted under this Agreement, (C) will not affect
the Company's status as a limited liability company
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under the applicable laws of the State of New York and (D) will not
terminate the Company as a partnership for Federal income tax purposes.
(iii) The transferor and transferee shall furnish the Company with
the transferee's taxpayer identification number, sufficient information to
determine the transferee's initial adjusted cost basis in the Transferred
Interest and any other information reasonably necessary to permit the
Company to file all required Federal, state and foreign tax returns and
other legally required information statements or returns. Without limiting
the generality of the foregoing, the Company shall not be required to make
any distribution otherwise provided for in this Agreement with respect to
any Transferred Interest until it has received such information.
(iv) The transferor and the transferee thereof pay all reasonable
costs and expenses incurred by the Company in connection with such
Transfer.
(c) Notwithstanding anything to the contrary in this Article XI, and
without the consent of the Board of Managers or any other Member, at any time
hereafter;
(i) Schrager, Pilevsky and any Additional Member who is an
individual may, upon death, Transfer his Interest or an interest therein to
the estate, legatees or devisees of Ian Schrager, Phil Pilevsky or such
individual, respectively,
(ii) each of Schrager and Pilevsky may Transfer all or any portion
of their respective Interests, as the case may be, to members of the
immediate family of Ian Schrager, with respect to Schrager, or Phil
Pilevsky, with respect to Pilevsky, or to any corporation, partnership,
limited liability company, trust or other entity all of the equity
interests in which are owned by members of such individual's immediate
family; provided that Ian Schrager or Phil Pilevsky, as the case may be,
can demonstrate that he Controls such transferee or transferees; and
(iii) NorthStar may Transfer all or any part of its interest to any
of its Affiliates.
Section 11.2 Recognition of Transfer by Company. No Transfer, or any part
thereof, that is in violation of this Article XI shall be valid or effective,
and neither the Company nor the Board of Managers shall recognize the same for
the purpose of making distributions pursuant to Section 7.1 hereof with respect
to such Interest or part thereof. Neither the Company nor the Board of Managers
shall incur any liability as a result of refusing to make any such distributions
to the transferee of any such invalid Transfer.
Section 11.3 Effect of Transfers.
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(a) The Transfer of an Interest shall not cause the dissolution of the
Company.
(b) If a Transfer of an Interest occurs during any Fiscal Year, Profits,
Losses, each item of income, gain, loss, deduction or credit and all other items
attributable to the Transferred Interest for such Fiscal Year shall be divided
and allocated between the Transferor and the Transferee by taking into account
their varying interests during the Fiscal Year in accordance with Code
- -section-706(d), using any conventions permitted by law and selected by the
Board of Managers. All distributions on or before the date of the Transfer
shall be made to the Transferor and all distributions thereafter shall be
made to the Transferee. Solely for purposes of making such allocations and
distributions, the Company shall recognize a transfer made in accordance with
the terms of this Article XI not later than the end of the calendar month
during which it is given notice stating the date such Interest was
transferred and such other information as the Board of Managers may
reasonably require. The Board of Managers and the Company shall incur no
liability for making allocations and distributions in accordance with the
provisions of this Section.
Section 11.4 NorthStar/Schrager Right of First Offer.
(a) If after the expiration of the Lockout Period, either Schrager or
NorthStar (the "Offering Member") shall decide to sell all, or any part of its
Interest (the "Offered Interest") other than pursuant to Section 11.1(c), then
the Offering Member shall give the other such Member (the "Offeree Member")
prior written notice thereof (the "Interest Sale Notice"), setting forth:
(i) the price for which the Offering Member would like to sell such Offered
Interest to an unaffiliated third party for cash (the "Target Interest Price")
and (ii) if the Offering Member is Schrager, a statement whether Ian Schrager
intends to maintain any interest in, or association with, such prospective
buyer, including, without limitation, whether he will agree to be employed by
such buyer in a consulting, management or similar role, any such agreement to be
deemed a material term of such offer, and which, if NorthStar, as the Offeree
Member, exercises its option to purchase the Offered Interest, shall inure to
the benefit of NorthStar, as the Offeree Member, as if initially made with
NorthStar, as the Offeree Member in accordance with its terms, and which shall
be evidenced by Schrager's written agreement with NorthStar, as Offeree Member.
Simultaneously, with delivery of the Interest Sale Notice to the Offeree Member,
for informational purposes only the Offering Member shall provide a copy of such
Interest Sale Notice to Pilevsky.
(b) Upon receipt of an Interest Sale Notice, the Offeree Member shall
have the right, exercisable in its sole discretion, by written notice to the
Offering Member to either (I) purchase or have its designee purchase such
Offered Interest at the Target Interest Price or (II) permit the Offering Member
to use all reasonable endeavors to negotiate a sale of the entire Company or all
or substantially all (as defined at the end of this paragraph) of the Company's
assets and investments, provided that the Offering Member shall employ for such
purpose an investment advisor reasonably acceptable to the Offeree Member, the
fees
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and expenses of such advisor to be paid by the Company. The Offeree Member shall
exercise its option under clause (I) or clause (II) of the preceding sentence
within sixty (60) days, time being of the essence, after receipt of the Interest
Sale Notice (such sixtieth day, the "First Interest Election Date"). If the
Offeree Member elects to purchase such Offered Interest, then the closing of
such acquisition shall occur on or prior to the date which is one hundred twenty
(120) days, time being of the essence, after the date on which the Offeree
Member delivers to the Offering Member written notice of its election to
purchase the Offered Interest, and the purchase price for such Offered Interest
shall be the Target Interest Price. The Offered Interest shall be sold to the
Offeree Member free and clear of all liens, pledges, security interests and
other encumbrances, other than encumbrances relating to Obligations of the
Company, or unless otherwise indicated in the Interest Sale Notice. If the
Offeree Member elects to permit the Offering Member to cause a sale, at the
Offering Member's option, of the Company, or all or substantially all of the
Company's assets and investments, the Offering Member shall market the Company
in a diligent manner and shall keep the Offeree Member informed of all material
decisions made with respect to the marketing and sale of the Company. The other
Members (other than Pilevsky) shall reasonably cooperate with the Offering
Member in such efforts. Any such sale must be consummated, if at all, within
nine (9) months after the First Interest Election Date, time being of the
essence (such date, the "Offeree Sale Deadline"). In the case of a sale of the
entire Company, the amount received with respect to the sale of the Company
must, when distributed to the Offeree Member in accordance with Section 7.1(c),
on a proportionate basis for the percentage interest being sold by the Offeree
Member, yield to the Offeree Member an amount greater than or equal to the
amount that the Target Interest Price would have yielded the Offering Member
with respect to the Offered Interest. In the case of a sale of substantially all
of the Company's assets or investments, the amount received with respect to the
sale of such assets or investments must, when distributed to the Offeree Member
in accordance with Section 7.1(c), on a proportionate basis for that portion of
the assets or investments sold that are represented by the Offeree Member's
percentage interest in the Company, yield to the Offeree Member an amount
greater than or equal to that which the Target Interest Price would have yielded
the Offering Member for a sale of the assets or investments of the Company
represented by the Offered Interest. The Company shall not be sold pursuant to
any offer not meeting such conditions unless consented to in writing by the
Offeree Member and the Offering Member. For the purposes of this Section 11.4,
"substantially all of the Company's assets or investments" shall mean eighty
percent (80%) or more of such assets or investments calculated on the basis of
the Fair Market Value of the assets or investments of the Company.
(c) If the Offeree Member does not timely elect or is deemed not to have
elected to either purchase the Offered Interest in accordance with Section
11.4(b)(I) or to permit the Offering Member to endeavor to negotiate a sale of
the Company in accordance with Section 11.4(b)(II), then notwithstanding
anything to the contrary in Section 11.1, the Offering Member shall have the
right, during the nine (9) month period commencing on the earlier of (i) the
date the Offeree Member notifies the Offering Member that it will not exercise
its rights under this Section 11.4 and (ii) the First Interest Election Date, to
sell the
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Offered Interest to any Person at a price not less than ninety-five (95%) of the
Target Interest Price. If such nine (9) month period has expired and the
Offering Member has not sold the Offered Interest, then the Offering Member
shall not have the right to sell the Offered Interest without re-offering it to
the Offeree Member in accordance with all of the provisions of this Section
11.4.
(d) If the Offeree Member elects to purchase the Offered Interest, and
the Offering Member tenders the Offered Interest in accordance with this Section
11.4 (and free and clear of all liens, and other encumbrances, except as
otherwise identified in the Interest Sale Notice) and the Offeree Member fails
to close the acquisition for any reason, then notwithstanding anything to the
contrary, the Offering Member shall have the right, at any future date, to sell
the Offered Interest to unaffiliated third parties without re- offering it to
the Offeree Member in accordance with the provisions of this Section 11.4,
provided, however, that if the Offering Member does procure an unaffiliated
third-party purchaser, it shall issue another Interest Sale Notice to the
Offeree Member and the Offeree Member shall still be entitled to exercise its
Tag Along Right pursuant to Section 11.5 hereof.
Section 11.5 NorthStar/Schrager Tag-Along Right.
(a) Upon receipt of an Interest Sale Notice, either NorthStar or Schrager
shall in addition to its rights to an election pursuant to Section 11.4(b)
hereof, have the right in its sole discretion to continue to retain its Interest
in the Company, or, to sell or contribute, concurrently with the sale or
contribution by the Offering Member and on the same terms, including the same
proportionate valuation (the "Tag-Along Right"), its Interest in the Company by
written notice of the exercise of such Tag-Along Right to the Offering Member
within thirty (30) days after its receipt of the Interest Sale Notice (the
"Tag-Along Exercise Notice"). In the event that the Offeree Member fails to send
the Offering Member a Tag-Along Exercise Notice within thirty (30) days after
its receipt of the Interest Sale Notice, the Offeree Member will be deemed to
have elected to continue to retain its Interest in the Company.
(b) In the event that the Offeree Member exercises its Tag-Along Right,
from and after its receipt of such Tag-Along Exercise Notice from the Offeree
Member, the Offering Member shall keep the Offeree Member fully informed as to
the status of the Offering Member's negotiations and all material terms relating
to such sale or contribution, and shall promptly deliver to the Offeree Member
copies of all drafts of agreements relating thereto and shall promptly notify
the Offeree Member of all proposed changes to such material terms. Further, if
the Offeree Member exercises the Tag-Along Right, the Offering Member shall
attempt to have all of the Interests proposed to be sold or contributed by the
Offering Member and the Offeree Member included in such sale or contribution;
provided, however, that if the purchaser is unwilling to purchase all of the
Interests proposed to be sold or contributed, the amount to be sold will be sold
pro rata in proportion to the selling or contributing Members' Percentage
Interests.
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(c) Notwithstanding anything to the contrary in this Section 11.5,
NorthStar, as Offeree Member, shall not be required to Transfer any part of its
interest if such Transfer would result in NorthStar holding less than a majority
of all Interests, unless such Transfer is a Transfer of all of NorthStar's
Interest.
Section 11.6 NorthStar's Right to Transfer.
(a) Except as expressly permitted by this Article XI, NorthStar shall not
have the right to Transfer all or any portion of its Interest in the Company in
one or more transactions from time to time.
(b) During the Lockout Period, with respect to Transfers to parties that
are not Affiliates of NorthStar, NorthStar may Transfer, without the consent of
the Company or any other Member, in any Transfer or series of Transfers, up to
seventy-five percent (75%) in the aggregate of its Interest as the same exists
on the date hereof; provided, however, that (i) any such Transferee shall not be
a Member of the Company but rather shall hold its interest in an entity, or
otherwise, controlled directly or indirectly by NorthStar that does not compete,
either directly or through its Affiliates, in any material way, with the
business of the Company or its Affiliates; (ii) NorthStar shall maintain a
majority control of the Class B Members of the Board of Managers, with either W.
Edward Scheetz or David Hamamoto holding at least one Board seat and (iii) any
such Transferee shall not be a Schrager Competitor.
(c) Notwithstanding the provisions of Section 11.6(b) hereof, NorthStar
may Transfer up to thirty-five percent (35%) of its Interest in one or more
transactions from time to time to UBS Mortgage Finance, Inc. or such assignees
or transferees thereof as may be approved by NorthStar, without the Consent of
the Company or any other Member, provided such Transfer(s) are counted in
determining whether the seventy-five percent (75%) limit contained in Section
11.6(b) has been reached. The three (3) enumerated limitations set forth in
Section 11.6(b) shall not apply to the right granted in this Section 11.6(c);
however, said transferees shall be bound by NorthStar's elections in Sections
11.4 and 11.5 as if it were NorthStar itself, and shall have no right to vote on
or approve any decision, action or inaction on the part of the Company. The
Interest of such transferees shall be bought or sold along with NorthStar's
Interest at a price equal to, on a pro rata basis, the price paid for
NorthStar's Interest. Any transferees under this Section 11.6(c) hereby grants
to the Board of Managers an irrevocable power of attorney, coupled with an
interest, to execute any documents on its or their behalf to effectuate any
decisions of the Board of Managers made in accordance with the terms of this
Agreement.
Section 11.7 Transfers Affecting Pilevsky. (a) In no event shall the
Company sell all or any portion of its assets prior to January 1, 1999, if the
effect of such sale would be to render the Company with indebtedness available
for Pilevsky's guaranty pursuant to Section 7.9 hereof in an amount less than
the Pilevsky Debt Amount.
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(b) Notwithstanding anything to the contrary contained herein, in the
event that the Board of Managers, by Supermajority Decision, decides to sell all
or any portion of the assets of the Company such that indebtedness remaining for
guaranty by Pilevsky would be less than the Pilevsky Debt Amount, and such
Transfer would take place after January 1, 1999, but prior to January 1, 2000,
then in such event the Company shall pay to Pilevsky, in addition to any other
amounts Pilevsky would be entitled to hereunder, the amount of $2,500,000 upon
the consummation of such sale, if as and when the sale closes, but only under
these circumstances.
(c) Subject to the Company fulfilling its obligation, if any, pursuant to
Section 11.7(b), in the event Schrager sells all or any portion of its Base
Interest and/or Carried Interest in accordance with this Agreement in an
arm's-length transaction, Schrager shall notify the Company and Pilevsky of such
intention at least ten (10) days' prior to any such Transfer, and any proposed
transferee shall be required (subject to the provisions set forth below) to
purchase a pro rata portion of Pilevsky's Base Interest and/or Carried Interest,
as applicable, such purchase to be consummated prior to that date which is one
hundred twenty (120) days from such notice to Pilevsky and on the same date as
the sale of the applicable Schrager Interest. Such purchase shall be at a price
which would yield Pilevsky an amount equivalent, on a pro rata basis, to the
amount received by Schrager, taking into account each of Schrager's and
Pilevsky's respective Base Interests and Carried Interests in the Company.
Pilevsky may not Transfer its Interest except as expressly set forth in this
Section and Section 11.1(c). Pilevsky hereby grants to the Board of Managers an
irrevocable power of attorney, coupled with an interest, to execute any
documents on its behalf to effectuate any transfer made in accordance with the
terms of this Section 11.7(c). If for any reason Schrager is prevented by any
act or omission of the Company or Pilevsky from consummating a sale of all or a
portion of the Pilevsky Interest, in accordance with this Section 11.7(c),
Schrager shall still have the right to consummate the sale of its Interest, and
have the transferee admitted as a Member, but shall, in conjunction with the
transferee, reasonably pursue its available remedies against Pilevsky to compel
the sale of all or a portion of Pilevsky's Interest in accordance with this
Section 11.7.
(d) Any payments made to Pilevsky pursuant to Section 7.9 shall be
credited to the Company's obligations hereunder.
Section 11.8 Admission. The Company is authorized to admit any Person as
an additional member of the Company (each, an "Additional Member" and
collectively, the "Additional Members") upon such terms and conditions
(including, but not limited to, as to the existence of any right to vote) as are
approved by all members of the Board of Managers. Upon the admission of an
Additional Member, the Percentage Interest of each Member will be reduced to an
amount equal to (i) the Percentage Interest of such Member immediately prior to
the admission of such Additional Member, expressed as a decimal, divided by (ii)
the sum of 1 and the Percentage Interest of such Additional Member, expressed as
a decimal. Each such Person to be admitted as an Additional Member shall be
admitted at the time such Person
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(a) executes this Agreement or a counterpart of this Agreement and (b) is named
as a Member on Schedule A hereto.
Section 11.9 Resignation. Members may not resign or withdraw from the
Company without the approval of the Class B Managers and upon such terms and
conditions as may be specifically agreed upon between the Company and the
resigning Member. The provisions hereof with respect to distributions are
exclusive and no Member shall be entitled to claim any further or different
distribution upon resignation under Section 18-604 of the New York Act or
otherwise. The Company may recover damages for breach of this Section 11.9 if
any Member violates this Section 11.9 and may offset the Company's damages
against any amount owed to a resigning Member for distributions.
Section 11.10 Pledges. Any Member may pledge or collaterally assign
all or any part of its Interest in the Company to one or more institutional
lenders or "bulge bracket" investment banks (as that term is generally
defined) without the consent of any other Member or the Board of Managers;
provided, however, that should Schrager so pledge or collaterally assign all
or any portion of its Interest (the "Pledged Interest") such pledge or
collateral assignment instrument shall provide that prior to the foreclosure
(or assignment in lieu of foreclosure) of such Pledged Interest, the pledgee
(or its successors or assigns) shall first offer the Pledged Interest to the
Company according to the procedure set forth in Section 11.4, mutatis
mutandis, except that, as provided above, the time period for the exercise of
such right of first offer shall be twenty (20) days from receipt of the
Interest Sale Notice and the time period for the closing of such acquisition
shall be sixty (60) days from the receipt of the Interest Sale Notice.
Section 11.11 Schrager Right to Sell Company. Notwithstanding anything in
this Agreement to the contrary, in the event that neither W. Edward Scheetz nor
David Hamamoto is serving on the Board of Managers, Schrager shall have the
right to use all reasonable endeavors to negotiate a sale of the entire Company
or all or substantially all of the Company's assets and investments provided
that Schrager shall employ for such purpose an investment advisor reasonably
acceptable to a majority of the Class B Managers, the fees and expenses of such
advisor to be paid by the Company. If Schrager elects to cause a sale of the
Company, the other Members (other than Pilevsky) shall reasonably cooperate in
the marketing and sale of the Company and shall be kept informed of all material
decisions made with respect to the marketing and sale of the Company. Any such
sale must be consummated, if at all, within nine (9) months after the first date
on which neither W. Edward Scheetz nor David Hamamoto is serving on the Board of
the Managers, time being of the essence.
Section 11.12 Schrager Right to Transfer Carried Interest.
Notwithstanding anything in this Agreement to the contrary, in no event shall
Schrager be entitled to Transfer its right to distributions pursuant to Section
7.1(c)(ii)(A) or (iii)(A), Section 7.1(d)(ii)(A) or (iii)(A) or Section
7.1(e)(ii)(A) or (iii)(A) (collectively the "Carried Interest"), whether in
connection with a Transfer of its Interest permitted under this Agreement or
otherwise, the
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right to such distributions being personal to Schrager. The foregoing shall not,
however, prevent Schrager from Transferring all of its Interest (other than the
Carried Interest) provided such Transfer otherwise complies with the terms of
this Agreement. In addition, if Schrager transfers all of its Interest other
than the Carried Interest, Schrager shall receive any distribution to which it
would otherwise be entitled to hereunder. For purposes of receiving such
distributions with respect to the Carried Interest, Schrager will retain a
Membership Interest in the Company, albeit without a capital account or any
voting rights or rights to representation on the Board of Managers, despite such
Transfer of its Interest (other than the Carried Interest).
ARTICLE XII
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 12.1 No Dissolution. The Company shall not be dissolved by the
admission of Additional Members or Substitute Members in accordance with the
terms of this Agreement.
Section 12.2 Events Causing Dissolution. The Company shall be dissolved
and its affairs shall be wound up upon the occurrence of any of the following
events:
(i) Supermajority Decision of the members of the Board of
Managers approving the dissolution of the Company; or
(ii) the bankruptcy or dissolution of NorthStar or Schrager
unless, within ninety (90) days after the occurrence of such
an event, a majority in Interest of the remaining Members
(excluding Pilevsky) agree in writing to continue the
business of the Company.
Section 12.3 Notice of Dissolution. Upon the dissolution of the Company
the Board of Managers shall promptly notify the Members of such dissolution.
Section 12.4 Liquidation; Compliance With Certain Requirements of
Regulations; Deficit Capital Accounts.
(a) Upon dissolution of the Company, the Board of Managers, or the Person
or Persons approved by a vote of the Class B Managers, shall carry out the
winding up of the Company (in such capacity, the "Liquidating Trustee"), shall
immediately commence to wind up the Company's affairs; provided, however, that a
reasonable time shall be allowed for the orderly liquidation of the assets of
the Company and the satisfaction of liabilities to creditors so as to enable the
Members to minimize the normal losses attendant upon a liquidation. The
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assets of the Company shall be used, first, to pay or provide for the payment of
all outstanding liabilities of the Company in their respective order of priority
according to law, including the repayment of any Advances made pursuant to
Section 4.5 of this Agreement and accrued and unpaid interest thereon. Except as
required by applicable law, obligations of the Company to Members or other
persons related to Members shall be paid in the same manner and order as if such
obligation were not owed to a Member or to a person related to a Member. Any
amount determined by the Liquidating Trustee to be in excess of the amounts
needed for the foregoing purposes shall be distributed to the Members in the
same manner as provided for in Section 7.1 of this Agreement.
(b) In the event the Company is "liquidated" within the meaning of
regulations -section-1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article XII to the Members who have positive Capital
Accounts in compliance with Regulations -section-1.704-1(b)(2)(ii)(b)(2). If
any Member's Capital Account has a deficit balance (after giving effect to
all contributions, distributions and allocations for all Fiscal Years,
including the Fiscal Year during which such liquidation occurs), such Member
shall not be obligated to contribute to the capital of the Company the amount
necessary to restore such deficit balance to zero.
Section 12.5 Termination. The Company shall terminate when all of the
assets of the Company, after payment of or due provision for all debts,
liabilities and obligations of the Company, shall have been distributed to the
Members in the manner provided for in this Article XII and the Certificate shall
have been canceled in the manner required by the New York Act.
Section 12.6 Claims of the Members. The Members and former Members shall
look solely to the Company's assets for the return of their Capital
Contributions, and if the assets of the Company remaining after payment of or
due provision for all debts, liabilities and obligations of the Company are
insufficient to return such Capital Contributions, the Members and former
Members shall have no recourse against the Company or any other Member.
Section 12.7 Bankruptcy or Dissolution of a Member. Subject to Section
12.2(ii), the Bankruptcy or dissolution of a Member shall not dissolve the
Company. Subject to Article XI, the legal representative of a Bankrupt Member or
the assignee of a dissolved Member shall have the rights of an assignee to
receive distributions and allocations of Profits and Losses pursuant to Article
VII and may become a Member only upon compliance with the procedures as provided
in Article XI. In the absence of admission, any payment by the Company in the
name of the Bankrupt or dissolved Member, or to its legal representative or
assignee, shall acquit the Company of all liability to any Person who may be
interested in such payment by reason of the Bankruptcy or dissolution of a
Member.
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ARTICLE XIII
MISCELLANEOUS
Section 13.1 Amendments. Any amendment to this Agreement shall be adopted
and be effective as an amendment hereto if it is approved as a Supermajority
Decision of the Board of Managers. In the event this Agreement shall be amended
pursuant to this Article XV, the Chief Executive Officer shall amend the
Certificate to reflect such change if it deems such amendment of the Certificate
to be necessary. Each Member (other than NorthStar) does hereby constitute and
appoint NorthStar and its designees as its true and lawful representative and
attorney- in-fact, in its name, place and stead to make, execute, sign, deliver
and file such amendment to this Agreement.
Section 13.2 Notices. All notices provided for in this Agreement shall be
in writing, duly signed by the party giving such notice, and shall be given
personally, or given by telephone (promptly confirmed by telecopied message), or
by telecopier (promptly confirmed by telephone), or by registered or certified
mail, or by a nationally recognized overnight courier, charges prepaid,
addressed as follows:
(i) if given to the Company, in care of each of the Members at
their mailing addresses set forth on Schedule A attached
hereto; or
(ii) if given to any Member, at the address set forth opposite its
name on Schedule A attached hereto, or at such other address
as such Member may hereafter designate by written notice to
the Company.
All such notices shall be deemed to have been given when received or, in
the case of notice by mail only, six (6) business days after being sent,
whichever occurs first.
Section 13.3 Dispute Resolution. Any and all disputes, controversies and
claims arising out of or relating to this Agreement or the performance hereof
other than those brought by or against Pilevsky shall be settled and determined
by arbitration in New York City before a panel of three arbitrators pursuant to
the Commercial Rules then in effect of the American Arbitration Association. The
parties agree that the arbitrators shall have the power to award damages,
preliminary or permanent injunctive relief and reasonable attorneys' fees and
expenses to any party in such arbitration. The arbitration award shall be final
and binding upon the parties and judgment thereon may be entered in any court
having competent jurisdiction thereof. The arbitrators shall be governed by and
shall apply the substantive law of the State of New York in making their award.
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Section 13.4 Failure to Pursue Remedies. The failure of any party to seek
redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section 13.5 Cumulative Remedies. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
Section 13.6 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of all of the parties and, to the extent permitted by this
Agreement, their successors, legal representatives and Transfers.
Section 13.7 No Third Party Beneficiaries. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any Person not a party
hereto.
Section 13.8 Interpretation. Throughout this Agreement, nouns, pronouns
and verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable. All references herein to "Articles," "Sections"
and "Paragraphs" shall refer to corresponding provisions of this Agreement.
Section 13.9 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
Section 13.10 Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had signed the
same document. All counterparts shall be construed together and shall constitute
one instrument.
Section 13.11 Integration. This Agreement and the documents executed and
delivered in connection therewith constitute the entire agreement among the
parties hereto pertaining to the subject matter hereof and thereof, and
supersede all prior agreements and understandings pertaining thereto.
Section 13.12 Governing Law. This Agreement and the rights of the parties
hereunder shall be interpreted in accordance with the laws of the State of New
York, and all rights and remedies shall be governed by such laws without regard
to principles of conflict of laws.
Section 13.13 Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member. The terms of this Agreement are intended to
embody the economic
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relationship among the Members and shall not be subject to modification by, or
be conformed with, any actions by the Internal Revenue Service except as this
Agreement may be explicitly so amended and except as may relate specifically to
the filing of tax returns.
Section 13.14 Time. Time is of the essence with respect to this
Agreement.
Section 13.15 Headings. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision hereof.
Section 13.16 Incorporation by Reference. Every exhibit, schedule and
other appendix attached and referred to in this Agreement is incorporated in
this Agreement by reference unless this Agreement expressly otherwise provides.
Section 13.17 Further Action. Each Member agrees to perform all further
acts and execute, acknowledge and deliver any documents which may be reasonably
necessary, appropriate or desirable to carry out the provisions of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above stated.
MEMBERS:
NORTHSTAR HOSPITALITY LLC, a Delaware
limited liability company
By: /s/ W. Edward Scheetz
--------------------------------
Name: W. Edward Scheetz
Title: Executive Vice President
MHG ASSOCIATES, L.P., a Delaware
limited partnership
By: Morgans Century Corp., its general partner
By: /s/ Ian Schrager
--------------------------------
Name: Ian Schrager
Title: President
CENTURY OPERATING ASSOCIATES, a
New York limited partnership
By: CPH Operating Corp., its general partner
By: /s/ Philip Pilevsky
--------------------------------
Name: Philip Pilevsky
Title: President
Consented to and agreed with
respect to Section 6.10:
/s/ Ian Schrager
- ------------------------
Ian Schrager
<PAGE>
<TABLE>
<CAPTION>
Date: February 13, 1998 SCHEDULE A
------------
MEMBERS AND THEIR MAILING ADDRESSES,
CAPITAL CONTRIBUTIONS AND PERCENTAGE INTERESTS
Percentage of
Capital Percentage
Name Mailing Address Capital Contribution(1) Contributions Interest(2)
----- --------------- ----------------------- ------------- -----------
<S> <C> <C> <C> <C>
NorthStar Hospitality 527 Madison Avenue, New $102,479,445.00 83.986% 83.986000%
LLC York, New York 10022
MHG Associates, L.P. 235 West 46th Street, New $19,540,230.00 16.014% 15.933930%
York, New York 10036
Century Operating 417 Fifth Avenue, New $1.00 0% .080070%
Associates York, New York 10016
---------------- ---------
$122,019,676.00 100.0% 100.0%
</TABLE>
- ------------------------------
(1) This column sets forth the cash amount of any cash Capital Contributions,
the agreed value of any Capital Contributions, net of any liabilities,
made in the form of property or property interests in the initial
contributions or series of contributions effected in connection with the
formation of the Company, and the value, as determined by the Board of
Managers, of any Capital Contributions made in the form of property or
property interests after such initial contributions or series of
contributions.
(2) The Pilevsky Percentage Interest is 0.5% of the initial Schrager
Percentage Interest (prior to deducting the Pilevsky Percentage Interest
therefrom) and such amount has been deducted from the Schrager Percentage
Interest.
<PAGE>
SCHEDULE B
BY LAWS
OF
IAN SCHRAGER HOTELS LLC
These Bylaws of IAN SCHRAGER HOTELS LLC, a Delaware limited liability
company (the "Company") shall be subject to the Limited Liability Company
Agreement of Ian Schrager Hotels L.L.C., as from time to time in effect (the
"Agreement"),. In the event of any inconsistency between the terms hereof and
the terms of the Agreement, the terms of the Agreement shall control.
Capitalized terms used herein and not herein defined are used as defined in the
Agreement.
ARTICLE I.
Board of Managers; Meetings of Board of Managers
Section 1.1 Voting. The Board of Managers shall be divided into two
classes, designated Class A and Class B. Each Class A Manager shall have one
vote and each Class B Manager shall have one vote; provided, however, that the
majority of the Class B Managers, voting separately as a class, shall determine
the votes of the Class B Managers.
Section 1.2 Resignation of Managers. Any member of the Board of Managers
may resign at any time by giving written notice to the Company. Any resignation
shall take effect at the date of the receipt of that notice or at any later time
specified in that notice, and unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it effective.
Section 1.3 Chairman of the Board of Managers. The Board of Managers
shall elect a Chairman, who shall preside at meetings of the Board of Managers.
Section 1.4 Place of Meetings and Meetings by Telephone. All meetings of
the Board of Managers may be held at any place that has been designated from
time to time by resolution of the Board of Managers or, in lieu thereof, written
resolutions of the Board of Managers may be executed by the Class A Manager and
a majority of the Class B Managers. In the absence of such a designation,
meetings shall be held at the principal place of business of the Company. Any
meeting may be held by conference telephone or similar communication equipment
so long as all Managers participating in the meeting can hear one another, and
all Managers participating by telephone or similar communication equipment shall
be deemed to be present in person at the meeting.
Section 1.5 Notice of Meetings. Regular meetings of the Board of Managers
shall be held at least once per year at such times and at such places as shall
be fixed by the Board of Managers. Such regular meetings may be held without
notice. All notices of the time and place of special meetings of the Board of
Managers shall be called by any member of the Board of Managers upon forty-eight
(48) hours notice to each Manager personally or by telephone confirmed by
written notice by telecopy.
<PAGE>
The notice shall specify (i) the place, date and hour of the meeting, and (ii)
the general nature of the business to be transacted.
Section 1.6 Waiver of Notice. Notice of any meeting need not be given to
any Manager who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Company or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any Manager who attends the meeting without protesting
before or at its commencement the lack of notice to that Manager.
Section 1.7 Adjournment. A majority of the Managers present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than forty-eight (48) hours, in which
case notice of the time and place shall be given before the time of the
adjourned meeting in the manner specified in Section 1.4.
Section 1.8 Delegation of Power. The Board of Managers may, by
resolution, delegate any Decisions or all of their powers and duties (other than
powers and duties pertaining to a matter that requires a Supermajority Decision)
granted hereunder or under the Agreement to one or more committees of the Board
of Managers, each consisting of one or more Managers, or to one or more
officers, employees or agents, including without limitation Members, and to the
extent any such powers or duties are so delegated, action by the delegate or
delegates shall be deemed for all purposes to be action by the Manager. All such
delegates shall serve at the pleasure of the Board of Managers. To the extent
applicable, notice shall be given to, and action may be taken by, any delegate
of the Board of Managers as herein provided with respect to notice to, and
action by, the Managers.
Section 1.9 Quorum. The Class A Manager and a majority of the Class B
Managers must be present at any meeting of the Board of Managers in order to
constitute a quorum for the purposes of any such meeting.
ARTICLE II.
Officers
Section 2.1 Officers. The officers of the Company shall be a President,
one or more Vice Presidents, a Secretary and a Treasurer. The Company may also
have, at the discretion of the Board of Managers, such other officers as may be
appointed in accordance with the provisions of Section 2.3. Any number of
offices may be held by the same person. The President shall also be a Manager.
Other officers may, but need not, be Managers.
<PAGE>
Section 2.2 Election of Officers. The officers of the Company shall be
chosen by the Board of Managers, and each shall serve at the pleasure of the
Board of Managers.
Section 2.3 Additional Officers. The Board of Managers may appoint, and
may empower the President to appoint, such additional officers as the business
of the Company may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in these Bylaws or as the
Board of Managers (or, to the extent the power to prescribe authorities and
duties of additional officers is delegated to him, the President) may from time
to time determine.
Section 2.4 Removal and Resignation of Officers. Any officer other than
the President may be removed, with or without cause, by the Board of Managers at
any regular or special meeting of the Board of Managers or by such officer, if
any, upon whom such power of removal may be conferred by the Board of Managers.
Any officer may resign at any time by giving written notice to the Company. Any
resignation shall take effect at the date of the receipt of that notice or at
any later time specified in that notice; and unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary to make it
effective.
Section 2.5 Vacancies in Offices. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled by
the Board of Managers.
Section 2.6 President. The President shall be the Chief Executive Officer
of the Company. He shall have the general powers and duties of management
usually vested in the office of President of a corporation and shall have such
other powers and duties as may be prescribed by the Board of Managers, the
Agreement or these Bylaws.
Section 2.7 Vice-Presidents. In the absence of the President or in the
event of his inability or refusal to act, the Vice-President (or in the event
there be more than one Vice-President, the Vice- Presidents in the order
designated by the Board of Managers, 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. The Vice-Presidents shall perform such other
duties and have such other powers as the Board of Managers may from time to time
prescribe.
Section 2.8 Secretary and Assistant Secretaries.
(a) The Secretary shall keep or cause to be kept at the principal
place of business of the Company or such other place as the Board of Managers
may direct a book of minutes of all meetings and actions of Board of Managers,
committees or other delegates of Managers. The Secretary shall keep or cause to
be kept at the principal place of business of the Company a register or a
duplicate register showing the names of all Members and their addresses, the
number and classes of Interest held by each, the number and date of certificates
issued for the same, if any, and the number and date of cancellation of every
certificate surrendered for cancellation. The Secretary shall give or cause to
be given notice of all meetings of the Board of Managers (or committees or other
delegates
<PAGE>
thereof) required to be given by these Bylaws or by applicable law and shall
have such other powers and perform such other duties as may be prescribed by the
Board of Managers or the President or by these Bylaws.
(b) The Assistant Secretary (or if there be more than one, the
Assistant Secretaries in the order designated by the Board of Managers, or in
the absence of any designation, then in the order of their election) shall, in
the absence of the Secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Managers
may from time to time prescribe.
Section 2.9 Treasurer, Assistant Treasurer or Chief Financial Officer.
(a) The Treasurer shall be the chief financial officer of the Company
and shall keep and maintain or cause to be kept and maintained adequate and
correct books and records of accounts of the properties and business
transactions of the Company. The books of account shall at all reasonable times
be open to inspection by any Manager. The Treasurer shall deposit all monies and
other valuables in the name and to the credit of the Company with such
depositories as may be designated by the Board of Managers. He or she shall
disburse the funds of the Company as may be ordered by the Board of Managers,
shall render to the President and Board of Managers, whenever they request it,
an account of all of his or her transactions as chief financial officer and of
the financial condition of the Company and shall have other powers and perform
such other duties as may be prescribed by the Board of Managers or the President
or by these Bylaws.
(b) The Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order designated by the Board of Managers, or in the
absence of any designation, then in the order of their election) shall, in the
absence of the Treasurer or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Manager may from
time to time prescribe.
ARTICLE III.
General Matters
Section 3.1 Checks, Drafts, Evidence of Indebtedness. All
checks, drafts, or other orders for payment of money, notes or other
evidences of indebtedness issued in the name of or payable by the
Company shall be signed or endorsed in such manner and by such person
or persons as shall be designated from time to time in accordance with
the resolution of the Board of Managers.
Section 3.2 Representation of Shares of Other Entities Held by
Company. The President or any other person authorized by the Board of Managers
or by any of the foregoing designated officers is authorized to vote or
represent on behalf of the Company any and all shares of or interests in any
<PAGE>
corporation, partnership, limited liability company, trust, or other entity,
foreign or domestic, standing in the name of the Company. The authority granted
may be exercised in person or by a proxy duly executed by such designated
person.
Section 3.3 Seal. The Board of Managers may approve and adopt an
official Company seal, which may be altered by them at any time. Unless
otherwise required by the Board of Managers, any seal so adopted shall not be
necessary to be placed on, and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by or on behalf of
the Company.
ARTICLE IV.
Amendments and Incorporation by Reference into Agreement
Section 4.1 Amendment. These Bylaws may be restated, amended, supplemented
or repealed only by Supermajority Decision of the Board of Managers.
<PAGE>
EXHIBIT A
1998 BUDGET
[Intentionally Omitted]
<PAGE>
-------------------------------------------------------------
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
IAN SCHRAGER HOTELS LLC
-------------------------------------------------------------
As of February 13, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS
Section 1.1 Definitions....................................................2
Section 1.2 Headings.....................................................17
ARTICLE II
OPERATION; TERM; ETC.
Section 2.1 Operation....................................................17
Section 2.2 Name.........................................................17
Section 2.3 Term.........................................................17
Section 2.4 Principal Place of Business..................................17
Section 2.5 Qualification in Other Jurisdictions.........................17
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section 3.1 Purpose......................................................18
Section 3.2 Powers of the Company........................................18
Section 3.3 Limitations on Company Powers................................20
ARTICLE IV
CAPITAL CONTRIBUTIONS, INTERESTS,
CAPITAL ACCOUNTS AND ADVANCES
Section 4.1 Capital Contributions........................................21
Section 4.2 Member's Interest............................................21
Section 4.3 Status of Capital Contributions..............................22
Section 4.4 Capital Accounts.............................................22
Section 4.5 Loans; Advances..............................................23
<PAGE>
ARTICLE V
MEMBERS
Section 5.1 Powers of Members............................................24
Section 5.2 Reimbursements and Payments of Expenses......................24
Section 5.3 Partition....................................................24
Section 5.4 Pilevsky's Membership Interest...............................24
ARTICLE VI
MANAGEMENT
Section 6.1 Management of the Company....................................25
Section 6.2 Powers of the Chief Executive Officer........................27
Section 6.3 Restrictions on the Chief Executive Officer..................28
Section 6.4 Rights, Duties and Obligations of the Chief
Executive Officer............................................29
Section 6.5 Consent of Members Not Required..............................29
Section 6.6 Reliance by Third Parties....................................30
Section 6.7 Transactions with Affiliates.................................30
Section 6.8 Confidentiality; Exclusivity.................................30
Section 6.9 Outside Businesses...........................................30
Section 6.10 Non-Competition and Other Schrager Related Matters..........31
Section 6.11 Tax Matters Member..........................................33
ARTICLE VII
DISTRIBUTIONS AND ALLOCATIONS
Section 7.1 Distributions.................................................34
Section 7.2 Limitations on Distribution..................................38
Section 7.3 Intentionally Omitted........................................39
Section 7.4 Mandatory Tax Distributions..................................39
Section 7.5 Profits and Losses...........................................39
Section 7.6 Allocation Rules.............................................41
Section 7.7 Members' Share of Company Recourse Liabilities...............41
Section 7.8 Tax Allocation; Section 704(c) of the Code...................42
Section 7.9 Guaranty.....................................................42
<PAGE>
ARTICLE VIII
BOOKS AND RECORDS; REPORTING
Section 8.1 Books, Records and Financial Statements......................43
Section 8.2 Accounting Method............................................44
Section 8.3 Audits.......................................................44
Section 8.4 Other Reports................................................44
ARTICLE IX
TAX MATTERS
Section 9.1 Certain Notices..............................................45
Section 9.2 Right to Make Section 754 Election...........................45
Section 9.3 Taxation as Partnership......................................45
ARTICLE X
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 10.1 Liability...................................................46
Section 10.2 Exculpation.................................................47
Section 10.3 Fiduciary Duty..............................................47
Section 10.4 Indemnification.............................................48
Section 10.5 Expenses....................................................48
Section 10.6 Insurance...................................................49
ARTICLE XI
TRANSFERABILITY AND SUBSTITUTE MEMBERS;
RIGHT OF FIRST OFFER; TAG-ALONG RIGHT;
TRANSFERS AFFECTING PILEVSKY
Section 11.1 Transferability of Interests................................49
Section 11.2 Recognition of Transfer by Company..........................51
Section 11.3 Effect of Transfers.........................................51
Section 11.4 NorthStar/Schrager Right of First Offer.....................51
Section 11.5 NorthStar/Schrager Tag-Along Right..........................53
Section 11.6 NorthStar's Right to Transfer...............................54
Section 11.7 Transfers Affecting Pilevsky................................55
Section 11.8 Admission...................................................55
<PAGE>
Section 11.9 Resignation.................................................56
Section 11.10 Pledges....................................................56
Section 11.11 Schrager Right to Sell Company.............................56
Section 11.12 Schrager Right to Transfer Carried Interest................56
ARTICLE XII
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 12.1 No Dissolution.............................................57
Section 12.2 Events Causing Dissolution.................................57
Section 12.3 Notice of Dissolution......................................57
Section 12.4 Liquidation................................................57
Section 12.5 Termination................................................58
Section 12.6 Claims of the Members......................................58
Section 12.7 Bankruptcy or Dissolution of a Member......................58
Section 13.1 Amendments.................................................59
Section 13.2 Notices....................................................59
Section 13.3 Dispute Resolution.........................................59
Section 13.4 Failure to Pursue Remedies.................................60
Section 13.5 Cumulative Remedies........................................60
Section 13.6 Binding Effect.............................................60
Section 13.7 No Third Party Beneficiaries...............................60
Section 13.8 Interpretation.............................................60
Section 13.9 Severability...............................................60
Section 13.10 Counterparts...............................................60
Section 13.11 Integration................................................60
Section 13.12 Governing Law..............................................60
Section 13.13 Construction...............................................60
Section 13.14 Time.......................................................61
Section 13.15 Headings...................................................61
Section 13.16 Incorporation by Reference.................................61
Section 13.17 Further Action.............................................61
Schedule A - Members
Schedule B - Bylaws
Exhibit A - 1998 Budget
<PAGE>
Exhibit 10.6
=================================
AGREEMENT
BETWEEN
F.S. REALTY CORP.,
THE 44TH B.C. REALTY CORP.
AND
NS 417/44 LLC
Dated: as of January 14, 1998
=================================
PREMISES: 417 Fifth Avenue
New York, New York
and
19 West 44th Street
New York, New York
<PAGE>
TABLE OF CONTENTS
Page
----
1. AGREEMENT...............................................................4
2. THE LOAN................................................................5
3. CLOSING; CONDITIONS TO CLOSING; COSTS AND EXPENSES......................8
4. STATUS OF PREMISES......................................................9
5. TITLE INSURANCE; LIENS.................................................11
6. REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING
THE PREMISES...........................................................14
7. NS COVENANTS, REPRESENTATIONS AND WARRANTIES...........................20
8. OWNER REPRESENTATIONS, WARRANTIES AND COVENANTS........................21
9. DOCUMENTS AND OTHER ITEMS TO BE DELIVERED AT CLOSING...................29
10. DISCLAIMER; WAIVER OF CLAIMS...........................................33
11. DAMAGE AND DESTRUCTION; CONDEMNATION...................................33
12. BROKERAGE..............................................................34
13. REMEDIES...............................................................35
14. INSPECTION.............................................................36
15. NOTICES................................................................36
16. APPORTIONMENTS.........................................................38
17. BINDING EFFECT.........................................................38
18. ASSIGNMENT.............................................................38
19. CHOICE OF LAW..........................................................39
<PAGE>
20. SURVIVAL...............................................................39
21. COUNTERPARTS...........................................................39
22. FURTHER ASSURANCES.....................................................39
23. INVALIDITY OF PARTICULAR PROVISION.....................................39
EXHIBITS
EXHIBIT A - Description of 417 Land
EXHIBIT A-1 - Description of 44 Land
EXHIBIT B - Escrow Provisions
EXHIBIT C - Form of Tenant Estoppel
EXHIBIT D - Form of Landlord Estoppel
EXHIBIT E - Security Deposit Assignment Agreement
EXHIBIT F - LockBox Agreement
EXHIBIT G - Notice to Tenants
EXHIBIT H - Form of Newco Operating Agreement
EXHIBIT I - Form of Assignment of Leases
EXHIBIT J - Form of Assignment of Included Property
EXHIBIT K - Authorization Letter
EXHIBIT L - Owners Certification
EXHIBIT M - W-9 Form
EXHIBIT N - Exceptions to Non-Recourse
(1) SCHEDULES
Schedule 1 - Leases, Security Deposits; Rent Roll
Schedule 2 - Contracts
Schedule 3 - Permits
Schedule 4 - Insurance Policies
Schedule 5 - Jewish Holidays
Schedule 6 - Tax Certiorari Proceedings
Schedule 7 - Records
Schedule 8 - Management Termination Fee
Schedule 9 - Schedule of Receivables
Schedule A - Form of Master Lease
Schedule B - Form of Option Agreement
- --------
(1) All schedules to be adjusted to reflect actual date of closing under the
Agreement.
<PAGE>
DEFINITION PAGE
Section
Term Number
- ---- ------
A.A........................................................................8(h)
A.A. Confirmation..........................................................8(h)
Additional Downpayment.....................................................2(d)
Affidavits.................................................................5(d)
Agreement..........................................................Introduction
Amount Payable.............................................................1(a)
Assignment of Leases..................................................9(a)(xiv)
Authorization Letter.......................................................8(g)
Business Days..............................................................5(c)
Closing Date...............................................................3(a)
Condemnation..............................................................11(a)
Conforming Tenant Estoppel..............................................8(e)(i)
Contracts...............................................................6(a)(i)
Courier......................................................................15
Deadline Date..............................................................1(a)
Downpayment.............................................................1(a)(i)
Escrow Agent............................................................1(a)(i)
FS Owner...........................................................Introduction
Family Members..........................................................6(viii)
44 Building.............................................................Recital
44 Land.................................................................Recital
44 Owner...........................................................Introduction
417 Building............................................................Recital
417 Land................................................................Recital
417 Premises............................................................Recital
Holidays...................................................................5(c)
Included Property.....................................................Exhibit J
Intangible Property...................................................Exhibit J
Judmart...................................................................12(a)
Landlord's Estoppel....................................................8(e)(ii)
Leases................................................................4(a)(vii)
Leasehold Loan.............................................................2(e)
Lender..................................................................2(a)(i)
Loan....................................................................Recital
Loan Costs.................................................................2(c)
Loan Documents..........................................................2(b)(i)
Loan Transaction Documents..............................................2(b)(i)
Lost Note Material.........................................................2(b)
<PAGE>
Lovell..................................................................4(a)(i)
Management Termination...............................................6(a)(xvii)
Management Termination Fee...........................................6(a)(xvii)
Managing Agent..........................................................6(a)(i)
Managing Agreement.....................................................6(a)(ii)
Master Lease............................................................Recital
Master Tenant...........................................................Recital
Major Casualty............................................................11(d)
Major Condemnation........................................................11(d)
Major Tenant..........................................................8(a)(iii)
Master Tenant..........................................................8(e)(ii)
Memoranda..............................................................9(a)(iv)
NS.................................................................Introduction
NS Member..................................................................8(b)
Newco......................................................................8(b)
Newco Operating Agreement..................................................8(b)
Newco Operating Agreements.................................................8(b)
Non-Delivering Tenants.................................................8(e)(ii)
Option..................................................................Recital
Option Agreement........................................................Recital
Option Payments.......................................................1(a)(iii)
Original Notes.............................................................2(b)
Owner..............................................................Introduction
Owners.............................................................Introduction
Owners' Certification......................................................8(h)
Owner's Closing Documents..................................................9(a)
Permits................................................................6(a)(vi)
Permitted Encumbrances.....................................................4(a)
Personalty.............................................................6(a)(ix)
Plans.................................................................Exhibit J
Premises................................................................Recital
Purchase Right.........................................................1(a)(iv)
Receivables.............................................................6(a)(i)
Records...............................................................6(a)(xvi)
Rent Roll...............................................................6(a)(i)
Report.....................................................................5(a)
Required Tenants........................................................8(e)(i)
Security Deposits.......................................................6(a)(i)
Tenant Estoppels........................................................8(e)(i)
Title Company..............................................................5(a)
Transfer.............................................................6(a)(viii)
<PAGE>
AGREEMENT
THIS AGREEMENT (this "Agreement"), made as of the 14th day of
January, 1998, by and between F.S. REALTY CORP. (the "FS Owner") and THE 44TH
B.C. REALTY CORP (the "44 Owner"), both New York corporations having an office
c/o Prince Management Corp., 498 Seventh Avenue, 7th Floor, New York, New York
10012 ( the FS Owner and the 44 Owner, collectively, the "Owners" and,
individually, an "Owner") and NS 417/44 LLC, a Delaware limited liability
company having an office c/o NorthStar Capital Partners LLC, 527 Madison Avenue,
17th Floor, New York, New York 10022 ("NS").
W I T N E S S E T H:
WHEREAS, the FS Owner is the owner in fee of a certain parcel of
land (the "417 Land") and improvements located thereon (said improvements
together with any future replacements thereof, collectively, the "417
Building"), which land and improvements as described in Exhibit A are also known
as 417 Fifth Avenue, New York, New York (the 417 Land and the 417 Building
hereinafter, the "417 Premises");
WHEREAS, the 44 Owner is the Owner in fee of a certain parcel of
land (the "44 Land") and improvements located thereon (said improvements
together with any replacements thereof, collectively, the "44 Building"), which
land and improvements as described in Exhibit A-1 are also known as 19 West 44th
Street, New York, New York (the
<PAGE>
44 Land and the 44 Building hereinafter, the "44 Premises", the 417 Premises and
the 44 Premises, collectively, the "Premises");
WHEREAS, NS desires to acquire from each Newco (as hereinafter
defined) an irrevocable option (the "Option") to purchase the Premises owned by
such Newco and, subject to the terms hereof, each Newco is willing to grant to
NS such Option;
WHEREAS, Owners have agreed that NS may elect to arrange for each
Newco to obtain a loan (the "Loan"), which Loan, also at NS's election, may be
secured by a first lien mortgage(s) encumbering the Premises and NS shall pay
all closing costs and lender fees associated therewith;
WHEREAS, the proceeds of any such Loan will be paid to each Newco as
part of the Amount Payable (as hereinafter defined); and
WHEREAS, simultaneously with the closing of the Loan (i) each Newco,
as landlord, and affiliates of NS, as tenant (the "Master Tenant"; all
references herein to the Master Tenant shall be deemed a reference to the tenant
under the Master Lease for each Premises as the context shall require), will
enter into a lease in the form attached hereto as Schedule A (the "Master
Lease"; all references herein to the Master Lease shall be deemed a reference to
the Master Lease for each Premises as the context shall require) with respect to
each of the Premises and (ii) Newco, as optionor, and an affiliate of NS, as
optionee, will execute and deliver the Option Agreement in the form attached
hereto as Schedule B (the "Option Agreement"; all references herein to the
Option Agreement shall be deemed a reference to the Option Agreement in respect
of each Premises as the context shall require).
-2-
<PAGE>
NOW, THEREFORE, for good and valuable consideration and the mutual
agreements herein contained, the parties covenant and agree as follows:
1. AGREEMENT
(a) Each Owner hereby agrees that, unless this Agreement shall be
terminated as provided herein and subject to any adjustments provided for herein
as to amounts payable at the Closing (hereinafter defined), it shall execute and
deliver in respect of the Premises owned by such Owner the Owner's Closing
Documents (as hereinafter defined) in consideration for the payment to the
Owners on or before February 3, 1998 (as same may be extended herein, the
"Deadline Date") of an amount equal to Seventy Million ($70,000,000) Dollars
(the "Amount Payable"), which Amount Payable shall be payable to both Owners at
Closing as follows:
(i) $4 million payable by NS (said sum, together with any
interest thereon, the "Downpayment"), upon the execution and delivery of
this Agreement by both parties, by check to Sukenik, Segal & Graff, P.C.
as escrow agent ("Escrow Agent"), which Downpayment shall be held pursuant
to the provisions of Exhibit B attached hereto;
(ii) an amount equal to $55,000,000 from the proceeds of one
or more Loan(s); and
(iii) a portion of the balance of the Amount Payable as an
Option Fee (as defined in the Option Agreement) and the remaining portion
of the balance of the Amount Payable as payment for the Interest Purchase
Option (the "Purchase Right"), as provided in the Newco Operating
Agreement (as hereinafter defined) (such amounts,
-3-
<PAGE>
collectively, the "Option Payments") and shall be allocated between the
417 Premises and the 44 Premises, as determined by NS in its sole
discretion.
(b) Delivery to the Owners at Closing of the Downpayment and any
Additional Downpayment, as hereinafter provided, shall constitute part of the
consideration paid in respect of the Option and the Purchase Right.
2. THE LOAN.
(a) If NS elects to effectuate the Loan, the Loan shall:
(i) be debt made by one or more Lending Institutions (as
defined in the Master Lease) or NS or an affiliate ("Lender") and secured, at
NS' option, by one or more mortgage liens on the Premises, provided that, at NS'
option (A) separate mortgages may be placed on each Premises, which mortgages
may be cross-collateralized and/or cross-defaulted or (B) one mortgage may
encumber both Premises (as well as, if NS so elects, other premises as well,
provided, however, the mortgage(s) or deeds of trust encumbering such other
premises may not be cross defaulted with the mortgage(s) on the Premises);
(ii) be non-recourse to the Owners except for those items set
forth on Exhibit N;
(iii) be in the aggregate principal amount of no more than
Fifty-Five Million ($55,000,000) Dollars;
(iv) not permit the Lender to participate in the income
derived by the Owners from the Premises; and
(v) shall be allocated between the Premises, as determined by
NS in its sole discretion, provided, however, if the Lender is NS or an
affiliate of NS then (A) the
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maximum amount of the Loan encumbering the 417 Premises shall be no more than
$[36,000,000] and the maximum amount of the Loan encumbering the 44 Premises
shall be no more than $[23,000,000] or any other similar pro rata allocation (it
being understood that , notwithstanding such allocation, the aggregate principal
amount in respect of both Premises shall be no more than $55,000,000) and (B) no
default interest shall be charged by the Lender (which limitation shall apply
only to that portion of the Loan held from time to time by NS or an affiliate);
(b) Each Owner covenants and agrees to cooperate with NS and to
provide any information about the Premises in its possession or control. In
connection therewith, each Owner agrees to deliver (A) any documentation
reasonably required by the Lender and (B) all original promissory notes (the
"Original Notes") evidencing any liens encumbering the 44 Premises in order that
such Original Notes may be assigned to the Lender, if so required by NS. If the
holder of the Original Notes is unable to deliver the Original Notes, Owner will
(Y) require such holder to deliver to the Lender and the Title Company an
affidavit that such Original Notes have been misplaced or lost and (Z) execute
replacement note(s), all as may be reasonably required by the Lender
(collectively, the "Lost Note Material"). Except as provided in Exhibit N,
nothing contained herein shall be deemed to impose any obligation on Owner to
execute and deliver any documents imposing personal liability on Owner or its
principals. Additionally, each Owner covenants and agrees that:
(i) At Closing, each Owner shall execute and deliver the
documents evidencing and/or securing the Loan encumbering each Owner's fee
interest in the 417 Premises or the 44 Premises, as the case may be
(collectively, the "Loan Documents") and shall also execute and deliver any
other documents or affidavits reasonably required by the Title Company (as
hereinafter defined) in connection therewith (collectively, the "Loan
Transaction Documents");
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(ii) It shall cooperate in satisfying any reasonable requests
by Lender as part of Lender's condition precedent to Closing, including, without
limitation, causing Owners' counsel to deliver any opinions with respect to each
Owner and, provided NS' counsel shall have delivered an opinion to the Owners
that the Loan Documents are enforceable, which Owners' counsel is specifically
authorized to rely upon, an opinion as to the enforceability of the Loan
Documents that may be reasonably required by Lender, which opinion(s) shall be
deemed part of the Loan Transaction Documents; and
(iii) If the Lenders (or the lender under the Leasehold Loan
(hereinafter defined)) shall request reasonable modifications to this Agreement,
the form of the Master Lease, the Option Agreement, or the Newco Operating
Agreement (which shall include any exhibits to all such documents) as a
condition to making the Loan, each Owner shall agree to make such modifications,
provided same do not increase the obligations of the Owners under such
documents.
(c) NS agrees that it shall pay all costs in connection with
obtaining and closing the Loan and recording the Loan Documents (collectively,
the "Loan Costs").
(d) If NS wishes to adjourn the Deadline Date, NS shall so notify
Owner, which notice shall include a check payable to the Escrow Agent (or
evidence that funds have been forwarded by wire to Escrow Agent) in the amount
of One Million ($1,000,000) Dollars (the "Additional Downpayment"). Time shall
be of the Essence in respect of NS's obligations to deliver said notice and
Additional Downpayment on or before the Deadline Date, provided that the Owners
have notified NS on or before February 1, 1998 that they have obtained
Conforming Tenant Estoppels from the Required Tenants and the A.A. Confirmation
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(hereinafter defined). In the event the Owners shall fail to notify NS that they
have obtained Conforming Tenant Estoppels from the Required Tenants and the A.A.
Confirmation by February 1, 1998, then the Deadline Date shall be extended until
two (2) business days after the Owners have given NS notification that they have
obtained the Conforming Tenant Estoppels from the Required Tenants and the A.A.
Confirmation. If NS delivers the Additional Downpayment, (i) all references in
this Agreement to Downpayment shall be deemed to include the Additional
Downpayment, which Downpayment shall be thereby increased to Five Million
($5,000,000) Dollars, and (ii) the Deadline Date shall be extended at NS' option
for up to thirty (30) days. Time shall be of the essence in respect of the
obligations of NS to close by such extended Deadline Date, subject to the terms
of this Agreement.
(e) Owner acknowledges and agrees that, at NS' sole cost and
expense, NS may from time to time finance its interest in the Master Lease,
provided that such loan(s) (collectively, the "Leasehold Loan") are at all times
subordinate to the Loan and to the fee. The first such loan may close
simultaneously with the Loan.
3. CLOSING; CONDITIONS TO CLOSING; COSTS AND EXPENSES.
(a) Subject to the satisfaction of each of the conditions to
Closing, the Closing shall occur on a mutually convenient date on or before the
Deadline Date, as same may be extended as provided herein in Sections 3(d), 5(b)
and 8(f) hereof (the "Closing Date"), set by the parties and Lender, at the
offices of NS's attorneys, Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022 or as otherwise required by Lender or its counsel, provided such
offices are located in the metropolitan New York area.
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(b) NS's Conditions Precedent. Satisfaction of each of the following
conditions, any of which may be waived in writing by NS, shall be deemed a
condition to NS's obligation to close hereunder:
(i) Fee title to the Premises shall be in accordance with the
terms of this Agreement;
(ii) Each Owner's representations and warranties set forth
herein shall be true and correct in all material respects as of the Closing
Date;
(iii) receipt of the A.A. Confirmation (hereinafter defined);
and
(iv) Each Owner shall have performed, observed, and complied,
in all material respects, with all of the covenants, agreements, and conditions
required by this Agreement to be performed, observed and complied with by it
prior to or as of the Closing.
(c) Owners' Conditions Precedent. Satisfaction of each of the
following conditions, any of which may be waived in writing by the Owners, shall
be deemed a condition to the obligation of each Owner to close hereunder:
(i) NS shall have delivered the Amount Payable less the
Downpayment and any Additional Downpayment;
(ii) NS's representations and warranties set forth herein
shall be true and correct in all material respects as of the Closing Date; and
(iii) NS shall have performed, observed, and complied, in all
material respects, with all of the covenants, agreements, and conditions
required by this Agreement to be performed, observed and complied with by NS
prior to or as of the Closing.
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(d) Other than as specifically provided herein, each party shall be
responsible for its own costs and expenses in connection with this Agreement and
the transactions contemplated hereby.
4. STATUS OF PREMISES.
(a) At the Closing, the Premises shall be subject only to the
following matters (collectively, the "Permitted Encumbrances"):
(i) with respect to the 417 Premises, the survey encroachments
indicated in the Report (as hereinafter defined) in respect of that certain
survey by Charles J. Dearing dated February 1, 1963, redated February 25, 1994
by Earl B. Lovell, S.P. Belcher ("Lovell") and updated by visual examination by
Lovell on December 9, 1997 and with respect to the 44 Premises, the survey
encroachments indicated in the Report in respect of that certain survey by
Francis K. Fords & Sons, dated March 26, 1917 and updated by visual examination
by Lovell on December 8, 1997, and any state of facts which further updated
surveys of the Premises would disclose as of the date hereof, provided same do
not make title unmarketable;
(ii) solely with respect to the 417 Premises, Terms, Covenants
and Restrictions recorded in Liber 635 Cp 426, Liber 695 Cp 584 and Liber 890 Cp
268;
(iii) real estate and other taxes, water and sewer charges and
other taxes and assessments affecting the Premises from and after the Closing
Date (which will be apportioned as provided in the Master Lease);
(iv) building restrictions and regulations in resolutions or
ordinances adopted by the Board of Estimate and Apportionment of the City of New
York, or any
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successor body, and all the amendments and additions thereto, now in force, if
any, and any changes between now and the Closing Date, provided such changes (y)
are not violated by the Premises and (z) do not adversely affect the intended
use thereof;
(v) present and future zoning laws, ordinances, resolutions
and regulations of the City of New York and all present and future ordinances,
laws, regulations and orders of all boards, bureaus, commissions and bodies of
any municipal, county, state or federal sovereigns now or hereafter having or
acquiring jurisdiction of the Premises and the use and improvement thereof, if
any, and any changes between now and the Closing Date, provided such changes (y)
are not violated by the Premises and (z) do not adversely affect the intended
use thereof;
(vi) the revocable nature of the right, if any, to maintain
vaults, vault spaces, tunnels, basements and sub-basement spaces, areas,
structures, marquees or signs, beyond the building lines;
(vii) the Master Lease, all leases, licenses and other
occupancy agreements (oral or written) for the leasing of space at the Premises,
identified on Schedule 1 annexed hereto (collectively, the "Leases");
(viii) the Loan Documents and the Option Agreement; and
(ix) any other matter or thing affecting the Premises which NS
agrees to take subject to or waives in writing pursuant to the provisions of
this Agreement.
(b) Owner covenants not to create, cause or permit any non-Permitted
Encumbrance.
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5. TITLE INSURANCE; LIENS.
(a) NS (i) shall obtain a title insurance report and commitment for
an Owner's and Lender's title insurance policy from a title insurance company
(the "Title Company") with respect to the Premises and a copy of all title
documents listed therein (such reports, and any updates or revisions thereto,
are hereinafter referred to collectively as the "Report") and (ii) shall furnish
to Owners' counsel at the address set forth in Section 15 hereof a copy of the
Report and a written statement setting forth NS's objections, if any, to any
matter reflected in the Report other than the Permitted Encumbrances.
(b) Each Owner covenants and agrees to use reasonably diligent
efforts to eliminate such objections. If any Owner is unable to eliminate such
objections (or any other matters which are subsequently reported by the Title
Company) by the Closing Date, any Owner may adjourn the Closing for a reasonable
period of time, not to exceed sixty (60) days, to remove such objection. If
after diligent effort such Owner is still unable to remove such objections, NS,
at its option, may (i) terminate this Agreement, whereupon the Owners shall
promptly thereafter cause the Downpayment, together with interest thereon, to be
returned to NS and neither NS nor the Owners shall have any further obligations
hereunder except pursuant to provisions of this Agreement which expressly
survive termination or (ii) proceed to close subject to such objections, with no
reduction in the Amount Payable.
(c) Notwithstanding the foregoing, if such objections (which may
include, without limitation, payment of prior vault charges, environmental
control board liens and judgments against any Owner and payment of any penalties
in connection therewith) may be removed by a payment of money, the Owners shall
either satisfy same at Closing or the
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Owners may, in lieu of satisfying any of the foregoing objections affecting the
Premises, direct NS to apply a portion of the Amount Payable to the satisfaction
of such objections or require that appropriate adjustment be made to the balance
of the Amount Payable at Closing, provided that Owner shall deliver to NS, at
Closing, instruments in recordable form, which, in the opinion of the Title
Company will be reasonably sufficient to satisfy the matters objected to by NS,
together with the cost of recording or filing any such instruments. In the
alternative, the Owners may place in escrow with the Title Company any amount
(as well as any affidavits and other documentation) deemed necessary by the
Title Company in order to enable the Title Company to omit such objections from
the title policies to be delivered to NS and any Lender at the Closing. NS
shall, if request is made by not later than three (3) business days (as
hereinafter defined) prior to the Closing Date, provide Owner, at the Closing,
with separate unendorsed certified or bank checks, payable as directed by Owner,
in an aggregate amount not exceeding the balance of the Amount Payable less
adjustments to facilitate the satisfaction of any such liens or encumbrances. As
used herein, the term "business days" shall mean such Mondays, Tuesdays,
Wednesdays, Thursdays and Fridays that do not fall on Holidays. The term
"Holidays" shall mean those days listed on Schedule 5 attached hereto as well as
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas, and any other days on which there is no regular United States postal
service and the New York Stock Exchange (or any successor thereto) is closed.
(d) If the Report discloses judgments, bankruptcies or other
proceedings or encumbrances against other persons having names the same as, or
similar to that of any of the
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Owner, Owner, on request, shall deliver to the Title Company affidavits
satisfactory to the Title Company showing that such judgments, bankruptcies or
other proceedings or encumbrances are not against Owner. Additionally, Owner
will deliver any affidavits reasonably required by (and reasonably satisfactory
to) the Title Company (i) in respect of any construction, maintenance and/or
tenant improvement work at the Premises that could give rise to mechanics'
liens, (ii) for the issuance of a non-imputation endorsement benefitting the
affiliate of NS that will be in each Newco, and (iii) any Section 255 and 275
affidavits that may be required with respect to the assignment of the Original
Notes to the Lender (the affidavits required by this Section 5(d) and any other
affidavits reasonably required by the Title Company, collectively, the
"Affidavits").
6. REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING THE
PREMISES.
(a) Each Owner hereby represents and warrants to NS in respect of
such Owner that the following representations, warranties and covenants are true
and correct as of the date hereof (unless otherwise indicated) and shall remain
and be true and correct at all times during the term of this Agreement through
and including the Closing Date with the same force and effect as if made on that
date:
(i) There are no leases, tenancies, licenses or other rights
of occupancy for any portion of the Premises other than the Leases; the Leases
are in full force and effect and all amendments, modifications and supplements
thereto have been delivered to NS; no tenant under any Lease has paid rent more
than one month in advance of the Closing Date; on the Closing Date there shall
be no obligations on the part of each Owner remaining to
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be performed by such Owner including, without limitation, tenant improvement or
landlord work, payment of management fees or any other fees due to S. L. Green
Management Corp., the sole manager of the Premises (the "Managing Agent"),
payment of brokerage commissions to Managing Agent and/or any other brokers or
consultants that will not be fully and completely paid and satisfied at the
Closing by the Owners and no brokerage commissions are to be paid by the Owners
under installments due after the Closing Date; Owner is not in default under the
Leases; all security deposits (the "Security Deposits") under the Leases are set
forth on Schedule 1; no Security Deposits have been applied against a tenant's
lease obligations; true, correct and complete copies of all Leases and any
brokerage agreements related thereto have been delivered to NS and same have
been initialed by counsel to both parties; there are no uncured defaults under
any Leases by any tenant thereunder beyond any applicable grace, notice and cure
periods, except as set forth in the Schedule of Receivables for each Premises
attached hereto as Schedule 9 (the "Receivables"); Schedule 1 also sets forth a
true, correct and complete rent roll (the "Rent Roll") for the Premises dated as
of the first day of January, 1998, which Rent Roll shall also specifically
identify which tenants at the Premises (A) are "month-to-month" tenants and (B)
have leases expiring in 1998; the Rent Roll shall, in addition, state the
information required by the Tenant Estoppels (hereinafter defined), except items
4, 5, 7 and 12 of the Tenant Estoppels, as well as item 3 thereof to the extent
it covers the right to extend the Leases.
(ii) There are no service, supply, maintenance, employment,
Management Agreements (hereinafter defined) and union agreements or contracts
affecting the Premises other than those set forth on Schedule 2 attached hereto
(collectively, the
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"Contracts"); true, correct and complete copies of all Contracts have been
delivered to NS; the Contracts are in full force and effect and have not been
amended, modified or supplemented except as set forth on Schedule 2; no party to
any Contract has paid amounts due thereunder more than one month in advance,
except as may be required by the managing agreements with the Managing Agent
(collectively, the "Managing Agreements"); as of the Closing Date, all amounts
due and payable by the Owners pursuant to the terms of the Contracts will have
been fully paid; and there are no uncured defaults under any Contract by any
party thereto beyond any applicable grace, notice and cure periods.
(iii) No written notice has been given to Owner or its
representatives by any insurance company which has issued a policy or by any
board of fire underwriters (or other body exercising similar functions) claiming
any defects or deficiencies or requesting the performance of any repairs,
alterations or other work.
(iv) There is no pending condemnation or similar proceeding
affecting the Premises or any portion thereof and neither Owner has received any
written notice thereof, nor has any Owner any knowledge that any such proceeding
is contemplated.
(v) There are no actions, suits or proceedings pending or, to
the knowledge of each Owner, threatened, against or affecting any Owner or the
Premises or any portion thereof or relating to or arising out of the ownership,
management or operation of the Premises, in any court or before or by any
federal, state, county or municipal department, commission, board, bureau or
agency or other governmental instrumentality, except for personal injury claims
or claims fully covered by insurance.
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(vi) To the knowledge of each Owner in respect of the Premises
owned by such Owner, Schedule 3 annexed hereto is a true and complete list of
all permits, certificates, authorizations and approvals pertaining to the
occupancy, use and operation of the Premises in its possession (collectively,
the "Permits"); the fees for such Permits are fully paid; and each Owner agrees
to deliver at Closing, or within a reasonable time thereafter (which obligation
shall survive the Closing), originals or true copies of such Permits and all
warranties and guaranties in such Owner's possession (for the purposes of this
Agreement, "possession by Owner" shall be deemed to include possession by the
Owner, the Managing Agent and their respective agents, counsel and
representatives).
(vii) Schedule 4 is a complete description of all fire,
casualty and extended coverage insurance policies carried by Owner in respect of
the Premises; such insurance is fully paid through the date of expiration
thereof, which expiration date will not occur prior to the Closing Date and
Owner shall maintain such policies through the date of Closing.
(viii) Other than the Option Agreement, each Owner will not
and has not entered into any agreement, other than this Agreement, to sell,
transfer, convey, lease, assign, mortgage, hypothecate, encumber or dispose of
(directly or indirectly) (voluntarily or by operation of law) all or any portion
of the Premises or any interest therein or portion thereof (a "Transfer"); and
there are no options, rights of first offer, rights of first refusal or similar
rights to acquire all or any portion of the Premises in favor of any other
party, including, without limitation, the tenants under the Leases. For purposes
of this Section 6(a)(viii), a Transfer shall be deemed to include any change in
the ownership interests of
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Owner, provided that inter vivos or testamentary transfers or issuance of
capital stock in Owner to one or more family members of Simon Chetrit, or trusts
in which all of the beneficial interest is held by one or more of such family
members or a partnership or limited liability company in which all the capital
and profits interests are held by such family members shall not be deemed a
Transfer; and provided further, that, if, as and when each Newco is formed, no
Transfers of member interests in Newco shall be permitted, except as
specifically contemplated in Section 8(b) of this Agreement. As used herein,
"family members" shall be limited to the spouse, parents, siblings, children and
grandchildren of Simon Chetrit and their respective spouses or any entity owned
or controlled by any of them. Any Transfer in violation of this Section
6(a)(viii) shall be void ab initio.
(ix) Except as may be owned by tenants under the Leases, Owner
is the sole owner of, and has good and marketable title to, all fixtures,
furniture, furnishings, equipment and other personal property at the Premises
(the "Personalty"), which Personalty will be free and clear of all liens,
encumbrances, claims, chattel mortgages, conditional bills of sale, security
interests and demands (other than the Loan) on the Closing Date.
(x) There are no presently pending tax certiorari proceedings,
except as set forth on Schedule 6 annexed hereto.
(xi) True, correct and complete copies of all monthly
management statements from January, 1997 through November, 1997 in respect of
the Premises received by the Owners from Managing Agent have been delivered to
NS.
(xii) The Premises is separately assessed for real property
tax purposes; no special assessments have been issued against the Premises.
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(xiii) All services, material or work which have been supplied
to the Premises for which payment is due have been paid in full or will be paid
in full at the Closing.
(xiv) Owner shall (A) continue to maintain the Premises and
all systems in the same manner as the Premises have been heretofore maintained,
(B) not terminate, amend or modify any of the Leases or enter into any new
leases, licenses or other occupancy agreements without NS' prior written
consent, which consent shall not be unreasonably withheld or delayed, and (C) if
requested by NS, institute summary proceedings against any defaulting tenant,
provided, however, Owner, on notice to NS, shall be entitled to commence summary
proceedings against any tenant that is in default of its rent obligations for
more than three (3) months, after the expiration of all grace and notice
periods.
(xv) Any and all environmental reports in respect of the
Premises have been delivered to NS and, to each Owner's knowledge, there are no
other environmental reports in respect of the Premises.
(xvi) Any and all of the documents listed on Schedule 7
attached hereto (collectively, "Records") relating to the Premises have been
delivered to NS and true and complete copies of the documents listed as items 1,
2, 6 and 7 on said Schedule 7 are attached thereto, except as set forth therein.
(xvii) At the request of NS at any time from the date hereof
until the Deadline Date, each Owner (A) will promptly terminate (a "Management
Termination") the Managing Agent pursuant to the terms of the Management
Agreement for each Premises and (B) covenants and agrees to pay any and all
fees, premiums, termination fees (as identified on Schedule 8 attached hereto,
the "Management Termination Fee"), commissions and any other
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amounts due the Managing Agent in connection with its services and/or on account
of the termination, which termination shall be effective no earlier than the
Deadline Date. Without in any manner limiting the generality of the foregoing,
in the event NS has not requested a Management Termination for the 44 Premises,
an amount equal to the Termination Fee, if any, for such Premises will be placed
in escrow with Owners' counsel, as Escrow Agent, to be held pursuant to the
provisions of Exhibit B hereof, and will be released to Master Tenant upon the
earlier of a) receipt by the Escrow Agent of a copy of a notice from Master
Tenant terminating the Management Agent for the 44 Premises, or b) sixty (60)
days after the Deadline Date, as same may be extended as provided herein.
(b) Each Owner covenants and agrees that, if prior to Closing
NS shall request reasonable changes to be made to the provisions of the Master
Lease, each Owner shall agree to such reasonable non-material changes, provided
that the foregoing shall not be construed in any way to invalidate the binding
nature of this Agreement.
7. NS COVENANTS, REPRESENTATIONS AND WARRANTIES.
(a) NS represents and warrants to Owner that the following
representations and warranties are true and correct as of the date hereof and
shall be true and correct as of the Closing Date with the same force and effect
as if made at that time:
(i) The execution and delivery of this Agreement and the
consummation by NS of the transactions contemplated hereby (A) have been duly
authorized pursuant to the terms of NS's organizational documents and (B) will
not conflict with, or result in a breach of, any of the terms, conditions and
provisions of its organizational documents or
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any contract, agreement or instrument to which it is a party or by which it is
bound, or to which it or any portion of its Premises is subject;
(ii) NS has full power and authority to enter into this
Agreement and to perform all of NS's obligations hereunder and no further
action, approval or consent will be required in order to constitute this
Agreement as a binding and enforceable obligation of NS and the person executing
this Agreement on behalf of NS has full power and authority to act for and bind
NS; and
(iii) NS is validly existing and in good standing in its state
of formation.
(b) The NS Member represents and warrants to each Owner that the
following representations and warranties shall be true and correct as of the
Closing Date:
(i)The execution and delivery of the Newco Operating Agreement
and the performance by the NS member of the provisions thereof (A) have been
duly authorized pursuant to the terms of the NS Member's organizational
documents and (B) will not conflict with, or result in a breach of, any of the
terms, conditions and provisions of its organizational documents or any
contract, agreement or instrument to which it is a party or by which it is
bound;
(ii) The NS Member has full power and authority to enter into
the Newco Operating Agreement and to perform all of its obligations thereunder
and no further action, approval or consent will be required in order to
constitute the Newco Operating Agreement as a binding and enforceable obligation
of the NS Member and the Person
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executing the Newco Operating Agreement on behalf of NS has full power and
authority to act for and bind the NS Member thereto; and
(iii) The NS Member is validly existing and in good standing
in its state of formation.
8. OWNER REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Each Owner represents and warrants to NS that, with respect to
each such Owner, the following representations and warranties are true and
correct as of the date hereof and shall be true and correct as of the Closing
Date with the same force and effect as if made at that time:
(i) It is duly formed and in good standing under the laws of
the state of its formation;
(ii) The execution and delivery of this Agreement and the
Newco Operating Agreement and the consummation by it of the transactions
hereunder and thereunder (A) have been duly authorized pursuant to the terms of
Owner's organizational documents and (B) will not conflict with, or result in a
breach of, any of the terms, conditions and provisions of its organizational
documents or any contract, agreement or instrument to which it is a party or by
which it is bound, or to which it or any portion of its Premises is subject;
(iii) It has full power and authority to enter into this
Agreement and the Newco Operating Agreement and to perform all of its
obligations hereunder and thereunder; no further action or approval will be
required in order to constitute this Agreement and the Newco Operating Agreement
as its binding and enforceable obligation and the Person
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executing on behalf of each Owner has full power and authority to act for and
bind such Owner in respect thereof;
(iv) It has not incurred any secured debt, direct or
contingent, other than as disclosed in the Report; such debt and any other debt
and/or guaranties will be paid off at Closing as required by Section 5(c)
hereof. It is not insolvent. It does not hold itself out to be responsible for
the debts of any other person or entity. It holds itself out to the public as a
legal entity which is separate and distinct from any other entity;
(v) It is validly existing and in good standing in the State
of New York; and
(vi) Owner is not a "foreign person" within the meaning of
section 1445 of the United States Internal Revenue Code of 1986, as amended, and
the regulations issued thereunder.
(b) At or prior to the Closing, each Owner will contribute its
interest in the Premises owned by it to two (2) separate limited liability
companies (each such limited liability company, "Newco"; all references herein
to Newco shall be deemed a reference to the limited liability company that will
be the owner of each Premises at Closing) in exchange for a 100% interest
therein. Immediately after such contribution, an affiliate of NS shall be
admitted as a 1% non-managing member of each Newco (the "NS Member"). At the
Closing, such NS Member and each Owner shall execute a limited liability company
operating agreement in respect of each Premises, in the form annexed hereto as
Exhibit H (the "Newco Operating Agreement" and, collectively, the "Newco
Operating Agreements").
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(c) Each Owner agrees that, from the date of formation of each Newco
through the Closing Date, each Newco shall not:
(i) engage in any business or activity other than the
ownership of the Premises owned by it and activities incidental to the
development thereof;
(ii) own any assets other than such Premises;
(iii) merge into or consolidate with any other entity or
dissolve or terminate or liquidate, transfer or otherwise dispose of all or
substantially all or any material portion of its assets unless such resulting
entity or transferee is a single purpose entity and complies with the other
provisions of this section;
(iv) fail to preserve its existence as a corporation, limited
liability company or limited partnership duly organized, validly existing and in
good standing (if applicable) under the laws of the State of its formation, or
amend, modify, terminate or fail to comply with the provisions of such entities
organizational documents, if such amendment, modification, termination or
failure to comply would adversely affect the ability of Owner to perform its
obligations hereunder;
(v) own any subsidiary or make any investment in any person or
entity;
(vi) commingle its assets with the assets of any other person
or entity;
(vii) incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation) other than as disclosed in
the Report (which debt will be paid off at Closing) or in connection with the
Loan;
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(viii) become insolvent or fail to pay its debts as the same
become due and payable or permit the total amount of its liabilities (including
contingent liabilities) to exceed the total fair saleable value of its assets or
fail to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations;
(ix) fail to maintain its records, books of account and bank
accounts separate and apart from those of any other person or entity;
(x) hold itself out to be responsible for the debts of any
other person or entity;
(xi) make any loans or advances under any loans to or issue
guaranties for the benefit of any other person or entity;
(xii) fail to hold itself out to the public as a legal entity
which is separate and distinct; or
(xiii) file or consent to the filing of any petition, either
voluntary or involuntary, to take advantage of any applicable insolvency,
bankruptcy, liquidation or reorganization statute, or make an assignment for the
benefit of creditors.
(d) Each Owner further covenants and agrees that (i) between the
date hereof and the date it forms a Newco, it will comply with all of the
covenants of Section 8(a) hereof and (ii) from and after the date of formation
each Newco through the Closing Date, each Owner will comply with clauses (iii),
(iv), (viii), (x), (xii) and (xiii) of Section 8(c) hereof and the terms of the
Operating Agreement.
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(e) (i) Each Owner covenants that, promptly after the date hereof,
it will seek to obtain estoppels (the "Tenant Estoppels") in the form attached
hereto as Exhibit C from all Tenants under the Leases and shall promptly after
receipt thereof deliver copies of all executed Tenant Estoppels to counsel for
NS. The information in the executed Tenant Estoppels must conform to the Rent
Roll (any such Tenant Estoppel, a "Conforming Tenant Estoppel"). Owner
acknowledges and agrees that Conforming Tenant Estoppels from (i) all Major
Tenants (as hereinafter defined) and (ii) eighty (80%) percent of the tenants in
the 44 Premises and eighty 80% percent of the tenants in the 417 Premises
(collectively, the "Required Tenants") shall be a condition precedent to NS'
obligation to close hereunder and that a Landlord Estoppel (as hereinafter
defined) shall not be deemed to be a substitute for such Conforming Tenant
Estoppels from the Required Tenants.
(ii) If any tenants (the "Non-Delivering Tenants") under the
Leases, other than Required Tenants, have not delivered Conforming Tenant
Estoppels, Landlord agrees that at Closing it shall deliver an estoppel
("Landlord's Estoppel") in the form attached hereto as Exhibit D in respect of
each Non-Delivering Tenant and that the representations and warranties in the
Landlord Estoppel shall survive the Closing. As Conforming Tenant Estoppels from
each Non-Delivering Tenant are received by NS, the Owner who delivered the
Landlord Estoppel in respect of the Lease to such Non-Delivering Tenant shall be
released from any liability in respect of such Landlord Estoppel to the extent
such tenant has effectively estopped itself on a specific matter. If there is a
misstatement in the Landlord Estoppel or the information in the Landlord
Estoppel does not conform to the Rent Roll, each Owner agrees that the tenant
under the Master Lease ("Master Tenant") shall have a set off right, as more
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specifically provided in the Master Lease. The provisions of this Section
8(e)(ii) shall survive the Closing.
(iii) As used herein, a "Major Tenant" shall be all tenants
(A) occupying retail or ground floor space at the Premises or (B) holding leases
for square footage aggregating an amount equal to a full floor or more of space
at either Premises (whether or not such tenants occupy, in fact, a full floor),
with the exception of Philips International, Inc., a tenant at the 417 Premises.
(f) If the Owners have been unable to deliver Conforming Tenant
Estoppels from the Required Tenants ("Non-Delivering Required Tenants") for each
of the Premises by the original Deadline Date, the Owners shall so notify NS and
NS shall have the option of (i) extending the Deadline Date until March 3, 1998
(for which no additional consideration shall be paid by NS) or (ii) waiving such
delivery as a condition precedent to NS' obligation for Closing, receiving in
lieu thereof a Landlord Estoppel in respect of the leases to such Non-Delivering
Required Tenants, as well as the Landlord Estoppel required by Section 8(e)
above. NS shall notify the Owners of its determination. If the Deadline Date has
been extended until March 3, 1998, and the Owners have been unable to deliver
Conforming Tenant Estoppels from the Required Tenants by such date, the Owners
shall so notify NS, in which event NS shall be entitled to the remedies set
forth in Section 5(b)(i) and (ii) with respect to an uncured title objection.
(g) As of the date hereof, Owners have delivered to NS a letter
authorizing the Managing Agent to cooperate with NS in any due diligence
activities relating to the Premises in the form attached hereto as Exhibit K
(the "Authorization Letter"), including,
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without limitation, delivery of information relating to all accounting and
financial matters in respect of the Premises.
(h) As of the date hereof, Owners have delivered a certification in
the form attached hereto as Exhibit L ("Owners' Certification"), certifying,
among other things, that the statement of income and expenses for the Premises
for the last two years ending December 31, 1996 fairly represent in all material
respects, the operations of the Premises during such period. On or before
February 3, 1998, Owners shall deliver the Owners' Certification for the year
ending December 31, 1997. If on or before February 3, 1998, the Owners have not
yet received confirmation (the "A.A. Confirmation") from A.A. that the audit has
been satisfactorily completed for both Premises, the Owners shall be entitled to
extend the Deadline Date for an additional thirty (30) days. Additionally, if
the Owners have been notified (the "Notice by A.A.") by Arthur Andersen LLP
("A.A.") that the Audit, as defined in the Owners' Certification, has revealed
that the statements of operations for the Premises do not present fairly, in all
material respects, the results of operations of the Premises in conformity with
generally accepted accounting principles, then the Owners shall correct the
statements of operations accordingly and reissue such Owners' Certification. If
the Owners have not reissued the Owners' Certification within 10 business days
of receipt of the Notice by A.A., or if the Owners have not received the A.A.
Confirmation and delivered same to NS by the Deadline Date, extended as provided
above, NS shall be entitled, in its sole discretion, to either (i) waive such
condition precedent and close as provided in this Agreement or (ii) terminate
this Agreement, at which time neither party shall have any obligations to or
recourse against the other party except for any provisions which expressly
survive the termination of this Agreement
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and Owner shall cause Escrow Agent to promptly return the Downpayment (which may
include any Additional Downpayment), together with interest thereon, to NS.
(i) The representations, warranties and covenants of Owner in this
Agreement shall survive until the Closing Date, except for the representations
and warranties in the Landlord Estoppel, the Lease Assignment Agreement, the
Security Deposit Assignment Agreement (substantially in the form attached hereto
as Exhibit E), which documents shall survive the Closing Date, with the remedies
for a breach thereof to be addressed in the Master Lease. If, at or prior to the
Closing, Owner is in material breach of any representation, warranty or
covenant, NS shall be entitled to the remedies set forth in Section 5(b)(i) and
(ii) with respect to an uncured title objection.
9. DOCUMENTS AND OTHER ITEMS TO BE DELIVERED AT CLOSING. The
following shall occur at the Closing:
(a) Each Owner shall deliver or cause to be delivered the following
(collectively, "Owner's Closing Documents") documents to NS or the Lender, as
appropriate, at Closing:
(i) the Loan Documents and the Loan Transaction Documents;
(ii) New York State and New York City Transfer Tax Returns
duly executed and completed;
(iii) a duly executed certification as to its non- foreign
status and a duly executed officer's certificate;
(iv) the Option Agreement, Master Lease and memoranda in
recordable form in respect of each such document in the forms attached as
exhibits thereto and
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any renewals or extensions thereof as may be required to provide record notice
of the relevant parties' rights under applicable law until the Option
Termination Date, as defined in the Option Agreement (collectively, the
"Memoranda");
(v) Originals of all Leases, Contracts, Permits, guarantees or
warranties in respect of the Premises or Personalty, any building plans,
specifications and drawings for the Premises and a complete set of keys for the
Premises and each of the spaces in the Premises, including the leased spaces, to
the extent same are in such Owner's possession;
(vi) Conforming Tenant Estoppels and Landlord Estoppels, in
compliance with the provisions of Section 8 hereof;
(vii) a check payable to NS for the amount of the Security
Deposits, any letters of credit delivered as a Security Deposit and the Security
Deposit Agreement;
(viii) a letter notice to each of the Tenants in the form
attached hereto as Exhibit G;
(ix) the Lock Box Agreement in the form attached hereto as
Exhibit F;
(x) the Affidavits and any other documents reasonably required
by the Title Company;
(xi) any UCC-1 financing statements required to be executed by
the Owners pursuant to the terms of the Newco Operating Agreements and in
connection with the Memoranda to evidence the interest of the Optionee under the
Option Agreement in, among other things, the Included Property and the
Intangible Property;
(xii) opinions from Owners' and each Newco's counsel, as the
case may be, for the benefit of NS, the Lender, the Master Tenant and any other
person or entity
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reasonably required by the Lender addressing (A) substantive consolidation under
applicable bankruptcy law, (B) power and authority of each Owner and each Newco
to execute and deliver the Master Lease, Option Agreement and the Newco
Operating Agreement, (C) the enforceability of the Master Lease, the Option
Agreement and the Newco Operating Agreement, (D) no conflict with Owner's or
Newco's organizational documents or third party agreements, and (E) any relevant
proceedings against each Newco or each Owner, all such opinions to be in form
and substance satisfactory to NS and its counsel;
(xiii) a fully executed duplicate original of each Newco
Operating Agreement;
(xiv) an Assignment of Leases and any subleases (the
"Assignment of Leases") in the form annexed hereto as Exhibit I;
(xv) the Rent Roll;
(xvi) the Original Notes or the Lost Note Material; (xvii) an
assignment of any rights under any tax certiorari proceeding, the benefits of
which will apply in whole or in part after the Closing Date, subject to
apportionment as provided in the Master Lease;
(xviii) evidence reasonably satisfactory to NS that(A) the
landlord's contributions in respect of any tenant improvement work for Leases at
the Premises, including, without limitation, Shem, Milsone & Wilke, Inc. in
respect of the 417 Premises, have been paid in full; (B) all landlord's work
with respect of any Leases at the Premises has been fully completed; and (C) the
extensive renovation work recently performed at the 417 Premises has
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been completed and that all required Permits and approvals have been received in
respect thereof;
(xix) the Late Tenant Certification (as defined in Article 19
of the Master Lease);
(xx) Assignment of Included Property for the benefit of the
Master Tenant, substantially in the form annexed hereto as Exhibit J;
(xxi) all Records, Plans, Contracts in Owners' possession;
(xxii) the Authorization Letter;
(xxiii) Owners' Certification;
(xxiv) A.A. Confirmation; and
(xxv) such other documents and instruments as may be
reasonably necessary or desirable to further carry out the purposes of this
Agreement.
(b) NS shall deliver or cause to be delivered to Owner the following
items and documents at Closing:
(i) the Option Agreement; Master Lease and the Memoranda;
(ii) New York State and New York City Transfer Tax Returns
duly executed and completed;
(iii) a duly executed [officer's] [member's] certificate;
(iv) the balance of Amount Payable, together with any
adjustments in favor of the Owners, and Loan Costs;
(v) the Security Deposit Agreement;
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<PAGE>
(vi) the Lock Box Agreement together with the undated letter
to the tenants;
(vii) the Assignment of Leases;
(viii) an opinion from counsel to the NS Member in respect of
the due formation and valid existence of each Newco;
(ix) any UCC-1 financing statements required to be executed by
the NS Member pursuant to the terms of the Newco Operating Agreements; and
(x) such other documents and instruments as may be reasonably
necessary or desirable to further carry out the purposes of this Agreement.
(c) Each party shall be responsible for its respective costs and
expenses (including, without limitation, legal fees and due diligence costs) in
connection with the grant of the Option and Master Lease, except that all deed,
documentary, stamp, transfer, and similar taxes, if any, in connection with the
execution and delivery of the Option and Master Lease shall be paid one-half by
the Owners and one-half by NS. This paragraph shall survive the Closing.
(d) As used in this Agreement, "possession of Owner" shall be deemed
to include possession by each Owner and the Managing Agent and their respective
employees, agents, counsels and representatives.
10. DISCLAIMER; WAIVER OF CLAIMS. Prior to the date hereof, NS has
had an opportunity to examine conditions relating to the Premises, and except as
otherwise specifically stated in this Agreement, the grant of the option in
respect of the Premises as provided for herein is made on an "as is, where is,
with all faults" basis.
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11. DAMAGE AND DESTRUCTION; CONDEMNATION.
(a) If prior to Closing (i) the Premises or any portion thereof is
damaged or destroyed by fire or other casualty or (ii) condemnation or eminent
domain proceedings (or private purchase in lieu thereof) in respect of all or a
portion of the Property (a "Condemnation") shall be commenced or threatened by
any public or quasi-public authority having jurisdiction over all or any part of
the Property, the party with knowledge of such event shall promptly notify the
other party. In such event, the Closing shall be postponed until the parties can
determine the extent of damage or loss from such casualty or Condemnation.
(b) If prior to Closing there is a casualty or Condemnation other
than a Major Casualty or Major Condemnation (as hereinafter defined), the
Closing, postponed as provided above, shall occur and NS shall be (i) entitled
to compromise, settle and collect all the insurance proceeds in the case of an
insured casualty or Condemnation awards and (ii) obligated to restore the
Property using such proceeds, subject to the terms of the Master Lease. If the
amount of such proceeds or awards are not adequate for a complete restoration of
the Premises, or if there is a deductible, Owner agrees that there shall be a
reduction in the balance of the Amount Payable equal to such shortfall or
deductible.
(c) If prior to Closing there is a Major Casualty or Major
Condemnation (or if on account of a casualty or Condemnation the occupancy of
either of the Premises is reduced by four (4%) percent or more), then at NS'
option, it may either (i) proceed as provided in Section 11(b) above without
giving effect to the second sentence of said Section 11(b) or (ii) terminate
this Agreement, in which event the provisions of Section 13(a)(ii) shall apply.
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(d) For purposes of this Agreement, a "Major Casualty" or "Major
Condemnation" shall be deemed to be casualty or Condemnation in which the cost
of restoration (as reasonably determined by the parties or their consultants)
exceeds $2,000,000.
(e) The provisions hereof shall constitute an express agreement to
the contrary with respect to, and shall supersede the provisions of, Section
5-1311 of the New York General Obligations Law.
12. BROKERAGE.
(a) NS warrants and represents to Owner that NS has not dealt with
any broker or finder in connection with this transaction, except for Judmart
Realty Corp. ("Judmart") NS hereby agrees to indemnify and hold Owner harmless
from and against any and all claims, demands, causes of action, loss, costs and
expenses (including reasonable attorneys' fees and disbursements), or other
liability arising from or pertaining to any brokerage commissions, fees, or
other compensation, which may be due to any other broker, finder or persons
arising from any inaccuracy in the foregoing representation and warranty.
(b) Owner warrants and represents to NS that Owner has not dealt
with any broker or finder in connection with this transaction, except for
Judmart who will be paid in full by Owner pursuant to a separate agreement at
Closing. Owner hereby agrees to indemnify and hold NS harmless from and against
any and all claims, demands, causes of action, loss, costs and expenses
(including reasonable attorneys' fees and disbursements) or other liability
arising from or pertaining to Judmart or any brokerage commissions, fees, or
other compensation, which may be due to any other broker, finder or persons
arising from any inaccuracy in Owner's foregoing representation, warranty and
agreement.
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(c) The provisions of this Section 12 shall survive the Closing or
earlier termination of this Agreement.
13. REMEDIES.
(a) If any Owner willfully defaults in the performance of its
material obligations hereunder for any reason whatsoever (except for a breach of
a representation or warranty or a failure to cure a title objection, which
remedies are addressed in Sections 5(b) and 8(i), respectively, except as set
forth in clause (ii) below), NS as its sole and exclusive remedy shall have the
right (as determined by NS in its sole discretion) to either (i) seek to obtain
specific performance of such Owner's obligations hereunder, such Owner agreeing
that NS has no adequate remedy at law or (ii) terminate this Agreement, at which
time neither party shall have any obligations to or recourse against the other
party except for any provisions which expressly survive the termination of this
Agreement and Owner shall cause Escrow Agent to promptly return the Downpayment
(which may include any Additional Downpayment), together with interest thereon,
to NS.
Notwithstanding the foregoing, if any Owner shall fail to cure
a title objection which may be cured by the payment of money, as provided in
Section 5(c) hereof, NS shall be entitled to apply a portion of the Amount
Payable to satisfy such uncured title objection.
(b) If NS fails or refuses to perform its obligations hereunder, at
Closing, Owner shall be entitled, as its sole and exclusive remedy, to retain
the Downpayment (which may include any Additional Downpayment), together with
interest thereon, as its sole and
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liquidated damages. Each Owner hereby specifically waives the right to specific
performance and damages.
14. INSPECTION. NS, Lender and their respective representatives will
be permitted to enter upon the Premises without the presence of a representative
of an Owner, unless such Owner otherwise elects in its sole discretion, upon
reasonable advance notice to Owner for the purpose of conducting topographical
surveys, perimeter surveys and other engineering, architectural and/or design
tests or plans, provided that NS shall indemnify and hold each Owner harmless
from and against any physical damage to the Premises (including, but not limited
to, reasonable legal fees incurred by such Owner if NS fails to reimburse Owner
for such physical damage) sustained by such Owner solely as a result of such
entry onto the Premises owned by such Owner.
15. NOTICES. Any notice, request, demand, statement, authorization,
approval or consent made hereunder shall be in writing and shall be hand
delivered or sent by Federal Express or other reputable national courier service
(a "Courier"), or by postage pre-paid registered or certified mail, return
receipt requested, and shall be deemed given (i) when
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received or refused at the following addresses if hand delivered or sent by
Federal Express, or other reputable national courier service, and (ii) three (3)
business days after being postmarked and addressed as follows if sent by
registered or certified mail, return receipt requested:
If to NS:
NS 417/44 LLC
c/o NorthStar Capital Partners LLC
527 Madison Avenue
17th Floor
New York, New York 10022
Attention: W. Edward Scheetz
Telecopier: (212) 319-4557
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Robert J. Wertheimer, Esq.
Telecopier: (212) 856-7808
If to each Owner:
F.S. Realty Corp. and The 44th B.C. Realty Corp.
c/o Prince Management Corp.
498 Seventh Avenue
New York, New York 10012
Telecopier: (212) 947-2654
with a copy to:
Sukenik, Segal & Graff P.C.
417 Fifth Avenue
Third Floor
New York, New York 10016-2204
Attention: Jehoshua Graff, Esq.
Telecopier: (212) 481-5520
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Each party may change the address to which a notice must be sent or designate
additional parties to receive a copy of a notice, by notice to the other parties
given in the manner herein provided at least fifteen (15) days before such
change is to become effective. Notices may be sent by telecopier, with a hard
copy by courier or hand delivery and shall be deemed given as stated above.
16. APPORTIONMENTS. The parties shall make apportionments in the
same manner as is customary in the City of New York for transactions similar to
the ones contemplated by this Agreement and as provided in the Master Lease.
17. BINDING EFFECT. This Agreement may not be changed or terminated
orally nor shall any provision hereof be waived orally. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their successors
and permitted assigns.
18. ASSIGNMENT.
(a) This Agreement may not be assigned (directly or indirectly) by
either party without the prior written consent of the other party, which consent
may be withheld in such party's sole discretion, provided, however, NS shall
have the right to assign this Agreement to NorthStar Partnership, L.P., a
Delaware limited partnership, any entity in which such partnership owns a
controlling interest or any entity controlled, directly or indirectly, by W.
Edward Scheetz or David Hamamoto.
(b) A condition to the effectiveness of any assignment is that (i)
the assignee shall assume the obligations of the assignor under this Agreement
and (ii) the assigning party shall give the other party notice of such
assignment, together with a fully executed counterpart of the instrument of
assignment and assumption executed by the assigning party and its
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assignee, within ten (10) days after the execution thereof and not less than ten
(10) days prior to the Closing Date. Upon satisfaction of the foregoing
conditions, any permitted assignee shall have all the rights and obligations of
the assigning party hereunder and the assigning party shall thereupon,
automatically and without the execution of further instruments or documents, be
relieved and released of and from all of the assigning party's obligations
hereunder.
19. CHOICE OF LAW. This Agreement shall be governed by and construed
under the internal laws of the State of New York.
20. SURVIVAL. Except to the extent specifically provided herein,
none of the obligations under this Agreement shall survive the Closing.
21. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute the same instrument.
22. FURTHER ASSURANCES. From time to time, each party hereto shall,
within five (5) Business Days after a request therefor by the other party and at
such party's sole cost and expense, furnish such additional consents and other
instruments and information as may be reasonably required to implement the
provisions of this Agreement and the intentions of the parties or to confirm or
perfect any right to be created or transferred hereunder. The Owners have
delivered on the date hereof certain agreements and other information in respect
of the Premises (the "New Information"), which New Information will be reviewed
by NS as part of its due diligence review. If such review indicates that the New
Information is either (a) materially inconsistent with prior information
delivered to NS or (b) materially adversely affects NS' intended investment in
the Premises, and provided NS shall so notify the Owners on or before five (5)
business days from the date hereof, NS shall have the right to treat such
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matter as an uncured objection to title and shall be entitled to the remedies
set forth in Section 5(b) above in connection therewith.
23. INVALIDITY OF PARTICULAR PROVISION. If any term of this
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Agreement shall be valid and be enforced to
the fullest extent permitted by law, with the parties hereto covenanting
nonetheless to negotiate in good faith, in order to agree the terms of a
mutually satisfactory provision to be substituted for the term or provision
which is void or unenforceable.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
OWNER:
F.S. REALTY CORP.
By: /s/ Joseph Chetrit
------------------------------
Name: Joseph Chetrit
Title: Vice President
and
THE 44th B.C. REALTY CORP.
By: /s/ Joseph Chetrit
------------------------------
Name: Joseph Chetrit
Title: Vice President
NS:
NS 417/44 LLC
By: /s/ W. Edward Scheetz
------------------------------
Name: W. Edward Scheetz
Title: Sole Member
Solely for the purpose of agreeing to the provisions in Exhibit B hereof:
SUKENIK, SEGAL & GRAFF, P.C.
By: /s/ Jehoshua Graff, Esq., a partner
------------------------
Name:
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EXHIBIT A
Description of 417 Land
[Legal Description], together with all of Owner's rights, title and
interest in and to (i) all strips, gores, easements, rights of way, privileges,
appurtenances, air rights and development rights and other rights pertaining to
said Land and (ii) any land lying in the bed of any street, road or avenue,
opened or proposed, public or private, in front of or adjoining said Land to the
center line thereof.
A-1
<PAGE>
EXHIBIT A-1
Description of 44 Land
[Legal Description], together with all of Owner's rights, title and
interest in and to (i) all strips, gores, easements, rights of way, privileges,
appurtenances, air rights and development rights and other rights pertaining to
said Land and (ii) any land lying in the bed of any street, road or avenue,
opened or proposed, public or private, in front of or adjoining said Land to the
center line thereof.
A-1-1
<PAGE>
EXHIBIT B
Escrow Provisions
(a) The Downpayment shall be deposited with Sukenik, Segal & Graff
P.C. ("Escrow Agent"). Escrow Agent shall pay the Downpayment to NS or Owner,
together with the interest thereon, at the Closing on joint written instructions
of Owner and NS or otherwise in accordance with this Agreement. All interest
earned on the Downpayment shall be paid to the party entitled to the
Downpayment. The Downpayment shall be invested by Escrow Agent in US Treasury
Bills or Notes unless otherwise instructed in writing by Owner and NS to invest
the Downpayment in a different manner acceptable to Escrow Agent. Owner and NS
shall complete and execute the W-9 form which is attached as Exhibit M to the
Agreement, simultaneously with the execution of this Agreement.
(b) The parties hereto agree that:
(i) The duties of Escrow Agent are only as herein specifically
provided, and except for the provisions of Section (d) hereof, are purely
ministerial in nature, and Escrow Agent shall incur no liability whatever except
for its willful misconduct or gross negligence;
(ii) Escrow Agent shall not be liable or responsible for the
collection of the proceeds of the check(s) (if applicable) for the Downpayment;
(iii) In the performance of its duties hereunder, Escrow Agent
shall be entitled to rely upon any document, instrument or signature believed by
it to be genuine and signed by any of the other parties or their successors;
(iv) Escrow Agent may assume that any person purporting to
give notice or instructions in accordance with the provisions hereof has been
duly authorized to do so;
(v) Escrow Agent shall not be bound by any modification,
cancellation or rescission of this Agreement unless in writing and signed by
Owner and NS;
(vi) Owner and NS shall and hereby do jointly and severally
indemnify Escrow Agent and hold it harmless from and against any loss,
liability, cost or expenses incurred in connection herewith, including, without
limitation, reasonable attorneys' fees and disbursements, incurred without
willful misconduct or gross negligence on the part of Escrow Agent, arising out
of or in connection with its acceptance of, or the performance of its duties and
obligations under, this Agreement, as well as the reasonable costs and expenses
of defending itself against any claim or liability arising out of or relating to
this Agreement; and
(vii) Owner and NS each hereby release Escrow Agent from any
liability for or in connection with any act done or omitted to be done by Escrow
Agent in good faith in the
B-1
<PAGE>
performance of its duties hereunder. Without limiting the foregoing, the parties
agree that Escrow Agent shall not be responsible for any penalties, or loss of
principal or interest or any delays in the withdrawal of the funds which may be
imposed as a result of the making or redeeming of the Downpayment pursuant to
the instructions of the parties hereto incurred without willful misconduct or
gross negligence on the part of Escrow Agent. Nor shall Escrow Agent be liable
for any loss or impairment of funds while those funds are in the course of
collection or while those funds are on deposit if such loss or impairment
results from the failure, insolvency or suspension of the financial institution
in which the funds are deposited.
(c) If at any time Escrow Agent shall receive a certificate of
either Owner or NS (the "Certifying Party") to the effect that: (I) the other
party (the "Other Party") has defaulted under this Agreement or that this
Agreement has otherwise been terminated or canceled; (ii) a copy of the
certificate and a statement in reasonable detail of the basis for the claimed
default, termination or cancellation was mailed as provided herein to the Other
Party prior to or contemporaneous with the giving of such certificate to Escrow
Agent; and (iii) in the case of a claimed default, to the knowledge of the
Certifying Party, the claimed default has not been cured, then Escrow Agent
shall promptly send a copy of such certificate to the Other Party and unless
Escrow Agent shall have received contrary instructions from the Other Party
within ten (10) business days of Escrow Agent's mailing of said certificate
(time being of the essence with respect to this ten (10) business day period),
Escrow Agent shall, within ten (10) business days of the expiration of such ten
(10) business day period, deliver the Downpayment to the Certifying Party and
thereupon be relieved of and discharged and released from any and all liability
hereunder and with respect to the Downpayment. If Escrow Agent shall receive
contrary instructions from the Other Party within ten (10) business days of
Escrow Agent's sending of said certificate (time being of the essence with
respect to this ten (10) business day period), Escrow Agent shall not so deliver
the Downpayment but shall hold or deposit the same in accordance with the terms
hereof.
(d) Escrow Agent is acting as stakeholder only with respect to the
Downpayment. If there is any dispute as to whether Escrow Agent is obligated to
deliver the Downpayment or as to whom said Downpayment is to be delivered,
Escrow Agent shall not be required to make any delivery, but in such event
Escrow Agent may hold the same until receipt by Escrow Agent of written
authorization signed by Owner and NS directing the disposition of the
Downpayment and any interest accrued thereon until a final determination of the
rights of the parties in an appropriate proceeding. If such written
authorization is not given, or proceedings for such determination are not begun
within thirty (30) days after a dispute arises and diligently continued, Escrow
Agent may bring an appropriate action or proceeding for leave to deposit the
Downpayment and any interest accrued thereon in a court of competent
jurisdiction pending such determination. Escrow Agent shall be reimbursed for
all reasonable costs and expenses of such action or proceeding including,
without limitation, attorneys' fees and disbursements, by the party determined
not be entitled to the Downpayment, or if the Downpayment is split between Owner
and NS, such costs incurred by Escrow Agent shall be divided between and paid by
Owner and NS in inverse proportion based upon the amount of Downpayment received
by each. Upon making
B-2
<PAGE>
delivery of the Downpayment and interest accrued thereon in the manner provided
in this Agreement, Escrow Agent shall have no further liability hereunder.
(e) Escrow Agent is acting, and may continue to act, as counsel to
NS in connection with the subject transaction, whether or not the escrowed funds
are being held by Escrow Agent or have been delivered to a substitute impartial
party or a court of competent jurisdiction.
B-3
<PAGE>
EXHIBIT C
FORM OF TENANT ESTOPPEL
To: [Present landlord], its successors and assigns (collectively, "Landlord")
The undersigned hereby certifies and agrees as follows:
1. The undersigned is the tenant ("Tenant") under that certain Lease (the
"Lease")by and between Landlord [or, _________________, Landlord's predecessor
in interest] and Tenant [or, _______________, Tenant's predecessor in interest],
dated _____________, 19__ affecting space in the building (the "Building") known
as ________________, located at _______________, New York, New York ( the
"Land"; the building and the Land, collectively, the "Premises").
2. The Lease commenced on ___________________________.
3. The Lease expires on ___________________________________. Tenant has no
option or other right to extend the term of the Lease beyond __________________.
4. Tenant has accepted and is occupying the entire premises demised to it
under the Lease (the " Demised Premises") and all improvements to the Demised
Premises required by the Lease have been completed by Landlord in accordance
with the Lease.
5. Tenant has not paid rent or additional rent beyond the current month
and agrees not to pay rent or additional rent more than one month in advance at
any time.
6. Rent payable in the amount of $_________________ per month has been
paid through ____________________________.
7. There are no defenses to or offsets against the enforcement of the
Lease or any provision thereof by the Landlord.
8. Tenant has deposited $_______________ as a security deposit with
Landlord pursuant to the terms of the Lease. The form of this security deposit
is cash unless otherwise specified (i.e., letter of credit): ___________________
__________________________
9. Landlord has not agreed to grant Tenant any free rent or rent rebate or
to make any contribution to tenant improvements, except as follows: ____________
________________________________________________________________________________
_______________________________________________________________________________.
C-1
<PAGE>
10. Landlord has not agreed to reimburse Tenant for or to pay Tenant's
rent obligation under any other lease.
11. Tenant has not advanced any funds for or on behalf of Landlord for
which Tenant has a right to deduct from or offset against future rent payments.
12. Neither Tenant nor, to the best knowledge of Tenant, Landlord is in
default under the Lease.
13. The Lease is the entire agreement between the Landlord and Tenant
pertaining to the Demised Premises.
14. The Lease is in full force and effect and has not been amended,
modified or supplemented except as follows: ____________________________________
________________________________________________________________________________
_______________________________________________________________________________.
15. Tenant does not have any right or option for additional space in the
Building except as follows:_____________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
16. Tenant does not have any purchase option or first refusal right with
respect to the Building except as follows:______________________________________
________________________________________________________________________________
_______________________________________________________________________________.
Tenant acknowledges that (A) Landlord, its successors and assigns, and any
lessee of the entire Premises may rely on this Certificate and (B) any holder of
a fee or leasehold mortgage may rely on this Certificate in making a loan, now
or in the future.
[ ]
By:_____________________________________
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<PAGE>
EXHIBIT D
Form of Landlord Estoppel
D-1
<PAGE>
EXHIBIT E
Security Deposit Assignment Agreement
Summary of Terms:
(1) Owner shall represent and warrant that the Security Deposits being assigned
to NS, as tenant under the Master Lease, represent all of the security deposits
required to be held by Owner under the Leases, without diminution or application
since delivery by a tenant under its Lease, as such Security Deposit may have
been increased from time to time as may be required by the terms of the
applicable lease.
(2) NS shall covenant that it shall indemnify Owner in respect of the security
deposits so assigned.
(3) Owner shall transfer to NS all letters of credit delivered as security by
any tenant, provided same may be transferred; otherwise new letters of credit or
cash security shall be obtained from the tenant or the account parties, as the
case may be, by the Owners.
E-1
<PAGE>
EXHIBIT F
Lockbox Agreement
F-1
<PAGE>
EXHIBIT G
Notice To Tenants
G-1
<PAGE>
EXHIBIT H
Form of Newco Operating Agreement
H-1
<PAGE>
EXHIBIT I
Form of Assignment of Leases
An agreement, whereby (i) each Owner shall assign, transfer and set over
to the Master Tenant all of such Owner's right, title and interest, as landlord,
in and to all of the Leases and any sublease then in force in respect of the
Premises and shall represent and warrant that true, correct and complete copies
of all leases, licenses and occupancy agreements have been delivered to Master
Tenant, and (ii) the Master Tenant shall assume and agree to perform such
Owner's obligations under the same which are to be performed from and after the
Closing, except as specifically provided for herein.
I-1
<PAGE>
EXHIBIT J
Form of Assignment of Included Property
The assignment will be (i) to the Master Tenant and (ii) for the term of
the Master Lease and will cover all of the tangible and intangible property in,
on, attached to, appurtenant to, or used in the operation or maintenance of the
Land or the Building and not otherwise covered by the Master Lease and shall
include, without limitation, the following:
1. the Permits in Owner's possession and all of Owner's right, title and
interest in and to all other Permits.
2. all architectural, mechanical, engineering and other plans and
specifications relating to the Premises (collectively, the "Plans"), Contracts
and Records in Owner's possession and all of its right, title and interest in
and to any other Plans, Contracts and Records.
3. all of Owners' right, title and interest in and to all trademarks,
logos, trade and business names, good will and other proprietary rights and
intangible property relating to the ownership, use, operation and management of
the Property (collectively, the "Intangible Property").
4. any condemnation awards or insurance proceeds as provided in Article 11
of the Agreement.
5. all Receivables.
J-1
<PAGE>
EXHIBIT K
Authorization Letter
<PAGE>
F.S. Realty Corp.
and
The 44th B.C. Realty Corp.
c/o Prince Management Corp.
498 Seventh Avenue, 7th Floor
New York, New York 10012
January 7, 1998
S.L. Green Management Corp.
70 West 36th Street
New York, New York 10018
Re: 417 Fifth Avenue
and
19 West 44th Street
New York, New York
(collectively, the "Premises")
Ladies and Gentlemen:
The undersigned, as the owners of the Premises, hereby authorize
you, as the present managing agent for the Premises, to cooperate with any
requests that may be made by NorthStar Capital Partners, LLC, their
representatives, agents, advisors and counsel (including, without limitation,
Arthur Andersen LLP) in respect of any and all past and present matters
(financial and otherwise) relating to the Premises and to deliver any
information in your possession or control or available to you that may be
reasonably requested by them in connection therewith.
Very truly yours,
F.S. Realty Corp.
By:_________________________________
Name:
Title:
The 44th B.C. Realty Corp.
By:_________________________________
Name:
Title:
<PAGE>
EXHIBIT L
Owner's Certification
F.S. Realty Corp.
and
The 44th B.C. Realty Corp.
c/o Prime Management Corp.
498 Seventh Avenue, 7th Floor
New York, New York 10012
(Date)
Arthur Andersen LLP
1345 Avenue of the Americas
New York, New York 10105
Re: 417 Fifth Avenue and
19 West 44th Street
New York, New York (collectively, the "Premises")
Dear Sirs:
In connection with your audit of the statements of operations of the Premises
for each of the two years in the period ended December 31, 1996 (the "Audit"),
for the purpose of expressing an opinion as to whether these statements present
fairly, in all material respects, the results of operations of the Premises in
conformity with generally accepted accounting principles, we confirm, to the
best of our knowledge and belief, the following representations made to you
during your audit:
1. We are responsible for the fair presentation of the statement of
operations in conformity with generally accepted accounting
principles.
2. We have made available to you all financial records and related
data.
3. There have been no irregularities involving management or employees
who have significant roles in the internal control structure.
<PAGE>
4. The accounting records underlying the financial statements
accurately and fairly reflect, in reasonable detail, the
transactions of the premises for the periods.
Very truly yours,
F.S. Realty Corp.
By:______________________
The 44th B.C. Realty Corp.
By:______________________
<PAGE>
EXHIBIT M
W-9 FORM
<PAGE>
EXHIBIT N
Exceptions to Non-Recourse
Owner shall be personally liable at all times for (i) the
misapplication of (a) any insurance proceeds paid under any insurance policies
by reason of damage, loss, or destruction to the Premises or (b) proceeds or
awards resulting from condemnation or other taking in lieu of condemnation of
any portion of the Premises or (c) tenant security deposits, but solely to the
extent any of the foregoing items have actually been received and misapplied by
Owner, and (ii) any damages to Lender resulting from any fraud or intentional
misrepresentation made by Owner.
<PAGE>
Schedule 1
Leases, Security Deposits; Rent Roll
<PAGE>
Schedule 2
Contracts
<PAGE>
Schedule 3
Permits
<PAGE>
Schedule 4
Insurance Policies
<PAGE>
Schedule 5
JEWISH HOLIDAYS
Rosh Hashanah (Both Days)
Yom Kippur
Succot (First 2 Days)
Shmini Atzeret
Simchat Torah
Passover (First 2 Days and Last 2 Days)
Shavuot (Both Days)
<PAGE>
Schedule 6
Tax Certiorari Proceeding
19 West 44th Street: 1996-1997 and 1997-1998 tax years
417 Fifth Avenue: 1994-1995, 1995-1996, 1996-1997 and 1997-1998 tax years
<PAGE>
Schedule 7
Records
Records shall include, but not be limited to, the following:
1. Reimbursement Statements (porters, wage, taxes and electric)
for all tenants.
2. Statement of income and expenses for the Premises for each of
the three years ended December 31, 1997 (the "Audit Period")
(1995 and 1996 statements to be delivered no later than
January 14, 1998 and 1997 statements to be delivered no later
than February 3, 1998.
3. General ledgers and other books of original entry related to
the Premises for the Audit Period.
4. Bank statements, invoices, cancelled checks and other
documentation supporting the revenue and expenses of the
Premises for the Audit Period.
5. True, correct and complete leases for all tenants of the
Premises during the Audit Period. Identification of any other
agreements granting possessory interests in the Premises.
6. Escalation Statements for every tenant at the Premises for the
most recent billing period (January 1998) (to be delivered no
later than January 14, 1998).
7. Balance Sheet showing receivables aging for 30, 60 and 90
days.
<PAGE>
Schedule 8
Management Termination Fee
NONE
<PAGE>
Schedule 9
List of Receivables
<PAGE>
Schedule A
Form of Master Lease
<PAGE>
Schedule B
Form of Option Agreement
<PAGE>
Exhibit 10.7
AMENDED AND RESTATED LIMITED LIABILITY
COMPANY OPERATING AGREEMENT
OF
THE 44 BC REALTY LLC
dated as of February 9, 1998
<PAGE>
AMENDED AND RESTATED LIMITED LIABILITY COMPANY
OPERATING AGREEMENT OF THE 44 BC REALTY LLC
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT of
THE 44 BC REALTY LLC, a Delaware limited liability company (the "Company"), is
made as of February 9, 1998, by and between THE 44TH B.C. REALTY CORP., a New
York corporation ("BC Realty"), as a member and as the Managing Member, and
POLESTAR FORTY-FOURTH HOLDING LLC, a Delaware limited liability company (such
member and any successors or assigns thereof, "NS Member"), as a member
(collectively, the "Members").
WHEREAS, BC Realty was formerly the Owner of a certain parcel of Land (the
"Land") and improvements located thereon (said improvements together with any
and all future replacements thereof, collectively, the "Building"), which Land
and improvements as described in Exhibit A are also known as 19 West 44th
Street, New York, New York (the Land and the Building, collectively, the
"Premises");
WHEREAS, BC Realty formed the Company under the Delaware Limited Liability
Company Act, 6 Del. C. Section 18-101, et seq., as amended from time to time
(the "Delaware Act"), by causing to be filed a Certificate of Formation of the
Company with the Office of the Secretary of State of the State of Delaware on
February 3, 1998 and, in connection therewith, entered into the Limited
Liability Company Agreement of The 44 BC Realty LLC (the "Initial Agreement");
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<PAGE>
WHEREAS, in connection with the formation of the Company, BC Realty
contributed the Premises to the Company, free and clear of all liens and
encumbrances, except as contemplated in the Purchase Agreement (hereinafter
defined);
WHEREAS, the Company desires to assign to NS Member, and NS Member desires
to assume, a 1% interest in the Company and, accordingly, BC Realty and NS
Member wish to amend and restate the Initial Agreement, in accordance with
Section 18-201(d) of the Delaware Act, in order to document (i) such assignment
and assumption and (ii) the agreement of the Members in respect of the affairs
of the Company and the conduct of its business;
WHEREAS, PoleStar Forty-Fourth Optionee LLC, a Delaware limited liability
company ("NS Optionee"), has acquired for valuable consideration on this date
paid to the Company an unconditional and irrevocable option (the "Option") to
purchase the Premises and the Company, as optionor, has granted such Option to
NS Optionee, pursuant to the terms of the Option Agreement (as such terms are
hereinafter defined);
WHEREAS, on this date the Company and Master Tenant have entered into the
Master Lease Agreement (as such terms are hereinafter defined);
WHEREAS, simultaneously with the execution and delivery of this Agreement,
in return for certain rights which NS Member shall receive under this Agreement,
including, but not limited to (i) the special powers granted in Section 4.02,
(ii) the right to approve Major Decisions as provided in Section 4.03, (iii) the
right to approve any Transfers of Interest by all other Members; and (iv) rights
to pursuant to Section 10.07, NS Member has paid $7,047,000 to BC Realty;
2
<PAGE>
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used but not otherwise
defined herein shall have the meanings herein specified.
"Acquired Interests" shall have the meaning set forth in Section 10.07.
"Affiliate" means, with respect to a Person, another Person that directly
or indirectly controls, is controlled by or is under common control with
such first Person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and
"under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to vote a majority of the
securities having voting power for the election of directors of such
Person or otherwise to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Amended and Restated Limited Liability Company
Agreement of the Company, as amended, modified, supplemented or restated
from time to time.
"Additional Payments" shall have the meaning given such term in Section
10.07(a) of this Agreement.
"Approval" (and any variation thereof) of a Member or Managing Member
shall mean the written consent or approval of the Member or Managing
Member, as the case may be, which may be granted or withheld in its sole
discretion unless otherwise expressly provided to the contrary in this
Agreement. Such Approval shall be valid for a Member or Managing Member
who is not a natural person only if given by an Authorized Representative
of such Member or Managing Member. Use of the term "reasonable" in
connection with the term "Approval" or any variation thereof or with the
term "satisfactory" means that such Approval shall not be withheld,
delayed or conditioned unreasonably.
"Authorized Representative" means the representative of each member,
designated as such in accordance with Section 4.04 of this Agreement.
3
<PAGE>
"Bankruptcy" means any of the following:
(a) With respect to any action of the Managing Member, Member or other
agent of the Company, (i) applying for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee,
administrator, liquidator or the like of itself or of all or of a
substantial portion of its assets, (ii) admitting in writing its
inability, or be generally unable or deemed unable under any applicable
law, to pay its debts as such debts become due, (iii) convening a meeting
of creditors for the purpose of consummating an out-of-court arrangement,
or entering into a composition, extension or similar arrangement, with
creditors in respect of all or a substantial portion of its debts, (iv)
making a general assignment for the benefit of its creditors, (v) placing
itself or allow itself to be placed, voluntarily or involuntarily, under
the protection of the law of any jurisdiction relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of
debts, or (vi) taking any action for the purpose of effecting any of the
foregoing; or
(b) With respect to any action of any Person (other than the Managing
Member, Member or other agent of the Company, but inclusive of the
Company) the commencement of a proceeding or case in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding-up, or composition or readjustment of debts, of the
Company with respect thereto, (ii) the appointment of a trustee, receiver,
custodian, administrator, liquidator or the like of the Company with
respect thereto or of all or a substantial portion of the Company's
assets, or (iii) similar relief in respect of the Company under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, without the consent of the other
Members and such proceeding or case shall continue undismissed for a
period of ninety (90) days, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and
in effect for a period of sixty (60) days, or an order for relief or other
legal instrument of similar effect against the Company shall be entered in
an involuntary case under such law and shall continue for a period of
sixty (60) days.
"Business Days" means weekdays other than Holidays.
"Capital Account" means the capital account established for each Member in
accordance with Section 5.02(a).
"Capital Receipts" means the gross cash proceeds received by the Company
from the sale, exchange or any other disposition of any capital asset of
the Company, or of all or substantially all of the assets of the Company
(including without limitation in any Liquidation of the Company) or of any
partnership or limited liability company in which the Company holds a
direct or indirect interest, or from the incurrence of any Indebtedness
(but excluding capital contributions received by the Company), reduced by
the sum of (i) all expenditures made by the Company or by any partnership
or limited liability company in which the Company holds a direct or
indirect interest, in connection with such sale,
4
<PAGE>
exchange or other disposition, (ii) debt service payments made from such
gross cash proceeds, and (iii) amounts set aside as reserves therefrom by
the Managing Member.
"Capitalized Lease" as to any Person means (i) any lease of property, real
or personal, the obligations under which are capitalized on the
consolidated balance sheet of such Person and its subsidiaries, (ii) any
other such lease to the extent that the then present value of the minimum
rental commitment thereunder should, in accordance with GAAP, be
capitalized on a balance sheet of the lessee, and (iii) any lease of
property, real or personal, which is treated as indebtedness for Federal
income tax purposes.
"Cash Flow" means, with respect to any period, the amount by which (i) all
cash receipts received by the Company during such period from whatever
source derived (including, without limitation, cash from operations and
funds released during such period from cash reserves previously
established from cash from operations, but excluding Capital Receipts,
funds released from reserves relating to Capital Receipts and capital
contributions received by the Company) exceeds (ii) all disbursements of
cash by the Company during such period, including, without limitation,
payment of operating expenses, capital expenditures, payment of principal
and interest on the Company's indebtedness except to the extent taken into
account under the definition of Capital Receipts, and reserves established
by the Managing Member, but excluding distributions to Members, expenses
and additions to reserves relating to any Capital Receipts.
"Certificate of Formation" means the Certificate of Formation referred to
in the first recital of this Agreement and any and all amendments thereto
and restatements thereof filed on behalf of the Company with the office of
the Secretary of State of the State of Delaware pursuant to the Delaware
Act.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of
this Agreement. A reference to a specific section of the Code refers not
only to such specific section but also to any corresponding provision of
any federal tax statute enacted after the date of this Agreement, as such
specific section or corresponding provision is in effect and applicable on
the date of the application of the provisions of this Agreement containing
such reference.
"Company" has the meaning specified in the Preamble to this Agreement.
"Contingent Obligation" as to any Person means any obligation of such
Person guaranteeing or intended to guarantee any Indebtedness, leases
(including Capitalized Leases), dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of any such primary
5
<PAGE>
obligation or (y) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth, solvency or other
financial condition of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of
such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect
thereof; provided, however, that the term Contingent Obligation shall not
include endorsements of instruments for deposit or collection in the
ordinary course of business or obligations of such Person which would not
be required to be disclosed under GAAP as liabilities or footnoted on such
Person's financial statement. The amount of any accrued or accruable
Contingent Obligation shall be determined in accordance with GAAP.
"Control" means (a) in the case of a corporation, ownership, directly or
through ownership of other entities, of at least ten percent (10%) of all
the voting stock (exclusive of stock which is voting only as required by
applicable law or in the event of nonpayment of dividends and pays
dividends only on a nonparticipating basis at a fixed or floating rate),
and (b) in the case of any entity, ownership, directly or through
ownership of other entities, of at least ten percent (10%) of all of the
beneficial equity interests therein (calculated by a method that excludes
from equity interests ownership interests that are nonvoting (except as
required by applicable law or in the event of nonpayment of dividends or
distributions) and pay dividends or distributions only on a
non-participating basis at a fixed or floating rate) or, in any case, (c)
the power directly or indirectly, to direct or control, or cause the
direction of, the management policies of another Person, whether through
the ownership of voting securities, general partnership interests, common
directors, trustees, officers by contract or otherwise. The terms
"controlled" and "controlling" shall have meanings correlative to the
foregoing definition of "control."
"Conversion Amount" shall have the meaning set forth in Section 10.07.
"Conversion Event" shall mean the acquisition of the Interests of the
Managing Member and additional Members (other than NS Member's Interest)
pursuant to Section 10.07 of this Agreement.
"Converted Members" shall have the meaning set forth in Section 10.07.
"Covered Person" means the Members (including Members acting as Managing
Members), any Affiliate of a Member or any officers, managers, members,
employees, representatives or agents of a Member, or any employee or agent
of the Company or its Affiliates.
"Delaware Act" shall have the meaning set forth in the first recital of
this Agreement.
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<PAGE>
"Encumbrance" shall mean any security interest, mortgage, lien, charge,
adverse claim, or restriction of any direct or indirect, choate or
inchoate kind, including, but not limited to, any restriction on the use,
voting, transfer, receipt of income or other exercise of any attribute of
ownership.
"Fiscal Year" shall have the meaning set forth in Section 2.04.
"GAAP" means generally acceptable accounting principles.
"Hedge Agreement" means an interest rate swap, cap, floor, collar or other
interest rate protection agreement, provided that the entity providing
such interest rate management agreement maintains a credit rating equal or
exceeding "A" as rated by Standard & Poor's Ratings Services or Aa2 by
Moody's Investors Service Inc. or such other recognized rating agency
reasonably satisfactory to the Lender.
"Holidays" means those days listed on Exhibit B attached hereto as well as
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas, and any other days on which there is no
regular United States postal service or the New York Stock Exchange (or
any successor thereto) is closed.
"incur" means to issue, assume, guarantee, incur or otherwise become
liable for; and "incurrence" has the correlative meaning.
"Indebtedness" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument, (iii)
the face amount of all letters of credit issued for the account of such
Person and, without duplication, all unreimbursed amounts drawn
thereunder, (iv) all indebtedness of any other Person secured by any Lien
on any property owned by such Person, whether or not such indebtedness has
been assumed, (v) all Contingent Obligations of such Person, (vi) all
payment obligations of such Person under any Hedge Agreement (without
regard to the credit rating threshold herein above set forth in its
definition) or currency swaps or similar agreements, (vii) all
indebtedness and liabilities secured by any lien or mortgage on any
property of such Person, whether or not the same would be classified as a
liability on a balance sheet, (viii) the liability of such Person in
respect of banker's acceptances and the estimated liability under any
participating mortgage, convertible mortgage or similar arrangement, (ix)
the present value of the aggregate amount of rentals or other
consideration payable by such Person in accordance with GAAP over the
remaining unexpired term of all Capitalized Leases, (x) all judgments or
decrees by a court, tribunal or board of arbitration, (xi) all
indebtedness, payment obligations and contingent obligations of any
partnership in which such Person holds a general partnership interest,
(xii) all convertible debt and subordinated debt, (xiii) all preferred
stock of such
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Person that is redeemable for cash, cash equivalent, note receivable or
similar instrument or is convertible to Indebtedness as defined herein,
and (xiv) all obligations, liabilities, reserves and any other items which
are listed as a liability on a balance sheet of such Person determined on
a consolidated basis in accordance with GAAP, but excluding all general
contingency reserves and reserves for deferred income taxes and investment
credit.
"Initial Agreement" shall have the meaning set forth in the Second
Recital.
"Initial Contributions" shall have the meaning set forth in Section 5.01.
"Interest" means a limited liability company interest in the Company,
including the right of the holder thereof to any and all benefits to which
a Member may be entitled as provided in this Agreement, together with the
obligations of a Member to comply with all of the terms and provisions of
this Agreement.
"Lease Termination Notice" shall have the meaning set forth in Section
10.10 hereof.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale agreement, deposit arrangement, security
interest, encumbrance, lien (statutory or other), preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever in respect of any property of a Person, whether granted
voluntarily or imposed by law, and includes the interest of a lessor under
a capital lease or under any financing lease having substantially the same
economic effect as any of the foregoing, inchoate liens arising under the
Employment Retirement Income Security Act of 1974, as amended and the
filing of any financing statement or similar notice (other than a
financing statement filed by a "true" lessor or consignor pursuant to
ss.9-408 of the Uniform Commercial Code), naming the owner of such
property as debtor, under the Uniform Commercial Code or other comparable
law of any jurisdiction.
"Liquidation" means any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. For the purpose of this
definition, the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, interests, units or other consideration) of all or
substantially all the property or assets of the Company shall be deemed a
voluntary liquidation, dissolution or winding up of the Company, but a
consolidation or merger of the Company with one or more other limited
liability companies, corporations or other Persons shall not be deemed to
be a liquidation, dissolution or winding up, voluntary or involuntary.
"Managing Member" means BC Realty Corp., in its capacity as the Member of
the Company designated as the manager unless and until replaced as
Managing Member pursuant to this Agreement and thereafter shall mean such
replacement Managing Member.
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"Master Lease Agreement" means that certain Lease of even date herewith
between the Company, as landlord, and an Affiliate of NS Member, as tenant
(such tenant and its successors and assigns, the "Master Tenant") for a
term of twenty five years, subject to extension as provided therein,
demising the Premises.
"Member" means any Person that holds an Interest in the Company, is
admitted as a member of the Company pursuant to the provisions of this
Agreement and named as a member of the Company on Schedule A hereto and
includes any Person admitted as an Additional Member or a Substitute
Member pursuant to the provisions of this Agreement, in such Person's
capacity as a member of the Company.
"Net Disposition Profits" and "Net Disposition Losses" means for each
taxable year of the Company an amount equal to the Company's net gain or
loss for such year resulting from transactions described in the definition
of Capital Receipts, determined in accordance with the Federal income tax
accounting methods and rules used by the Company on its Federal
Partnership Information Return.
"Net Operating Profits" and "Net Operating Losses" means for each taxable
year of the Company an amount equal to the Company's net income or loss
for such year as determined in accordance with the Federal income tax
accounting methods and rules used by the Company on its Federal
Partnership Information Return, but excluding Net Disposition Profits and
Net Disposition Losses, and increased by any non-taxable income received
by the Company and decreased by any non-deductible expenses incurred by
the Company.
"NS Optionee" means PoleStar Forty-Fourth Optionee LLC, a Delaware limited
liability company, its successors and assigns as optionee under the Option
Agreement.
"Option" shall have the meaning set forth in the Fifth Recital to this
Agreement.
"Option Agreement" means that certain Option Agreement of even date
herewith between the Company, as optionor, and NS Optionee, as optionee.
"Option Exercise Date" means the earlier to occur of (a) March 1, 2008 and
(b) the date payments in respect of condemnation are paid to the landlord
under the Master Lease Agreement; subject, however, to the terms of
Section 10 and any terms in the Option Agreement which may accelerate the
Option Exercise Date thereunder (in the event of such acceleration, the
Option Exercise Date hereunder shall also be accelerated to coincide with
the Option Exercise Date thereunder).
"Option Termination Date" means the later of (i) March 1, 2023 or (ii) 30
days after the giving of a notice from the Managing Member to the NS
Member that it has not delivered the Buyout Notice in Section 10.07 (b)
hereof, which notice can be given no earlier than
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the first day of the tenth (10th) month following the twenty-fourth
anniversary of the date hereof provided that the Option Termination Date
shall be co-terminous with any valid and legal termination of the Master
Lease pursuant to its terms prior to the Option Exercise Date.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a joint venture, an association, a joint-stock company,
a trust, a business trust, a government or any agency or any political
subdivision, any unincorporated organization or any other entity of
whatever nature.
"Premises" shall have the meaning set forth in the Recitals to this
Agreement.
"Purchase Agreement" means that certain Agreement dated as of January 14,
1998, between F.S. Realty Corp., BC Realty and NS Optionee.
"Regulations" means the regulations proposed or promulgated under the
Code, as amended from time to time, or any federal income tax regulations
promulgated after the date of this Agreement. A reference to a specific
Regulation refers not only to such specific Regulation but also to any
corresponding provision of any federal tax regulation enacted after the
date of this Agreement, as such specific Regulation or corresponding
provision is in effect and applicable on the date of application of the
provisions of this Agreement containing such reference.
"Reminder Notice" shall have the meaning given such term in Section
10.07(b).
"Substitute Member" means a Person who is admitted to the Company as a
Member pursuant to Section 10.05 hereof, and who is named as a Member on
Schedule A to this Agreement (as amended to reflect such Member).
"Tax Matters Partner" means the Managing Member designated as such in
Section 4.08.
"Terminated Member" means any Member which has resigned, assigned its
Interest, has had its Interest acquired pursuant to Section 10.07, or
which has otherwise withdrawn from the Company.
"Transfer" shall have the meaning given such term in the Option Agreement.
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ARTICLE II
GENERAL PROVISIONS
SECTION 2.01. Company Name. The name of the Company shall continue to be
"The 44 BC Realty LLC." The name of the Company may be changed from time to time
by the Managing Member in its discretion.
SECTION 2.02. Registered Office; Registered Agent. The Company shall
continue to maintain a registered office in the State of Delaware at, and the
name and address of the Company's registered agent in the State of Delaware is,
Corporation Service Company, 1013 Center Road, Wilmington, Delaware 19805-1297.
Such office and such agent may be changed from time to time by Managing Member
in its discretion.
SECTION 2.03. Nature of Business; Permitted Powers.
(a) The purposes of the Company shall be: to own the Premises and to
engage in such other lawful general business activities that are necessary,
incidental or appropriate in relation to the foregoing.
(b) The Company shall be a single purpose entity and shall not
engage in any activity that is not described in the foregoing purposes of the
Company.
SECTION 2.04. Fiscal Year. Unless and until otherwise determined by the
Managing Member, the fiscal year of the Company for federal income tax purposes
shall, except as otherwise required in accordance with the Code, end on December
31 of each year (each, a "Fiscal Year").
SECTION 2.05. Existence. The Company shall continue to exist until such
time as it is dissolved in accordance with the provisions of Article XI of this
Agreement.
SECTION 2.06. Limitation on Member Liability.
(a) Except as otherwise expressly required by law, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Member or Managing Member shall be obligated personally for any
such debt, obligation or liability of the Company solely by reason of being a
Member or Managing Member.
(b) Except as otherwise expressly required by law, a Member,
including the Managing Member, in its capacity as a Member or Managing Member,
shall have no liability to
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any Person hereunder in excess of (i) its obligation to make payments expressly
provided for in this Agreement and (ii) the amount of any distributions
wrongfully distributed to it.
SECTION 2.07. Good Faith Obligation. The Managing Member and every other
Member shall take no improper actions, nor cause any unjustified delay or act in
any way to impede, directly or indirectly, the performance of the Company's (and
to the extent appropriate, the Members' and their Affiliates') obligations under
the Option Agreement, the Master Lease Agreement or Article X of this Agreement.
ARTICLE III
ADMISSION OF MEMBERS
SECTION 3.01. Admission of NS Member. The Company hereby assigns a one
(1%) percent Interest to NS Member and NS Member hereby accepts such assignment
and agrees to be bound by the terms and provisions of this Agreement. Upon the
execution of this Agreement, BC Realty and NS Member shall be admitted to the
company as a Member.
SECTION 3.02. Admission of Additional Members. The Managing Member may not
admit additional Members without obtaining the Approval of NS Member and,
further, upon the condition that the additional Member shall agree to be bound
by the terms and conditions of this Agreement and assume all obligations
associated therewith.
ARTICLE IV
MANAGEMENT
SECTION 4.01. Management of Business by Managing Member; Major Decisions.
Except as otherwise set forth in this Agreement, the Managing Member shall be
responsible for managing the business of the Company and shall make all
decisions affecting the business of the Company. Except as otherwise set forth
in this Agreement, the other Members shall have no right of Approval or consent
with respect to such decisions. The Managing Member shall have all the rights,
powers and authority permitted to be exercised by the Managing Member of a
limited liability company formed under the Act, except with respect to Major
Decisions or as otherwise expressly limited or restricted by this Agreement. The
Managing Member, in extension and not in limitation of the powers given to it by
law, shall have full power, except as otherwise set forth in this Agreement, and
shall have the obligation, without the necessity of obtaining the Approval of
any other Member (except as otherwise set forth in this Agreement), and at the
expense of the Company, to:
(i) Do any and all acts and things necessary, proper, convenient or
advisable to effectuate the purposes of the Company and to direct the
Company in accordance with the terms of this Agreement;
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(ii) Pay all costs and expenses incurred in operating and holding,
directly and indirectly, Company property out of Company funds, and the
Manager shall take all reasonable steps to insure that such amounts are
timely paid or provision for payment thereof is timely undertaken from
such Company funds;
(iii) Enter into and to perform the Company's obligations under any
agreement to which it becomes a party, as Approved by the Members,
including purchase and sale agreements for the acquisition and disposition
of the Company's assets;
(iv) Authorize and engage in transactions and dealings on behalf of
the Company, including transactions and dealings with any Member or any
Affiliate of any Member or the Managing Member;
(v) Subject to this Agreement, determine and make distributions, in
cash or otherwise, on Interests, in accordance with the provisions of this
Agreement and of the Delaware Act;
(vi) Establish or set aside any reserve or reserves for
contingencies and for any other proper Company purpose;
(vii) Acquire and enter into any contract of insurance necessary or
desirable for the protection or conservation of the Company and its assets
or otherwise in the interest of the Company as the Managing Member shall
determine;
(viii)Open accounts and deposit, maintain and withdraw funds in the
name of the Company in banks, savings and loan associations, brokerage
firms or other financial institutions;
(ix) Bring and defend on behalf of the Company actions and
proceedings at law or equity before any court or governmental,
administrative or other regulatory agency, body or commission or
otherwise;
(x) Prepare and cause to be prepared reports, statements and other
relevant information for distribution to Members as may be required or
determined to be appropriate by the Managing Member from time to time;
(xi) Prepare and file all necessary returns and statements and pay
all taxes, assessments and other impositions applicable to the assets of
the Company; and
(xii) Execute all other documents or instruments, perform all duties
and powers and do all things for and on behalf of the Company in all
matters necessary or desirable or incidental to the foregoing, other than
where the Approval of NS Member is required, in which cases NS Member must
execute such documents or instruments as well in order
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for the Company's act to be valid, legal, binding and enforceable, and
except for such documents and instruments which NS Member is authorized to
execute and deliver in accordance with this Agreement.
Except as expressly otherwise provided in this Agreement, no Member (other
than the Managing Member) shall take part in the day-to-day management,
operation or control of the business and affairs of the Company,
SECTION 4.02. Special Powers of NS Member.
(a) Notwithstanding any other provision of this Agreement, and
provided that the Master Lease Agreement has not been terminated on account of a
default by the Master Tenant and that the Managing Member has not purchased NS
Member's Interest as provided in Section 10.09 and, further provided, that NS
Optionee has fully performed its obligations under the Option Agreement,
including, but not limited to, the payment of all sums due to the Company, as
optionor, thereunder, NS Member shall have the sole and exclusive power,
authority and right to take on behalf of and in the name of the Company, and to
cause the Company to take, all actions necessary or appropriate to fulfill the
Company's obligations under the Option Agreement, including, but not limited to,
(a) transferring and/or conveying the Premises, (b) executing and delivering any
deeds, agreements, instruments or other documents, and (c) paying (on behalf of
the Company) all closing costs taxes and charges required to be paid in
connection with the aforegoing. NS Member shall have the right to exercise the
aforementioned power without the approval or consent of the Managing Member or
of any other Members and all closing costs, taxes and charges associated
therewith shall be borne by BC Realty and it is understood that NS Optionee may
withhold reasonable expenses on NS Member's behalf from the payment under the
Option Agreement as security for payment of all sums required to be paid.
(b) Notwithstanding the powers granted to the Managing Member
pursuant to Section 4.01, the Members acknowledge and agree that the NS Member
shall have the sole and exclusive right to execute and deliver on behalf of the
Company, as the owner of the Premises, (i) the execution of any Renewal
Memoranda of Option (as such term is defined in the Option Agreement); (ii)
those documents, instruments and agreements required by any lender or any other
party seeking to encumber title to the Premises in respect of any Indebtedness
or with respect to any easements, rights of way, covenants and restrictions,
agreements and similar matters, and by any Leasehold Mortgagee (as such term is
defined in the Master Lease Agreement) in connection with any leasehold
financing, as contemplated by the Master Lease Agreement and any and all
ancillary documents to be executed in connection therewith, provided that with
respect to the Indebtedness and the other matters listed in this clause (ii),
such Indebtedness and other matters have been effectuated by the Master Tenant
on behalf of the Company pursuant to the Master Tenant's rights or obligations
under Articles 4 and 34 of the Master Lease Agreement; (iii) any of the matters
listed in clauses (a) through (f) of Section 4.2 of the Master Lease Agreement;
and (iv) the removal of any Non-Permitted Encumbrance (as such term is defined
in the Master Lease Agreement); and (v) the Lease Termination Notice, as
provided in Section 10.10 hereof.
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SECTION 4.03. Major Decisions. The following are major decisions requiring
the Approval of NS Member or the transferee(s) or assignee(s) of its Interest:
(i) Dissolving, terminating or liquidating of the Company, except as
provided in Article XI of this Agreement;
(ii) Other than in the event of a default on the part of the Master
Tenant continuing beyond any applicable, grace and notice period in the
Master Lease Agreement, terminating the Master Lease Agreement.
(iii) Entering into any ground or master lease, sale or other
commercial transaction in which economic benefits substantially similar to
the foregoing are expected to be realized by the Company or subjecting the
Premises or any part thereof to any Lien;
(iv) Causing or permitting the Company to incur any Indebtedness
(provided, however, Approval of NS Member shall be deemed given if such
Indebtedness is effectuated by the Master Tenant on behalf of the Company
pursuant to the Master Tenant's obligations under Article 34 of the Master
Lease Agreement unless the Master Tenant fails to perform its obligations
under said Article 34 after the expiry of all applicable grace and notice
periods and Leasehold Mortgagee has failed to cure such default pursuant
to Article 24 of the Master Lease);
(v) Acquiring any property other than the Premises;
(vi) Modifying or refinancing any indebtedness of the Company or
selecting a lender to make loans to the Company (provided, however,
Approval of NS Member shall be deemed given if such modification or
refinancing transaction is effectuated by the Master Tenant pursuant to
the Master Tenant's obligation under Article 34 of the Master Lease
Agreement unless the Master Tenant fails to perform its obligations under
said Article 34 after the expiry of all applicable grace and notice
periods and Leasehold Mortgagee has failed to cure such default pursuant
to Article 24 of the Master Lease);
(vii) Entering into any agreement with respect to the Company or its
property, including, without limitation, the Premises or materially
modifying the terms of any contract that required the Approval of the
Members to enter into;
(viii) Determining the terms of any participation in the Company or
the Premises (e.g., distribution and control issues) of third party
investors;
(ix) Admitting Additional Members or admitting transferee Members to
the Company as Substituted Members or entering into financing that
participates in profits of the Company; or permitting any transfer of any
Interest in the Company;
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(x) Confessing any judgment against the Company or causing or
permitting the Company to take any action that would constitute a
Bankruptcy under clause (a) of the definition of the term "Bankruptcy" in
Section 1.01;
(xi) Performing, causing or permitting the performance of an act in
contravention of this Agreement or any act in contravention of documents
binding upon or otherwise affecting the Company or any of its Members;
(xii) Performing, causing or permitting the performance of any
increase in the amount of the Capital Contributions specified in Section
5.1;
(xiii) Performing, causing or permitting the performance of any act
which would make it impossible to carry on the ordinary business of the
Company, except in connection with the Company's performance of its
obligations with respect to the Option;
(xiv) Performing, causing or permitting the performance of any
action which would cause the Company to become an entity other than a
Delaware limited liability company;
(xv) Changing the purpose and scope of the Company, other than in
connection with the exercise of the Option;
(xvi) Amending, modifying or altering the terms and provisions of
this Agreement;
(xvii) Making in-kind distributions or accepting in-kind
contributions;
(xviii) Entering into any agreement (i) which would cause any Member
to become personally liable on or in respect of any Indebtedness or (ii)
which is not nonrecourse to the Members;
(xix) Causing the payment by the Company of any salary, fees or
other compensation to, or entering into any contract between the Company
and any Affiliate of any Member, except as specifically provided for in
this Agreement;
(xx) Causing the Company to redeem or repurchase all or any portion
of the interest of a Member, except as permitted in this Agreement;
(xxi) Permitting the Managing Member to voluntarily withdraw as
Managing Member;
(xxii) Causing or permitting the Company to be merged with any other
entity; or
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(xxiii) Taking any other action that is required to be Approved by
the Members under this Agreement;
Notwithstanding anything in this Section 4.03 to the contrary, the
Managing Member may perform any action requested of the Company by the Master
Tenant or NS Optionee under the Option Agreement without obtaining the Approval
of NS Member. Further, Approval of NS Member shall be required for Major
Decisions only so long as (a) the Master Lease Agreement has not been terminated
by the Company on account of a default by the Master Tenant, (b) there has been
no material breach of the Option Agreement (material breach being solely the
failure to pay sums due in accordance with the Option Agreement's provisions
when the counterparty is ready, willing and able to perform) by any Affiliate of
NS Member or (c) NS Member's Interest has not been acquired pursuant to Section
10.09 of this Agreement. Further, notwithstanding anything in this Section 4.03
to the contrary, the Managing Member shall be permitted to make distributions in
accordance with Article VII of this Agreement without the Approval of the other
Members.
SECTION 4.04. Approval Procedure. Notice of the request for a Member's
Approval of any matter for which such Approval is required pursuant to this
Agreement shall be delivered by the Managing Member to each of the then
Authorized Representatives, together with the Managing Member's summary and
analysis of the matter for which such Approval is requested and the requesting
Member's recommendations with respect to the matter for which Approval is
requested. Each Authorized Representative shall approve or disapprove such
matter by notice to the other Member given within ten (10) Business Days
following delivery of such notice. Failure of any Authorized Representative to
timely respond by written notice to the requesting Member, indicating Approval
or disapproval of such matter and, if disapproved, the reason for such
disapproval, shall be deemed withholding of the Approval by such Authorized
Representative of such matter for which Approval is requested. Notwithstanding
anything in this Agreement to the contrary, no Authorized Representative of a
Terminated Member shall have the right to Approve any action. The initial
Authorized Representative of NS Member shall be W. Edward Scheetz, 60
Londonderry Drive, Greenwich, Connecticut 06830 and the initial Authorized
Representative of BC Realty shall be Joseph Chetrit, c/o Prince Management, 7th
Floor, 498 Seventh Avenue, New York, New York 10012. Each Member or Managing
Member may designate a replacement Authorized Representative by providing notice
to all of the Members of such designation along with the name and address of
such replacement and such evidence from such Member or Managing Member providing
for the designation and authorization of the replacement Authorized
Representative as may be reasonably satisfactory to the other Members.
SECTION 4.05. Books and Records; Accounting. The Managing Member shall
keep or cause to be kept at the principal office of the Company (or at such
other place as the Managing Member shall advise the other Members in writing)
true and complete books and records regarding the status of the business and
financial condition and results of operations of the Company. The books and
records of the Company shall be kept in accordance with the Federal income tax
accounting methods and rules determined by the Managing Member, which methods
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and rules shall reflect all Company transactions and be appropriate and adequate
for the Company's business.
SECTION 4.06. Reliance by Third Parties.
(a) Except as specifically set forth in Sections 4.02 and 10.7
hereof in respect of the powers of the NS Member, Persons dealing with the
Company are entitled to rely conclusively upon the power and authority of the
Managing Member herein set forth except where otherwise expressly set forth, in
which case such reliance is misplaced and, among other remedies, shall subject
said Persons to potential liability in equity and at law to NS Member.
(b) Any Person dealing with the Company is entitled to rely
conclusively on the power and authority of the NS Member in acting on behalf of
the Company pursuant to the powers granted to it under Sections 4.02, and 10.07.
SECTION 4.07. Expenses. Except as otherwise provided in this Agreement,
the Company shall be responsible for and shall pay out of funds of the Company,
as determined by the Managing Member to be available for such purpose, all
expenses and obligations of the Company, including those incurred by the Company
or by the Managing Member or its Affiliates on behalf of the Company in
connection with the formation, operation or management of the Company, and in
organizing the Company.
SECTION 4.08. Company Tax and Information Returns.
(a) The Managing Member shall cause to be prepared and timely filed
all tax and information returns required to be filed for the Company. The
Managing Member may, in its discretion, make or refrain from making any federal,
state or local income or other tax elections for the Company that it deems
necessary or advisable, including, without limitation, any election under
Section 754 of the Code or any successor provision; provided, however, that the
Managing Member may not elect to have the Company treated as a corporation for
tax purposes without the Approval of all the Members.
(b) BC Realty is hereby designated as the Company's "Tax Matters
Partner" under Section 6231(a)(7) of the Code and shall have all the powers and
responsibilities of such position as provided in the Code. BC Realty is
specifically directed and authorized to take whatever steps BC Realty, in its
discretion, deems necessary or desirable to perfect such designation, including
filing any forms or documents with the Internal Revenue Service and taking such
other action as may from time to time be required under the Regulations issued
under the Code, provided that BC Realty shall take no action as Tax Matters
Partner under this Section 4.08(b) without the reasonable Approval of other
Members. Expenses incurred by the Tax Matters Partner, in its capacity as such,
will be borne by the Company.
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SECTION 4.09. Option Agreement and Master Lease Agreement. Each of the
Members hereby (i) ratifies the execution and delivery of the Option Agreement
and the Master Lease Agreement, (ii) consents to the terms, conditions and
provisions thereof and (iii) authorizes and directs BC Realty to take such
actions as are necessary and appropriate to perform, enforce or otherwise comply
with the Company's obligations thereunder.
ARTICLE V
CONTRIBUTIONS AND CAPITAL ACCOUNTS
SECTION 5.01. Capital Contributions. BC Realty, as Managing Member, and NS
Member, as a Member, have made the contributions indicated in connection with
their respective names on Schedule A attached hereto (the "Initial
Contributions").
SECTION 5.02. Capital Accounts.
(a) There shall be established for each Member on the books of the
Company a capital account (a "Capital Account"), which shall be maintained and
adjusted as provided in the Regulations.
(b) Upon the occurrence of any event specified in Regulation Section
1.704-1(b)(2)(iv)(f), the Managing Member may cause the Capital Accounts of the
Members to be adjusted to reflect the fair market value of the Company's assets
at such time as determined in good faith by the Managing Member. The adjustments
shall reflect the manner in which the unrealized income, gains, loss, or
deduction inherent in such property would be allocated among the Members if
there were a taxable disposition of such property for such fair market value
determined in good faith by the Managing Member on the date of the occurrence of
such event.
SECTION 5.03. Withdrawal of Capital: Return of Capital: Deficit Balance in
Capital Account.
(a) Except as otherwise specifically set forth in this Agreement, no
Member shall have the right to (i) withdraw such Member's capital contribution
or to demand or receive the return of a capital contribution or make any claim
to any portion of Company capital or (ii) demand or receive property other than
cash in return for a capital contribution or to receive any distribution in
return for a capital contribution that is not required by this Agreement.
(b) Except as expressly provided in this Agreement, no Member shall
have personal liability to make any capital contribution.
(c) A deficit Capital Account of a Member shall not be deemed to be
a liability of such Member or an asset or property of the Company or any other
Member. Except as provided in the next sentence, no Member shall have any
obligation to the Company or any other
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Member for any deficit balance in such Member's Capital Account. Upon
liquidation of the Company, NS Member shall pay to the Company an amount equal
to the lesser of (i) any deficit balance in its Capital Account and (ii) the
amount by which (A) 1.01% of the Managing Member's unreturned Capital
Contributions exceeds (B) the unreturned Capital Contributions of NS Member.
ARTICLE VI
ALLOCATIONS
SECTION 6.01. Allocation of Net Operating Profits and Net Operating Losses
for Book Accounting Purposes.
(a) Net Operating Profits shall be allocated for book accounting
purposes to the Members as follows: 99% to BC Realty and 1% to NS Member.
(b) Net Operating Losses shall be allocated for book accounting
purposes to the Members as follows: 99% to BC Realty and 1% to NS Member.
SECTION 6.02. Allocation of Net Disposition Profits and Net Disposition
Losses for Book Accounting Purposes.
(a) Net Disposition Profits shall be allocated for book accounting
purposes to the Members as follows: 99% to BC Realty and 1% to NS Member.
(b) Net Disposition Losses shall be allocated for book accounting
purposes to the Members as follows: 99% to BC Realty and 1% to NS Member.
ARTICLE VII
DISTRIBUTIONS
SECTION 7.01. Distributions from Operations. Subject to Sections 7.03 and
9.01, Cash Flow for any period shall be distributed to the Members, at times
determined by the Managing Member as follows: 99% to BC Realty and 1% to NS
Member.
SECTION 7.02. Distributions of Capital Receipts. Except as provided in the
next sentence, and subject to Sections 7.03 and 9.01, Capital Receipts shall be
distributed to the Members, at times, as determined by the Managing Member, as
follows: 99% to BC Realty and 1% to NS Member. All proceeds of the Loan (as
defined in the Master Lease Agreement), the payment required to be made pursuant
to the terms of the Option Agreement on the date of its execution and delivery,
any Additional Payments, all apportionments to the Company under the
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Master Lease Agreement, as well as any tax certiorari refunds for years
1997-1998 and earlier, shall be distributed in full to BC Realty.
SECTION 7.03. Distributions in Kind. The Managing Member may cause the
Company to make distributions of assets in kind only after Approval by NS
Member. Whenever the distribution provided for in Section 7.01 or Section 7.02
shall be payable in property other than cash, the value of such distribution
shall be the fair market value of such property determined by the Managing
Member in good faith, and in the event of such a distribution there shall be
allocated to the Members in accordance with Article VI the amount of Net
Operating Profits or Losses and the amount of Net Disposition Profits or Losses
that would result if the distributed asset had been sold for an amount in cash
equal to its fair market value at the time of the distribution. No Member shall
have the right to demand that the Company distribute any assets in kind to such
Member.
ARTICLE VIII
SPECIAL ALLOCATION RULES
SECTION 8.01. Allocations. The following provisions are incorporated in
the Agreement.
(a) Allocations for U.S. Federal Income Tax Purposes.
(i) For each Fiscal Year or other relevant period, except as
otherwise provided in this Section 8.01(a), for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated
among the Members in the same manner as its correlative item of Net
Operating Profits, Net Operating Losses, Net Disposition Profits or Net
Disposition Losses allocated pursuant to Article VI of this Agreement.
(ii) In accordance with Code Sections 704(b) and 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to
any property contributed to the capital of the Company shall, solely for
federal income tax purposes, be allocated among the Members so as to take
into account any variation between the adjusted basis of such property to
the Company for federal income tax purposes and the initial fair market
value of such property.
(iii) If the book value of any Company property is adjusted,
subsequent allocations of income, gain, loss and deduction with respect to
such asset shall take account of any variation between the adjusted basis
of such asset for federal income tax purposes and the book value of such
asset in the manner prescribed under Code Sections 704(b) and 704(c) and
the Regulations thereunder. In furtherance of the foregoing, the Company
shall employ any reasonable method selected by the Managing Member. The
21
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Managing Member is specifically authorized to select the traditional
method described in Regulation Section 1.704-3(b).
(b) Allocations with Respect to Transferred or Additional Interests.
Profits and Losses allocable to an Interest assigned, issued or reissued during
a Fiscal Year shall be allocated to each Person who was the holder of such
Interest during such Fiscal Year on the basis of an interim closing of the books
of the Company.
ARTICLE IX
COVENANTS
SECTION 9.01. Affirmative Covenants. The Company and the Managing Member
hereby covenant that the Company, in the conduct its business and operations,
shall:
(a) maintain books and records and bank accounts separate from those of
any other person;
(b) maintain its assets in such a manner that it is not costly or
difficult to segregate, identify or ascertain such assets;
(c) hold regular Company meetings, as appropriate, to conduct the
business of the Company, and observe all other Company formalities;
(d) hold itself out to creditors and the public as a legal entity
separate and distinct from any other entity;
(e) prepare separate tax returns and financial statements, or if part of
a consolidated group, then it will be shown as a separate member of
such group;
(f) allocate and charge fairly and reasonably any common employee or
overhead shared with affiliates and maintain a sufficient number of
employees in light of its contemplated business operations;
(g) transact all business with affiliates on an arms'-length basis and
pursuant to enforceable agreements;
(h) conduct business in its own name, and use separate stationery,
invoices and checks;
(i) not commingle its assets or funds with those of any other person;
(j) not assume, guarantee or pay the debts or obligations of any other
person;
22
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(k) pay its own liabilities out of its own funds;
(l) not acquire obligations or securities of its members;
(m) not pledge its assets for the benefit of any other entity or make
any loans or advances to any entity, other than in connection with
the Loan (as such term is defined in the Master Lease Agreement);
(n) correct any known misunderstanding regarding its separate identity;
(o) intend to maintain adequate capital in light of its contemplated
business operations;
(p) maintain all required qualifications to do business in New York;
(q) not cause or consent, directly or indirectly, to any action which
would cause or result in the Bankruptcy of the Company;
(r) not engage in any business or activity other than the ownership of
the Premises and activities incidental to the development thereof;
(s) not own any assets other than the Premises;
(t) not merge into or consolidate with any other entity nor dissolve or
terminate or liquidate, transfer or otherwise dispose of all or
substantially all or any material portion of its assets unless such
resulting entity or transferee is a single purpose entity and
complies with the other provisions of this section;
(u) preserve its existence as a limited liability company duly
organized, validly existing and in good standing (if applicable)
under the laws of Delaware, and shall not amend, modify, terminate
or fail to comply with the provisions of such entities
organizational documents, if such amendment, modification,
termination or failure to comply would adversely affect the ability
of Owner to perform its obligations hereunder;
(v) not own any subsidiary or make any investment in any person or
entity;
(w) not incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation) other than in connection
with the Loan (as such term is defined in the Master Lease
Agreement); and
(x) not become insolvent or fail to pay its debts as the same become due
and payable or permit the total amount of its liabilities (including
contingent liabilities) to exceed the total fair saleable value of
its assets or fail to maintain adequate capital
23
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for the normal obligations reasonably foreseeable in a business of
its size and character and in light of its contemplated business
operations; however, the foregoing shall not apply where the fair
market value of the Building has diminished for reasons other than
any action or inaction of the Landlord.
ARTICLE X
RESIGNATION AND ASSIGNMENT OF INTERESTS
SECTION 10.01 Resignation of a Managing Member. A Managing Member shall
only be entitled to resign upon assignment of the entirety of its Interest to a
single Person in compliance with Section 10.04 and Section 10.05.
SECTION 10.02. Resignation of Member. A Member (other than a Managing
Member) may resign from the Company prior to the dissolution and winding up of
the Company only upon, and shall be deemed to have resigned upon, any
redemption, exchange or other repurchase by the Company or an assignment of its
interests in compliance with the provisions of Section 10.04 and Section 10.05.
SECTION 10.03. No Distribution Upon Resignation. Upon resignation, no
resigning Member shall be entitled to receive any distribution or otherwise be
entitled to receive the fair value of its Interest; provided, however, that upon
any redemption, exchange or other repurchase by the Company, such Member shall
be entitled to receive the amount payable by the Company in connection with such
redemption, exchange or other repurchase.
SECTION 10.04. Assignment of Interests.
(a) The Managing Member and any additional Members (other than NS
Member) shall be required to obtain the Approval of NS Member prior to any
Transfer of its Interest, whether in whole or in part. Additionally, there shall
be no Transfers of any Interest in BC Realty, except as permitted by the Option
Agreement. Any Transfer in violation of this Section 10.04 (a) shall be void ab
initio and shall entitle the NS Member to exercise its right to acquire the
Acquired Interest pursuant to Section 10.07 hereof.
(b) Except as specifically prohibited by Section 10.10 hereof, NS
Member may freely Transfer all or any part of its Interest at any time (but only
with an assignment of its corresponding rights under the Option Agreement),
without the prior Approval of the Managing Member or any other Member and the
interests within NS Member may be freely Transferred, in whole or in part, at
any time.
SECTION 10.05. Right of Assignee to Become a Substitute Member. If the
provisions of Section 10.04 have been complied with, such transfer shall,
nevertheless, not entitle the assignee to become a Member or to be entitled to
exercise or receive any of the rights, powers
24
<PAGE>
or benefits of a Member other than the right to receive distributions to which
the assigning Member would be entitled, unless (i) the assigning Member
designates, in a written instrument delivered to the Managing Member, its
assignee to become a Substitute Member, and (ii) the transferee has executed and
acknowledged such instruments, in form and substance reasonably satisfactory to
the Managing Member, as all of the Members reasonably deem necessary or
desirable in their sole discretion to effectuate such admission and to confirm
the agreement of such transferee to be bound by all the terms and provisions of
this Agreement with respect to any rights and/or obligations represented by the
Interests acquired by such transferee, including, without limitation,
specifically with respect to transfers of interests other than those held by NS
Member, the provisions of Sections 4.02, 4.03 and 10.07. If a Member assigns all
of its Interest in the Company and the assignee of such Interest is entitled to
become a Substitute Member pursuant to this Section 10.05, such assignee shall
be admitted to the Company effective immediately prior to the effective date of
the assignment, and, immediately following such admission, the assigning Member
shall cease to be a member of the Company and shall be deemed a Terminated
Member.
SECTION 10.06. Recognition of Transfer by Company. No Transfer, or any
part thereof, that is in violation of this Article X shall be valid or
effective, and neither the Company nor the Managing Member shall recognize the
same for the purpose of making distributions pursuant to Article VII hereof with
respect to such Interest or part thereof. Neither the Company nor the Managing
Member shall incur any liability as a result of refusing to make any such
distributions to the assignee of any such invalid assignment. In the event that
a Transfer of an Interest is made in compliance with Article X, the transferee
shall succeed to the portion of the Capital Account of the assigning Member
attributable to the Interest or portion thereof transferred or assigned, and to
the right to receive distributions and allocations attributable to the Interest
or the portion thereof transferred or assigned, made or allocated after the date
of the interim closing of the books of the Company relating to such transfer or
assignment.
SECTION 10.07. NS Member Interest Purchase Option.
(a) Provided that the Managing Member has not purchased NS Member's
Interest as provided in Section 10.09 and, further provided that the NS Member
has made all the Additional Payments set forth on Exhibit C-1 annexed hereto, as
same may have been reduced by any Set-Offs provided in Article 38 of the Master
Lease Agreement, NS Member or its designee shall have the right to acquire the
Interest of all the other Members free and clear of all liens and encumbrances
(the "Acquired Interests"), including the Managing Member and additional
Members, if any (the "Converted Members"), from and after the Option Exercise
Date and at any time thereafter until the Option Termination Date for the amount
equal to the amount shown on Exhibit C as of the effective date of the Buyout
Notice referred to below (the "Conversion Amount"), the closing of which may
take place subsequent to the Option Termination Date, at the option of the NS
Member, provided, however, if the Converted Members are ready, willing and able
to close pursuant to the provisions of this Section 10.07, the closing shall
occur within one hundred and twenty (120) days after delivery of the Buyout
Notice. To exercise its rights pursuant to this Section 10.07 (in accordance
with Section 12.08), NS Member shall give notice
25
<PAGE>
(the "Buyout Notice") to the Managing Member, which shall be accompanied by cash
(not in excess of $100,000) or a certified check drawn on a New York bank and
payable to BC Realty for the Conversion Amount. Once the Conversion Amount is
paid no Additional Payments shall be due and payable. As of the effective date
(determined in accordance with Section 12.08) of the notice under this Section
10.07 (the "Buyout Date"), the Converted Members shall have been deemed to have
resigned and withdrawn from the Company, and shall become Terminated Members,
and NS Member shall accede absolutely to all the rights, titles, interests and
privileges of the Converted Members and shall be the sole Managing Member and
Member of the Company. To evidence the rights granted to NS Member herein,
suitable Uniform Commercial Code statements or other instruments will be
executed, acknowledged and delivered by the Company and the affected Members
from time to time at the request of NS Member and NS Member may thereafter, to
the extent permissible under law, renew such statements or instruments without
the consent of any other party. All taxes and charges associated with the
exercise of NS Member's rights hereunder shall be borne by the Converted
Members, and the Conversion Amount shall stand as security for their payment of
all sums required to be paid. Eighteen (18) months after the date that the
Premises shall have been transferred by the Company to NS Optionee pursuant to
the terms of the Option Agreement the right of the NS Member to acquire the
Acquired Interests shall be deemed terminated.
(b) Notwithstanding the foregoing, if NS Member shall fail to
deliver the Buyout Notice prior to the Option Termination Date, NS Member shall
be deemed to have not exercised its right to the Acquired Interests.
SECTION 10.08. Master Lease Agreement and Option Agreement Liability.
(a) Any liability to the Master Tenant under the Master Lease
Agreement shall be borne solely by the Managing Member and shall not be the
responsibility of NS Member, inasmuch as the Managing Member was the fee owner
of the Premises immediately prior to the transfer of the fee to the Company and
the execution and delivery of the Master Lease Agreement.
(b) Any liability of the Company, and Optionor under the Option
Agreement, to NS Optionee shall be borne solely by the Managing Member and shall
not be the responsibility of NS Member, unless such liability was caused by a
default by NS Optionee under the Option Agreement.
SECTION 10.09. Termination Buyout Option. Upon the valid and legal
termination of the Master Lease Agreement pursuant to the terms thereof prior to
the Option Exercise Date, but only if the party having the right to elect to
purchase under the Option or Section 10.07 has not so elected either or both of
the rights set forth in the Option Agreement or Section 10.07 hereof, as the
case may be, prior to such termination of the Master Lease Agreement, the
Managing Member shall have the right to acquire the Interest of NS Member for
the sum of $1 and may exercise such option by giving notice to NS Member's
Authorized Representative, which shall be accompanied by cash or a certified
check in the amount of $1 payable to NS Member, and
26
<PAGE>
delivered to its Authorized Representative. To confirm the rights granted to the
Managing Member herein, suitable Uniform Commercial Code statements or other
instruments will be executed, acknowledged and delivered by the Company and the
affected Members from time to time at the request of the Managing Member and
Managing Member may thereafter and to the extent permissible by law renew such
statements or instruments without first obtaining the consent of NS Member. As
of the effective date (determined in accordance with Section 12.08) of the
notice under this Section 10.09, the NS Member shall have been deemed to have
resigned and withdrawn from the Company, and shall become a Terminated Member,
and the Managing Member shall accede absolutely to all the rights, titles,
interests and privileges of the NS Member and shall be the sole Member of the
Company.
SECTION 10.10. Right to Purchase After Termination. If there is a
valid and legal termination of the Master Lease Agreement pursuant to its terms,
which termination occurs on or after the Option Exercise Date, and no holder of
a mortgage which is a lien on the leasehold estate created by the Master Lease
Agreement has exercised its right pursuant to the Lease to obtain a new lease,
the Company, as the landlord under the Master Lease Agreement, will so notify
(the "Lease Termination Notice") the NS Member at the address set forth herein
for notices. In such event, the NS Member shall have the right to acquire the
Acquired Interests pursuant to the terms of Section 10.07 hereof, provided,
however, (i) if within thirty (30) days of the NS Member's actual receipt of
such notice, the NS Member fails to exercise its right to acquire the Acquired
Interests, or (ii) in the alternative, if the Company fails to notify the NS
Member, and the NS Member has not, within sixty (60) days from the date of the
valid and legal termination of the Master Lease Agreement, exercised the right
to acquire the Acquired Interests, the NS Member's right to exercise the right
to acquire the Acquired Interests shall be deemed terminated.
ARTICLE XI
DISSOLUTION
SECTION 11.01. Duration and Dissolution. Subject to the provisions of this
Agreement, the Company shall be dissolved and its affairs shall be wound up upon
the first to occur of the following:
(a) the entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Delaware Act;
(b) the dissolution or liquidation of the Managing Member unless the
business of the Company is continued by the consent of all remaining Members
within 90 days following the occurrence of such event, and the remaining Members
appoint a new managing member, effective as of the date of such event; or
(c) December 31, 2097.
27
<PAGE>
The death, retirement, resignation, expulsion, bankruptcy or dissolution
of any Member or the occurrence of any other event which terminates the
continued membership of any Member in the Company shall not cause the Company to
be dissolved and its affairs wound up.
SECTION 11.02. Winding Up. After the Option Termination Date and subject
to the provisions of the Delaware Act, the Managing Member shall have the
exclusive right to wind up the Company's affairs in accordance with Section
18-803 of the Delaware Act (and shall promptly do so upon dissolution of the
Company), and shall also have the exclusive right to act as or appoint a
liquidating trustee in connection therewith.
SECTION 11.03. Distribution of Assets. Upon the winding up of the Company,
the assets shall be distributed to the Members in accordance with their positive
capital account balances, subject to the applicable terms of Section 18-804 of
the Delaware Act.
SECTION 11.04. Notice of Liquidation. The Managing Member shall give each
of the other Members at least 10 days' prior written notice of any Liquidation.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Tax Reports and Financial Statements. After the end of each
fiscal year, the Managing Member shall, as promptly as possible and in any event
within 90 days after the close of the fiscal year, cause to be prepared and
transmitted to each Member federal income tax form K-1.
SECTION 12.02. Successors; Counterparts. This Agreement (a) shall be
binding as to executors, administrators, estates, heirs and legal successors, or
nominees or representatives, of the Members, and (b) may be executed in several
counterparts with the same effect as if the parties executing the several
counterparts had all executed one counterpart.
SECTION 12.03. Governing Law; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflict of laws thereof. In
particular, this Agreement shall be construed to the maximum extent possible to
comply with all of the terms and conditions of the Delaware Act. If,
nevertheless, it shall be determined by a court of competent jurisdiction that
any provisions or wording of this Agreement shall be invalid or unenforceable
under said Delaware Act or other applicable law, such invalidity or
unenforceability shall not invalidate the entire Agreement. In that case, this
Agreement shall be construed so as to limit any term or provision to make it
enforceable or valid within the requirements of applicable law, and, in the
event such term or provisions cannot be so limited, this Agreement shall be
construed to omit such invalid or unenforceable provisions. If it shall be
determined by a court of competent jurisdiction that any provisions relating to
the distributions and allocations of the Company or to any fee payable by
28
<PAGE>
the Company is invalid or unenforceable, this Agreement shall be construed or
interpreted so as (a) to make it enforceable or valid and (b) to make the
distributions and allocations as closely equivalent to those set forth in this
Agreement as is permissible under applicable law.
SECTION 12.04. Filings. Following the execution and delivery of this
Agreement, the Managing Member shall promptly prepare any documents required to
be filed and recorded under the Delaware Act, and the Managing Member shall
promptly cause each such document to be filed and recorded in accordance with
the Delaware Act and, to the extent required by local law, to be filed and
recorded or notice thereof to be published in the appropriate place in each
jurisdiction in which the Company may hereafter establish a place of business.
The Managing Member shall also promptly cause to be filed, recorded and
published such statements of fictitious business name and any other notices,
certificates, statements or other instruments required by any provision of any
applicable law of the United States or any state or other jurisdiction which
governs the conduct of its business from time to time.
SECTION 12.05. Power of Attorney. Each Member does hereby constitute and
appoint each Managing Member as its true and lawful representative and
attorney-in-fact, in its name, place and stead, to make, execute, sign, deliver
and file (a) a Certificate of Formation of the Company, any amendment thereof
required because of an amendment to this Agreement or in order to effectuate any
change in the membership of the Company (provided the necessary Approval has
been obtained pursuant to Section 4.03), (b) this Agreement, (c) any amendments
to this Agreement (provided the necessary Approval has been obtained pursuant to
Section 4.03) and (d) all such other instruments, documents and certificates
which may from time to time be required by the laws of the United States of
America, the State of Delaware or any other jurisdiction, or any political
subdivision or agency thereof, to effectuate, implement and continue the valid
and subsisting existence of the Company or to dissolve the Company (provided the
necessary Approval has been obtained pursuant to Section 4.03) or for any other
purpose consistent with this Agreement and the transactions contemplated hereby.
The power of attorney granted hereby is coupled with an interest and shall
(i) survive and not be affected by the subsequent death, incapacity, disability,
dissolution, termination or bankruptcy of the Member granting the same or the
transfer of all or any portion of such Member's Interest and (ii) extend to such
Member's successors, assigns and legal representatives.
SECTION 12.06. Headings. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope or intent of this Agreement or any
provision hereof.
SECTION 12.07. Additional Documents. Each member, upon the request of the
Managing Member, agrees to perform all further acts and execute, acknowledge and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Agreement.
29
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SECTION 12.08. Notices. All notices, requests and other communications to
any party hereunder shall be in writing, shall be sent by (i) United States
certified mail, return receipt requested, postage prepaid, (ii) prepaid,
overnight, national courier ("Courier") or (iii) personal delivery and shall be
given to such party (and any other person designated by such party) at its
address or facsimile number set forth in Schedule A with respect to BC Realty
and NS Member or as otherwise set forth in a schedule filed with the records of
the Company for any other Party, or to such other address or facsimile number as
such party may hereafter specify for the purpose of notice to the Managing
Member (if such party is not a Managing Member) or to all the other Members (if
such party is a Managing Member). Each such notice, request or other
communication shall be effective (a) if given by certified mail, three (3)
Business Days after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid, of (b) if given courier or hand
delivery, when delivered or refused at the address specified pursuant to this
Section. As a matter of convenience, only notices may be sent by facsimile,
provided a hard copy is delivered as stated above, but the delivery by facsimile
shall not accelerate the date delivery of a notice is deemed to have been
received.
SECTION 12.09. Waiver of Right to Partition and Bill of Accounting. To the
fullest extent permitted by applicable law, each of the Members covenants that
it will not, and hereby waives any right to (except with the consent of the
Managing Member), file a bill for partnership accounting. Each of the Members
irrevocably waives any right that it may have to maintain any action for
partition with respect to any of the Company's assets.
SECTION 12.10. Construction. No provision of this Agreement shall be
construed against a party because of authorship. Whenever this Agreement
provides for the taking of an action on a date which is not a Business Day, the
date for such action shall be extended until the next Business Day.
SECTION 12.11. Additional Documents. Each Member, upon the request of any
other Member, agrees to perform all further acts and execute, acknowledge and
deliver any documents that may be necessary to carry out the provisions of this
Agreement and the intentions of the parties.
SECTION 12.12. Amendments. This Agreement may not be modified, altered,
supplemented or amended except pursuant to a written agreement executed and
delivered by all of the Members.
30
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IN WITNESS WHEREOF, the undersigned have hereto set their hands as of the
day and year first above written.
MEMBERS:
THE 44th B.C. REALTY CORP., a New York
corporation
By: /s/ Joseph Chetrit
-------------------------------------
as Managing Member
First Signature Page Amended and Restated Limited Liability
Company Agreement of
The 44 BC Realty LLC
31
<PAGE>
POLESTAR FORTY-FOURTH HOLDING LLC
By: /s/ W. Edward Scheetz
-------------------------------------
Name: W. Edward Scheetz
Title: President
Second Signature Page Amended and Restated Limited Liability
Company Agreement of
The 44 BC Realty LLC
32
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared Joseph
Chetrit, personally known to me or proved to me on the basis of satisfactory
evidence to be the same individual whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his capacity, and
that by his signature on the instrument, the individual, or the person on behalf
of which the individual acted, executed the instrument.
------------------------------
[Seal]
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared W.
Edward Scheetz, personally known to me or proved to me on the basis of
satisfactory evidence to be the same individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
------------------------------
[Seal]
<PAGE>
Exhibit A
Description of Premises
<PAGE>
Exhibit B
JEWISH HOLIDAYS
Rosh Hashanah (Both Days)
Yom Kippur
Succot (First 2 Days)
Shmini Atzeret
Simchat Torah
Passover (First 2 Days and Last 2 Days)
Shavuot (Both Days)
<PAGE>
Exhibit C - 1
Additional Payments
<PAGE>
Exhibit C - 2
Schedule of Conversion Amount Payments
<PAGE>
SCHEDULE A
Member Capital Contribution Address
------ -------------------- -------
The 44th B.C. $35,00,000 in-kind c/o Prince Management Corp.
Realty Corp. contribution of 498 Seventh Avenue
Premises New York, New York 10036
c/o NorthStar Capital Partners, LLC
PoleStar Forty- 527 Madison Avenue
Fourth Holding LLC $1.00 New York, New York 10022
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS............................................... 3
SECTION 1.01. Definitions............................................ 3
ARTICLE II GENERAL PROVISIONS........................................ 10
SECTION 2.01. Company Name........................................... 10
SECTION 2.02. Registered Office; Registered Agent.................... 10
SECTION 2.03. Nature of Business; Permitted Powers................... 11
SECTION 2.04. Fiscal Year............................................ 11
SECTION 2.05. Existence.............................................. 11
SECTION 2.06. Limitation on Member Liability......................... 11
SECTION 2.07. Good Faith Obligation.................................. 11
ARTICLE III ADMISSION OF MEMBERS...................................... 12
SECTION 3.01. Admission of NS Member................................. 12
SECTION 3.02. Admission of Additional Members........................ 12
ARTICLE IV MANAGEMENT................................................ 12
SECTION 4.01. Management of Business by Managing Member;
Major Decisions..................................... 12
SECTION 4.02. Special Powers of NS Member............................ 14
SECTION 4.03. Major Decisions........................................ 14
SECTION 4.04. Approval Procedure..................................... 17
SECTION 4.05. Books and Records; Accounting.......................... 17
SECTION 4.06. Reliance by Third Parties.............................. 18
SECTION 4.07. Expenses............................................... 18
SECTION 4.08. Company Tax and Information Returns.................... 18
SECTION 4.09. Option Agreement and Master Lease Agreement............ 18
ARTICLE V CONTRIBUTIONS AND CAPITAL ACCOUNTS........................ 19
SECTION 5.01. Capital Contributions.................................. 19
SECTION 5.02. Capital Accounts....................................... 19
SECTION 5.03. Withdrawal of Capital: Return of Capital:
Deficit Balance in Capital Account.................. 19
ARTICLE VI ALLOCATIONS............................................... 20
SECTION 6.01. Allocation of Net Operating Profits and
Net Operating Losses for Book Accounting Purposes... 20
SECTION 6.02. Allocation of Net Disposition Profits and
Net Disposition Losses for Book Accounting Purposes. 20
ARTICLE VII DISTRIBUTIONS............................................. 20
SECTION 7.01. Distributions from Operations.......................... 20
SECTION 7.02. Distributions of Capital Receipts...................... 20
SECTION 7.03. Distributions in Kind.................................. 21
-i-
<PAGE>
PAGE
----
ARTICLE VIII SPECIAL ALLOCATION RULES.................................. 21
SECTION 8.01. Allocations............................................ 21
ARTICLE IX COVENANTS................................................. 22
SECTION 9.01. Affirmative Covenants.................................. 22
ARTICLE X RESIGNATION AND ASSIGNMENT OF INTERESTS................... 24
SECTION 10.01. Resignation of a Managing Member...................... 24
SECTION 10.02. Resignation of Member................................. 24
SECTION 10.03. No Distribution Upon Resignation...................... 24
SECTION 10.04. Assignment of Interests............................... 24
SECTION 10.05. Right of Assignee to Become a Substitute Member....... 24
SECTION 10.06. Recognition of Transfer by Company.................... 25
SECTION 10.07. NS Member Interest Purchase Option.................... 25
SECTION 10.08. Master Lease Agreement and Option Agreement Liability. 26
SECTION 10.09. Termination Buyout Option............................. 26
ARTICLE XI DISSOLUTION............................................... 27
SECTION 11.01. Duration and Dissolution.............................. 27
SECTION 11.02. Winding Up............................................ 27
SECTION 11.03. Distribution of Assets................................ 27
SECTION 11.04. Notice of Liquidation................................. 27
ARTICLE XII MISCELLANEOUS............................................. 28
SECTION 12.01. Tax Reports and Financial Statements.................. 28
SECTION 12.02. Successors; Counterparts.............................. 28
SECTION 12.03. Governing Law; Severability........................... 28
SECTION 12.04. Filings............................................... 28
SECTION 12.05. Power of Attorney..................................... 29
SECTION 12.06. Headings.............................................. 29
SECTION 12.07. Additional Documents.................................. 29
SECTION 12.08. Notices............................................... 29
SECTION 12.09. Waiver of Right to Partition and Bill of Accounting... 30
SECTION 12.10. Construction.......................................... 30
SECTION 12.11. Additional Documents.................................. 30
SECTION 12.12. Amendments............................................ 30
Exhibits
Exhibit A- Description of the Land
Exhibit B- Jewish Holidays
Exhibit C-1 Additional Option Payments
Exhibit C-2 Schedule of Option Amounts
Schedules
Schedule A - Table of Members, Interests and Contributions
-ii-
<PAGE>
Exhibit 10.8
AMENDED AND RESTATED LIMITED LIABILITY
COMPANY OPERATING AGREEMENT
OF
417 FS REALTY LLC
dated as of February 9, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS................................................... 3
SECTION 1.01. Definitions........................................... 3
ARTICLE II GENERAL PROVISIONS............................................ 10
SECTION 2.01. Company Name.......................................... 10
SECTION 2.02. Registered Office; Registered Agent................... 10
SECTION 2.03. Nature of Business; Permitted Powers.................. 11
SECTION 2.04. Fiscal Year........................................... 11
SECTION 2.05. Existence............................................. 11
SECTION 2.06. Limitation on Member Liability........................ 11
SECTION 2.07. Good Faith Obligation................................. 11
ARTICLE III ADMISSION OF MEMBERS.......................................... 11
SECTION 3.01. Admission of NS Member................................ 11
SECTION 3.02. Admission of Additional Members....................... 12
ARTICLE IV MANAGEMENT.................................................... 12
SECTION 4.01. Management of Business by Managing Member;
Major Decisions..................................... 12
SECTION 4.02. Special Powers of NS Member........................... 14
SECTION 4.03. Major Decisions....................................... 14
SECTION 4.04. Approval Procedure.................................... 17
SECTION 4.05. Books and Records; Accounting......................... 17
SECTION 4.06. Reliance by Third Parties............................. 18
SECTION 4.07. Expenses.............................................. 18
SECTION 4.08. Company Tax and Information Returns................... 18
SECTION 4.09. Option Agreement and Master Lease Agreement........... 18
ARTICLE V CONTRIBUTIONS AND CAPITAL ACCOUNTS............................ 19
SECTION 5.01. Capital Contributions................................. 19
SECTION 5.02. Capital Accounts...................................... 19
SECTION 5.03. Withdrawal of Capital: Return of Capital:
Deficit Balance in Capital Account.................. 19
ARTICLE VI ALLOCATIONS................................................... 20
SECTION 6.01. Allocation of Net Operating Profits and
Net Operating Losses for Book Accounting Purposes... 20
SECTION 6.02. Allocation of Net Disposition Profits and
Net Disposition Losses for Book Accounting Purposes. 20
ARTICLE VII DISTRIBUTIONS................................................. 20
SECTION 7.01. Distributions from Operations......................... 20
SECTION 7.02. Distributions of Capital Receipts..................... 20
SECTION 7.03. Distributions in Kind................................. 21
ARTICLE VIII SPECIAL ALLOCATION RULES...................................... 21
-i-
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PAGE
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SECTION 8.01. Allocations........................................... 21
ARTICLE IX COVENANTS..................................................... 22
SECTION 9.01. Affirmative Covenants................................. 22
ARTICLE X RESIGNATION AND ASSIGNMENT OF INTERESTS....................... 24
SECTION 10.01. Resignation of a Managing Member.....................4 .2
SECTION 10.02. Resignation of Member................................ 24
SECTION 10.03. No Distribution Upon Resignation..................... 24
SECTION 10.04. Assignment of Interests.............................. 24
SECTION 10.05. Right of Assignee to Become a Substitute Member...... 24
SECTION 10.06. Recognition of Transfer by Company................... 25
SECTION 10.07. NS Member Interest Purchase Option................... 25
SECTION 10.08. Master Lease Agreement and Option Agreement
Liability ......................................... 26
SECTION 10.09. Termination Buyout Option............................ 26
ARTICLE XI DISSOLUTION................................................... 27
SECTION 11.01. Duration and Dissolution............................. 27
SECTION 11.02. Winding Up........................................... 27
SECTION 11.03. Distribution of Assets............................... 28
SECTION 11.04. Notice of Liquidation................................ 28
ARTICLE XII MISCELLANEOUS................................................. 28
SECTION 12.01. Tax Reports and Financial Statements................. 28
SECTION 12.02. Successors; Counterparts............................. 28
SECTION 12.03. Governing Law; Severability.......................... 28
SECTION 12.04. Filings.............................................. 28
SECTION 12.05. Power of Attorney.................................... 29
SECTION 12.06. Headings............................................. 29
SECTION 12.07. Additional Documents................................. 29
SECTION 12.08. Notices.............................................. 29
SECTION 12.09. Waiver of Right to Partition and Bill of Accounting.. 30
SECTION 12.10. Construction......................................... 30
SECTION 12.11. Additional Documents................................. 30
SECTION 12.12. Amendments........................................... 30
Exhibits
Exhibit A - Description of the Land
Exhibit B - Jewish Holidays
Exhibit C-1 - Additional Payments
Exhibit C-2 - Schedule of Conversion Amount Payments
Schedules
Schedule A - Table of Members, Interests and Contributions
-ii-
<PAGE>
AMENDED AND RESTATED LIMITED LIABILITY COMPANY
OPERATING AGREEMENT OF 417 FS REALTY LLC
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT of
417 FS REALTY LLC, a Delaware limited liability company (the "Company"), is made
as of February 9, 1998, by and between F.S. REALTY CORP., a New York corporation
("FS Realty"), as a member and as the Managing Member, and POLESTAR FIFTH
HOLDING LLC, a Delaware limited liability company (such member and any
successors or assigns thereof, "NS Member"), as a member (collectively, the
"Members").
WHEREAS, FS Realty was formerly the Owner of a certain parcel of Land (the
"Land") and improvements located thereon (said improvements together with any
and all future replacements thereof, collectively, the "Building"), which Land
and improvements as described in Exhibit A are also known as 417 Fifth Avenue,
New York, New York (the Land and the Building, collectively, the "Premises");
WHEREAS, FS Realty formed the Company under the Delaware Limited Liability
Company Act, 6 Del. C. Section 18-101, et seq., as amended from time to time
(the "Delaware Act"), by causing to be filed a Certificate of Formation of the
Company with the Office of the Secretary of State of the State of Delaware on
February 3, 1998 and, in connection therewith, entered into the Limited
Liability Company Agreement of 417 FS Realty LLC (the "Initial Agreement");
WHEREAS, in connection with the formation of the Company, FS Realty
contributed the Premises to the Company, free and clear of all liens and
encumbrances, except as contemplated in the Purchase Agreement (hereinafter
defined);
<PAGE>
WHEREAS, the Company desires to assign to NS Member, and NS Member desires
to assume, a 1% interest in the Company and, accordingly, FS Realty and NS
Member wish to amend and restate the Initial Agreement, in accordance with
Section 18-201(d) of the Delaware Act, in order to document (i) such assignment
and assumption and (ii) the agreement of the Members in respect of the affairs
of the Company and the conduct of its business;
WHEREAS, PoleStar Fifth Optionee LLC, a Delaware limited liability company
("NS Optionee"), has acquired for valuable consideration on this date paid to
the Company an unconditional and irrevocable option (the "Option") to purchase
the Premises and the Company, as optionor, has granted such Option to NS
Optionee, pursuant to the terms of the Option Agreement (as such terms are
hereinafter defined);
WHEREAS, on this date the Company and Master Tenant have entered into the
Master Lease Agreement (as such terms are hereinafter defined);
WHEREAS, simultaneously with the execution and delivery of this Agreement,
in return for certain rights which NS Member shall receive under this Agreement,
including, but not limited to (i) the special powers granted in Section 4.02,
(ii) the right to approve Major Decisions as provided in Section 4.03, (iii) the
right to approve any Transfers of Interest by all other Members; and (iv) rights
pursuant to Section 10.07, NS Member has paid $7,070,000 to FS Realty;
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
2
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used but not otherwise
defined herein shall have the meanings herein specified.
"Acquired Interests" shall have the meaning set forth in Section 10.07.
"Affiliate" means, with respect to a Person, another Person that directly
or indirectly controls, is controlled by or is under common control with
such first Person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and
"under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to vote a majority of the
securities having voting power for the election of directors of such
Person or otherwise to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Amended and Restated Limited Liability Company
Agreement of the Company, as amended, modified, supplemented or restated
from time to time.
"Additional Payments" shall have the meaning given such term in Section
10.07(a) of this Agreement.
"Approval" (and any variation thereof) of a Member or Managing Member
shall mean the written consent or approval of the Member or Managing
Member, as the case may be, which may be granted or withheld in its sole
discretion unless otherwise expressly provided to the contrary in this
Agreement. Such Approval shall be valid for a Member or Managing Member
who is not a natural person only if given by an Authorized Representative
of such Member or Managing Member. Use of the term "reasonable" in
connection with the term "Approval" or any variation thereof or with the
term "satisfactory" means that such Approval shall not be withheld,
delayed or conditioned unreasonably.
"Authorized Representative" means the representative of each member,
designated as such in accordance with Section 4.04 of this Agreement.
"Bankruptcy" means any of the following:
(a) With respect to any action of the Managing Member, Member or other
agent of the Company, (i) applying for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee,
administrator, liquidator or the like of itself or of all or of a
substantial portion of its assets, (ii) admitting in writing its
inability, or be generally
3
<PAGE>
unable or deemed unable under any applicable law, to pay its debts as such
debts become due, (iii) convening a meeting of creditors for the purpose
of consummating an out-of-court arrangement, or entering into a
composition, extension or similar arrangement, with creditors in respect
of all or a substantial portion of its debts, (iv) making a general
assignment for the benefit of its creditors, (v) placing itself or allow
itself to be placed, voluntarily or involuntarily, under the protection of
the law of any jurisdiction relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, or (vi)
taking any action for the purpose of effecting any of the foregoing; or
(b) With respect to any action of any Person (other than the Managing
Member, Member or other agent of the Company, but inclusive of the
Company) the commencement of a proceeding or case in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding-up, or composition or readjustment of debts, of the
Company with respect thereto, (ii) the appointment of a trustee, receiver,
custodian, administrator, liquidator or the like of the Company with
respect thereto or of all or a substantial portion of the Company's
assets, or (iii) similar relief in respect of the Company under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, without the consent of the other
Members and such proceeding or case shall continue undismissed for a
period of ninety (90) days, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and
in effect for a period of sixty (60) days, or an order for relief or other
legal instrument of similar effect against the Company shall be entered in
an involuntary case under such law and shall continue for a period of
sixty (60) days.
"Business Days" means weekdays other than Holidays.
"Capital Account" means the capital account established for each Member in
accordance with Section 5.02(a).
"Capital Receipts" means the gross cash proceeds received by the Company
from the sale, exchange or any other disposition of any capital asset of
the Company, or of all or substantially all of the assets of the Company
(including without limitation in any Liquidation of the Company) or of any
partnership or limited liability company in which the Company holds a
direct or indirect interest, or from the incurrence of any Indebtedness
(but excluding capital contributions received by the Company), reduced by
the sum of (i) all expenditures made by the Company or by any partnership
or limited liability company in which the Company holds a direct or
indirect interest, in connection with such sale, exchange or other
disposition, (ii) debt service payments made from such gross cash
proceeds, and (iii) amounts set aside as reserves therefrom by the
Managing Member.
"Capitalized Lease" as to any Person means (i) any lease of property, real
or personal, the obligations under which are capitalized on the
consolidated balance sheet of such Person and its subsidiaries, (ii) any
other such lease to the extent that the then present value of the
4
<PAGE>
minimum rental commitment thereunder should, in accordance with GAAP, be
capitalized on a balance sheet of the lessee, and (iii) any lease of
property, real or personal, which is treated as indebtedness for Federal
income tax purposes.
"Cash Flow" means, with respect to any period, the amount by which (i) all
cash receipts received by the Company during such period from whatever
source derived (including, without limitation, cash from operations and
funds released during such period from cash reserves previously
established from cash from operations, but excluding Capital Receipts,
funds released from reserves relating to Capital Receipts and capital
contributions received by the Company) exceeds (ii) all disbursements of
cash by the Company during such period, including, without limitation,
payment of operating expenses, capital expenditures, payment of principal
and interest on the Company's indebtedness except to the extent taken into
account under the definition of Capital Receipts, and reserves established
by the Managing Member, but excluding distributions to Members, expenses
and additions to reserves relating to any Capital Receipts.
"Certificate of Formation" means the Certificate of Formation referred to
in the first recital of this Agreement and any and all amendments thereto
and restatements thereof filed on behalf of the Company with the office of
the Secretary of State of the State of Delaware pursuant to the Delaware
Act.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of
this Agreement. A reference to a specific section of the Code refers not
only to such specific section but also to any corresponding provision of
any federal tax statute enacted after the date of this Agreement, as such
specific section or corresponding provision is in effect and applicable on
the date of the application of the provisions of this Agreement containing
such reference.
"Company" has the meaning specified in the Preamble to this Agreement.
"Contingent Obligation" as to any Person means any obligation of such
Person guaranteeing or intended to guarantee any Indebtedness, leases
(including Capitalized Leases), dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of any such primary obligation or (y) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net
worth, solvency or other financial condition of the primary obligor, (iii)
to purchase property, securities or services primarily for the purpose of
assuring the owner of such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof; provided, however, that the term
5
<PAGE>
Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business or obligations of
such Person which would not be required to be disclosed under GAAP as
liabilities or footnoted on such Person's financial statement. The amount
of any accrued or accruable Contingent Obligation shall be determined in
accordance with GAAP.
"Control" means (a) in the case of a corporation, ownership, directly or
through ownership of other entities, of at least ten percent (10%) of all
the voting stock (exclusive of stock which is voting only as required by
applicable law or in the event of nonpayment of dividends and pays
dividends only on a nonparticipating basis at a fixed or floating rate),
and (b) in the case of any entity, ownership, directly or through
ownership of other entities, of at least ten percent (10%) of all of the
beneficial equity interests therein (calculated by a method that excludes
from equity interests ownership interests that are nonvoting (except as
required by applicable law or in the event of nonpayment of dividends or
distributions) and pay dividends or distributions only on a
non-participating basis at a fixed or floating rate) or, in any case, (c)
the power directly or indirectly, to direct or control, or cause the
direction of, the management policies of another Person, whether through
the ownership of voting securities, general partnership interests, common
directors, trustees, officers by contract or otherwise. The terms
"controlled" and "controlling" shall have meanings correlative to the
foregoing definition of "control."
"Conversion Amount" shall have the meaning set forth in Section 10.07.
"Conversion Event" shall mean the acquisition of the Interests of the
Managing Member and additional Members (other than NS Member's Interest)
pursuant to Section 10.07 of this Agreement.
"Converted Members" shall have the meaning set forth in Section 10.07.
"Covered Person" means the Members (including Members acting as Managing
Members), any Affiliate of a Member or any officers, managers, members,
employees, representatives or agents of a Member, or any employee or agent
of the Company or its Affiliates.
"Delaware Act" shall have the meaning set forth in the first recital of
this Agreement.
"Encumbrance" shall mean any security interest, mortgage, lien, charge,
adverse claim, or restriction of any direct or indirect, choate or
inchoate kind, including, but not limited to, any restriction on the use,
voting, transfer, receipt of income or other exercise of any attribute of
ownership.
"Fiscal Year" shall have the meaning set forth in Section 2.04.
6
<PAGE>
"GAAP" means generally acceptable accounting principles.
"Hedge Agreement" means an interest rate swap, cap, floor, collar or other
interest rate protection agreement, provided that the entity providing
such interest rate management agreement maintains a credit rating equal or
exceeding "A" as rated by Standard & Poor's Ratings Services or Aa2 by
Moody's Investors Service Inc. or such other recognized rating agency
reasonably satisfactory to the Lender.
"Holidays" means those days listed on Exhibit B attached hereto as well as
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas, and any other days on which there is no
regular United States postal service or the New York Stock Exchange (or
any successor thereto) is closed.
"incur" means to issue, assume, guarantee, incur or otherwise become
liable for; and "incurrence" has the correlative meaning.
"Indebtedness" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument, (iii)
the face amount of all letters of credit issued for the account of such
Person and, without duplication, all unreimbursed amounts drawn
thereunder, (iv) all indebtedness of any other Person secured by any Lien
on any property owned by such Person, whether or not such indebtedness has
been assumed, (v) all Contingent Obligations of such Person, (vi) all
payment obligations of such Person under any Hedge Agreement (without
regard to the credit rating threshold herein above set forth in its
definition) or currency swaps or similar agreements, (vii) all
indebtedness and liabilities secured by any lien or mortgage on any
property of such Person, whether or not the same would be classified as a
liability on a balance sheet, (viii) the liability of such Person in
respect of banker's acceptances and the estimated liability under any
participating mortgage, convertible mortgage or similar arrangement, (ix)
the present value of the aggregate amount of rentals or other
consideration payable by such Person in accordance with GAAP over the
remaining unexpired term of all Capitalized Leases, (x) all judgments or
decrees by a court, tribunal or board of arbitration, (xi) all
indebtedness, payment obligations and contingent obligations of any
partnership in which such Person holds a general partnership interest,
(xii) all convertible debt and subordinated debt, (xiii) all preferred
stock of such Person that is redeemable for cash, cash equivalent, note
receivable or similar instrument or is convertible to Indebtedness as
defined herein, and (xiv) all obligations, liabilities, reserves and any
other items which are listed as a liability on a balance sheet of such
Person determined on a consolidated basis in accordance with GAAP, but
excluding all general contingency reserves and reserves for deferred
income taxes and investment credit.
"Initial Agreement" shall have the meaning set forth in the Second
Recital.
7
<PAGE>
"Initial Contributions" shall have the meaning set forth in Section 5.01.
"Interest" means a limited liability company interest in the Company,
including the right of the holder thereof to any and all benefits to which
a Member may be entitled as provided in this Agreement, together with the
obligations of a Member to comply with all of the terms and provisions of
this Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, conditional sale agreement, deposit arrangement, security
interest, encumbrance, lien (statutory or other), preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever in respect of any property of a Person, whether granted
voluntarily or imposed by law, and includes the interest of a lessor under
a capital lease or under any financing lease having substantially the same
economic effect as any of the foregoing, inchoate liens arising under the
Employment Retirement Income Security Act of 1974, as amended and the
filing of any financing statement or similar notice (other than a
financing statement filed by a "true" lessor or consignor pursuant to
ss.9-408 of the Uniform Commercial Code), naming the owner of such
property as debtor, under the Uniform Commercial Code or other comparable
law of any jurisdiction.
"Liquidation" means any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. For the purpose of this
definition, the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, interests, units or other consideration) of all or
substantially all the property or assets of the Company shall be deemed a
voluntary liquidation, dissolution or winding up of the Company, but a
consolidation or merger of the Company with one or more other limited
liability companies, corporations or other Persons shall not be deemed to
be a liquidation, dissolution or winding up, voluntary or involuntary.
"Managing Member" means FS Realty Corp., in its capacity as the Member of
the Company designated as the manager unless and until replaced as
Managing Member pursuant to this Agreement and thereafter shall mean such
replacement Managing Member.
"Master Lease Agreement" means that certain Lease of even date herewith
between the Company, as landlord, and an Affiliate of NS Member, as tenant
(such tenant and its successors and assigns, the "Master Tenant") for a
term of twenty five years, subject to extension as provided therein,
demising the Premises.
"Member" means any Person that holds an Interest in the Company, is
admitted as a member of the Company pursuant to the provisions of this
Agreement and named as a member of the Company on Schedule A hereto and
includes any Person admitted as an Additional Member or a Substitute
Member pursuant to the provisions of this Agreement, in such Person's
capacity as a member of the Company.
8
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"Net Disposition Profits" and "Net Disposition Losses" means for each
taxable year of the Company an amount equal to the Company's net gain or
loss for such year resulting from transactions described in the definition
of Capital Receipts, determined in accordance with the Federal income tax
accounting methods and rules used by the Company on its Federal
Partnership Information Return.
"Net Operating Profits" and "Net Operating Losses" means for each taxable
year of the Company an amount equal to the Company's net income or loss
for such year as determined in accordance with the Federal income tax
accounting methods and rules used by the Company on its Federal
Partnership Information Return, but excluding Net Disposition Profits and
Net Disposition Losses, and increased by any non-taxable income received
by the Company and decreased by any non-deductible expenses incurred by
the Company.
"NS Optionee" means PoleStar Fifth Optionee LLC, a Delaware limited
liability company, its successors and assigns as optionee under the Option
Agreement.
"Option" shall have the meaning set forth in the Fifth Recital to this
Agreement.
"Option Agreement" means that certain Option Agreement of even date
herewith between the Company, as optionor, and NS Optionee, as optionee.
"Option Exercise Date" means the earlier to occur of (a) March 1, 2008 and
(b) the date payments in respect of condemnation are paid to the landlord
under the Master Lease Agreement; subject, however, to the terms of
Section 10 and any terms in the Option Agreement which may accelerate the
Option Exercise Date thereunder (in the event of such acceleration, the
Option Exercise Date hereunder shall also be accelerated to coincide with
the Option Exercise Date thereunder).
"Option Termination Date" means the later of (i) March 1, 2023 or (ii) 30
days after the giving of a notice from the Managing Member to the NS
Member that it has not delivered the Buyout Notice in Section 10.07 (b)
hereof, which notice can be given no earlier than the first day of the
tenth (10th) month following the twenty-fourth anniversary of the date
hereof provided that the Option Termination Date shall be co-terminous
with any valid and legal termination of the Master Lease pursuant to its
terms prior to the Option Exercise Date, subject to the right of the NS
Member to acquire the Acquired Interests after such termination pursuant
to the terms of Section 10.10 hereof.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a joint venture, an association, a joint-stock company,
a trust, a business trust, a government or any agency or any political
subdivision, any unincorporated organization or any other entity of
whatever nature.
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<PAGE>
"Premises" shall have the meaning set forth in the Recitals to this
Agreement.
"Purchase Agreement" means that certain Agreement dated as of January 14,
1998, between The 44th B.C. Realty Corp., FS Realty and NS Optionee.
"Regulations" means the regulations proposed or promulgated under the
Code, as amended from time to time, or any federal income tax regulations
promulgated after the date of this Agreement. A reference to a specific
Regulation refers not only to such specific Regulation but also to any
corresponding provision of any federal tax regulation enacted after the
date of this Agreement, as such specific Regulation or corresponding
provision is in effect and applicable on the date of application of the
provisions of this Agreement containing such reference.
"Reminder Notice" shall have the meaning given such term in Section
10.07(b).
"Substitute Member" means a Person who is admitted to the Company as a
Member pursuant to Section 10.05 hereof, and who is named as a Member on
Schedule A to this Agreement (as amended to reflect such Member).
"Tax Matters Partner" means the Managing Member designated as such in
Section 4.08.
"Terminated Member" means any Member which has resigned, assigned its
Interest, has had its Interest acquired pursuant to Section 10.07, or
which has otherwise withdrawn from the Company.
"Transfer" shall have the meaning given such term in the Option Agreement.
ARTICLE II
GENERAL PROVISIONS
SECTION 2.01. Company Name. The name of the Company shall continue to be
"417 FS Realty LLC." The name of the Company may be changed from time to time by
the Managing Member in its discretion.
SECTION 2.02. Registered Office; Registered Agent. The Company shall
continue to maintain a registered office in the State of Delaware at, and the
name and address of the Company's registered agent in the State of Delaware is,
Corporation Service Company, 1013 Center Road, Wilmington, Delaware 19805-1297.
Such office and such agent may be changed from time to time by Managing Member
in its discretion.
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SECTION 2.03. Nature of Business; Permitted Powers.
(a) The purposes of the Company shall be: to own the Premises and to
engage in such other lawful general business activities that are necessary,
incidental or appropriate in relation to the foregoing.
(b) The Company shall be a single purpose entity and shall not
engage in any activity that is not described in the foregoing purposes of the
Company.
SECTION 2.04. Fiscal Year. Unless and until otherwise determined by the
Managing Member, the fiscal year of the Company for federal income tax purposes
shall, except as otherwise required in accordance with the Code, end on December
31 of each year (each, a "Fiscal Year").
SECTION 2.05. Existence. The Company shall continue to exist until such
time as it is dissolved in accordance with the provisions of Article XI of this
Agreement.
SECTION 2.06. Limitation on Member Liability.
(a) Except as otherwise expressly required by law, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Member or Managing Member shall be obligated personally for any
such debt, obligation or liability of the Company solely by reason of being a
Member or Managing Member.
(b) Except as otherwise expressly required by law, a Member,
including the Managing Member, in its capacity as a Member or Managing Member,
shall have no liability to any Person hereunder in excess of (i) its obligation
to make payments expressly provided for in this Agreement and (ii) the amount of
any distributions wrongfully distributed to it.
SECTION 2.07. Good Faith Obligation. The Managing Member and every other
Member shall take no improper actions, nor cause any unjustified delay or act in
any way to impede, directly or indirectly, the performance of the Company's (and
to the extent appropriate, the Members' and their Affiliates') obligations under
the Option Agreement, the Master Lease Agreement or Article X of this Agreement.
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ARTICLE III
ADMISSION OF MEMBERS
SECTION 3.01. Admission of NS Member. The Company hereby assigns a one
(1%) percent Interest to NS Member and NS Member hereby accepts such assignment
and agrees to be bound by the terms and provisions of this Agreement. Upon the
execution of this Agreement, NS Member shall be admitted to the company as a
Member.
SECTION 3.02. Admission of Additional Members. The Managing Member may not
admit additional Members without obtaining the Approval of NS Member and,
further, upon the condition that the additional Member shall agree to be bound
by the terms and conditions of this Agreement and assume all obligations
associated therewith.
ARTICLE IV
MANAGEMENT
SECTION 4.01. Management of Business by Managing Member; Major Decisions.
Except as otherwise set forth in this Agreement, the Managing Member shall be
responsible for managing the business of the Company and shall make all
decisions affecting the business of the Company. Except as otherwise set forth
in this Agreement, the other Members shall have no right of Approval or consent
with respect to such decisions. The Managing Member shall have all the rights,
powers and authority permitted to be exercised by the Managing Member of a
limited liability company formed under the Act, except with respect to Major
Decisions or as otherwise expressly limited or restricted by this Agreement. The
Managing Member, in extension and not in limitation of the powers given to it by
law, shall have full power, except as otherwise set forth in this Agreement, and
shall have the obligation, without the necessity of obtaining the Approval of
any other Member (except as otherwise set forth in this Agreement), and at the
expense of the Company, to:
(i) Do any and all acts and things necessary, proper, convenient or
advisable to effectuate the purposes of the Company and to direct the
Company in accordance with the terms of this Agreement;
(ii) Pay all costs and expenses incurred in operating and holding,
directly and indirectly, Company property out of Company funds, and the
Manager shall take all reasonable steps to insure that such amounts are
timely paid or provision for payment thereof is timely undertaken from
such Company funds;
(iii) Enter into and to perform the Company's obligations under any
agreement to which it becomes a party, as Approved by the Members,
including purchase and sale agreements for the acquisition and disposition
of the Company's assets;
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(iv) Authorize and engage in transactions and dealings on behalf of
the Company, including transactions and dealings with any Member or any
Affiliate of any Member or the Managing Member;
(v) Subject to this Agreement, determine and make distributions, in
cash or otherwise, on Interests, in accordance with the provisions of this
Agreement and of the Delaware Act;
(vi) Establish or set aside any reserve or reserves for
contingencies and for any other proper Company purpose;
(vii) Acquire and enter into any contract of insurance necessary or
desirable for the protection or conservation of the Company and its assets
or otherwise in the interest of the Company as the Managing Member shall
determine;
(viii) Open accounts and deposit, maintain and withdraw funds in the
name of the Company in banks, savings and loan associations, brokerage
firms or other financial institutions;
(ix) Bring and defend on behalf of the Company actions and
proceedings at law or equity before any court or governmental,
administrative or other regulatory agency, body or commission or
otherwise;
(x) Prepare and cause to be prepared reports, statements and other
relevant information for distribution to Members as may be required or
determined to be appropriate by the Managing Member from time to time;
(xi) Prepare and file all necessary returns and statements and pay
all taxes, assessments and other impositions applicable to the assets of
the Company; and
(xii) Execute all other documents or instruments, perform all duties
and powers and do all things for and on behalf of the Company in all
matters necessary or desirable or incidental to the foregoing, other than
where the Approval of NS Member is required, in which cases NS Member must
execute such documents or instruments as well in order for the Company's
act to be valid, legal, binding and enforceable, and except for such
documents and instruments which NS Member is authorized to execute and
deliver in accordance with this Agreement.
Except as expressly otherwise provided in this Agreement, no Member (other
than the Managing Member) shall take part in the day-to-day management,
operation or control of the business and affairs of the Company,
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SECTION 4.02. Special Powers of NS Member.
(a) Notwithstanding any other provision of this Agreement, and
provided that the Master Lease Agreement has not been terminated on account of a
default by the Master Tenant and that the Managing Member has not purchased NS
Member's Interest as provided in Section 10.09 and, further provided, that NS
Optionee has fully performed its obligations under the Option Agreement,
including, but not limited to, the payment of all sums due to the Company, as
optionor, thereunder, NS Member shall have the sole and exclusive power,
authority and right to take on behalf of and in the name of the Company, and to
cause the Company to take, all actions necessary or appropriate to fulfill the
Company's obligations under the Option Agreement, including, but not limited to,
(a) transferring and/or conveying the Premises, (b) executing and delivering any
deeds, agreements, instruments or other documents, and (c) paying (on behalf of
the Company) all closing costs taxes and charges required to be paid in
connection with the aforegoing. NS Member shall have the right to exercise the
aforementioned power without the approval or consent of the Managing Member or
of any other Members and all closing costs, taxes and charges associated
therewith shall be borne by FS Realty and it is understood that NS Optionee may
withhold reasonable expenses on NS Member's behalf from the payment under the
Option Agreement as security for payment of all sums required to be paid.
(b) Notwithstanding the powers granted to the Managing Member
pursuant to Section 4.01, the Members acknowledge and agree that the NS Member
shall have the sole and exclusive right to execute and deliver on behalf of the
Company, as the owner of the Premises, (i) the execution of any Renewal
Memoranda of Option (as such term is defined in the Option Agreement); (ii)
those documents, instruments and agreements required by any lender or any other
party seeking to encumber title to the Premises in respect of any Indebtedness
or with respect to any easements, rights of way, covenants and restrictions,
agreements and similar matters, and by any Leasehold Mortgagee (as such term is
defined in the Master Lease Agreement) in connection with any leasehold
financing, as contemplated by the Master Lease Agreement and any and all
ancillary documents to be executed in connection therewith, provided that with
respect to the Indebtedness and the other matters listed in this clause (ii),
such Indebtedness and other matters have been effectuated by the Master Tenant
on behalf of the Company pursuant to the Master Tenant's rights or obligations
under Articles 4 and 34 of the Master Lease Agreement; (iii) any of the matters
listed in clauses (a) through (f) of Section 4.2 of the Master Lease Agreement;
and (iv) the removal of any Non-Permitted Encumbrance (as such term is defined
in the Master Lease Agreement); and (v) the Lease Termination Notice, as
provided in Section 10.10 hereof.
SECTION 4.03. Major Decisions. The following are major decisions requiring
the Approval of NS Member or the transferee(s) or assignee(s) of its Interest:
(i) Dissolving, terminating or liquidating of the Company, except as
provided in Article XI of this Agreement;
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(ii) Other than in the event of a default on the part of the Master
Tenant continuing beyond any applicable, grace and notice period in the
Master Lease Agreement, terminating the Master Lease Agreement.
(iii) Entering into any ground or master lease, sale or other
commercial transaction in which economic benefits substantially similar to
the foregoing are expected to be realized by the Company or subjecting the
Premises or any part thereof to any Lien;
(iv) Causing or permitting the Company to incur any Indebtedness
(provided, however, Approval of NS Member shall be deemed given if such
Indebtedness is effectuated by the Master Tenant on behalf of the Company
pursuant to the Master Tenant's obligations under Article 34 of the Master
Lease Agreement unless the Master Tenant fails to perform its obligations
under said Article 34 after the expiry of all applicable grace and notice
periods and Leasehold Mortgagee has failed to cure such default pursuant
to Article 24 of the Master Lease);
(v) Acquiring any property other than the Premises;
(vi) Modifying or refinancing any indebtedness of the Company or
selecting a lender to make loans to the Company (provided, however,
Approval of NS Member shall be deemed given if such modification or
refinancing transaction is effectuated by the Master Tenant pursuant to
the Master Tenant's obligation under Article 34 of the Master Lease
Agreement unless the Master Tenant fails to perform its obligations under
said Article 34 after the expiry of all applicable grace and notice
periods and Leasehold Mortgagee has failed to cure such default pursuant
to Article 24 of the Master Lease);
(vii) Entering into any agreement with respect to the Company or its
property, including, without limitation, the Premises or materially
modifying the terms of any contract that required the Approval of the
Members to enter into;
(viii) Determining the terms of any participation in the Company or
the Premises (e.g., distribution and control issues) of third party
investors;
(ix) Admitting Additional Members or admitting transferee Members to
the Company as Substituted Members or entering into financing that
participates in profits of the Company; or permitting any transfer of any
Interest in the Company;
(x) Confessing any judgment against the Company or causing or
permitting the Company to take any action that would constitute a
Bankruptcy under clause (a) of the definition of the term "Bankruptcy" in
Section 1.01;
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(xi) Performing, causing or permitting the performance of an act in
contravention of this Agreement or any act in contravention of documents
binding upon or otherwise affecting the Company or any of its Members;
(xii) Performing, causing or permitting the performance of any
increase in the amount of the Capital Contributions specified in Section
5.1;
(xiii) Performing, causing or permitting the performance of any act
which would make it impossible to carry on the ordinary business of the
Company, except in connection with the Company's performance of its
obligations with respect to the Option;
(xiv) Performing, causing or permitting the performance of any
action which would cause the Company to become an entity other than a
Delaware limited liability company;
(xv) Changing the purpose and scope of the Company, other than in
connection with the exercise of the Option;
(xvi) Amending, modifying or altering the terms and provisions of
this Agreement;
(xvii) Making in-kind distributions or accepting in-kind
contributions;
(xviii) Entering into any agreement (i) which would cause any Member
to become personally liable on or in respect of any Indebtedness or (ii)
which is not nonrecourse to the Members;
(xix) Causing the payment by the Company of any salary, fees or
other compensation to, or entering into any contract between the Company
and any Affiliate of any Member, except as specifically provided for in
this Agreement;
(xx) Causing the Company to redeem or repurchase all or any portion
of the interest of a Member, except as permitted in this Agreement;
(xxi) Permitting the Managing Member to voluntarily withdraw as
Managing Member;
(xxii) Causing or permitting the Company to be merged with any other
entity; or
(xxiii) Taking any other action that is required to be Approved by
the Members under this Agreement;
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Notwithstanding anything in this Section 4.03 to the contrary, the
Managing Member may perform any action requested of the Company by the Master
Tenant or NS Optionee under the Option Agreement without obtaining the Approval
of NS Member. Further, Approval of NS Member shall be required for Major
Decisions only so long as (a) the Master Lease Agreement has not been terminated
by the Company on account of a default by the Master Tenant, (b) there has been
no material breach of the Option Agreement (material breach being solely the
failure to pay sums due in accordance with the Option Agreement's provisions
when the counterparty is ready, willing and able to perform) by any Affiliate of
NS Member or (c) NS Member's Interest has not been acquired pursuant to Section
10.09 of this Agreement. Further, notwithstanding anything in this Section 4.03
to the contrary, the Managing Member shall be permitted to make distributions in
accordance with Article VII of this Agreement without the Approval of the other
Members.
SECTION 4.04. Approval Procedure. Notice of the request for a Member's
Approval of any matter for which such Approval is required pursuant to this
Agreement shall be delivered by the Managing Member to each of the then
Authorized Representatives, together with the Managing Member's summary and
analysis of the matter for which such Approval is requested and the requesting
Member's recommendations with respect to the matter for which Approval is
requested. Each Authorized Representative shall approve or disapprove such
matter by notice to the other Member given within ten (10) Business Days
following delivery of such notice. Failure of any Authorized Representative to
timely respond by written notice to the requesting Member, indicating Approval
or disapproval of such matter and, if disapproved, the reason for such
disapproval, shall be deemed withholding of the Approval by such Authorized
Representative of such matter for which Approval is requested. Notwithstanding
anything in this Agreement to the contrary, no Authorized Representative of a
Terminated Member shall have the right to Approve any action. The initial
Authorized Representative of NS Member shall be W. Edward Scheetz, 60
Londonderry Drive, Greenwich, Connecticut 06830 and the initial Authorized
Representative of FS Realty shall be Joseph Chetrit, c/o Prince Management, 7th
Floor, 498 Seventh Avenue, New York, New York 10012. Each Member or Managing
Member may designate a replacement Authorized Representative by providing notice
to all of the Members of such designation along with the name and address of
such replacement and such evidence from such Member or Managing Member providing
for the designation and authorization of the replacement Authorized
Representative as may be reasonably satisfactory to the other Members.
SECTION 4.05. Books and Records; Accounting. The Managing Member shall
keep or cause to be kept at the principal office of the Company (or at such
other place as the Managing Member shall advise the other Members in writing)
true and complete books and records regarding the status of the business and
financial condition and results of operations of the Company. The books and
records of the Company shall be kept in accordance with the Federal income tax
accounting methods and rules determined by the Managing Member, which methods
and rules shall reflect all Company transactions and be appropriate and adequate
for the Company's business.
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SECTION 4.06. Reliance by Third Parties.
(a) Except as specifically set forth in Sections 4.02 and 10.7
hereof in respect of the powers of the NS Member, Persons dealing with the
Company are entitled to rely conclusively upon the power and authority of the
Managing Member herein set forth except where otherwise expressly set forth, in
which case such reliance is misplaced and, among other remedies, shall subject
said Persons to potential liability in equity and at law to NS Member.
(b) Any Person dealing with the Company is entitled to rely
conclusively on the power and authority of the NS Member in acting on behalf of
the Company pursuant to the powers granted to it under Sections 4.02, and 10.07.
SECTION 4.07. Expenses. Except as otherwise provided in this Agreement,
the Company shall be responsible for and shall pay out of funds of the Company,
as determined by the Managing Member to be available for such purpose, all
expenses and obligations of the Company, including those incurred by the Company
or by the Managing Member or its Affiliates on behalf of the Company in
connection with the formation, operation or management of the Company, and in
organizing the Company.
SECTION 4.08. Company Tax and Information Returns.
(a) The Managing Member shall cause to be prepared and timely filed
all tax and information returns required to be filed for the Company. The
Managing Member may, in its discretion, make or refrain from making any federal,
state or local income or other tax elections for the Company that it deems
necessary or advisable, including, without limitation, any election under
Section 754 of the Code or any successor provision; provided, however, that the
Managing Member may not elect to have the Company treated as a corporation for
tax purposes without the Approval of all the Members.
(b) FS Realty is hereby designated as the Company's "Tax Matters
Partner" under Section 6231(a)(7) of the Code and shall have all the powers and
responsibilities of such position as provided in the Code. FS Realty is
specifically directed and authorized to take whatever steps FS Realty, in its
discretion, deems necessary or desirable to perfect such designation, including
filing any forms or documents with the Internal Revenue Service and taking such
other action as may from time to time be required under the Regulations issued
under the Code, provided that FS Realty shall take no action as Tax Matters
Partner under this Section 4.08(b) without the reasonable Approval of other
Members. Expenses incurred by the Tax Matters Partner, in its capacity as such,
will be borne by the Company.
SECTION 4.09. Option Agreement and Master Lease Agreement. Each of the
Members hereby (i) ratifies the execution and delivery of the Option Agreement
and the Master Lease Agreement, (ii) consents to the terms, conditions and
provisions thereof and (iii) authorizes and
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directs FS Realty to take such actions as are necessary and appropriate to
perform, enforce or otherwise comply with the Company's obligations thereunder.
ARTICLE V
CONTRIBUTIONS AND CAPITAL ACCOUNTS
SECTION 5.01. Capital Contributions. FS Realty, as Managing Member, and NS
Member, as a Member, have made the contributions indicated in connection with
their respective names on Schedule A attached hereto (the "Initial
Contributions").
SECTION 5.02. Capital Accounts.
(a) There shall be established for each Member on the books of the
Company a capital account (a "Capital Account"), which shall be maintained and
adjusted as provided in the Regulations.
(b) Upon the occurrence of any event specified in Regulation Section
1.704-1(b)(2)(iv)(f), the Managing Member may cause the Capital Accounts of the
Members to be adjusted to reflect the fair market value of the Company's assets
at such time as determined in good faith by the Managing Member. The adjustments
shall reflect the manner in which the unrealized income, gains, loss, or
deduction inherent in such property would be allocated among the Members if
there were a taxable disposition of such property for such fair market value
determined in good faith by the Managing Member on the date of the occurrence of
such event.
SECTION 5.03. Withdrawal of Capital: Return of Capital: Deficit Balance in
Capital Account.
(a) Except as otherwise specifically set forth in this Agreement, no
Member shall have the right to (i) withdraw such Member's capital contribution
or to demand or receive the return of a capital contribution or make any claim
to any portion of Company capital or (ii) demand or receive property other than
cash in return for a capital contribution or to receive any distribution in
return for a capital contribution that is not required by this Agreement.
(b) Except as expressly provided in this Agreement, no Member shall
have personal liability to make any capital contribution.
(c) A deficit Capital Account of a Member shall not be deemed to be
a liability of such Member or an asset or property of the Company or any other
Member. Except as provided in the next sentence, no Member shall have any
obligation to the Company or any other Member for any deficit balance in such
Member's Capital Account. Upon liquidation of the Company, NS Member shall pay
to the Company an amount equal to the lesser of (i) any deficit balance in its
Capital Account and (ii) the amount by which (A) 1.01% of the Managing Member's
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unreturned Capital Contributions exceeds (B) the unreturned Capital
Contributions of NS Member.
ARTICLE VI
ALLOCATIONS
SECTION 6.01. Allocation of Net Operating Profits and Net Operating Losses
for Book Accounting Purposes.
(a) Net Operating Profits shall be allocated for book accounting
purposes to the Members as follows: 99% to FS Realty and 1% to NS Member.
(b) Net Operating Losses shall be allocated for book accounting
purposes to the Members as follows: 99% to FS Realty and 1% to NS Member.
SECTION 6.02. Allocation of Net Disposition Profits and Net Disposition
Losses for Book Accounting Purposes.
(a) Net Disposition Profits shall be allocated for book accounting
purposes to the Members as follows: 99% to FS Realty and 1% to NS Member.
(b) Net Disposition Losses shall be allocated for book accounting
purposes to the Members as follows: 99% to FS Realty and 1% to NS Member.
ARTICLE VII
DISTRIBUTIONS
SECTION 7.01. Distributions from Operations. Subject to Sections 7.03 and
9.01, Cash Flow for any period shall be distributed to the Members, at times
determined by the Managing Member as follows: 99% to FS Realty and 1% to NS
Member.
SECTION 7.02. Distributions of Capital Receipts. Except as provided in the
next sentence, and subject to Sections 7.03 and 9.01, Capital Receipts shall be
distributed to the Members, at times, as determined by the Managing Member, as
follows: 99% to FS Realty and 1% to NS Member. All proceeds of the Loan (as
defined in the Master Lease Agreement), the payment required to be made pursuant
to the terms of the Option Agreement on the date of its execution and delivery,
any Additional Payments, all apportionments to the Company under the Master
Lease Agreement, as well as any tax certiorari refunds for years 1997-1998 and
earlier, shall be distributed in full to FS Realty.
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SECTION 7.03. Distributions in Kind. The Managing Member may cause the
Company to make distributions of assets in kind only after Approval by NS
Member. Whenever the distribution provided for in Section 7.01 or Section 7.02
shall be payable in property other than cash, the value of such distribution
shall be the fair market value of such property determined by the Managing
Member in good faith, and in the event of such a distribution there shall be
allocated to the Members in accordance with Article VI the amount of Net
Operating Profits or Losses and the amount of Net Disposition Profits or Losses
that would result if the distributed asset had been sold for an amount in cash
equal to its fair market value at the time of the distribution. No Member shall
have the right to demand that the Company distribute any assets in kind to such
Member.
ARTICLE VIII
SPECIAL ALLOCATION RULES
SECTION 8.01. Allocations. The following provisions are incorporated in
the Agreement.
(a) Allocations for U.S. Federal Income Tax Purposes.
(i) For each Fiscal Year or other relevant period, except as
otherwise provided in this Section 8.01(a), for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated
among the Members in the same manner as its correlative item of Net
Operating Profits, Net Operating Losses, Net Disposition Profits or Net
Disposition Losses allocated pursuant to Article VI of this Agreement.
(ii) In accordance with Code Sections 704(b) and 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to
any property contributed to the capital of the Company shall, solely for
federal income tax purposes, be allocated among the Members so as to take
into account any variation between the adjusted basis of such property to
the Company for federal income tax purposes and the initial fair market
value of such property.
(iii) If the book value of any Company property is adjusted,
subsequent allocations of income, gain, loss and deduction with respect to
such asset shall take account of any variation between the adjusted basis
of such asset for federal income tax purposes and the book value of such
asset in the manner prescribed under Code Sections 704(b) and 704(c) and
the Regulations thereunder. In furtherance of the foregoing, the Company
shall employ any reasonable method selected by the Managing Member. The
Managing Member is specifically authorized to select the traditional
method described in Regulation Section 1.704-3(b).
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(b) Allocations with Respect to Transferred or Additional Interests.
Profits and Losses allocable to an Interest assigned, issued or reissued during
a Fiscal Year shall be allocated to each Person who was the holder of such
Interest during such Fiscal Year on the basis of an interim closing of the books
of the Company.
ARTICLE IX
COVENANTS
SECTION 9.01. Affirmative Covenants. The Company and the Managing Member
hereby covenant that the Company, in the conduct its business and operations,
shall:
(a) maintain books and records and bank accounts separate from those of
any other person;
(b) maintain its assets in such a manner that it is not costly or
difficult to segregate, identify or ascertain such assets;
(c) hold regular Company meetings, as appropriate, to conduct the
business of the Company, and observe all other Company formalities;
(d) hold itself out to creditors and the public as a legal entity
separate and distinct from any other entity;
(e) prepare separate tax returns and financial statements, or if part of
a consolidated group, then it will be shown as a separate member of
such group;
(f) allocate and charge fairly and reasonably any common employee or
overhead shared with affiliates and maintain a sufficient number of
employees in light of its contemplated business operations;
(g) transact all business with affiliates on an arms'-length basis and
pursuant to enforceable agreements;
(h) conduct business in its own name, and use separate stationery,
invoices and checks;
(i) not commingle its assets or funds with those of any other person;
(j) not assume, guarantee or pay the debts or obligations of any other
person;
(k) pay its own liabilities out of its own funds;
(l) not acquire obligations or securities of its members;
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(m) not pledge its assets for the benefit of any other entity or make
any loans or advances to any entity, other than in connection with
the Loan (as such term is defined in the Master Lease Agreement);
(n) correct any known misunderstanding regarding its separate identity;
(o) intend to maintain adequate capital in light of its contemplated
business operations;
(p) maintain all required qualifications to do business in New York;
(q) not cause or consent, directly or indirectly, to any action which
would cause or result in the Bankruptcy of the Company;
(r) not engage in any business or activity other than the ownership of
the Premises and activities incidental to the development thereof;
(s) not own any assets other than the Premises;
(t) not merge into or consolidate with any other entity nor dissolve or
terminate or liquidate, transfer or otherwise dispose of all or
substantially all or any material portion of its assets unless such
resulting entity or transferee is a single purpose entity and
complies with the other provisions of this section;
(u) preserve its existence as a limited liability company duly
organized, validly existing and in good standing (if applicable)
under the laws of Delaware, and shall not amend, modify, terminate
or fail to comply with the provisions of such entities
organizational documents, if such amendment, modification,
termination or failure to comply would adversely affect the ability
of Owner to perform its obligations hereunder;
(v) not own any subsidiary or make any investment in any person or
entity;
(w) not incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation) other than in connection
with the Loan (as such term is defined in the Master Lease
Agreement); and
(x) not become insolvent or fail to pay its debts as the same become due
and payable or permit the total amount of its liabilities (including
contingent liabilities) to exceed the total fair saleable value of
its assets or fail to maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations;
however, the foregoing shall not apply where the fair market value
of the Building has diminished for reasons other than any action or
inaction of the Landlord.
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ARTICLE X
RESIGNATION AND ASSIGNMENT OF INTERESTS
SECTION 10.01 Resignation of a Managing Member. A Managing Member shall
only be entitled to resign upon assignment of the entirety of its Interest to a
single Person in compliance with Section 10.04 and Section 10.05.
SECTION 10.02. Resignation of Member. A Member (other than a Managing
Member) may resign from the Company prior to the dissolution and winding up of
the Company only upon, and shall be deemed to have resigned upon, any
redemption, exchange or other repurchase by the Company or an assignment of its
interests in compliance with the provisions of Section 10.04 and Section 10.05.
SECTION 10.03. No Distribution Upon Resignation. Upon resignation, no
resigning Member shall be entitled to receive any distribution or otherwise be
entitled to receive the fair value of its Interest; provided, however, that upon
any redemption, exchange or other repurchase by the Company, such Member shall
be entitled to receive the amount payable by the Company in connection with such
redemption, exchange or other repurchase.
SECTION 10.04. Assignment of Interests.
(a) The Managing Member and any additional Members (other than NS
Member) shall be required to obtain the Approval of NS Member prior to any
Transfer of its Interest, whether in whole or in part. Additionally, there shall
be no Transfers of any Interest in FS Realty, except as permitted by the Option
Agreement. Any Transfer in violation of this Section 10.04 (a) shall be void ab
initio and shall entitle the NS Member to exercise its right to acquire the
Acquired Interest pursuant to Section 10.07 hereof.
(b) Except as specifically prohibited by Section 10.10 hereof, NS
Member may freely Transfer all or any part of its Interest at any time (but only
with an assignment of its corresponding rights under the Option Agreement),
without the prior Approval of the Managing Member or any other Member and the
interests within NS Member may be freely Transferred, in whole or in part, at
any time.
SECTION 10.05. Right of Assignee to Become a Substitute Member. If the
provisions of Section 10.04 have been complied with, such transfer shall,
nevertheless, not entitle the assignee to become a Member or to be entitled to
exercise or receive any of the rights, powers or benefits of a Member other than
the right to receive distributions to which the assigning Member would be
entitled, unless (i) the assigning Member designates, in a written instrument
delivered to the Managing Member, its assignee to become a Substitute Member,
and (ii) the transferee has executed and acknowledged such instruments, in form
and substance reasonably satisfactory to the Managing Member, as all of the
Members reasonably deem necessary or
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desirable in their sole discretion to effectuate such admission and to confirm
the agreement of such transferee to be bound by all the terms and provisions of
this Agreement with respect to any rights and/or obligations represented by the
Interests acquired by such transferee, including, without limitation,
specifically with respect to transfers of interests other than those held by NS
Member, the provisions of Sections 4.02, 4.03 and 10.07. If a Member assigns all
of its Interest in the Company and the assignee of such Interest is entitled to
become a Substitute Member pursuant to this Section 10.05, such assignee shall
be admitted to the Company effective immediately prior to the effective date of
the assignment, and, immediately following such admission, the assigning Member
shall cease to be a member of the Company and shall be deemed a Terminated
Member.
SECTION 10.06. Recognition of Transfer by Company. No Transfer, or any
part thereof, that is in violation of this Article X shall be valid or
effective, and neither the Company nor the Managing Member shall recognize the
same for the purpose of making distributions pursuant to Article VII hereof with
respect to such Interest or part thereof. Neither the Company nor the Managing
Member shall incur any liability as a result of refusing to make any such
distributions to the assignee of any such invalid assignment. In the event that
a Transfer of an Interest is made in compliance with Article X, the transferee
shall succeed to the portion of the Capital Account of the assigning Member
attributable to the Interest or portion thereof transferred or assigned, and to
the right to receive distributions and allocations attributable to the Interest
or the portion thereof transferred or assigned, made or allocated after the date
of the interim closing of the books of the Company relating to such transfer or
assignment.
SECTION 10.07. NS Member Interest Purchase Option.
(a) Provided that the Managing Member has not purchased NS Member's
Interest as provided in Section 10.09 and, further provided that the NS Member
has made all the Additional Payments set forth on Exhibit C-1 annexed hereto, as
same may have been reduced by any Set-Offs provided in Article 38 of the Master
Lease Agreement, NS Member or its designee shall have the right to acquire the
Interest of all the other Members free and clear of all liens and encumbrances
(the "Acquired Interests"), including the Managing Member and additional
Members, if any (the "Converted Members"), from and after the Option Exercise
Date and at any time thereafter until the Option Termination Date for the amount
equal to the amount shown on Exhibit C as of the effective date of the Buyout
Notice referred to below (the "Conversion Amount"), the closing of which may
take place subsequent to the Option Termination Date, at the option of the NS
Member, provided, however, if the Converted Members are ready, willing and able
to close pursuant to the provisions of this Section 10.07, the closing shall
occur within one hundred and twenty (120) days after delivery of the Buyout
Notice. To exercise its rights pursuant to this Section 10.07 (in accordance
with Section 12.08), NS Member shall give notice (the "Buyout Notice") to the
Managing Member, which shall be accompanied by cash (not in excess of $100,000)
or a certified check drawn on a New York bank and payable to FS Realty for the
Conversion Amount. Once the Conversion Amount is paid no Additional Payments
shall be due and payable. As of the effective date (determined in accordance
with Section 12.08) of the notice under this Section 10.07 (the "Buyout Date"),
the Converted Members shall have been
25
<PAGE>
deemed to have resigned and withdrawn from the Company, and shall become
Terminated Members, and NS Member shall accede absolutely to all the rights,
titles, interests and privileges of the Converted Members and shall be the sole
Managing Member and Member of the Company. To evidence the rights granted to NS
Member herein, suitable Uniform Commercial Code statements or other instruments
will be executed, acknowledged and delivered by the Company and the affected
Members from time to time at the request of NS Member and NS Member may
thereafter, to the extent permissible under law, renew such statements or
instruments without the consent of any other party. All taxes and charges
associated with the exercise of NS Member's rights hereunder shall be borne by
the Converted Members, and the Conversion Amount shall stand as security for
their payment of all sums required to be paid. Eighteen (18) months after the
date that the Premises shall have been transferred by the Company to NS Optionee
pursuant to the terms of the Option Agreement the right of the NS Member to
acquire the Acquired Interests shall be deemed terminated.
(b) Notwithstanding the foregoing, if NS Member shall fail to
deliver the Buyout Notice prior to the Option Termination Date, NS Member shall
be deemed to have not exercised its right to the Acquired Interests.
SECTION 10.08. Master Lease Agreement and Option Agreement Liability.
(a) Any liability to the Master Tenant under the Master Lease
Agreement shall be borne solely by the Managing Member and shall not be the
responsibility of NS Member, inasmuch as the Managing Member was the fee owner
of the Premises immediately prior to the transfer of the fee to the Company and
the execution and delivery of the Master Lease Agreement.
(b) Any liability of the Company, and Optionor under the Option
Agreement, to NS Optionee shall be borne solely by the Managing Member and shall
not be the responsibility of NS Member, unless such liability was caused by a
default by NS Optionee under the Option Agreement.
SECTION 10.09. Termination Buyout Option. Upon the valid and legal
termination of the Master Lease Agreement pursuant to the terms thereof prior to
the Option Exercise Date, but only if the party having the right to elect to
purchase under the Option or Section 10.07 has not so elected either or both of
the rights set forth in the Option Agreement or Section 10.07 hereof, as the
case may be, prior to such termination of the Master Lease Agreement, the
Managing Member shall have the right to acquire the Interest of NS Member for
the sum of $1 and may exercise such option by giving notice to NS Member's
Authorized Representative, which shall be accompanied by cash or a certified
check in the amount of $1 payable to NS Member, and delivered to its Authorized
Representative. To confirm the rights granted to the Managing Member herein,
suitable Uniform Commercial Code statements or other instruments will be
executed, acknowledged and delivered by the Company and the affected Members
from time to time at the request of the Managing Member and Managing Member may
thereafter and to the extent permissible by law renew such statements or
instruments without first obtaining the consent
26
<PAGE>
of NS Member. As of the effective date (determined in accordance with Section
12.08) of the notice under this Section 10.09, the NS Member shall have been
deemed to have resigned and withdrawn from the Company, and shall become a
Terminated Member, and the Managing Member shall accede absolutely to all the
rights, titles, interests and privileges of the NS Member and shall be the sole
Member of the Company.
SECTION 10.10. Right to Purchase After Termination. If there is a valid
and legal termination of the Master Lease Agreement pursuant to its terms, which
termination occurs on or after the Option Exercise Date, and no holder of a
mortgage which is a lien on the leasehold estate created by the Master Lease
Agreement has exercised its right pursuant to the Lease to obtain a new lease,
the Company, as the landlord under the Master Lease Agreement, will so notify
(the "Lease Termination Notice") the NS Member at the address set forth herein
for notices. In such event, the NS Member shall have the right to acquire the
Acquired Interests pursuant to the terms of Section 10.07 hereof, provided,
however, (i) if within thirty (30) days of the NS Member's actual receipt of
such notice, the NS Member fails to exercise its right to acquire the Acquired
Interests, or (ii) in the alternative, if the Company fails to notify the NS
Member, and the NS Member has not, within sixty (60) days from the date of the
valid and legal termination of the Master Lease Agreement, exercised the right
to acquire the Acquired Interests, the NS Member's right to exercise the right
to acquire the Acquired Interests shall be deemed terminated.
ARTICLE XI
DISSOLUTION
SECTION 11.01. Duration and Dissolution. Subject to the provisions of this
Agreement, the Company shall be dissolved and its affairs shall be wound up upon
the first to occur of the following:
(a) the entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Delaware Act;
(b) the dissolution or liquidation of the Managing Member unless the
business of the Company is continued by the consent of all remaining Members
within 90 days following the occurrence of such event, and the remaining Members
appoint a new managing member, effective as of the date of such event; or
(c) December 31, 2097.
The death, retirement, resignation, expulsion, bankruptcy or dissolution
of any Member or the occurrence of any other event which terminates the
continued membership of any Member in the Company shall not cause the Company to
be dissolved and its affairs wound up.
27
<PAGE>
SECTION 11.02. Winding Up. After the Option Termination Date and subject
to the provisions of the Delaware Act, the Managing Member shall have the
exclusive right to wind up the Company's affairs in accordance with Section
18-803 of the Delaware Act (and shall promptly do so upon dissolution of the
Company), and shall also have the exclusive right to act as or appoint a
liquidating trustee in connection therewith.
SECTION 11.03. Distribution of Assets. Upon the winding up of the Company,
the assets shall be distributed to the Members in accordance with their positive
capital account balances, subject to the applicable terms of Section 18-804 of
the Delaware Act.
SECTION 11.04. Notice of Liquidation. The Managing Member shall give each
of the other Members at least 10 days' prior written notice of any Liquidation.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Tax Reports and Financial Statements. After the end of each
fiscal year, the Managing Member shall, as promptly as possible and in any event
within 90 days after the close of the fiscal year, cause to be prepared and
transmitted to each Member federal income tax form K-1.
SECTION 12.02. Successors; Counterparts. This Agreement (a) shall be
binding as to executors, administrators, estates, heirs and legal successors, or
nominees or representatives, of the Members, and (b) may be executed in several
counterparts with the same effect as if the parties executing the several
counterparts had all executed one counterpart.
SECTION 12.03. Governing Law; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflict of laws thereof. In
particular, this Agreement shall be construed to the maximum extent possible to
comply with all of the terms and conditions of the Delaware Act. If,
nevertheless, it shall be determined by a court of competent jurisdiction that
any provisions or wording of this Agreement shall be invalid or unenforceable
under said Delaware Act or other applicable law, such invalidity or
unenforceability shall not invalidate the entire Agreement. In that case, this
Agreement shall be construed so as to limit any term or provision to make it
enforceable or valid within the requirements of applicable law, and, in the
event such term or provisions cannot be so limited, this Agreement shall be
construed to omit such invalid or unenforceable provisions. If it shall be
determined by a court of competent jurisdiction that any provisions relating to
the distributions and allocations of the Company or to any fee payable by the
Company is invalid or unenforceable, this Agreement shall be construed or
interpreted so as (a) to make it enforceable or valid and (b) to make the
distributions and allocations as closely equivalent to those set forth in this
Agreement as is permissible under applicable law.
28
<PAGE>
SECTION 12.04. Filings. Following the execution and delivery of this
Agreement, the Managing Member shall promptly prepare any documents required to
be filed and recorded under the Delaware Act, and the Managing Member shall
promptly cause each such document to be filed and recorded in accordance with
the Delaware Act and, to the extent required by local law, to be filed and
recorded or notice thereof to be published in the appropriate place in each
jurisdiction in which the Company may hereafter establish a place of business.
The Managing Member shall also promptly cause to be filed, recorded and
published such statements of fictitious business name and any other notices,
certificates, statements or other instruments required by any provision of any
applicable law of the United States or any state or other jurisdiction which
governs the conduct of its business from time to time.
SECTION 12.05. Power of Attorney. Each Member does hereby constitute and
appoint each Managing Member as its true and lawful representative and
attorney-in-fact, in its name, place and stead, to make, execute, sign, deliver
and file (a) a Certificate of Formation of the Company, any amendment thereof
required because of an amendment to this Agreement or in order to effectuate any
change in the membership of the Company (provided the necessary Approval has
been obtained pursuant to Section 4.03), (b) this Agreement, (c) any amendments
to this Agreement (provided the necessary Approval has been obtained pursuant to
Section 4.03) and (d) all such other instruments, documents and certificates
which may from time to time be required by the laws of the United States of
America, the State of Delaware or any other jurisdiction, or any political
subdivision or agency thereof, to effectuate, implement and continue the valid
and subsisting existence of the Company or to dissolve the Company (provided the
necessary Approval has been obtained pursuant to Section 4.03) or for any other
purpose consistent with this Agreement and the transactions contemplated hereby.
The power of attorney granted hereby is coupled with an interest and shall
(i) survive and not be affected by the subsequent death, incapacity, disability,
dissolution, termination or bankruptcy of the Member granting the same or the
transfer of all or any portion of such Member's Interest and (ii) extend to such
Member's successors, assigns and legal representatives.
SECTION 12.06. Headings. Section and other headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope or intent of this Agreement or any
provision hereof.
SECTION 12.07. Additional Documents. Each member, upon the request of the
Managing Member, agrees to perform all further acts and execute, acknowledge and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Agreement.
SECTION 12.08. Notices. All notices, requests and other communications to
any party hereunder shall be in writing, shall be sent by (i) United States
certified mail, return receipt requested, postage prepaid, (ii) prepaid,
overnight, national courier ("Courier") or (iii) personal delivery and shall be
given to such party (and any other person designated by such party) at its
address or facsimile number set forth in Schedule A with respect to FS Realty
and NS Member
29
<PAGE>
or as otherwise set forth in a schedule filed with the records of the Company
for any other Party, or to such other address or facsimile number as such party
may hereafter specify for the purpose of notice to the Managing Member (if such
party is not a Managing Member) or to all the other Members (if such party is a
Managing Member). Each such notice, request or other communication shall be
effective (a) if given by certified mail, three (3) Business Days after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, of (b) if given courier or hand delivery, when delivered
or refused at the address specified pursuant to this Section. As a matter of
convenience, only notices may be sent by facsimile, provided a hard copy is
delivered as stated above, but the delivery by facsimile shall not accelerate
the date delivery of a notice is deemed to have been received.
SECTION 12.09. Waiver of Right to Partition and Bill of Accounting. To the
fullest extent permitted by applicable law, each of the Members covenants that
it will not, and hereby waives any right to (except with the consent of the
Managing Member), file a bill for partnership accounting. Each of the Members
irrevocably waives any right that it may have to maintain any action for
partition with respect to any of the Company's assets.
SECTION 12.10. Construction. No provision of this Agreement shall be
construed against a party because of authorship. Whenever this Agreement
provides for the taking of an action on a date which is not a Business Day, the
date for such action shall be extended until the next Business Day.
SECTION 12.11. Additional Documents. Each Member, upon the request of any
other Member, agrees to perform all further acts and execute, acknowledge and
deliver any documents that may be necessary to carry out the provisions of this
Agreement and the intentions of the parties.
SECTION 12.12. Amendments. This Agreement may not be modified, altered,
supplemented or amended except pursuant to a written agreement executed and
delivered by all of the Members.
30
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereto set their hands as of the
day and year first above written.
MEMBERS:
F.S. REALTY CORP., a New York corporation
By: /s/ Joseph Chetrit
---------------------------------------
as Managing Member
First Signature Page Amended and Restated Limited Liability
Company Agreement of
417 F.S. Realty LLC
31
<PAGE>
POLESTAR FIFTH HOLDING LLC
By: /s/ W. Edward Scheetz
---------------------------------------
Name: W. Edward Scheetz
Title: President
Second Signature Page Amended and Restated Limited Liability
Company Agreement of
417 F.S. Realty LLC
32
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared Joseph
Chetrit, personally known to me or proved to me on the basis of satisfactory
evidence to be the same individual whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his capacity, and
that by his signature on the instrument, the individual, or the person on behalf
of which the individual acted, executed the instrument.
------------------------------
[Seal]
33
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared W.
Edward Scheetz, personally known to me or proved to me on the basis of
satisfactory evidence to be the same individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
------------------------------
[Seal]
34
<PAGE>
Exhibit A
Description of Premises
35
<PAGE>
Exhibit B
JEWISH HOLIDAYS
Rosh Hashanah (Both Days)
Yom Kippur
Succot (First 2 Days)
Shmini Atzeret
Simchat Torah
Passover (First 2 Days and Last 2 Days)
Shavuot (Both Days)
36
<PAGE>
Exhibit C - 1
Additional Payments
37
<PAGE>
Exhibit C - 2
Schedule of Conversion Amount Payments
38
<PAGE>
SCHEDULE A
Member Capital Contribution Address
------ -------------------- -------
F.S. Realty Corp. $35,000,000 in-kind c/o Prince Management Corp.
contribution of 498 Seventh Avenue
Premises New York, New York 10036
PoleStar Fifth $1.00 c/o NorthStar Capital Partners, LLC
Holding LLC 527 Madison Avenue
New York, New York 10022
<PAGE>
Exhibit 10.9
L E A S E
- --------------------------------------------------------------------------------
THE 44 BC REALTY LLC
Landlord
-with-
POLESTAR FORTY-FOURTH PROPERTY ASSOCIATES LLC
Tenant
Premises: 19 West 44th Street
New York, New York
- --------------------------------------------------------------------------------
<PAGE>
INDEX
-----
Article Page
- ------- ----
1. DEFINITIONS..............................................................1
2. DEMISE AND TERM; STATUS OF TITLE.........................................7
3. RECORDATION OF LEASE.....................................................8
4. LANDLORD COVENANTS RE: COOPERATION/POWER OF ATTORNEY....................9
5. FIXED RENT..............................................................10
6. NET LEASE...............................................................11
7. PAYMENT OF IMPOSITIONS..................................................11
8. DEPOSITS FOR REAL ESTATE TAXES..........................................13
9. USE; COMPLIANCE WITH LAWS; ETC..........................................14
10. UTILITIES AND SERVICES..................................................16
11. INDEMNIFICATION.........................................................17
12. MAINTENANCE AND REPAIRS.................................................18
13. MECHANICS' AND OTHER LIENS..............................................19
14. ALTERATIONS.............................................................19
15. CONDITIONS FOR TENANT'S WORK............................................20
16. INSURANCE...............................................................21
17. DAMAGE OR DESTRUCTION...................................................23
18. CONDEMNATION............................................................27
19. APPORTIONMENTS..........................................................28
-i-
<PAGE>
20. CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS............................30
21. QUIET ENJOYMENT.........................................................33
22. SURRENDER OF PREMISES...................................................34
23. ASSIGNMENT AND SUBLETTING...............................................34
24. LEASEHOLD MORTGAGES.....................................................36
25. SUBLEASES - ATTORNMENT..................................................43
26. ESTOPPEL CERTIFICATES...................................................44
27. WAIVER OF JURY TRIAL....................................................45
28. SUBORDINATION/NON-DISTURBANCE...........................................45
29. NON-MERGER..............................................................46
30. EXCAVATION ON ADJOINING PROPERTY; ENCROACHMENTS.........................46
31. LIMITATION OF LIABILITY.................................................46
32. EXHIBITION OF DEMISED PREMISES..........................................47
33. BROKER..................................................................47
34. LANDLORD COVENANTS/REFINANCING..........................................48
35. NOTICES, ETC............................................................50
36. INDEX AND CAPTIONS......................................................51
37. VAULTS..................................................................51
38. RIGHT OF SET-OFF/TENANT REMEDIES........................................51
39. INVALIDITY OF PARTICULAR PROVISION......................................54
40. AUTOMATIC EXTENSION OF TERM.............................................54
41. MISCELLANEOUS PROVISIONS................................................55
-ii-
<PAGE>
42. FURTHER ASSURANCES.....................................................57
43. COVENANTS BINDING ON RESPECTIVE PARTIES................................57
44. ARBITRATION............................................................57
45. RIGHT TO PURCHASE AFTER TERMINATION....................................57
EXHIBITS
- --------
Exhibit A - Description of Land...............................................
Exhibit B - Memorandum of Lease...............................................
Exhibit C - Exceptions to Non-Recourse........................................
Exhibit D - Pre-Existing Environmental Matters................................
Exhibit E - Jewish Holidays...................................................
Exhibit F - Permitted Encumbrance.............................................
Schedules
- ---------
Schedule A - Fixed Annual Rent
Schedule B - Fixed Annual Rent During Extension Term
Schedule C - Leases
-ii-
<PAGE>
THIS LEASE (this "Lease") made as of the ____ day of February, 1998
between THE 44 BC REALTY LLC, a Delaware limited liability company having an
office c/o Prince Management Corp., 498 Seventh Avenue, New York, New York 10036
(hereinafter called "Landlord"), and POLESTAR FORTY-FOURTH ASSOCIATES LLC, a
Delaware limited liability company having an office c/o NorthStar Capital
Partners LLC, 527 Madison Avenue, New York, New York 10022 (hereinafter called
"Tenant").
W I T N E S S E T H :
ARTICLE 1. DEFINITIONS
Section 1.1. For the purposes of this lease, unless the context otherwise
requires, the following words and terms shall have the meanings indicated:
1.1.1. Additional Rent (whether or not the initial letters are
capitalized): All rent, additional rent and other charges and sums
payable by Tenant under or in respect of this lease, whether payable
to Landlord or any other Person, including but not limited to
interest, principal and other charges to be paid to the Fee
Mortgagee, pursuant to the terms of the Fee Mortgage, but excluding
Fixed Annual Rent.
1.1.2. Affiliate: A Person directly or indirectly controlling,
controlled by or under common control with any other Person; or, in
the case of an individual, a member of that Person's immediate
family.
1.1.3. Agreement: That certain Agreement dated as of January 14,
1998 between BC and FS Realty Corp., as owners, and NS 417/44 LLC,
an affiliate of Tenant, pursuant to which the parties agreed, among
other things, to execute this lease and the Option Agreement.
1.1.4. Air Rights: All air rights or development rights, or both, if
any, now pertaining to or hereinafter transferred to the Land.
1.1.5. BC: The 44th B.C. Realty Corp., a New York corporation that
is the 99% managing member of Landlord.
1.1.6. Building: All buildings, structures and improvements
heretofore or hereinafter erected on the Land or any part thereof,
together with all alterations, additions, improvements, repairs,
restorations and replacements thereof (including, without
limitation, vaults).
1.1.7. Building Equipment: All machinery, apparatus, equipment and
fixtures of every kind and nature whatsoever heretofore or hereafter
attached to or used in
<PAGE>
connection with the operation or maintenance of the Building,
including, but not limited to, all heating, lighting, and power
equipment, engines, pipes, pumps, tanks, motors, conduits, plumbing,
cleaning, fire prevention, refrigeration, ventilating, air-cooling
and air-conditioning equipment and apparatus, elevators, ducts and
compressors, and any and all alterations, additions, improvements,
restorations and replacements of any thereof; but excluding,
however, (i) property of any subtenant or other occupant of any
portion of the Building, other than Tenant, which each such
subtenant or other occupant may be authorized to remove from the
Building upon and subject to the terms and conditions of its
sublease, (ii) property of contractors servicing the Building, and
(iii) improvements for water, gas and electricity and other similar
equipment or improvements owned by any public utility company or any
governmental agency or body.
1.1.8. Business Days: Mondays, Tuesdays, Wednesdays, Thursdays and
Fridays that do not fall on Holidays.
1.1.9. Commencement Date: Defined in Section 2.1.
1.1.10. Control: Possessing directly or indirectly, the power to
direct or to cause the directing of the management policies of the
entity in question, whether through the ownership of a majority of
voting securities or a majority of partnership interests.
1.1.11. Demised Premises: The Land, the Building and the Building
Equipment, together with (i) all rights, benefits (choate or
inchoate) privileges and easements now or hereafter pertaining
thereto including, without limitation, all copyrights, trademarks,
service names and other marks and any claims or awards in favor of
Landlord in respect of the Land, the Building and/or the Building
Equipment from and after the date of this Lease except as otherwise
apportioned hereunder; (ii) all Air Rights, including the right to
use said Air Rights in connection with the construction, operation
and maintenance of the Building, or any addition to the Building;
(iii) all leases, agreements, tenant files and all correspondence
relating to the Demised Premises in Landlord's possession; (iv) all
permits, certificates, approvals, authorizations, variances and
covenants; and (v) all architectural, mechanical, engineering and
other plans and specifications in Landlord's possession pertaining
to the use, operation and maintenance of the Land, Building and
Building Equipment or any part thereof.
1.1.12. Depository: a Lending Institution having its principal
office in the City of New York which is designated by the Person
Entitled to Demand Security, or the Tenant.
-2-
<PAGE>
1.1.13. Event of Default: Defined in Section 20.1.
1.1.14. Fee Mortgage: Any present or future mortgage(s) on all or
any part of the fee title to the Demised Premises or any loan to
Landlord that has been effectuated by Tenant (it being understood
that Tenant has the ability to obtain one or more Fee Mortgages,
provided such Fee Mortgages comply with the provisions of Article 34
hereof), and any holder thereof (or of any one of them) or any
holder of a loan to Landlord that has been effectuated by Tenant is
herein sometimes called a AFee Mortgagee".
1.1.15. Fixed Annual Rent: Defined in Section 5.1.
1.1.16. 44 Premises: That certain premises, including all
improvements thereon, located at 19 West 44th Street, New York, New
York.
1.1.17. Holidays: Those days listed on Exhibit E attached hereto as
well as New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas, and any other days on
which there is no regular United States postal service and the New
York Stock Exchange (or any successor thereto) is closed.
1.1.18. Immediate Family: A parent, spouse or child or a trust for
the benefit of any of them.
1.1.19. Impositions: Defined in Section 7.1.
1.1.20. Insurance Requirements: The requirements of any insurer of
the Demised Premises, and the requirements of the local Board of
Fire Underwriters insofar as they pertain to the Demised Premises.
1.1.21. Land: All that certain plot, piece or parcel of land
situate, lying and being in the City, County and State of New York
described in Exhibit A attached hereto and made a part hereof.
1.1.22. Landlord: The owner at the time in question of Landlord's
interest under this lease so that, in the event of any permitted
transfer of Landlord's entire interest in the Demised Premises, the
transferor, grantor or assignor shall be and hereby is entirely
relieved and freed of all of its obligations hereunder, and it shall
be deemed without further agreement between the parties that such
grantee, transferee or assignee has assumed and agreed to perform
and observe all obligations of the transferor, grantor or assignor
hereunder, whether then accrued or thereafter accruing.
-3-
<PAGE>
1.1.23. Lease Interest Rate: Defined in Section 5.4 hereof.
1.1.24. Landlord Deficiency Amount: Defined in the Option Agreement.
1.1.25. Leasehold Mortgage: Any mortgage which is a lien on the
leasehold estate created under this lease or any subleasehold estate
as contemplated in Section 24.1 hereof, as the same may be renewed,
extended, modified, consolidated and replaced from time to time,
provided that such mortgage and any renewal, extension,
modification, consolidation or replacement thereof, has been made in
accordance with and complies with the provisions and conditions of
Article 24; and the holder thereof is herein sometimes called a
ALeasehold Mortgagee." The first lien Leasehold Mortgage is referred
to herein as the "First Leasehold Mortgage," and the holder thereof
is sometimes referred to herein as the "First Leasehold Mortgagee."
1.1.26. Legal Requirements: All laws, statutes and ordinances
(including, but not limited to, building codes and zoning
regulations and ordinances), and the orders, rules, regulations and
requirements of all Federal, State and municipal governments, and
the appropriate agencies, officers, departments, boards and
commissions thereof, whether now or hereafter in force, which may be
applicable to the Demised Premises, or any part thereof, or the use
or manner of use of all or any part of the Demised Premises, or the
sidewalks or curbs adjacent thereto.
1.1.27. Lending Institution: (i) Any savings bank or commercial
bank, trust company, savings and loan association, insurance
company, bulge bracket investment bank, real estate investment trust
or pension fund, or any other Person whose loans are regulated by
any Federal or State law, agency or department thereof, having
assets in excess of One Hundred Million ($100,000,000) Dollars or
any wholly owned subsidiary of any of the foregoing and (ii) Tenant
or an Affiliate of Tenant.
1.1.28. Master Sublease: Defined in Section 23.1 hereof.
1.1.29. Master Sublessee: The owner at the time in question of the
Master Sublessee's interest under the Master Sublease or any
Leasehold Mortgagee or any nominee or designee of such Leasehold
Mortgagee which shall have obtained a new lease pursuant to Article
24 hereof in respect of such Master Sublease and the successors and
assigns of such Leasehold Mortgagee, nominee or designee, so that
from and after any sale, assignment or other transfer of any Master
Sublessee's interest in this lease, as permitted pursuant to the
provisions hereof, the transferor, grantor or assignor shall be and
hereby is entirely relieved and freed of all of its obligations
hereunder, and it shall be deemed without further
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agreement between the parties that such grantee, transferee or
assignee has assumed and agreed to perform and observe all
obligations of the transferor, grantor or assignor hereunder,
whether then accrued or thereafter accruing.
1.1.30. Mortgage: Any Fee Mortgage and/or any Leasehold Mortgage, as
the case may be.
1.1.31. Mortgagee: The holder of any Fee Mortgage (or the holder of
any loan to Landlord that has been effectuated by Tenant), and/or
the holder of any Leasehold Mortgage, as the context shall require.
1.1.32. NS Member: PoleStar Forty-Fourth Holding LLC, a Delaware
limited liability company that is the one (1%) percent member of
Landlord, its successors and assigns.
1.1.33. Non-Permitted Encumbrance: shall mean any title matter other
than a Permitted Encumbrance.
1.1.34. Operating Agreement: The Amended and Restated Limited
Liability Company Agreement of Landlord dated of even date herewith
between BC and NS Member.
1.1.35. Option: as defined in the definition for Option Agreement
hereunder.
1.1.36. Option Agreement: shall mean that certain agreement dated of
even date herewith between Landlord, as Optionor and Optionee,
pursuant to which Landlord has granted Optionee an irrevocable
Option (the "Option") to purchase the Demised Premises pursuant to
the terms thereof.
1.1.37. Option Closing: shall mean the closing under the Option
Agreement pursuant to the terms thereof.
1.1.38. Option Payments: shall have the meaning given such term in
the Option Agreement.
1.1.39. Optionee: shall mean PoleStar Forty-Fourth Optionee LLC, a
Delaware limited liability company, its successors and assigns.
1.1.40. Permitted Encumbrance: shall mean the matters listed on
Exhibit F attached hereto.
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1.1.41. Person (whether or not the initial letter is capitalized): A
natural person or persons, a partnership, a limited liability
company or partnership, a corporation, and any other form of
business or legal association or entity.
1.1.42. Person Entitled to Demand Security: the holder of any
Mortgage (or loan to Landlord that has been effectuated by Tenant,
as the context shall so require).
1.1.43. possession of Landlord: shall be deemed to include
possession by Landlord and any managing agent at the Demised
Premises and their respective employees, agents, counsel and
representatives.
1.1.44. Purchase Right: shall mean that certain Interest Purchase
Option in favor of the NS Member pursuant to the terms of Section
10.07 of the Operating Agreement.
1.1.45. Refinancing: shall mean, with respect to any Mortgage or
loan, as the context shall so require, an amendment, modification,
supplement or refinancing of such Mortgage or loan; and if there is
no Mortgage or loan at any point in time, shall mean obtaining such
Mortgage or loan.
1.1.46. Sublease (whether or not the initial letter is capitalized):
All subleases and lettings written and oral, licenses, concessions,
easements, occupancies or any other agreement for use or hire of all
or any portion of the Demised Premises; and any person entitled to
use all or any portion of the Demised Premises under any Sublease is
herein sometimes called a "Subtenant."
1.1.47. Tenant: Tenant shall mean the owner at the time in question
of Tenant's interest under this lease or any Leasehold Mortgagee or
any nominee or designee of such Leasehold Mortgagee which shall have
obtained a new lease pursuant to Article 24 hereof and the
successors and assigns of such Leasehold Mortgagee, nominee or
designee, so that from and after any sale, assignment or other
transfer of Tenant's interest in this lease, as permitted pursuant
to the provisions hereof, the transferor, grantor or assignor shall
be and hereby is entirely relieved and freed of all of its
obligations hereunder, and it shall be deemed without further
agreement between the parties that such grantee, transferee or
assignee has assumed and agreed to perform and observe all
obligations of the transferor, grantor or assignor hereunder,
whether then accrued or thereafter accruing.
1.1.48. Tenant Transfer: shall mean any pledge, encumbrance,
hypothecation, assignment, subletting or other transfer (whether
voluntarily or by operation of law, directly or indirectly) by a
Tenant, Master Sublessee or any subtenant.
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1.1.49. Title Objection: shall mean a Title Objection, as defined in
the Option Agreement.
1.1.50. Unavoidable Delays: Any delays resulting from any acts of
God, governmental restrictions or preemption, acts of war or public
enemy, riot, rationing, civil commotion, storms, fire, floods,
earthquakes, strikes, lockouts, embargoes and any other matter which
shall be beyond the reasonable control of the party required to
perform.
Section 1.2. Various other words or terms which are defined in other
Articles of this lease shall have the meanings specified in such other Articles
for all purposes of this lease, unless the context otherwise requires.
ARTICLE 2. DEMISE AND TERM; STATUS OF TITLE
Section 2.1. Landlord, for and in consideration of the rents, additional
rents, terms, covenants and conditions herein reserved and contained, does
hereby demise, lease and grant to Tenant, and Tenant does hereby take and hire
from Landlord, the Demised Premises upon and subject to the terms, covenants and
conditions herein set forth and the following:
(a) Conditions shown on survey by Francis K. Fords & Sons dated
March 26, 1917 and last updated by visual examination by Earl B. Lovell, S.P.
Belcher on December 8, 1997 and subject to any changes since said date;
(b) Rights, if any, of tenants or occupants under the leases more
particularly set forth in Schedule C (collectively, the "Leases");
(c) Right or easement to maintain telephone wires, pipes, conduits,
and other facilities, used by the City of New York or for public utilities,
which enter or cross the Demised Premises;
(d) Building restrictions and regulations in resolutions or
ordinances adopted by the Board of Estimate and Apportionment of the City of New
York, or any successor body, and all the amendments and additions thereto, now
in force;
(e) Present and future zoning laws, ordinances, resolutions and
regulations of the City of New York and all present and future ordinances, laws,
regulations and orders of all boards, bureaus, commissions and bodies of any
municipal, county, state or federal sovereigns now or hereafter having or
acquiring jurisdiction of the Demised Premises and the use and improvement
thereof;
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(f) Right, if any, to maintain vaults, vault spaces, tunnels,
basements and sub-basement spaces, areas, structures, marquees or signs, beyond
the building lines, to the extent not revoked by law or governmental authority;
(g) The condition and state of repair of the Demised Premises as the
same may be on the date of the commencement of the term of this lease;
(h) All taxes, assessments, business improvement or similar district
charges, water charges and sewer rents, accrued or unaccrued, fixed or not
fixed, not yet due and payable;
(i) The effect of all present and future municipal, state and
federal laws, orders and regulations relating to lessees, sublessees or
occupants of the Demised Premises, their rights and rentals to be charged for
the use of the Demised Premises or any portion or portions thereof;
(j) Violations of law, ordinances, orders or requirements that might
be disclosed by an examination and inspection or search of the Demised Premises
by any federal, state or municipal departments or authority having jurisdiction,
as the same may exist on the date of the commencement of the term of this lease;
TO HAVE AND TO HOLD the Demised Premises for a term of twenty-five (25) years
and twenty (20) days (the "Initial Term"), commencing on February 9, 1998 (the
"Commencement Date") and expiring on February 28, 2023, unless this lease shall
sooner terminate as hereinafter provided.
Section 2.2. Tenant shall not permit any portion of the Demised Premises
to be used by any person or persons or by the public, as such, at any time or
times during the term of this lease, in such manner as might make possible a
claim or claims of adverse use, adverse possession, prescription, dedication, or
other similar claims of, in, to or with respect to the Demised Premises or any
part thereof.
Section 2.3. Landlord shall deliver possession of the Demised Premises to
Tenant on the Commencement Date vacant and free of occupants, tenancies and
rights to possession and enjoyment of others, subject to the Leases.
ARTICLE 3. RECORDATION OF LEASE
Section 3.1. At Tenant's option, Tenant may record this lease and any
amendments hereto. Concurrently with the execution and delivery of this lease,
the parties shall execute, acknowledge and deliver a memorandum hereof in
recordable form, prepared by Tenant, in the form annexed hereto as Exhibit B.
With respect to each modification of this lease, the parties shall also execute,
acknowledge and deliver a memorandum in recordable form, prepared by Tenant and
containing such additional provisions as either party may reasonably require.
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ARTICLE 4. LANDLORD COVENANTS
RE: COOPERATION/POWER OF ATTORNEY
Section 4.1. Landlord hereby covenants, acknowledges and agrees that,
subject to the terms of this lease, Tenant shall have the right and authority to
use, occupy and operate the Demised Premises as determined by Tenant in its sole
discretion as permitted by law. In addition to Landlord's specific affirmative
obligations set forth herein and in connection therewith, Landlord covenants and
agrees that Landlord shall, in good faith, cooperate with Tenant in any manner
reasonably required by Tenant, at no cost or expense to Landlord, in connection
with any matter related to Tenant's use, occupancy and possession of the Demised
Premises, including, without limitation, the leasing, operation, maintenance and
financing of the Demised Premises, as well as with any Alterations (hereinafter
defined).
Section 4.2. In connection with Landlord's obligations set forth in
Section 4.1, and without in any way limiting the obligations in said Section
4.1, Landlord hereby irrevocably constitutes and appoints Tenant the free and
lawful attorney of Landlord, from time to time, to execute, acknowledge, swear
to and file any of the following:
(a) Any memorandum of lease pursuant to the terms of Article 3
hereof or any other documents necessary for the recordation of same;
(b) Any contests by Tenant of Impositions, or Legal Requirements and
any certiorari proceedings, as provided in Sections 7.4, 7.7 and 9.4 hereof,
respectively;
(c) Settlements and collection of proceeds with respect to casualty
and condemnation, as provided in Articles 17 and 18 hereof;
(d) Estoppel Certificates as provided in Article 26 hereof;
(e) Any utility easements or other easements reasonably deemed
necessary by Tenant to use, occupy and operate the Demised Premises; and
(f) Any building permit, applications, applications required by
applicable law or other documents required in connection with any Alterations or
the use, occupancy and operation of the Premises.
(g) Any agreements required in order to merge any zoning lots with
or over the Demised Premises;
(h) Any documents evidencing or securing any Fee Mortgage, provided
such Fee Mortgage is non-recourse to Landlord except for those items set forth
on Exhibit C (as well as any ancillary documents executed in connection
therewith), as and to the extent Tenant is authorized to obtain same pursuant to
Article 34 hereof; and
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(i) any non-disturbance agreement to the extent Landlord is required
to execute same pursuant to Article 28 hereof.
It is expressly acknowledged by Landlord that the foregoing power of
attorney is coupled with an interest and irrevocable and shall survive until the
stated expiry date of this lease (as same may be extended pursuant to Article 40
hereof) or earlier legal and valid termination thereof pursuant to its terms and
shall (i) not be affected by the dissolution, liquidation or bankruptcy of
Landlord and (ii) extend to the Landlord's successors, assigns and legal
representatives.
ARTICLE 5. FIXED RENT
Section 5.1. Tenant agrees to pay to Landlord during the term of this
lease, over and above the other rents, sums, charges and additional payments to
be made by Tenant hereunder, a fixed rent (hereinafter called "Fixed Annual
Rent") at the rate set forth on Schedule A annexed hereto.
Section 5.2. The Fixed Annual Rent shall be payable as provided in
Schedule A. Said installments of Fixed Annual Rent shall be paid promptly when
due, without notice or demand therefor and without deduction, abatement or
set-off of any amount for any reason whatsoever, except as otherwise provided in
this lease. If Tenant shall be required by law to deduct and withhold income or
other similar Taxes (as hereinafter defined) from rentals or other amounts
payable hereunder to Landlord, as a result of such Landlord constituting a
Foreign Person (as hereinafter defined), Tenant shall be entitled to do so,
provided it shall provide a statement setting forth the amount of Taxes
withheld, the applicable rate and other information which may reasonably be
requested for the purposes of assisting Landlord to obtain any allowable credits
or deductions for the Taxes so withheld in each jurisdiction in which Landlord
is subject to tax. Upon Tenant's request, Landlord will execute any affidavits
reasonably required by Tenant to confirm that Landlord is not a Foreign Person.
A "Foreign Person" is any person who, or entity that, is, for U.S. federal
income tax purposes, a foreign corporation or foreign partnership, a nonresident
alien or foreign fiduciary of an estate or trust, or a nonresident alien
individual, which does not have on file with Tenant for the year in question the
duly-executed forms or statements which may, from time to time, be prescribed by
law and which, pursuant to applicable provisions of (a) an income tax treaty
between the United States and the country of residence of such person or entity,
(b) the United States Internal Revenue Code of 1954, as amended, or (c) any
applicable rules or regulations in effect under (a) or (b) above, permit Tenant
to make such payments free of any obligation or liability for withholding of
Taxes. "Taxes" are any taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature, now or hereafter imposed by the United States
or by any department, agency, state or other political subdivision thereof or
therein.
Section 5.3. The Fixed Annual Rent, and, in any event, all other amounts
payable by Tenant to Landlord under the terms of this lease, shall be paid at
the office of the Landlord set forth above, or at such other place or to such
other person as Landlord may from time to time
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designate by notice to Tenant. The Fixed Annual Rent, and all other amounts
payable by Tenant to Landlord hereunder, shall be paid in lawful money of the
United States which shall be legal tender for the payment of all debts and dues,
public and private, at the time of payment.
Section 5.4. If any installment or installments of Fixed Annual Rent or
Additional Rent shall not be paid within five (5) days after the same shall
become due hereunder, then, in addition to, and without waiving or releasing,
any other rights and remedies of Landlord, such unpaid amount shall bear
interest at a rate per annum (the "Lease Interest Rate") equal to the lesser of
(a) the rate announced by Citibank, N.A. or its successor from time to time as
its prime or base rate (the "Prime Rate"), plus 4%, or (b) the maximum
applicable rate allowed by law, from the date such Fixed Accrued Rent or
Additional Rent became due and payable to the date of payment thereof by Tenant.
Such interest shall be due and payable on demand.
ARTICLE 6. NET LEASE
Section 6.1. Except as herein expressly provided to the contrary, this
lease is intended to be, and shall be construed as, an absolutely net lease,
whereby under all circumstances and conditions (whether now or hereafter
existing or within the contemplation of the parties) the Fixed Annual Rent shall
be a completely net return to Landlord throughout the term of this lease; and
Tenant shall indemnify and hold harmless Landlord from and against any and all
expenses, costs, liabilities, obligations and charges whatsoever, which shall
arise or be incurred or shall become due, during the term of this lease, with
respect to or in connection with, the Demised Premises and the operation,
management, maintenance and repair thereof, including but not limited to
interest, principal and all other charges required to be paid pursuant to Fee
Mortgage(s).
ARTICLE 7. PAYMENT OF IMPOSITIONS
Section 7.1. Except as otherwise expressly provided to the contrary in
Sections 7.2 and 7.6 hereof, and subject to Section 5.2 hereof, Tenant shall
pay, as Additional Rent, throughout the term of this lease, directly to the
appropriate taxing or other governmental authorities having jurisdiction, at
least five (5) days before the first day on which any interest or penalty will
accrue or be assessed as the result of non-payment, all real estate taxes,
assessments, business improvement district fees, water and sewer charges or
rents, vault charges, and all other taxes and governmental charges, general or
special, ordinary or extraordinary, foreseen or unforeseen, of any kind or
nature whatsoever, whether similar or dissimilar, levied or imposed upon or
relating to, or a lien against, all or part of the Demised Premises, or arising
from or levied against the ownership, leasing, operation, use, occupancy or
possession of all or part of the Demised Premises, and all interest, penalties
or like charges in connection therewith (all of which taxes, assessments,
charges, interest, penalties or like charges are sometimes hereinafter referred
to collectively as "Impositions" and individually as "Imposition"). Tenant shall
submit to Landlord the copies of official receipts, or other proof reasonably
satisfactory to Landlord, showing the payment thereof, but failure to do so
shall not constitute a default hereunder unless (i) Tenant has received notice
from Landlord that Landlord has not received said copies and (ii) Tenant has not
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forwarded said copies within ten (10) Business Days of receipt of said notice,
which failure shall constitute a default under this lease. Any refund with
respect to Impositions paid by Tenant and any interest accrued thereon shall be
the property of Tenant.
Section 7.2. If by law any Imposition is or may be payable, at the option
of the taxpayer, in installments, Tenant may pay such Imposition in installments
(with any accrued interest due and payable on the unpaid balance of the
Imposition) and shall pay each such installment at least five (5) days before
the first day on which if it is not paid, further interest would accrue.
Section 7.3. Impositions, whether or not a lien upon the Demised Premises,
shall be apportioned between Landlord and Tenant at the beginning and at the
expiration or sooner termination of the term of this lease, so that Tenant shall
pay only the portion of such Impositions which are allocable to the term of this
lease; provided, however, Landlord need not make any apportionment in Tenant's
favor if this lease shall be terminated by reason of a default on the part of
Tenant.
Section 7.4. Tenant, at its own cost and expense, may contest the amount
or validity of any Imposition in any manner permitted by law, in Tenant's name,
and whenever necessary, in Landlord's name, provided that Tenant does so with
due diligence and in good faith. Tenant shall advise Landlord, but shall not be
required to obtain the consent of Landlord, with respect to actions taken
pursuant to the preceding sentence. Landlord will cooperate with Tenant and
execute any documents or pleadings reasonably required for such purposes,
provided that the same shall be without cost, liability or expense to Landlord.
Such contest may include appeals from any judgment, decree or order until a
final determination is made by a court or governmental department or authority
having final jurisdiction in the matter. However, notwithstanding such contest,
Tenant shall pay the contested Imposition in the manner and on the dates
provided for in this Article, unless such payment would operate as a bar to such
contest or materially interfere with the prosecution thereof; and in such case,
Tenant may defer the payment of the contested Imposition upon condition that any
contest by Tenant of the amount or validity of any Imposition shall be subject
to the terms of the Fee Mortgage. Landlord shall have no right to contest any
Impositions on its own unless requested to do so by Tenant and in such event, in
the manner prescribed by Tenant.
Section 7.5. The certificate, advice or bill of the appropriate official,
designated by law to make or issue the same or to receive payment of any
Imposition, may be relied upon by Landlord as prima facie evidence that such
Imposition is due and unpaid at the time of the making or issuance of such
certificate, advice or bill.
Section 7.6. Tenant shall not be obligated or required hereunder to pay,
and Impositions shall not include, any franchise, corporate, estate,
inheritance, succession, gift, transfer, capital levy or capital stock taxes
imposed upon Landlord or any successor of Landlord, or any municipal, state or
federal income, profit or revenue tax upon the income or receipts of Landlord,
or any tax imposed solely because of the nature of the business entity of
Landlord, or any other tax, assessment, charge or levy upon the Fixed Annual
Rent or Additional Rent imposed upon
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Landlord except to the extent hereinafter provided in this Section 7.6, all of
which Landlord shall promptly pay when due; provided, however, that if at any
time during the term of this lease the methods of taxation prevailing on the
date hereof shall be altered or changed so as to cause the whole or any part (by
type, not amount) of the taxes, assessments, levies, impositions or charges now
levied, assessed or imposed upon real estate and the improvements thereon to be
levied, assessed or imposed, wholly or partially, on the rents received under
this lease or upon or by reason of the occupancy of the Demised Premises, then,
any such taxes, excises, assessments and impositions shall be deemed to be
Impositions to the extent that the same is imposed upon all owners of comparable
real estate in Manhattan and would be payable if the Demised Premises were the
only property of Landlord and shall be paid and discharged by Tenant, as
Additional Rent, on or before the last day on which the same may be paid without
penalty or interest.
Section 7.7. (a) Tenant shall have the right to seek reductions in the
valuation of the Premises assessed for tax purposes and to prosecute any action
or proceeding in connection therewith from time to time. Tenant shall be
authorized to collect any tax refund obtained by reason thereof and, to the
extent such refund is for Impositions paid in whole or in part by Tenant, to
retain the same or so much thereof as relates to the payment made by Tenant
previously.
(b) Landlord shall not be required to join in any such proceedings
unless the provisions of any law, rule or regulation at the time in effect shall
require that such proceedings be brought by and/or in the name of Landlord, in
which event Landlord shall, at the request and expense of Tenant, join in such
proceedings or permit the same to be brought in its name, provided such joinder
shall not subject Landlord to any cost or expense for which Tenant is unwilling
to reimburse Landlord.
(c) Landlord agrees that whenever Landlord's cooperation is required
in any of the proceedings brought by Tenant as aforesaid, Landlord will
reasonably cooperate therein at the request and expense of Tenant, provided same
shall not subject Landlord to any cost or expense.
(d) Landlord shall have no right to institute or prosecute any tax
reduction proceedings for the period after the 1997/98 tax year unless requested
to do so by Tenant, and Tenant shall have no right to institute, prosecute or
settle any tax reduction proceedings for the period prior to the 1997/98 tax
year.
ARTICLE 8. DEPOSITS FOR REAL ESTATE TAXES
Section 8.1. If the Person Entitled to Demand Security (as hereinafter
defined) shall require that sums be deposited with it to pay when due real
estate taxes levied or assessed against the Demised Premises, then, at such
times and intervals as the Person Entitled to Demand Security shall require,
Tenant shall deposit with the Depository (as hereinafter defined) such amounts
as may be reasonably required by the Person Entitled to Demand Security to
provide a fund sufficient for the payment, when due, of the amount of the then
annual real estate taxes,
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subject to adjustment as and when the amount of such real estate taxes shall
change. If the amount of any real estate tax shall not have been fixed at the
time any such deposit is required to be made, the deposit shall be made on the
basis of the amount thereof for the next preceding tax year, or on the basis of
the reasonable estimate of the Person Entitled to Demand Security, subject to
adjustment when the amount of such real estate tax shall have been fixed. If the
amount of the deposits for any real estate tax shall be insufficient to pay the
same when due, Tenant shall, on notice from the Person Entitled to Demand
Security, forthwith deposit with the Depository an additional sum, which when
added to the installments theretofore made on account of such real estate tax
shall be sufficient to pay the same in full.
Section 8.2. To the extent that Tenant shall have made any deposits with
the Depository, on account of any real estate taxes, the same shall be in lieu
of payment thereof by Tenant under Article 7 of this lease, unless and to the
extent such deposits are made with the Fee Mortgagee or a Lending Institution
designated by the Fee Mortgagee and are applied for a purpose other than for
which they were made in accordance with the documents evidencing the loan made
by such Lending Institution. Upon the expiration or sooner termination of this
lease, the deposits for real estate taxes, if any, then held by the Depository,
shall be paid over to Tenant, after being apportioned in the manner and upon the
conditions set forth in Section 7.3 above.
Section 8.3. If the Depository is the Fee Mortgagee or a Lending
Institution designated by the Fee Mortgagee, Tenant shall simultaneously send
Landlord a true copy of each check used to make a payment on account of real
estate taxes, but failure to do so shall not constitute a default hereunder
unless (i) Tenant has received notice from Landlord that Landlord has not
received said copies and (ii) Tenant has not forwarded said copies within ten
(10) Business Days of receipt of said notice, which failure shall constitute a
default under this lease.
ARTICLE 9. USE; COMPLIANCE WITH LAWS; ETC.
Section 9.1. The Demised Premises shall be used and occupied only for any
lawful purpose. Tenant shall not use, improve, permit or suffer the use,
improvement or occupancy of, the Demised Premises, or any part thereof (a) in
any unlawful manner, or for any illegal purpose, or in any manner which will
constitute a nuisance, and (b) other than for the purposes, and in the manner
and to the extent, permitted by the Legal Requirements, the Insurance
Requirements and any Certificate of Occupancy now or hereafter applicable or
issued with respect to the Demised Premises.
Section 9.2. Tenant shall, throughout the term, at Tenant's own cost and
expense, promptly comply, or cause compliance, with all Legal Requirements and
Insurance Requirements, foreseen or unforeseen, ordinary as well as
extraordinary, and whether or not the same shall presently be within the
contemplation of the parties or shall involve any change of governmental policy
or require structural or extraordinary repairs, alterations or additions, and
irrespective of the cost thereof. The provisions and conditions of Article 15
shall also apply to any work required to be performed by Tenant under this
Article. Tenant further agrees that it will, at its own cost and expense,
promptly and fully perform and observe, or cause to be fully performed
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and observed, all requirements, obligations and conditions of all instruments of
record described in Section 2.1 and the Fee Mortgage now, or hereafter to be
placed on the Demised Premises insofar as the same shall be in force and shall
affect or be applicable to the Demised Premises or any portion thereof or shall
impose any obligation upon Landlord or the fee owner of the Demised Premises or
upon any tenant or other occupant of the Demised Premises.
Section 9.3. Tenant has examined the Demised Premises and is fully
familiar with the physical condition thereof, and Tenant accepts the same "as
is" on the date hereof. Tenant assumes all risks, if any, resulting from any
latent or patent defects in the Demised Premises or from any failure of the same
to comply with any Legal Requirements applicable thereto.
Section 9.4. Tenant, after notice to Landlord, may contest by appropriate
Legal Proceedings at Tenant's own cost and expense, the validity of any Legal
Requirement, and Tenant may defer compliance therewith during the pendency of
such contest; provided, however, and upon condition that (a) such non-compliance
shall not constitute a crime on the part of Landlord or any agent, servant,
employee, trustee, beneficiary or principal of Landlord, (b) such non-compliance
will not result in any lien, charge or other liability of any kind against the
Demised Premises or against Landlord or Tenant's interest in this lease unless
Tenant obtains a bond insuring against enforcement of such lien against the
Premises, and (c) Tenant shall prosecute such contest with due diligence and in
good faith to a final determination by the court, department or governmental
authority or body having final jurisdiction, and (d) provided same shall be
required by the holder of the Fee Mortgage, Tenant shall first deposit with the
Depository such security (in the form of a surety company bond or otherwise) as
the Person Entitled to Demand Security shall reasonably require to assure
compliance by Tenant with such Legal Requirement. Landlord agrees to cooperate
reasonably with Tenant and to execute any documents or pleadings reasonably
required for the purpose of any such contest, provided that the same shall be
without cost, expense or liability to Landlord. Tenant may, at its option,
terminate any such contest at any time, and in such event Tenant shall promptly
pay or perform all of the requirements of the contested Legal Requirement and
Tenant shall indemnify and hold harmless Landlord against and from any and all
liability, loss and damage which Landlord may sustain by reason of Tenant's
delay in complying therewith. Upon the termination of any such contest and the
payment and performance of all the requirements of the contested Legal
Requirement (as the same may have been modified as a result of such contest),
the Depository shall promptly return or cause to be returned to Tenant, the
security deposited by Tenant on account thereof.
Section 9.5. Tenant shall, at its sole cost and expense, obtain and keep
in full force and effect any and all necessary permits, licenses, certificates
or other authorizations required in connection with the lawful and proper
construction of the Building, the Building Equipment, the use, occupancy,
operation and management of the Demised Premises and the signs thereat; and
Tenant shall indemnify and hold harmless Landlord from and against all claims,
liability, damages, loss, costs and expenses (including, without limitation,
reasonable attorneys' fees) in connection therewith. Upon the expiration or
sooner termination of the term of this lease, Tenant shall promptly deliver all
permits, licenses, certificates and authorizations to Landlord which
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relate to the Demised Premises and which were obtained by or issued to Tenant
and are then in force, together with an assignment or conveyance thereof to
Landlord, in such form and substance as Landlord shall reasonably require, but
without representation or warranty.
Section 9.6. If reasonably required for an Alteration (as defined in
Section 14.1) or for the construction, installation, maintenance, operation,
restoration or replacement of the Building, or Building Equipment, Tenant shall
have the right to create or grant utility easements to public or private utility
companies in connection with furnishing gas, electricity, steam or other utility
services to the Demised Premises or, if not reasonably required in connection
therewith, such utility easements which terminate on or before any termination
of this lease, whether by reason of Tenant's default or otherwise; provided,
however, that (a) any such easement which is acquired by Tenant shall become
part of the Demised Premises for all of the purposes of this lease, and (b) no
such easement, whether acquired, granted or created, may impose any charge on
Landlord or lien upon the Demised Premises in respect of any cost or charges in
connection therewith, other than for unpaid charges for utilities supplied to
the Demised Premises by governmental authorities through such easement. At
Tenant's request, Landlord will join with Tenant, at Tenant's sole cost and
expense, in the creation or granting of any such utility easement.
Section 9.7. Subject to the provisions of Article 18, no abatement,
diminution or reduction of the Fixed Annual Rent, or of any Additional Rent,
shall be claimed by, or allowed to, Tenant for any inconvenience, interruption,
cessation or loss of business or otherwise caused, directly or indirectly, by
any present or future laws, rules, requirements, orders, directions, ordinances
or regulations of the United States of America, or of the State, county or
municipal or other local government, or of any other municipal, governmental or
lawful authority whatsoever, or by priorities, rationing or curtailment of labor
or materials, or by war, civil commotion, lockouts, strikes or riots, or any
matter or thing resulting therefrom, or by any other cause or causes beyond the
control of Landlord, nor shall this lease be affected by any such causes.
Section 9.8. Notwithstanding any provision of this lease to the contrary,
unless and until an enforcement proceeding with respect thereto has been
commenced by an appropriate governmental agency, Tenant shall not be required to
cure any violation of Legal Requirements existing on the date hereof, including,
without limitation, any of the environmental matters set forth on Exhibit D
annexed hereto (the "APre-Existing Environmental Matters").
Section 9.9. Landlord agrees that Tenant shall be permitted to make any
changes in the present use, occupancy and operation of the Building, provided
such change is made in compliance with all Legal Requirements.
ARTICLE 10. UTILITIES AND SERVICES
Section 10.1. Tenant agrees to pay or cause to be paid all charges for
gas, water, sewer, electricity, light, heat, power, telephone or other
communication service or other utility or service used, rendered or supplied to,
upon or in connection with the Demised Premises throughout the
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term of this lease, and to indemnify and hold harmless Landlord against and from
any claims, liability, damage, loss, cost or expense on such account.
Section 10.2. Tenant expressly agrees that Landlord is not, nor shall it
be, required to furnish to Tenant or any other occupant of the Demised Premises,
during the term of this lease, any water, sewer, gas, heat, electricity, light,
power or any other facilities, equipment, labor, materials or any services of
any kind whatsoever, whether similar or dissimilar.
ARTICLE 11. INDEMNIFICATION
Section 11.1. Tenant agrees, at its sole cost and expense, to indemnify
and hold harmless Landlord against and from any and all claims in respect of the
Demised Premises for actions (or failures to act) occurring during the term of
this lease by or on behalf of any Person arising from or in connection with (a)
the demolition of all or any part of the Building, the construction and
installation of all or any part of the Building and the Building Equipment or
the conduct or management of, and the payment for, any work or thing whatsoever
done in or about the Demised Premises by or on behalf of Tenant (or any person
holding or claiming through or under Tenant) during the term of this lease; (b)
the condition of the Demised Premises during the term of this lease, whether or
not such condition existed before the term of this lease commenced; (c) any
breach or default on the part of Tenant in the performance of any of Tenant's
covenants or obligations under this lease; (d) any act, negligence or fault of
Tenant, or any of its agents, servants, employees, contractors, invitees or
licensees, or of any person holding or claiming through or under Tenant; (e) any
accident, injury or damage whatsoever caused to any person or persons or any
property damage occurring during the term of this lease, in or about the Demised
Premises, or upon or under the streets and sidewalks adjacent thereto, in the
case of each of the foregoing clauses (a) through (e) excluding those caused by
the wrongful intentional acts of Landlord or its agents, servants, employees,
contractors, invitees or licensees occurring at any time. Further, Tenant agrees
to indemnify and hold harmless Landlord against and from all costs, reasonable
counsel fees, expenses and liabilities incurred in connection with or in
defending any such claim or any action or proceeding brought thereon; and in
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant, upon notice from Landlord, agrees to resist or defend such action
or proceeding unless Tenant causes the same to be discharged and satisfied. In
addition, Tenant shall indemnify and hold harmless Landlord against and from any
costs and expenses paid or incurred by Landlord (including reasonable counsel
fees) in obtaining possession of the Demised Premises after an Event of Default
by Tenant or upon the expiration or sooner termination of this lease, or in
enforcing any of Tenant's obligations hereunder.
Section 11.2. Tenant agrees that, except for matters caused by the
wrongful intentional acts of Landlord or its agents, servants, employees,
invitees or licensees (provided, however, present tenants of the Demised
Premises shall not be deemed to include any of the foregoing), Landlord shall
not be responsible or liable to Tenant, or any other Person for, or by reason of
any of the following, to the extent same occurs during the term of this lease:
(a) any defect in the Land, the Building, the Building Equipment, or any other
equipment, machinery, wiring,
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apparatus or appliances whatsoever now or hereafter situate in, at, or upon the
Demised Premises, or (b) any failure or defect of water, heat, electric light or
power supply, or of any apparatus or appliance in connection therewith, or from
any injury or loss or damage to property resulting therefrom, or (c) any injury,
loss or damage to any person or to the Demised Premises, or to any property of
Tenant, or of any other Person, contained in, upon or about the Demised
Premises, or the streets and sidewalks adjacent thereto, caused by or arising or
resulting from the electric wiring or plumbing, water, steam, sewerage or other
pipes, or by or from any machinery or apparatus, or by or from any defect in or
leakage, bursting or breaking up of same, or by or from any leakage, running or
overflow of water or sewerage in any part of the Demised Premises, or by or from
any other defect whatsoever, or (d) any injury or damage caused by, arising or
resulting from lightning, wind, tempest, water, snow or ice, in or upon or
coming through or falling from the roof, skylight, trapdoors, walls, windows or
otherwise, or by or from other actions of the elements, or from any injury or
damage caused by or arising, or resulting from acts, omissions or negligence of
any occupant or occupants of the Demised Premises or of any Subtenant, licensee,
invitee or contractor of Tenant (or of any other Person holding or claiming
through or under Tenant).
Section 11.3 In connection with the aforesaid indemnification Landlord
agrees that Tenant shall not be liable for any consequential damages arising out
of the items which are the subject matter of the indemnification nor shall
Tenant indemnify Landlord in connection with any Pre-Existing Environmental
Matter, other than with respect to any claim arising from the disturbance of any
hazardous substance as the result of work performed at the Demised Premises
during the term of this lease.
ARTICLE 12. MAINTENANCE AND REPAIRS
Section 12.1. Tenant shall, throughout the term of this lease, at Tenant's
sole cost and expense, maintain in good and lawful order, condition and repair
the Demised Premises and the sidewalks and curbs adjacent thereto, and, subject
to the rights of Tenant under Article 14 hereof, shall not commit or suffer any
waste with respect thereto. Tenant shall promptly make all repairs, interior and
exterior, structural and non-structural, ordinary as well as extraordinary,
foreseen as well as unforeseen, necessary to keep the Demised Premises and the
sidewalks and curbs adjacent thereto in good and lawful order and condition.
When used in this Article, the term "repairs" as applied to Building Equipment
shall be deemed to include replacements, restorations and/or renewals when
necessary. In any event, Tenant shall have the right, at any time and from time
to time, to remove and dispose of Building Equipment which may become obsolete
or unfit for use or which is no longer useful in the operation of the Demised
Premises. If any Building Equipment shall be removed, Tenant shall promptly
replace the same with other equipment, not necessarily of the same character but
of at least equal utility and value, except that if (a) by reason of
technological or other developments in the operation and maintenance of
buildings of the general character of the Building, no replacement of the
Building Equipment so removed or disposed of is necessary or desirable in the
proper operation or maintenance of the Building, or (b) the portion of the
Building in which such Building Equipment is located or which it serves is to be
demolished, Tenant shall not be required to replace the same. Tenant
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shall have the right to sell or otherwise dispose of any Building Equipment
which it is required to replace or elects to replace pursuant to the provisions
of this Section, and may retain as its sole property the proceeds of any such
sale or disposition. The provisions and conditions of Article 15 shall apply to
repairs required to be done by Tenant under this Article. Subject to Tenant's
rights to make Alterations, Tenant shall keep and maintain all portions of the
Demised Premises and the curbs and sidewalks adjoining the Demised Premises, in
a clean and orderly condition, free of accumulation of dirt, rubbish, snow and
ice, and Tenant shall not permit or suffer any overloading of the floors of the
Building. Except as otherwise provided in Article 22, nothing herein contained
shall be construed to prevent Tenant or any subtenant, sublessee, or other
occupant claiming under or through Tenant from removing from the Demised
Premises its trade fixtures, furniture and equipment (other than Building
Equipment), on the condition, however, that Tenant shall do so without cost or
expense to Landlord. Subject to the exception which is set forth in clause (b)
of this Section, Tenant hereby agrees to promptly repair or cause to be repaired
any and all damages to the Demised Premises resulting from or caused by such
removal.
ARTICLE 13. MECHANICS' AND OTHER LIENS
Section 13.1. If any mechanics' lien shall at any time be filed against
the Demised Premises, Tenant shall cause the same to be discharged of record
within sixty (60) days after actual notice of such filing is given to Tenant, by
either payment, deposit, bond or otherwise. If Tenant shall fail to discharge
any such mechanics' lien within such period, then, in addition to any other
right or remedy of Landlord, Landlord may, on notice to Tenant, but shall not be
obligated to, procure the discharge of the same of record by bonding. Any amount
paid by Landlord for same, and all reasonable legal and other expenses of
Landlord, including reasonable counsel fees, in defending any such action or in
procuring the discharge of any such lien, together with interest at the Lease
Interest Rate from the date of payment or deposit shall become due and payable
forthwith by Tenant to Landlord, upon submission of evidence of payment by
Landlord and shall constitute Additional Rent.
Section 13.2. Landlord hereby gives notice to all persons who may furnish
labor or materials to Tenant at the Demised Premises that Landlord does not
consent to the filing of any mechanic's or other lien against Landlord's
interest or estate in the Demised Premises, and that all persons furnishing
labor and materials to Tenant shall look only to Tenant's credit and such
security as Tenant may furnish for the payment of all such labor and materials.
ARTICLE 14. ALTERATIONS
Section 14.1. Tenant shall have the right at any time and from time to
time during the term of this lease to (a) make, at its sole cost and expense,
changes, alterations, additions, replacements or improvements in or to the
Demised Premises, whether structural or non-structural in nature and (b)
demolish, rebuild and reconfigure the Building (any such activity described in
either clause (a) or (b) is hereinafter called an "Alteration" and all such
activities are hereinafter called "Alterations"), provided Tenant complies with
Article 15 of this lease, and further provided that, in the event Tenant shall
elect to demolish the Building and not rebuild
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same, then Tenant shall satisfy the Fee Mortgage and remove all other monetary
liens encumbering the Demised Premises other than those caused or created by
Landlord unless same were created pursuant to the provisions of Article 34
hereof.
Section 14.2. The parties shall cooperate in the preparation and
prosecution of all applications. Each party shall promptly join in the execution
of all documents which may be reasonably required in the prosecution of such
applications and shall provide to the other party such information within its
control as may be useful in obtaining governmental approvals.
ARTICLE 15. CONDITIONS FOR TENANT'S WORK
Section 15.1. Tenant agrees that all Alterations, repairs and other work
which Tenant shall be required or permitted to do under the provisions of this
lease, including the provisions of Articles 9, 12, 14, 17 and 18 (each
hereinafter in this Article called the "Work") shall be done in all cases upon
and subject to all of the following terms and conditions:
15.1.1. All Work shall be commenced only after all required
municipal and other governmental permits, authorizations and
approvals shall have been obtained by Tenant, at its own cost and
expense. Landlord will, on Tenant's written request, execute any
documents necessary to be signed by Landlord to obtain any such
permits, authorizations and approvals, provided that Tenant shall
discharge any reasonable expense or liability of Landlord in
connection therewith.
15.1.2. All work shall be performed in accordance with all Legal
Requirements and Insurance Requirements. All Work shall be commenced
and completed with reasonable diligence, subject to Unavoidable
Delays.
15.1.3. The cost of all work shall be paid promptly, in cash, so
that the fee title to the Demised Premises shall at all times be
free from (a) liens for labor or materials supplied or claimed to
have been supplied to the Demised Premises or Tenant subject to
Section 13.1, (b) chattel mortgages, conditional sales contracts,
title retention agreements except for bona fide leases for Building
Equipment and any other similar liens and encumbrances incurred by
owners and operators of premises similar to the Demised Premises,
and (c) security interests and agreements, and financing agreements
and statements, except those given to any Mortgagee as collateral
security for its mortgage and any financing statements for any
equipment or improvements of a subtenant.
15.1.4. At all times when any Work is in progress, Tenant shall
maintain or cause to be maintained worker's compensation insurance
covering all persons employed in connection with the work, in an
amount at least equal to the minimum amount of such insurance
required by law.
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Section 15.2. Title to the Work, when erected, constructed, installed or
placed upon the Demised Premises, shall automatically pass to, vest in and
belong to Landlord without further action on the part of either party and
without cost or charge to Landlord. Notwithstanding the foregoing, during the
term of this lease Tenant alone shall be entitled to claim depreciation on or
any investment tax credit or other tax deduction or credit now or hereafter
available with respect to the work, for all taxation purposes. Upon completion
of the Work, Tenant shall deliver to Landlord a true copy of any "as-built"
plans for the Work, which Tenant at Tenant's election has caused to be
prepared..
ARTICLE 16. INSURANCE
Section 16.1. Tenant shall, at its own cost and expense, provide and keep
in force the following insurance:
16.1.1. Commercial general public liability insurance against claims
for bodily injury, death or property damage occurring in or about
the Demised Premises (including, without limitation, bodily injury,
death or property damage resulting directly or indirectly from any
change, alteration, improvement or repair thereof), with a combined
single annual aggregate limit of not less than Ten Million and
NO/100 ($10,000,000.00) Dollars.
16.1.2. Insurance (with provision for deduction of not more than
$50,000) covering the Building and Building Equipment against loss
or damage by fire and such risks as are customarily included in
extended coverage endorsements attached to fire insurance policies
covering similar property in the City, County and State of New York,
in an amount not less than the greater of (i) ninety (90) percent of
the full insurable value thereof, (ii) the amount required by any
Fee Mortgagee, or (iii) an amount sufficient to prevent Landlord or
Tenant from becoming a co-insurer within the terms of the applicable
policies. The term "full insurable value" as used in this Article
shall mean the cost of actual replacement, without deduction for
depreciation, less the cost of excavations, foundations and footings
below the lowest basement floor.
16.1.3. Rent insurance in an amount equal to at least the aggregate
of one year's (a) Fixed Annual Rent, (b) Additional Rent (c)
Impositions and (d) premiums for the insurance referred to in
Section 16.1.2, and such other insurance, including, but not limited
to, worker's compensation and boiler and machinery insurance, and in
such amount as may from time to time be reasonably required by
Landlord or any Fee Mortgagee, against other insurable hazards which
at the time are commonly insured against in the case of similar
properties similarly situated in the City, County and State of New
York, with due regard to the height and type of building, its
construction, use and occupancy.
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Section 16.2. All insurance to be provided and kept in force by Tenant
under the provisions of this lease (except worker's compensation insurance)
shall name Landlord and any Mortgagee as additional insureds, and, in addition,
the insurance described in Section 16.1.1 may also name as additional insureds
any Subtenants or other Persons having an insurable interest and designated by
Tenant. In addition, the proceeds of loss under the policies of insurance
required to be obtained by Tenant under Sections 16.1.2 and 16.1.3 (except
worker's compensation insurance) shall be payable as provided in Section 16.3
under standard non-contributing mortgagee clauses attached to such policies.
Said policies shall be obtained by Tenant upon the commencement of the term of
this lease, and shall be taken in responsible companies of recognized
responsibility licensed to do business in the State of New York, rated A or
better by Best's or any successor or from highly rated insurers generally
writing such insurance for similar properties in Manhattan). A certificate for
each such policy of insurance shall be delivered to Landlord and to each
Leasehold Mortgagee. Said policies shall be for a period of not less than one
year and shall contain a provision whereby the same cannot be canceled or
modified unless Landlord (and each Fee and Leasehold Mortgagee named as an
insured thereunder) is given at least thirty (30) days' prior written notice of
such cancellation or modification. Tenant shall procure and pay for renewals of
such insurance from time to time at least thirty (30) days before the expiration
thereof, and Tenant shall promptly deliver to such Mortgagees and to Landlord
the renewal policies or certificates thereof, as required above, together with
receipted bills or other reasonably satisfactory evidence of the payment of the
premiums therefor.
Section 16.3. In case damage to the Demised Premises by fire or otherwise,
and subject to the rights of any Mortgagee, provided there is then no uncured
Event of Default, (a) the loss, if any, shall be adjusted only with Tenant and
(b) the proceeds thereof shall be paid to Tenant if One Million and NO/100
($1,000,000.00) Dollars or less, and to the Depository if more than One Million
and NO/100 ($1,000,000.00) Dollars. The holder of such insurance proceeds shall
hold same as a trust fund for the purpose of paying the cost of the work
required to be performed by Tenant under Article 17 hereof, and, with respect to
any rent insurance provided under Section 16.1, to the payment of the Fixed
Annual Rent, Additional Rent and other charges payable by the Tenant under this
lease, and the Depository shall disburse such monies as provided in Article 17.
The Depository shall be entitled to reasonable compensation for its services as
such, payable out of such monies. Notwithstanding anything contained in this
Article to the contrary, (i) provided there is no continuing Event of Default
hereunder, all proceeds of any rent insurance, business interruption insurance
or similar insurance shall be paid to Tenant, and (ii) the terms of the Fee
Mortgage, if any, shall govern the disposition of insurance proceeds.
Section 16.4. To the extent permitted by law, the parties hereby release
each other from any and all liability or responsibility to their insurers by way
of subrogation or otherwise, for any loss or damage caused by or arising from
any occurrence, casualty or event covered by policies of insurance (including
endorsements) required to be maintained pursuant to this lease.
Section 16.5. Tenant shall not carry any duplicate insurance unless such
coverage names Landlord as an additional insured and such insurance is permitted
under the primary policy.
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Section 16.6. Landlord shall not carry any insurance with respect to the
Demised Premises, provided Tenant is in compliance with the provisions of
Section 16.1 above.
Section 16.7. Landlord may from to time, but not more frequently than once
every sixty (60) months, require that the amount of the public liability
insurance to be provided and kept in force by Tenant under Section 16.1.1 be
increased, so that the amount thereof shall be that commonly carried in the case
of similar properties similarly situated in the City, County and State of New
York and with due regard to the height and type of building, its construction,
use and occupancy. Tenant shall, thereafter, carry the insurance as determined
by such arbitration to be adequate and required, but in no event shall the
amount of public liability insurance be less than the amount specified under
Section 16.1.1.
Section 16.8. Any of the insurance coverages required under this Article
may be included within a so-called "blanket policy" covering other properties
owned or leased by Tenant or one or more Affiliates and such blanket policy may
have a single limit for the fire and extended coverage casualties, provided such
single limit is not less than that required for the Demised Premises under
Section 16.1.2. Additionally, at Tenant's option, such insurance coverages may
be included in umbrella policies.
Section 16.9. Notwithstanding anything contained in this Article to the
contrary, in the event any Fee Mortgage shall require greater amounts of
coverage or additional types of coverage than required by this lease, then the
terms of such Fee Mortgage shall govern and a failure on the part of Tenant to
comply with such requirements shall constitute a default on the part of Tenant
under this lease. Notwithstanding anything in this Article 16 to the contrary,
any insurance carrier selected by Tenant to provide the insurance required
hereby shall meet the rating criteria required by a Fee Mortgage.
ARTICLE 17. DAMAGE OR DESTRUCTION
Section 17.1. If the Building or the Building Equipment shall be damaged
or destroyed by fire or other casualty ("Casualty"), whether or not covered by
insurance, unless Tenant elects not to repair, restore, replace or rebuild the
Demised Premises (such election, the "Non-Restoration Election") and (i)
satisfies the Fee Mortgage; (ii) removes all other monetary liens encumbering
the Demised Premises other than those caused or created by Landlord unless same
were created pursuant to the provisions of Article 34 hereof; and (iii) complies
with applicable law in respect of the physical condition and maintenance of the
Demised Premises after such casualty, including, if necessary, demolishing the
Building and bringing the site to grade, Tenant shall, with reasonable
diligence, repair, restore, replace or rebuild the same to as nearly as may be
practicable its condition and character immediately prior to such damage or
destruction. Such alterations, additions, replacements and improvements shall be
made under and in accordance with the provisions and conditions of Articles 14
and 15. The work required under this Section 17.1 is herein called the
"Restoration".
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Section 17.2 In the event Tenant shall make the Non-Restoration Election
and shall fulfill the conditions set forth in clauses (i) through (iii) of
Section 17.1, then any insurance proceeds remaining shall be retained by, or
paid over to, Tenant, subject to the rights of any Leasehold Mortgagee.
Section 17.3. If Tenant does not make the Non-Restoration Election, the
net amount of the insurance monies paid over to the Depository, shall be applied
by the Depository in the following manner:
(a) there shall be paid to Tenant from said insurance monies
such part thereof as shall equal the cost to Tenant incurred in
making such temporary repairs or doing such other work as was
reasonably necessary in order to protect the Demised Premises
pending adjustment of the insurance loss and the completion of the
Restoration;
(b) there shall be paid to Tenant from said insurance monies
such part thereof as shall equal the cost to Tenant incurred in
performing the Restoration;
(c) payment to Tenant pursuant to subdivision (a) or (b) of
this Section 17.3 from such insurance monies and any deposit
required under Section 17.4 (hereinafter collectively called the
"Restoration Fund") shall be made by the Depository to Tenant from
time to time as the Restoration progresses, but not more frequently
than monthly, in amounts equal to ninety (90%) percent of the value
of labor, fixtures, equipment and material then incorporated into
and used in such work, and builders', architects' and engineers'
fees, and other charges in connection with the Restoration, upon
delivery to Landlord and the Depository of a certificate of a
registered architect or licensed professional engineer, certifying
(i) that the amounts so to be paid to the Tenant are payable to
Tenant in accordance with the provisions of this Section 17.3 and
that such amounts are then due and payable by Tenant or have
theretofore been paid by Tenant; (ii) the progress of the work;
(iii) that the Restoration has been done in accordance with the
plans and specifications therefor and all applicable Legal
Requirements and Insurance Requirements; (iv) that the sum requested
when added to all sums previously paid out under this Section 17.3
for the Restoration does not exceed the value of the labor,
fixtures, equipment and material done or installed to the date of
such certificate; and (v) the estimated cost of completing the
Restoration and that in the opinion of such architect or engineer
the remaining amount of the Restoration Fund will be sufficient upon
completion of the Restoration to pay for the same in full. The ten
percent (10%) retainage provided for above shall be paid to Tenant
upon delivery to Landlord and the Depository of a certificate signed
by such architect or engineer stating that the Restoration has been
fully completed in accordance with the plans and specifications
therefor and all applicable Legal Requirements and Insurance
Requirements;
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(d) at the request of Landlord (which shall not be made more
often than once every thirty (30) days) or the Depository, Tenant
shall furnish to Landlord and the Depository, at the time of any
such payment, an official search or other evidence reasonably
satisfactory to the Depository that (i) there has not been filed
with respect to the Demised Premises any mechanic's or other lien
which has not been discharged of record, in respect of any work,
labor, services or materials performed, furnished or supplied, in
connection with the Restoration, and (ii) all of said materials have
been purchased free and clear of any chattel mortgage or title
retention or other security agreement. The Depository shall not pay
out any such sum when the Demised premises shall be encumbered with
any such lien or agreement, or when Tenant is in default under this
lease and such default has not been remedied by Tenant or any
Leasehold Mortgagee within the applicable grace period, if any,
provided therefor. The Depository shall be entitled to rely upon any
written notice to it from Landlord to the effect that neither Tenant
nor any Leasehold Mortgagee is entitled to any payment hereunder.
Upon the termination of this lease or the recovery of possession of
the Demised Premises by Landlord pursuant to Article 20, any monies
then held by the Depository shall be paid over to Landlord, subject
to the rights of any Fee Mortgagee; and
(e) there shall be paid to Landlord and to the other Persons
respectively entitled thereto under the provisions of this lease
from time to time the proceeds of any rent insurance provided under
Section 16.1 insofar as required in order to pay the Fixed Annual
Rent and Impositions, Additional Rent, and other charges payable by
Tenant under this lease; or, insofar as Tenant shall have paid any
of the foregoing, then, and provided there is then no uncured Event
of Default, there shall be paid to Tenant so much of such proceeds
as are required to reimburse Tenant for the amounts so paid by
Tenant.
(f) Notwithstanding anything contained in this Section 17.3.
to the contrary, the terms of the Fee or Leasehold Mortgage relating
to disbursement of insurance proceeds shall govern, with the
provisions of the Fee Mortgage controlling over the provisions of
the Leasehold Mortgage.
Section 17.4. If the insurance proceeds collected on account of damage or
destruction to the Demised Premises shall be insufficient to pay the total cost
of the Restoration, Tenant shall, prior to commencing the Restoration, deposit
with the Depository the amount of the deficiency, and thereafter from time to
time such additional amounts as shall be needed to meet any increases in the
total cost of the Restoration. In any case, Tenant agrees that if said insurance
monies shall be insufficient to pay the entire cost of the Restoration, Tenant
will pay the deficiency.
Section 17.5. If any of the insurance monies paid by the insurance company
to the Depository as hereinabove provided, shall remain after the completion of
the Restoration and the
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payment to Tenant of the retainage described above, the excess shall be retained
by or paid over to Tenant, subject to the rights of any Mortgagee.
Section 17.6. In the event of any such damage or destruction by fire or
other casualty, the provisions of this lease shall be unaffected and Tenant
shall remain and continue liable for the payment of all Fixed Annual Rent and
Additional Rent required hereunder to be paid by Tenant, as though no such
damage or destruction had occurred, except to the extent that payments are
received by Landlord derived from the rental insurance provided under Section
16.1.
Section 17.7. Subject to Tenant's right to deliver the Non-Restoration
Election, if Tenant shall fail to commence the Restoration within one hundred
eighty (180) days from the date of such damage or destruction (as such one
hundred eighty (180) day period may be extended by Unavoidable Delays) or having
commenced the Restoration shall fail to complete the same in accordance with the
provisions of this lease with reasonable diligence as same may be extended by
Unavoidable Delays, and such failure shall continue for a period of thirty (30)
days, as same may be extended by Unavoidable Delays, any Leasehold Mortgagee
may, at its option and upon serving notice upon Landlord and Tenant that it
elects to do so, perform the Restoration. In such event, such Leasehold
Mortgagee shall have the right, subject to compliance with this Article, to
receive the insurance proceeds otherwise payable to Tenant and to apply the same
to the cost of the Restoration to the extent that the same shall not theretofore
have been applied to the payment or reimbursement of the costs and expenses of
Tenant as aforesaid or otherwise applied pursuant to the provisions of this
Article.
Section 17.8. Subject to Tenant's right to deliver the Non-Restoration
Election, if neither Tenant nor the holder of any Mortgage shall commence the
Restoration within one hundred eighty(180) days from the date of such damage or
destruction (as such one hundred eighty (180)-day period may be extended by
Unavoidable Delays) or having commenced the Restoration, shall fail to complete
it in accordance with the provisions of this lease and with reasonable
diligence, and such failure shall continue for a period of forty-five (45) days
after notice by Landlord (as such forty-five (45) day period may be extended by
Unavoidable Delays), Landlord may, at its option and upon serving written notice
upon Tenant and each such Mortgagee that it elects to do so, make and complete
such work. In such event, and whether or not this lease may have theretofore
been terminated by reason of such default or any other default by Tenant, any
insurance proceeds shall be paid over to Landlord subject to the rights of any
Fee Mortgagee.
Section 17.9. Landlord and Tenant each agrees that it will cooperate with
the other, to such extent as such other party may reasonably require, in
connection with the prosecution or defense of any action or proceeding arising
out of, or for the collection of any insurance monies that may be due in the
event of any loss or damage, and that they will execute and deliver to such
other parties such instruments as may be required to facilitate the recovery of
any insurance monies.
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Section 17.10. The Depository may keep uninvested such amount of the
monies paid over to it as it deems sufficient to make timely payments thereof.
However, if the Depository, in its sole discretion, shall deem any portion of
such monies available for investment, such portion shall be invested in
certificates of deposit or bankers' acceptances of any United States commercial
bank having a net worth in excess of One Hundred Million and NO/100
($100,000,000.00) Dollars. Investments may also be made in United States
Treasury Bills or Notes. The Depository will not be liable for any loss which
may be incurred by reason of any such investment of the funds which it holds
thereunder. Any net income resulting from such investments, including any gains
realized on sale thereof, shall be added to and deemed to be part of the monies
paid over to the Depository. To the extent practicable, the Depository will
schedule maturities of investments to meet the needs of the person conducting
the Restoration, pursuant to monthly estimates of expected needs furnished by
such person. To the extent that the Depository becomes liable for the payment of
taxes, including withholding taxes, in respect of income derived from the
investment of funds hereunder or any payment made hereunder, the Depository may
pay such taxes as if such income were the Depository's sole income. The
Depository may withhold from any payment of monies held by it hereunder such
amount as it estimates to be sufficient to provide for the payment of such taxes
not yet paid, and may use the amount withheld for that purpose. Notwithstanding
anything contained in Section 17.10 of this lease to the contrary, the terms of
the Fee Mortgage with respect to the subject matter of this Section shall
govern.
Section 17.11. Tenant agrees to give prompt notice to Landlord with
respect to all fires and other casualties occurring in, on, at or about the
Demised Premises which result in any death or serious personal injury or in any
material damage or destruction to the Building or Building Equipment.
Section 17.12. To the extent that the provisions of this Article shall
conflict with the provisions of any laws of the State of New York, or any agency
or political subdivision thereof, controlling the rights and obligations of
parties to leases in the event of damage by fire or other casualty to leased
space, the provisions of this Article shall govern and control and such
conflicting laws shall be deemed waived by the parties hereto. To the extent
that the provisions of this Article shall conflict with the provisions of any
Fee Mortgage, the provisions of such Fee Mortgage shall govern.
ARTICLE 18. CONDEMNATION
Section 18.1. If, at any time during the term of this lease, title to the
whole or materially all of the Demised Premises shall be taken by the exercise
of the right of condemnation or eminent domain, this lease shall terminate and
expire upon the later of (a) the vesting of title to the Demised Premises in the
condemning authority or (b) transfer of possession of the Demised Premises to
the condemning authority. Until the later of such dates, Tenant shall not be
relieved of its obligation to pay Fixed Annual Rent and Additional Rent. In such
event, the total award made with respect to the Demised Premises shall be
determined by aggregating the respective values of the leasehold and fee estates
therein, and, after making the payments to Landlord
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required by the Option Agreement in respect of the Option, the balance of the
award, subject to the rights of any Mortgage, shall be paid to the Tenant. For
the purposes of this lease, "materially all of the Demised Premises" shall be
deemed to have been taken if, in the reasonable opinion of Tenant, the Building
can no longer be operated in an economically viable manner.
Section 18.2. If at any time during the term of this lease, title to less
than the whole or materially all of the Demised Premises shall be taken as
aforesaid, or if there shall be any change of grade, then the entire award,
after the payment of the reasonable costs and expenses incurred by the parties
in connection with such proceeding, shall be paid towards the cost of
demolition, repair and restoration, substantially in the manner and subject to
the same terms and conditions as those provided in Section 16.3 and Article 17,
hereof. Any balance remaining after payment of such costs of demolition, repair
and restoration as aforesaid, shall be paid to the Tenant.
Section 18.3. In the event of a negotiated sale of all or a portion of the
Demised Premises in lieu of condemnation, the proceeds shall be distributed as
herein provided in cases of condemnation.
Section 18.4. Notwithstanding anything to the contrary herein contained,
in the event of a permanent or temporary taking of all or any part of the
Demised Premises, Tenant and its subtenants shall have the exclusive right to
assert claims for any trade fixtures and personal property so taken which were
the property of Tenant or its Affiliates or subtenants and/or relocation
expenses of Tenant or its Affiliates as subtenants, and all awards and damages
in respect thereof shall belong to Tenant, its Affiliates and subtenants, and
Landlord hereto waives any and all claims to any part thereof.
ARTICLE 19. APPORTIONMENTS
Section 19.1. Landlord shall have the right to continue to prosecute
and/or settle any pending tax reduction proceedings in respect of the Demised
Premises. However, Landlord shall have no right to enter into any settlement
affecting any tax years after the 1997-1998 tax year without Tenant's prior
written consent, which may be withheld in its sole discretion. Any refunds of
savings in the payment of taxes resulting from tax reduction proceedings
applicable to the period prior to the Commencement Date shall belong to and be
the property of Landlord, and any refunds or savings in the payment of taxes
applicable to the period from and after the Commencement Date shall belong to
and be the property of Tenant; provided, however, that if any refund creates an
obligation to reimburse any tenants for any rents paid for a period of time
prior to the Commencement Date, that portion of such refund equal to the amount
of such required reimbursement (after deduction of allocable expenses as may be
provided in this lease to such tenant) shall be paid to Tenant from the
Landlord's portion and Tenant shall disburse the same to such tenants. All
attorneys' fees and other expenses incurred in obtaining such refunds or savings
shall be apportioned between Landlord and Tenant in proportion to the gross
amount of such refunds or savings payable to Landlord and Tenant, respectively
(without regard to any amounts reimbursable to tenants).
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Section 19.2. Landlord and Tenant shall promptly apportion any rent
payments delivered to either party pursuant to the Leases in respect of periods
prior to the Commencement Date as follows:
19.2.1. Any fixed rents collected subsequent to the Commencement
Date shall be apportioned as of the date of the Commencement Date,
and applied, first, to the costs of collection; second, to the month
in which the Commencement Date occurs; third, on account of any
period for which rent is due from and after the month in which the
Commencement Date occurs; fourth, to the extent Tenant shall have
received such rent from any tenant certified by Landlord on the
Commencement Date, as provided below (the "Late Tenant
Certification") to be in arrears, to payment of rent due on account
of the month immediately preceding the month in which the
Commencement Date occurs; and, fifth, to the extent Tenant shall
have received from any tenant covered by a Late Tenant
Certification, monies in excess of all rents then due from such
tenant, to payment of rents due on account of any period prior to
the one month period preceding the month in which the Commencement
Date occurs. On the Commencement Date, Landlord shall deliver to
Tenant a list of all tenants who are delinquent in the payment of
rents, the nature and amount of each such delinquency and the period
to which each such delinquency relates.
19.2.2. Any rents payable by any tenants by reason of taxes,
operating expenses (whether calculated directly, and/or based upon
increases in the porter's wage or other formula), shall be allocated
as and when collected on the basis of the respective periods with
respect to which such operating expenses were incurred or such taxes
were payable or such cost of living increases related,
notwithstanding the date(s) on which such rents become payable, and
the receiving party shall promptly pay over to the other party any
portion of such rents (if and when received) to which the other
party is entitled. Landlord, on reasonable notice and at reasonable
times, shall make available to Tenant any records (to the extent not
previously delivered to Tenant on the Commencement Date) which are
necessary to allow Tenant to bill tenants for such rents, whether
due or applicable to periods prior to subsequent to Commencement
Date.
Section 19.3. Landlord and Tenant shall apportion amounts due under any
service contracts and sums paid or payable for utilities, including, without
limitation, telephone, steam, electricity, and gas, on the basis of the most
recent bills therefor. Any sums on deposit with any utility company which will
remain on deposit after the Commencement Date as verified in writing by such
utility company shall be credited to Landlord.
Section 19.4 After the date hereof, if any party believes there has been
an incorrect apportionment, it shall so notify the other party, which notice
shall include the calculations for correcting the prior apportionment. If as a
result of the incorrect apportionment Landlord is entitled to more money, such
amount shall be payable as Additional Rent hereunder. If Tenant is
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entitled to more money, Tenant shall have a right of Set-Off (hereinafter
defined) in respect of said amount. If the parties are in disagreement as to the
correct apportionment amount, Landlord shall not be entitled to the benefit of
the provisions of Section 20.1.4 and Tenant shall not exercise its right of
Set-Off with respect thereto and the parties shall submit such dispute to
arbitration, as provided in Article 44 hereof.
ARTICLE 20. CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS
Section 20.1. This lease and the term of this lease are subject to the
limitations that if, at any time prior to or during the term of this lease, any
one or more of the following events (herein called an "Event of Default") shall
occur, that is to say:
20.1.1. If Tenant shall make an assignment for the benefit of its
creditors; or
20.1.2. If any petition shall be filed against Tenant in any court,
whether or not pursuant to any statute of the United States or of
any State, in any bankruptcy, reorganization, composition,
extension, arrangement or insolvency proceeding, and if any such
proceeding shall not be dismissed within ninety (90) days after the
institution of the same; or if any such petition shall be so filed
by Tenant; or
20.1.3. If, in any proceeding, a receiver or trustee be appointed
for all or any portion of Tenant's property, and such receivership
or trusteeship shall not be vacated or set aside within ninety (90)
days after the appointment of such receiver or trustee; or
20.1.4. If Tenant shall fail to pay any installment of the Fixed
Annual Rent or any Additional Rent (subject to Sections 20.1.5 and
20.1.6 below), or any part thereof, when the same shall become due
and payable, and such failure shall continue for ten (10) days after
notice thereof from Landlord to Tenant, provided, however, that
Landlord shall be required to give Tenant notice of failure to pay
only for the first two (2) times in any twelve (12) month period,
and further provided that, with respect to any payment to be made to
a Fee Mortgagee, (i) same shall be paid by Tenant at least two (2)
business days prior to the expiration of the grace or cure period
contained in such Fee Mortgage, (ii) proof of payment by facsimile
transmission shall be sent to Landlord immediately upon payment by
Tenant and (iii) no notice of failure to pay such payment to a Fee
Mortgagee shall be given by Landlord to Tenant. A failure on the
part of Tenant to pay such requisite amounts under a Fee Mortgage in
accordance with this provision (unless Fee Mortgagee waives any
resulting default or reinstates the Fee Mortgage following such
default) shall constitute an Event of Default. However, the failure
on the part of Tenant to submit proof of payment thereof shall
constitute an Event of Default under this lease only if (i) Tenant
has received notice from Landlord that Landlord has not received
said copies and (ii) Tenant has not forwarded said copies within ten
(10) business days of receipt of said notice; or
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20.1.5. If Tenant fails to comply with Section 34.2, unless the Fee
Mortgagee agrees to waive all default interest and penalties
("Penalties") in respect of such failure to refinance the Fee
Mortgage or extend the maturity date thereof or Tenant pays such
Penalties to the Fee Mortgagee or escrows same with the Landlord's
counsel (provided, however, if, thereafter, the Fee Mortgagee waives
the Penalties or Tenant refinances the Fee Mortgage or extends the
maturity date of the Fee Mortgage as required by Section 34.2, such
escrow shall be released to Tenant); or
20.1.6. If Tenant fails to comply with Section 34.2, and the Fee
Mortgagee commences a foreclosure proceeding or sends written notice
to Landlord that it intends to commence a foreclosure proceeding
(provided, however, if the Fee Mortgagee rescinds any notice of
foreclosure or discontinues, or agrees in writing to discontinue,
any foreclosure proceeding once it is commenced, such default shall
be deemed waived by the Landlord); or
20.1.7. If Tenant shall fail to perform or observe any other
requirement of this lease (not hereinbefore in this Section 20.1
specifically referred to) on the part of Tenant to be performed or
observed (other than the payment of a sum of money) and such failure
shall continue for thirty (30) days after notice thereof from
Landlord to Tenant (subject, however, to the provisions of Sections
20.5 and 24.4);
20.1.8. If the Optionee fails to pay the Option Payments when the
same shall become due and payable, and such failure shall continue
for ten (10) Business Days after notice thereof from Landlord to
Tenant;
Then, upon the happening of any one or more of the aforementioned
Events of Default, (subject to the reinstatement of the Fee Mortgage or a waiver
by Fee Mortgagee of any default under the Fee Mortgage as provided in Section
20.1.4 above) Landlord may give to Tenant a notice (hereinafter called "notice
of termination") terminating this lease at the expiration of five (5) business
days from the date of Tenant's receipt of such notice of termination, and at the
expiration of such five (5) business days, this lease and the term of this
lease, as well as all of the right, title and interest of the Tenant hereunder,
shall wholly cease and expire in the same manner and with the same force and
effect as if the date of expiration of such five (5) day period were the date
originally specified herein for the expiration of the term of this lease, and
Tenant shall then quit and surrender the Demised Premises to Landlord, and
Landlord or Landlord's agents or servants may, either by summary process or by
any suitable action or proceeding at law, immediately or at any time thereafter
re-enter the Demised Premises and remove therefrom Tenant, its agents,
employees, servants, licensees, and any Subtenants and other persons, and all or
any of its or their property therefrom, and repossess and enjoy the Demised
Premises, together with all additions, alterations and improvements thereto; but
Tenant shall remain liable as hereinafter provided, subject to the provisions of
Article 31.
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Section 20.2. Subject to the rights of any Mortgagee, if this lease shall
be terminated as provided in Section 20.1, all of the right, title, estate and
interest of Tenant (a) in and to the Building and the Building Equipment, all
changes, additions and alterations therein, and all renewals and replacements
thereof, (b) in and to all rents, income, receipts, revenues, issues and profits
issuing from the Demised Premises, or any part thereof, whether then accrued or
to accrue, (c) in and to all insurance policies and all insurance monies
premiums or awards paid or payable thereunder, and (d) in the then entire
undisbursed balance of any funds in the hands of the Depository, shall
automatically pass to, vest in and belong to Landlord, without further action on
the part of either party, free of any claim thereto by Tenant.
Section 20.3. Subject to the provisions of Article 31, if this lease is
terminated under the provisions of Section 20.1 or in the event of the
termination of this lease, or of re-entry, by or under any summary dispossess or
other proceeding or action or any provision of law by reason of an Event of
Default hereunder on the part of Tenant; Tenant shall pay Landlord the fair
rental value of any space in the Demised Premises occupied by Tenant or an
Affiliate after such termination or re-entry, without thereby creating a
landlord-tenant relationship and Tenant shall be liable for no other damages. In
the event of a breach or threatened breach by Tenant of any of the covenants or
provisions hereof beyond the applicable grace period, if any, Landlord shall
have the right to seek an injunction and the right to invoke any remedy allowed
at law or in equity as if re-entry, summary proceedings and other remedies were
not herein provided for. Mention in this lease of any particular remedy shall
not preclude Landlord from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed for
any cause, or in the event of Landlord obtaining possession of the Demised
Premises by reason of the violation by Tenant of any of the covenants and
conditions of this lease.
Section 20.4. Tenant, for itself and any and all persons claiming through
or under Tenant, including its creditors, upon the termination of this lease and
of the term of this lease in accordance with the terms hereof, or in the event
of entry of judgment for the recovery of the Possession of the Demised Premises
in any action or proceeding, or if Landlord shall enter the Demised Premises by
process of law hereby waives any right of redemption provided or permitted by
any statute, law or decision now or hereafter enforce, and does hereby waive,
surrender and give up all rights or privileges which it or they may or might
have under and by reason of any present or future law or decision, to redeem the
Demised Premises or for a continuation of this lease for the term of this lease
hereby demised after having been dispossessed or ejected therefrom by process of
law.
Section 20.5. Anything in this Article 20 to the contrary notwithstanding
it is expressly understood that with respect to any Event of Default within the
purview of Section 20.1.7 only, if such Event of Default cannot with the
exercise of reasonable diligence, because of Unavoidable Delays or otherwise, be
cured within the period of thirty (30) days provided for in said Section,
Landlord shall not be entitled to serve a notice of termination upon Tenant, as
provided in Section 20.1, if Tenant shall commence the curing of such Event of
Default promptly after notice
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thereof from Landlord and shall thereafter proceed with reasonable diligence to
complete the curing of such Event of Default, subject to Unavoidable Delays, it
being the intention hereof that in connection with any Event of Default within
the purview of Section 20.1.7 only, which is not susceptible of being cured with
due diligence within said thirty (30) days, the time of Tenant within which to
cure the same shall be extended for such period as may be necessary to complete
the same with reasonable diligence, subject to Unavoidable Delays. If at any
time Landlord has reasonably determined that Tenant has not proceeded with
reasonable diligence to complete the curing of such Event of Default, Landlord
shall not be entitled to serve a notice of termination unless Landlord has
notified Tenant of such determination and Tenant has failed to respond within
five (5) business days after its receipt of such notice. Any dispute between
Landlord and Tenant with respect to the subject matter hereof shall be submitted
to arbitration pursuant to Article 44.
Section 20.6. The words "re-enter" and "re-entry" as used herein are not
restricted to their technical legal meanings.
Section 20.7. If (a) there shall be an Event of Default and (b) Tenant
shall not be attempting to cure such Event of Default with reasonable diligence,
then Landlord may, but shall not be obligated to do so, after written notice to
Tenant and without waiving or releasing Tenant from any obligations of Tenant in
this lease contained, make such payment or perform such act which Tenant is
obligated to perform under this lease in such manner and to such extent as may
be necessary to cure such Event of Default, and, in exercising any such rights,
pay any necessary and incidental costs and expenses, employ counsel and incur
and pay reasonable attorneys' fees. All sums so paid by Landlord and all
necessary costs and expenses of Landlord incidental thereto, together with
interest thereon at the Lease Interest Rate from the date of the making of such
expenditures by Landlord, shall be deemed to be Additional Rent and, except as
otherwise in this lease expressly provided, shall be payable to the Landlord
twenty (20) days after demand, and if not promptly paid shall be added to any
rent then due or thereafter becoming due under this lease, and Tenant covenants
to pay any such sum or sums with interest as aforesaid and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of the non-payment thereof by Tenant as in the case of
default by Tenant in the payment of the Fixed Annual Rent.
Section 20.8. Upon an Event of Default and only during the continuance of
an Event of Default, the provisions of that certain Lockbox Agreement between
Landlord and Tenant shall become effective, subject to the rights of any Fee
Mortgagee and shall only be instituted if the Leasehold Mortgagee fails to cure
such Event of Default as provided in Article 24 hereof.
ARTICLE 21. QUIET ENJOYMENT
Section 21.1. Landlord agrees that Tenant, upon paying the rent herein
reserved, and performing and observing the covenants, conditions and agreements
hereof upon the part of Tenant to be performed and observed, shall and may
peaceably hold, enjoy and possess the Demised Premises during the term of this
lease, without any interruption or disturbance from
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Landlord or Persons claiming through or under Landlord. This covenant shall be
construed as running with the land to and against subsequent owners and
successors in interest, and is not, nor shall it operate or be construed as, a
personal covenant of Landlord, except to the extent of the Landlord's interest
in the Demised Premises and only so long as such interest shall continue, and
thereafter this covenant shall be binding only upon such subsequent owners and
successors in interest of Landlord's interest under this lease, to the extent of
their respective interests as and when they shall acquire the same, and only so
long as they shall retain such interest.
ARTICLE 22. SURRENDER OF PREMISES
Section 22.1. Tenant shall, upon the expiration or sooner termination of
this lease pursuant to its terms, surrender to Landlord any Building and
Building Equipment then upon the Demised Premises, together with all alterations
and replacements thereof then on the Demised Premises, in good order, condition
and repair, except for reasonable wear and tear, subject to Tenant's rights
under Article 14, 17 and 18 to demolish the Building.
Section 22.2. Title to all trade fixtures, furniture, equipment (other
than Building Equipment), installed in the Demised Premises shall remain in
Tenant or Subtenants, as the case may be, and, upon expiration or sooner
termination of this lease, the same may and, upon notice from Landlord, shall,
be removed promptly and any resultant damage to the Demised Premises shall be
repaired promptly, by and at the expense of Tenant. The provisions of this
Section shall survive the expiration or sooner termination of this lease.
Section 22.3. Any personal property of Tenant or (subject to Article 25)
Subtenants which shall remain in, at or upon the Demised Premises for ten (10)
days after the expiration or sooner termination of this lease may, at the option
of Landlord, be deemed to be abandoned property, and the same may be retained by
Landlord, as its sole property, or disposed of by Landlord at Tenant's expense
in such manner as Landlord may see fit, without accountability or liability
therefor.
ARTICLE 23. ASSIGNMENT AND SUBLETTING
Section 23.1. (a) Tenant shall have the right, without Landlord's consent,
to assign this lease or to sublet the Demised Premises as an entirety pursuant
to a sublease (the "Master Sublease") in a form agreed to by Tenant and the
sublessee thereunder (the "Master Sublessee"), provided:
23.1.1. Such assignee of this lease shall assume and agree in
writing (subject to the provisions of Section 31.1 hereof), duly
executed and acknowledged and in form for recording, to perform and
observe, from and after the effective date of such assignment, all
of the terms, covenants, and conditions of this lease to be observed
and performed by the Tenant and to be bound by all of the other
provisions of this lease, and that any Master Sublessee shall agree
in writing, duly
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executed and acknowledged and in form for recording, to comply with
and be subject to all the provisions of this lease; and
23.1.2. A duplicate original of such assignment or Master Sublease
and the assumption agreement shall be delivered to the Landlord
promptly after the execution and delivery thereof, and no such
assignment or Master Sublease shall be effective unless and until
the foregoing conditions have been complied with. In the event of
any such assignment in conformity with the foregoing, Tenant shall
be released from the obligations of this lease accruing after the
effective date of such assignment. All subsequent assignments of
this lease or Master Sublease shall likewise be subject to the terms
and conditions of this Section.
(b) Any Master Sublessee shall have the right to (i) mortgage,
pledge, hypothecate or encumber its interest under a Master Sublease and (ii)
assign or further sublease the Demised Premises in the same manner as Tenant may
assign or sublease the Demised Premises as herein provided. In connection
therewith, any mortgagee of the Master Sublessee's subleasehold interest in the
Master Sublease shall have the same benefits afforded to any Leasehold Mortgagee
of Tenant's leasehold interest as provided in Article 24 hereof. Additionally,
any Master Sublease shall be entitled to the benefits set forth in Section 25.1
and, in connection therewith, shall not be required to comply with the
provisions of Article 25.
Section 23.2. Notwithstanding anything to the contrary contained herein,
this lease may be assigned at any time without Landlord's consent pursuant to
the provisions of Article 24.
Section 23.3. Tenant shall have the right to sublet portions of the
Demised Premises at any time and from time to time without Landlord's consent,
provided, and Tenant hereby agrees, that (a) each sublease of any portion of the
Demised Premises which is hereafter made shall be in writing, (b) each sublease
shall be made on an arms' length basis, on reasonable rentals and terms, (c) no
such sublease shall in any way affect or reduce any of the obligations of Tenant
under this lease and (d) a true copy of each sublease shall be delivered by
Tenant to Landlord promptly after the execution and delivery thereof. In the
event that Tenant wishes to let the Demised Premises or any portion thereof for
a term extending beyond the term hereof, or to grant any subtenant the option to
extend the terms of its letting beyond the terms of this lease, Landlord hereby
covenants to enter into a direct lease for such additional term, or extension,
as the case may be, with such subtenant on the same terms and conditions as set
forth in such sublease, other than the term of such direct lease.
Section 23.4. If this lease shall be sublet in part by Tenant, Landlord
may, after default by Tenant, collect rent from the subtenant and apply the net
amount collected to the Fixed Annual Rent and Additional Rent payable under this
lease, but no such subletting or collection shall be deemed a waiver of the
provisions of this Section, or acceptance of the subtenant as a tenant.
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ARTICLE 24. LEASEHOLD MORTGAGES
Section 24.1. Tenant and every successor and assignee of Tenant (including
the Master Sublessee and any subtenants, but only with Tenant's prior consent)
shall have the right, at any time and from time to time during the term of this
lease, to mortgage the leasehold estate created by this lease and any Master
Sublease, without Landlord's consent, provided Tenant is not in default after
the expiry of all notice and cure periods and further provided in respect of any
Leasehold Mortgage that:
24.1.1. A copy of such Leasehold Mortgage, and the note secured
thereby, shall be delivered to Landlord within thirty (30) days
after the execution and delivery thereof; and
24.1.2. Such Leasehold Mortgage shall fully comply with the
provisions and conditions of Section 24.2 hereof.
Section 24.2. Each such Leasehold Mortgage shall contain covenants to the
effect that:
24.2.1. The net proceeds of all insurance policies and of
condemnation awards shall be held, used and applied for the purposes
and in the manner provided in this lease;
24.2.2. Subject to the provisions of Section 24.4.5 if an action is
brought to foreclose such Leasehold Mortgage, the rents, income,
receipts, revenues, issues and profits issuing from the Demised
Premises or from any occupancy, lease or leases thereof, shall be
collected, either through a receiver appointed by a court, or by the
Leasehold Mortgagee, but only if the Leasehold Mortgagee is a
Lending Institution, and, in either case, the monies so collected by
the receiver or Leasehold Mortgagee shall be first applied and used
for the payment of the Fixed Annual Rent then due and owing
hereunder or to become due and owing to Landlord, then for any
Additional Rent then due and payable under this lease including debt
service on any fee mortgage (but not including debt service on any
leasehold mortgage), and then for all other maintenance and
operating charges and disbursements incurred in connection with the
operation and maintenance of the Demised Premises, and any balance
remaining after such application may be applied on account of such
mortgage indebtedness.
Section 24.3. Notwithstanding anything contained to the contrary in this
lease, Tenant shall have the right to assign to any Leasehold Mortgagee or to
the designee or nominee of such Leasehold Mortgagee, without the consent of
Landlord if the Leasehold Mortgagee or its designee or nominee shall acquire
ownership of the leasehold estate, either following foreclosure of such
Leasehold Mortgage or in liquidation of the indebtedness and in lieu of
foreclosure thereof, this lease and any or all of the following collateral: (a)
Tenant's interest in the Building Equipment, (b) the rents, income, receipts,
revenues, issues and profits issuing to the Tenant
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from the Demised Premises, (c) the Subleases, (d) Tenant's right of election to
vacate or remain in possession of the Demised Premises following any rejection
of this lease pursuant to a bankruptcy proceeding affecting Landlord, and (e)
Tenant's interest in this lease. In such event, the Leasehold Mortgagee or its
designee or nominee shall have the further right, without the consent of
Landlord to further assign this lease and such collateral and upon such
assignment shall be released from the obligations of this lease thereafter
arising.
Section 24.4. If Tenant shall execute and deliver a Leasehold Mortgage,
and if the provisions and conditions of Sections 24.1 and 24.2 above shall have
been fully complied with and observed to the extent applicable to such Leasehold
Mortgage, then if Tenant or the holder of such Leasehold Mortgage shall have
notified Landlord in writing of the making thereof and of the name and address
of such Leasehold Mortgagee:
24.4.1. This lease may not be modified, amended, canceled,
surrendered or terminated pursuant to a separate agreement between
Landlord and Tenant without the prior written consent of such
Leasehold Mortgagee;
24.4.2. There shall be no merger of this lease or of the leasehold
estate created hereby with the fee title of the Demised Premises,
notwithstanding that this lease or said leasehold estate and said
fee title shall be owned by the same person or persons, without the
prior written consent of such Leasehold Mortgagee;
24.4.3. Landlord shall serve upon each such Leasehold Mortgagee a
copy of each notice of default and each notice of termination given
to Tenant under this lease, within a reasonable time after such
notice is served upon Tenant. No such notice to Tenant shall be
effective unless a copy thereof is thus served upon each Leasehold
Mortgagee;
24.4.4. Each Leasehold Mortgagee shall have the same period of time
after the service of such notice upon it within which to remedy or
cause to be remedied the default which is the basis of the notice as
that which is provided for the payment or other remedy by Tenant of
the matter in default (including, without limitation, any late
charge or interest payable by Tenant in connection therewith and any
extension of time to cure a default as provided in Section 20.5),
plus, if such Leasehold Mortgagee is the first Leasehold Mortgagee
and a Lending Institution, an additional period of thirty (30) days,
and Landlord shall accept performance by such Leasehold Mortgagee
within the time specified herein as timely performance by Tenant;
24.4.5. In case of default by Tenant under this lease, except a
default in the payment of Fixed Annual Rent or Additional Rent, and
provided the Leasehold Mortgagee shall actually cure any then
defaults in the payment of Fixed Annual Rent or Additional Rent
(including by reinstatement of the Fee Mortgage) Landlord shall,
other than in an initial notice identifying the nature of such
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default, take no action to effect a termination of this lease, by
service of a notice or otherwise, without first giving to such
Leasehold Mortgagee a reasonable time within which either: (a) to
obtain possession of the Demised Premises and to remedy such
default, in the case of a default which is susceptible of being
cured when such Leasehold Mortgagee has obtained possession of the
Demised Premises (which possession shall be deemed to include
possession by a receiver), or (b) to institute, and with reasonable
diligence to complete, foreclosure proceedings or otherwise acquire
Tenant's leasehold estate under this lease in the case of a default
which is not susceptible of being cured when such Leasehold
Mortgagee has obtained possession of the Demised Premises, provided
that (i) the Leasehold Mortgagee shall deliver to Landlord within
thirty (30) days after the expiration of the grace period of Tenant
applicable to the particular default an instrument in writing duly
executed and acknowledged wherein the Leasehold Mortgagee agrees
that (x) until (1) the interest of Tenant in this lease shall
terminate, or (2) conditions (a), (b) and (c) of Section 24.4.7 have
been satisfied, whichever is first, it shall pay or cause to be paid
to Landlord all sums from time to time becoming due under this lease
for Fixed Annual Rent and Additional Rent, as the same become due,
and (y) if delivery of possession of the Demised Premises shall be
made to the Leasehold Mortgagee or to its nominee or designee,
whether voluntarily or pursuant to any foreclosure or other
proceedings or otherwise, the Leasehold Mortgagee shall, promptly
following such delivery of possession, perform or cause such nominee
or designee to perform, as the case may be, all the covenants and
agreements herein contained on Tenant's part to be performed to the
extent that Tenant shall have failed to perform the same to the date
of delivery of possession, as aforesaid, except such covenants and
agreements which cannot with the exercise of due diligence be
performed by the Leasehold Mortgagee or such nominee, and (ii) if
the Leasehold Mortgagee delivering such instrument is not a Lending
Institution, that such Leasehold Mortgagee furnish such security as
Landlord shall reasonably require to assure the remedying of such
default.
24.4.6. If Landlord shall elect to terminate this lease by reason of
any default of Tenant, each Leasehold Mortgagee shall not only have
the right to nullify any notice of termination by agreeing to cure
such default as aforesaid, but shall also have the separate right to
postpone and extend the specified date for the termination of this
lease as fixed by Landlord in its notice of termination, for a
period of not more than twelve months, provided that such Leasehold
Mortgagee shall within sixty (60) days cure or cause to be cured any
then existing monetary defaults and thereafter pay or cause to be
paid the Fixed Annual Rent and Additional Rent, and provided further
that the Leasehold Mortgagee shall forthwith take steps to acquire
or sell Tenant's interest in this lease by foreclosure of the
Leasehold Mortgage or otherwise and shall prosecute the same to
completion with reasonable diligence. If at the end of said 12-month
period the Leasehold Mortgagee shall be actively engaged in steps to
acquire or sell Tenant's
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interest in this lease, the time of said Leasehold Mortgagee to do
so shall be extended for such period as shall be reasonably
necessary to complete such steps with reasonable diligence. If the
Leasehold Mortgagee is prohibited by any process or injunction
issued by any court or by reason of any action by any court having
jurisdiction of any bankruptcy, debtor rehabilitation or insolvency
proceedings involving Tenant from commencing or prosecuting
foreclosure or other appropriate proceedings, the said 12-month
period shall be extended for the period of such prohibition,
provided that the Leasehold Mortgagee shall diligently attempt to
remove any such prohibition. If Tenant's interest is acquired or
sold as aforesaid by foreclosure of the Leasehold Mortgage or
otherwise during said 12-month period, as same may be extended as
aforesaid, the intended termination of this lease by Landlord under
the aforesaid notice will be automatically nullified and this lease
will continue as if said notice of termination had never been given,
provided Leasehold Mortgagee has complied with its obligations under
this Section 24.4.6.
24.4.7. Nothing herein contained shall be deemed to require the
Leasehold Mortgagee to continue with any foreclosure or other
proceedings or, in the event the Leasehold Mortgagee shall otherwise
acquire possession of the Demised Premises, to continue such
possession if the default in respect of which Landlord shall have
given the notice provided for in this Section 24.4 shall be
remedied. However, at any time after the execution and delivery of
the instrument referred to in subdivision (i) of Section 24.4.5, any
such Leasehold Mortgagee may notify Landlord that it does not intend
to continue in possession of the Premises or institute foreclosure
proceedings, or, if such proceedings have been commenced, that it
will discontinue them, and in such event the Leasehold Mortgagee
shall have no further liability under such instrument from and after
the date the Leasehold Mortgagee relinquishes possession or
discontinues the foreclosure proceedings, as the case may be (other
than obligations provided for under such instrument or other
undertaking of the Leasehold Mortgagee, which shall have accrued as
of the date of such relinquishment of possession or discontinuance
of foreclosure proceedings, as the case may be, for payment of Fixed
Annual Rent, Additional Rent, insurance premiums and Impositions and
the performance of the obligation to remit to Landlord any insurance
proceeds then held by the Leasehold Mortgagee and assign to Landlord
any claims under insurance policies). Thereupon Landlord shall have
the right to terminate this lease and to take any other action it
deems appropriate by reason of Tenant's default. No Leasehold
Mortgagee shall be required to commence or continue any foreclosure
or other proceedings or to obtain or continue possession of the
Premises. If prior to any sale pursuant to any proceeding brought to
foreclose any Leasehold Mortgage, or if prior to the date on which
Tenant's interest in this lease and the Demised Premises shall
otherwise be extinguished, (a) the default in respect of which
Landlord shall have given the notice provided for in this Section
shall have been remedied, (b) all Fixed Annual Rent and Additional
Rent then due shall have been
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paid to the date possession of the Demised Premises has been
restored to Tenant, and (c) possession of the Demised Premises shall
have been restored to Tenant, then any further obligation of the
Leasehold Mortgagee pursuant to the instrument referred to in
Section 24.4.5 shall be null and void and of no further effect;
24.4.8. If this lease shall terminate prior to the expiration of the
term of this lease, (and whether or not the instrument referenced in
clause (i) of Section 24.4.5 has been delivered) Landlord shall
enter into a new lease for the Demised Premises with any such
Leasehold Mortgagee, or its designee, for the remainder of the term,
effective as of the date of such termination, at the Fixed Annual
Rent and Additional Rent and with the same priority and upon the
same terms, covenants and conditions contained herein, except that
(a) Landlord shall have no obligation to put the new tenant in
possession of the Demised Premises as against Tenant or anyone
claiming under Tenant, and (b) Landlord, simultaneously with the
execution and delivery of such new lease, shall turn over to the new
tenant all monies, if any, then held by Landlord under this lease on
behalf of Tenant to which Tenant would have been entitled but for
the termination of this lease or the default which resulted in such
termination and the same shall apply to funds then being held by a
Depository, on condition that: (i) such Leasehold Mortgagee shall
make written request for such new lease within forty five (45) days
after the date of such termination; (ii) prior to the commencement
date of the term of the new lease, such Leasehold Mortgagee shall
cure or, in the case of defaults not involving the payment of Fixed
Annual Rent or Additional Rent, shall commence action to cure and
thereafter prosecute such action with all reasonable diligence) all
defaults of Tenant under this lease (susceptible of being cured by
such Leasehold Mortgagee) which remain uncured on that date, and
shall pay or cause to be paid all unpaid sums which at such time
would have been payable under this lease but for such termination,
and shall pay or cause to be paid to Landlord on that date all
expenses, including reasonable counsel fees, court costs and
disbursements, incurred by Landlord in connection with any such
default and termination as well as in connection with the execution
and delivery of such new lease; and (iii) Landlord agrees that the
Fee Mortgagee may deliver to the Tenant under such new lease a
non-disturbance agreement in the form required by Section 28.1 with
respect to this lease or as may otherwise be agreed to between the
Tenant and the Fee Mortgagee.
If more than one Leasehold Mortgagee shall request such new lease,
such new lease shall be made with and delivered to the Leasehold Mortgagee (or
its nominee or designee) whose mortgage is prior in lien to those of any others,
without regard to the time of request;
24.4.9. Tenant and each Leasehold Mortgagee and each designee of a
Leasehold Mortgagee which shall succeed to the rights of Tenant
under this lease, shall be deemed to have agreed to apply the rents,
issues and profits of the Demised
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Premises to fulfill its obligations under this lease before applying
the same for any other purpose.
24.4.10 Landlord may exercise any of its rights or remedies with
respect to any other default by Tenant occurring during the period
of such forbearance provided for under Section 24.4.5, subject to
the rights of each Leasehold Mortgagee under this Article as to such
other defaults, if any.
Section 24.5. Upon the execution and delivery of a new lease under Section
24.4.8 Landlord shall assign and transfer to the tenant under the new lease,
without recourse, any and all of Landlord's rights, title and interest in and to
all subleases, if any, and each sublessee whose sublease is in effect
immediately prior to the execution of the new lease shall be deemed to have
attorned to the new tenant and the new tenant shall at its option be deemed to
have accepted same.
Section 24.6. In the event any prospective Leasehold Mortgagee requires as
a condition to the making of a Leasehold Mortgage loan satisfactory to Tenant,
the amendment of one or more provisions of this lease and/or the addition of one
or more clauses hereto and said amendment or amendments and/or addition or
additions required by such Leasehold Mortgagee do not materially affect
Landlord's or Tenant's rights, privileges and indemnities hereunder, Landlord
and Tenant agree to cooperate with such Leasehold Mortgagee in connection
therewith and Landlord and Tenant shall so amend this lease from time to time.
Section 24.7. In the event any prospective Fee Mortgagee requires as a
condition to the making of a Fee Mortgage loan as contemplated by Article 34
hereof, the amendment of one or more provisions of this lease and/or the
addition of one or more clauses hereto and said amendment or amendments and/or
addition or additions required by such Fee Mortgagee do not materially affect
Landlord's or Tenant's rights, privileges and indemnities hereunder, Landlord,
Tenant and Leasehold Mortgagee agree to cooperate with such Fee Mortgagee in
connection therewith and Landlord and Tenant shall so amend this lease from time
to time.
Section 24.8. Any Leasehold Mortgage that is bifurcated into a project
loan mortgage and a building loan mortgage shall be deemed to be a single
Leasehold Mortgage.
Section 24.9. Anything herein to the contrary notwithstanding, upon the
completion of any Leasehold Mortgage foreclosure proceedings pursuant to which
the Leasehold Mortgagee, its nominee or another person acquires the Tenant's
interest in this lease, Landlord shall be deemed to have waived any Event of
Default by the prior Tenant which is not reasonably susceptible of being cured
by such Leasehold Mortgagee, nominee or other person; provided, however, that,
subject to the provisions of Section 24.4.4, (x) during the pendency of such
proceedings all insurance required to be maintained by Tenant under this lease
shall have been maintained in full force and effect and all payments of Fixed
Annual Rent and Additional Rent due under the terms of this lease shall have
been paid and, (y) upon the completion of such proceedings there shall exist no
uncured Event of Default with respect to the payment of Fixed Annual Rent,
Additional
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Rent or other sums due and payable to Landlord under this lease. Without
limiting the generality of the foregoing, an Event of Default of the prior
Tenant not "susceptible" of being cured or performed by such a Leasehold
Mortgagee, nominee, or other person shall include, but not be limited to: (i)
the failure of the prior Tenant to comply with the time requirements of any term
or provision of this lease (but not the failure to comply with the underlying
term or provision itself); (ii) any bankruptcy, insolvency or receivership or
similar event related to the prior Tenant; or (iii) failure of the prior Tenant
to give any required notices or certificates to Landlord. In no event shall any
Event of Default in the payment of Fixed Annual Rent or Additional Rent or other
sums due Landlord from Tenant under this lease ever be deemed an Event of
Default which is not "susceptible" of being cured or performed by such a
Leasehold Mortgagee, nominee, or other person.
Section 24.10. If Tenant shall have mortgaged this lease then Landlord
agrees, for the benefit of the Leasehold Mortgagee, to the extent permitted by
applicable law, the right of election arising under Section 365(h)(1) of the
Bankruptcy Code, 11 U.S.C. ss. 365(h)(1), shall be exercisable by such Leasehold
Mortgagee and not by Tenant, and any exercise or attempted exercise by Tenant of
such right of election in violation of the immediately preceding provision of
this sentence shall be void. Any rejection of this lease by any trustee of
Tenant in any bankruptcy, reorganization, arrangement or similar proceeding
which would otherwise cause this lease to terminate, shall, without any action
or consent by Landlord, Tenant or any Leasehold Mortgagee, effect the transfer
of Tenant's interest hereunder to the Leasehold Mortgagee or its nominee. Such
Leasehold Mortgagee may terminate this lease upon such transfer upon giving
notice thereof to Landlord no later than forty-five (45) days after notice from
Landlord of such transfer. The Leasehold Mortgagee shall thereupon have no
further obligations hereunder. Alternatively, the senior Leasehold Mortgagee may
request a new lease upon the same terms and conditions as this lease within
forty-five (45) days after notice from Landlord of such transfer, in which event
all obligations accruing pursuant to this lease prior to the effective date of
the new lease shall be payable at the date of its effectiveness notwithstanding
the earlier rejection and termination.
Section 24.11. Except where the Leasehold Mortgagee has become the Tenant,
no liability for the payment of rent or the performance of any of Tenant's
covenants and agreements under this lease shall attach to or be imposed upon the
Leasehold Mortgagee, all such liability as against the Leasehold Mortgagee being
hereby expressly waived by Landlord, and if the Leasehold Mortgagee or its
nominee or designee becomes the Tenant under this lease, all of the obligations
and such liabilities of the Leasehold Mortgagee or its nominee or designee shall
cease and terminate upon assignment of this lease or abandonment of the Demised
Premises.
Section 24.12. Notwithstanding any provision to the contrary, foreclosure
of a Leasehold Mortgage or any sale of Tenant's interest in this lease and the
Demised Premises in connection with a foreclosure, whether by judicial
proceedings or by virtue of any power of sale contained in the Leasehold
Mortgage, or any conveyance of Tenant's interest in this Lease and the Demised
Premises from Tenant to the Leasehold Mortgagee or its nominee or designee by
virtue of or in lieu of foreclosure or other appropriate proceedings, or any
conveyance of Tenant's interest in
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this lease and the Demised Premises by the Leasehold Mortgagee or its nominee or
designee, shall not require the consent or approval of Landlord or constitute a
breach of any provision of or a default under this lease.
Section 24.13. Notwithstanding anything contained in this Article 24 to
the contrary, in the event the Leasehold Mortgagee is the Tenant or an Affiliate
of the Tenant, such Leasehold Mortgagee shall not be entitled to the benefits
granted to a Leasehold Mortgagee pursuant to this Article 24.
Section 24.14. If the Mortgagor is the Master Sublessee, then, solely for
the purposes of this Article 24, the term "Master Sublessee" shall be
substituted for the term "Tenant" and the term "Master Sublease" shall be
substituted for the term "this lease", as the context shall require.
ARTICLE 25. SUBLEASES - ATTORNMENT
Section 25.1. Landlord hereby agrees, for the benefit of any subtenant
which (i) is not an Affiliate of Tenant (ii) has a bona fide sublease covering
either retail space on the street level of the Building or two thousand (2000)
square feet or more above the street level of the Building and either (A) an
initial term of twenty (20) or fewer years or (B) if more than twenty (20)
years, provided the Fixed Annual Rent together with Additional Rent is no less
than ninety (90%) percent of the prevailing market rate for such sublease at the
time executed and (iii) agrees to make full and complete attornment to Landlord
for the balance of the term of such sublease that in the event of the
cancellation or termination of this lease in accordance with the terms hereof
(unless such termination shall arise under Article 18 hereof) or of the
surrender thereof whether voluntary, involuntary or by operation of law, prior
to the expiration date of such subtenant's sublease, including extensions and
renewals granted thereunder and subject to the observance and performance by
such subtenant of all of the terms, covenants and conditions under such sublease
within the time frames provided therein, including any applicable notice and
cure periods, as follows:
25.1.1. That such subtenant upon paying the rent reserved under such
sublease, and performing and observing the covenants, conditions and
agreements thereof upon the part of such subtenant to be performed
and observed, shall and may peaceably hold and enjoy the premises
sublet to the subtenant under such sublease during the term of such
sublease, without any interruption or disturbance from Landlord or
Persons claiming through or under Landlord, and Landlord shall not
terminate such sublease, subject, however, to the terms of such
sublease. This covenant shall be construed as running with the land
to and against subsequent owners and successors in interest, and is
not, nor shall it operate or be construed as, a personal covenant of
Landlord, except to the extent of the Landlord's interest in the
Demised Premises and only so long as such interest shall continue,
and thereafter this covenant shall be binding upon such subsequent
owners and successors in interest of Landlord's interest in the
Demised Premises, to the extent
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of their respective interests, as and when they shall acquire the
same, and only so long as they shall retain such interest.
25.1.2. That the sublease shall continue in full force and effect
and Landlord shall recognize the sublease and the subtenant's rights
thereunder and will thereby establish direct privity of estate and
contract as between Landlord and the subtenant under said sublease
with the same force and effect as though the sublease were
originally made from Landlord in favor of the subtenant thereunder,
subject to the limitations set forth in Section 25.1.3.
25.1.3. To assume such obligations on the part of the sublessor
under such sublease arising from and after the date of such
attornment, provided, however, Landlord shall not be (a) liable in
any way to the subtenant for any act of omission, neglect or default
on the part of Tenant, as sublandlord under said sublease, (b)
responsible for any monies owing by or on deposit with Tenant to the
credit of the subtenant, whether in the nature of security or
otherwise, unless and to the extent such monies are delivered to
Landlord, (c) subject to any counterclaim or set-off which
theretofore accrued to the subtenant against Tenant, as such
sublandlord, (d) bound by any previous prepayment of subrents for
more than two (2) months which was not approved in writing by
Landlord or its predecessors in interest in respect of this lease,
(e) liable to the subtenant beyond Landlord's interest in the
Building and the rents, income, receipts, revenues, issues and
profits issuing from the Building, (f) responsible for the
performance of any work to be done by the sublandlord under such
sublease to render the subleased premises ready for occupancy by the
sublessee, or (g) required to remove any person occupying the
subleased premises or any part thereof, except if such person claims
by, through or under Landlord.
Section 25.2. Within thirty (30) days after request from Landlord, which
shall not be made more frequently than once in any calendar year, Tenant shall
notify Landlord with respect to each sublease which then qualifies for the
benefits afforded under Section 25.1. Such notice shall set forth with respect
to each such sublease, the name of the subtenant, the date of such sublease and
the space covered thereby. If requested by Tenant or such subtenant Landlord
will enter into an agreement in recordable form prepared by Tenant or such
subtenant confirming Landlord's obligations to such subtenant pursuant to
Section 25.1.
ARTICLE 26. ESTOPPEL CERTIFICATES
Section 26.1. Landlord and Tenant each agree at any time and from to time,
upon not less than ten (10) days' prior request by the other party, any
Mortgagee to execute, acknowledge and deliver to the other party or any
Mortgagee, a statement in writing certifying (a) that this lease is unmodified
and in full force and effect (or if there have been modifications that the same
is in full force and effect as modified and stating the modifications), (b) the
dates to which the Fixed Annual Rent and Additional Rent have been paid in
advance, if any, (c) whether or not, to the
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actual knowledge of the signer of such certificate, there is any existing
default or Event of Default under this lease on the part of either party thereto
and, if so, specifying each such default, and (d) whether or not, to the actual
knowledge of the signer of such certificate, any event has occurred, which with
the passage of time or the giving of notice, or both, would constitute such a
default and, if so, specifying each such event, it being intended that any such
statement delivered pursuant to this Section may be relied upon by any
prospective purchaser or Mortgagee of the fee of the Demised Premises or of the
leasehold estate created under this lease, the prospective assignees of any
Leasehold Mortgage or Fee Mortgage and any such subtenant. Landlord also agrees
to add any information reasonably requested by a Mortgagee.
Section 26.2. If a party shall fail or refuse to execute, acknowledge and
deliver the statement required under Section 26.1 within ten (10) days after
request from the other party, and if the party requesting such statement shall
give the other party a further five (5) day notice requesting such statement but
such failure and refusal shall continue during such five (5) day period, then it
shall be deemed that the party in default has certified that (i) this lease is
unmodified and in full force and effect, (ii) Fixed Annual Rent and Additional
Rent have not been paid for any period subsequent to the billing period then in
progress, (iii) to its actual knowledge there are then no defaults or Events of
Default on the part of either party to this lease, and (iv) no event has
occurred which, with the passage of time or the giving of notice, or both would
constitute such a default or Event of Default. Notwithstanding the foregoing,
such deemed certification may not be relied upon by Landlord or Tenant, but only
by their heirs, successors and assigns.
Section 26.3. Neither party shall be required to provide more than four
(4) statements under this Article 26 in any twelve (12) month period, unless
Tenant needs additional statements in connection with a financing.
ARTICLE 27. WAIVER OF JURY TRIAL
Section 27.1. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either against the other on any
matter whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, including any claim of injury or damage, or any emergency or other
statutory remedy with respect thereto, except where such waiver is barred by
law.
ARTICLE 28. SUBORDINATION/NON-DISTURBANCE
Section 28.1. Unless Tenant otherwise agrees with the Fee Mortgagee, which
agreement shall be evidenced by a written instrument, this lease and the
leasehold estate created hereby shall be superior to any Fee Mortgage now or
hereafter a lien upon the Demised Premises.
Section 28.2. If Tenant has agreed that this lease and the leasehold
estate created hereby is subject and subordinate to any Fee Mortgage now or
hereafter a lien upon the Demised Premises, such subordination shall be
effective for only so long as there shall be and remain in
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full force and effect between the holder of such Fee Mortgage and Tenant a
subordination and non-disturbance agreement in the form reasonably required by
such Fee Mortgagee, and further provided that:
28.2.1 The Fee Mortgage is a lien on the Demised Premises; and
28.2.2 The Fee Mortgagee is a Lending Institution.
Upon notice from Landlord or the holder of such Fee Mortgage, Tenant
shall (i) promptly execute, acknowledge and deliver such agreement and (ii)
request such holder to do likewise.
ARTICLE 29. NON-MERGER
Section 29.1. There shall be no merger of this lease, nor of the leasehold
estate created by this lease, with the fee estate in the Demised Premises by
reason of the fact that this lease or the leasehold estate created by this lease
or any interest in this lease or any such leasehold estate may be held, directly
or indirectly, by or for the account of any person or persons who shall own the
fee estate in the Demised Premises, or any interest in such fee estate, and no
such merger shall occur unless and until all persons at the time having an
interest in the fee estate in the Demised Premises and all persons (including
Leasehold Mortgagees) having an interest in this lease, or in the leasehold
estate created by this lease, shall join in a written instrument effecting such
merger and shall duly record the same.
ARTICLE 30. EXCAVATION ON ADJOINING PROPERTY; ENCROACHMENTS
Section 30.1. If any adjoining building or structure encroaches or shall
at any time encroach upon the Demised Premises, no claim or demand or objection
of any kind shall be made by Tenant against Landlord by reason of any such
encroachment (unless such encroachment shall have been caused or approved by
Landlord without Tenant's consent after the Commencement Date of this lease,
which consent or approval shall be deemed a default by Landlord under this
lease) and no claim for abatement of rent and of other charges which may become
due under this lease shall be made by reason of any such encroachment or in
connection with the removal thereof, and the rights, liabilities and obligations
of the parties hereto shall be the same as if there were no such encroachment,
and in any legal proceedings relating thereto, the Demised Premises may properly
and without prejudice be described according to the description hereinbefore
contained without reference to any such encroachments. Landlord agrees to
cooperate with Tenant in any proceedings brought by Tenant to remove any such
encroachments, provided that the same shall be without cost, liability or
expense to Landlord.
ARTICLE 31. LIMITATION OF LIABILITY
Section 31.1. Notwithstanding anything contained to the contrary in this
lease, whether express or implied, it is agreed that each party will look only
to the other's interest in and to the
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Demised Premises for the collection of any judgment (or other judicial process)
requiring the payment of money by the other in the event of a breach or default
under this lease by the other, and no other property or assets of the party
committing such breach or default or its directors, officers, shareholders,
partners or other principals (disclosed or undisclosed) shall be subject to
levy, execution or other enforcement procedures for the satisfaction of any such
judgment (or other judicial process). The interest in and to the Demised
Premises of a party under this lease shall include, without limitation, the
rents, income, receipts, revenues, issues and profits issuing from the Demised
Premises, any insurance policies carried under this lease and the premiums or
proceeds thereof, any money or securities deposited by Tenant with Landlord or
any escrow agent hereunder, any surety or performance bonds provided by Tenant
hereunder and the proceeds therefrom, and any award to which Tenant may be
entitled in any condemnation proceedings or by reason of a temporary taking of
the Demised Premises and any real estate tax refunds. In confirmation of the
foregoing a party acquiring a lien on such other property or asset, by judgment
or otherwise, shall promptly release such lien by executing, acknowledging and
delivering an instrument in recordable form to that effect prepared by the other
party, but such instrument of release shall not release any such lien on the
interest of the other party in the Demised Premises.
Section 31.2. The provisions and conditions of Section 31.1 above are not
intended to, and shall not in any way whatsoever, affect or limit any right or
remedy which any party may have against the other under any agreement, matter,
claim, or thing which is extrinsic to, and does not arise out of, this lease.
ARTICLE 32. EXHIBITION OF DEMISED PREMISES
Section 32.1. Tenant shall, subject to the applicable provisions of
subleases, permit Landlord and its authorized representatives to enter the
Demised Premises at all times during usual business hours and upon reasonable
notice for any reasonable purpose and subject to the provisions of the
subleases.
ARTICLE 33. BROKER
Section 33.1. Tenant and Landlord shall indemnify and save each other
harmless from and against any claims for commissions, fees, compensation or
reimbursement of expenses, asserted by any Person other than Judmart Realty
Corp. (the "Broker") who dealt with or claims to have dealt with either Landlord
or Tenant or any Affiliate of either such party in connection with this lease,
and any reasonable cost or expense incurred by either such party in defending
such claim. Landlord agrees to pay the Broker pursuant to a separate agreement.
Section 33.2. Each party represents and warrants to the other that the
only broker with whom it dealt in connection with this lease is the Broker.
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Section 33.3. Each party under Section 33.1 may, at its option, designate
the counsel which shall defend the indemnified party, subject to such party's
approval, which shall not be unreasonably withheld.
ARTICLE 34. LANDLORD COVENANTS/REFINANCING
Section 34.1 From and after the date hereof, Landlord covenants and agrees
that it will not enter into any agreement, other than this lease and other
agreements with Tenant's affiliates, to sell, transfer, convey, lease, assign,
finance, mortgage, hypothecate, encumber or dispose of (directly or indirectly)
(voluntarily or by operation of law) this lease, all or any portion of the
Demised Premises or any interest in either this lease or the Demised Premises or
with respect to landlord's reversionary or fee interest in the Demised Premises
or portion thereof (any such event, a "Transfer"). For purposes of this Article
34, a Transfer shall be deemed to include any change in the ownership interests
of Landlord or in BC provided that inter vivos or testamentary transfers or
issuance of capital stock in BC to one or more family members of Simon Chetrit,
or trusts in which all of the beneficial interest is held by one or more of such
family members or a partnership or limited liability company in which all the
capital and profits interests are held by such family members shall not be
deemed a Transfer. As used herein, "family members" shall be limited to parents,
siblings, children and grandchildren of Simon Chetrit and their respective
spouses or any entity owned or controlled by any of them. Any Transfer in
violation of this Article 34 shall be void ab initio.
Section 34.2 (a) Tenant shall be obligated to either refinance or
extend the maturity date of the Fee Mortgage at its stated maturity or upon
acceleration of such Fee Mortgage (other than on account of a default by
Landlord), at its sole cost and expense, and the failure to do so shall be a
default under this lease, as more specifically provided in Article 20 hereof.
(b) Landlord agrees that Tenant, at Tenant's sole cost and expense,
shall have the right at any time and from time to time to Refinance the Fee
Mortgage and that Landlord shall have no right or obligation in connection
therewith, except as specifically stated in this Article 34. Such Refinancing
shall:
(i) be one or more loans made by Lending Institution(s) and,
at Tenant's option, may be secured by one or more mortgage
liens on the Demised Premises (and at Tenant's election may
also be a lien on the 417 Premises and may or may not at
Tenant's election be cross-collateralized and cross-defaulted
with the mortgage(s) on the 417 Premises, as well as, if
Tenant so elects, other premises as well, provided that a
default under the mortgage on such other premises shall not
constitute a default under the Fee Mortgage on the Premises or
the 417 Premises);
(ii) be non-recourse to Landlord except for those items set
forth on Exhibit C;
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(iii) be in the aggregate principal amount of no more than
$55,000,000 as an encumbrance on Landlord's fee interest in
the Demised Premises and, as the case may be, on the fee
interest of the owner of the 417 Premises;
(iv) not permit the Lender to participate in the income
derived by Landlord from the Demised Premises; and
(v) for so long as and only to the extent that the Lending
Institution is Tenant (or an Affiliate thereof), no default
interest shall be charged by such Lending Institution in
respect of the Fee Mortgage or the portion thereof held by
Tenant or its Affiliate.
(c) Landlord authorizes Tenant, at any time Tenant deems it
necessary or desirable, to seek to obtain any Refinancing of the Fee Mortgage,
at any time and from time to time, and, in connection therewith, covenants and
agrees to cooperate with Tenant and, if a mere confirmation of the effectiveness
of the power of attorney granted Tenant is insufficient, to provide any
information and to deliver any documentation reasonably required by the Fee
Mortgagee in connection therewith. Except as provided in Exhibit C, nothing
contained herein shall be deemed to impose any obligation on Landlord to execute
and deliver any documents imposing personal liability on Landlord's principals.
Accordingly, Landlord covenants and agrees that:
(i) Landlord shall execute and deliver the documents
evidencing and/or securing each Fee Mortgage (collectively,
the "Loan Documents") and shall also execute and deliver any
other documents or affidavits reasonably required by each Fee
Mortgagee and its title company in connection therewith (the
"Loan Transaction Documents"); and
(ii) Landlord shall cooperate in satisfying any reasonable
requests by each Fee Mortgagee that are part of its conditions
precedent to closing the financing, including, without
limitation, causing Landlord's counsel to deliver any opinions
with respect to Landlord and, provided Tenant's counsel shall
have delivered an opinion to Landlord that the Loan Documents
are enforceable, which Landlord's counsel is specifically
authorized to rely upon, an opinion as to the enforceability
of the Loan Documents that may be reasonably required by each
Fee Mortgagee, which opinion(s) shall be deemed part of the
Loan Transaction Documents.
(d) Tenant agrees that it shall pay all costs in connection with
obtaining and closing such refinancing, including, without limitation,
Landlord's reasonable counsel fees, and recording the Loan Documents.
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(e) Notwithstanding anything to the contrary in any Fee Mortgage,
Landlord agrees that, whenever any Fee Mortgage provides for the release to
Mortgagor of any (i) deposits held by such Mortgagee, (ii) condemnation awards,
(iii) insurance proceeds or (iv) any other amounts held by such Mortgagee
(collectively, the "Released Funds"), such Released Funds are to be delivered to
Tenant and, if same are delivered to Landlord, such Released Funds will be held
in trust by Landlord and promptly delivered to Tenant.
ARTICLE 35. NOTICES, ETC
Section 35.1. All notices, consents, demands and requests (collectively,
"notices" and individually, a "notice") which are required or desired to be
given by either party to the other shall be in writing. All notices by either
party to the other shall be sent by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the other party at its
address set forth below, personally delivered or sent by prepaid, overnight,
national overnight courier ("Courier") to such address or at such other single
address as it may from time to time designate in a notice to the other party.
All notices to Landlord shall be addressed to The 44 BC Realty LLC, c/o Prince
Management Corp., 498 Seventh Avenue, New York, New York 10036. Copies of all
notices to Landlord shall be given in the same manner to Sukenik, Segal & Graff,
P.C., 417 Fifth Avenue, New York, New York 10016, Attention: Jehoshua Graff,
Esq. All notices to Tenant shall be addressed to PoleStar Forty-Fourth Property
Associates LLC, c/o NorthStar Capital Partners, LLC, 527 Madison Avenue, 17th
Floor, New York, New York 10022 Attention: W. Edward Scheetz. Copies of all
notices to Tenant shall be given in the same manner to Robert J. Wertheimer,
Esq., Battle Fowler LLP, 75 East 55th Street, New York, New York 10022,
Telephone: (212) 856-7000 and Facsimile (212) 339-9150 and to Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022,
Attention: Benjamin F. Needell, Esq., Telephone: (212) 735-3000 and Facsimile
(212) 735-2000 or in either case, to such other one person or address as the
party giving such notice shall have been previously notified from time to time
by the party to whom such notice is given. Notices which are served upon
Landlord or Tenant by Courier shall be deemed to have been given or served for
all purposes hereunder on the business day next following the date on which such
notice shall have been sent by Courier or personally served as aforesaid.
Notices sent by certified mail shall be deemed delivered three (3) business days
after same have been mailed. As a matter of convenience only, notices may be
sent by telecopier, provided a hard copy is delivered as stated above, but the
delivery by telecopy shall not accelerate the date delivery of such notice is
deemed to have been received.
Section 35.2. All notices which are required or desired to be given by
either party to any Mortgagee shall be in writing. All notices to any Mortgagee
shall be sent by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to such Mortgagee at its address set forth
in its respective mortgage of which, in the case of Leasehold Mortgages Landlord
shall have been notified, and in case of Fee Mortgages Tenant shall have been
notified, or personally delivered to such address, or at such other address as
the Mortgagee in question may from time to time designate in a written notice to
the party giving such notice.
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Notices, which are served upon any Mortgagee in the manner aforesaid, shall be
deemed to have been given or served for all purposes hereunder on the business
day next following the date on which such notice shall have been mailed or
personally served as aforesaid.
Section 35.3. The parties hereby confer jurisdiction upon the Supreme
Court of the State of New York, County of New York (or any successor court of
similar jurisdiction) with respect to any judicial action or proceeding arising
out of this lease or the relationship of the parties as landlord and tenant.
Service of process in any such action or proceeding may be accomplished in the
same manner as the giving of a notice under Section 35.1.
ARTICLE 36. INDEX AND CAPTIONS
Section 36.1. The index and captions of this lease are for convenience and
reference only, and in no way define, limit or describe the scope or intent of
this lease, nor in any way affect this lease.
ARTICLE 37. VAULTS
Section 37.1. This lease includes, as appurtenant to the Demised Premises
but subject to such laws, permits, orders, rules and regulations as may be
imposed by appropriate governmental authorities with respect thereto, any rights
of Landlord, or which Landlord has authority to grant , in or to any vaults or
other space in, under or over any adjoining avenue, street, highway or property,
and Tenant shall take or cause to be taken all such action as may be appropriate
to maintain the same, but if use of the same shall be discontinued, such
discontinuance shall in no way affect the liability of Tenant to pay the rent
and perform all the covenants contained in this lease. If any license or permit
to use such vault or other space shall be revoked, Tenant shall, at its sole
cost and expense, do and perform all such work as may be necessary to comply
with any lawful order revoking the same.
Section 37.2. No diminution of the amount of vault space used by Tenant or
any subtenant shall entitle Tenant to any reduction or abatement of rent.
ARTICLE 38. RIGHT OF SET-OFF/TENANT REMEDIES
Section 38.1 (a) Landlord acknowledges and agrees that there exists the
right to set off (the "Set-Off") against any Fixed Annual Rent due under this
lease and any Additional Payments due to BC by NS Member under the Operating
Agreement (as such term is defined in the Operating Agreement) for an amount
equal to the actual damages incurred by Tenant in connection with:
(i) any incorrect information in the Rent Roll attached as
Schedule 1 to the Agreement, any inaccurate representation or
warranty in the Lease Assignment Agreement or the Security
Deposit Agreement delivered by
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Landlord on the date hereof pursuant to the Agreement, or any
claim arising under the Landlord's Estoppel delivered in
connection with the closing under the Agreement, subject to
the provisions of the second sentence of Section 8(e)(ii) of
the Agreement releasing BC from liability as Conforming Tenant
Estoppels (as defined in the Agreement) are delivered;
(ii) any claims in respect of the Demised Premises for the
period prior to the Commencement Date, including, without
limitation, any obligation of Landlord under any of the
Leases, which shall, in turn, include, without limitation, any
unfinished Landlord work under the Leases, any payments due
and owing any Tenant under any Leases in respect of or any
inducements given to such tenants in respect of the execution
and delivery of their Leases;
(iii) any fees or commissions payable to (A) S.L. Green
Management Corp. and/or in connection with any Leases or any
management agreement or other understanding or agreement for
the Demised Premises (including, without limitation, any
management or leasing fees and any termination or other fee or
expense reimbursement payable pursuant to the terms of the
existing Management Agreement), (B) any broker or consultant,
(C) any employees (or their union(s)) with respect to services
rendered at the Premises prior to the Commencement Date,
including, without limitation, claims made by such employees
(or their unions) with respect to wages, fringe benefits, if
any and pension, retirement and hospitalization plans, if any;
and/or (D) any other service provider at the Demised Premises
(any such Person, a "Prior Service Provider"), whether
pursuant to a written or oral agreement with Landlord, its
Affiliates, agents or representatives, which fees or
commissions were on account of services provided prior to the
date of this lease, and which were not paid in full by BC (all
amounts due under subparagraph (ii) above and under this
subparagraph (iii), a "Prior Fee"); and
(iv) any credits to Tenant in respect of the Apportionments
set forth in Article 19 hereof.
(b) With respect to any Set-Offs by Tenant pursuant to its rights
under Section 38.1(a)(i) above, the following shall apply:
(i) If the right to Set-Off is on account of (A) any monetary
matter, including, but not limited to, (I) the rent obligation
(which shall include both fixed and additional rent
obligations) of a tenant being lower than as stated in either
the Rent Roll or the related Landlord Estoppel or (II) a
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misstatement in respect of a monetary obligation of Landlord
(any such monetary matter, as provided in clauses (I) and/or
(II) above,, a "Monetary Deficiency"), Tenant shall have a
dollar-for-dollar right of Set-Off in the amount of, but not
exceeding, such Monetary Deficiency, during the period of the
stated term of the lease to which such Monetary Deficiency
corresponds, or (B) a non-monetary matter which has been
misstated in either the Rent Roll or the related Landlord
Estoppel (a "Non-Monetary Matter"), Landlord shall indemnify
Tenant with respect thereto, but only to the extent of actual
damages.
(ii) Unless a dispute exists, if Landlord shall fail to
reimburse Tenant for any loss, cost or expense incurred by
Tenant in connection with a Non-Monetary Matter (which shall
include, without limitation, reasonable attorneys' fees)
within twenty (20) days after Landlord's receipt of written
request therefor from Tenant, which request shall include a
reasonably detailed statement of the costs incurred by Tenant,
Tenant shall have a right of Set-Off in respect of any amounts
that are due and owing to Tenant in respect of said
reimbursement; and
(iii) Any disputes between Landlord and Tenant with respect to
the amount of the Set-Off in respect of a Monetary Matter or a
Non-Monetary Matter shall be submitted to arbitration as
provided in Article 44 hereof.
(c) Any invoice or other claim or demand in respect of a Prior Fee
shall be delivered to Landlord and Landlord shall have sixty (60) days from
receipt of same to resolve same to Tenant's reasonable satisfaction. If Landlord
is unable to resolve same in such sixty (60) day period, Tenant shall have the
right to (i) pay the full amount (the "Offset Escrow Amount") of such invoice,
claim or demand as demanded by such party into escrow with Landlord's counsel to
be held pursuant to the provisions of Exhibit B of the Agreement in respect of
the Downpayment, pending issuance of a judgment by a court of competent
jurisdiction in such dispute or after settlement between Landlord and such Prior
Service Provider and (ii) set off an amount equal to such payment against the
Fixed Annual Rent. As a condition precedent to Tenant exercising its right of
Set-Off, Tenant shall submit to Landlord reasonably satisfactory evidence that
Tenant made such payment into escrow. Landlord shall be responsible for all
costs and expenses in connection with said dispute, including, without
limitation, all reasonable attorneys' fees and all costs incurred by Tenant with
respect to such dispute and Tenant shall have a right of Set-Off with respect
thereto if such costs and expenses are not promptly reimbursed to Tenant by
Landlord after Tenant has (I) made a demand upon Landlord for such reimbursement
and (II) submitted evidence reasonably satisfactory to Landlord that such
expense has been incurred. If Landlord settles or pays in full the invoice,
claim or demand in respect of the Prior Fee, Landlord shall be entitled to the
Offset Escrow Amount relating to such invoice, claim or demand upon submission
to Tenant of evidence, reasonably satisfactory to Tenant, that the Prior Fee has
either been paid in full or settled.
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(d) In addition to the aforesaid Set-Off Rights, in the event of a
breach or a threatened breach by Landlord of any of its covenants hereunder,
Tenant shall have the right to seek injunctive relief and the right to invoke
the remedy of specific performance, as determined by Tenant in its sole
discretion.
(e) If (i) Tenant is unable to consummate a Refinancing, (ii) Master
Sublessee or any sublessee is unable to consummate a Refinancing, or (iii)
Tenant, Master Sublessee or any sublessee is unable to make a Tenant Transfer as
a result of a Title Objection which has not been removed or cured by Landlord
within sixty (60) days after Landlord's receipt of notice in connection
therewith, the amount to remove or cure such Title Objection shall be treated as
if it was a Prior Fee under Section 38.1(c) above.
(f) Except as specifically set forth in this Article 38, Tenant
shall have no other right of Set-Off.
ARTICLE 39. INVALIDITY OF PARTICULAR PROVISION
If any term or provision of this lease or the application thereof to any
person or circumstance shall to any extent be invalid or unenforceable, the
remainder of this lease, or the application of such term or provision to persons
or circumstances other than those as to which it is invalid or unenforceable,
shall not be affected thereby and each term and provision of this lease shall be
valid and be enforced to the fullest extent permitted by law, with the parties
hereto covenanting to nonetheless negotiate in good faith, in order to agree the
terms of a mutually satisfactory provision to be substituted for the term or
provision which is void or unenforceable.
ARTICLE 40. AUTOMATIC EXTENSION OF TERM
Section 40.1.
(a) In the event that there is a Non-Permitted Encumbrance and as a
result thereof (i) Landlord is unable to deliver title to the Demised Premises
in accordance with the terms of the Option Agreement (unless BC is ready,
willing and able to deliver the Purchase Right pursuant to Section 10.07 of the
Operating Agreement); (ii) BC is unable to deliver the Purchase Right pursuant
to Section 10.07 of the Operating Agreement (unless Landlord is ready, willing
and able to deliver title to the Demised Premises in accordance with the terms
of the Option Agreement); (iii) Tenant, Master Sublessee or any subtenant is
unable to effectuate a Refinancing or a Tenant Transfer; or (iv) there has been
a Material Breach of Representation (as defined in Section 10(d) of the Option
Agreement) (and such Non-Permitted Encumbrance or Material Breach of a
Representation is not resolved in the manner provided in Section 38.1(c) with
respect to a Prior Fee) (any such event, a "Landlord Title Failure"), then the
term of this lease is automatically extended for an additional period of
seventy-four (74) years (the "Extended Term") at the Fixed Rent set forth on
Schedule B. The Extended Term shall commence on February 6, 2023 and end on
February 5, 2097.
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(b) Notwithstanding anything contained herein to the contrary, until
such time as Landlord has cured or removed such Landlord Title Failure, the
Fixed Annual Rent as provided in Schedule A or Schedule B, as the case may be,
for the period commencing on the date of such failure shall be paid to and held
in escrow by Landlord's counsel and shall be paid over to Landlord (together
with any interest accrued thereon) only upon the closing of title in accordance
with the terms of the Option, the consummation of the Purchase Right pursuant to
the Operating Agreement, or the closing of the Refinancing or Tenant Transfer,
as the case may be, all subject to the provisions of Article 38 hereof,
provided, however, if Landlord or BC has wilfully caused the Landlord Title
Failure, as determined by a court of competent jurisdiction, then the payments
required to be made by Tenant pursuant to this lease as shown on Schedule A or
Schedule B, as the case may be, for the period from the time of such failure
shall be waived by Landlord and shall not be required to be paid by Tenant
notwithstanding any other provision in this lease to the contrary and if
previously deposited in escrow prior to such determination shall be returned to
Tenant (together with any interest accrued thereon).
Section 40.2 The extension shall be upon the same terms, covenants and
conditions as are contained in this lease, except for the Fixed Annual Rent
which shall be as set forth on Schedule B annexed hereto, duration of the term
and such provisions in this lease which by their terms are only applicable to
the Initial Term of this lease.
ARTICLE 41. MISCELLANEOUS PROVISIONS
Section 41.1. Every term, condition, agreement or provision contained in
this lease shall be deemed to be also a covenant.
Section 41.2. The specified remedies to which either party may resort
under the terms of this lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which that party may be
lawfully entitled in case of any breach or threatened breach by the other party
of any provision of this lease, and either party shall be entitled to the
restraint by injunction of any violation or attempted or threatened violation of
any of the terms or provisions of this lease.
Section 41.3. The failure of either party to insist in any one or more
cases upon the strict performance of any of the terms, covenants, conditions,
provisions or agreements of this lease, or to exercise any option herein
contained, shall not be construed as a waiver or a relinquishment for the future
of any such term, covenant, condition, provision, agreement or option. A receipt
and acceptance by Landlord of rent or any other payment, or the acceptance or
performance by either party of anything required by this lease to be performed,
with knowledge of the breach of any term, covenant, condition, provision or
agreement of this lease, shall not be deemed a waiver of such breach, nor shall
any such acceptance of rent in a lesser amount than is herein provided for
(regardless of any endorsement on any check, or any statement in any letter
accompanying any payment of rent or other charge) operate or be construed either
as an accord and satisfaction or in any manner other than as a payment on
account of the earliest rent or other charge then
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unpaid by Tenant. No waiver by either party of any term, covenant, condition,
provision or agreement of this lease shall be deemed to have been made unless
expressed in writing and signed by that party.
Section 41.4. This lease may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of the change,
modification or discharge is sought.
Section 41.5. In the event of any Unavoidable Delays under this lease, the
time of performance of the covenants and obligations under this lease in
question (which shall in no event include any requirement for the payment of a
sum of money) shall automatically be extended for a period of time equal to the
aggregate period of the Unavoidable Delays.
Section 41.6. Any notice, waiver, certificate under Article 26, or
modification of this lease, signed on behalf of a party by one of its general
partners (if such party is a general or limited partnership or by one of its
directors or its president, executive vice president, vice-president or
secretary (if such party is a corporation) shall be binding upon that party and
the other party may rely thereon (as well as any third party expressly entitled
under this lease to rely thereon) without any inquiry into or evidence of the
authority of the signatory.
Section 41.7. This lease shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York and without aid of any
canon or rule of law requiring construction against the party drawing or causing
this lease or any provision thereof to be drawn.
Section 41.8. All terms and words used in this lease, regardless of the
number or gender in which they are used, shall be deemed to include-any other
number, or any other gender, as the context may require.
Section 41.9. The terms "herein," "hereby," "hereof," "hereunder," and
words of similar import, shall be construed to refer to this lease as whole, and
not to any particular Article or Section, unless expressly so stated.
Section 41.10. If either party shall be in default in the performance of
any of its obligations under this lease after the applicable grace period, if
any, then and in addition to any other right or remedy of the non-defaulting
party, the defaulting party shall promptly reimburse the non-defaulting party
for any reasonable counsel fees and disbursements incurred by the non-defaulting
party in enforcing its rights hereunder or at law or in equity.
Section 41.11. The provisions of this lease shall not be construed for the
benefit of any third party, except as otherwise provided herein.
Section 41.12. This lease may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument.
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Section 41.13. Nothing contained in this lease shall be deemed to create a
partnership or other joint venture between the parties.
ARTICLE 42. FURTHER ASSURANCES
Section 42.1. From time to time, each party hereto shall, within five (5)
Business Days after a request therefor by the other party and at such party's
sole cost and expense, furnish such additional consents and other instruments
and information as may be reasonably required to implement the provisions of
this lease and the intentions of the parties or to confirm or perfect any right
to be created or transferred hereunder.
ARTICLE 43. COVENANTS BINDING ON RESPECTIVE PARTIES
Section 43.1. Subject to the provisions of Articles 23 and 31, the terms,
conditions, covenants, provisions and undertakings herein contained shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, personal representatives, successors and assigns.
ARTICLE 44. ARBITRATION
Section 44.1. In such cases where this lease provides for the settlement
of a dispute by arbitration, such arbitration shall be made by the American
Arbitration Association (or any successor body of comparable function reasonably
satisfactory to the parties) in the City, County, and State of New York in
accordance with the rules then obtaining of said Association (or such successor)
and a judgment upon the award may be entered in any court, federal or state,
having jurisdiction therefor. Any Fee Mortgagee and any Leasehold Mortgagee
shall have the right to participate in any such arbitration, and prompt notice
thereof shall be given to each Fee Mortgagee and each Leasehold Mortgagee by the
party requesting such arbitration, provided and to the extent such party shall
have been previously notified of the name and address of such Mortgagees. The
fees and expenses of any arbitration shall be borne by the parties equally, but
each party shall bear the expense of its own attorneys and experts and of
presenting its own proof and each party shall act in good faith and in a
commercially reasonable manner in respect of its obligations under this Article
44. The arbitrators shall (i) have at least ten (10) years experience in real
estate matters similar to the matter being arbitrated and (ii) not be affiliated
with any party.
ARTICLE 45. RIGHT TO PURCHASE AFTER TERMINATION
Section 45.1. If there is a valid and legal termination of this lease
pursuant to its terms, which termination occurs on or after April 1, 2008, and
no Leasehold Mortgagee has exercised the right pursuant to Article 24 hereof to
obtain a new lease, Landlord will so notify Optionee and NS Member at the
address set forth above for Tenant (or to such other person and at such other
address as Landlord shall have been previously notified by Optionee at its
address for
-57-
<PAGE>
notices). In such event, either Optionee shall have the right to exercise the
Option and to acquire the Demised Premises pursuant to the terms of the Option
Agreement, or NS Member shall have the right to acquire the Acquired Interests
as provided in Section 10.07 of the Operating Agreement, provided, however, (i)
if within thirty (30) days of Optionee's or NS Member's actual receipt of such
notice, Optionee fails to exercise its right to the Option or, as the case may
be, NS Member fails to exercise its right to acquire the Acquired Interest or
(ii) in the alternative, if Landlord fails to notify Optionee and/or NS Member
and Optionee or NS Member has not, within sixty (60) days from the date of the
valid and legal termination of the lease, exercised the Option, or, as the case
may be, its right to acquire the Acquired Interest Optionee's right to exercise
the Option shall be deemed terminated.
-58-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this lease
as of the day and year first above written.
LANDLORD:
THE 44 BC REALTY LLC
By: THE 44TH B.C. REALTY CORP.
By:___________________________________
Name: Joseph Chetrit
Title: Vice President
Signatures Continued on Next Page of Lease - 44th Street
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<PAGE>
TENANT:
POLESTAR FORTY-FOURTH PROPERTY
ASSOCIATES LLC
By:___________________________________
Name: W. Edward Scheetz
Title: President
Final Signature Page of Lease - 44th Street
-60-
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared Joseph
Chetrit, personally known to me or proved to me on the basis of satisfactory
evidence to be the same individual whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his capacity, and
that by his signature on the instrument, the individual, or the person on behalf
of which the individual acted, executed the instrument.
------------------------------
[Seal]
-61-
<PAGE>
State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared W.
Edward Scheetz, personally known to me or proved to me on the basis of
satisfactory evidence to be the same individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
------------------------------
[Seal]
-62-
<PAGE>
Exhibit A
---------
Description of Land
-63-
<PAGE>
Exhibit B
---------
Memorandum of Lease
-64-
<PAGE>
Exhibit C
---------
Exceptions to Non-Recourse
Landlord shall be personally liable at all times for (i) the
misapplication of (a) any insurance proceeds paid under any insurance policies
by reason of damage, loss, or destruction to the Premises or (b) proceeds or
awards resulting from condemnation or other taking in lieu of condemnation of
any portion of the Premises or (c) tenant security deposits, but solely to the
extent any of the foregoing items have actually been received and misapplied by
Landlord, and (ii) any damages to Lender resulting from any fraud or intentional
misrepresentation made by Landlord.
-65-
<PAGE>
Exhibit D
---------
Pre-Existing Environmental Matters
Those matters shown on the Property Condition Assessment and the
Phase I Environmental Site Assessment, both dated December 15, 1997, in respect
of the Premises prepared by Certified Environments Inc.
-66-
<PAGE>
Exhibit E
---------
JEWISH HOLIDAYS
Rosh Hashanah (Both Days)
Yom Kippur
Succot (First 2 Days)
Shemini Atzeret
Simchat Torah
Passover (First 2 Days and Last 2 Days)
Shavuot (Both Days)
-67-
<PAGE>
Schedule A
----------
Fixed Annual Rent
-68-
<PAGE>
Schedule B
----------
Fixed Annual Rent During Extension Term
-69-
<PAGE>
Schedule C
----------
LEASES
-70-
<PAGE>
Exhibit 10.10
L E A S E
- --------------------------------------------------------------------------------
417 FS REALTY LLC
Landlord
-with-
POLESTAR FIFTH PROPERTY ASSOCIATES LLC
Tenant
Premises: 417 Fifth Avenue
New York, New York
- --------------------------------------------------------------------------------
<PAGE>
INDEX
-----
Article Page
- ------- ----
1. DEFINITIONS.............................................................1
2. DEMISE AND TERM; STATUS OF TITLE........................................7
3. RECORDATION OF LEASE....................................................8
4. LANDLORD COVENANTS RE: COOPERATION/POWER OF ATTORNEY...................9
5. FIXED RENT.............................................................10
6. NET LEASE..............................................................11
7. PAYMENT OF IMPOSITIONS.................................................11
8. DEPOSITS FOR REAL ESTATE TAXES.........................................14
9. USE; COMPLIANCE WITH LAWS; ETC.........................................14
10. UTILITIES AND SERVICES.................................................17
11. INDEMNIFICATION........................................................17
12. MAINTENANCE AND REPAIRS................................................18
13. MECHANICS' AND OTHER LIENS.............................................19
14. ALTERATIONS............................................................20
15. CONDITIONS FOR TENANT'S WORK...........................................20
16. INSURANCE..............................................................21
17. DAMAGE OR DESTRUCTION..................................................24
18. CONDEMNATION...........................................................28
19. APPORTIONMENTS.........................................................29
-i-
<PAGE>
20. CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS...........................30
21. QUIET ENJOYMENT........................................................34
22. SURRENDER OF PREMISES..................................................34
23. ASSIGNMENT AND SUBLETTING..............................................35
24. LEASEHOLD MORTGAGES....................................................36
25. SUBLEASES - ATTORNMENT.................................................44
26. ESTOPPEL CERTIFICATES..................................................45
27. WAIVER OF JURY TRIAL...................................................46
28. SUBORDINATION/NON-DISTURBANCE..........................................46
29. NON-MERGER.............................................................47
30. EXCAVATION ON ADJOINING PROPERTY; ENCROACHMENTS........................47
31. LIMITATION OF LIABILITY................................................47
32. EXHIBITION OF DEMISED PREMISES.........................................48
33. BROKER.................................................................48
34. LANDLORD COVENANTS/REFINANCING.........................................48
35. NOTICES, ETC...........................................................50
36. INDEX AND CAPTIONS.....................................................52
37. VAULTS.................................................................52
38. RIGHT OF SET-OFF/TENANT REMEDIES.......................................52
39. INVALIDITY OF PARTICULAR PROVISION.....................................55
40. AUTOMATIC EXTENSION OF TERM............................................55
41. MISCELLANEOUS PROVISIONS...............................................56
-ii-
<PAGE>
42. FURTHER ASSURANCES.....................................................57
43. COVENANTS BINDING ON RESPECTIVE PARTIES................................58
44. ARBITRATION............................................................58
45. RIGHT TO PURCHASE AFTER TERMINATION....................................58
EXHIBITS
- --------
Exhibit A - Description of Land...............................................
Exhibit B - Memorandum of Lease...............................................
Exhibit C - Exceptions to Non-Recourse........................................
Exhibit D - Pre-Existing Environmental Matters................................
Exhibit E - Jewish Holidays...................................................
Exhibit F - Permitted Encumbrance.............................................
Schedules
- ---------
Schedule A - Fixed Annual Rent
Schedule B - Fixed Annual Rent During Extension Term
Schedule C - Leases
-iii-
<PAGE>
THIS LEASE (this "Lease") made as of the ____ day of February, 1998
between 417 FS REALTY LLC, a Delaware limited liability company having an office
c/o Prince Management Corp., 498 Seventh Avenue, New York, New York 10036
(hereinafter called "Landlord"), and POLESTAR FIFTH PROPERTY ASSOCIATES LLC, a
Delaware limited liability company having an office c/o NorthStar Capital
Partners LLC, 527 Madison Avenue, New York, New York 10022 (hereinafter called
"Tenant").
W I T N E S S E T H :
ARTICLE 1. DEFINITIONS
Section 1.1. For the purposes of this lease, unless the context otherwise
requires, the following words and terms shall have the meanings indicated:
1.1.1. Additional Rent (whether or not the initial letters are
capitalized): All rent, additional rent and other charges and sums
payable by Tenant under or in respect of this lease, whether payable
to Landlord or any other Person, including but not limited to
interest, principal and other charges to be paid to the Fee
Mortgagee, pursuant to the terms of the Fee Mortgage, but excluding
Fixed Annual Rent.
1.1.2. Affiliate: A Person directly or indirectly controlling,
controlled by or under common control with any other Person; or, in
the case of an individual, a member of that Person's immediate
family.
1.1.3. Agreement: That certain Agreement dated as of January 14,
1998 between FS and The 44th B.C. Realty Corp., as owners, and NS
417/44 LLC, an affiliate of Tenant, pursuant to which the parties
agreed, among other things, to execute this lease and the Option
Agreement.
1.1.4. Air Rights: All air rights or development rights, or both, if
any, now pertaining to or hereinafter transferred to the Land.
1.1.5. Building: All buildings, structures and improvements
heretofore or hereinafter erected on the Land or any part thereof,
together with all alterations, additions, improvements, repairs,
restorations and replacements thereof (including, without
limitation, vaults).
1.1.6. Building Equipment: All machinery, apparatus, equipment and
fixtures of every kind and nature whatsoever heretofore or hereafter
attached to or used in connection with the operation or maintenance
of the Building, including, but not limited to, all heating,
lighting, and power equipment, engines, pipes, pumps, tanks, motors,
conduits, plumbing, cleaning, fire prevention, refrigeration,
<PAGE>
ventilating, air-cooling and air-conditioning equipment and
apparatus, elevators, ducts and compressors, and any and all
alterations, additions, improvements, restorations and replacements
of any thereof; but excluding, however, (i) property of any
subtenant or other occupant of any portion of the Building, other
than Tenant, which each such subtenant or other occupant may be
authorized to remove from the Building upon and subject to the terms
and conditions of its sublease, (ii) property of contractors
servicing the Building, and (iii) improvements for water, gas and
electricity and other similar equipment or improvements owned by any
public utility company or any governmental agency or body.
1.1.7. Business Days: Mondays, Tuesdays, Wednesdays, Thursdays and
Fridays that do not fall on Holidays.
1.1.8. Commencement Date: Defined in Section 2.1.
1.1.9. Control: Possessing directly or indirectly, the power to
direct or to cause the directing of the management policies of the
entity in question, whether through the ownership of a majority of
voting securities or a majority of partnership interests.
1.1.10. Demised Premises: The Land, the Building and the Building
Equipment, together with (i) all rights, benefits (choate or
inchoate) privileges and easements now or hereafter pertaining
thereto including, without limitation, all copyrights, trademarks,
service names and other marks and any claims or awards in favor of
Landlord in respect of the Land, the Building and/or the Building
Equipment from and after the date of this Lease except as otherwise
apportioned hereunder; (ii) all Air Rights, including the right to
use said Air Rights in connection with the construction, operation
and maintenance of the Building, or any addition to the Building;
(iii) all leases, agreements, tenant files and all correspondence
relating to the Demised Premises in Landlord's possession; (iv) all
permits, certificates, approvals, authorizations, variances and
covenants; and (v) all architectural, mechanical, engineering and
other plans and specifications in Landlord's possession pertaining
to the use, operation and maintenance of the Land, Building and
Building Equipment or any part thereof.
1.1.11. Depository: a Lending Institution having its principal
office in the City of New York which is designated by the Person
Entitled to Demand Security, or the Tenant.
1.1.12. Event of Default: Defined in Section 20.1.
2
<PAGE>
1.1.13. Fee Mortgage: Any present or future mortgage(s) on all or
any part of the fee title to the Demised Premises or any loan to
Landlord that has been effectuated by Tenant (it being understood
that Tenant has the ability to obtain one or more Fee Mortgages,
provided such Fee Mortgages comply with the provisions of Article 34
hereof), and any holder thereof (or of any one of them) or any
holder of a loan to Landlord that has been effectuated by Tenant is
herein sometimes called a "Fee Mortgagee".
1.1.14. Fixed Annual Rent: Defined in Section 5.1.
1.1.15. 417 Premises: That certain premises, including all
improvements thereon, located at 417 Fifth Avenue, New York, New
York.
1.1.16. FS: F.S. Realty Corp., a New York corporation that is the
99% managing member of Landlord.
1.1.17. Holidays: Those days listed on Exhibit E attached hereto as
well as New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas, and any other days on
which there is no regular United States postal service and the New
York Stock Exchange (or any successor thereto) is closed.
1.1.18. Immediate Family: A parent, spouse or child or a trust for
the benefit of any of them.
1.1.19. Impositions: Defined in Section 7.1.
1.1.20. Insurance Requirements: The requirements of any insurer of
the Demised Premises, and the requirements of the local Board of
Fire Underwriters insofar as they pertain to the Demised Premises.
1.1.21. Land: All that certain plot, piece or parcel of land
situate, lying and being in the City, County and State of New York
described in Exhibit A attached hereto and made a part hereof.
1.1.22. Landlord: The owner at the time in question of Landlord's
interest under this lease so that, in the event of any permitted
transfer of Landlord's entire interest in the Demised Premises, the
transferor, grantor or assignor shall be and hereby is entirely
relieved and freed of all of its obligations hereunder, and it shall
be deemed without further agreement between the parties that such
grantee, transferee or assignee has assumed and agreed to perform
and observe all
3
<PAGE>
obligations of the transferor, grantor or assignor hereunder,
whether then accrued or thereafter accruing.
1.1.23. Lease Interest Rate: Defined in Section 5.4 hereof.
1.1.24. Landlord Deficiency Amount: Defined in the Option Agreement.
1.1.25. Leasehold Mortgage: Any mortgage which is a lien on the
leasehold estate created under this lease or any subleasehold estate
as contemplated in Section 24.1 hereof, as the same may be renewed,
extended, modified, consolidated and replaced from time to time,
provided that such mortgage and any renewal, extension,
modification, consolidation or replacement thereof, has been made in
accordance with and complies with the provisions and conditions of
Article 24; and the holder thereof is herein sometimes called a
"Leasehold Mortgagee." The first lien Leasehold Mortgage is referred
to herein as the "First Leasehold Mortgage," and the holder thereof
is sometimes referred to herein as the "First Leasehold Mortgagee."
1.1.26. Legal Requirements: All laws, statutes and ordinances
(including, but not limited to, building codes and zoning
regulations and ordinances), and the orders, rules, regulations and
requirements of all Federal, State and municipal governments, and
the appropriate agencies, officers, departments, boards and
commissions thereof, whether now or hereafter in force, which may be
applicable to the Demised Premises, or any part thereof, or the use
or manner of use of all or any part of the Demised Premises, or the
sidewalks or curbs adjacent thereto.
1.1.27. Lending Institution: (i) Any savings bank or commercial
bank, trust company, savings and loan association, insurance
company, bulge bracket investment bank, real estate investment trust
or pension fund, or any other Person whose loans are regulated by
any Federal or State law, agency or department thereof, having
assets in excess of One Hundred Million ($100,000,000) Dollars or
any wholly owned subsidiary of any of the foregoing and (ii) Tenant
or an Affiliate of Tenant.
1.1.28. Master Sublease: Defined in Section 23.1 hereof.
1.1.29. Master Sublessee: The owner at the time in question of the
Master Sublessee's interest under the Master Sublease or any
Leasehold Mortgagee or any nominee or designee of such Leasehold
Mortgagee which shall have obtained a new lease pursuant to Article
24 hereof in respect of such Master Sublease and the successors and
assigns of such Leasehold Mortgagee, nominee or designee, so that
from and after any sale, assignment or other transfer of any Master
Sublessee's interest in this lease, as permitted pursuant to the
provisions hereof,
4
<PAGE>
the transferor, grantor or assignor shall be and hereby is entirely
relieved and freed of all of its obligations hereunder, and it shall
be deemed without further agreement between the parties that such
grantee, transferee or assignee has assumed and agreed to perform
and observe all obligations of the transferor, grantor or assignor
hereunder, whether then accrued or thereafter accruing.
1.1.30. Mortgage: Any Fee Mortgage and/or any Leasehold Mortgage, as
the case may be.
1.1.31. Mortgagee: The holder of any Fee Mortgage (or the holder of
any loan to Landlord that has been effectuated by Tenant), and/or
the holder of any Leasehold Mortgage, as the context shall require.
1.1.32. NS Member: PoleStar Fifth Holding LLC, a Delaware limited
liability company that is the one (1%) percent member of Landlord,
its successors and assigns.
1.1.33. Non-Permitted Encumbrance: shall mean any title matter other
than a Permitted Encumbrance.
1.1.34. Operating Agreement: The Amended and Restated Limited
Liability Company Agreement of Landlord dated of even date herewith
between FS and NS Member.
1.1.35. Option: as defined in the definition for Option Agreement
hereunder.
1.1.36. Option Agreement: shall mean that certain agreement dated of
even date herewith between Landlord, as Optionor and Optionee,
pursuant to which Landlord has granted Optionee an irrevocable
Option (the "Option") to purchase the Demised Premises pursuant to
the terms thereof.
1.1.37. Option Closing: shall mean the closing under the Option
Agreement pursuant to the terms thereof.
1.1.38. Option Payments: shall have the meaning given such term in
the Option Agreement.
1.1.39. Optionee: shall mean PoleStar Fifth Optionee LLC, a Delaware
limited liability company, its successors and assigns.
1.1.40. Permitted Encumbrance: shall mean the matters listed on
Exhibit F attached hereto.
5
<PAGE>
1.1.41. Person (whether or not the initial letter is capitalized): A
natural person or persons, a partnership, a limited liability
company or partnership, a corporation, and any other form of
business or legal association or entity.
1.1.42. Person Entitled to Demand Security: the holder of any
Mortgage (or loan to Landlord that has been effectuated by Tenant,
as the context shall so require).
1.1.43. possession of Landlord: shall be deemed to include
possession by Landlord and any managing agent at the Demised
Premises and their respective employees, agents, counsel and
representatives.
1.1.44. Purchase Right: shall mean that certain Interest Purchase
Option in favor of the NS Member pursuant to the terms of Section
10.07 of the Operating Agreement.
1.1.45. Refinancing: shall mean, with respect to any Mortgage or
loan, as the context shall so require, an amendment, modification,
supplement or refinancing of such Mortgage or loan; and if there is
no Mortgage or loan at any point in time, shall mean obtaining such
Mortgage or loan.
1.1.46. Sublease (whether or not the initial letter is capitalized):
All subleases and lettings written and oral, licenses, concessions,
easements, occupancies or any other agreement for use or hire of all
or any portion of the Demised Premises; and any person entitled to
use all or any portion of the Demised Premises under any Sublease is
herein sometimes called a "Subtenant."
1.1.47. Tenant: Tenant shall mean the owner at the time in question
of Tenant's interest under this lease or any Leasehold Mortgagee or
any nominee or designee of such Leasehold Mortgagee which shall have
obtained a new lease pursuant to Article 24 hereof and the
successors and assigns of such Leasehold Mortgagee, nominee or
designee, so that from and after any sale, assignment or other
transfer of Tenant's interest in this lease, as permitted pursuant
to the provisions hereof, the transferor, grantor or assignor shall
be and hereby is entirely relieved and freed of all of its
obligations hereunder, and it shall be deemed without further
agreement between the parties that such grantee, transferee or
assignee has assumed and agreed to perform and observe all
obligations of the transferor, grantor or assignor hereunder,
whether then accrued or thereafter accruing.
1.1.48. Tenant Transfer: shall mean any pledge, encumbrance,
hypothecation, assignment, subletting or other transfer (whether
voluntarily or by operation of law, directly or indirectly) by a
Tenant, Master Sublessee or any subtenant.
6
<PAGE>
1.1.49. Title Objection: shall mean a Title Objection, as defined in
the Option Agreement.
1.1.50. Unavoidable Delays: Any delays resulting from any acts of
God, governmental restrictions or preemption, acts of war or public
enemy, riot, rationing, civil commotion, storms, fire, floods,
earthquakes, strikes, lockouts, embargoes and any other matter which
shall be beyond the reasonable control of the party required to
perform.
Section 1.2. Various other words or terms which are defined in other
Articles of this lease shall have the meanings specified in such other Articles
for all purposes of this lease, unless the context otherwise requires.
ARTICLE 2. DEMISE AND TERM; STATUS OF TITLE
Section 2.1. Landlord, for and in consideration of the rents, additional
rents, terms, covenants and conditions herein reserved and contained, does
hereby demise, lease and grant to Tenant, and Tenant does hereby take and hire
from Landlord, the Demised Premises upon and subject to the terms, covenants and
conditions herein set forth and the following:
(a) Conditions shown on survey by Charles J. Dearing dated February
21, 1963 redated February 25, 1994 by Earl B. Lovell, S.P. Belcher ("Lovell")
and updated by visual examination by Lovell on December 9, 1997 and subject to
any changes since said date;
(b) Rights, if any, of tenants or occupants under the leases more
particularly set forth in Schedule C (collectively, the "Leases");
(c) Terms, Covenants and Restrictions recorded in Liber 635 Cp 426,
Liber 695 Cp 584 and Liber 890 Cp 268;
(d) Right or easement to maintain telephone wires, pipes, conduits,
and other facilities, used by the City of New York or for public utilities,
which enter or cross the Demised Premises;
(e) Building restrictions and regulations in resolutions or
ordinances adopted by the Board of Estimate and Apportionment of the City of New
York, or any successor body, and all the amendments and additions thereto, now
in force;
(f) Present and future zoning laws, ordinances, resolutions and
regulations of the City of New York and all present and future ordinances, laws,
regulations and orders of all boards, bureaus, commissions and bodies of any
municipal, county, state or federal sovereigns now or hereafter having or
acquiring jurisdiction of the Demised Premises and the use and improvement
thereof;
7
<PAGE>
(g) Right, if any, to maintain vaults, vault spaces, tunnels,
basements and sub-basement spaces, areas, structures, marquees or signs, beyond
the building lines, to the extent not revoked by law or governmental authority;
(h) The condition and state of repair of the Demised Premises as the
same may be on the date of the commencement of the term of this lease;
(i) All taxes, assessments, business improvement or similar district
charges, water charges and sewer rents, accrued or unaccrued, fixed or not
fixed, not yet due and payable;
(j) The effect of all present and future municipal, state and
federal laws, orders and regulations relating to lessees, sublessees or
occupants of the Demised Premises, their rights and rentals to be charged for
the use of the Demised Premises or any portion or portions thereof;
(k) Violations of law, ordinances, orders or requirements that might
be disclosed by an examination and inspection or search of the Demised Premises
by any federal, state or municipal departments or authority having jurisdiction,
as the same may exist on the date of the commencement of the term of this lease;
TO HAVE AND TO HOLD the Demised Premises for a term of twenty-five (25) years
and twenty (20) days (the "Initial Term"), commencing on February 9, 1998 (the
"Commencement Date") and expiring on February 28, 2023, unless this lease shall
sooner terminate as hereinafter provided.
Section 2.2. Tenant shall not permit any portion of the Demised Premises
to be used by any person or persons or by the public, as such, at any time or
times during the term of this lease, in such manner as might make possible a
claim or claims of adverse use, adverse possession, prescription, dedication, or
other similar claims of, in, to or with respect to the Demised Premises or any
part thereof.
Section 2.3. Landlord shall deliver possession of the Demised Premises to
Tenant on the Commencement Date vacant and free of occupants, tenancies and
rights to possession and enjoyment of others, subject to the Leases.
ARTICLE 3. RECORDATION OF LEASE
Section 3.1. At Tenant's option, Tenant may record this lease and any
amendments hereto. Concurrently with the execution and delivery of this lease,
the parties shall execute, acknowledge and deliver a memorandum hereof in
recordable form, prepared by Tenant, in the form annexed hereto as Exhibit B.
With respect to each modification of this lease, the parties
8
<PAGE>
shall also execute, acknowledge and deliver a memorandum in recordable form,
prepared by Tenant and containing such additional provisions as either party may
reasonably require.
ARTICLE 4. LANDLORD COVENANTS
RE: COOPERATION/POWER OF ATTORNEY
Section 4.1. Landlord hereby covenants, acknowledges and agrees that,
subject to the terms of this lease, Tenant shall have the right and authority to
use, occupy and operate the Demised Premises as determined by Tenant in its sole
discretion as permitted by law. In addition to Landlord's specific affirmative
obligations set forth herein and in connection therewith, Landlord covenants and
agrees that Landlord shall, in good faith, cooperate with Tenant in any manner
reasonably required by Tenant, at no cost or expense to Landlord, in connection
with any matter related to Tenant's use, occupancy and possession of the Demised
Premises, including, without limitation, the leasing, operation, maintenance and
financing of the Demised Premises, as well as with any Alterations (hereinafter
defined).
Section 4.2. In connection with Landlord's obligations set forth in
Section 4.1, and without in any way limiting the obligations in said Section
4.1, Landlord hereby irrevocably constitutes and appoints Tenant the free and
lawful attorney of Landlord, from time to time, to execute, acknowledge, swear
to and file any of the following:
(a) Any memorandum of lease pursuant to the terms of Article 3
hereof or any other documents necessary for the recordation of same;
(b) Any contests by Tenant of Impositions, or Legal Requirements and
any certiorari proceedings, as provided in Sections 7.4, 7.7 and 9.4 hereof,
respectively;
(c) Settlements and collection of proceeds with respect to casualty
and condemnation, as provided in Articles 17 and 18 hereof;
(d) Estoppel Certificates as provided in Article 26 hereof;
(e) Any utility easements or other easements reasonably deemed
necessary by Tenant to use, occupy and operate the Demised Premises; and
(f) Any building permit, applications, applications required by
applicable law or other documents required in connection with any Alterations or
the use, occupancy and operation of the Premises.
(g) Any agreements required in order to merge any zoning lots with
or over the Demised Premises;
9
<PAGE>
(h) Any documents evidencing or securing any Fee Mortgage, provided
such Fee Mortgage is non-recourse to Landlord except for those items set forth
on Exhibit C ( as well as any ancillary documents executed in connection
therewith), as and to the extent Tenant is authorized to obtain same pursuant to
Article 34 hereof; and
(i) any non-disturbance agreement to the extent Landlord is required
to execute same pursuant to Article 28 hereof.
It is expressly acknowledged by Landlord that the foregoing power of
attorney is coupled with an interest and irrevocable and shall survive until the
stated expiry date of this lease (as same may be extended pursuant to Article 40
hereof) or earlier legal and valid termination thereof pursuant to its terms and
shall (i) not be affected by the dissolution, liquidation or bankruptcy of
Landlord and (ii) extend to the Landlord's successors, assigns and legal
representatives.
ARTICLE 5. FIXED RENT
Section 5.1. Tenant agrees to pay to Landlord during the term of this
lease, over and above the other rents, sums, charges and additional payments to
be made by Tenant hereunder, a fixed rent (hereinafter called "Fixed Annual
Rent") at the rate set forth on Schedule A annexed hereto.
Section 5.2. The Fixed Annual Rent shall be payable as provided in
Schedule A. Said installments of Fixed Annual Rent shall be paid promptly when
due, without notice or demand therefor and without deduction, abatement or
set-off of any amount for any reason whatsoever, except as otherwise provided in
this lease. If Tenant shall be required by law to deduct and withhold income or
other similar Taxes (as hereinafter defined) from rentals or other amounts
payable hereunder to Landlord, as a result of such Landlord constituting a
Foreign Person (as hereinafter defined), Tenant shall be entitled to do so,
provided it shall provide a statement setting forth the amount of Taxes
withheld, the applicable rate and other information which may reasonably be
requested for the purposes of assisting Landlord to obtain any allowable credits
or deductions for the Taxes so withheld in each jurisdiction in which Landlord
is subject to tax. Upon Tenant's request, Landlord will execute any affidavits
reasonably required by Tenant to confirm that Landlord is not a Foreign Person.
A "Foreign Person" is any person who, or entity that, is, for U.S. federal
income tax purposes, a foreign corporation or foreign partnership, a nonresident
alien or foreign fiduciary of an estate or trust, or a nonresident alien
individual, which does not have on file with Tenant for the year in question the
duly-executed forms or statements which may, from time to time, be prescribed by
law and which, pursuant to applicable provisions of (a) an income tax treaty
between the United States and the country of residence of such person or entity,
(b) the United States Internal Revenue Code of 1954, as amended, or (c) any
applicable rules or regulations in effect under (a) or (b) above, permit Tenant
to make such payments free of any obligation or liability for withholding of
Taxes. "Taxes" are any taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature, now or hereafter
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imposed by the United States or by any department, agency, state or other
political subdivision thereof or therein.
Section 5.3. The Fixed Annual Rent, and, in any event, all other amounts
payable by Tenant to Landlord under the terms of this lease, shall be paid at
the office of the Landlord set forth above, or at such other place or to such
other person as Landlord may from time to time designate by notice to Tenant.
The Fixed Annual Rent, and all other amounts payable by Tenant to Landlord
hereunder, shall be paid in lawful money of the United States which shall be
legal tender for the payment of all debts and dues, public and private, at the
time of payment.
Section 5.4. If any installment or installments of Fixed Annual Rent or
Additional Rent shall not be paid within five (5) days after the same shall
become due hereunder, then, in addition to, and without waiving or releasing,
any other rights and remedies of Landlord, such unpaid amount shall bear
interest at a rate per annum (the "Lease Interest Rate") equal to the lesser of
(a) the rate announced by Citibank, N.A. or its successor from time to time as
its prime or base rate (the "Prime Rate"), plus 4%, or (b) the maximum
applicable rate allowed by law, from the date such Fixed Accrued Rent or
Additional Rent became due and payable to the date of payment thereof by Tenant.
Such interest shall be due and payable on demand.
ARTICLE 6. NET LEASE
Section 6.1. Except as herein expressly provided to the contrary, this
lease is intended to be, and shall be construed as, an absolutely net lease,
whereby under all circumstances and conditions (whether now or hereafter
existing or within the contemplation of the parties) the Fixed Annual Rent shall
be a completely net return to Landlord throughout the term of this lease; and
Tenant shall indemnify and hold harmless Landlord from and against any and all
expenses, costs, liabilities, obligations and charges whatsoever, which shall
arise or be incurred or shall become due, during the term of this lease, with
respect to or in connection with, the Demised Premises and the operation,
management, maintenance and repair thereof, including but not limited to
interest, principal and all other charges required to be paid pursuant to Fee
Mortgage(s).
ARTICLE 7. PAYMENT OF IMPOSITIONS
Section 7.1. Except as otherwise expressly provided to the contrary in
Sections 7.2 and 7.6 hereof, and subject to Section 5.2 hereof, Tenant shall
pay, as Additional Rent, throughout the term of this lease, directly to the
appropriate taxing or other governmental authorities having jurisdiction, at
least five (5) days before the first day on which any interest or penalty will
accrue or be assessed as the result of non-payment, all real estate taxes,
assessments, business improvement district fees, water and sewer charges or
rents, vault charges, and all other taxes and governmental charges, general or
special, ordinary or extraordinary, foreseen or unforeseen, of any kind or
nature whatsoever, whether similar or dissimilar, levied or imposed upon or
relating to, or a lien against, all or part of the Demised Premises, or arising
from or levied against
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the ownership, leasing, operation, use, occupancy or possession of all or part
of the Demised Premises, and all interest, penalties or like charges in
connection therewith (all of which taxes, assessments, charges, interest,
penalties or like charges are sometimes hereinafter referred to collectively as
"Impositions" and individually as "Imposition"). Tenant shall submit to Landlord
the copies of official receipts, or other proof reasonably satisfactory to
Landlord, showing the payment thereof, but failure to do so shall not constitute
a default hereunder unless (i) Tenant has received notice from Landlord that
Landlord has not received said copies and (ii) Tenant has not forwarded said
copies within ten (10) Business Days of receipt of said notice, which failure
shall constitute a default under this lease. Any refund with respect to
Impositions paid by Tenant and any interest accrued thereon shall be the
property of Tenant.
Section 7.2. If by law any Imposition is or may be payable, at the option
of the taxpayer, in installments, Tenant may pay such Imposition in installments
(with any accrued interest due and payable on the unpaid balance of the
Imposition) and shall pay each such installment at least five (5) days before
the first day on which if it is not paid, further interest would accrue.
Section 7.3. Impositions, whether or not a lien upon the Demised Premises,
shall be apportioned between Landlord and Tenant at the beginning and at the
expiration or sooner termination of the term of this lease, so that Tenant shall
pay only the portion of such Impositions which are allocable to the term of this
lease; provided, however, Landlord need not make any apportionment in Tenant's
favor if this lease shall be terminated by reason of a default on the part of
Tenant.
Section 7.4. Tenant, at its own cost and expense, may contest the amount
or validity of any Imposition in any manner permitted by law, in Tenant's name,
and whenever necessary, in Landlord's name, provided that Tenant does so with
due diligence and in good faith. Tenant shall advise Landlord, but shall not be
required to obtain the consent of Landlord, with respect to actions taken
pursuant to the preceding sentence. Landlord will cooperate with Tenant and
execute any documents or pleadings reasonably required for such purposes,
provided that the same shall be without cost, liability or expense to Landlord.
Such contest may include appeals from any judgment, decree or order until a
final determination is made by a court or governmental department or authority
having final jurisdiction in the matter. However, notwithstanding such contest,
Tenant shall pay the contested Imposition in the manner and on the dates
provided for in this Article, unless such payment would operate as a bar to such
contest or materially interfere with the prosecution thereof; and in such case,
Tenant may defer the payment of the contested Imposition upon condition that any
contest by Tenant of the amount or validity of any Imposition shall be subject
to the terms of the Fee Mortgage. Landlord shall have no right to contest any
Impositions on its own unless requested to do so by Tenant and in such event, in
the manner prescribed by Tenant.
Section 7.5. The certificate, advice or bill of the appropriate official,
designated by law to make or issue the same or to receive payment of any
Imposition, may be relied upon by
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Landlord as prima facie evidence that such Imposition is due and unpaid at the
time of the making or issuance of such certificate, advice or bill.
Section 7.6. Tenant shall not be obligated or required hereunder to pay,
and Impositions shall not include, any franchise, corporate, estate,
inheritance, succession, gift, transfer, capital levy or capital stock taxes
imposed upon Landlord or any successor of Landlord, or any municipal, state or
federal income, profit or revenue tax upon the income or receipts of Landlord,
or any tax imposed solely because of the nature of the business entity of
Landlord, or any other tax, assessment, charge or levy upon the Fixed Annual
Rent or Additional Rent imposed upon Landlord except to the extent hereinafter
provided in this Section 7.6, all of which Landlord shall promptly pay when due;
provided, however, that if at any time during the term of this lease the methods
of taxation prevailing on the date hereof shall be altered or changed so as to
cause the whole or any part (by type, not amount) of the taxes, assessments,
levies, impositions or charges now levied, assessed or imposed upon real estate
and the improvements thereon to be levied, assessed or imposed, wholly or
partially, on the rents received under this lease or upon or by reason of the
occupancy of the Demised Premises, then, any such taxes, excises, assessments
and impositions shall be deemed to be Impositions to the extent that the same is
imposed upon all owners of comparable real estate in Manhattan and would be
payable if the Demised Premises were the only property of Landlord and shall be
paid and discharged by Tenant, as Additional Rent, on or before the last day on
which the same may be paid without penalty or interest.
Section 7.7. (a) Tenant shall have the right to seek reductions in the
valuation of the Premises assessed for tax purposes and to prosecute any action
or proceeding in connection therewith from time to time. Tenant shall be
authorized to collect any tax refund obtained by reason thereof and, to the
extent such refund is for Impositions paid in whole or in part by Tenant, to
retain the same or so much thereof as relates to the payment made by Tenant
previously.
(b) Landlord shall not be required to join in any such proceedings
unless the provisions of any law, rule or regulation at the time in effect shall
require that such proceedings be brought by and/or in the name of Landlord, in
which event Landlord shall, at the request and expense of Tenant, join in such
proceedings or permit the same to be brought in its name, provided such joinder
shall not subject Landlord to any cost or expense for which Tenant is unwilling
to reimburse Landlord.
(c) Landlord agrees that whenever Landlord's cooperation is required
in any of the proceedings brought by Tenant as aforesaid, Landlord will
reasonably cooperate therein at the request and expense of Tenant, provided same
shall not subject Landlord to any cost or expense.
(d) Landlord shall have no right to institute or prosecute any tax
reduction proceedings for the period after the 1997/98 tax year unless requested
to do so by Tenant, and
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Tenant shall have no right to institute, prosecute or settle any tax reduction
proceedings for the period prior to the 1997/98 tax year.
ARTICLE 8. DEPOSITS FOR REAL ESTATE TAXES
Section 8.1. If the Person Entitled to Demand Security (as hereinafter
defined) shall require that sums be deposited with it to pay when due real
estate taxes levied or assessed against the Demised Premises, then, at such
times and intervals as the Person Entitled to Demand Security shall require,
Tenant shall deposit with the Depository (as hereinafter defined) such amounts
as may be reasonably required by the Person Entitled to Demand Security to
provide a fund sufficient for the payment, when due, of the amount of the then
annual real estate taxes, subject to adjustment as and when the amount of such
real estate taxes shall change. If the amount of any real estate tax shall not
have been fixed at the time any such deposit is required to be made, the deposit
shall be made on the basis of the amount thereof for the next preceding tax
year, or on the basis of the reasonable estimate of the Person Entitled to
Demand Security, subject to adjustment when the amount of such real estate tax
shall have been fixed. If the amount of the deposits for any real estate tax
shall be insufficient to pay the same when due, Tenant shall, on notice from the
Person Entitled to Demand Security, forthwith deposit with the Depository an
additional sum, which when added to the installments theretofore made on account
of such real estate tax shall be sufficient to pay the same in full.
Section 8.2. To the extent that Tenant shall have made any deposits with
the Depository, on account of any real estate taxes, the same shall be in lieu
of payment thereof by Tenant under Article 7 of this lease, unless and to the
extent such deposits are made with the Fee Mortgagee or a Lending Institution
designated by the Fee Mortgagee and are applied for a purpose other than for
which they were made in accordance with the documents evidencing the loan made
by such Lending Institution. Upon the expiration or sooner termination of this
lease, the deposits for real estate taxes, if any, then held by the Depository,
shall be paid over to Tenant, after being apportioned in the manner and upon the
conditions set forth in Section 7.3 above.
Section 8.3. If the Depository is the Fee Mortgagee or a Lending
Institution designated by the Fee Mortgagee, Tenant shall simultaneously send
Landlord a true copy of each check used to make a payment on account of real
estate taxes, but failure to do so shall not constitute a default hereunder
unless (i) Tenant has received notice from Landlord that Landlord has not
received said copies and (ii) Tenant has not forwarded said copies within ten
(10) Business Days of receipt of said notice, which failure shall constitute a
default under this lease.
ARTICLE 9. USE; COMPLIANCE WITH LAWS; ETC.
Section 9.1. The Demised Premises shall be used and occupied only for any
lawful purpose. Tenant shall not use, improve, permit or suffer the use,
improvement or occupancy of, the Demised Premises, or any part thereof (a) in
any unlawful manner, or for any illegal purpose, or in any manner which will
constitute a nuisance, and (b) other than for the purposes, and in the
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manner and to the extent, permitted by the Legal Requirements, the Insurance
Requirements and any Certificate of Occupancy now or hereafter applicable or
issued with respect to the Demised Premises.
Section 9.2. Tenant shall, throughout the term, at Tenant's own cost and
expense, promptly comply, or cause compliance, with all Legal Requirements and
Insurance Requirements, foreseen or unforeseen, ordinary as well as
extraordinary, and whether or not the same shall presently be within the
contemplation of the parties or shall involve any change of governmental policy
or require structural or extraordinary repairs, alterations or additions, and
irrespective of the cost thereof. The provisions and conditions of Article 15
shall also apply to any work required to be performed by Tenant under this
Article. Tenant further agrees that it will, at its own cost and expense,
promptly and fully perform and observe, or cause to be fully performed and
observed, all requirements, obligations and conditions of all instruments of
record described in Section 2.1 and the Fee Mortgage now, or hereafter to be
placed on the Demised Premises insofar as the same shall be in force and shall
affect or be applicable to the Demised Premises or any portion thereof or shall
impose any obligation upon Landlord or the fee owner of the Demised Premises or
upon any tenant or other occupant of the Demised Premises.
Section 9.3. Tenant has examined the Demised Premises and is fully
familiar with the physical condition thereof, and Tenant accepts the same "as
is" on the date hereof. Tenant assumes all risks, if any, resulting from any
latent or patent defects in the Demised Premises or from any failure of the same
to comply with any Legal Requirements applicable thereto.
Section 9.4. Tenant, after notice to Landlord, may contest by appropriate
Legal Proceedings at Tenant's own cost and expense, the validity of any Legal
Requirement, and Tenant may defer compliance therewith during the pendency of
such contest; provided, however, and upon condition that (a) such non-compliance
shall not constitute a crime on the part of Landlord or any agent, servant,
employee, trustee, beneficiary or principal of Landlord, (b) such non-compliance
will not result in any lien, charge or other liability of any kind against the
Demised Premises or against Landlord or Tenant's interest in this lease unless
Tenant obtains a bond insuring against enforcement of such lien against the
Premises, and (c) Tenant shall prosecute such contest with due diligence and in
good faith to a final determination by the court, department or governmental
authority or body having final jurisdiction, and (d) provided same shall be
required by the holder of the Fee Mortgage, Tenant shall first deposit with the
Depository such security (in the form of a surety company bond or otherwise) as
the Person Entitled to Demand Security shall reasonably require to assure
compliance by Tenant with such Legal Requirement. Landlord agrees to cooperate
reasonably with Tenant and to execute any documents or pleadings reasonably
required for the purpose of any such contest, provided that the same shall be
without cost, expense or liability to Landlord. Tenant may, at its option,
terminate any such contest at any time, and in such event Tenant shall promptly
pay or perform all of the requirements of the contested Legal Requirement and
Tenant shall indemnify and hold harmless Landlord against and from any and all
liability, loss and damage which Landlord may sustain by reason of Tenant's
delay in complying therewith. Upon the termination of any such
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contest and the payment and performance of all the requirements of the contested
Legal Requirement (as the same may have been modified as a result of such
contest), the Depository shall promptly return or cause to be returned to
Tenant, the security deposited by Tenant on account thereof.
Section 9.5. Tenant shall, at its sole cost and expense, obtain and keep
in full force and effect any and all necessary permits, licenses, certificates
or other authorizations required in connection with the lawful and proper
construction of the Building, the Building Equipment, the use, occupancy,
operation and management of the Demised Premises and the signs thereat; and
Tenant shall indemnify and hold harmless Landlord from and against all claims,
liability, damages, loss, costs and expenses (including, without limitation,
reasonable attorneys' fees) in connection therewith. Upon the expiration or
sooner termination of the term of this lease, Tenant shall promptly deliver all
permits, licenses, certificates and authorizations to Landlord which relate to
the Demised Premises and which were obtained by or issued to Tenant and are then
in force, together with an assignment or conveyance thereof to Landlord, in such
form and substance as Landlord shall reasonably require, but without
representation or warranty.
Section 9.6. If reasonably required for an Alteration (as defined in
Section 14.1) or for the construction, installation, maintenance, operation,
restoration or replacement of the Building, or Building Equipment, Tenant shall
have the right to create or grant utility easements to public or private utility
companies in connection with furnishing gas, electricity, steam or other utility
services to the Demised Premises or, if not reasonably required in connection
therewith, such utility easements which terminate on or before any termination
of this lease, whether by reason of Tenant's default or otherwise; provided,
however, that (a) any such easement which is acquired by Tenant shall become
part of the Demised Premises for all of the purposes of this lease, and (b) no
such easement, whether acquired, granted or created, may impose any charge on
Landlord or lien upon the Demised Premises in respect of any cost or charges in
connection therewith, other than for unpaid charges for utilities supplied to
the Demised Premises by governmental authorities through such easement. At
Tenant's request, Landlord will join with Tenant, at Tenant's sole cost and
expense, in the creation or granting of any such utility easement.
Section 9.7. Subject to the provisions of Article 18, no abatement,
diminution or reduction of the Fixed Annual Rent, or of any Additional Rent,
shall be claimed by, or allowed to, Tenant for any inconvenience, interruption,
cessation or loss of business or otherwise caused, directly or indirectly, by
any present or future laws, rules, requirements, orders, directions, ordinances
or regulations of the United States of America, or of the State, county or
municipal or other local government, or of any other municipal, governmental or
lawful authority whatsoever, or by priorities, rationing or curtailment of labor
or materials, or by war, civil commotion, lockouts, strikes or riots, or any
matter or thing resulting therefrom, or by any other cause or causes beyond the
control of Landlord, nor shall this lease be affected by any such causes.
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Section 9.8. Notwithstanding any provision of this lease to the contrary,
unless and until an enforcement proceeding with respect thereto has been
commenced by an appropriate governmental agency, Tenant shall not be required to
cure any violation of Legal Requirements existing on the date hereof, including,
without limitation, any of the environmental matters set forth on Exhibit D
annexed hereto (the "Pre-Existing Environmental Matters").
Section 9.9. Landlord agrees that Tenant shall be permitted to make any
changes in the present use, occupancy and operation of the Building, provided
such change is made in compliance with all Legal Requirements.
ARTICLE 10. UTILITIES AND SERVICES
Section 10.1. Tenant agrees to pay or cause to be paid all charges for
gas, water, sewer, electricity, light, heat, power, telephone or other
communication service or other utility or service used, rendered or supplied to,
upon or in connection with the Demised Premises throughout the term of this
lease, and to indemnify and hold harmless Landlord against and from any claims,
liability, damage, loss, cost or expense on such account.
Section 10.2. Tenant expressly agrees that Landlord is not, nor shall it
be, required to furnish to Tenant or any other occupant of the Demised Premises,
during the term of this lease, any water, sewer, gas, heat, electricity, light,
power or any other facilities, equipment, labor, materials or any services of
any kind whatsoever, whether similar or dissimilar.
ARTICLE 11. INDEMNIFICATION
Section 11.1. Tenant agrees, at its sole cost and expense, to indemnify
and hold harmless Landlord against and from any and all claims in respect of the
Demised Premises for actions (or failures to act) occurring during the term of
this lease by or on behalf of any Person arising from or in connection with (a)
the demolition of all or any part of the Building, the construction and
installation of all or any part of the Building and the Building Equipment or
the conduct or management of, and the payment for, any work or thing whatsoever
done in or about the Demised Premises by or on behalf of Tenant (or any person
holding or claiming through or under Tenant) during the term of this lease; (b)
the condition of the Demised Premises during the term of this lease, whether or
not such condition existed before the term of this lease commenced; (c) any
breach or default on the part of Tenant in the performance of any of Tenant's
covenants or obligations under this lease; (d) any act, negligence or fault of
Tenant, or any of its agents, servants, employees, contractors, invitees or
licensees, or of any person holding or claiming through or under Tenant; (e) any
accident, injury or damage whatsoever caused to any person or persons or any
property damage occurring during the term of this lease, in or about the Demised
Premises, or upon or under the streets and sidewalks adjacent thereto, in the
case of each of the foregoing clauses (a) through (e) excluding those caused by
the wrongful intentional acts of Landlord or its agents, servants, employees,
contractors, invitees or licensees occurring at any time. Further, Tenant agrees
to indemnify and hold harmless Landlord against and from all
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costs, reasonable counsel fees, expenses and liabilities incurred in connection
with or in defending any such claim or any action or proceeding brought thereon;
and in case any action or proceeding be brought against Landlord by reason of
any such claim, Tenant, upon notice from Landlord, agrees to resist or defend
such action or proceeding unless Tenant causes the same to be discharged and
satisfied. In addition, Tenant shall indemnify and hold harmless Landlord
against and from any costs and expenses paid or incurred by Landlord (including
reasonable counsel fees) in obtaining possession of the Demised Premises after
an Event of Default by Tenant or upon the expiration or sooner termination of
this lease, or in enforcing any of Tenant's obligations hereunder.
Section 11.2. Tenant agrees that, except for matters caused by the
wrongful intentional acts of Landlord or its agents, servants, employees,
invitees or licensees (provided, however, present tenants of the Demised
Premises shall not be deemed to include any of the foregoing), Landlord shall
not be responsible or liable to Tenant, or any other Person for, or by reason of
any of the following, to the extent same occurs during the term of this lease:
(a) any defect in the Land, the Building, the Building Equipment, or any other
equipment, machinery, wiring, apparatus or appliances whatsoever now or
hereafter situate in, at, or upon the Demised Premises, or (b) any failure or
defect of water, heat, electric light or power supply, or of any apparatus or
appliance in connection therewith, or from any injury or loss or damage to
property resulting therefrom, or (c) any injury, loss or damage to any person or
to the Demised Premises, or to any property of Tenant, or of any other Person,
contained in, upon or about the Demised Premises, or the streets and sidewalks
adjacent thereto, caused by or arising or resulting from the electric wiring or
plumbing, water, steam, sewerage or other pipes, or by or from any machinery or
apparatus, or by or from any defect in or leakage, bursting or breaking up of
same, or by or from any leakage, running or overflow of water or sewerage in any
part of the Demised Premises, or by or from any other defect whatsoever, or (d)
any injury or damage caused by, arising or resulting from lightning, wind,
tempest, water, snow or ice, in or upon or coming through or falling from the
roof, skylight, trapdoors, walls, windows or otherwise, or by or from other
actions of the elements, or from any injury or damage caused by or arising, or
resulting from acts, omissions or negligence of any occupant or occupants of the
Demised Premises or of any Subtenant, licensee, invitee or contractor of Tenant
(or of any other Person holding or claiming through or under Tenant).
Section 11.3 In connection with the aforesaid indemnification Landlord
agrees that Tenant shall not be liable for any consequential damages arising out
of the items which are the subject matter of the indemnification nor shall
Tenant indemnify Landlord in connection with any Pre-Existing Environmental
Matter, other than with respect to any claim arising from the disturbance of any
hazardous substance as the result of work performed at the Demised Premises
during the term of this lease.
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ARTICLE 12. MAINTENANCE AND REPAIRS
Section 12.1. Tenant shall, throughout the term of this lease, at Tenant's
sole cost and expense, maintain in good and lawful order, condition and repair
the Demised Premises and the sidewalks and curbs adjacent thereto, and, subject
to the rights of Tenant under Article 14 hereof, shall not commit or suffer any
waste with respect thereto. Tenant shall promptly make all repairs, interior and
exterior, structural and non-structural, ordinary as well as extraordinary,
foreseen as well as unforeseen, necessary to keep the Demised Premises and the
sidewalks and curbs adjacent thereto in good and lawful order and condition.
When used in this Article, the term "repairs" as applied to Building Equipment
shall be deemed to include replacements, restorations and/or renewals when
necessary. In any event, Tenant shall have the right, at any time and from time
to time, to remove and dispose of Building Equipment which may become obsolete
or unfit for use or which is no longer useful in the operation of the Demised
Premises. If any Building Equipment shall be removed, Tenant shall promptly
replace the same with other equipment, not necessarily of the same character but
of at least equal utility and value, except that if (a) by reason of
technological or other developments in the operation and maintenance of
buildings of the general character of the Building, no replacement of the
Building Equipment so removed or disposed of is necessary or desirable in the
proper operation or maintenance of the Building, or (b) the portion of the
Building in which such Building Equipment is located or which it serves is to be
demolished, Tenant shall not be required to replace the same. Tenant shall have
the right to sell or otherwise dispose of any Building Equipment which it is
required to replace or elects to replace pursuant to the provisions of this
Section, and may retain as its sole property the proceeds of any such sale or
disposition. The provisions and conditions of Article 15 shall apply to repairs
required to be done by Tenant under this Article. Subject to Tenant's rights to
make Alterations, Tenant shall keep and maintain all portions of the Demised
Premises and the curbs and sidewalks adjoining the Demised Premises, in a clean
and orderly condition, free of accumulation of dirt, rubbish, snow and ice, and
Tenant shall not permit or suffer any overloading of the floors of the Building.
Except as otherwise provided in Article 22, nothing herein contained shall be
construed to prevent Tenant or any subtenant, sublessee, or other occupant
claiming under or through Tenant from removing from the Demised Premises its
trade fixtures, furniture and equipment (other than Building Equipment), on the
condition, however, that Tenant shall do so without cost or expense to Landlord.
Subject to the exception which is set forth in clause (b) of this Section,
Tenant hereby agrees to promptly repair or cause to be repaired any and all
damages to the Demised Premises resulting from or caused by such removal.
ARTICLE 13. MECHANICS' AND OTHER LIENS
Section 13.1. If any mechanics' lien shall at any time be filed against
the Demised Premises, Tenant shall cause the same to be discharged of record
within sixty (60) days after actual notice of such filing is given to Tenant, by
either payment, deposit, bond or otherwise. If Tenant shall fail to discharge
any such mechanics' lien within such period, then, in addition to any other
right or remedy of Landlord, Landlord may, on notice to Tenant, but shall not be
obligated to, procure the discharge of the same of record by bonding. Any amount
paid by
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Landlord for same, and all reasonable legal and other expenses of Landlord,
including reasonable counsel fees, in defending any such action or in procuring
the discharge of any such lien, together with interest at the Lease Interest
Rate from the date of payment or deposit shall become due and payable forthwith
by Tenant to Landlord, upon submission of evidence of payment by Landlord and
shall constitute Additional Rent.
Section 13.2. Landlord hereby gives notice to all persons who may furnish
labor or materials to Tenant at the Demised Premises that Landlord does not
consent to the filing of any mechanic's or other lien against Landlord's
interest or estate in the Demised Premises, and that all persons furnishing
labor and materials to Tenant shall look only to Tenant's credit and such
security as Tenant may furnish for the payment of all such labor and materials.
ARTICLE 14. ALTERATIONS
Section 14.1. Tenant shall have the right at any time and from time to
time during the term of this lease to (a) make, at its sole cost and expense,
changes, alterations, additions, replacements or improvements in or to the
Demised Premises, whether structural or non-structural in nature and (b)
demolish, rebuild and reconfigure the Building (any such activity described in
either clause (a) or (b) is hereinafter called an "Alteration" and all such
activities are hereinafter called "Alterations"), provided Tenant complies with
Article 15 of this lease, and further provided that, in the event Tenant shall
elect to demolish the Building and not rebuild same, then Tenant shall satisfy
the Fee Mortgage and remove all other monetary liens encumbering the Demised
Premises other than those caused or created by Landlord unless same were created
pursuant to the provisions of Article 34 hereof.
Section 14.2. The parties shall cooperate in the preparation and
prosecution of all applications. Each party shall promptly join in the execution
of all documents which may be reasonably required in the prosecution of such
applications and shall provide to the other party such information within its
control as may be useful in obtaining governmental approvals.
ARTICLE 15. CONDITIONS FOR TENANT'S WORK
Section 15.1. Tenant agrees that all Alterations, repairs and other work
which Tenant shall be required or permitted to do under the provisions of this
lease, including the provisions of Articles 9, 12, 14, 17 and 18 (each
hereinafter in this Article called the "Work") shall be done in all cases upon
and subject to all of the following terms and conditions:
15.1.1. All Work shall be commenced only after all required
municipal and other governmental permits, authorizations and
approvals shall have been obtained by Tenant, at its own cost and
expense. Landlord will, on Tenant's written request, execute any
documents necessary to be signed by Landlord to obtain any such
permits, authorizations and approvals, provided that Tenant shall
discharge any reasonable expense or liability of Landlord in
connection therewith.
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15.1.2. All work shall be performed in accordance with all Legal
Requirements and Insurance Requirements. All Work shall be commenced
and completed with reasonable diligence, subject to Unavoidable
Delays.
15.1.3. The cost of all work shall be paid promptly, in cash, so
that the fee title to the Demised Premises shall at all times be
free from (a) liens for labor or materials supplied or claimed to
have been supplied to the Demised Premises or Tenant subject to
Section 13.1, (b) chattel mortgages, conditional sales contracts,
title retention agreements except for bona fide leases for Building
Equipment and any other similar liens and encumbrances incurred by
owners and operators of premises similar to the Demised Premises,
and (c) security interests and agreements, and financing agreements
and statements, except those given to any Mortgagee as collateral
security for its mortgage and any financing statements for any
equipment or improvements of a subtenant.
15.1.4. At all times when any Work is in progress, Tenant shall
maintain or cause to be maintained worker's compensation insurance
covering all persons employed in connection with the work, in an
amount at least equal to the minimum amount of such insurance
required by law.
Section 15.2. Title to the Work, when erected, constructed, installed or
placed upon the Demised Premises, shall automatically pass to, vest in and
belong to Landlord without further action on the part of either party and
without cost or charge to Landlord. Notwithstanding the foregoing, during the
term of this lease Tenant alone shall be entitled to claim depreciation on or
any investment tax credit or other tax deduction or credit now or hereafter
available with respect to the work, for all taxation purposes. Upon completion
of the Work, Tenant shall deliver to Landlord a true copy of any "as-built"
plans for the Work, which Tenant at Tenant's election has caused to be
prepared..
ARTICLE 16. INSURANCE
Section 16.1. Tenant shall, at its own cost and expense, provide and keep
in force the following insurance:
16.1.1. Commercial general public liability insurance against claims
for bodily injury, death or property damage occurring in or about
the Demised Premises (including, without limitation, bodily injury,
death or property damage resulting directly or indirectly from any
change, alteration, improvement or repair thereof), with a combined
single annual aggregate limit of not less than Ten Million and
NO/100 ($10,000,000.00) Dollars.
16.1.2. Insurance (with provision for deduction of not more than
$50,000) covering the Building and Building Equipment against loss
or damage by fire and
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such risks as are customarily included in extended coverage
endorsements attached to fire insurance policies covering similar
property in the City, County and State of New York, in an amount not
less than the greater of (i) ninety (90) percent of the full
insurable value thereof, (ii) the amount required by any Fee
Mortgagee, or (iii) an amount sufficient to prevent Landlord or
Tenant from becoming a co-insurer within the terms of the applicable
policies. The term "full insurable value" as used in this Article
shall mean the cost of actual replacement, without deduction for
depreciation, less the cost of excavations, foundations and footings
below the lowest basement floor.
16.1.3. Rent insurance in an amount equal to at least the aggregate
of one year's (a) Fixed Annual Rent, (b) Additional Rent (c)
Impositions and (d) premiums for the insurance referred to in
Section 16.1.2, and such other insurance, including, but not limited
to, worker's compensation and boiler and machinery insurance, and in
such amount as may from time to time be reasonably required by
Landlord or any Fee Mortgagee, against other insurable hazards which
at the time are commonly insured against in the case of similar
properties similarly situated in the City, County and State of New
York, with due regard to the height and type of building, its
construction, use and occupancy.
Section 16.2. All insurance to be provided and kept in force by Tenant
under the provisions of this lease (except worker's compensation insurance)
shall name Landlord and any Mortgagee as additional insureds, and, in addition,
the insurance described in Section 16.1.1 may also name as additional insureds
any Subtenants or other Persons having an insurable interest and designated by
Tenant. In addition, the proceeds of loss under the policies of insurance
required to be obtained by Tenant under Sections 16.1.2 and 16.1.3 (except
worker's compensation insurance) shall be payable as provided in Section 16.3
under standard non-contributing mortgagee clauses attached to such policies.
Said policies shall be obtained by Tenant upon the commencement of the term of
this lease, and shall be taken in responsible companies of recognized
responsibility licensed to do business in the State of New York, rated A or
better by Best's or any successor or from highly rated insurers generally
writing such insurance for similar properties in Manhattan). A certificate for
each such policy of insurance shall be delivered to Landlord and to each
Leasehold Mortgagee. Said policies shall be for a period of not less than one
year and shall contain a provision whereby the same cannot be canceled or
modified unless Landlord (and each Fee and Leasehold Mortgagee named as an
insured thereunder) is given at least thirty (30) days' prior written notice of
such cancellation or modification. Tenant shall procure and pay for renewals of
such insurance from time to time at least thirty (30) days before the expiration
thereof, and Tenant shall promptly deliver to such Mortgagees and to Landlord
the renewal policies or certificates thereof, as required above, together with
receipted bills or other reasonably satisfactory evidence of the payment of the
premiums therefor.
Section 16.3. In case damage to the Demised Premises by fire or otherwise,
and subject to the rights of any Mortgagee, provided there is then no uncured
Event of Default, (a) the loss, if
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any, shall be adjusted only with Tenant and (b) the proceeds thereof shall be
paid to Tenant if One Million and NO/100 ($1,000,000.00) Dollars or less, and to
the Depository if more than One Million and NO/100 ($1,000,000.00) Dollars. The
holder of such insurance proceeds shall hold same as a trust fund for the
purpose of paying the cost of the work required to be performed by Tenant under
Article 17 hereof, and, with respect to any rent insurance provided under
Section 16.1, to the payment of the Fixed Annual Rent, Additional Rent and other
charges payable by the Tenant under this lease, and the Depository shall
disburse such monies as provided in Article 17. The Depository shall be entitled
to reasonable compensation for its services as such, payable out of such monies.
Notwithstanding anything contained in this Article to the contrary, (i) provided
there is no continuing Event of Default hereunder, all proceeds of any rent
insurance, business interruption insurance or similar insurance shall be paid to
Tenant, and (ii) the terms of the Fee Mortgage, if any, shall govern the
disposition of insurance proceeds.
Section 16.4. To the extent permitted by law, the parties hereby release
each other from any and all liability or responsibility to their insurers by way
of subrogation or otherwise, for any loss or damage caused by or arising from
any occurrence, casualty or event covered by policies of insurance (including
endorsements) required to be maintained pursuant to this lease.
Section 16.5. Tenant shall not carry any duplicate insurance unless such
coverage names Landlord as an additional insured and such insurance is permitted
under the primary policy.
Section 16.6. Landlord shall not carry any insurance with respect to the
Demised Premises, provided Tenant is in compliance with the provisions of
Section 16.1 above.
Section 16.7. Landlord may from to time, but not more frequently than once
every sixty (60) months, require that the amount of the public liability
insurance to be provided and kept in force by Tenant under Section 16.1.1 be
increased, so that the amount thereof shall be that commonly carried in the case
of similar properties similarly situated in the City, County and State of New
York and with due regard to the height and type of building, its construction,
use and occupancy. Tenant shall, thereafter, carry the insurance as determined
by such arbitration to be adequate and required, but in no event shall the
amount of public liability insurance be less than the amount specified under
Section 16.1.1.
Section 16.8. Any of the insurance coverages required under this Article
may be included within a so-called "blanket policy" covering other properties
owned or leased by Tenant or one or more Affiliates and such blanket policy may
have a single limit for the fire and extended coverage casualties, provided such
single limit is not less than that required for the Demised Premises under
Section 16.1.2. Additionally, at Tenant's option, such insurance coverages may
be included in umbrella policies.
Section 16.9. Notwithstanding anything contained in this Article to the
contrary, in the event any Fee Mortgage shall require greater amounts of
coverage or additional types of coverage than required by this lease, then the
terms of such Fee Mortgage shall govern and a
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failure on the part of Tenant to comply with such requirements shall constitute
a default on the part of Tenant under this lease. Notwithstanding anything in
this Article 16 to the contrary, any insurance carrier selected by Tenant to
provide the insurance required hereby shall meet the rating criteria required by
a Fee Mortgage.
ARTICLE 17. DAMAGE OR DESTRUCTION
Section 17.1. If the Building or the Building Equipment shall be damaged
or destroyed by fire or other casualty ("Casualty"), whether or not covered by
insurance, unless Tenant elects not to repair, restore, replace or rebuild the
Demised Premises (such election, the "Non-Restoration Election") and (i)
satisfies the Fee Mortgage; (ii) removes all other monetary liens encumbering
the Demised Premises other than those caused or created by Landlord unless same
were created pursuant to the provisions of Article 34 hereof; and (iii) complies
with applicable law in respect of the physical condition and maintenance of the
Demised Premises after such casualty, including, if necessary, demolishing the
Building and bringing the site to grade, Tenant shall, with reasonable
diligence, repair, restore, replace or rebuild the same to as nearly as may be
practicable its condition and character immediately prior to such damage or
destruction. Such alterations, additions, replacements and improvements shall be
made under and in accordance with the provisions and conditions of Articles 14
and 15. The work required under this Section 17.1 is herein called the
"Restoration".
Section 17.2 In the event Tenant shall make the Non-Restoration Election
and shall fulfill the conditions set forth in clauses (i) through (iii) of
Section 17.1, then any insurance proceeds remaining shall be retained by, or
paid over to, Tenant, subject to the rights of any Leasehold Mortgagee.
Section 17.3. If Tenant does not make the Non-Restoration Election, the
net amount of the insurance monies paid over to the Depository, shall be applied
by the Depository in the following manner:
(a) there shall be paid to Tenant from said insurance monies
such part thereof as shall equal the cost to Tenant incurred in
making such temporary repairs or doing such other work as was
reasonably necessary in order to protect the Demised Premises
pending adjustment of the insurance loss and the completion of the
Restoration;
(b) there shall be paid to Tenant from said insurance monies
such part thereof as shall equal the cost to Tenant incurred in
performing the Restoration;
(c) payment to Tenant pursuant to subdivision (a) or (b) of
this Section 17.3 from such insurance monies and any deposit
required under Section 17.4 (hereinafter collectively called the
"Restoration Fund") shall be made by the Depository to Tenant from
time to time as the Restoration
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progresses, but not more frequently than monthly, in amounts equal
to ninety (90%) percent of the value of labor, fixtures, equipment
and material then incorporated into and used in such work, and
builders', architects' and engineers' fees, and other charges in
connection with the Restoration, upon delivery to Landlord and the
Depository of a certificate of a registered architect or licensed
professional engineer, certifying (i) that the amounts so to be paid
to the Tenant are payable to Tenant in accordance with the
provisions of this Section 17.3 and that such amounts are then due
and payable by Tenant or have theretofore been paid by Tenant; (ii)
the progress of the work; (iii) that the Restoration has been done
in accordance with the plans and specifications therefor and all
applicable Legal Requirements and Insurance Requirements; (iv) that
the sum requested when added to all sums previously paid out under
this Section 17.3 for the Restoration does not exceed the value of
the labor, fixtures, equipment and material done or installed to the
date of such certificate; and (v) the estimated cost of completing
the Restoration and that in the opinion of such architect or
engineer the remaining amount of the Restoration Fund will be
sufficient upon completion of the Restoration to pay for the same in
full. The ten percent (10%) retainage provided for above shall be
paid to Tenant upon delivery to Landlord and the Depository of a
certificate signed by such architect or engineer stating that the
Restoration has been fully completed in accordance with the plans
and specifications therefor and all applicable Legal Requirements
and Insurance Requirements;
(d) at the request of Landlord (which shall not be made more
often than once every thirty (30) days) or the Depository, Tenant
shall furnish to Landlord and the Depository, at the time of any
such payment, an official search or other evidence reasonably
satisfactory to the Depository that (i) there has not been filed
with respect to the Demised Premises any mechanic's or other lien
which has not been discharged of record, in respect of any work,
labor, services or materials performed, furnished or supplied, in
connection with the Restoration, and (ii) all of said materials have
been purchased free and clear of any chattel mortgage or title
retention or other security agreement. The Depository shall not pay
out any such sum when the Demised premises shall be encumbered with
any such lien or agreement, or when Tenant is in default under this
lease and such default has not been remedied by Tenant or any
Leasehold Mortgagee within the applicable grace period, if any,
provided therefor. The Depository shall be entitled to rely upon any
written notice to it from Landlord to the effect that neither Tenant
nor any Leasehold Mortgagee is entitled to any payment hereunder.
Upon the termination of this lease or the recovery of possession of
the Demised Premises by Landlord pursuant to Article 20, any monies
then held by the Depository shall be paid over to Landlord, subject
to the rights of any Fee Mortgagee; and
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(e) there shall be paid to Landlord and to the other Persons
respectively entitled thereto under the provisions of this lease
from time to time the proceeds of any rent insurance provided under
Section 16.1 insofar as required in order to pay the Fixed Annual
Rent and Impositions, Additional Rent, and other charges payable by
Tenant under this lease; or, insofar as Tenant shall have paid any
of the foregoing, then, and provided there is then no uncured Event
of Default, there shall be paid to Tenant so much of such proceeds
as are required to reimburse Tenant for the amounts so paid by
Tenant.
(f) Notwithstanding anything contained in this Section 17.3.
to the contrary, the terms of the Fee or Leasehold Mortgage relating
to disbursement of insurance proceeds shall govern, with the
provisions of the Fee Mortgage controlling over the provisions of
the Leasehold Mortgage.
Section 17.4. If the insurance proceeds collected on account of damage or
destruction to the Demised Premises shall be insufficient to pay the total cost
of the Restoration, Tenant shall, prior to commencing the Restoration, deposit
with the Depository the amount of the deficiency, and thereafter from time to
time such additional amounts as shall be needed to meet any increases in the
total cost of the Restoration. In any case, Tenant agrees that if said insurance
monies shall be insufficient to pay the entire cost of the Restoration, Tenant
will pay the deficiency.
Section 17.5. If any of the insurance monies paid by the insurance company
to the Depository as hereinabove provided, shall remain after the completion of
the Restoration and the payment to Tenant of the retainage described above, the
excess shall be retained by or paid over to Tenant, subject to the rights of any
Mortgagee.
Section 17.6. In the event of any such damage or destruction by fire or
other casualty, the provisions of this lease shall be unaffected and Tenant
shall remain and continue liable for the payment of all Fixed Annual Rent and
Additional Rent required hereunder to be paid by Tenant, as though no such
damage or destruction had occurred, except to the extent that payments are
received by Landlord derived from the rental insurance provided under Section
16.1.
Section 17.7. Subject to Tenant's right to deliver the Non-Restoration
Election, if Tenant shall fail to commence the Restoration within one hundred
eighty (180) days from the date of such damage or destruction (as such one
hundred eighty (180) day period may be extended by Unavoidable Delays) or having
commenced the Restoration shall fail to complete the same in accordance with the
provisions of this lease with reasonable diligence as same may be extended by
Unavoidable Delays, and such failure shall continue for a period of thirty (30)
days, as same may be extended by Unavoidable Delays, any Leasehold Mortgagee
may, at its option and upon serving notice upon Landlord and Tenant that it
elects to do so, perform the Restoration. In such event, such Leasehold
Mortgagee shall have the right, subject to compliance with this Article, to
receive the insurance proceeds otherwise payable to Tenant and to apply the same
to the cost of
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the Restoration to the extent that the same shall not theretofore have been
applied to the payment or reimbursement of the costs and expenses of Tenant as
aforesaid or otherwise applied pursuant to the provisions of this Article.
Section 17.8. Subject to Tenant's right to deliver the Non-Restoration
Election, if neither Tenant nor the holder of any Mortgage shall commence the
Restoration within one hundred eighty(180) days from the date of such damage or
destruction (as such one hundred eighty (180)-day period may be extended by
Unavoidable Delays) or having commenced the Restoration, shall fail to complete
it in accordance with the provisions of this lease and with reasonable
diligence, and such failure shall continue for a period of forty-five (45) days
after notice by Landlord (as such forty-five (45) day period may be extended by
Unavoidable Delays), Landlord may, at its option and upon serving written notice
upon Tenant and each such Mortgagee that it elects to do so, make and complete
such work. In such event, and whether or not this lease may have theretofore
been terminated by reason of such default or any other default by Tenant, any
insurance proceeds shall be paid over to Landlord subject to the rights of any
Fee Mortgagee.
Section 17.9. Landlord and Tenant each agrees that it will cooperate with
the other, to such extent as such other party may reasonably require, in
connection with the prosecution or defense of any action or proceeding arising
out of, or for the collection of any insurance monies that may be due in the
event of any loss or damage, and that they will execute and deliver to such
other parties such instruments as may be required to facilitate the recovery of
any insurance monies.
Section 17.10. The Depository may keep uninvested such amount of the
monies paid over to it as it deems sufficient to make timely payments thereof.
However, if the Depository, in its sole discretion, shall deem any portion of
such monies available for investment, such portion shall be invested in
certificates of deposit or bankers' acceptances of any United States commercial
bank having a net worth in excess of One Hundred Million and NO/100
($100,000,000.00) Dollars. Investments may also be made in United States
Treasury Bills or Notes. The Depository will not be liable for any loss which
may be incurred by reason of any such investment of the funds which it holds
thereunder. Any net income resulting from such investments, including any gains
realized on sale thereof, shall be added to and deemed to be part of the monies
paid over to the Depository. To the extent practicable, the Depository will
schedule maturities of investments to meet the needs of the person conducting
the Restoration, pursuant to monthly estimates of expected needs furnished by
such person. To the extent that the Depository becomes liable for the payment of
taxes, including withholding taxes, in respect of income derived from the
investment of funds hereunder or any payment made hereunder, the Depository may
pay such taxes as if such income were the Depository's sole income. The
Depository may withhold from any payment of monies held by it hereunder such
amount as it estimates to be sufficient to provide for the payment of such taxes
not yet paid, and may use the amount withheld for that purpose. Notwithstanding
anything contained in Section 17.10 of this
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lease to the contrary, the terms of the Fee Mortgage with respect to the subject
matter of this Section shall govern.
Section 17.11. Tenant agrees to give prompt notice to Landlord with
respect to all fires and other casualties occurring in, on, at or about the
Demised Premises which result in any death or serious personal injury or in any
material damage or destruction to the Building or Building Equipment.
Section 17.12. To the extent that the provisions of this Article shall
conflict with the provisions of any laws of the State of New York, or any agency
or political subdivision thereof, controlling the rights and obligations of
parties to leases in the event of damage by fire or other casualty to leased
space, the provisions of this Article shall govern and control and such
conflicting laws shall be deemed waived by the parties hereto. To the extent
that the provisions of this Article shall conflict with the provisions of any
Fee Mortgage, the provisions of such Fee Mortgage shall govern.
ARTICLE 18. CONDEMNATION
Section 18.1. If, at any time during the term of this lease, title to the
whole or materially all of the Demised Premises shall be taken by the exercise
of the right of condemnation or eminent domain, this lease shall terminate and
expire upon the later of (a) the vesting of title to the Demised Premises in the
condemning authority or (b) transfer of possession of the Demised Premises to
the condemning authority. Until the later of such dates, Tenant shall not be
relieved of its obligation to pay Fixed Annual Rent and Additional Rent. In such
event, the total award made with respect to the Demised Premises shall be
determined by aggregating the respective values of the leasehold and fee estates
therein, and, after making the payments to Landlord required by the Option
Agreement in respect of the Option, the balance of the award, subject to the
rights of any Mortgage, shall be paid to the Tenant. For the purposes of this
lease, "materially all of the Demised Premises" shall be deemed to have been
taken if, in the reasonable opinion of Tenant, the Building can no longer be
operated in an economically viable manner.
Section 18.2. If at any time during the term of this lease, title to less
than the whole or materially all of the Demised Premises shall be taken as
aforesaid, or if there shall be any change of grade, then the entire award,
after the payment of the reasonable costs and expenses incurred by the parties
in connection with such proceeding, shall be paid towards the cost of
demolition, repair and restoration, substantially in the manner and subject to
the same terms and conditions as those provided in Section 16.3 and Article 17,
hereof. Any balance remaining after payment of such costs of demolition, repair
and restoration as aforesaid, shall be paid to the Tenant.
Section 18.3. In the event of a negotiated sale of all or a portion of the
Demised Premises in lieu of condemnation, the proceeds shall be distributed as
herein provided in cases of condemnation.
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Section 18.4. Notwithstanding anything to the contrary herein contained,
in the event of a permanent or temporary taking of all or any part of the
Demised Premises, Tenant and its subtenants shall have the exclusive right to
assert claims for any trade fixtures and personal property so taken which were
the property of Tenant or its Affiliates or subtenants and/or relocation
expenses of Tenant or its Affiliates as subtenants, and all awards and damages
in respect thereof shall belong to Tenant, its Affiliates and subtenants, and
Landlord hereto waives any and all claims to any part thereof.
ARTICLE 19. APPORTIONMENTS
Section 19.1. Landlord shall have the right to continue to prosecute
and/or settle any pending tax reduction proceedings in respect of the Demised
Premises. However, Landlord shall have no right to enter into any settlement
affecting any tax years after the 1997-1998 tax year without Tenant's prior
written consent, which may be withheld in its sole discretion. Any refunds of
savings in the payment of taxes resulting from tax reduction proceedings
applicable to the period prior to the Commencement Date shall belong to and be
the property of Landlord, and any refunds or savings in the payment of taxes
applicable to the period from and after the Commencement Date shall belong to
and be the property of Tenant; provided, however, that if any refund creates an
obligation to reimburse any tenants for any rents paid for a period of time
prior to the Commencement Date, that portion of such refund equal to the amount
of such required reimbursement (after deduction of allocable expenses as may be
provided in this lease to such tenant) shall be paid to Tenant from the
Landlord's portion and Tenant shall disburse the same to such tenants. All
attorneys' fees and other expenses incurred in obtaining such refunds or savings
shall be apportioned between Landlord and Tenant in proportion to the gross
amount of such refunds or savings payable to Landlord and Tenant, respectively
(without regard to any amounts reimbursable to tenants).
Section 19.2. Landlord and Tenant shall promptly apportion any rent
payments delivered to either party pursuant to the Leases in respect of periods
prior to the Commencement Date as follows:
19.2.1. Any fixed rents collected subsequent to the Commencement
Date shall be apportioned as of the date of the Commencement Date,
and applied, first, to the costs of collection; second, to the month
in which the Commencement Date occurs; third, on account of any
period for which rent is due from and after the month in which the
Commencement Date occurs; fourth, to the extent Tenant shall have
received such rent from any tenant certified by Landlord on the
Commencement Date, as provided below (the "Late Tenant
Certification") to be in arrears, to payment of rent due on account
of the month immediately preceding the month in which the
Commencement Date occurs; and, fifth, to the extent Tenant shall
have received from any tenant covered by a Late Tenant
Certification, monies in excess of all rents then due from such
tenant, to payment of rents due on account of any period prior to
the one month period preceding the
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month in which the Commencement Date occurs. On the Commencement
Date, Landlord shall deliver to Tenant a list of all tenants who are
delinquent in the payment of rents, the nature and amount of each
such delinquency and the period to which each such delinquency
relates.
19.2.2. Any rents payable by any tenants by reason of taxes,
operating expenses (whether calculated directly, and/or based upon
increases in the porter's wage or other formula), shall be allocated
as and when collected on the basis of the respective periods with
respect to which such operating expenses were incurred or such taxes
were payable or such cost of living increases related,
notwithstanding the date(s) on which such rents become payable, and
the receiving party shall promptly pay over to the other party any
portion of such rents (if and when received) to which the other
party is entitled. Landlord, on reasonable notice and at reasonable
times, shall make available to Tenant any records (to the extent not
previously delivered to Tenant on the Commencement Date) which are
necessary to allow Tenant to bill tenants for such rents, whether
due or applicable to periods prior to subsequent to Commencement
Date.
Section 19.3. Landlord and Tenant shall apportion amounts due under any
service contracts and sums paid or payable for utilities, including, without
limitation, telephone, steam, electricity, and gas, on the basis of the most
recent bills therefor. Any sums on deposit with any utility company which will
remain on deposit after the Commencement Date as verified in writing by such
utility company shall be credited to Landlord.
Section 19.4 After the date hereof, if any party believes there has been
an incorrect apportionment, it shall so notify the other party, which notice
shall include the calculations for correcting the prior apportionment. If as a
result of the incorrect apportionment Landlord is entitled to more money, such
amount shall be payable as Additional Rent hereunder. If Tenant is entitled to
more money, Tenant shall have a right of Set-Off (hereinafter defined) in
respect of said amount. If the parties are in disagreement as to the correct
apportionment amount, Landlord shall not be entitled to the benefit of the
provisions of Section 20.1.4 and Tenant shall not exercise its right of Set-Off
with respect thereto and the parties shall submit such dispute to arbitration,
as provided in Article 44 hereof.
ARTICLE 20. CONDITIONAL LIMITATIONS - DEFAULT PROVISIONS
Section 20.1. This lease and the term of this lease are subject to the
limitations that if, at any time prior to or during the term of this lease, any
one or more of the following events (herein called an "Event of Default") shall
occur, that is to say:
20.1.1. If Tenant shall make an assignment for the benefit of its
creditors; or
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20.1.2. If any petition shall be filed against Tenant in any court,
whether or not pursuant to any statute of the United States or of
any State, in any bankruptcy, reorganization, composition,
extension, arrangement or insolvency proceeding, and if any such
proceeding shall not be dismissed within ninety (90) days after the
institution of the same; or if any such petition shall be so filed
by Tenant; or
20.1.3. If, in any proceeding, a receiver or trustee be appointed
for all or any portion of Tenant's property, and such receivership
or trusteeship shall not be vacated or set aside within ninety (90)
days after the appointment of such receiver or trustee; or
20.1.4. If Tenant shall fail to pay any installment of the Fixed
Annual Rent or any Additional Rent (subject to Sections 20.1.5 and
20.1.6 below), or any part thereof, when the same shall become due
and payable, and such failure shall continue for ten (10) days after
notice thereof from Landlord to Tenant, provided, however, that
Landlord shall be required to give Tenant notice of failure to pay
only for the first two (2) times in any twelve (12) month period,
and further provided that, with respect to any payment to be made to
a Fee Mortgagee, (i) same shall be paid by Tenant at least two (2)
business days prior to the expiration of the grace or cure period
contained in such Fee Mortgage, (ii) proof of payment by facsimile
transmission shall be sent to Landlord immediately upon payment by
Tenant and (iii) no notice of failure to pay such payment to a Fee
Mortgagee shall be given by Landlord to Tenant. A failure on the
part of Tenant to pay such requisite amounts under a Fee Mortgage in
accordance with this provision (unless Fee Mortgagee waives any
resulting default or reinstates the Fee Mortgage following such
default) shall constitute an Event of Default. However, the failure
on the part of Tenant to submit proof of payment thereof shall
constitute an Event of Default under this lease only if (i) Tenant
has received notice from Landlord that Landlord has not received
said copies and (ii) Tenant has not forwarded said copies within ten
(10) business days of receipt of said notice; or
20.1.5. If Tenant fails to comply with Section 34.2, unless the Fee
Mortgagee agrees to waive all default interest and penalties
("Penalties") in respect of such failure to refinance the Fee
Mortgage or extend the maturity date thereof or Tenant pays such
Penalties to the Fee Mortgagee or escrows same with the Landlord's
counsel (provided, however, if, thereafter, the Fee Mortgagee waives
the Penalties or Tenant refinances the Fee Mortgage or extends the
maturity date of the Fee Mortgage as required by Section 34.2, such
escrow shall be released to Tenant); or
20.1.6. If Tenant fails to comply with Section 34.2, and the Fee
Mortgagee commences a foreclosure proceeding or sends written notice
to Landlord that it intends to commence a foreclosure proceeding
(provided, however, if the Fee
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Mortgagee rescinds any notice of foreclosure or discontinues, or
agrees in writing to discontinue, any foreclosure proceeding once it
is commenced, such default shall be deemed waived by the Landlord);
or
20.1.7. If Tenant shall fail to perform or observe any other
requirement of this lease (not hereinbefore in this Section 20.1
specifically referred to) on the part of Tenant to be performed or
observed (other than the payment of a sum of money) and such failure
shall continue for thirty (30) days after notice thereof from
Landlord to Tenant (subject, however, to the provisions of Sections
20.5 and 24.4);
20.1.8. If the Optionee fails to pay the Option Payments when the
same shall become due and payable, and such failure shall continue
for ten (10) Business Days after notice thereof from Landlord to
Tenant;
Then, upon the happening of any one or more of the aforementioned
Events of Default, (subject to the reinstatement of the Fee Mortgage or a waiver
by Fee Mortgagee of any default under the Fee Mortgage as provided in Section
20.1.4 above) Landlord may give to Tenant a notice (hereinafter called "notice
of termination") terminating this lease at the expiration of five (5) business
days from the date of Tenant's receipt of such notice of termination, and at the
expiration of such five (5) business days, this lease and the term of this
lease, as well as all of the right, title and interest of the Tenant hereunder,
shall wholly cease and expire in the same manner and with the same force and
effect as if the date of expiration of such five (5) day period were the date
originally specified herein for the expiration of the term of this lease, and
Tenant shall then quit and surrender the Demised Premises to Landlord, and
Landlord or Landlord's agents or servants may, either by summary process or by
any suitable action or proceeding at law, immediately or at any time thereafter
re-enter the Demised Premises and remove therefrom Tenant, its agents,
employees, servants, licensees, and any Subtenants and other persons, and all or
any of its or their property therefrom, and repossess and enjoy the Demised
Premises, together with all additions, alterations and improvements thereto; but
Tenant shall remain liable as hereinafter provided, subject to the provisions of
Article 31.
Section 20.2. Subject to the rights of any Mortgagee, if this lease shall
be terminated as provided in Section 20.1, all of the right, title, estate and
interest of Tenant (a) in and to the Building and the Building Equipment, all
changes, additions and alterations therein, and all renewals and replacements
thereof, (b) in and to all rents, income, receipts, revenues, issues and profits
issuing from the Demised Premises, or any part thereof, whether then accrued or
to accrue, (c) in and to all insurance policies and all insurance monies
premiums or awards paid or payable thereunder, and (d) in the then entire
undisbursed balance of any funds in the hands of the Depository, shall
automatically pass to, vest in and belong to Landlord, without further action on
the part of either party, free of any claim thereto by Tenant.
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Section 20.3. Subject to the provisions of Article 31, if this lease is
terminated under the provisions of Section 20.1 or in the event of the
termination of this lease, or of re-entry, by or under any summary dispossess or
other proceeding or action or any provision of law by reason of an Event of
Default hereunder on the part of Tenant; Tenant shall pay Landlord the fair
rental value of any space in the Demised Premises occupied by Tenant or an
Affiliate after such termination or re-entry, without thereby creating a
landlord-tenant relationship and Tenant shall be liable for no other damages. In
the event of a breach or threatened breach by Tenant of any of the covenants or
provisions hereof beyond the applicable grace period, if any, Landlord shall
have the right to seek an injunction and the right to invoke any remedy allowed
at law or in equity as if re-entry, summary proceedings and other remedies were
not herein provided for. Mention in this lease of any particular remedy shall
not preclude Landlord from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed for
any cause, or in the event of Landlord obtaining possession of the Demised
Premises by reason of the violation by Tenant of any of the covenants and
conditions of this lease.
Section 20.4. Tenant, for itself and any and all persons claiming through
or under Tenant, including its creditors, upon the termination of this lease and
of the term of this lease in accordance with the terms hereof, or in the event
of entry of judgment for the recovery of the Possession of the Demised Premises
in any action or proceeding, or if Landlord shall enter the Demised Premises by
process of law hereby waives any right of redemption provided or permitted by
any statute, law or decision now or hereafter enforce, and does hereby waive,
surrender and give up all rights or privileges which it or they may or might
have under and by reason of any present or future law or decision, to redeem the
Demised Premises or for a continuation of this lease for the term of this lease
hereby demised after having been dispossessed or ejected therefrom by process of
law.
Section 20.5. Anything in this Article 20 to the contrary notwithstanding
it is expressly understood that with respect to any Event of Default within the
purview of Section 20.1.7 only, if such Event of Default cannot with the
exercise of reasonable diligence, because of Unavoidable Delays or otherwise, be
cured within the period of thirty (30) days provided for in said Section,
Landlord shall not be entitled to serve a notice of termination upon Tenant, as
provided in Section 20.1, if Tenant shall commence the curing of such Event of
Default promptly after notice thereof from Landlord and shall thereafter proceed
with reasonable diligence to complete the curing of such Event of Default,
subject to Unavoidable Delays, it being the intention hereof that in connection
with any Event of Default within the purview of Section 20.1.7 only, which is
not susceptible of being cured with due diligence within said thirty (30) days,
the time of Tenant within which to cure the same shall be extended for such
period as may be necessary to complete the same with reasonable diligence,
subject to Unavoidable Delays. If at any time Landlord has reasonably determined
that Tenant has not proceeded with reasonable diligence to complete the curing
of such Event of Default, Landlord shall not be entitled to serve a notice of
termination unless Landlord has notified Tenant of such determination and Tenant
has failed to respond
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within five (5) business days after its receipt of such notice. Any dispute
between Landlord and Tenant with respect to the subject matter hereof shall be
submitted to arbitration pursuant to Article 44.
Section 20.6. The words "re-enter" and "re-entry" as used herein are not
restricted to their technical legal meanings.
Section 20.7. If (a) there shall be an Event of Default and (b) Tenant
shall not be attempting to cure such Event of Default with reasonable diligence,
then Landlord may, but shall not be obligated to do so, after written notice to
Tenant and without waiving or releasing Tenant from any obligations of Tenant in
this lease contained, make such payment or perform such act which Tenant is
obligated to perform under this lease in such manner and to such extent as may
be necessary to cure such Event of Default, and, in exercising any such rights,
pay any necessary and incidental costs and expenses, employ counsel and incur
and pay reasonable attorneys' fees. All sums so paid by Landlord and all
necessary costs and expenses of Landlord incidental thereto, together with
interest thereon at the Lease Interest Rate from the date of the making of such
expenditures by Landlord, shall be deemed to be Additional Rent and, except as
otherwise in this lease expressly provided, shall be payable to the Landlord
twenty (20) days after demand, and if not promptly paid shall be added to any
rent then due or thereafter becoming due under this lease, and Tenant covenants
to pay any such sum or sums with interest as aforesaid and Landlord shall have
(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of the non-payment thereof by Tenant as in the case of
default by Tenant in the payment of the Fixed Annual Rent.
Section 20.8. Upon an Event of Default and only during the continuance of
an Event of Default, the provisions of that certain Lockbox Agreement between
Landlord and Tenant shall become effective, subject to the rights of any Fee
Mortgagee and shall only be instituted if the Leasehold Mortgagee fails to cure
such Event of Default as provided in Article 24 hereof.
ARTICLE 21. QUIET ENJOYMENT
Section 21.1. Landlord agrees that Tenant, upon paying the rent herein
reserved, and performing and observing the covenants, conditions and agreements
hereof upon the part of Tenant to be performed and observed, shall and may
peaceably hold, enjoy and possess the Demised Premises during the term of this
lease, without any interruption or disturbance from Landlord or Persons claiming
through or under Landlord. This covenant shall be construed as running with the
land to and against subsequent owners and successors in interest, and is not,
nor shall it operate or be construed as, a personal covenant of Landlord, except
to the extent of the Landlord's interest in the Demised Premises and only so
long as such interest shall continue, and thereafter this covenant shall be
binding only upon such subsequent owners and successors in interest of
Landlord's interest under this lease, to the extent of their respective
interests as and when they shall acquire the same, and only so long as they
shall retain such interest.
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ARTICLE 22. SURRENDER OF PREMISES
Section 22.1. Tenant shall, upon the expiration or sooner termination of
this lease pursuant to its terms, surrender to Landlord any Building and
Building Equipment then upon the Demised Premises, together with all alterations
and replacements thereof then on the Demised Premises, in good order, condition
and repair, except for reasonable wear and tear, subject to Tenant's rights
under Article 14, 17 and 18 to demolish the Building.
Section 22.2. Title to all trade fixtures, furniture, equipment (other
than Building Equipment), installed in the Demised Premises shall remain in
Tenant or Subtenants, as the case may be, and, upon expiration or sooner
termination of this lease, the same may and, upon notice from Landlord, shall,
be removed promptly and any resultant damage to the Demised Premises shall be
repaired promptly, by and at the expense of Tenant. The provisions of this
Section shall survive the expiration or sooner termination of this lease.
Section 22.3. Any personal property of Tenant or (subject to Article 25)
Subtenants which shall remain in, at or upon the Demised Premises for ten (10)
days after the expiration or sooner termination of this lease may, at the option
of Landlord, be deemed to be abandoned property, and the same may be retained by
Landlord, as its sole property, or disposed of by Landlord at Tenant's expense
in such manner as Landlord may see fit, without accountability or liability
therefor.
ARTICLE 23. ASSIGNMENT AND SUBLETTING
Section 23.1. (a) Tenant shall have the right, without Landlord's consent,
to assign this lease or to sublet the Demised Premises as an entirety pursuant
to a sublease (the "Master Sublease") in a form agreed to by Tenant and the
sublessee thereunder (the "Master Sublessee"), provided:
23.1.1. Such assignee of this lease shall assume and agree in
writing (subject to the provisions of Section 31.1 hereof), duly
executed and acknowledged and in form for recording, to perform and
observe, from and after the effective date of such assignment, all
of the terms, covenants, and conditions of this lease to be observed
and performed by the Tenant and to be bound by all of the other
provisions of this lease, and that any Master Sublessee shall agree
in writing, duly executed and acknowledged and in form for
recording, to comply with and be subject to all the provisions of
this lease; and
23.1.2. A duplicate original of such assignment or Master Sublease
and the assumption agreement shall be delivered to the Landlord
promptly after the execution and delivery thereof, and no such
assignment or Master Sublease shall be effective unless and until
the foregoing conditions have been complied with. In the event of
any such assignment in conformity with the foregoing, Tenant
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shall be released from the obligations of this lease accruing after
the effective date of such assignment. All subsequent assignments of
this lease or Master Sublease shall likewise be subject to the terms
and conditions of this Section.
(b) Any Master Sublessee shall have the right to (i) mortgage,
pledge, hypothecate or encumber its interest under a Master Sublease and (ii)
assign or further sublease the Demised Premises in the same manner as Tenant may
assign or sublease the Demised Premises as herein provided. In connection
therewith, any mortgagee of the Master Sublessee's subleasehold interest in the
Master Sublease shall have the same benefits afforded to any Leasehold Mortgagee
of Tenant's leasehold interest as provided in Article 24 hereof. Additionally,
any Master Sublease shall be entitled to the benefits set forth in Section 25.1
and, in connection therewith, shall not be required to comply with the
provisions of Article 25.
Section 23.2. Notwithstanding anything to the contrary contained herein,
this lease may be assigned at any time without Landlord's consent pursuant to
the provisions of Article 24.
Section 23.3. Tenant shall have the right to sublet portions of the
Demised Premises at any time and from time to time without Landlord's consent,
provided, and Tenant hereby agrees, that (a) each sublease of any portion of the
Demised Premises which is hereafter made shall be in writing, (b) each sublease
shall be made on an arms' length basis, on reasonable rentals and terms, (c) no
such sublease shall in any way affect or reduce any of the obligations of Tenant
under this lease and (d) a true copy of each sublease shall be delivered by
Tenant to Landlord promptly after the execution and delivery thereof. In the
event that Tenant wishes to let the Demised Premises or any portion thereof for
a term extending beyond the term hereof, or to grant any subtenant the option to
extend the terms of its letting beyond the terms of this lease, Landlord hereby
covenants to enter into a direct lease for such additional term, or extension,
as the case may be, with such subtenant on the same terms and conditions as set
forth in such sublease, other than the term of such direct lease.
Section 23.4. If this lease shall be sublet in part by Tenant, Landlord
may, after default by Tenant, collect rent from the subtenant and apply the net
amount collected to the Fixed Annual Rent and Additional Rent payable under this
lease, but no such subletting or collection shall be deemed a waiver of the
provisions of this Section, or acceptance of the subtenant as a tenant.
ARTICLE 24. LEASEHOLD MORTGAGES
Section 24.1. Tenant and every successor and assignee of Tenant (including
the Master Sublessee and any subtenants, but only with Tenant's prior consent)
shall have the right, at any time and from time to time during the term of this
lease, to mortgage the leasehold estate created by this lease and any Master
Sublease, without Landlord's consent, provided Tenant is not in default after
the expiry of all notice and cure periods and further provided in respect of any
Leasehold Mortgage that:
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24.1.1. A copy of such Leasehold Mortgage, and the note secured
thereby, shall be delivered to Landlord within thirty (30) days
after the execution and delivery thereof; and
24.1.2. Such Leasehold Mortgage shall fully comply with the
provisions and conditions of Section 24.2 hereof.
Section 24.2. Each such Leasehold Mortgage shall contain covenants to the
effect that:
24.2.1. The net proceeds of all insurance policies and of
condemnation awards shall be held, used and applied for the purposes
and in the manner provided in this lease;
24.2.2. Subject to the provisions of Section 24.4.5 if an action is
brought to foreclose such Leasehold Mortgage, the rents, income,
receipts, revenues, issues and profits issuing from the Demised
Premises or from any occupancy, lease or leases thereof, shall be
collected, either through a receiver appointed by a court, or by the
Leasehold Mortgagee, but only if the Leasehold Mortgagee is a
Lending Institution, and, in either case, the monies so collected by
the receiver or Leasehold Mortgagee shall be first applied and used
for the payment of the Fixed Annual Rent then due and owing
hereunder or to become due and owing to Landlord, then for any
Additional Rent then due and payable under this lease including debt
service on any fee mortgage (but not including debt service on any
leasehold mortgage), and then for all other maintenance and
operating charges and disbursements incurred in connection with the
operation and maintenance of the Demised Premises, and any balance
remaining after such application may be applied on account of such
mortgage indebtedness.
Section 24.3. Notwithstanding anything contained to the contrary in this
lease, Tenant shall have the right to assign to any Leasehold Mortgagee or to
the designee or nominee of such Leasehold Mortgagee, without the consent of
Landlord if the Leasehold Mortgagee or its designee or nominee shall acquire
ownership of the leasehold estate, either following foreclosure of such
Leasehold Mortgage or in liquidation of the indebtedness and in lieu of
foreclosure thereof, this lease and any or all of the following collateral: (a)
Tenant's interest in the Building Equipment, (b) the rents, income, receipts,
revenues, issues and profits issuing to the Tenant from the Demised Premises,
(c) the Subleases, (d) Tenant's right of election to vacate or remain in
possession of the Demised Premises following any rejection of this lease
pursuant to a bankruptcy proceeding affecting Landlord, and (e) Tenant's
interest in this lease. In such event, the Leasehold Mortgagee or its designee
or nominee shall have the further right, without the consent of Landlord to
further assign this lease and such collateral and upon such assignment shall be
released from the obligations of this lease thereafter arising.
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Section 24.4. If Tenant shall execute and deliver a Leasehold Mortgage,
and if the provisions and conditions of Sections 24.1 and 24.2 above shall have
been fully complied with and observed to the extent applicable to such Leasehold
Mortgage, then if Tenant or the holder of such Leasehold Mortgage shall have
notified Landlord in writing of the making thereof and of the name and address
of such Leasehold Mortgagee:
24.4.1. This lease may not be modified, amended, canceled,
surrendered or terminated pursuant to a separate agreement between
Landlord and Tenant without the prior written consent of such
Leasehold Mortgagee;
24.4.2. There shall be no merger of this lease or of the leasehold
estate created hereby with the fee title of the Demised Premises,
notwithstanding that this lease or said leasehold estate and said
fee title shall be owned by the same person or persons, without the
prior written consent of such Leasehold Mortgagee;
24.4.3. Landlord shall serve upon each such Leasehold Mortgagee a
copy of each notice of default and each notice of termination given
to Tenant under this lease, within a reasonable time after such
notice is served upon Tenant. No such notice to Tenant shall be
effective unless a copy thereof is thus served upon each Leasehold
Mortgagee;
24.4.4. Each Leasehold Mortgagee shall have the same period of time
after the service of such notice upon it within which to remedy or
cause to be remedied the default which is the basis of the notice as
that which is provided for the payment or other remedy by Tenant of
the matter in default (including, without limitation, any late
charge or interest payable by Tenant in connection therewith and any
extension of time to cure a default as provided in Section 20.5),
plus, if such Leasehold Mortgagee is the first Leasehold Mortgagee
and a Lending Institution, an additional period of thirty (30) days,
and Landlord shall accept performance by such Leasehold Mortgagee
within the time specified herein as timely performance by Tenant;
24.4.5. In case of default by Tenant under this lease, except a
default in the payment of Fixed Annual Rent or Additional Rent, and
provided the Leasehold Mortgagee shall actually cure any then
defaults in the payment of Fixed Annual Rent or Additional Rent
(including by reinstatement of the Fee Mortgage) Landlord shall,
other than in an initial notice identifying the nature of such
default, take no action to effect a termination of this lease, by
service of a notice or otherwise, without first giving to such
Leasehold Mortgagee a reasonable time within which either: (a) to
obtain possession of the Demised Premises and to remedy such
default, in the case of a default which is susceptible of being
cured when such Leasehold Mortgagee has obtained possession of the
Demised Premises (which possession shall be deemed to include
possession by a receiver),
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or (b) to institute, and with reasonable diligence to complete,
foreclosure proceedings or otherwise acquire Tenant's leasehold
estate under this lease in the case of a default which is not
susceptible of being cured when such Leasehold Mortgagee has
obtained possession of the Demised Premises, provided that (i) the
Leasehold Mortgagee shall deliver to Landlord within thirty (30)
days after the expiration of the grace period of Tenant applicable
to the particular default an instrument in writing duly executed and
acknowledged wherein the Leasehold Mortgagee agrees that (x) until
(1) the interest of Tenant in this lease shall terminate, or (2)
conditions (a), (b) and (c) of Section 24.4.7 have been satisfied,
whichever is first, it shall pay or cause to be paid to Landlord all
sums from time to time becoming due under this lease for Fixed
Annual Rent and Additional Rent, as the same become due, and (y) if
delivery of possession of the Demised Premises shall be made to the
Leasehold Mortgagee or to its nominee or designee, whether
voluntarily or pursuant to any foreclosure or other proceedings or
otherwise, the Leasehold Mortgagee shall, promptly following such
delivery of possession, perform or cause such nominee or designee to
perform, as the case may be, all the covenants and agreements herein
contained on Tenant's part to be performed to the extent that Tenant
shall have failed to perform the same to the date of delivery of
possession, as aforesaid, except such covenants and agreements which
cannot with the exercise of due diligence be performed by the
Leasehold Mortgagee or such nominee, and (ii) if the Leasehold
Mortgagee delivering such instrument is not a Lending Institution,
that such Leasehold Mortgagee furnish such security as Landlord
shall reasonably require to assure the remedying of such default.
24.4.6. If Landlord shall elect to terminate this lease by reason of
any default of Tenant, each Leasehold Mortgagee shall not only have
the right to nullify any notice of termination by agreeing to cure
such default as aforesaid, but shall also have the separate right to
postpone and extend the specified date for the termination of this
lease as fixed by Landlord in its notice of termination, for a
period of not more than twelve months, provided that such Leasehold
Mortgagee shall within sixty (60) days cure or cause to be cured any
then existing monetary defaults and thereafter pay or cause to be
paid the Fixed Annual Rent and Additional Rent, and provided further
that the Leasehold Mortgagee shall forthwith take steps to acquire
or sell Tenant's interest in this lease by foreclosure of the
Leasehold Mortgage or otherwise and shall prosecute the same to
completion with reasonable diligence. If at the end of said 12-month
period the Leasehold Mortgagee shall be actively engaged in steps to
acquire or sell Tenant's interest in this lease, the time of said
Leasehold Mortgagee to do so shall be extended for such period as
shall be reasonably necessary to complete such steps with reasonable
diligence. If the Leasehold Mortgagee is prohibited by any process
or injunction issued by any court or by reason of any action by any
court having jurisdiction of any bankruptcy, debtor rehabilitation
or insolvency
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proceedings involving Tenant from commencing or prosecuting
foreclosure or other appropriate proceedings, the said 12-month
period shall be extended for the period of such prohibition,
provided that the Leasehold Mortgagee shall diligently attempt to
remove any such prohibition. If Tenant's interest is acquired or
sold as aforesaid by foreclosure of the Leasehold Mortgage or
otherwise during said 12-month period, as same may be extended as
aforesaid, the intended termination of this lease by Landlord under
the aforesaid notice will be automatically nullified and this lease
will continue as if said notice of termination had never been given,
provided Leasehold Mortgagee has complied with its obligations under
this Section 24.4.6.
24.4.7. Nothing herein contained shall be deemed to require the
Leasehold Mortgagee to continue with any foreclosure or other
proceedings or, in the event the Leasehold Mortgagee shall otherwise
acquire possession of the Demised Premises, to continue such
possession if the default in respect of which Landlord shall have
given the notice provided for in this Section 24.4 shall be
remedied. However, at any time after the execution and delivery of
the instrument referred to in subdivision (i) of Section 24.4.5, any
such Leasehold Mortgagee may notify Landlord that it does not intend
to continue in possession of the Premises or institute foreclosure
proceedings, or, if such proceedings have been commenced, that it
will discontinue them, and in such event the Leasehold Mortgagee
shall have no further liability under such instrument from and after
the date the Leasehold Mortgagee relinquishes possession or
discontinues the foreclosure proceedings, as the case may be (other
than obligations provided for under such instrument or other
undertaking of the Leasehold Mortgagee, which shall have accrued as
of the date of such relinquishment of possession or discontinuance
of foreclosure proceedings, as the case may be, for payment of Fixed
Annual Rent, Additional Rent, insurance premiums and Impositions and
the performance of the obligation to remit to Landlord any insurance
proceeds then held by the Leasehold Mortgagee and assign to Landlord
any claims under insurance policies). Thereupon Landlord shall have
the right to terminate this lease and to take any other action it
deems appropriate by reason of Tenant's default. No Leasehold
Mortgagee shall be required to commence or continue any foreclosure
or other proceedings or to obtain or continue possession of the
Premises. If prior to any sale pursuant to any proceeding brought to
foreclose any Leasehold Mortgage, or if prior to the date on which
Tenant's interest in this lease and the Demised Premises shall
otherwise be extinguished, (a) the default in respect of which
Landlord shall have given the notice provided for in this Section
shall have been remedied, (b) all Fixed Annual Rent and Additional
Rent then due shall have been paid to the date possession of the
Demised Premises has been restored to Tenant, and (c) possession of
the Demised Premises shall have been restored to Tenant, then any
further obligation of the Leasehold Mortgagee pursuant to the
instrument referred to in Section 24.4.5 shall be null and void and
of no further effect;
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24.4.8. If this lease shall terminate prior to the expiration of the
term of this lease, (and whether or not the instrument referenced in
clause (i) of Section 24.4.5 has been delivered) Landlord shall
enter into a new lease for the Demised Premises with any such
Leasehold Mortgagee, or its designee, for the remainder of the term,
effective as of the date of such termination, at the Fixed Annual
Rent and Additional Rent and with the same priority and upon the
same terms, covenants and conditions contained herein, except that
(a) Landlord shall have no obligation to put the new tenant in
possession of the Demised Premises as against Tenant or anyone
claiming under Tenant, and (b) Landlord, simultaneously with the
execution and delivery of such new lease, shall turn over to the new
tenant all monies, if any, then held by Landlord under this lease on
behalf of Tenant to which Tenant would have been entitled but for
the termination of this lease or the default which resulted in such
termination and the same shall apply to funds then being held by a
Depository, on condition that: (i) such Leasehold Mortgagee shall
make written request for such new lease within forty five (45) days
after the date of such termination; (ii) prior to the commencement
date of the term of the new lease, such Leasehold Mortgagee shall
cure or, in the case of defaults not involving the payment of Fixed
Annual Rent or Additional Rent, shall commence action to cure and
thereafter prosecute such action with all reasonable diligence) all
defaults of Tenant under this lease (susceptible of being cured by
such Leasehold Mortgagee) which remain uncured on that date, and
shall pay or cause to be paid all unpaid sums which at such time
would have been payable under this lease but for such termination,
and shall pay or cause to be paid to Landlord on that date all
expenses, including reasonable counsel fees, court costs and
disbursements, incurred by Landlord in connection with any such
default and termination as well as in connection with the execution
and delivery of such new lease; and (iii) Landlord agrees that the
Fee Mortgagee may deliver to the Tenant under such new lease a
non-disturbance agreement in the form required by Section 28.1 with
respect to this lease or as may otherwise be agreed to between the
Tenant and the Fee Mortgagee.
If more than one Leasehold Mortgagee shall request such new lease,
such new lease shall be made with and delivered to the Leasehold Mortgagee (or
its nominee or designee) whose mortgage is prior in lien to those of any others,
without regard to the time of request;
24.4.9. Tenant and each Leasehold Mortgagee and each designee of a
Leasehold Mortgagee which shall succeed to the rights of Tenant
under this lease, shall be deemed to have agreed to apply the rents,
issues and profits of the Demised Premises to fulfill its
obligations under this lease before applying the same for any other
purpose.
24.4.10 Landlord may exercise any of its rights or remedies with
respect to any other default by Tenant occurring during the period
of such forbearance provided
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for under Section 24.4.5, subject to the rights of each Leasehold
Mortgagee under this Article as to such other defaults, if any.
Section 24.5. Upon the execution and delivery of a new lease under Section
24.4.8 Landlord shall assign and transfer to the tenant under the new lease,
without recourse, any and all of Landlord's rights, title and interest in and to
all subleases, if any, and each sublessee whose sublease is in effect
immediately prior to the execution of the new lease shall be deemed to have
attorned to the new tenant and the new tenant shall at its option be deemed to
have accepted same.
Section 24.6. In the event any prospective Leasehold Mortgagee requires as
a condition to the making of a Leasehold Mortgage loan satisfactory to Tenant,
the amendment of one or more provisions of this lease and/or the addition of one
or more clauses hereto and said amendment or amendments and/or addition or
additions required by such Leasehold Mortgagee do not materially affect
Landlord's or Tenant's rights, privileges and indemnities hereunder, Landlord
and Tenant agree to cooperate with such Leasehold Mortgagee in connection
therewith and Landlord and Tenant shall so amend this lease from time to time.
Section 24.7. In the event any prospective Fee Mortgagee requires as a
condition to the making of a Fee Mortgage loan as contemplated by Article 34
hereof, the amendment of one or more provisions of this lease and/or the
addition of one or more clauses hereto and said amendment or amendments and/or
addition or additions required by such Fee Mortgagee do not materially affect
Landlord's or Tenant's rights, privileges and indemnities hereunder, Landlord,
Tenant and Leasehold Mortgagee agree to cooperate with such Fee Mortgagee in
connection therewith and Landlord and Tenant shall so amend this lease from time
to time.
Section 24.8. Any Leasehold Mortgage that is bifurcated into a project
loan mortgage and a building loan mortgage shall be deemed to be a single
Leasehold Mortgage.
Section 24.9. Anything herein to the contrary notwithstanding, upon the
completion of any Leasehold Mortgage foreclosure proceedings pursuant to which
the Leasehold Mortgagee, its nominee or another person acquires the Tenant's
interest in this lease, Landlord shall be deemed to have waived any Event of
Default by the prior Tenant which is not reasonably susceptible of being cured
by such Leasehold Mortgagee, nominee or other person; provided, however, that,
subject to the provisions of Section 24.4.4, (x) during the pendency of such
proceedings all insurance required to be maintained by Tenant under this lease
shall have been maintained in full force and effect and all payments of Fixed
Annual Rent and Additional Rent due under the terms of this lease shall have
been paid and, (y) upon the completion of such proceedings there shall exist no
uncured Event of Default with respect to the payment of Fixed Annual Rent,
Additional Rent or other sums due and payable to Landlord under this lease.
Without limiting the generality of the foregoing, an Event of Default of the
prior Tenant not "susceptible" of being cured or performed by such a Leasehold
Mortgagee, nominee, or other person shall include, but not be limited to: (i)
the failure of the prior Tenant to comply with the time requirements of any term
or
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provision of this lease (but not the failure to comply with the underlying term
or provision itself); (ii) any bankruptcy, insolvency or receivership or similar
event related to the prior Tenant; or (iii) failure of the prior Tenant to give
any required notices or certificates to Landlord. In no event shall any Event of
Default in the payment of Fixed Annual Rent or Additional Rent or other sums due
Landlord from Tenant under this lease ever be deemed an Event of Default which
is not "susceptible" of being cured or performed by such a Leasehold Mortgagee,
nominee, or other person.
Section 24.10. If Tenant shall have mortgaged this lease then Landlord
agrees, for the benefit of the Leasehold Mortgagee, to the extent permitted by
applicable law, the right of election arising under Section 365(h)(1) of the
Bankruptcy Code, 11 U.S.C. ss. 365(h)(1), shall be exercisable by such Leasehold
Mortgagee and not by Tenant, and any exercise or attempted exercise by Tenant of
such right of election in violation of the immediately preceding provision of
this sentence shall be void. Any rejection of this lease by any trustee of
Tenant in any bankruptcy, reorganization, arrangement or similar proceeding
which would otherwise cause this lease to terminate, shall, without any action
or consent by Landlord, Tenant or any Leasehold Mortgagee, effect the transfer
of Tenant's interest hereunder to the Leasehold Mortgagee or its nominee. Such
Leasehold Mortgagee may terminate this lease upon such transfer upon giving
notice thereof to Landlord no later than forty-five (45) days after notice from
Landlord of such transfer. The Leasehold Mortgagee shall thereupon have no
further obligations hereunder. Alternatively, the senior Leasehold Mortgagee may
request a new lease upon the same terms and conditions as this lease within
forty-five (45) days after notice from Landlord of such transfer, in which event
all obligations accruing pursuant to this lease prior to the effective date of
the new lease shall be payable at the date of its effectiveness notwithstanding
the earlier rejection and termination.
Section 24.11. Except where the Leasehold Mortgagee has become the Tenant,
no liability for the payment of rent or the performance of any of Tenant's
covenants and agreements under this lease shall attach to or be imposed upon the
Leasehold Mortgagee, all such liability as against the Leasehold Mortgagee being
hereby expressly waived by Landlord, and if the Leasehold Mortgagee or its
nominee or designee becomes the Tenant under this lease, all of the obligations
and such liabilities of the Leasehold Mortgagee or its nominee or designee shall
cease and terminate upon assignment of this lease or abandonment of the Demised
Premises.
Section 24.12. Notwithstanding any provision to the contrary, foreclosure
of a Leasehold Mortgage or any sale of Tenant's interest in this lease and the
Demised Premises in connection with a foreclosure, whether by judicial
proceedings or by virtue of any power of sale contained in the Leasehold
Mortgage, or any conveyance of Tenant's interest in this Lease and the Demised
Premises from Tenant to the Leasehold Mortgagee or its nominee or designee by
virtue of or in lieu of foreclosure or other appropriate proceedings, or any
conveyance of Tenant's interest in this lease and the Demised Premises by the
Leasehold Mortgagee or its nominee or designee, shall not require the consent or
approval of Landlord or constitute a breach of any provision of or a default
under this lease.
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Section 24.13. Notwithstanding anything contained in this Article 24 to
the contrary, in the event the Leasehold Mortgagee is the Tenant or an Affiliate
of the Tenant, such Leasehold Mortgagee shall not be entitled to the benefits
granted to a Leasehold Mortgagee pursuant to this Article 24.
Section 24.14. If the Mortgagor is the Master Sublessee, then, solely for
the purposes of this Article 24, the term "Master Sublessee" shall be
substituted for the term "Tenant" and the term "Master Sublease" shall be
substituted for the term "this lease", as the context shall require.
ARTICLE 25. SUBLEASES - ATTORNMENT
Section 25.1. Landlord hereby agrees, for the benefit of any subtenant
which (i) is not an Affiliate of Tenant (ii) has a bona fide sublease covering
either retail space on the street level of the Building or two thousand (2000)
square feet or more above the street level of the Building and either (A) an
initial term of twenty (20) or fewer years or (B) if more than twenty (20)
years, provided the Fixed Annual Rent together with Additional Rent is no less
than ninety (90%) percent of the prevailing market rate for such sublease at the
time executed and (iii) agrees to make full and complete attornment to Landlord
for the balance of the term of such sublease that in the event of the
cancellation or termination of this lease in accordance with the terms hereof
(unless such termination shall arise under Article 18 hereof) or of the
surrender thereof whether voluntary, involuntary or by operation of law, prior
to the expiration date of such subtenant's sublease, including extensions and
renewals granted thereunder and subject to the observance and performance by
such subtenant of all of the terms, covenants and conditions under such sublease
within the time frames provided therein, including any applicable notice and
cure periods, as follows:
25.1.1. That such subtenant upon paying the rent reserved under such
sublease, and performing and observing the covenants, conditions and
agreements thereof upon the part of such subtenant to be performed
and observed, shall and may peaceably hold and enjoy the premises
sublet to the subtenant under such sublease during the term of such
sublease, without any interruption or disturbance from Landlord or
Persons claiming through or under Landlord, and Landlord shall not
terminate such sublease, subject, however, to the terms of such
sublease. This covenant shall be construed as running with the land
to and against subsequent owners and successors in interest, and is
not, nor shall it operate or be construed as, a personal covenant of
Landlord, except to the extent of the Landlord's interest in the
Demised Premises and only so long as such interest shall continue,
and thereafter this covenant shall be binding upon such subsequent
owners and successors in interest of Landlord's interest in the
Demised Premises, to the extent of their respective interests, as
and when they shall acquire the same, and only so long as they shall
retain such interest.
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25.1.2. That the sublease shall continue in full force and effect
and Landlord shall recognize the sublease and the subtenant's rights
thereunder and will thereby establish direct privity of estate and
contract as between Landlord and the subtenant under said sublease
with the same force and effect as though the sublease were
originally made from Landlord in favor of the subtenant thereunder,
subject to the limitations set forth in Section 25.1.3.
25.1.3. To assume such obligations on the part of the sublessor
under such sublease arising from and after the date of such
attornment, provided, however, Landlord shall not be (a) liable in
any way to the subtenant for any act of omission, neglect or default
on the part of Tenant, as sublandlord under said sublease, (b)
responsible for any monies owing by or on deposit with Tenant to the
credit of the subtenant, whether in the nature of security or
otherwise, unless and to the extent such monies are delivered to
Landlord, (c) subject to any counterclaim or set-off which
theretofore accrued to the subtenant against Tenant, as such
sublandlord, (d) bound by any previous prepayment of subrents for
more than two (2) months which was not approved in writing by
Landlord or its predecessors in interest in respect of this lease,
(e) liable to the subtenant beyond Landlord's interest in the
Building and the rents, income, receipts, revenues, issues and
profits issuing from the Building, (f) responsible for the
performance of any work to be done by the sublandlord under such
sublease to render the subleased premises ready for occupancy by the
sublessee, or (g) required to remove any person occupying the
subleased premises or any part thereof, except if such person claims
by, through or under Landlord.
Section 25.2. Within thirty (30) days after request from Landlord, which
shall not be made more frequently than once in any calendar year, Tenant shall
notify Landlord with respect to each sublease which then qualifies for the
benefits afforded under Section 25.1. Such notice shall set forth with respect
to each such sublease, the name of the subtenant, the date of such sublease and
the space covered thereby. If requested by Tenant or such subtenant Landlord
will enter into an agreement in recordable form prepared by Tenant or such
subtenant confirming Landlord's obligations to such subtenant pursuant to
Section 25.1.
ARTICLE 26. ESTOPPEL CERTIFICATES
Section 26.1. Landlord and Tenant each agree at any time and from to time,
upon not less than ten (10) days' prior request by the other party, any
Mortgagee to execute, acknowledge and deliver to the other party or any
Mortgagee, a statement in writing certifying (a) that this lease is unmodified
and in full force and effect (or if there have been modifications that the same
is in full force and effect as modified and stating the modifications), (b) the
dates to which the Fixed Annual Rent and Additional Rent have been paid in
advance, if any, (c) whether or not, to the actual knowledge of the signer of
such certificate, there is any existing default or Event of Default under this
lease on the part of either party thereto and, if so, specifying each such
default,
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and (d) whether or not, to the actual knowledge of the signer of such
certificate, any event has occurred, which with the passage of time or the
giving of notice, or both, would constitute such a default and, if so,
specifying each such event, it being intended that any such statement delivered
pursuant to this Section may be relied upon by any prospective purchaser or
Mortgagee of the fee of the Demised Premises or of the leasehold estate created
under this lease, the prospective assignees of any Leasehold Mortgage or Fee
Mortgage and any such subtenant. Landlord also agrees to add any information
reasonably requested by a Mortgagee.
Section 26.2. If a party shall fail or refuse to execute, acknowledge and
deliver the statement required under Section 26.1 within ten (10) days after
request from the other party, and if the party requesting such statement shall
give the other party a further five (5) day notice requesting such statement but
such failure and refusal shall continue during such five (5) day period, then it
shall be deemed that the party in default has certified that (i) this lease is
unmodified and in full force and effect, (ii) Fixed Annual Rent and Additional
Rent have not been paid for any period subsequent to the billing period then in
progress, (iii) to its actual knowledge there are then no defaults or Events of
Default on the part of either party to this lease, and (iv) no event has
occurred which, with the passage of time or the giving of notice, or both would
constitute such a default or Event of Default. Notwithstanding the foregoing,
such deemed certification may not be relied upon by Landlord or Tenant, but only
by their heirs, successors and assigns.
Section 26.3. Neither party shall be required to provide more than four
(4) statements under this Article 26 in any twelve (12) month period, unless
Tenant needs additional statements in connection with a financing.
ARTICLE 27. WAIVER OF JURY TRIAL
Section 27.1. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either against the other on any
matter whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, including any claim of injury or damage, or any emergency or other
statutory remedy with respect thereto, except where such waiver is barred by
law.
ARTICLE 28. SUBORDINATION/NON-DISTURBANCE
Section 28.1. Unless Tenant otherwise agrees with the Fee Mortgagee, which
agreement shall be evidenced by a written instrument, this lease and the
leasehold estate created hereby shall be superior to any Fee Mortgage now or
hereafter a lien upon the Demised Premises.
Section 28.2. If Tenant has agreed that this lease and the leasehold
estate created hereby is subject and subordinate to any Fee Mortgage now or
hereafter a lien upon the Demised Premises, such subordination shall be
effective for only so long as there shall be and remain in full force and effect
between the holder of such Fee Mortgage and Tenant a subordination and
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non-disturbance agreement in the form reasonably required by such Fee Mortgagee,
and further provided that:
28.2.1 The Fee Mortgage is a lien on the Demised Premises; and
28.2.2 The Fee Mortgagee is a Lending Institution.
Upon notice from Landlord or the holder of such Fee Mortgage, Tenant
shall (i) promptly execute, acknowledge and deliver such agreement and (ii)
request such holder to do likewise.
ARTICLE 29. NON-MERGER
Section 29.1. There shall be no merger of this lease, nor of the leasehold
estate created by this lease, with the fee estate in the Demised Premises by
reason of the fact that this lease or the leasehold estate created by this lease
or any interest in this lease or any such leasehold estate may be held, directly
or indirectly, by or for the account of any person or persons who shall own the
fee estate in the Demised Premises, or any interest in such fee estate, and no
such merger shall occur unless and until all persons at the time having an
interest in the fee estate in the Demised Premises and all persons (including
Leasehold Mortgagees) having an interest in this lease, or in the leasehold
estate created by this lease, shall join in a written instrument effecting such
merger and shall duly record the same.
ARTICLE 30. EXCAVATION ON ADJOINING PROPERTY; ENCROACHMENTS
Section 30.1. If any adjoining building or structure encroaches or shall
at any time encroach upon the Demised Premises, no claim or demand or objection
of any kind shall be made by Tenant against Landlord by reason of any such
encroachment (unless such encroachment shall have been caused or approved by
Landlord without Tenant's consent after the Commencement Date of this lease,
which consent or approval shall be deemed a default by Landlord under this
lease) and no claim for abatement of rent and of other charges which may become
due under this lease shall be made by reason of any such encroachment or in
connection with the removal thereof, and the rights, liabilities and obligations
of the parties hereto shall be the same as if there were no such encroachment,
and in any legal proceedings relating thereto, the Demised Premises may properly
and without prejudice be described according to the description hereinbefore
contained without reference to any such encroachments. Landlord agrees to
cooperate with Tenant in any proceedings brought by Tenant to remove any such
encroachments, provided that the same shall be without cost, liability or
expense to Landlord.
ARTICLE 31. LIMITATION OF LIABILITY
Section 31.1. Notwithstanding anything contained to the contrary in this
lease, whether express or implied, it is agreed that each party will look only
to the other's interest in and to the
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Demised Premises for the collection of any judgment (or other judicial process)
requiring the payment of money by the other in the event of a breach or default
under this lease by the other, and no other property or assets of the party
committing such breach or default or its directors, officers, shareholders,
partners or other principals (disclosed or undisclosed) shall be subject to
levy, execution or other enforcement procedures for the satisfaction of any such
judgment (or other judicial process). The interest in and to the Demised
Premises of a party under this lease shall include, without limitation, the
rents, income, receipts, revenues, issues and profits issuing from the Demised
Premises, any insurance policies carried under this lease and the premiums or
proceeds thereof, any money or securities deposited by Tenant with Landlord or
any escrow agent hereunder, any surety or performance bonds provided by Tenant
hereunder and the proceeds therefrom, and any award to which Tenant may be
entitled in any condemnation proceedings or by reason of a temporary taking of
the Demised Premises and any real estate tax refunds. In confirmation of the
foregoing a party acquiring a lien on such other property or asset, by judgment
or otherwise, shall promptly release such lien by executing, acknowledging and
delivering an instrument in recordable form to that effect prepared by the other
party, but such instrument of release shall not release any such lien on the
interest of the other party in the Demised Premises.
Section 31.2. The provisions and conditions of Section 31.1 above are not
intended to, and shall not in any way whatsoever, affect or limit any right or
remedy which any party may have against the other under any agreement, matter,
claim, or thing which is extrinsic to, and does not arise out of, this lease.
ARTICLE 32. EXHIBITION OF DEMISED PREMISES
Section 32.1. Tenant shall, subject to the applicable provisions of
subleases, permit Landlord and its authorized representatives to enter the
Demised Premises at all times during usual business hours and upon reasonable
notice for any reasonable purpose and subject to the provisions of the
subleases.
ARTICLE 33. BROKER
Section 33.1. Tenant and Landlord shall indemnify and save each other
harmless from and against any claims for commissions, fees, compensation or
reimbursement of expenses, asserted by any Person other than Judmart Realty
Corp. (the "Broker") who dealt with or claims to have dealt with either Landlord
or Tenant or any Affiliate of either such party in connection with this lease,
and any reasonable cost or expense incurred by either such party in defending
such claim. Landlord agrees to pay the Broker pursuant to a separate agreement.
Section 33.2. Each party represents and warrants to the other that the
only broker with whom it dealt in connection with this lease is the Broker.
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Section 33.3. Each party under Section 33.1 may, at its option, designate
the counsel which shall defend the indemnified party, subject to such party's
approval, which shall not be unreasonably withheld.
ARTICLE 34. LANDLORD COVENANTS/REFINANCING
Section 34.1 From and after the date hereof, Landlord covenants and agrees
that it will not enter into any agreement, other than this lease and other
agreements with Tenant's affiliates, to sell, transfer, convey, lease, assign,
finance, mortgage, hypothecate, encumber or dispose of (directly or indirectly)
(voluntarily or by operation of law) this lease, all or any portion of the
Demised Premises or any interest in either this lease or the Demised Premises or
with respect to landlord's reversionary or fee interest in the Demised Premises
or portion thereof (any such event, a "Transfer"). For purposes of this Article
34, a Transfer shall be deemed to include any change in the ownership interests
of Landlord or in FS provided that inter vivos or testamentary transfers or
issuance of capital stock in FS to one or more family members of Simon Chetrit,
or trusts in which all of the beneficial interest is held by one or more of such
family members or a partnership or limited liability company in which all the
capital and profits interests are held by such family members shall not be
deemed a Transfer. As used herein, "family members" shall be limited to parents,
siblings, children and grandchildren of Simon Chetrit and their respective
spouses or any entity owned or controlled by any of them. Any Transfer in
violation of this Article 34 shall be void ab initio.
Section 34.2 (a) Tenant shall be obligated to either refinance or
extend the maturity date of the Fee Mortgage at its stated maturity or upon
acceleration of such Fee Mortgage (other than on account of a default by
Landlord), at its sole cost and expense, and the failure to do so shall be a
default under this lease, as more specifically provided in Article 20 hereof.
(b) Landlord agrees that Tenant, at Tenant's sole cost and expense,
shall have the right at any time and from time to time to Refinance the Fee
Mortgage and that Landlord shall have no right or obligation in connection
therewith, except as specifically stated in this Article 34. Such Refinancing
shall:
(i) be one or more loans made by Lending Institution(s) and,
at Tenant's option, may be secured by one or more mortgage
liens on the Demised Premises (and at Tenant's election may
also be a lien on the 44 Premises and may or may not at
Tenant's election be cross-collateralized and cross-defaulted
with the mortgage(s) on the 44 Premises, as well as, if Tenant
so elects, other premises as well, provided that a default
under the mortgage on such other premises shall not constitute
a default under the Fee Mortgage on the Premises or the 44
Premises);
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(ii) be non-recourse to Landlord except for those items
set forth on Exhibit C;
(iii) be in the aggregate principal amount of no more than
$55,000,000 as an encumbrance on Landlord's fee interest in
the Demised Premises and, as the case may be, on the fee
interest of the owner of the 44 Premises;
(iv) not permit the Lender to participate in the income
derived by Landlord from the Demised Premises; and
(v) for so long as and only to the extent that the Lending
Institution is Tenant (or an Affiliate thereof), no default
interest shall be charged by such Lending Institution in
respect of the Fee Mortgage or the portion thereof held by
Tenant or its Affiliate.
(c) Landlord authorizes Tenant, at any time Tenant deems it
necessary or desirable, to seek to obtain any Refinancing of the Fee Mortgage,
at any time and from time to time, and, in connection therewith, covenants and
agrees to cooperate with Tenant and, if a mere confirmation of the effectiveness
of the power of attorney granted Tenant is insufficient, to provide any
information and to deliver any documentation reasonably required by the Fee
Mortgagee in connection therewith. Except as provided in Exhibit C, nothing
contained herein shall be deemed to impose any obligation on Landlord to execute
and deliver any documents imposing personal liability on Landlord's principals.
Accordingly, Landlord covenants and agrees that:
(i) Landlord shall execute and deliver the documents
evidencing and/or securing each Fee Mortgage (collectively,
the "Loan Documents") and shall also execute and deliver any
other documents or affidavits reasonably required by each Fee
Mortgagee and its title company in connection therewith (the
"Loan Transaction Documents"); and
(ii) Landlord shall cooperate in satisfying any reasonable
requests by each Fee Mortgagee that are part of its conditions
precedent to closing the financing, including, without
limitation, causing Landlord's counsel to deliver any opinions
with respect to Landlord and, provided Tenant's counsel shall
have delivered an opinion to Landlord that the Loan Documents
are enforceable, which Landlord's counsel is specifically
authorized to rely upon, an opinion as to the enforceability
of the Loan Documents that may be reasonably required by each
Fee Mortgagee, which opinion(s) shall be deemed part of the
Loan Transaction Documents.
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(d) Tenant agrees that it shall pay all costs in connection with
obtaining and closing such refinancing, including, without limitation,
Landlord's reasonable counsel fees, and recording the Loan Documents.
(e) Notwithstanding anything to the contrary in any Fee Mortgage,
Landlord agrees that, whenever any Fee Mortgage provides for the release to
Mortgagor of any (i) deposits held by such Mortgagee, (ii) condemnation awards,
(iii) insurance proceeds or (iv) any other amounts held by such Mortgagee
(collectively, the "Released Funds"), such Released Funds are to be delivered to
Tenant and, if same are delivered to Landlord, such Released Funds will be held
in trust by Landlord and promptly delivered to Tenant.
ARTICLE 35. NOTICES, ETC
Section 35.1. All notices, consents, demands and requests (collectively,
"notices" and individually, a "notice") which are required or desired to be
given by either party to the other shall be in writing. All notices by either
party to the other shall be sent by United States registered or certified mail,
return receipt requested, postage prepaid, addressed to the other party at its
address set forth below, personally delivered or sent by prepaid, overnight,
national overnight courier ("Courier") to such address or at such other single
address as it may from time to time designate in a notice to the other party.
All notices to Landlord shall be addressed to 417 FS Realty LLC, c/o Prince
Management Corp., 498 Seventh Avenue, New York, New York 10036. Copies of all
notices to Landlord shall be given in the same manner to Sukenik, Segal & Graff,
P.C., 417 Fifth Avenue, New York, New York 10016, Attention: Jehoshua Graff,
Esq. All notices to Tenant shall be addressed to PoleStar Fifth Property
Associates LLC, c/o NorthStar Capital Partners, LLC, 527 Madison Avenue, 17th
Floor, New York, New York 10022 Attention: W. Edward Scheetz. Copies of all
notices to Tenant shall be given in the same manner to Robert J. Wertheimer,
Esq., Battle Fowler LLP, 75 East 55th Street, New York, New York 10022,
Telephone: (212) 856-7000 and Facsimile (212) 339-9150 and to Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022,
Attention: Benjamin F. Needell, Esq., Telephone: (212) 735-3000 and Facsimile
(212) 735-2000 or in either case, to such other one person or address as the
party giving such notice shall have been previously notified from time to time
by the party to whom such notice is given. Notices which are served upon
Landlord or Tenant by Courier shall be deemed to have been given or served for
all purposes hereunder on the business day next following the date on which such
notice shall have been sent by Courier or personally served as aforesaid.
Notices sent by certified mail shall be deemed delivered three (3) business days
after same have been mailed. As a matter of convenience only, notices may be
sent by telecopier, provided a hard copy is delivered as stated above, but the
delivery by telecopy shall not accelerate the date delivery of such notice is
deemed to have been received.
Section 35.2. All notices which are required or desired to be given by
either party to any Mortgagee shall be in writing. All notices to any Mortgagee
shall be sent by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to such
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Mortgagee at its address set forth in its respective mortgage of which, in the
case of Leasehold Mortgages Landlord shall have been notified, and in case of
Fee Mortgages Tenant shall have been notified, or personally delivered to such
address, or at such other address as the Mortgagee in question may from time to
time designate in a written notice to the party giving such notice. Notices,
which are served upon any Mortgagee in the manner aforesaid, shall be deemed to
have been given or served for all purposes hereunder on the business day next
following the date on which such notice shall have been mailed or personally
served as aforesaid.
Section 35.3. The parties hereby confer jurisdiction upon the Supreme
Court of the State of New York, County of New York (or any successor court of
similar jurisdiction) with respect to any judicial action or proceeding arising
out of this lease or the relationship of the parties as landlord and tenant.
Service of process in any such action or proceeding may be accomplished in the
same manner as the giving of a notice under Section 35.1.
ARTICLE 36. INDEX AND CAPTIONS
Section 36.1. The index and captions of this lease are for convenience and
reference only, and in no way define, limit or describe the scope or intent of
this lease, nor in any way affect this lease.
ARTICLE 37. VAULTS
Section 37.1. This lease includes, as appurtenant to the Demised Premises
but subject to such laws, permits, orders, rules and regulations as may be
imposed by appropriate governmental authorities with respect thereto, any rights
of Landlord, or which Landlord has authority to grant, in or to any vaults or
other space in, under or over any adjoining avenue, street, highway or property,
and Tenant shall take or cause to be taken all such action as may be appropriate
to maintain the same, but if use of the same shall be discontinued, such
discontinuance shall in no way affect the liability of Tenant to pay the rent
and perform all the covenants contained in this lease. If any license or permit
to use such vault or other space shall be revoked, Tenant shall, at its sole
cost and expense, do and perform all such work as may be necessary to comply
with any lawful order revoking the same.
Section 37.2. No diminution of the amount of vault space used by Tenant or
any subtenant shall entitle Tenant to any reduction or abatement of rent.
ARTICLE 38. RIGHT OF SET-OFF/TENANT REMEDIES
Section 38.1 (a) Landlord acknowledges and agrees that there exists the
right to set off (the "Set-Off") against any Fixed Annual Rent due under this
lease and any Additional Payments due to FS by NS Member under the Operating
Agreement (as such term is defined in the Operating Agreement) for an amount
equal to the actual damages incurred by Tenant in connection with:
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(i) any incorrect information in the Rent Roll attached as
Schedule 1 to the Agreement, any inaccurate representation or
warranty in the Lease Assignment Agreement or the Security
Deposit Agreement delivered by Landlord on the date hereof
pursuant to the Agreement, or any claim arising under the
Landlord's Estoppel delivered in connection with the closing
under the Agreement, subject to the provisions of the second
sentence of Section 8(e)(ii) of the Agreement releasing FS
from liability as Conforming Tenant Estoppels (as defined in
the Agreement) are delivered;
(ii) any claims in respect of the Demised Premises for the
period prior to the Commencement Date, including, without
limitation, any obligation of Landlord under any of the
Leases, which shall, in turn, include, without limitation, any
unfinished Landlord work under the Leases, any payments due
and owing any Tenant under any Leases in respect of or any
inducements given to such tenants in respect of the execution
and delivery of their Leases;
(iii) any fees or commissions payable to (A) S.L. Green
Management Corp. and/or in connection with any Leases or any
management agreement or other understanding or agreement for
the Demised Premises (including, without limitation, any
management or leasing fees and any termination or other fee or
expense reimbursement payable pursuant to the terms of the
existing Management Agreement), (B) any broker or consultant,
(C) any employees (or their union(s)) with respect to services
rendered at the Premises prior to the Commencement Date,
including, without limitation, claims made by such employees
(or their unions) with respect to wages, fringe benefits, if
any and pension, retirement and hospitalization plans, if any;
and/or (D) any other service provider at the Demised Premises
(any such Person, a "Prior Service Provider"), whether
pursuant to a written or oral agreement with Landlord, its
Affiliates, agents or representatives, which fees or
commissions were on account of services provided prior to the
date of this lease, and which were not paid in full by FS (all
amounts due under subparagraph (ii) above and under this
subparagraph (iii), a "Prior Fee"); and
(iv) any credits to Tenant in respect of the Apportionments
set forth in Article 19 hereof.
(b) With respect to any Set-Offs by Tenant pursuant to its rights
under Section 38.1(a)(i) above, the following shall apply:
(i) If the right to Set-Off is on account of (A) any monetary
matter, including, but not limited to, (I) the rent obligation
(which shall include
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both fixed and additional rent obligations) of a tenant being
lower than as stated in either the Rent Roll or the related
Landlord Estoppel or (II) a misstatement in respect of a
monetary obligation of Landlord (any such monetary matter, as
provided in clauses (I) and/or (II) above,, a "Monetary
Deficiency"), Tenant shall have a dollar-for-dollar right of
Set-Off in the amount of, but not exceeding, such Monetary
Deficiency, during the period of the stated term of the lease
to which such Monetary Deficiency corresponds, or (B) a
non-monetary matter which has been misstated in either the
Rent Roll or the related Landlord Estoppel (a "Non-Monetary
Matter"), Landlord shall indemnify Tenant with respect
thereto, but only to the extent of actual damages.
(ii) Unless a dispute exists, if Landlord shall fail to
reimburse Tenant for any loss, cost or expense incurred by
Tenant in connection with a Non-Monetary Matter (which shall
include, without limitation, reasonable attorneys' fees)
within twenty (20) days after Landlord's receipt of written
request therefor from Tenant, which request shall include a
reasonably detailed statement of the costs incurred by Tenant,
Tenant shall have a right of Set-Off in respect of any amounts
that are due and owing to Tenant in respect of said
reimbursement; and
(iii) Any disputes between Landlord and Tenant with respect to
the amount of the Set-Off in respect of a Monetary Matter or a
Non-Monetary Matter shall be submitted to arbitration as
provided in Article 44 hereof.
(c) Any invoice or other claim or demand in respect of a Prior Fee
shall be delivered to Landlord and Landlord shall have sixty (60) days from
receipt of same to resolve same to Tenant's reasonable satisfaction. If Landlord
is unable to resolve same in such sixty (60) day period, Tenant shall have the
right to (i) pay the full amount (the "Offset Escrow Amount") of such invoice,
claim or demand as demanded by such party into escrow with Landlord's counsel to
be held pursuant to the provisions of Exhibit B of the Agreement in respect of
the Downpayment, pending issuance of a judgment by a court of competent
jurisdiction in such dispute or after settlement between Landlord and such Prior
Service Provider and (ii) set off an amount equal to such payment against the
Fixed Annual Rent. As a condition precedent to Tenant exercising its right of
Set-Off, Tenant shall submit to Landlord reasonably satisfactory evidence that
Tenant made such payment into escrow. Landlord shall be responsible for all
costs and expenses in connection with said dispute, including, without
limitation, all reasonable attorneys' fees and all costs incurred by Tenant with
respect to such dispute and Tenant shall have a right of Set-Off with respect
thereto if such costs and expenses are not promptly reimbursed to Tenant by
Landlord after Tenant has (I) made a demand upon Landlord for such reimbursement
and (II) submitted evidence reasonably satisfactory to Landlord that such
expense has been incurred. If Landlord settles or pays in full the invoice,
claim or demand in respect of the Prior Fee, Landlord shall be entitled to the
Offset Escrow Amount relating to such invoice,
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claim or demand upon submission to Tenant of evidence, reasonably satisfactory
to Tenant, that the Prior Fee has either been paid in full or settled.
(d) In addition to the aforesaid Set-Off Rights, in the event of a
breach or a threatened breach by Landlord of any of its covenants hereunder,
Tenant shall have the right to seek injunctive relief and the right to invoke
the remedy of specific performance, as determined by Tenant in its sole
discretion.
(e) If (i) Tenant is unable to consummate a Refinancing, (ii) Master
Sublessee or any sublessee is unable to consummate a Refinancing, or (iii)
Tenant, Master Sublessee or any sublessee is unable to make a Tenant Transfer as
a result of a Title Objection which has not been removed or cured by Landlord
within sixty (60) days after Landlord's receipt of notice in connection
therewith, the amount to remove or cure such Title Objection shall be treated as
if it was a Prior Fee under Section 38.1(c) above.
(f) Except as specifically set forth in this Article 38, Tenant
shall have no other right of Set-Off.
ARTICLE 39. INVALIDITY OF PARTICULAR PROVISION
If any term or provision of this lease or the application thereof to any
person or circumstance shall to any extent be invalid or unenforceable, the
remainder of this lease, or the application of such term or provision to persons
or circumstances other than those as to which it is invalid or unenforceable,
shall not be affected thereby and each term and provision of this lease shall be
valid and be enforced to the fullest extent permitted by law, with the parties
hereto covenanting to nonetheless negotiate in good faith, in order to agree the
terms of a mutually satisfactory provision to be substituted for the term or
provision which is void or unenforceable.
ARTICLE 40. AUTOMATIC EXTENSION OF TERM
Section 40.1.
(a) In the event that there is a Non-Permitted Encumbrance and as a
result thereof (i) Landlord is unable to deliver title to the Demised Premises
in accordance with the terms of the Option Agreement (unless FS is ready,
willing and able to deliver the Purchase Right pursuant to Section 10.07 of the
Operating Agreement); (ii) FS is unable to deliver the Purchase Right pursuant
to Section 10.07 of the Operating Agreement (unless Landlord is ready, willing
and able to deliver title to the Demised Premises in accordance with the terms
of the Option Agreement); (iii) Tenant, Master Sublessee or any subtenant is
unable to effectuate a Refinancing or a Tenant Transfer; or (iv) there has been
a Material Breach of Representation (as defined in Section 10(d) of the Option
Agreement) (and such Non-Permitted Encumbrance or Material Breach of a
Representation is not resolved in the manner provided in Section 38.1(c) with
respect to a Prior Fee) (any such event, a "Landlord Title Failure"), then the
term of this
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lease is automatically extended for an additional period of seventy-four (74)
years (the "Extended Term") at the Fixed Rent set forth on Schedule B. The
Extended Term shall commence on February 9, 2023 and end on February 8, 2097.
(b) Notwithstanding anything contained herein to the contrary, until
such time as Landlord has cured or removed such Landlord Title Failure, the
Fixed Annual Rent as provided in Schedule A or Schedule B, as the case may be,
for the period commencing on the date of such failure shall be paid to and held
in escrow by Landlord's counsel and shall be paid over to Landlord (together
with any interest accrued thereon) only upon the closing of title in accordance
with the terms of the Option, the consummation of the Purchase Right pursuant to
the Operating Agreement, or the closing of the Refinancing or Tenant Transfer,
as the case may be, all subject to the provisions of Article 38 hereof,
provided, however, if Landlord or FS has wilfully caused the Landlord Title
Failure, as determined by a court of competent jurisdiction, then the payments
required to be made by Tenant pursuant to this lease as shown on Schedule A or
Schedule B, as the case may be, for the period from the time of such failure
shall be waived by Landlord and shall not be required to be paid by Tenant
notwithstanding any other provision in this lease to the contrary and if
previously deposited in escrow prior to such determination shall be returned to
Tenant (together with any interest accrued thereon).
Section 40.2 The extension shall be upon the same terms, covenants and
conditions as are contained in this lease, except for the Fixed Annual Rent
which shall be as set forth on Schedule B annexed hereto, duration of the term
and such provisions in this lease which by their terms are only applicable to
the Initial Term of this lease.
ARTICLE 41. MISCELLANEOUS PROVISIONS
Section 41.1. Every term, condition, agreement or provision contained in
this lease shall be deemed to be also a covenant.
Section 41.2. The specified remedies to which either party may resort
under the terms of this lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which that party may be
lawfully entitled in case of any breach or threatened breach by the other party
of any provision of this lease, and either party shall be entitled to the
restraint by injunction of any violation or attempted or threatened violation of
any of the terms or provisions of this lease.
Section 41.3. The failure of either party to insist in any one or more
cases upon the strict performance of any of the terms, covenants, conditions,
provisions or agreements of this lease, or to exercise any option herein
contained, shall not be construed as a waiver or a relinquishment for the future
of any such term, covenant, condition, provision, agreement or option. A receipt
and acceptance by Landlord of rent or any other payment, or the acceptance or
performance by either party of anything required by this lease to be performed,
with knowledge of the breach of any term, covenant, condition, provision or
agreement of this lease, shall not be deemed a waiver
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of such breach, nor shall any such acceptance of rent in a lesser amount than is
herein provided for (regardless of any endorsement on any check, or any
statement in any letter accompanying any payment of rent or other charge)
operate or be construed either as an accord and satisfaction or in any manner
other than as a payment on account of the earliest rent or other charge then
unpaid by Tenant. No waiver by either party of any term, covenant, condition,
provision or agreement of this lease shall be deemed to have been made unless
expressed in writing and signed by that party.
Section 41.4. This lease may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of the change,
modification or discharge is sought.
Section 41.5. In the event of any Unavoidable Delays under this lease, the
time of performance of the covenants and obligations under this lease in
question (which shall in no event include any requirement for the payment of a
sum of money) shall automatically be extended for a period of time equal to the
aggregate period of the Unavoidable Delays.
Section 41.6. Any notice, waiver, certificate under Article 26, or
modification of this lease, signed on behalf of a party by one of its general
partners (if such party is a general or limited partnership or by one of its
directors or its president, executive vice president, vice-president or
secretary (if such party is a corporation) shall be binding upon that party and
the other party may rely thereon (as well as any third party expressly entitled
under this lease to rely thereon) without any inquiry into or evidence of the
authority of the signatory.
Section 41.7. This lease shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York and without aid of any
canon or rule of law requiring construction against the party drawing or causing
this lease or any provision thereof to be drawn.
Section 41.8. All terms and words used in this lease, regardless of the
number or gender in which they are used, shall be deemed to include-any other
number, or any other gender, as the context may require.
Section 41.9. The terms "herein," "hereby," "hereof," "hereunder," and
words of similar import, shall be construed to refer to this lease as whole, and
not to any particular Article or Section, unless expressly so stated.
Section 41.10. If either party shall be in default in the performance of
any of its obligations under this lease after the applicable grace period, if
any, then and in addition to any other right or remedy of the non-defaulting
party, the defaulting party shall promptly reimburse the non-defaulting party
for any reasonable counsel fees and disbursements incurred by the non-defaulting
party in enforcing its rights hereunder or at law or in equity.
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Section 41.11. The provisions of this lease shall not be construed for the
benefit of any third party, except as otherwise provided herein.
Section 41.12. This lease may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument.
Section 41.13. Nothing contained in this lease shall be deemed to create a
partnership or other joint venture between the parties.
ARTICLE 42. FURTHER ASSURANCES
Section 42.1. From time to time, each party hereto shall, within five (5)
Business Days after a request therefor by the other party and at such party's
sole cost and expense, furnish such additional consents and other instruments
and information as may be reasonably required to implement the provisions of
this lease and the intentions of the parties or to confirm or perfect any right
to be created or transferred hereunder.
ARTICLE 43. COVENANTS BINDING ON RESPECTIVE PARTIES
Section 43.1. Subject to the provisions of Articles 23 and 31, the terms,
conditions, covenants, provisions and undertakings herein contained shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, personal representatives, successors and assigns.
ARTICLE 44. ARBITRATION
Section 44.1. In such cases where this lease provides for the settlement
of a dispute by arbitration, such arbitration shall be made by the American
Arbitration Association (or any successor body of comparable function reasonably
satisfactory to the parties) in the City, County, and State of New York in
accordance with the rules then obtaining of said Association (or such successor)
and a judgment upon the award may be entered in any court, federal or state,
having jurisdiction therefor. Any Fee Mortgagee and any Leasehold Mortgagee
shall have the right to participate in any such arbitration, and prompt notice
thereof shall be given to each Fee Mortgagee and each Leasehold Mortgagee by the
party requesting such arbitration, provided and to the extent such party shall
have been previously notified of the name and address of such Mortgagees. The
fees and expenses of any arbitration shall be borne by the parties equally, but
each party shall bear the expense of its own attorneys and experts and of
presenting its own proof and each party shall act in good faith and in a
commercially reasonable manner in respect of its obligations under this Article
44. The arbitrators shall (i) have at least ten (10) years experience in real
estate matters similar to the matter being arbitrated and (ii) not be affiliated
with any party.
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ARTICLE 45. RIGHT TO PURCHASE AFTER TERMINATION
Section 45.1. If there is a valid and legal termination of this lease
pursuant to its terms, which termination occurs on or after April 1, 2008, and
no Leasehold Mortgagee has exercised the right pursuant to Article 24 hereof to
obtain a new lease, Landlord will so notify Optionee and NS Member at the
address set forth above for Tenant (or to such other person and at such other
address as Landlord shall have been previously notified by Optionee at its
address for notices). In such event, either Optionee shall have the right to
exercise the Option and to acquire the Demised Premises pursuant to the terms of
the Option Agreement, or NS Member shall have the right to acquire the Acquired
Interests as provided in Section 10.07 of the Operating Agreement, provided,
however, (i) if within thirty (30) days of Optionee's or NS Member's actual
receipt of such notice, Optionee fails to exercise its right to the Option or,
as the case may be, NS Member fails to exercise its right to acquire the
Acquired Interest or (ii) in the alternative, if Landlord fails to notify
Optionee and/or NS Member and Optionee or NS Member has not, within sixty (60)
days from the date of the valid and legal termination of the lease, exercised
the Option, or, as the case may be, its right to acquire the Acquired Interest
Optionee's right to exercise the Option shall be deemed terminated.
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IN WITNESS WHEREOF, the parties hereto have duly executed this lease
as of the day and year first above written.
LANDLORD:
417 FS REALTY LLC
By: F.S. REALTY CORP.
By:_______________________
Name: Joseph Chetrit
Title: Vice President
Signatures Continued on Next Page of Lease - 417 Fifth Avenue
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TENANT:
POLESTAR FIFTH PROPERTY
ASSOCIATES LLC
By:_______________________
Name: W. Edward Scheetz
Title: President
Final Signature Page of Lease - 417 Fifth Avenue
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State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared Joseph
Chetrit, personally known to me or proved to me on the basis of satisfactory
evidence to be the same individual whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his capacity, and
that by his signature on the instrument, the individual, or the person on behalf
of which the individual acted, executed the instrument.
------------------------------
[Seal]
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State of New York )
) ss.:
County of New York )
On the __th day of February in the year 1998, before me, the
undersigned, a Notary Public in and for said State, personally appeared W.
Edward Scheetz, personally known to me or proved to me on the basis of
satisfactory evidence to be the same individual whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person on behalf of which the individual acted, executed the instrument.
------------------------------
[Seal]
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Exhibit A
Description of Land
64
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Exhibit B
Memorandum of Lease
65
<PAGE>
Exhibit C
Exceptions to Non-Recourse
Landlord shall be personally liable at all times for (i) the
misapplication of (a) any insurance proceeds paid under any insurance policies
by reason of damage, loss, or destruction to the Premises or (b) proceeds or
awards resulting from condemnation or other taking in lieu of condemnation of
any portion of the Premises or (c) tenant security deposits, but solely to the
extent any of the foregoing items have actually been received and misapplied by
Landlord, and (ii) any damages to Lender resulting from any fraud or intentional
misrepresentation made by Landlord.
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Exhibit D
Pre-Existing Environmental Matters
Those matters shown on the Property Condition Assessment and the Phase I
Environmental Site Assessment, both dated December 15, 1997, in respect of the
Premises prepared by Certified Environments Inc.
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Exhibit E
JEWISH HOLIDAYS
Rosh Hashanah (Both Days)
Yom Kippur
Succot (First 2 Days)
Shemini Atzeret
Simchat Torah
Passover (First 2 Days and Last 2 Days)
Shavuot (Both Days)
68
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Schedule A
Fixed Annual Rent
69
<PAGE>
Schedule B
Fixed Annual Rent During Extension Term
70
<PAGE>
Schedule C
LEASES
71
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Exhibit 10.11
============================================
OPTION AGREEMENT
BETWEEN
The 44 BC REALTY LLC
OPTIONOR
AND
POLESTAR FORTY-FOURTH OPTIONEE LLC
OPTIONEE
Dated: as of February 9, 1998
============================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. GRANT OF OPTION..........................................................3
2. OPTION PAYMENTS. .......................................................3
3. TERM OF OPTION...........................................................3
4. EXERCISE OF OPTION/TRANSFER OF PROPERTY..................................4
5. OPTION EXERCISE PRICE; COSTS AND EXPENSES................................7
6. CERTAIN DEFINITIONS......................................................8
7. STATUS OF PROPERTY.......................................................8
8. TITLE INSURANCE; LIENS..................................................10
9. OPTIONEE COVENANTS, REPRESENTATIONS AND WARRANTIES......................12
10. OPTIONOR REPRESENTATIONS, WARRANTIES AND COVENANTS......................13
11. CONDITIONS PRECEDENT TO CLOSING.........................................19
12. DOCUMENTS AND OTHER ITEMS TO BE DELIVERED AT CLOSING....................20
13. DISCLAIMER; WAIVER OF CLAIMS............................................22
14. DAMAGE AND DESTRUCTION; CONDEMNATION....................................22
15. BROKERAGE...............................................................23
16. ASSIGNMENT BY OPTIONEE..................................................24
17. REMEDIES................................................................25
18. FURTHER ASSURANCES......................................................27
19. NOTICES.................................................................27
20. APPORTIONMENTS..........................................................29
21. BINDING EFFECT..........................................................29
22. RECORDING...............................................................29
23. CHOICE OF LAW...........................................................30
24. SURVIVAL................................................................30
25. COUNTERPARTS............................................................30
26. INVALIDITY OF PARTICULAR PROVISION......................................30
27. TERM OF AGREEMENT.......................................................31
Exhibits
- --------
EXHIBIT A - Description of Land
EXHIBIT B - Memorandum of Option
EXHIBIT C - Bill of Sale
EXHIBIT D - Assignment of Included Property
EXHIBIT E - Assignment of Leases and Security Deposits
EXHIBIT F - Escrow Provisions
EXHIBIT G - Additional Permitted Encumbrances
-i-
<PAGE>
Schedules
- ---------
Schedule 1 - Leases, Security Deposits; Rent Roll
Schedule 2 - Contracts
Schedule 3 - Permits
Schedule 4 - Insurance Policies
Schedule A - Option Exercise Price Payments
-ii-
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DEFINITION PAGE
Section
Term Number
- ---- ------
Additional Payments ............................................ 5(a)
Additional Property Rights ..................................... 4(b)(vi)
Agreement ...................................................... Introduction
Building ....................................................... Recitals
business days .................................................. 6
Closing ........................................................ 4(a)
Closing Date ................................................... 4(a)
Condemnation ................................................... 14(a)(i)
Contracts ...................................................... 4(b)(v)
Courier ........................................................ 19
Deed ........................................................... 12(a)(i)
family member .................................................. 10(b)
foreign person ................................................. 10(a)(vi)
44 LLC ......................................................... Recitals
44 Premises .................................................... Recitals
BC ............................................................. 2(a)
BC Expenses .................................................... 5(b)
Holidays ....................................................... 6
Included Property .............................................. 4(c)(vi)
Initial Option Termination Date ................................ 4(a)
Judmart ........................................................ 15(a)
Land ........................................................... Recitals
Landlord Deficiency Amount ..................................... 17(a)
Leases ......................................................... 4(b)(iv)
Loan ........................................................... Recitals
Loan Documents ................................................. Recitals
Master Lease ................................................... Recitals
Master Tenant .................................................. Recitals
Material Breach of a Representation ............................ 10(d)
NS Member ...................................................... Recitals
Operating Agreement ............................................ Recitals
Option ......................................................... 1(a)
Option Exercise Date ........................................... 4(a)
Option Exercise Price .......................................... 5(a)
Option Fee ..................................................... 2(a)(i)
Option Memoranda ............................................... 22
Option Notice .................................................. 4(b)
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<PAGE>
Option Payments ................................................ 2(a)
Option Period .................................................. 4(a)
Option Termination Date ........................................ 4(b)
Optionee ....................................................... Introduction
Optionor ....................................................... Introduction
Permits ........................................................ 4(b)(vii)
Permitted Encumbrances ......................................... 7(a)
Person ......................................................... 6
Personalty ..................................................... 4(b)(iii)
Premises ....................................................... Recitals
Property ....................................................... 4(b)(vii)
Purchase Right ................................................. 2(a)
Reminder Notice ................................................ 4(b)
Reports ........................................................ 8(a)(i)
Security Deposits .............................................. 4(b)(iv)
Subsequent Title Report ........................................ 8(b)
Subtenants ..................................................... 7(a)(xi)
Title Company .................................................. 8(a)(i)
Title Objection ................................................ 8(b)
Title Objection Notice ......................................... 8(b)
Transfer ....................................................... 10(b)(i)
Violations ..................................................... 7(a)(viii)
West 44th St Option Agreement .................................. Recitals
West 44th St Transaction ....................................... Recitals
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<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement"), made as of the 9th day of
February, 1998, by and between The 44 BC REALTY LLC, a Delaware limited
liability company having an office c/o Prince Management Corp., 498 Seventh
Avenue, New York, New York 10036 ("Optionor") and POLESTAR FORTY-FOURTH OPTIONEE
LLC, formerly known as NS 417/44 LLC, a Delaware limited liability company
having an office c/o NorthStar Capital Partners, LLC, 527 Madison Avenue, New
York, New York 10022 ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionor is the owner in fee of a certain parcel of land (the
"Land") and improvements located thereon (said improvements together with any
future replacements thereof, collectively, the "Building"), which land and
improvements as described in Exhibit A are also known as 19 West 44th Street,
New York, New York and are designated as Lot 24, Block 1260 of the Tax Map of
the City of New York (the Land and the Building hereinafter, the "Premises");
and
WHEREAS, Optionee desires to acquire from Optionor an irrevocable option
to purchase the Property (as hereinafter defined) and, subject to the terms
hereof, Optionor is willing to grant to Optionee such option; and
WHEREAS, simultaneously herewith (i) Optionor, as landlord, and an
affiliate of Optionee, as tenant (the "Master Tenant"), are entering into a
lease (the "Master Lease")
<PAGE>
with respect to the Premises; (ii) PoleStar Forty-Fourth Funding LLC, among
others, is making a loan(s) (as same may be modified, amended, supplemented
and/or refinanced as provided herein, subject to the limitations set forth in
Section 2 of that certain Agreement by and among FS (hereinafter defined), The
44th B.C. Realty Corp. and NS 417/44 LLC dated January 14, 1998, the "Loan") to
Optionor, which Loan will be evidenced by a note(s) and secured by, among other
things, a mortgage and assignment(s) of rents and leases encumbering the
Premises (such documents, together with any other documents evidencing and/or
securing the Loan(s), collectively, the "Loan Documents"); and (iii) PoleStar
Forty-Fourth Holding LLC, a Delaware limited liability company that is an
affiliate of Optionee (the "NS Member") has been admitted as a one (1%) percent
member of Optionor pursuant to the Amended and Restated Limited Liability
Company Agreement of Optionor dated of even date (the "Operating Agreement").
WHEREAS, The 44 BC Realty LLC ("44 LLC") and PoleStar Forty-Fourth
Optionee LLC are simultaneously entering into an option agreement (the "West
44th St Option Agreement") with respect to the land and building known as 19
West 44th Street, New York, New York (the "44 Premises") on terms and conditions
substantially similar to the terms and conditions in this Agreement, except for
the amounts payable thereunder (the matters contemplated by such documents, the
"West 44th St Transaction").
NOW, THEREFORE, for good and valuable consideration and the mutual
agreements herein contained, the parties covenant and agree as follows:
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1. GRANT OF OPTION.
(a) In consideration for the payment of the Option Fee (as hereinafter
defined), Optionor hereby unconditionally grants to Optionee an exclusive and
irrevocable option (the "Option") to purchase the Property (hereinafter defined)
free and clear of all liens and encumbrances except as specifically provided
otherwise in this Agreement.
(b) The parties agree that all deed, documentary stamp, transfer and
similar taxes, if any, in connection with the grant of the Option, if any, and
the closing with respect thereto, shall be paid by Optionor.
2. OPTION PAYMENTS. Simultaneously with the execution of this Option
Agreement, (i) Optionee has paid to Optionor Five Hundred Thousand ($500,000)
Dollars as the Option Fee (the "Option Fee") as the initial consideration for
the Option granted pursuant to this Agreement and (ii) the NS Member has paid
Seven Million and Forty Seven Thousand and No/100 ($7,047,000) Dollars to The
44th B.C. Realty Corp. ("BC"), a New York corporation that is the 99% Managing
Member of Optionor as consideration for certain rights granted to the NS Member
pursuant to the Operating Agreement, including, without limitation, the Interest
Purchase Option as provided in Section 10.07 of the Operating Agreement (the
"Purchase Right"; the Option Fee and the amount paid by the NS Member,
collectively, the "Option Payments").
3. TERM OF OPTION.
(a) The Option and all rights and privileges granted to Optionee hereunder
shall be effective as of the date hereof and, unless Optionee has duly exercised
the Option prior to the Option Termination Date (as hereinafter defined) as
provided in this Agreement,
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unless such failure to so exercise is due to a default by Optionor hereunder,
the Option shall expire and be of no further force and effect, it being
understood that, as provided in Section 4(a) below, the Closing (as hereinafter
defined) may take place subsequent to the Option Termination Date, at Optionee's
option.
(b) Notwithstanding anything contained herein to the contrary, the Option
shall terminate and expire upon any valid and legal termination of the Master
Lease pursuant to the terms thereof prior to the Option Exercise Date and, if
such valid and legal termination is subsequent to the Option Exercise Date,
shall survive as provided in Article 45 of the Master Lease.
(c) If the Optionee fails to pay any of the Option Payments when the same
shall become due and payable, and such failure shall continue for ten (10)
business days after notice thereof from Optionor, the Option shall terminate and
expire.
4. EXERCISE OF OPTION/TRANSFER OF PROPERTY.
(a) Subject to Section 10(d) hereof, the Option may be exercised at any
time during the period (the "Option Period") commencing on March 1, 2008 (the
"Option Exercise Date") and expiring fifteen (15) years thereafter (the "Initial
Option Termination Date") by Optionee delivering to Optionor a written notice
stating that Optionee elects to exercise the Option pursuant to the terms of
this Agreement (the "Option Notice"). The Option Notice shall set forth the
closing date (the "Closing Date") for the closing of the purchase of the
Premises (the "Closing"), which Closing may take place subsequent to the Option
Termination Date, at the option of Optionee, and may be extended as provided in
this Agreement, provided, however, if Optionor is ready, willing and able to
perform its obligations pursuant
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to the terms of this Agreement, the Closing shall occur no later than
one-hundred and twenty (120) days after the delivery of the Option Notice. The
Option Exercise Date may be accelerated as contemplated by Sections 10(d) and 14
of this Agreement.
(b) Notwithstanding the foregoing, if Optionee shall fail to deliver the
Option Notice prior to the Initial Option Termination Date (such date as
extended as provided in this Section 4(b) by the Reminder Notice, the "Option
Termination Date"), Optionor shall notify Optionee in respect of such failure
(such notice, the "Reminder Notice"). If Optionee does not send an Option Notice
within thirty (30) days after Optionee's actual receipt of the Reminder Notice,
Optionee shall be deemed to have not exercised its right to acquire the Property
pursuant to the Option. Other than as provided for pursuant to the terms of this
Agreement, Optionee shall have no right or obligation to acquire the Property
(hereinafter defined).
(c) On the Closing Date, subject to the performance of Optionee's
obligations set forth herein, Optionor shall transfer the Property, subject to
the Permitted Encumbrances (hereinafter defined), to Optionee, together with all
of Optionor's right, title and interest in, to and under:
(i) all easements, rights of way, privileges, appurtenances, strips,
gores, air rights, development rights and other rights pertaining to the
Premises, if any;
(ii) any land lying in the bed of any street, road, avenue, open or
proposed, public or private, in front of or adjoining the Premises or any
portion thereof, to the center line thereof, and any award to be made in
lieu thereof and in and
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to any award for damage to the Premises by reason of change of grade of
any street occurring after the date of execution and delivery of this
Agreement;
(iii) all Building Equipment (as defined in the Master Lease),
fixtures, furniture, furnishings and any other personal property owned by
Optionor and used in connection with the Premises (the "Personalty");
(iv) all of Optionor's right, title and interest in and to all
leases, licenses, and other occupancy agreements for the leasing of space
at the Premises (collectively, the "Leases"), the Master Lease and all
security deposits under the Leases (collectively, the "Security
Deposits");
(v) all of Optionor's right, title and interest in and to any
service, supply, security, maintenance, employment, management and all
other agreements or contracts (collectively, the "Contracts");
(vi) all of Optionor's rights, title and interest in and to every
right, title or benefit (choate or inchoate) in respect of the Premises,
including, without limitation (A) any and all escrows held by any
Mortgagee (as defined in the Master Lease); (B) any receivables; (C) any
claims in favor of the owner of the Premises (including, without
limitation, any rights in respect of title or casualty insurance proceeds
and condemnation awards); (D) all copyrights, trademarks, service names
and other marks and trade or business names, good will and other
proprietary rights and intangible property relating to the ownership, use,
operation and management of the Premises; and (E) all warranties,
guaranties, contract rights and miscellaneous rights in respect of the
Premises (collectively, the "Included Property");
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(vii) all certificates of occupancy and other documents, permits,
warranties, guarantees and approvals pertaining to the occupancy, use and
operation of the Premises (collectively, the "Permits"); and
(viii) all architectural, mechanical, engineering and other plans
and specifications relating to the Premises (collectively, the "Plans")
(the Land, the Building, the Personalty, the Leases, the Contracts, the
Permits, the Plans and the Included Property being hereinafter
collectively called the "Property").
5. OPTION EXERCISE PRICE; COSTS AND EXPENSES.
(a) The option exercise price for the purchase of the Property (the
"Option Exercise Price") shall be as set forth on Schedule A annexed hereto and
Optionee shall take the Property subject to any fee mortgages affecting the
Property that were obtained on behalf of Optionor by the Master Tenant pursuant
to Article 34 of the Master Lease. After the Option Exercise Price is fully paid
as provided on Schedule A, no Additional Payments (as such term is defined in
Section 10.07(e) of the Operating Agreement) shall be due and payable.
(b) If the NS Member shall exercise its rights pursuant to the terms of
Section 4.02 of the Operating Agreement, and BC (or its successor or assignee)
shall fail to pay all closing costs, taxes and charges (collectively, the "BC
Expenses") as contemplated by said Section 4.02, Optionee may withhold an amount
equal to any reasonable BC Expenses from the amount payable as the Option
Exercise Price hereunder and pay same to the appropriate governmental entity.
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(c) Other than as specifically provided herein, each party shall be
responsible for its own costs and expenses in connection with this Agreement and
the transactions contemplated hereby.
6. CERTAIN DEFINITIONS.
As used in this Agreement, the terms: (i) "business days" shall mean
such Mondays, Tuesday, Wednesdays, Thursdays and Fridays that do not fall on
Holidays; (ii) "Holidays" shall mean the following Jewish Holidays: Rosh
Hashanah (both days), Yom Kippur, Succot (first 2 days), Shmini Atzeret, Simchat
Torah, Passover (first 2 days and last 2 days), Shavuot (both days), as well as
New Year's Day, Martin Luther King, Jr. Day, President's Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas, and any other days on which there is no regular United States postal
service and the New York Stock Exchange (or any successor thereto) is closed;
and (iii) "Person" (whether or not the initial letter is capitalized) shall mean
a natural person or persons, a partnership, a limited liability company or
partnership, a corporation, and any other form of business or legal association
or entity.
7. STATUS OF PROPERTY.
(a) At the Closing, the Property shall be transferred, and conveyed by
Optionor to Optionee, and Optionee shall accept same, free and clear of all
liens, encumbrances, claims, security interests and demands, subject only to the
following matters (the "Permitted Encumbrances"):
(i) any state of facts which an updated survey of the Property would
disclose as of the date hereof, subject only to those matters not caused or
created by Landlord;
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<PAGE>
(ii) [intentionally deleted];
(iii) real estate and other taxes, water and sewer charges and other
taxes and assessments affecting the Property including any assessments payable
for or allocable to any period after the date of the Master Lease;
(iv) building restrictions and regulations in resolutions or
ordinances adopted by the Board of Estimate and Apportionment of the City of New
York, or any successor body, and all the amendments and additions thereto, if
any;
(v) present and future zoning laws, ordinances, resolutions and
regulations of the City of New York and all present and future ordinances, laws,
regulations and orders of all boards, bureaus, commissions and bodies of any
municipal, county, state or federal sovereigns now or hereafter having or
acquiring jurisdiction of the Premises and the use and improvement thereof, if
any;
(vi) revocable nature of the right, if any, to maintain vaults,
vault spaces, tunnels, basements and sub-basement spaces, areas, structures,
marquees or signs, beyond the building lines;
(vii) the Master Lease, the Leases, this Agreement and the Loan
Documents;
(viii) violations of law, ordinances, orders or requirements
("Violations") issued by any federal, state or municipal departments or
authority having jurisdiction;
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<PAGE>
(ix) any other matter or thing affecting the property which Optionee
agrees to take subject to or waives in writing pursuant to the provisions of
this Agreement;
(x) any matters permitted by, caused or created at the request or
with the consent of Optionee or the Master Tenant or the Master Sublessee;
(xi) any matters permitted or created by the subtenants under the
Leases (the "Subtenants"); and
(xii) any exception set forth in Exhibit G attached hereto (the
"Additional Permitted Encumbrances").
8. TITLE INSURANCE; LIENS.
(a) Prior to the date hereof, (i) Optionee has ordered a title insurance
report and commitment for an Owner's title insurance policy from a title
insurance company (the "Title Company") and a copy of all title documents listed
therein (such report, and any updates or revisions thereto, are hereinafter
referred to collectively as the "Report"), and (ii) has furnished to Optionor's
counsel a copy of the Report.
(b) Optionee shall have the right at any time after the date hereof to
order an additional or updated examination of title to the Property (the
"Subsequent Title Report"). In the event that the Subsequent Title Report shall
disclose any title matters other than the Permitted Encumbrances (a "Title
Objection"), Optionee shall give Optionor written notice (the "Title Objection
Notice") of such Title Objection within five (5) business days after receipt of
a copy of the Subsequent Title Report.
(c) Optionor covenants and agrees to use diligent efforts to eliminate
such Title Objection. If Optionor is unable to eliminate such Title Objections
(or any other Title
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<PAGE>
Objections which are subsequently reported by the Title Company), Optionee shall
be entitled to the remedies set forth in Section 17.
(d) Notwithstanding the foregoing, if such Title Objections may be removed
by a payment of money, Optionor shall promptly satisfy or bond same upon request
to do so by Optionee, in all events at Optionor's sole cost and expense. If the
Subsequent Title Report was ordered in connection with the Closing, Optionor
may, in lieu of satisfying any of the foregoing Title Objections, direct
Optionee to apply a portion of the Purchase Price to the satisfaction of such
Title Objections or require that appropriate adjustment be made to the balance
of the Purchase Price at Closing, provided that Optionor shall deliver to the
Title Company, at Closing, instruments in recordable form, which, in the opinion
of Optionee's Title Company will be sufficient to satisfy the matters objected
to by Optionee, together with the cost of recording or filing any such
instruments. In the alternative, Optionor may place in escrow with the Title
Company any amount (as well as any affidavits and other documentation) deemed
necessary by the Title Company in order to enable the Title Company to omit such
objections from the title policies to be delivered to Optionee and any lender at
the Closing, but only if the lender, if any, is amenable to doing so. Optionee
shall, if request is made by not later than five (5) business days prior to the
Closing Date, provide Optionor, at the Closing, with separate unendorsed
certified or bank checks, payable as directed by Optionor, in an aggregate
amount not exceeding the Option Exercise Price, less adjustments, to facilitate
the satisfaction of any such liens or encumbrances.
(e) If the Report discloses judgments, bankruptcies or other proceedings
or encumbrances against other persons having names the same as, or similar to
that of Optionor,
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Optionor shall deliver to the Title Company affidavits satisfactory to the Title
Company showing that such judgments, bankruptcies or other proceedings or
encumbrances are not against Optionor. Additionally, Optionor will deliver any
affidavits reasonably required by (and reasonably satisfactory to) the Title
Company in respect of any construction, maintenance and/or tenant improvement
work at the Premises that could give rise to mechanics' or materialmens' liens,
(ii) any Section 255 and 275 affidavits (the affidavits required of Optionor by
this Article 8 and any other affidavits reasonably required by the Title
Company, and (iii) any affidavits which are substantively similar to the
affidavits required by this Section 8(e) or which are customary in sales of
commercial property in New York City at the time of Closing, (the foregoing
affidavits, collectively, the "Affidavits").
9. OPTIONEE COVENANTS, REPRESENTATIONS AND WARRANTIES.
(a) Optionee represents and warrants to Optionor that the following
representations and warranties are true and correct as of the date hereof and
shall remain and be true and correct at all times during the term of this
Agreement through and including the Closing Date with the same force and effect
as if made at those times:
(i) The execution and delivery of this Agreement and the
consummation by Optionee of the transactions contemplated hereby (A) have been
duly authorized pursuant to the terms of Optionee's organizational documents and
(B) will not conflict with, or result in a breach of, any of the terms,
conditions and provisions of its organizational documents or any contract,
agreement or instrument to which it is a party or by which it is bound, or to
which it or any portion of its property is subject;
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(ii) Optionee has full power and authority to enter into this
Agreement and to perform all of Optionee's obligations hereunder and no further
action, approval or consent will be required in order to constitute this
Agreement as a binding and enforceable obligation of Optionee and the Person
(hereinafter defined) executing on behalf of Optionee has full power and
authority to act for and bind Optionee in respect thereof; and
(iii) Optionee is validly existing and in good standing in its state
of formation.
10. OPTIONOR REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Optionor represents and warrants to Optionee that the following
representations and warranties are true and correct as of the date hereof and
shall remain and be true and correct at all times during the term of this
Agreement through and including the Closing Date with the same force and effect
as if made at that time:
(i) The execution and delivery of this Agreement and the
consummation by it of the transactions hereunder (A) have been duly authorized
pursuant to the terms of Optionor's organizational documents and (B) will not
conflict with, or result in a breach of, any of the terms, conditions and
provisions of its organizational documents or any contract, agreement or
instrument to which it is a party or by which it is bound, or to which it or any
portion of its property is subject;
(ii) Optionor has full power and authority to enter into this
Agreement and to perform all of Optionor's obligations hereunder and no further
action or approval will be required in order to constitute this Agreement as a
binding and enforceable
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obligation of Optionor and the Person (hereinafter defined) executing on behalf
of Optionor has full power and authority to act for and bind Optionor in respect
thereof;
(iii) Its sole business or activity is the ownership of the Property
and activities incidental thereto. It does not own any material assets other
than the Property. Its assets are not commingled with the assets of any other
person or entity. It has not incurred any debt, secured or unsecured, direct or
contingent, including guarantees of any obligations other than the Loan. It is
not insolvent. It maintains its books, records and bank accounts separate and
apart from those of any other person or entity. It does not hold itself out to
be responsible for the debts of any other person or entity. It holds itself out
to the public as a legal entity which is separate and distinct from any other
entity;
(iv) Optionor is validly existing and in good standing in the City
and State of New York and is duly formed under the laws of the State of its
formation;
(v) There are no actions, suits or proceedings pending or, to the
knowledge of Optionor, threatened against or affecting Optionor; and
(vi) Optionor is not a "foreign person" within the meaning of
section 1445 of the United States Internal Revenue Code of 1986, as amended, and
the regulations issued thereunder.
(b) Optionor covenants and agrees that (except as contemplated by Article
34 of the Master Lease) it shall in no event have any right to (i) sell,
transfer, convey, lease, assign, encumber, mortgage, pledge, hypothecate ,
encumber or dispose of (directly or indirectly) (voluntarily or by operation of
law) all or any portion of the Property or any interest therein or portion
thereof (a "Transfer") (other than as may be legally required
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pursuant to a condemnation of the Property, provided the proceeds thereof are
applied in accordance with Article 18 of the Master Lease), (ii) modify or amend
the Loan or the Loan Documents, or (iii) modify or amend the Operating Agreement
of Optionor or transfer any membership interests in the Optionor, without the
prior consent of Optionee which may be withheld in Optionee's sole discretion.
Notwithstanding the foregoing, the Property and/or this Agreement may be
transferred or conveyed, without Optionee's consent, to or by the holder of the
Loan (or such holder's nominee or designee), in connection with any foreclosure
or other sale or transfer to enforce the lien of the Loan Documents, or any
transfer in lieu thereof. For purposes of this Section 10(b), a Transfer shall
be deemed to include any change in the ownership interests of BC, provided that
inter vivos or testamentary transfers or issuance of capital stock in BC to one
or more family members of Simon Chetrit, or trusts in which all of the
beneficial interest is held by one or more of such family members or a
partnership or limited liability company in which all the capital and profits
interests are held by such family members shall not be deemed a Transfer. As
used herein, "family members" shall be limited to the spouse, parents, children
and grandchildren of Simon Chetrit and their respective spouses or any entity
owned or controlled by any of them. Any Transfer in violation of this Section
10(b) shall be void ab initio.
(c) Optionor agrees that, from and after the date hereof through the
Closing Date, Optionor shall:
(i) maintain its books and records and bank accounts separate from
those of any other Person;
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(ii) maintain its assets in such a manner that it is not costly or
difficult to segregate, identify or ascertain such assets;
(iii) hold regular meetings, as appropriate, to conduct the business
of Optionor, and observe all other limited liability company formalities;
(iv) hold itself out to creditors and the public as a legal entity
separate and distinct from any other entity;
(v) prepare separate tax returns and financial statements, or if
part of a consolidated group, then it will be shown as a separate member of such
group;
(vi) allocate and charge fairly and reasonably any common employee
or overhead shared with affiliates and maintain a sufficient number of employees
in light of its contemplated business operations;
(vii) transact all business with affiliates on an arms'-length basis
and pursuant to enforceable agreements;
(viii) conduct business in its own name, and use separate invoices
and checks;
(ix) not commingle its assets or funds with those of any other
Person;
(x) not assume, guarantee or pay the debts or obligations of any
other person;
(xi) pay its own liabilities out of its own funds or in any manner
whatsoever purchase the Loan or any interest therein;
(xii) not acquire obligations or securities of its members;
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(xiii) not pledge its assets for the benefit of any other entity or
make any loans or advances to any entity, other than in connection with the
Loan;
(xiv) correct any known misunderstanding regarding its separate
identity;
(xv) intend to maintain adequate capital in light of its
contemplated business operations;
(xvi) maintain all required qualifications to do business in New
York;
(xvii) not cause or consent, directly or indirectly, to any action
which would cause or result in Bankruptcy (as such term is defined in the
Operating Agreement);
(xviii) not engage in any business or activity other than the
ownership of the Property and activities incidental to the development thereof;
(xix) not own any assets other than the Property;
(xx) not merge into or consolidate with any other entity nor
dissolve or terminate or liquidate, transfer or otherwise dispose of all or
substantially all or any material portion of its assets unless such resulting
entity or transferee is a single purpose entity and complies with the other
provisions of this section;
(xxi) preserve its existence as a limited liability company duly
organized, validly existing and in good standing (if applicable) under the laws
of Delaware, and shall not amend, modify, terminate or fail to comply with the
provisions of such entities organizational documents, if such amendment,
modification, termination or failure to comply would adversely affect the
ability of Optionor to perform its obligations hereunder;
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(xxii) not own any subsidiary or make any investment in any person
or entity;
(xxiii) not incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation) other than in connection with
the Loan; and
(xxiv) not become insolvent or fail to pay its debts as the same
become due and payable or permit the total amount of its liabilities (including
contingent liabilities) to exceed the total fair saleable value of its assets or
fail to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations; however, the foregoing shall not apply where
the fair market value of the Property has diminished for reasons other than any
action or inaction of Optionor.
(d) BC hereby covenants and agrees that it will (i) comply with all of its
obligations and agreements under the Operating Agreement; (ii) as managing
member of Optionor, cause Optionor to comply with all of the provisions of
Section 10(c) above; (iii) pay any and all taxes payable by it in connection
with the execution of, and transactions contemplated by, this Agreement; (iv)
not purchase or allow any Affiliate (as defined in the Operating Agreement) to
purchase the Loan or any interest therein; and (v) without in any way limiting
the generality of the foregoing, not permit or cause Optionor to terminate the
Master Lease other than pursuant to the terms thereof. Any default by BC in
respect of the foregoing obligations and by Optionor under Section 10(c) above
shall be deemed a material default by Optionor hereunder, provided, however, if
there is a default in respect of clauses (iii), (v), (xiv) and (xvi) of Section
10(c) above, such default shall not be deemed a material default
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hereunder unless and until Optionee shall have notified Optionor in respect of
such default and Optionor shall have failed to cure such default within ten (10)
business days of receipt of such notice (any material default as provided in
this sentence, a "Material Breach of a Representation"). If there is a default
by either BC or Optionor in respect of the obligations in clause (v) of this
Section 10(d) or in Section 10(b) above, Optionee shall be entitled, in addition
to the other remedies set forth in Section 17(a), at Optionee's option and in
its sole discretion and at any time thereafter, to accelerate its right to
exercise the Option. In such event, the Option Exercise Date shall be the date
of such early termination or the date of such violation of Section 10(b), as the
case may be, and the Option Termination Date shall be determined by Optionee in
its sole discretion.
(e) The representations, warranties and covenants of Optionor and of BC as
set forth in this Section 10 and in this Agreement shall survive until the
Closing Date. Except as provided in Section 10(d) above in respect of Optionor's
right to accelerate the Option, if Optionor is in material breach of a
representation, warranty or covenant, Optionee, in its sole discretion, shall be
entitled to the remedies set forth in Section 17(a).
11. CONDITIONS PRECEDENT TO CLOSING.
Optionor shall be obligated to close under this Agreement on the Closing
Date only if:
(a) all of the representations and warranties of Optionee contained in
this Agreement are true and correct in all material respects as of the Closing
Date;
(b) Optionee has delivered to Optionor, at Closing, the items referred to
in Section 12(b) of this Agreement;
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(c) there is no continuing Event of Default under the Master Lease in
respect of Fixed Annual Rent or Additional Rent thereunder;
(d) Optionee has made or will make any payments required of Optionee under
this Agreement; and
(e) there has not been a valid and legal termination of the Master Lease
pursuant to the terms thereof prior to the Option Exercise Date.
12. DOCUMENTS AND OTHER ITEMS TO BE DELIVERED AT CLOSING. If the Option is
exercised, the following shall occur at the Closing:
(a) Optionor shall deliver or cause to be delivered the following
documents to Optionee at Closing:
(i) A duly executed and acknowledged Bargain and Sale Deed with
covenants against Grantor's Act (the "Deed") in recordable form, conveying fee
simple title to the Property to Optionee, subject only to the Permitted
Encumbrances;
(ii) New York State and New York City Transfer Tax Returns duly
executed and completed;
(iii) A duly executed certification as to its non-foreign status;
(iv) A Bill of Sale in respect of the Personalty, substantially in
the form of Exhibit C annexed hereto (no part of the Purchase Price shall be
deemed as consideration for the transfer of the Personalty);
(v) An Assignment of the Included Property, substantially in the
form of Exhibit D annexed hereto;
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(vi) An Assignment of Leases and Security Deposits, substantially in
the form of Exhibit E annexed hereto;
(vii) evidence that Judmart (as hereinafter defined) has been paid
in full (or a waiver and full release from Judmart) in respect of any brokerage
commissions, fees or other compensation which may be due and payable to Judmart;
and
(viii) Such other documents and instruments as (A) may be reasonably
necessary or desirable to further carry out the purposes of this Agreement or
(B) are customarily delivered for commercial real estate transactions in New
York City at the time of the Closing by the seller thereunder.
(b) Optionee shall deliver or cause to be delivered to Optionor the
following items and documents at Closing:
(i) New York State and New York City Transfer Tax Returns duly
executed and completed;
(ii) A duly executed officer's (or member's, as applicable)
certificate;
(iii) The Purchase Price and any other amounts due Optionor pursuant
to the terms of this Agreement and as landlord under the Master Lease; and
(iv) Such other documents and instruments as (A) may be reasonably
necessary or desirable to further carry out the purposes of this Agreement or
(B) are customarily delivered for commercial real estate transactions in New
York City at the time of the Closing by the purchaser thereunder.
(c) Each party shall be responsible for its respective costs and expenses
(including, without limitation, legal fees and due diligence costs) in
connection with the
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<PAGE>
purchase of the Property, except that all deed, documentary, stamp, transfer,
and similar taxes in connection with the purchase of the Property shall be paid
by Optionor and, if Optionor shall fail to pay any and all such taxes at
Closing, Optionee shall have the right to pay same and deduct such amount from
the Option Exercise Price. Without in any way limiting the generality of the
foregoing, Optionee, Optionor and BC each covenant and agree that each such
party shall also be responsible for payment of all municipal, state or federal
income, inheritance, estate, succession, transfer or gift taxes of such party or
any corporate, franchise or other similar taxes imposed upon such party on
account of the transactions occasioned or contemplated by this Agreement.
13. DISCLAIMER; WAIVER OF CLAIMS. PRIOR TO THE DATE HEREOF, OPTIONEE HAS
HAD AN OPPORTUNITY TO EXAMINE CONDITIONS RELATING TO THE PROPERTY. EXCEPT AS
OTHERWISE SPECIFICALLY STATED IN THIS AGREEMENT, THE GRANT OF THE OPTION AND
SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS, WHERE IS, WITH
ALL FAULTS" BASIS.
14. DAMAGE AND DESTRUCTION; CONDEMNATION.
(a) Subject to the provisions of the Master Lease, if at any time prior to
the Closing Date, the Property shall be damaged or destroyed by fire or other
casualty, this Agreement shall continue and the parties' rights and obligations
shall not be affected thereby.
(b) (i) If at any time prior to the Closing Date, title to "materially all
of the Premises" (as defined in the Master Lease) shall be taken by the exercise
of the right of condemnation or eminent domain (a "Condemnation"), the party
with knowledge of such event
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<PAGE>
shall promptly notify the other party; and Optionee's right to exercise the
Option (as provided in this Agreement) shall be deemed accelerated, except that
the Option Period shall be deemed to be a period commencing on the date of
delivery of the Option Notice, and further provided that the date set for
Closing in respect of such option exercise shall be the date that the
condemnation award is actually delivered to the Master Tenant, and the
provisions of Article 18 of the Master Lease shall otherwise apply.
(ii) if title to less than "materially all of the Premises" shall be
affected by a Condemnation, this Agreement shall continue and the parties'
rights and obligations hereunder shall not be affected thereby and shall be
governed by the provisions of the Master Lease.
(c) The provisions hereof shall constitute an express agreement to the
contrary with respect to, and shall supersede the provisions of, Section 5-1311
of the New York General Obligations Law.
15. BROKERAGE.
(a) Optionee warrants and represents to Optionor that Optionee has not
dealt with any broker or finder in connection with this transaction other than
Judmart Realty Corp. ("Judmart"). Optionee hereby agrees to indemnify and hold
Optionor harmless from and against any and all claims, demands, causes of
action, loss, costs and expenses (including reasonable attorneys' fees and
disbursements), or other liability arising from or pertaining to any brokerage
commissions, fees, or other compensation, which may be due to any broker, finder
or persons arising from any inaccuracy in the foregoing representation, warranty
and agreement.
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<PAGE>
(b) Optionor warrants and represents to Optionee that Optionor has not
dealt with any broker or finder in connection with this transaction except for
Judmart who will be paid in full by Owner pursuant to a separate agreement at
Closing. Optionor hereby agrees to indemnify and hold Optionee harmless from and
against any and all claims, demands, causes of action, loss, costs and expenses
(including reasonable attorneys' fees and disbursements) or other liability
arising from or pertaining to Judmart or any brokerage commissions, fees, or
other compensation which may be due to any broker, finder or persons arising
from any inaccuracy in Optionor's foregoing representation, warranty and
agreement.
(c) The provisions of this Section 15 shall survive the Closing or earlier
termination of this Agreement.
16. ASSIGNMENT BY OPTIONEE.
(a) Subject to the terms and provisions of the Loan Documents, Optionee
may freely assign all or a portion of its rights under (i) the Option and (ii)
this Agreement by assignment either before or after the exercise of the Option.
Upon any such assignment, the assignee shall have all the rights and obligations
of Optionee hereunder and Optionee shall thereupon, automatically and without
the execution of further instruments or documents, be relieved and released of
and from all of Optionee's obligations hereunder and under the Master Lease.
(b) A condition to the effectiveness of any assignment is that (i) the
assignee shall assume the obligations of the assignor under this Agreement and
(ii) the assigning party shall give the other party notice of such assignment,
together with a fully executed counterpart
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<PAGE>
of the instrument of assignment and assumption executed by the assigning party
and its assignee.
17. REMEDIES.
(a) If at any time Optionor has failed to maintain the status of title
pursuant to the terms of this Agreement on account of Optionor's failure to cure
a Title Objection, Optionee shall have the right (as determined by Optionee in
its sole discretion) to either (I) seek injunctive relief or invoke the remedy
of specific performance of Optionor's obligations hereunder and/or (II) cause
the Master Tenant to exercise its right to the "Extension Term" pursuant to
Article 40 of the Master Lease, Optionor agreeing that Optionee has no adequate
remedy at law. In addition, Optionee shall be entitled to the following
remedies, as determined by Optionee in its sole discretion:
(i) If such default occurs prior to the date originally scheduled
for the Closing and if such default can be cured by the payment of money and
Optionor has not made or provided for such payment in compliance with its
obligations under Sections 8(c) and 8(d) hereof within thirty (30) days of its
receipt of the Title Objection Notice, Optionee shall have the option to satisfy
or procure the discharge of same by bonding. In such event, Optionee shall
notify the Master Tenant and the Master Tenant shall be entitled to exercise its
right to Set-Off, pursuant to the terms of Article 38 of the Master Lease;
(ii) If the default occurs in connection with the Closing, and if
such default can be cured by the payment of money and Optionor has not made or
provided for such payment in compliance with its obligations under Sections 8(c)
and 8(d) hereof within thirty (30) days of its receipt of the Title Objection
Notice, Optionee shall be entitled to satisfy or
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<PAGE>
procure the discharge of same by bonding and shall be entitled to deduct such
amount from the Option Exercise Price;
(iii) Optionee shall have the right to terminate this Agreement,
whereupon neither party shall have any further obligations hereunder; or
(iv) If Optionee is unable to cure or otherwise satisfy the Title
Objection as provided above, Optionee shall be entitled to place all future
Additional Payments into escrow with Optionor's counsel pursuant to the
provisions of Exhibit F hereof; Optionor shall use such funds to cure or
otherwise satisfy the Title Objection and shall only be entitled to the release
of such escrowed funds when satisfactory evidence of such cure or satisfaction
is delivered to Optionee, as more specifically provided in Exhibit F.
The aforesaid remedies are the sole and exclusive remedies of Optionee in
the event of a default by Optionor hereunder.
(b) If Optionee exercises the Option and all conditions precedent to
closing hereunder have been satisfied or, if waivable hereunder, waived by
Optionee in writing, and Optionee thereafter fails or refuses to perform its
obligations upon closing either hereunder Optionor shall be entitled, as its
sole and exclusive remedy, to retain the Option Fee as liquidated damages and to
terminate the Master Lease. Optionor hereby specifically waives the right to
specific performance.
18. FURTHER ASSURANCES. From time to time, each party hereto shall, within
five (5) Business Days after a request therefor by the other party and at such
party's sole cost and expense, furnish such additional consents and other
instruments and information as may be reasonably required to implement the
provisions of this Agreement and the
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<PAGE>
intentions of the parties or to confirm or perfect any existing right or one
that is to be created or transferred hereunder.
19. NOTICES. Any notice, request, demand, statement, authorization,
approval or consent made hereunder shall be in writing and shall be hand
delivered or sent by Federal Express or other reputable national courier service
(a "Courier"), or by postage pre-paid registered or certified mail, return
receipt requested, and shall be deemed given (i) when received or refused at the
following addresses if hand delivered or sent by Federal Express, or other
reputable national courier service, and (ii) three (3) business days after being
postmarked and addressed as follows if sent by registered or certified mail,
return receipt requested:
If to Optionee:
PoleStar Forty-Fourth Optionee LLC
c/o NorthStar Capital Partners, LLC
527 Madison Avenue
New York, New York 10022
Attention: W. Edward Scheetz
Telecopier: (212) 319-4557
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Robert J. Wertheimer, Esq.
Telecopier: (212) 856-7808
-27-
<PAGE>
If to Optionor:
The 44 BC Realty LLC
c/o Prince Management Corp.
498 Seventh Avenue
7th Floor
New York, New York 10036
Attention: Joseph Chetrit
Telecopier: (212) 947-2654
with a copy to:
Sukenik, Segal & Graff, P.C.
417 Forty-Fourth Avenue
Third Floor
New York, New York 10016-2204
Attention: Jehoshua Graff, Esq.
Telecopier: (212) 481-5520
Each party may change the address to which a notice must be sent or designate
additional parties to receive a copy of a notice, by notice to the other parties
given in the manner herein provided at least fifteen (15) days before such
change is to become effective. As a matter of convenience only, notices may be
sent by telecopier, provided a hard copy is delivered as stated above, but the
delivery by telecopy shall not accelerate the date delivery of a notice is
deemed to have been received.
20. APPORTIONMENTS. The parties acknowledge and agree that there shall be
no apportionment at Closing, except for the Fixed Annual Rent under the Master
Lease.
21. BINDING EFFECT. This Agreement may not be changed or terminated orally
nor shall any provision hereof be waived orally. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, their successors and
permitted assigns.
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<PAGE>
22. RECORDING.
(a) The parties shall, simultaneously with the execution hereof, execute a
memorandum of this Agreement substantially in the form attached hereto as
Exhibit B and Optionee may record same in the Office of the Register of the City
of New York, County of New York and appropriate UCC-1 financing statements.
Additionally, memoranda (the "Renewal Memoranda of Option") in the same form as
was executed upon the execution and delivery of this Agreement will be filed
from time to time following the date hereof such that record evidence of
Optionee's rights hereunder is continuously maintained until the termination of
this Agreement as provided in clause (i) of Section 27 hereof. In connection
therewith, the Renewal Memoranda of Option will be held in escrow pursuant to
the provisions of Exhibit F hereof by Optionee's counsel, placed of record as
may be necessary to preserve record notice in accordance with applicable law by
Optionee's counsel and returned to Optionee upon termination of this Agreement,
to the extent any remain unutilized. In addition, a memorandum of termination of
Option will also be held in escrow pursuant to the provisions of Exhibit F and
recorded upon the earlier to occur of (i) the valid and legal termination of
this Agreement pursuant to the terms hereof and (ii) delivery of title to the
Property to Optionee pursuant to the terms hereof.
(b) Optionor hereby constitutes and appoints Optionee as its true and
lawful representative and attorney-in-fact in its name, place and stead to make,
execute, sign, deliver and, if required, cause to be filed of record any other
document that may be required by applicable law in addition to, or in lieu of,
the Renewal Memoranda of Option in order to maintain and evidence of record
Optionee's rights hereunder.
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<PAGE>
23. CHOICE OF LAW. This Agreement shall be governed by and construed under
the internal laws of the State of New York.
24. SURVIVAL. Except to the extent specifically provided herein, none of
the obligations under this Agreement shall survive the Closing.
25. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute the same instrument.
26. INVALIDITY OF PARTICULAR PROVISION. If any term of this Agreement or
the application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and be enforced to the fullest extent
permitted by law, with the parties hereto covenanting nonetheless to negotiate
in good faith, in order to agree the terms of a mutually satisfactory provision
to be substituted for the term or provision which is void or unenforceable.
27. TERM OF AGREEMENT. Notwithstanding anything herein to the contrary,
this Agreement will lapse and terminate, if not sooner lapsed or terminated in
its entirety in accordance with the terms of this Agreement, on the earlier to
occur of (i) one-hundred years from the date hereof and (ii) the twenty-first
(21st) anniversary of the date of the death of the last to die of the children
(whether natural or adopted) of Rabbi Solomon Halberstam alive on the date
hereof, their children's children (whether natural or adopted)
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<PAGE>
alive on the date hereof and their children's children (whether natural or
adopted) alive on the date hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
OPTIONOR:
The 44 BC Realty LLC
By: The 44th B.C. Realty Corp.
By: /s/ Joseph Chetrit
-----------------------------
Name: Joseph Chetrit
Title: Vice President
Signature Page for Option Agreement to be continued
<PAGE>
OPTIONEE:
POLESTAR FORTY-FOURTH
OPTIONEE LLC
By: /s/ W. Edward Scheetz
-----------------------------
Name: W. Edward Scheetz
Title: President
Additional Signature Page for Option Agreement
<PAGE>
EXHIBIT A
Description of Land
<PAGE>
EXHIBIT B
Memorandum of Option Terms and Provisions
shall include, without limitation:
1. Grant of Option
2. Term (including rights to accelerate Option)
3. Prohibition on Transfer
4. Remedies on Default
5. Separateness Covenants
6. Right to Record Extension
<PAGE>
EXHIBIT C
Bill of Sale
<PAGE>
EXHIBIT D
Form of Assignment of Included Property
The assignment will cover all of the tangible and intangible property in,
on, attached to, appurtenant to, or used in the operation or maintenance of the
Land or the Building and shall include, without limitation, the following:
1. the Permits in Optionor's possession and all of Optionor's right, title
and interest in and to all other Permits.
2. all Plans, Contracts and Records in Optionor's possession and all of
its right, title and interest in and to any other Plans, Contracts and Records.
3. all of Optionors' right, title and interest in and to all trademarks,
logos, trade and business names, good will and other proprietary rights and
intangible property relating to the ownership, use, operation and management of
the Property (collectively, the "Intangible Property").
<PAGE>
EXHIBIT E
Assignment of Leases and Security Deposits
<PAGE>
EXHIBIT F
Escrow Provisions
<PAGE>
EXHIBIT G
Additional Permitted Encumbrances
Schedule B of the title policy issued by Lawyers Title Insurance
Corporation delivered to Optionee on the date hereof in respect of this
Agreement, which exceptions specifically relate to the title exceptions
affecting the Premises.
<PAGE>
Schedule 1
Leases, Security Deposits; Rent Roll
<PAGE>
Schedule 2
Contracts
<PAGE>
Schedule 3
Permits
<PAGE>
Schedule 4
Insurance Policies
<PAGE>
Schedule A
Option Exercise Price Schedule
<PAGE>
Exhibit 10.12
============================================
OPTION AGREEMENT
BETWEEN
417 FS REALTY LLC
OPTIONOR
AND
POLESTAR FIFTH OPTIONEE LLC
OPTIONEE
Dated: as of February 9, 1998
============================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. GRANT OF OPTION..........................................................3
2. OPTION PAYMENTS. .......................................................3
3. TERM OF OPTION...........................................................3
4. EXERCISE OF OPTION/TRANSFER OF PROPERTY..................................4
5. OPTION EXERCISE PRICE; COSTS AND EXPENSES................................7
6. CERTAIN DEFINITIONS......................................................8
7. STATUS OF PROPERTY.......................................................8
8. TITLE INSURANCE; LIENS..................................................10
9. OPTIONEE COVENANTS, REPRESENTATIONS AND WARRANTIES......................12
10. OPTIONOR REPRESENTATIONS, WARRANTIES AND COVENANTS......................13
11. CONDITIONS PRECEDENT TO CLOSING.........................................19
12. DOCUMENTS AND OTHER ITEMS TO BE DELIVERED AT CLOSING....................20
13. DISCLAIMER; WAIVER OF CLAIMS............................................22
14. DAMAGE AND DESTRUCTION; CONDEMNATION....................................22
15. BROKERAGE...............................................................23
16. ASSIGNMENT BY OPTIONEE..................................................24
17. REMEDIES................................................................25
18. FURTHER ASSURANCES......................................................27
19. NOTICES.................................................................27
20. APPORTIONMENTS..........................................................29
21. BINDING EFFECT..........................................................29
22. RECORDING...............................................................29
23. CHOICE OF LAW...........................................................30
24. SURVIVAL................................................................30
25. COUNTERPARTS............................................................30
26. INVALIDITY OF PARTICULAR PROVISION......................................30
27. TERM OF AGREEMENT.......................................................31
Exhibits
- --------
EXHIBIT A - Description of Land
EXHIBIT B - Memorandum of Option
EXHIBIT C - Bill of Sale
EXHIBIT D - Assignment of Included Property
EXHIBIT E - Assignment of Leases and Security Deposits
EXHIBIT F - Escrow Provisions
EXHIBIT G - Additional Permitted Encumbrances
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<PAGE>
Schedules
- ---------
Schedule 1 - Leases, Security Deposits; Rent Roll
Schedule 2 - Contracts
Schedule 3 - Permits
Schedule 4 - Insurance Policies
Schedule A - Option Exercise Price Payments
-ii-
<PAGE>
DEFINITION PAGE
Section
Term Number
- ---- ------
Additional Payments ............................................ 5(a)
Additional Property Rights ..................................... 4(b)(vi)
Agreement ...................................................... Introduction
Building ....................................................... Recitals
business days .................................................. 6
Closing ........................................................ 4(a)
Closing Date ................................................... 4(a)
Condemnation ................................................... 14(a)(i)
Contracts ...................................................... 4(b)(v)
Courier ........................................................ 19
Deed ........................................................... 12(a)(i)
family member .................................................. 10(b)
foreign person ................................................. 10(a)(vi)
44 LLC ......................................................... Recitals
44 Premises .................................................... Recitals
FS ............................................................. 2(a)
FS Expenses .................................................... 5(b)
Holidays ....................................................... 6
Included Property .............................................. 4(c)(vi)
Initial Option Termination Date ................................ 4(a)
Judmart ........................................................ 15(a)
Land ........................................................... Recitals
Landlord Deficiency Amount ..................................... 17(a)
Leases ......................................................... 4(b)(iv)
Loan ........................................................... Recitals
Loan Documents ................................................. Recitals
Master Lease ................................................... Recitals
Master Tenant .................................................. Recitals
Material Breach of a Representation ............................ 10(d)
NS Member ...................................................... Recitals
Operating Agreement ............................................ Recitals
Option ......................................................... 1(a)
Option Exercise Date ........................................... 4(a)
Option Exercise Price .......................................... 5(a)
Option Fee ..................................................... 2(a)(i)
Option Memoranda ............................................... 22
Option Notice .................................................. 4(b)
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<PAGE>
Option Payments ................................................ 2(a)
Option Period .................................................. 4(a)
Option Termination Date ........................................ 4(b)
Optionee ....................................................... Introduction
Optionor ....................................................... Introduction
Permits ........................................................ 4(b)(vii)
Permitted Encumbrances ......................................... 7(a)
Person ......................................................... 6
Personalty ..................................................... 4(b)(iii)
Premises ....................................................... Recitals
Property ....................................................... 4(b)(vii)
Purchase Right ................................................. 2(a)
Reminder Notice ................................................ 4(b)
Reports ........................................................ 8(a)(i)
Security Deposits .............................................. 4(b)(iv)
Subsequent Title Report ........................................ 8(b)
Subtenants ..................................................... 7(a)(xi)
Title Company .................................................. 8(a)(i)
Title Objection ................................................ 8(b)
Title Objection Notice ......................................... 8(b)
Transfer ....................................................... 10(b)(i)
Violations ..................................................... 7(a)(viii)
West 44th St Option Agreement .................................. Recitals
West 44th St Transaction ....................................... Recitals
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<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement"), made as of the 9th day of
February, 1998, by and between 417 FS REALTY LLC, a Delaware limited liability
company, having an office c/o Prince Management Corp., 498 Seventh Avenue, New
York, New York 10036 ("Optionor") and POLESTAR FIFTH OPTIONEE LLC, formerly
known as NS 417/44 LLC, a Delaware limited liability company having an office
c/o NorthStar Capital Partners, LLC, 527 Madison Avenue, New York, New York
10022 ("Optionee").
W I T N E S S E T H:
WHEREAS, Optionor is the owner in fee of a certain parcel of land (the
"Land") and improvements located thereon (said improvements together with any
future replacements thereof, collectively, the "Building"), which land and
improvements as described in Exhibit A are also known as 417 Fifth Avenue, New
York, New York and are designated as Lot 70, Block 867 of the Tax Map of the
City of New York (the Land and the Building hereinafter, the "Premises"); and
WHEREAS, Optionee desires to acquire from Optionor an irrevocable option
to purchase the Property (as hereinafter defined) and, subject to the terms
hereof, Optionor is willing to grant to Optionee such option; and
WHEREAS, simultaneously herewith (i) Optionor, as landlord, and an
affiliate of Optionee, as tenant (the "Master Tenant"), are entering into a
lease (the "Master Lease") with respect to the Premises; (ii) PoleStar Fifth
Funding LLC, among others, is making a
<PAGE>
loan(s) (as same may be modified, amended, supplemented and/or refinanced as
provided herein, subject to the limitations set forth in Section 2 of that
certain Agreement by and among FS (hereinafter defined), The 44th B.C. Realty
Corp. and NS 417/44 LLC dated January 14, 1998, the "Loan") to Optionor, which
Loan will be evidenced by a note(s) and secured by, among other things, a
mortgage and assignment(s) of rents and leases encumbering the Premises (such
documents, together with any other documents evidencing and/or securing the
Loan(s), collectively, the "Loan Documents"); and (iii) PoleStar Fifth Holding
LLC, a Delaware limited liability company that is an affiliate of Optionee (the
"NS Member") has been admitted as a one (1%) percent member of Optionor pursuant
to the Amended and Restated Limited Liability Company Agreement of Optionor
dated of even date (the "Operating Agreement").
WHEREAS, The 44 BC Realty LLC ("44 LLC") and PoleStar Forty-Fourth
Optionee LLC are simultaneously entering into an option agreement (the "West
44th St Option Agreement") with respect to the land and building known as 19
West 44th Street, New York, New York (the "44 Premises") on terms and conditions
substantially similar to the terms and conditions in this Agreement, except for
the amounts payable thereunder (the matters contemplated by such documents, the
"West 44th St Transaction").
NOW, THEREFORE, for good and valuable consideration and the mutual
agreements herein contained, the parties covenant and agree as follows:
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<PAGE>
1. GRANT OF OPTION.
(a) In consideration for the payment of the Option Fee (as hereinafter
defined), Optionor hereby unconditionally grants to Optionee an exclusive and
irrevocable option (the "Option") to purchase the Property (hereinafter defined)
free and clear of all liens and encumbrances except as specifically provided
otherwise in this Agreement.
(b) The parties agree that all deed, documentary stamp, transfer and
similar taxes, if any, in connection with the grant of the Option, if any, and
the closing with respect thereto, shall be paid by Optionor.
2. OPTION PAYMENTS. Simultaneously with the execution of this Option
Agreement, (i) Optionee has paid to Optionor Five Hundred Thousand ($500,000)
Dollars as the Option Fee (the "Option Fee") as the initial consideration for
the Option granted pursuant to this Agreement and (ii) the NS Member has paid
Seven Million and Seventy Thousand and No/100 Dollars ($7,070,000) Dollars to
F.S. Realty Corp. ("FS"), a New York corporation that is the 99% Managing Member
of Optionor as consideration for certain rights granted to the NS Member
pursuant to the Operating Agreement, including, without limitation, the Interest
Purchase Option as provided in Section 10.07 of the Operating Agreement (the
"Purchase Right"; the Option Fee and the amount paid by the NS Member,
collectively, the "Option Payments").
3. TERM OF OPTION.
(a) The Option and all rights and privileges granted to Optionee hereunder
shall be effective as of the date hereof and, unless Optionee has duly exercised
the Option prior to the Option Termination Date (as hereinafter defined) as
provided in this Agreement,
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<PAGE>
unless such failure to so exercise is due to a default by Optionor hereunder,
the Option shall expire and be of no further force and effect, it being
understood that, as provided in Section 4(a) below, the Closing (as hereinafter
defined) may take place subsequent to the Option Termination Date, at Optionee's
option.
(b) Notwithstanding anything contained herein to the contrary, the Option
shall terminate and expire upon any valid and legal termination of the Master
Lease pursuant to the terms thereof prior to the Option Exercise Date and, if
such valid and legal termination is subsequent to the Option Exercise Date,
shall survive as provided in Article 45 of the Master Lease.
(c) If the Optionee fails to pay any of the Option Payments when the same
shall become due and payable, and such failure shall continue for ten (10)
business days after notice thereof from Optionor, the Option shall terminate and
expire.
4. EXERCISE OF OPTION/TRANSFER OF PROPERTY.
(a) Subject to Section 10(d) hereof, the Option may be exercised at any
time during the period (the "Option Period") commencing on March 1, 2008 (the
"Option Exercise Date") and expiring fifteen (15) years thereafter (the "Initial
Option Termination Date") by Optionee delivering to Optionor a written notice
stating that Optionee elects to exercise the Option pursuant to the terms of
this Agreement (the "Option Notice"). The Option Notice shall set forth the
closing date (the "Closing Date") for the closing of the purchase of the
Premises (the "Closing"), which Closing may take place subsequent to the Option
Termination Date, at the option of Optionee, and may be extended as provided in
this Agreement, provided, however, if Optionor is ready, willing and able to
perform its obligations pursuant
-4-
<PAGE>
to the terms of this Agreement, the Closing shall occur no later than
one-hundred and twenty (120) days after the delivery of the Option Notice. The
Option Exercise Date may be accelerated as contemplated by Sections 10(d) and 14
of this Agreement.
(b) Notwithstanding the foregoing, if Optionee shall fail to deliver the
Option Notice prior to the Initial Option Termination Date (such date as
extended as provided in this Section 4(b) by the Reminder Notice, the "Option
Termination Date"), Optionor shall notify Optionee in respect of such failure
(such notice, the "Reminder Notice"). If Optionee does not send an Option Notice
within thirty (30) days after Optionee's actual receipt of the Reminder Notice,
Optionee shall be deemed to have not exercised its right to acquire the Property
pursuant to the Option. Other than as provided for pursuant to the terms of this
Agreement, Optionee shall have no right or obligation to acquire the Property
(hereinafter defined).
(c) On the Closing Date, subject to the performance of Optionee's
obligations set forth herein, Optionor shall transfer the Property, subject to
the Permitted Encumbrances (hereinafter defined), to Optionee, together with all
of Optionor's right, title and interest in, to and under:
(i) all easements, rights of way, privileges, appurtenances, strips,
gores, air rights, development rights and other rights pertaining to the
Premises, if any;
(ii) any land lying in the bed of any street, road, avenue, open or
proposed, public or private, in front of or adjoining the Premises or any
portion thereof, to the center line thereof, and any award to be made in
lieu thereof and in and
-5-
<PAGE>
to any award for damage to the Premises by reason of change of grade of
any street occurring after the date of execution and delivery of this
Agreement;
(iii) all Building Equipment (as defined in the Master Lease),
fixtures, furniture, furnishings and any other personal property owned by
Optionor and used in connection with the Premises (the "Personalty");
(iv) all of Optionor's right, title and interest in and to all
leases, licenses, and other occupancy agreements for the leasing of space
at the Premises (collectively, the "Leases"), the Master Lease and all
security deposits under the Leases (collectively, the "Security
Deposits");
(v) all of Optionor's right, title and interest in and to any
service, supply, security, maintenance, employment, management and all
other agreements or contracts (collectively, the "Contracts");
(vi) all of Optionor's rights, title and interest in and to every
right, title or benefit (choate or inchoate) in respect of the Premises,
including, without limitation (A) any and all escrows held by any
Mortgagee (as defined in the Master Lease); (B) any receivables; (C) any
claims in favor of the owner of the Premises (including, without
limitation, any rights in respect of title or casualty insurance proceeds
and condemnation awards); (D) all copyrights, trademarks, service names
and other marks and trade or business names, good will and other
proprietary rights and intangible property relating to the ownership, use,
operation and management of the Premises; and (E) all warranties,
guaranties, contract rights and miscellaneous rights in respect of the
Premises (collectively, the "Included Property");
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(vii) all certificates of occupancy and other documents, permits,
warranties, guarantees and approvals pertaining to the occupancy, use and
operation of the Premises (collectively, the "Permits"); and
(viii) all architectural, mechanical, engineering and other plans
and specifications relating to the Premises (collectively, the "Plans")
(the Land, the Building, the Personalty, the Leases, the Contracts, the
Permits, the Plans and the Included Property being hereinafter
collectively called the "Property").
5. OPTION EXERCISE PRICE; COSTS AND EXPENSES.
(a) The option exercise price for the purchase of the Property (the
"Option Exercise Price") shall be as set forth on Schedule A annexed hereto and
Optionee shall take the Property subject to any fee mortgages affecting the
Property that were obtained on behalf of Optionor by the Master Tenant pursuant
to Article 34 of the Master Lease. After the Option Exercise Price is fully paid
as provided on Schedule A, no Additional Payments (as such term is defined in
Section 10.07(e) of the Operating Agreement) shall be due and payable.
(b) If the NS Member shall exercise its rights pursuant to the terms of
Section 4.02 of the Operating Agreement, and FS (or its successor or assignee)
shall fail to pay all closing costs, taxes and charges (collectively, the "FS
Expenses") as contemplated by said Section 4.02, Optionee may withhold an amount
equal to any reasonable FS Expenses from the amount payable as the Option
Exercise Price hereunder and pay same to the appropriate governmental entity.
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(c) Other than as specifically provided herein, each party shall be
responsible for its own costs and expenses in connection with this Agreement and
the transactions contemplated hereby.
6. CERTAIN DEFINITIONS.
As used in this Agreement, the terms: (i) "business days" shall mean
such Mondays, Tuesday, Wednesdays, Thursdays and Fridays that do not fall on
Holidays; (ii) "Holidays" shall mean the following Jewish Holidays: Rosh
Hashanah (both days), Yom Kippur, Succot (first 2 days), Shmini Atzeret, Simchat
Torah, Passover (first 2 days and last 2 days), Shavuot (both days), as well as
New Year's Day, Martin Luther King, Jr. Day, President's Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas, and any other days on which there is no regular United States postal
service and the New York Stock Exchange (or any successor thereto) is closed;
and (iii) "Person" (whether or not the initial letter is capitalized) shall mean
a natural person or persons, a partnership, a limited liability company or
partnership, a corporation, and any other form of business or legal association
or entity.
7. STATUS OF PROPERTY.
(a) At the Closing, the Property shall be transferred, and conveyed by
Optionor to Optionee, and Optionee shall accept same, free and clear of all
liens, encumbrances, claims, security interests and demands, subject only to the
following matters (the "Permitted Encumbrances"):
(i) any state of facts which an updated survey of the Property would
disclose as of the date hereof, subject only to those matters not caused or
created by Landlord;
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(ii) terms, covenants and restrictions in the following documents:
Liber 635 Cp 426, Liber 695 Cp 584 and Liber 890 Cp 268;
(iii) real estate and other taxes, water and sewer charges and other
taxes and assessments affecting the Property including any assessments payable
for or allocable to any period after the date of the Master Lease;
(iv) building restrictions and regulations in resolutions or
ordinances adopted by the Board of Estimate and Apportionment of the City of New
York, or any successor body, and all the amendments and additions thereto, if
any;
(v) present and future zoning laws, ordinances, resolutions and
regulations of the City of New York and all present and future ordinances, laws,
regulations and orders of all boards, bureaus, commissions and bodies of any
municipal, county, state or federal sovereigns now or hereafter having or
acquiring jurisdiction of the Premises and the use and improvement thereof, if
any;
(vi) revocable nature of the right, if any, to maintain vaults,
vault spaces, tunnels, basements and sub-basement spaces, areas, structures,
marquees or signs, beyond the building lines;
(vii) the Master Lease, the Leases, this Agreement and the Loan
Documents;
(viii) violations of law, ordinances, orders or requirements
("Violations") issued by any federal, state or municipal departments or
authority having jurisdiction;
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(ix) any other matter or thing affecting the property which Optionee
agrees to take subject to or waives in writing pursuant to the provisions of
this Agreement;
(x) any matters permitted by, caused or created at the request or
with the consent of Optionee or the Master Tenant or the Master Sublessee;
(xi) any matters permitted or created by the subtenants under the
Leases (the "Subtenants"); and
(xii) any exception set forth in Exhibit G attached hereto (the
"Additional Permitted Encumbrances").
8. TITLE INSURANCE; LIENS.
(a) Prior to the date hereof, (i) Optionee has ordered a title insurance
report and commitment for an Owner's title insurance policy from a title
insurance company (the "Title Company") and a copy of all title documents listed
therein (such report, and any updates or revisions thereto, are hereinafter
referred to collectively as the "Report"), and (ii) has furnished to Optionor's
counsel a copy of the Report.
(b) Optionee shall have the right at any time after the date hereof to
order an additional or updated examination of title to the Property (the
"Subsequent Title Report"). In the event that the Subsequent Title Report shall
disclose any title matters other than the Permitted Encumbrances (a "Title
Objection"), Optionee shall give Optionor written notice (the "Title Objection
Notice") of such Title Objection within five (5) business days after receipt of
a copy of the Subsequent Title Report.
(c) Optionor covenants and agrees to use diligent efforts to eliminate
such Title Objection. If Optionor is unable to eliminate such Title Objections
(or any other Title
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Objections which are subsequently reported by the Title Company), Optionee shall
be entitled to the remedies set forth in Section 17.
(d) Notwithstanding the foregoing, if such Title Objections may be removed
by a payment of money, Optionor shall promptly satisfy or bond same upon request
to do so by Optionee, in all events at Optionor's sole cost and expense. If the
Subsequent Title Report was ordered in connection with the Closing, Optionor
may, in lieu of satisfying any of the foregoing Title Objections, direct
Optionee to apply a portion of the Purchase Price to the satisfaction of such
Title Objections or require that appropriate adjustment be made to the balance
of the Purchase Price at Closing, provided that Optionor shall deliver to the
Title Company, at Closing, instruments in recordable form, which, in the opinion
of Optionee's Title Company will be sufficient to satisfy the matters objected
to by Optionee, together with the cost of recording or filing any such
instruments. In the alternative, Optionor may place in escrow with the Title
Company any amount (as well as any affidavits and other documentation) deemed
necessary by the Title Company in order to enable the Title Company to omit such
objections from the title policies to be delivered to Optionee and any lender at
the Closing, but only if the lender, if any, is amenable to doing so. Optionee
shall, if request is made by not later than five (5) business days prior to the
Closing Date, provide Optionor, at the Closing, with separate unendorsed
certified or bank checks, payable as directed by Optionor, in an aggregate
amount not exceeding the Option Exercise Price, less adjustments, to facilitate
the satisfaction of any such liens or encumbrances.
(e) If the Report discloses judgments, bankruptcies or other proceedings
or encumbrances against other persons having names the same as, or similar to
that of Optionor,
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Optionor shall deliver to the Title Company affidavits satisfactory to the Title
Company showing that such judgments, bankruptcies or other proceedings or
encumbrances are not against Optionor. Additionally, Optionor will deliver any
affidavits reasonably required by (and reasonably satisfactory to) the Title
Company in respect of any construction, maintenance and/or tenant improvement
work at the Premises that could give rise to mechanics' or materialmens' liens,
(ii) any Section 255 and 275 affidavits (the affidavits required of Optionor by
this Article 8 and any other affidavits reasonably required by the Title
Company, and (iii) any affidavits which are substantively similar to the
affidavits required by this Section 8(e) or which are customary in sales of
commercial property in New York City at the time of Closing, (the foregoing
affidavits, collectively, the "Affidavits").
9. OPTIONEE COVENANTS, REPRESENTATIONS AND WARRANTIES.
(a) Optionee represents and warrants to Optionor that the following
representations and warranties are true and correct as of the date hereof and
shall remain and be true and correct at all times during the term of this
Agreement through and including the Closing Date with the same force and effect
as if made at those times:
(i) The execution and delivery of this Agreement and the
consummation by Optionee of the transactions contemplated hereby (A) have been
duly authorized pursuant to the terms of Optionee's organizational documents and
(B) will not conflict with, or result in a breach of, any of the terms,
conditions and provisions of its organizational documents or any contract,
agreement or instrument to which it is a party or by which it is bound, or to
which it or any portion of its property is subject;
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(ii) Optionee has full power and authority to enter into this
Agreement and to perform all of Optionee's obligations hereunder and no further
action, approval or consent will be required in order to constitute this
Agreement as a binding and enforceable obligation of Optionee and the Person
(hereinafter defined) executing on behalf of Optionee has full power and
authority to act for and bind Optionee in respect thereof; and
(iii) Optionee is validly existing and in good standing in its state
of formation.
10. OPTIONOR REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Optionor represents and warrants to Optionee that the following
representations and warranties are true and correct as of the date hereof and
shall remain and be true and correct at all times during the term of this
Agreement through and including the Closing Date with the same force and effect
as if made at that time:
(i) The execution and delivery of this Agreement and the
consummation by it of the transactions hereunder (A) have been duly authorized
pursuant to the terms of Optionor's organizational documents and (B) will not
conflict with, or result in a breach of, any of the terms, conditions and
provisions of its organizational documents or any contract, agreement or
instrument to which it is a party or by which it is bound, or to which it or any
portion of its property is subject;
(ii) Optionor has full power and authority to enter into this
Agreement and to perform all of Optionor's obligations hereunder and no further
action or approval will be required in order to constitute this Agreement as a
binding and enforceable
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obligation of Optionor and the Person (hereinafter defined) executing on behalf
of Optionor has full power and authority to act for and bind Optionor in respect
thereof;
(iii) Its sole business or activity is the ownership of the Property
and activities incidental thereto. It does not own any material assets other
than the Property. Its assets are not commingled with the assets of any other
person or entity. It has not incurred any debt, secured or unsecured, direct or
contingent, including guarantees of any obligations other than the Loan. It is
not insolvent. It maintains its books, records and bank accounts separate and
apart from those of any other person or entity. It does not hold itself out to
be responsible for the debts of any other person or entity. It holds itself out
to the public as a legal entity which is separate and distinct from any other
entity;
(iv) Optionor is validly existing and in good standing in the City
and State of New York and is duly formed under the laws of the State of its
formation;
(v) There are no actions, suits or proceedings pending or, to the
knowledge of Optionor, threatened against or affecting Optionor; and
(vi) Optionor is not a "foreign person" within the meaning of
section 1445 of the United States Internal Revenue Code of 1986, as amended, and
the regulations issued thereunder.
(b) Optionor covenants and agrees that (except as contemplated by Article
34 of the Master Lease) it shall in no event have any right to (i) sell,
transfer, convey, lease, assign, encumber, mortgage, pledge, hypothecate ,
encumber or dispose of (directly or indirectly) (voluntarily or by operation of
law) all or any portion of the Property or any interest therein or portion
thereof (a "Transfer") (other than as may be legally required
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pursuant to a condemnation of the Property, provided the proceeds thereof are
applied in accordance with Article 18 of the Master Lease), (ii) modify or amend
the Loan or the Loan Documents, or (iii) modify or amend the Operating Agreement
of Optionor or transfer any membership interests in the Optionor, without the
prior consent of Optionee which may be withheld in Optionee's sole discretion.
Notwithstanding the foregoing, the Property and/or this Agreement may be
transferred or conveyed, without Optionee's consent, to or by the holder of the
Loan (or such holder's nominee or designee), in connection with any foreclosure
or other sale or transfer to enforce the lien of the Loan Documents, or any
transfer in lieu thereof. For purposes of this Section 10(b), a Transfer shall
be deemed to include any change in the ownership interests of FS, provided that
inter vivos or testamentary transfers or issuance of capital stock in FS to one
or more family members of Simon Chetrit, or trusts in which all of the
beneficial interest is held by one or more of such family members or a
partnership or limited liability company in which all the capital and profits
interests are held by such family members shall not be deemed a Transfer. As
used herein, "family members" shall be limited to the spouse, parents, children
and grandchildren of Simon Chetrit and their respective spouses or any entity
owned or controlled by any of them. Any Transfer in violation of this Section
10(b) shall be void ab initio.
(c) Optionor agrees that, from and after the date hereof through the
Closing Date, Optionor shall:
(i) maintain its books and records and bank accounts separate from
those of any other Person;
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(ii) maintain its assets in such a manner that it is not costly or
difficult to segregate, identify or ascertain such assets;
(iii) hold regular meetings, as appropriate, to conduct the business
of Optionor, and observe all other limited liability company formalities;
(iv) hold itself out to creditors and the public as a legal entity
separate and distinct from any other entity;
(v) prepare separate tax returns and financial statements, or if
part of a consolidated group, then it will be shown as a separate member of such
group;
(vi) allocate and charge fairly and reasonably any common employee
or overhead shared with affiliates and maintain a sufficient number of employees
in light of its contemplated business operations;
(vii) transact all business with affiliates on an arms'-length basis
and pursuant to enforceable agreements;
(viii) conduct business in its own name, and use separate invoices
and checks;
(ix) not commingle its assets or funds with those of any other
Person;
(x) not assume, guarantee or pay the debts or obligations of any
other person;
(xi) pay its own liabilities out of its own funds or in any manner
whatsoever purchase the Loan or any interest therein;
(xii) not acquire obligations or securities of its members;
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(xiii) not pledge its assets for the benefit of any other entity or
make any loans or advances to any entity, other than in connection with the
Loan;
(xiv) correct any known misunderstanding regarding its separate
identity;
(xv) intend to maintain adequate capital in light of its
contemplated business operations;
(xvi) maintain all required qualifications to do business in New
York;
(xvii) not cause or consent, directly or indirectly, to any action
which would cause or result in Bankruptcy (as such term is defined in the
Operating Agreement);
(xviii) not engage in any business or activity other than the
ownership of the Property and activities incidental to the development thereof;
(xix) not own any assets other than the Property;
(xx) not merge into or consolidate with any other entity nor
dissolve or terminate or liquidate, transfer or otherwise dispose of all or
substantially all or any material portion of its assets unless such resulting
entity or transferee is a single purpose entity and complies with the other
provisions of this section;
(xxi) preserve its existence as a limited liability company duly
organized, validly existing and in good standing (if applicable) under the laws
of Delaware, and shall not amend, modify, terminate or fail to comply with the
provisions of such entities organizational documents, if such amendment,
modification, termination or failure to comply would adversely affect the
ability of Optionor to perform its obligations hereunder;
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(xxii) not own any subsidiary or make any investment in any person
or entity;
(xxiii) not incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation) other than in connection with
the Loan; and
(xxiv) not become insolvent or fail to pay its debts as the same
become due and payable or permit the total amount of its liabilities (including
contingent liabilities) to exceed the total fair saleable value of its assets or
fail to maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations; however, the foregoing shall not apply where
the fair market value of the Property has diminished for reasons other than any
action or inaction of Optionor.
(d) FS hereby covenants and agrees that it will (i) comply with all of its
obligations and agreements under the Operating Agreement; (ii) as managing
member of Optionor, cause Optionor to comply with all of the provisions of
Section 10(c) above; (iii) pay any and all taxes payable by it in connection
with the execution of, and transactions contemplated by, this Agreement; (iv)
not purchase or allow any Affiliate (as defined in the Operating Agreement) to
purchase the Loan or any interest therein; and (v) without in any way limiting
the generality of the foregoing, not permit or cause Optionor to terminate the
Master Lease other than pursuant to the terms thereof. Any default by FS in
respect of the foregoing obligations and by Optionor under Section 10(c) above
shall be deemed a material default by Optionor hereunder, provided, however, if
there is a default in respect of clauses (iii), (v), (xiv) and (xvi) of Section
10(c) above, such default shall not be deemed a material default
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hereunder unless and until Optionee shall have notified Optionor in respect of
such default and Optionor shall have failed to cure such default within ten (10)
business days of receipt of such notice (any material default as provided in
this sentence, a "Material Breach of a Representation"). If there is a default
by either FS or Optionor in respect of the obligations in clause (v) of this
Section 10(d) or in Section 10(b) above, Optionee shall be entitled, in addition
to the other remedies set forth in Section 17(a), at Optionee's option and in
its sole discretion and at any time thereafter, to accelerate its right to
exercise the Option. In such event, the Option Exercise Date shall be the date
of such early termination or the date of such violation of Section 10(b), as the
case may be, and the Option Termination Date shall be determined by Optionee in
its sole discretion.
(e) The representations, warranties and covenants of Optionor and of FS as
set forth in this Section 10 and in this Agreement shall survive until the
Closing Date. Except as provided in Section 10(d) above in respect of Optionor's
right to accelerate the Option, if Optionor is in material breach of a
representation, warranty or covenant, Optionee, in its sole discretion, shall be
entitled to the remedies set forth in Section 17(a).
11. CONDITIONS PRECEDENT TO CLOSING.
Optionor shall be obligated to close under this Agreement on the Closing
Date only if:
(a) all of the representations and warranties of Optionee contained in
this Agreement are true and correct in all material respects as of the Closing
Date;
(b) Optionee has delivered to Optionor, at Closing, the items referred to
in Section 12(b) of this Agreement;
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(c) there is no continuing Event of Default under the Master Lease in
respect of Fixed Annual Rent or Additional Rent thereunder;
(d) Optionee has made or will make any payments required of Optionee under
this Agreement; and
(e) there has not been a valid and legal termination of the Master Lease
pursuant to the terms thereof prior to the Option Exercise Date.
12. DOCUMENTS AND OTHER ITEMS TO BE DELIVERED AT CLOSING. If the Option is
exercised, the following shall occur at the Closing:
(a) Optionor shall deliver or cause to be delivered the following
documents to Optionee at Closing:
(i) A duly executed and acknowledged Bargain and Sale Deed with
covenants against Grantor's Act (the "Deed") in recordable form, conveying fee
simple title to the Property to Optionee, subject only to the Permitted
Encumbrances;
(ii) New York State and New York City Transfer Tax Returns duly
executed and completed;
(iii) A duly executed certification as to its non-foreign status;
(iv) A Bill of Sale in respect of the Personalty, substantially in
the form of Exhibit C annexed hereto (no part of the Purchase Price shall be
deemed as consideration for the transfer of the Personalty);
(v) An Assignment of the Included Property, substantially in the
form of Exhibit D annexed hereto;
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(vi) An Assignment of Leases and Security Deposits, substantially in
the form of Exhibit E annexed hereto;
(vii) evidence that Judmart (as hereinafter defined) has been paid
in full (or a waiver and full release from Judmart) in respect of any brokerage
commissions, fees or other compensation which may be due and payable to Judmart;
and
(viii) Such other documents and instruments as (A) may be reasonably
necessary or desirable to further carry out the purposes of this Agreement or
(B) are customarily delivered for commercial real estate transactions in New
York City at the time of the Closing by the seller thereunder.
(b) Optionee shall deliver or cause to be delivered to Optionor the
following items and documents at Closing:
(i) New York State and New York City Transfer Tax Returns duly
executed and completed;
(ii) A duly executed officer's (or member's, as applicable)
certificate;
(iii) The Purchase Price and any other amounts due Optionor pursuant
to the terms of this Agreement and as landlord under the Master Lease; and
(iv) Such other documents and instruments as (A) may be reasonably
necessary or desirable to further carry out the purposes of this Agreement or
(B) are customarily delivered for commercial real estate transactions in New
York City at the time of the Closing by the purchaser thereunder.
(c) Each party shall be responsible for its respective costs and expenses
(including, without limitation, legal fees and due diligence costs) in
connection with the
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purchase of the Property, except that all deed, documentary, stamp, transfer,
and similar taxes in connection with the purchase of the Property shall be paid
by Optionor and, if Optionor shall fail to pay any and all such taxes at
Closing, Optionee shall have the right to pay same and deduct such amount from
the Option Exercise Price. Without in any way limiting the generality of the
foregoing, Optionee, Optionor and FS each covenant and agree that each such
party shall also be responsible for payment of all municipal, state or federal
income, inheritance, estate, succession, transfer or gift taxes of such party or
any corporate, franchise or other similar taxes imposed upon such party on
account of the transactions occasioned or contemplated by this Agreement.
13. DISCLAIMER; WAIVER OF CLAIMS. PRIOR TO THE DATE HEREOF, OPTIONEE HAS
HAD AN OPPORTUNITY TO EXAMINE CONDITIONS RELATING TO THE PROPERTY. EXCEPT AS
OTHERWISE SPECIFICALLY STATED IN THIS AGREEMENT, THE GRANT OF THE OPTION AND
SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS, WHERE IS, WITH
ALL FAULTS" BASIS.
14. DAMAGE AND DESTRUCTION; CONDEMNATION.
(a) Subject to the provisions of the Master Lease, if at any time prior to
the Closing Date, the Property shall be damaged or destroyed by fire or other
casualty, this Agreement shall continue and the parties' rights and obligations
shall not be affected thereby.
(b) (i) If at any time prior to the Closing Date, title to "materially all
of the Premises" (as defined in the Master Lease) shall be taken by the exercise
of the right of condemnation or eminent domain (a "Condemnation"), the party
with knowledge of such event
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shall promptly notify the other party; and Optionee's right to exercise the
Option (as provided in this Agreement) shall be deemed accelerated, except that
the Option Period shall be deemed to be a period commencing on the date of
delivery of the Option Notice, and further provided that the date set for
Closing in respect of such option exercise shall be the date that the
condemnation award is actually delivered to the Master Tenant, and the
provisions of Article 18 of the Master Lease shall otherwise apply.
(ii) if title to less than "materially all of the Premises" shall be
affected by a Condemnation, this Agreement shall continue and the parties'
rights and obligations hereunder shall not be affected thereby and shall be
governed by the provisions of the Master Lease.
(c) The provisions hereof shall constitute an express agreement to the
contrary with respect to, and shall supersede the provisions of, Section 5-1311
of the New York General Obligations Law.
15. BROKERAGE.
(a) Optionee warrants and represents to Optionor that Optionee has not
dealt with any broker or finder in connection with this transaction other than
Judmart Realty Corp. ("Judmart"). Optionee hereby agrees to indemnify and hold
Optionor harmless from and against any and all claims, demands, causes of
action, loss, costs and expenses (including reasonable attorneys' fees and
disbursements), or other liability arising from or pertaining to any brokerage
commissions, fees, or other compensation, which may be due to any broker, finder
or persons arising from any inaccuracy in the foregoing representation, warranty
and agreement.
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(b) Optionor warrants and represents to Optionee that Optionor has not
dealt with any broker or finder in connection with this transaction except for
Judmart who will be paid in full by Owner pursuant to a separate agreement at
Closing. Optionor hereby agrees to indemnify and hold Optionee harmless from and
against any and all claims, demands, causes of action, loss, costs and expenses
(including reasonable attorneys' fees and disbursements) or other liability
arising from or pertaining to Judmart or any brokerage commissions, fees, or
other compensation which may be due to any broker, finder or persons arising
from any inaccuracy in Optionor's foregoing representation, warranty and
agreement.
(c) The provisions of this Section 15 shall survive the Closing or earlier
termination of this Agreement.
16. ASSIGNMENT BY OPTIONEE.
(a) Subject to the terms and provisions of the Loan Documents, Optionee
may freely assign all or a portion of its rights under (i) the Option and (ii)
this Agreement by assignment either before or after the exercise of the Option.
Upon any such assignment, the assignee shall have all the rights and obligations
of Optionee hereunder and Optionee shall thereupon, automatically and without
the execution of further instruments or documents, be relieved and released of
and from all of Optionee's obligations hereunder and under the Master Lease.
(b) A condition to the effectiveness of any assignment is that (i) the
assignee shall assume the obligations of the assignor under this Agreement and
(ii) the assigning party shall give the other party notice of such assignment,
together with a fully executed counterpart
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of the instrument of assignment and assumption executed by the assigning party
and its assignee.
17. REMEDIES.
(a) If at any time Optionor has failed to maintain the status of title
pursuant to the terms of this Agreement on account of Optionor's failure to cure
a Title Objection, Optionee shall have the right (as determined by Optionee in
its sole discretion) to either (I) seek injunctive relief or invoke the remedy
of specific performance of Optionor's obligations hereunder and/or (II) cause
the Master Tenant to exercise its right to the "Extension Term" pursuant to
Article 40 of the Master Lease, Optionor agreeing that Optionee has no adequate
remedy at law. In addition, Optionee shall be entitled to the following
remedies, as determined by Optionee in its sole discretion:
(i) If such default occurs prior to the date originally scheduled
for the Closing and if such default can be cured by the payment of money and
Optionor has not made or provided for such payment in compliance with its
obligations under Sections 8(c) and 8(d) hereof within thirty (30) days of its
receipt of the Title Objection Notice, Optionee shall have the option to satisfy
or procure the discharge of same by bonding. In such event, Optionee shall
notify the Master Tenant and the Master Tenant shall be entitled to exercise its
right to Set-Off, pursuant to the terms of Article 38 of the Master Lease;
(ii) If the default occurs in connection with the Closing, and if
such default can be cured by the payment of money and Optionor has not made or
provided for such payment in compliance with its obligations under Sections 8(c)
and 8(d) hereof within thirty (30) days of its receipt of the Title Objection
Notice, Optionee shall be entitled to satisfy or
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procure the discharge of same by bonding and shall be entitled to deduct such
amount from the Option Exercise Price;
(iii) Optionee shall have the right to terminate this Agreement,
whereupon neither party shall have any further obligations hereunder; or
(iv) If Optionee is unable to cure or otherwise satisfy the Title
Objection as provided above, Optionee shall be entitled to place all future
Additional Payments into escrow with Optionor's counsel pursuant to the
provisions of Exhibit F hereof; Optionor shall use such funds to cure or
otherwise satisfy the Title Objection and shall only be entitled to the release
of such escrowed funds when satisfactory evidence of such cure or satisfaction
is delivered to Optionee, as more specifically provided in Exhibit F.
The aforesaid remedies are the sole and exclusive remedies of Optionee in
the event of a default by Optionor hereunder.
(b) If Optionee exercises the Option and all conditions precedent to
closing hereunder have been satisfied or, if waivable hereunder, waived by
Optionee in writing, and Optionee thereafter fails or refuses to perform its
obligations upon closing either hereunder Optionor shall be entitled, as its
sole and exclusive remedy, to retain the Option Fee as liquidated damages and to
terminate the Master Lease. Optionor hereby specifically waives the right to
specific performance.
18. FURTHER ASSURANCES. From time to time, each party hereto shall, within
five (5) Business Days after a request therefor by the other party and at such
party's sole cost and expense, furnish such additional consents and other
instruments and information as may be reasonably required to implement the
provisions of this Agreement and the
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<PAGE>
intentions of the parties or to confirm or perfect any existing right or one
that is to be created or transferred hereunder.
19. NOTICES. Any notice, request, demand, statement, authorization,
approval or consent made hereunder shall be in writing and shall be hand
delivered or sent by Federal Express or other reputable national courier service
(a "Courier"), or by postage pre-paid registered or certified mail, return
receipt requested, and shall be deemed given (i) when received or refused at the
following addresses if hand delivered or sent by Federal Express, or other
reputable national courier service, and (ii) three (3) business days after being
postmarked and addressed as follows if sent by registered or certified mail,
return receipt requested:
If to Optionee:
PoleStar Fifth Optionee LLC
c/o NorthStar Capital Partners, LLC
527 Madison Avenue
New York, New York 10022
Attention: W. Edward Scheetz
Telecopier: (212) 319-4557
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Robert J. Wertheimer, Esq.
Telecopier: (212) 856-7808
-27-
<PAGE>
If to Optionor:
417 FS Realty LLC
c/o Prince Management Corp.
498 Seventh Avenue
7th Floor
New York, New York 10036
Attention: Joseph Chetrit
Telecopier: (212) 947-2654
with a copy to:
Sukenik, Segal & Graff, P.C.
417 Fifth Avenue
Third Floor
New York, New York 10016-2204
Attention: Jehoshua Graff, Esq.
Telecopier: (212) 481-5520
Each party may change the address to which a notice must be sent or designate
additional parties to receive a copy of a notice, by notice to the other parties
given in the manner herein provided at least fifteen (15) days before such
change is to become effective. As a matter of convenience only, notices may be
sent by telecopier, provided a hard copy is delivered as stated above, but the
delivery by telecopy shall not accelerate the date delivery of a notice is
deemed to have been received.
20. APPORTIONMENTS. The parties acknowledge and agree that there shall be
no apportionment at Closing, except for the Fixed Annual Rent under the Master
Lease.
21. BINDING EFFECT. This Agreement may not be changed or terminated orally
nor shall any provision hereof be waived orally. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, their successors and
permitted assigns.
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<PAGE>
22. RECORDING.
(a) The parties shall, simultaneously with the execution hereof, execute a
memorandum of this Agreement substantially in the form attached hereto as
Exhibit B and Optionee may record same in the Office of the Register of the City
of New York, County of New York and appropriate UCC-1 financing statements.
Additionally, memoranda (the "Renewal Memoranda of Option") in the same form as
was executed upon the execution and delivery of this Agreement will be filed
from time to time following the date hereof such that record evidence of
Optionee's rights hereunder is continuously maintained until the termination of
this Agreement as provided in clause (i) of Section 27 hereof. In connection
therewith, the Renewal Memoranda of Option will be held in escrow pursuant to
the provisions of Exhibit F hereof by Optionee's counsel, placed of record as
may be necessary to preserve record notice in accordance with applicable law by
Optionee's counsel and returned to Optionee upon termination of this Agreement,
to the extent any remain unutilized. In addition, a memorandum of termination of
Option will also be held in escrow pursuant to the provisions of Exhibit F and
recorded upon the earlier to occur of (i) the valid and legal termination of
this Agreement pursuant to the terms hereof and (ii) delivery of title to the
Property to Optionee pursuant to the terms hereof.
(b) Optionor hereby constitutes and appoints Optionee as its true and
lawful representative and attorney-in-fact in its name, place and stead to make,
execute, sign, deliver and, if required, cause to be filed of record any other
document that may be required by applicable law in addition to, or in lieu of,
the Renewal Memoranda of Option in order to maintain and evidence of record
Optionee's rights hereunder.
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<PAGE>
23. CHOICE OF LAW. This Agreement shall be governed by and construed under
the internal laws of the State of New York.
24. SURVIVAL. Except to the extent specifically provided herein, none of
the obligations under this Agreement shall survive the Closing.
25. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute the same instrument.
26. INVALIDITY OF PARTICULAR PROVISION. If any term of this Agreement or
the application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or provision to persons or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and be enforced to the fullest extent
permitted by law, with the parties hereto covenanting nonetheless to negotiate
in good faith, in order to agree the terms of a mutually satisfactory provision
to be substituted for the term or provision which is void or unenforceable.
27. TERM OF AGREEMENT. Notwithstanding anything herein to the contrary,
this Agreement will lapse and terminate, if not sooner lapsed or terminated in
its entirety in accordance with the terms of this Agreement, on the earlier to
occur of (i) one-hundred years from the date hereof and (ii) the twenty-first
(21st) anniversary of the date of the death of the last to die of the children
(whether natural or adopted) of Rabbi Solomon Halberstam alive on the date
hereof, their children's children (whether natural or adopted)
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<PAGE>
alive on the date hereof and their children's children (whether natural or
adopted) alive on the date hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
OPTIONOR:
417 FS REALTY LLC
By: F.S. REALTY CORP.
By: /s/ Joseph Chetrit
-----------------------------
Name: Joseph Chetrit
Title: Vice President
Solely for the purposes of its
covenants and agreements under
Sections 10(d) and 12(c) herein:
F.S. Realty Corp.
By: /s/ Joseph Chetrit
-----------------------------
Name: Joseph Chetrit
Title: Vice President
Signature Page for Option Agreement to be continued
<PAGE>
OPTIONEE:
POLESTAR FIFTH OPTIONEE LLC
By: /s/ W. Edward Scheetz
-----------------------------
Name: W. Edward Scheetz
Title: President
Additional Signature Page for Option Agreement
<PAGE>
EXHIBIT A
Description of Land
<PAGE>
EXHIBIT B
Memorandum of Option
<PAGE>
EXHIBIT C
Bill of Sale
<PAGE>
EXHIBIT D
Form of Assignment of Included Property
The assignment will cover all of the tangible and intangible property in,
on, attached to, appurtenant to, or used in the operation or maintenance of the
Land or the Building and shall include, without limitation, the following:
1. the Permits in Optionor's possession and all of Optionor's right, title
and interest in and to all other Permits.
2. all Plans, Contracts and Records in Optionor's possession and all of
its right, title and interest in and to any other Plans, Contracts and Records.
3. all of Optionors' right, title and interest in and to all trademarks,
logos, trade and business names, good will and other proprietary rights and
intangible property relating to the ownership, use, operation and management of
the Property (collectively, the "Intangible Property").
<PAGE>
EXHIBIT E
Assignment of Leases and Security Deposits
<PAGE>
EXHIBIT F
Escrow Provisions
<PAGE>
EXHIBIT G
Additional Permitted Encumbrances
Schedule B of the title policy issued by Lawyers Title Insurance
Corporation delivered to Optionee on the date hereof in respect of this
Agreement, which exceptions specifically relate to the title exceptions
affecting the Premises.
<PAGE>
Schedule 1
Leases, Security Deposits; Rent Roll
<PAGE>
Schedule 2
Contracts
<PAGE>
Schedule 3
Permits
<PAGE>
Schedule 4
Insurance Policies
<PAGE>
Schedule A
Option Exercise Price Schedule
<PAGE>
Exhibit 10.13
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT OF
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
This THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of Frank-King
Associates Limited Partnership (this "AGREEMENT"), made as of January 9, 1998,
among KINGSTON WASHINGTON ASSOCIATES LIMITED PARTNERSHIP ("KINGSTON"), a
Massachusetts limited partnership having offices c/o Paul McDonough, Esq.,
Goodwin, Procter & Hoar, Exchange Place, Boston, MA 02109-2881, NORTHSTAR
WASHINGTON STREET, LLC ("NSGP"), a Delaware limited liability company having
offices at 527 Madison Avenue, New York, New York and NORTHSTAR WASHINGTON
STREET II, LLC ("NSLP"), a Delaware limited liability company, having offices at
527 Madison Avenue, New York, New York. NSGP and NSLP are sometimes referred
to, collectively, as "NS" or the "NS GROUP", and Kingston, in its capacity as
both a limited partner and a general partner, is sometimes referred to as the
"KINGSTON GROUP". The parties hereto are referred to singularly as a "PARTNER"
and collectively as the "PARTNERS", and the Kingston Group and the NS Group are
sometimes referred to, generically, as a "PARTNER GROUP".
W I T N E S S E T H :
WHEREAS, Frank-King Associates (the "PREDECESSOR PARTNERSHIP") was formed
as a Massachusetts general partnership pursuant to a partnership agreement (the
"ORIGINAL AGREEMENT") dated October 26, 1984 between Kingston and Bowo
Associates Limited Partnership ("BOWO"), a Massachusetts limited partnership, to
acquire, to own, and to operate the property and any building or buildings
constructed or to be constructed thereon now known as the "WOOLWORTH BUILDING"
and located at 350 Washington Street, Boston, Massachusetts (as more
particularly described on Exhibit A )(collectively, the "PROPERTY");
WHEREAS, on December 17, 1986, Kingston, Bowo, and NYNEX Properties Company
("NYNEX") executed an Amended and Restated Partnership Agreement (the "AMENDED
AGREEMENT") and, simultaneously with the execution and delivery of the Amended
Agreement, the Predecessor Partnership was reconstituted as a limited
partnership known as Frank-King Associates Limited Partnership (the
"PARTNERSHIP") and NYNEX acquired from Kingston and Bowo a limited partnership
interest in the Partnership;
WHEREAS, on October 14, 1992, Odyssey Partners, L.P. ("ODYSSEY"), a
Delaware limited partnership, acquired NYNEX's limited partnership interest in
the Partnership;
WHEREAS, on November 24, 1992, Odyssey assigned to each of Kingston and
Bowo 1/2 of its limited partnership interest in the Partnership, Odyssey
withdrew as a limited partner in the Partnership and Kingston and Bowo executed
a Second Amended and Restated
<PAGE>
Partnership Agreement (the "SECOND AMENDED AGREEMENT"), pursuant to which
Kingston had a 331/3% general partnership interest and a 162/3% limited
partnership interest, and BOWO had a 331/3% general partnership interest and a
162/3% limited partnership interest;
WHEREAS, simultaneously herewith, NSGP and NSLP acquired all of Bowo's
interest in the Partnership (other than Bowo's right to be indemnified by the
Partnership in certain instances, as specifically set forth in Section 5(e) of
the Second Amended Agreement which rights are reserved by Bowo) and Bowo
withdrew as a partner in the Partnership;
WHEREAS, simultaneously herewith, NSLP has contributed $151,515.15 to the
capital of the Partnership in exchange for an interest in the Partnership having
a 1% Percentage Interest; and
WHEREAS the Partners desire to further amend and restate the Second
Amended Agreement to (i) reflect NS's acquisition of Bowo's entire interest in
the Partnership, (ii) reflect Bowo's withdrawal from the Partnership, (iii)
admit NS to the Partnership, (iv) to reflect the contribution of NSLP and its
acquisition therefor of any additional interest in the Partnership from the
Partnership, (v) to provide for the conversion of certain general partnership
interests into limited partnership interests, as provided for on EXHIBIT B and
(vi) continue the Partnership under the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts (the "ACT").
NOW, THEREFORE, the Partners agree that the Second Amended Agreement is
hereby further amended and, as further amended, is restated in its entirety as
follows:
1. CONTINUATION, NAME, AND CERTIFICATE.
The Partners agree to continue the Partnership as a limited
partnership under the name of "FRANK-KING ASSOCIATES LIMITED PARTNERSHIP." The
General Partners shall promptly file a restated certificate of limited
partnership in such form as shall be necessary under the laws of the
Commonwealth of Massachusetts to give effect to the provisions of this
Agreement. Kingston (to the extent of its general partnership interest) and
NSGP shall be the general partners of the Partnership (collectively, the
"GENERAL PARTNERS"), and Kingston (to the extent of its limited partnership
interest) and NSLP shall be the limited partners of the partnership
(collectively, the "LIMITED PARTNERS"). The Partners' respective initial
Partnership Interests (as hereinafter defined) and Percentage Interests (as
hereinafter defined) is as set forth on EXHIBIT B attached hereto. Further, the
Partners are deemed to have made initial capital contributions to the
Partnership in the amounts set forth on EXHIBIT B attached hereto.
2. PURPOSE.
The purpose of the Partnership is to further develop the Property and
to hold the Property for investment and, consistent with such investment
purpose, to operate, to manage, to lease, to maintain, to finance, to improve,
and to sell or otherwise to dispose of the Property.
2
<PAGE>
Without limiting the generality of the foregoing, the purpose of the Partnership
shall include, without limitation, each of the following: (i) restructuring the
existing lease with Woolworth's to recapture the space leased thereunder in
whole or in part, and then renovating, re-constructing and re-leasing any such
space which is recaptured by the Partnership (collectively, the "WOOLWORTH
RE-LEASING"), and (ii) developing, constructing and leasing an approximately
500,000 square foot office building addition to the Property in accordance with
a project plan to be developed and approved by the General Partners (the "TOWER
PROJECT").
3. TERM.
The term of the Partnership shall continue until terminated by the
occurrence of the earliest of (a) December 31, 2043, (b) the sale or other
disposition by the Partnership of substantially all of its assets (except that,
if a purchase money mortgage or other non-cash consideration is delivered to the
Partnership as part of the consideration for any such sale or other disposition,
the Partnership shall continue until such mortgage shall have been paid in full
or otherwise discharged or disposed of or such non-cash consideration is
liquidated into cash), (c) the agreement of the Partners to dissolve the
Partnership and (d) except as provided in section 10, dissolution by operation
of law.
4. PRINCIPAL OFFICE.
The business of the Partnership shall be conducted from its principal
office, which shall be c/o Paul McDonough, Esq., Goodwin Procter & Hoar,
Exchange Place, Boston, MA 02109-2881, or at such other place or places as may
be determined pursuant to section 13.
5. CAPITAL ACCOUNTS, CAPITAL
CONTRIBUTIONS, LOANS, AND PERCENTAGE INTERESTS.
5.1 When used in this Agreement, the following terms shall have the
following meanings:
(a) "CAPITAL ACCOUNT" with respect to a Partner shall mean the
account established and maintained by the Partnership with respect to such
Partner in accordance with the provisions of this section 5.1(a). It is hereby
agreed that the value of the assets of the Partnership net of liabilities
immediately prior to the contribution of $151,515.15 by NSLP is $15,000,000.
Accordingly, the initial Capital Account balance of each Partner as of the date
hereof, including such contribution by NSLP, is hereby restated to be the amount
set forth opposite such Partner's name on Exhibit B attached hereto. Any
obligation to distribute (or guaranteed payment) to a Partner prior to the date
hereof is hereby deemed contributed to capital and included as part of the
initial Capital Account balance of such Partner. The Capital Account of each
Partner shall be increased after the date hereby by (a) the cash amount or net
agreed value of all capital contributed by such Partner to the Partnership and
(b) all items of Net Income and other items of income and gain (including income
and gain exempt from tax) computed as provided herein and
3
<PAGE>
allocated to such Partner pursuant to section 6.1 hereof. Such Capital Account
shall be decreased by (x) the cash amount or net agreed value of all
distributions of cash or property made to such Partner pursuant to this
Agreement with respect to its interest in the Partnership and (y) all items of
Net Loss and other items of loss and deduction computed as provided herein and
allocated to such Partner pursuant to section 6.1 with respect to its interest
in the Partnership. The Capital Accounts of the Partners shall be maintained
and adjusted in accordance with the Treasury Regulations promulgated under
section 704(b) of the Code.
(b) "CAPITAL PROCEEDS" shall mean the excess of receipts from sources
described in clauses (i) through (iv) of section 5.1(e) less amounts applied:
(i) in the case of a financing or refinancing, in payment of:
a) the unpaid balance of any obligations owed or refinanced and
other encumbrances discharged, prepayment penalties, if any, with
respect to the obligations refinanced, and any other costs and
expenses incurred in such prepayment;
b) all expenses incurred in obtaining and consummating such
financing or refinancing, including, without limitation, brokerage
commissions and fees, attorneys' fees, points and commitment fees,
title insurance charges, attorneys' fees and disbursements to the
lender's attorney, mortgage recording tax, recording charges, and all
other expenses necessary to the consummation of such financing
transaction; and
c)all debts and obligations of the Partnership and payment or
establishment of reserves for all costs, capital or otherwise,
determined by the General Partners to be necessary or appropriate for
the operation, maintenance, improvement, and leasing of the Property;
(ii) in the case of a sale or other disposition (voluntary or
involuntary), in payment of all Partnership liabilities and all costs and
expenses necessary or incident to the consummation of such disposition,
including, without limitation, all transfer taxes, mortgage taxes,
intangible taxes, brokerage commissions, attorneys fees and disbursements,
recording charges, and all expenses incurred and encumbrances discharged in
connection with such sale; and
(iii) in case of receipt of casualty insurance proceeds, in
payment of Partnership liabilities and all expenses incurred in receiving
such proceeds and towards reconstruction or restoration of the Property.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
4
<PAGE>
(d) "NET INCOME" or "NET LOSS" shall mean the net income or net loss
of the Partnership computed using federal income tax principles, except that
items that depend on the basis of the assets of the Partnership, such as
depreciation and gain or loss on sale, shall be computed using the agreed value
of such assets at the time of any revaluation of such assets.
(e) "NON-RELATED PARTY" shall mean a person or entity that is not a
person or entity that is related to any Partner within the meaning of Treasury
Regulations Section 1.752-4(b) as in effect on the date hereof.
(f) "OPERATING CASH FLOW" shall mean (y) the gross receipts of the
Partnership (including, without limitation, capital contributions received
pursuant to section 5.3), exclusive of proceeds received by the Partnership
from:
(i) the sale or other disposition (voluntary or involuntary) of
all or part of the Property;
(ii) any casualty insurance payments or damages paid to the
Partnership in respect of the Property;
(iii) any condemnation award with respect to all or part of the
Property; and
(iv) any mortgage or other loans obtained by the Partnership.
minus (y) cash expenses incurred by the Partnership, except that:
(i)depreciation and amortization of capitalized costs of any
kind and the items enumerated in subparagraphs (i) through (iii)
of section 5.1(b) shall not be a deduction from gross receipts;
(ii)principal payments, other than those made from proceeds
of loans to the Partnership or otherwise excluded in (i) through
(iv) above, shall constitute a deduction from gross receipts;
(iii)expenditures to construct, to replace, or to repair
capital assets shall be deemed a cash operating expense, except
to the extent funded by loans, insurance proceeds, condemnation
awards or paid from reserves;
(iv)reasonable reserves (which the Partners hereby agree
must be established) for improvements, expenses maturing, or
other contingencies shall be deemed a cash operating expense to
the extent of additions thereto; and
5
<PAGE>
(v)any reduction in reserves, unless applied to the purposes
for which the reserve was created, shall be treated as a receipt.
(g) "PARTNERSHIP INTEREST" means the entire interest that a Partner
owns in the Partnership, including, without that limitation, the right to
receive all distributions from the Partnership.
5.2 The percentage interest of the Partners in the Partnership (the
"PERCENTAGE INTERESTS") shall initially be as set forth on EXHIBIT B. In the
event that section 5.3 shall be applicable, the Percentage Interests of the
Partners shall be adjusted as provided therein.
5.3 (a) From and after the date of this Agreement, to the extent that
the funds from the operations of the Partnership are not sufficient to fund the
purposes of the Partnership, as determined jointly by the General Partners,
including, without limitation, to fund debt service (including principal and
interest) on any existing financing, operating expenses of the Property, the
cost of the Woolworth Re-Leasing, the cost of the Tower Project or the cost of
any new lease authorized by the General Partners or of putting a new tenant in
possession, or otherwise to realize the purposes of the Partnership as
determined jointly by the General Partners, the General Partners shall endeavor
to obtain loans for the Partnership for such purposes, which loans may come from
banks, institutions or other lenders, provided that all of the terms and
conditions of each such loan and the identity of any lender shall be agreed to
by the General Partners (provided that if such loan is jointly approved by the
General Partners, or approved by the Non-Defaulting Partner (defined below), as
applicable, then each Partner agrees to pledge its interest in the Partnership
as security for such loan if same is required by such lender). Unless both
General Partners otherwise agree, all loans extended to the Partnership, whether
from banks, institutions or others, shall be made by Non-Related Parties and
shall impose no personal liability on the Partners or their affiliates (other
than in respect of customary carve-outs to exculpation provisions and pledges of
Partnership interests by the Partners in the Partnership).
In the event that the General Partners are not able to arrange for
third party financing to fund the costs of the Woolworth Re-Leasing and/or the
Tower Project, or otherwise in respect of the Partnership's business, as
determined jointly by the General Partners, then each of the Kingston Group and
the NS Group (and each member of each Partner Group) shall be required to fund
its Percentage Interest of any such additional capital that may be required
("ADDITIONAL CONTRIBUTIONS") but only if and to the extent such Additional
Contributions (i) are provided for in the Budget (the "BUDGET") set forth in
Exhibit A or (ii) have been jointly approved by the General Partners. If any
member of a Partner Group shall default in its obligation to make any required
Additional Contributions hereunder (collectively, a "DEFAULTING PARTNER"), and
such default continues for three (3) business days after notice of such default,
then the other Partner Group (collectively the "NON-DEFAULTING PARTNER") may
either (i) fund only its proportionate share (based on its respective Percentage
Interest) of such Additional Contribution or (ii) fund both its and the
Defaulting Partner's proportionate share of such Additional Contribution.
Further, if the Non-Defaulting Partner elects to fund the Defaulting Partner's
6
<PAGE>
Percentage Interest of such Additional Contribution, then such amount may be
funded, at the Non-Defaulting Partner's election, as either (i) an additional
capital contribution or (ii) a loan to the Defaulting Partner on the terms set
forth below (a "PARTNER DEFAULT LOAN"). The following shall apply with respect
to funding Additional Contributions:
1. In the event that the Non-Defaulting Partner elects to fund only
its proportionate share of the Additional Contributions, then the
Percentage Interests of each Partner shall be recalculated to
equal the percentage determined by dividing (a) the aggregate
unreturned capital contributions of such Partner by (b) the
aggregate unreturned capital contributions of all Partners.
2. In the event that the Non-Defaulting Partner elects to fund the
Defaulting Partner's proportionate share of the Additional
Contributions as a Partner Default Loan, then such Non-Defaulting
Partner shall be deemed to have made a loan to the Defaulting
Partner in the amount of such Defaulting Partner's proportionate
share of the Additional Contribution (but such amount shall be
actually funded to the Partnership) on the following terms:
(i) INTEREST RATE: 20% per annum, compounded monthly
(ii) SECURITY: secured by a first lien on the Defaulting
Partner's interest in the Partnership
(iii) TERM: repayable on the earlier to occur of (a) 6 months
following the funding of such Partner Default Loan and (b)
the sale of all or substantially all of the assets of the
Partnership (directly or by a conveyance of interests in the
Partnership) or the sale by either Partner Group of all of
its Partnership Interest in the Partnership (regardless of
whether same is pursuant to a sale or conveyance to a third
party or a sale or conveyance to the other Partner Group
pursuant to section 8, or otherwise).
(iv) PAYMENT TERMS: Interest and principal is payable out of all
distributions by the Partnership to the Defaulting Partner,
as set forth in section 6.4. To the extent that the
Partnership has not made sufficient distributions to pay
current interest on the Partner Default Loan, interest shall
accrue.
3. In the event that the Non-Defaulting Partner elects to fund the
Defaulting Partner's proportionate share of the Additional
Contributions as a capital contribution, then the Percentage
Interest of the Partner Groups shall be recomputed as described
in section 5.3(b).
7
<PAGE>
4. In the event a Non-Defaulting Partner elects to fund the portion
of the Additional Contribution owed by a Non-Defaulting Partner
as an additional capital contribution, then the Partners'
Percentage Interests shall be recomputed as follows:
(i) first, determine the total unreturned capital contributions
made by all Partners, including the amount of the required Additional
Contribution (if any) actually contributed by the Non-Defaulting
Partner;
(ii) then, divide the total unreturned capital contributions
made by the Non-Defaulting Partner, including the amount of the
Additional Contributions (if any) actually contributed by them, by the
amount determined in step (i) to arrive at a percentage number;
(iii) then, subtract from the percentage number determined in
step (ii) the Defaulting Partner's Percentage Interest immediately
prior to the default;
(iv) then, double the amount determined in step (iii); and
(v) then, add the amount determined in step (iv) to the
non-Defaulting Partner Percentage Interest immediately prior to the
default and subtract such amount from 100% to determine the Defaulting
Partner's Percentage Interest (which shall not be below zero).
As an example, if the Kingston Group and the NS Group each made an initial
capital contribution of $100 (none of which was returned), and the General
Partners jointly determined that the Partnership required an additional $20 of
capital which the General Partners agreed should be funded by an Additional
Contribution, but the NS Group failed to fund its Proportionate Share of such
Additional Contribution (i.e., 50.5% of such Additional Contribution, or $10.50)
and the Kingston Group elected to contribute the entire $20 Additional
Contribution, then the Percentage Interests of each Partner Group would be
recalculated as follows:
(i) $120 (the aggregate capital contributions made by the
Kingston Group) divided by $220 (the total unreturned contributions of
all Partners) equals 54.5%;
(ii) 54.5% minus 49.5% (NS Group's Percentage Interest prior
to such default) equals 5%;
(iii) 5.0% times 2 equals 10%;
(iv) 49.5% plus 10% equals 59.5% (the new Percentage
Interest of the Kingston Group); and
8
<PAGE>
(v) 100% minus 59.5% equals 40.5% (the new Percentage
Interest of the NS Group).
(b) As an alternative to and in lieu of funding such Additional
Contribution on behalf of the Defaulting Partner, the following remedies shall
be available to the Non-Defaulting Partner, which may be exercised at any time
within the thirty (30) days following such failure by the Defaulting Partner to
fund such Additional Contribution (i) invoke the buy-sell provisions of section
8.6, or (ii) purchase the Partnership Interests of all Partners in the
Defaulting Partner for an aggregate purchase price equal to its "VALUE" (as
determined in accordance with the rules set forth in section 5.3(c) hereof).
(c) In the event a Non-Defaulting Partner elects to purchase the
Defaulting Partner's Partnership Interest as provided in section 5.3(b) (which
shall be effectuated as a purchase of the Partnership Interest of all of the
Partners which constitute members of such Defaulting Partner's Partner Group),
the Non-Defaulting Partner shall give the Defaulting Partner written notice
thereof, setting forth a specified purchase price and a proposed closing date
not more than 6 months after the date of such notice and a proposed time and
place of closing, which shall be in the Borough of Manhattan, City of New York,
during usual business hours. If the General Partners fail to agree on the
purchase price for the Defaulting Partner's Partnership Interest on or before 15
days after the Non-Defaulting Partner gives the Defaulting Partner written
notice of such election, either General Partner may demand arbitration, in which
event the purchase price for the Defaulting Partner's Partnership Interest shall
be equal to the product of (i) the Defaulting Partner's Percentage Interest
multiplied by (ii) the difference obtained by subtracting the liabilities of the
Partnership from the fair market value of the Property plus any other assets of
the Partnership (without any value being attributed to the goodwill of the
Partnership or its business or other intangible assets or to any tax benefits
that may be realized by the Non-Defaulting Partner as a result of its ownership
of the Defaulting Partner's Partnership Interest, as determined by arbitration
as hereinafter provided. Any such arbitration shall be conducted in accordance
with the Real Estate Valuation Rules of the American Arbitration Association or
any successor thereto that are then in effect. Within 15 days after demand by
one party for arbitration, the General Partners shall each appoint an arbitrator
and notify the other party thereof in writing. Such arbitrator (and any other
arbitrator appointed hereunder, whether by either of the parties or as
hereinafter provided in this subparagraph) shall not be an employee or affiliate
of any Partner or any of their respective affiliates, and shall be a licensed
real estate broker having not less than 15 years' experience in selling
properties similar to, and located in the same market as, the Property. In
default of such appointment, an arbitrator shall be appointed by the American
Arbitration Association or any successor thereto, for and on behalf of the party
in default, upon application of the party not in default, and the party not in
default shall notify in writing the party in default of such appointment. The
two arbitrators shall render their determination of the purchase price for the
Defaulting Partner's Partnership Interest within 30 days after the notification
of appointment of the one of them who is later appointed. The decision of the
two arbitrators shall be final, binding and conclusive on each party and
judgment may be rendered thereon by any court having jurisdiction, upon
application of either party. If the two arbitrators, within 30 days after the
date of notification of appointment of the one of them who is
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later appointed, shall be unable to agree upon the purchase price for the
Defaulting Partner's Partnership Interest then the two arbitrators shall, within
15 days after the expiration of such 30 day period, appoint a qualified and
impartial person to act as a third arbitrator. If the two arbitrators shall
fail to appoint such third, impartial arbitrator within such 15 day period,
then, on written application by either party, such third, impartial arbitrator
shall be appointed by the American Arbitration Association, or any successor
thereto. The three arbitrators shall render their decision or decisions within
30 days after the date of the appointment of the third, impartial arbitrator.
The decision of any two of the three arbitrators (or if two of the arbitrators
fail so to agree, then the decision of the third, impartial arbitrator) shall be
final, binding and conclusive on each party and judgment may be rendered thereon
by any court having jurisdiction, upon application of either party. If any
person appointed as arbitrator, other than the third, impartial arbitrator,
shall die, fail to act, resign or become disqualified, the party by or on behalf
of whom such appointment was made shall, within 15 days after notice of such
death, failure to act, resignation or disqualification, appoint a substitute
arbitrator, and, if appointment is not made within such 15 day period, then the
American Arbitration Association, or any successor thereto, shall, upon
application of the party not in default, appoint a substitute arbitrator, and
the party not in default shall notify in writing the party in default of such
appointment. If the third party, impartial arbitrator shall die, fail to act,
resign or become disqualified, his or her substitute shall be appointed by the
American Arbitration Association, or any successor thereto. All arbitration
proceedings shall be held in Boston, Massachusetts. Each party shall pay the
fees and expenses of the arbitrator appointed by or on behalf of such party, and
any other costs of the arbitration proceedings including, without limitation,
the fees and expenses of the third arbitrator, if any, shall be borne equally by
the parties.
(d) For purposes of this section 5.3, each reference to a Defaulting
Partner or a Non-Defaulting Partner shall mean, and be deemed to refer to, each
member of said Partner's Partner Group. To the extent that the Percentage
Interest of a Partner Group is increased or decreased, then the Percentage
Interests of the Partners which are members of the Partner Group shall be
increased or decreased, as the case may be, in proportion to their respective
Percentage Interests.
5.4 No Partner shall be required to restore the amount of any
deficit in its Capital Account to the Partnership. The Partnership shall
indemnify and hold harmless the General Partners, and their agents, affiliates,
and employees from any loss or damage incurred by them by reason of any acts
performed or omitted by them for or on behalf of the Partnership (including any
guaranty of any indebtedness of the Partnership), unless the General Partners or
their agents or employees shall have acted in bad faith or shall have been
guilty of willful misconduct or gross negligence (and provided that the Manager
and the Development Manager (each as hereinafter defined) shall only be
indemnified by the Partnership if and to the extent provided for in the
Management Agreement and the Development Agreement (each as hereinafter
defined).
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6. ALLOCATIONS OF PROFIT AND LOSS AND DISTRIBUTIONS.
6.1 (i) For purposes of maintaining the Capital Accounts of the
Partnership, the Net Income and Net Loss with respect to each year shall be
allocated among the Partners in the ratio of their respective Percentage
Interests, except that appropriate adjustments shall be made to the allocations
to the extent that capital contributions after the date hereof are not made in
the ratio of the Partners' respective Percentage Interests.
(ii) Notwithstanding section 6.1(i) hereof, appropriate
adjustments shall be made to the allocations to the extent required to
comply with the "qualified income offset," "minimum gain chargeback,"
"chargeback for nonrecourse debt for which a partner bears a risk of loss"
and any other rules of the Treasury Regulations promulgated pursuant to
section 704(b) of the Code. To the extent permitted by such Treasury
Regulations, the allocations in such year and subsequent years shall be
further adjusted to that the cumulative effect of all the allocations shall
be the same as if all such allocations were made pursuant to section 6.1(i)
hereof with regard to this section 6.1(ii).
(iii) Net income and net loss for income tax purposes shall be
allocated in the same manner as Net Income and Net Loss pursuant to
sections 6.1(i) and 6.1(ii) hereof, except that appropriate adjustments
shall be made to such allocations to the extent required under section
704(c) of the Code and the Treasury Regulations thereunder and sections
1.704-1(b)(2)(iv)(d)(e)(f) and (g) of the Treasury Regulations, using the
traditional method.
6.2 Operating Cash Flow shall be distributed to the Partners within
15 days of the end of each calendar quarter as follows:
(a) first, to the Partners, an amount equal to the then aggregate
unreturned capital contributions (which shall be deemed to mean all
contributions made or deemed to be made to the Partnership by such Partner less
all capital returned to such Partner by the Partnership) in proportion to the
amount of such unreturned capital contributions owed to each, until such
unreturned capital contributions have been fully distributed pursuant to this
section 6.2(a) and section 6.3(a); and
(b) the remainder to the Partners in proportion to their Percentage
Interests.
6.3 Capital Proceeds shall be distributed from time to time as
determined by the General Partners, as follows:
(a) first, to the extent there is any amount described in section
6.2(a) undistributed on the date of distribution, to the Partners in proportion
to the amount of such unreturned capital contributions owed to each; and
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(b) the remainder to the Partners in proportion to their Percentage
Interests.
6.4 Notwithstanding anything herein to the contrary, any distribution
to be made to any Partner or Partner Group which is the maker on a Partner
Default Loan shall be deemed distributed to such Partner or Partner Group, as
the case may be, for purposes of this Agreement, but shall be actually paid to
the payee of such Partner Default Loan until such Partner Default Loan, together
with any accrued interest thereon, has been repaid in full.
7. MANAGEMENT OF PARTNERSHIP.
7.1 All decisions and actions on behalf of the Partnership,
including, without limitation, those concerning the improvement, management,
development, redevelopment, financing, or operation of the Property or the
construction of new rental space thereon (including in respect of the Woolworth
Re-Leasing and the construction of the Tower Project), shall, except as provided
for in section 7.2, be made jointly by the General Partners.
7.2 (a) Notwithstanding the provisions of section 7.1 or any other
provision contained herein (but subject to the terms of this section 7.2), upon
the occurrence of a Major Default (as hereinafter defined) by a Partner, the
General Partner which is not a member of the Partner Group whose member
committed the Major Default (the "NDGP") shall become the sole managing General
Partner of the Partnership, at which point the NDGP shall, notwithstanding
anything herein to the contrary (but subject to the provisions of this section
7.2) thereafter have the full and exclusive right to manage and control the
business and affairs of the Partnership and to make all decisions regarding the
business and operations of the Partnership including, without limitation, the
right to sell, finance or transfer any assets of the Partnership without the
consent of any other Partner, and such NDGP shall have all of the rights, powers
and obligations of a sole general partner of a Massachusetts limited
partnership, and, unless otherwise specifically provided, all provisions herein
which require the joint approval of the General Partners shall thereafter be
determined by the NDGP.
(b) The following shall constitute "MAJOR DEFAULTS" by a Partner:
1. if a Partner fails to fund an Additional Contribution when and as
provided for herein and such failure continues after applicable
notice and cure periods;
2. if a Partner transfers, assigns, pledges or otherwise encumbers
its Partnership Interest in violation of section 8;
3. if a Partner defaults in its obligation to purchase or sell its
Partnership Interest, as the case may be, pursuant to section
8.2, 8.3 or 8.6;
4. if a Partner to this Agreement (A) makes a general assignment for
the benefit of its creditors, (B) generally does not pay its
debts as they become
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due, (C) admits in writing its inability to pay its debts as they
mature, (D) commences any case, proceeding or other action
seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial
part of its property, or (E) if any case, proceeding or other
action against any such party or general partner shall be
commenced seeking to have an order for relief entered against it
as debtor, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or recomposition of it or its debts
under any law relating to bankruptcy, insolvency, reorganization
or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or
any substantial part of its property, and such case, proceeding
or other action results in the entry of an order for relief
against it which is not dismissed, vacated, set aside or stayed
within one hundred and twenty (120) days thereafter;
5. if a General Partner fails to obtain the consent of the other
General Partner prior to entering into any material agreement or
taking any material action on behalf of the Partnership, or if
any Partner commits a material breach of the terms of this
Agreement, and same is not cured within thirty (30) days after
notice of such default;
6. if any General Partner withdraws or retires from the Partnership
and is not replaced by an Affiliate in accordance with the terms
hereof; or
7. if any General Partner, or the Limited Partner which is a member
of the same Partner Group as such General Partner commits any act
of fraud upon any of the other Partners (to the extent same
relates to the business and affairs of the Partnership) or the
Partnership.
8. if the Manager commits a material default under Section 11.3(a)
of the Management Agreement beyond applicable grace notice and
cure periods.
(c) Notwithstanding the foregoing, the NDGP, if applicable, shall not
have the authority to do any of the following without the consent of the
other Partners:
1. amend, or do any act in contravention of, this Agreement;
2. unless the NDGP has, in its sole discretion, elected to sell
all or substantially all of the assets of the Partnership on terms
that it, in its sole discretion, deems advisable, do any act which
would make it impossible to carry on the business of the Partnership,
or otherwise change the purpose of the Partnership;
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3. confess a judgment against the Partnership;
4. possess Partnership property;
5. admit a Person as a Partner, except as provided in this
Agreement;
6. cause the Partnership to enter into any agreement with any
Affiliate of such NDGP unless same is on commercially reasonable
arms-length terms;
7. enter into, modify or amend on behalf of the
Partnership any agreement with Kingston or its affiliates with respect
to the management, leasing and/or development of the Property; or
8. require the Partners to make Additional Contributions.
7.3 The consent of a General Partner to decisions or actions shall be
given by such General Partner only through the representative designated in or
selected pursuant to section 7.6.
7.4 Each General Partner in its capacity as a general partner of the
Partnership shall devote such amount of its time as it, in its sole discretion,
deems necessary to the Partnership business and, except as otherwise provided in
section 7, and shall receive no compensation from the Partnership for its
services. The Partners may engage in or possess an interest in other business
ventures of every nature and description, independently or with others,
including but not limited to the ownership, financing, leasing, operation,
management, syndication, brokerage, and development of real property, whether or
not competitive with the Property, and neither the Partnership nor any Partner,
as such, shall have any rights by virtue of this Agreement in such independent
ventures or to the income or profits derived therefrom. Notwithstanding the
foregoing, (i) no Partner shall acquire any interest in any other "competitive"
(defined below) real property contiguous to the Property (unless the opportunity
to acquire such property shall first have been offered by such Partner to the
Partnership) and, in connection therewith, each Partner represents to the other
Partners that neither such Partner nor, to such Partner's knowledge, any person
or entity which owns a legal or beneficial, direct or indirect, interest in such
Partner owns or has any right to acquire any fee simple, leasehold, or other
interest in any such contiguous real property and (ii) neither the Kingston
Group nor any affiliate of the Kingston Group (including E. Peter Krulewitch
("PK") but specifically excluding the owners of limited partnership interests in
Kingston and their affiliates other than PK) shall acquire any interest,
directly or indirectly, in any other "competitive" (defined below) real property
in the so-called downtown financial district of Boston, Massachusetts (other
than Hayward Place on Washington Street in Boston, which is owned by Kingston
Hayward Associates L.P.) during the period (the "Non-Compete Period") ending on
the fifth (5) year anniversary of the date hereof.
Following the expiration of the Non-Compete Period, the Kingston Group
and any Affiliate of the Kingston Group, including, without limitation, PK but
specifically excluding the
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owners other than PK of limited partnership interests in the Kingston and their
affiliates shall not acquire any direct or indirect interests in any other
"competitive" real property in the so-called downtown financial district of
Boston, Massachusetts unless the Kingston Group delivers thirty (30) days prior
written notice of such intended acquisition to NSGP, which notice shall specify
all material terms of the proposed acquisition and NSGP shall have such thirty
(30) day period (the "Refusal Period") to exercise a right of first refusal to
participate in such acquisition as a 50% joint venturer of Kingston on
substantially the same terms and conditions set forth in the term sheet. In the
event NSGP elects by written notice to participate in such investment, the
Kingston Group and NSGP shall cooperate in good faith to diligently complete
such investment within a reasonable period of time following NSGP election under
the right of first refusal. If Kingston Group does not close the contemplated
acquisition with respect to its 50% interest for any reason within such
reasonable time period, NSGP shall have the right to acquire the investment on
its own behalf on substantially the same terms and conditions in which Kingston
Group and NSGP jointly intended to acquire such investment. If NSGP does not
close the contemplated acquisition with respect to its 50% interest for any
reason within such time period, or NSGP does not elect to participate in such
acquisition, then the Kingston Group or such Affiliate shall have the right
during the nine (9) month period commencing on the earlier to occur of (i) the
date NSGP notifies the Kingston Group that it will not exercise its rights under
this Section 7.4 and (ii) the date following the expiration of the Refusal
Period, to purchase the investment upon the same material terms contained in the
term sheet. If such nine (9) month period has expired and the Kingston Group
has not purchased the investment, or if the terms upon which the Kingston Group
intends to acquire the investment change in any material respect from those set
forth in the term sheet, the Kingston Group shall not acquire the investment
without re-offering a participation to NSGP in accordance with all of the
provisions of this Section 7.4. "Competitive" as used in this Section 7.4 shall
mean directly competitive commercial office buildings in the downtown financial
district of Boston, Massachusetts or any other real estate investment that will
materially detract from PK's attention to the Property. After the fifth (5)
year anniversary of the date hereof, the definition of "competitive" shall mean
only directly competitive office buildings in the downtown financial district of
Boston, Massachusetts.
7.5 (a) If any Partner shall take any action, incur any obligation,
or make any decision on behalf of the Partnership which has not been jointly
approved by the General Partners, then such General Partner's Partner Group
shall indemnify and hold harmless the other Partners and the Partnership from
and against all losses, expenses, claims, demands, actions, or rights of action
which shall or may arise by virtue thereof (directly or through or by agents,
employees, or other representatives), which remedies shall be in addition to any
other remedies already available to the Partners hereto.
(b) Further, if a General Partner exercises any legal power which
such General Partner may have to dissolve the Partnership without the written
consent of the other General Partner, then it shall be personally liable for any
damage or loss sustained by the other Partners resulting from such exercise.
Notwithstanding anything herein to the contrary, any election to
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cause the Partnership to file a voluntary bankruptcy proceeding or otherwise
declare itself bankrupt or incapable of paying its debts, or to consent to the
filing of an involuntary bankruptcy proceeding, shall require the unanimous
approval of the General Partners unless one General Partner is the NDGP, in
which event any such election may be made by the NDGP.
7.6 To facilitate and control the administration of the Partnership
and the conduct of its business, the General Partners shall act exclusively
through designated representatives. The General Partners hereby designate the
following persons as their sole respective representatives for such purposes
(including for the purpose of giving consent under section 7.1 on behalf of the
General Partner which designated such person):
PARTNER REPRESENTATIVE
------- --------------
Kingston E. Peter Krulewitch
NS David Hamamoto or Peter Ahl
Any General Partner may substitute or replace a representative (without the
consent of the other Partners) upon written notice to the other General Partner.
7.7 The Partnership shall reimburse each General Partner for the
amount of its reasonable out-of-pocket disbursements incurred in the operation
of the Property, including travel expenses to and from the Property.
7.8 The General Partners may make loans on commercial reasonable
terms to the Partnership, for purposes of reasonable working capital and similar
needs, provided the terms are mutually agreed upon by the General Partners.
8. DISPOSITION OF PARTNERSHIP INTERESTS AND BUY-SELL DISPUTE RESOLUTION.
8.1 Except as otherwise provided herein, no Partner shall sell,
assign, mortgage, pledge, or otherwise encumber or transfer all or any part of
its interest in the Partnership, except to another Partner, or withdraw as a
partner of the Partnership, without the prior written consent of all the General
Partners, provided, however, that interests in the Partnership may be pledged or
encumbered to secure loans to the Partnership or otherwise.
8.2 The following provisions shall apply with respect to the sale of
all of a Partner's Partnership Interest.
(a) If the General Partner of a Partner Group (such Partner Group,
the "OFFEREE PARTNER") shall have received a bona fide offer (an "OFFER") in
writing, signed by an unaffiliated third party offeror (the "OFFEROR"), to
purchase all of such Offeree Partner's Partnership Interest, which Offer sets
forth all economic and other material business terms, including the purchase
price therefor and is accompanied by a good certified or bank cashier's check
equal to 10% of the purchase price offered as a deposit with respect thereto,
then a true
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copy of such Offer shall be forwarded to the General Partner of the other
Partner Group (such other Partner Group, the "REMAINING PARTNER") and the
provisions of this section shall apply. The Remaining Partner shall have the
right, to be exercised by written notice to the Offeree Partner within 60 days
after the receipt of a copy of the Offer, to elect to purchase the Offeree
Partner's Partnership Interest upon the same terms and conditions as are
contained in the Offer (except as provided in the next sentence hereof), in
which event such remaining Partner shall deliver to the Offeree a deposit equal
to 5% of the purchase price (for purposes of calculating the amount of such
deposit, the purchase price shall be deemed to include the Offeree Partner's
allocable share of any indebtedness of the Partnership), which shall be held in
escrow by counsel for the Offeree. The notice of acceptance from the Remaining
Partner shall set the closing date for the consummation of the transaction,
which shall be no later than 6 months from the mailing of such acceptance, and
shall also set forth the time and place of closing, which shall be in the
Borough of Manhattan, City of New York, during usual business hours. If the
Remaining Partner does not send a notice of acceptance to the Offeree Partner
within the prescribed time, then the Offeree Partner shall have the right to
sell its Partnership Interest to the Offeror, provided that such sale is
consummated within 60 days after the above-described 60-day period and provided,
further, that such sale is made strictly in accordance with the terms of the
Offer and on no more favorable terms to the Offeror.
(b) If the Remaining Partner shall send a notice of acceptance of the
Offer and shall fail to consummate the purchase of the Offeree Partner's
Partnership Interest on the closing date (unless such failure is caused by a
wrongful act or omission or a failure of performance by the Offeree Partner or
any member of its Partner Group), the Offeree Partner shall have all remedies
against such Remaining Partner (a "DEFAULTING REMAINING PARTNER") as are
available at law or in equity.
(c) If an Offeror acquires an Offeree Partner's entire Partnership
Interest, upon the assignment of the Offeree Partner's Partnership Interest to
the Offeror, such Offeror shall be admitted as a partner in the Partnership
(with the same Partnership Interests transferred by such Offeree Partner) and
the Offeror and the Remaining Partner shall execute and deliver such documents
as shall be required to effectuate such admission. Such assignment and
admission shall not cause a dissolution of the Partnership, which shall continue
without interruption upon the same terms and conditions as are contained in this
Agreement, except that the Offeror shall succeed to the rights and obligations
of the Offeree Partner with respect to the Partnership Interest so assigned to
such Offeror. Notwithstanding any provision of this section 8.2 to the
contrary, no Partner shall have the right to accept or negotiate an Offer (i)
prior to December 31, 1999; or (ii) if an offer under this section 8.2 or
section 8.6 is already outstanding. Any attempt by any Partner to do so shall
be null and void ab initio (provided that if a Major Default occurs, the NDGP
may exercise its rights under this section at any time thereafter).
8.3 Except as provided in the following sentence, the provisions of
section 8.2 shall apply with respect to the sale or other disposition, in whole
or in part, of direct or indirect interests in any Partner provided that all
references in section 8.2 (i) the "OFFEREE PARTNER" shall be deemed to mean and
refer to the direct or indirect holder of such interest in a Partner and
(ii) the "PARTNERSHIP" shall be deemed to mean and refer to such Partner.
Notwithstanding any provision of this section 8.3 to the contrary, the sale or
other disposition, in whole or in part, of
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direct or indirect limited partnership or non-managing membership interests
other than those of PK or persons or entities controlled by PK, as the case may
be, in Kingston shall not be subject to the provisions of section 8.2 or this
section 8.3.
8.4 Any attempted sale or other disposition of the interest of a
Partner in the Partnership or of an interest in a Partner in violation of the
terms of this section 8 shall be null and void. Except as permitted pursuant to
Section 8.5, no Partner may transfer its Partnership Interest in the Partnership
in whole or in part until December 31, 1999. Further, no Partner may transfer
its Interest in whole or in part if such transfer would cause a termination of
the Partnership under Code section 708(b)(1)(B).
8.5 Notwithstanding anything herein to the contrary, Kingston may, at
any time, reconstitute itself as a limited liability company, provided it
reaffirms its obligations under this Agreement, and Kingston and NSLP may, at
any time, (a) transfer direct or indirect interests in the Partnership to their
respective Affiliates (provided that, upon the transfer of less than all of a
Partner's Partnership Interest to an Affiliate, such Affiliate shall only have a
beneficial right to receive Partnership distributions, but shall not be entitled
to become a Partner in the Partnership) or (b) transfer limited or non-managing,
as the case may be, and non-controlling interests in Kingston or NSLP, as the
case may be, to unaffiliated third parties (provided that, in the event of a
transfer of an interest in Kingston, E. Peter Krulewitch shall continue to
control Kingston as general partner or manager of Kingston and, in the event of
a transfer of an interest in NSLP; the existing principals of NSLP shall
continue to control NSLP as the indirect owners of NSLP, unless, in either case
such interest is first offered to the Remaining Partner as provided in section
8.3 hereof). Notwithstanding anything contained herein to the contrary,
Kingston, NSLP and NSGP may pledge their interests herein to an institutional
lender and, upon such lender's exercise of its remedies under its loan
documents, such lender or the successful bidder at a UCC sale shall succeed to
the interests of Kingston, NSLP and NSGP, as the case may be. "AFFILIATE" of a
person or entity shall mean a person or entity directly or indirectly
controlling, controlled by, or under common control with such first person or
entity.
8.6 At any time, either General Partner on behalf of the Partner
Group in which it is a member (collectively, the "OFFEROR") shall have the right
to offer (by written notice, setting forth a proposed closing date more than 120
days and less than 6 months after the date of such notice and a proposed time
and place of closing, which shall be in the Borough of Manhattan, City of New
York, during usual business hours) to purchase the Partnership Interests of the
other Partner Group (collectively, the "OFFEREE") for a specified purchase
price, in which event, on the stated closing date and at the stated time and
place, the Offeree shall, at its election, either (i) sell its Partnership
Interest to the Offeror pursuant to such offer or (ii) purchase the Partnership
Interest of the Offeror at the same price that was offered by the Offeror (but,
if the Percentage Interest of the Offeror shall be different from that of the
Offeree, the price at which the Offeree shall be required to purchase the
Partnership Interest of the Offeror shall equal the product of the price
specified by the Offeror multiplied by a fraction, the numerator of which is the
Percentage Interest of the Offeror and the denominator the Percentage Interest
of the Offeree). In either event, the Partner Group which is purchasing the
other Partner Group's Partnership Interest (the
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"PURCHASER") shall, as a condition to closing, obtain the release of the
selling Partner Group (the "SELLER") (and the Sellers' affiliates) from all
guarantees and/or indemnities with respect to Partnership obligations. The
Purchaser may purchase the Partnership Interest of the Seller pursuant to clause
(ii) of the second preceding sentence only if the Purchaser, within sixty (60)
days after receipt of notice of the offer from the Offeror, shall have given
written notice of its intention to purchase, accompanied by a deposit equal to
5% of the purchase price for the Seller's Partnership Interest (for purposes of
calculating the amount of such deposit, the purchase price shall be deemed to
include the Seller's allocable share of any indebtedness of the Partnership),
which shall be held in escrow by counsel for the Seller. In the event that
Purchaser defaults with respect to its obligation to purchase the Seller's
Partnership Interest at a time when the Seller is otherwise ready, willing and
able to perform (it being understood that the failure to satisfy the condition
regarding releases set forth in the second preceding sentence shall not
constitute a Purchaser default), then Seller may retain such deposit as
liquidated damages. In the event that the Seller defaults with respect to its
obligation to sell its Partnership Interest at a time when Purchaser is
otherwise ready, willing and able to perform then Purchaser may seek any
remedies available at law, including the right to seek specific performance.
Notwithstanding any other provision of this section 8.6 to the contrary, no
Partner shall have the right to deliver an offer to purchase any other Partner's
Partnership Interest pursuant to this section 8.6 (i) prior to December 31,
1999, or (ii) if an offer under this section 8.6 or section 8.2 is already
outstanding, and any attempt by any Partner to do so shall be null and void AB
INITIO (provided that if a Major Default occurs, the NDGP may exercise its
rights under this section at any time thereafter).
9. RETENTION OF KINGSTON AND/OR ITS AFFILIATES.
NS hereby consents to the Partnership entering into (i) that certain
Management and Leasing Agreement (the "Management Agreement") with Kingston
Realty Advisors LLC ("Manager") and (ii) that certain Development Agreement (the
"Development Agreement") with Kingston Construction Company LLC (the
"Development Manager") simultaneously with the execution hereof.
10. RECONSTITUTION.
10.1 The occurrence of an event described in Section 23 of the Act
with respect to a Partner or any other event causing a Partner to cease to be a
partner ("EVENT REQUIRING RECONSTITUTION") shall not cause a dissolution of the
Partnership (provided same may still constitute a Major Default). Upon the
occurrence of an Event Requiring Reconstitution, the Partnership shall be
immediately reconstituted on the terms contained in this Agreement between the
legal successor in interest to the Partner with respect to whom the Event
Requiring Reconstitution occurred and the remaining Partners.
10.2 Upon the occurrence of an Event Requiring Reconstitution with
respect to a Partner, the legal successor in interest of such Partner shall,
within 60 days afterward, be admitted to the Partnership in place of the Partner
with respect to whom the Event Requiring
19
<PAGE>
Reconstitution occurred (as a General Partner or a Limited Partner, as the case
may be), subject to the terms of this Agreement.
11. RECORDS AND ACCOUNTS.
11.1 Complete and accurate records of all transactions of the
Partnership shall be maintained at all times and each Partner shall cause to be
recorded in such records all of its transactions on behalf of the Partnership.
11.2 The records of the Partnership shall be maintained at the
principal office of the Partnership or at such other place or places as may be
determined by the General Partners. Each Partner shall, at all reasonable times
during normal business hours, have access to and may inspect and copy any
Partnership records.
11.3 The taxable year and fiscal year of the Partnership shall be the
calendar year (unless the Partnership is required by the Code or Treasury
Regulations to use some other taxable year).
11.4 Unaudited quarterly statements for each calendar quarter shall be
submitted to each Partner within 45 days after the end of such quarter. Within
60 days after the end of each year, financial statements, including a balance
sheet and profit and loss statement, shall be submitted to each of the Partners,
together with a separate report for each partner showing its share of the income
or loss of the Partnership for Federal income tax purposes. The financial
statements shall be prepared by Imowitz Koenig & Co., L.L.P. or such accountant
or accountants as may be selected by the General Partners.
11.5 All funds received by the Partnership shall be deposited in a
bank account or accounts in the name of the Partnership. Checks drawn on any
Partnership account shall be signed with the firm name by such person or persons
as shall be determined from time to time by the joint approval of the General
Partners.
11.6 Unless changed by the joint approval of the General Partners,
Kingston shall act as the tax matters partner of the Partnership pursuant to
section 6231(a)(7) of the Code for all years since the formation of the
Partnership.
11.7 The Partnership hereby elects to be treated as a partnership
under the so called "check-the-box" provisions of the Code.
12. DISSOLUTION.
Upon the dissolution of the Partnership, a statement shall be prepared
by the Partnership's accountants and submitted to the Partners promptly, setting
forth the assets and liabilities of the Partnership as of the date of
dissolution. All real property of the Partnership shall be sold as promptly
thereafter as practicable without undue sacrifice and the net proceeds thereof
20
<PAGE>
and the other assets of the Partnership shall be applied and distributed in the
following order of priority:
(a) first, to the payment of the expenses of liquidation;
(b) then, to the payment of the debts and liabilities of the
Partnership;
(c) then, to the setting up of any reserves which the General Partners
may deem necessary for any contingent or unforeseen liabilities or obligations
of the Partnership, which reserves may be paid over the Partners to an escrow
agent, to be held by him for the purpose of disbursing such reserves to meet any
of the aforementioned contingencies and the payment of his fees as escrowee,
and, at the expiration of such period as a Majority in Interest of the Partners
shall deem advisable, the balance of which, if any, thereafter remaining shall
be distributed in the manner described in sections (d) and (e); and
(d) then, to the Partners in the amount set out in section 6.3(a); and
(e) the remainder to the Partners in the amounts set forth in section
6.3(b).
13. NOTICES.
Any notices or offer required or desired to be given pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered or mailed by registered or certified mail, postage prepared and return
receipt requested, to the Partners at the addresses set forth at the beginning
of this Agreement with a copy to (i) Battle Fowler LLP, 75 East 55th Street, New
York, New York 10022, Attention: Robert J. Wertheimer, Esq., in the case of NS;
and (ii) Richards & O'Neil, LLP, 885 Third Avenue, New York, New York 10022,
Attention: Robert Safron in the case of Kingston, or to such other address as
any Partner may have furnished to the other in writing in accordance herewith.
All notices and offers shall be deemed received on the date of delivery or, if
mailed, on the date appearing on the return receipt.
14. MISCELLANEOUS.
14.1 The paragraph and section headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement contains the entire understanding between Kingston
and NS with respect to its subject matter and supersedes all prior agreements
and understandings between them with respect to such subject matter. This
Agreement may be amended only by a written instrument duly executed by the
parties hereto.
14.3 This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
21
<PAGE>
14.4 This Agreement shall be binding upon and inure to the benefit of
the parties signatory hereto and their successors and assigns.
14.5 If the amount paid by any Partner Group (the "FIRST PARTNER"),
and the direct and indirect partners in, or affiliates of, the First Partner, by
reason of any liability said parties may have with respect to any obligations of
the Partnership to Chase Manhattan Bank or any other lender to the Partnership,
their successors and assigns, shall exceed the product of (1) the amounts so
paid by both Partner Groups and the direct and indirect partners therein by
reason of such personal liability multiplied by (2) the First Partner's then
Percentage Interest, the other Partner Group shall pay to the First Partner the
excess amount on demand, with interest thereon at 20% per annum, failing which
said non-paying Partner Group hereby irrevocably authorizes the Partnership to
pay said amounts to the First Partner from any and all available cash otherwise
distributable to the non-paying Partner Group or any of its constituent
Partners.
14.6 "Time shall be of the essence" with respect to the time periods
set forth in section 8.
14.7 The obligations of the members of each Partner Group are joint
and several in all respects. Accordingly, any reference to a Partner Group
shall be deemed to refer to both members of such Partner Group. Further, each
General Partner may bind the Limited Partner which is a member of its Partner
Group on any matter, and any Partner herein may rely upon the approval or
decision of a General Partner as binding upon the Limited Partner which is a
member of the Partner Group in which it is a member.
14.8 Notwithstanding anything to the contrary contained in this
Agreement, no recourse shall be had for the payment of any loans or other
payments due or for any other claim under this Agreement or based on the failure
of performance or observance of any of the terms and conditions of this
Agreement against any Partner, any Affiliate of any Partner or any principal,
partner, member, shareholder, controlling person, officer, director, agent or
employee of any of the aforesaid persons or any of their respective assets other
than such Partner's interest in the Partnership or assets of the Partnership to
which such Partner is entitled under any rule of law, statute or constitution,
or by the enforcement of any assessment or penalty, or otherwise, nor shall any
of such persons be personally liable for any contributions, loans, payments or
claims, or personally liable for any deficiency judgment based thereon or with
respect thereto, it being expressly understood that the sole remedies of the
Partnership or any other Partner with respect to such amounts and claims shall
be against such interest in the Partnership and the assets of the Partnership to
which such Partner is entitled and as otherwise expressly set forth in this
Agreement, and that all such liability of the aforesaid persons, except as
expressly provided in this section, is expressly waived and released as a
condition of, and as consideration for, the execution of this Agreement and the
admission of each Partner to the Partnership; provided, however, that nothing
contained in this Agreement (including, without limitation, the provisions of
this section), (a) shall constitute a waiver of any obligation of a Partner
under this Agreement, (b) shall be taken to prevent recourse to and the
enforcement against such Partnership interest and the assets of the Partnership
to which such Partner is entitled for all of the respective liabilities,
obligations, and
22
<PAGE>
undertakings of the aforesaid persons contained in this Agreement, (c) shall be
taken to prevent recourse to and the enforcement against (i) a transferring
Partner of its liabilities, obligations and undertakings contained in any
instrument of assignment or indemnity delivered in connection with such transfer
(but such recourse shall be limited to the proceeds received by such
transferring Partner in connection with such assignment or transfer) or (ii) any
security delivered by any of the aforesaid persons pursuant to this Agreement,
or (d) shall be taken to limit or restrict any action or proceeding against any
of the aforesaid persons which does not seek damages or a money judgment or does
not seek to compel payment of money (or the performance of obligations which
would require the payment of money) by any of the aforesaid persons.
15. COOPERATION. The parties hereto agree that they will reasonably
cooperate to restructure the ownership and operation of the Partnership and the
Property if necessary in order to comply with VCOC, REOL and REIT requirements
under the Internal Revenue Code of 1986, as amended, including, without
limitation, the manner of operation of any parking facilities located on the
Property provided same does not adversely affect the economics, tax position,
control or governance rights or other material element of the parties' bargain,
and provided, further, that any costs associated with such restructuring and any
incremental costs to the Partnership associated therewith shall be borne solely
by the NS Group.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year above written.
NORTHSTAR WASHINGTON STREET, LLC
By: /s/ Peter Ahl
---------------------------
Peter Ahl
authorized person
NORTHSTAR WASHINGTON STREET II, LLC
By: /s/ Peter Ahl
---------------------------
Peter Ahl
authorized person
<PAGE>
KINGSTON WASHINGTON ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ E. Peter Krulewitch
-------------------------------------
General Partner
25
<PAGE>
EXHIBIT A
Property Description
26
<PAGE>
EXHIBIT B
Deemed Initial Capital
Contributions and Initial
Initial Percentage Restated Capital
General Partners Interest Account Balance
A. Kingston Washington Associates 1% $ 151,515.15
Limited Partnership
B. NorthStar Washington Street, LLC 1% $ 151,515.15
Limited Partners
A. Kingston Washington Associates 48.5% $7,348,484.85
Limited Partnership
B. NorthStar Washington
Street II, LLC 49.5% $7,500,000.00
<PAGE>
TABLE OF CONTENTS
Page
1. Continuation, Name, and Certificate.. . . . . . . . . . . . . . . . . . .2
2. Purpose.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4. Principal Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5. Capital Accounts, Capital Contributions, Loans, and
Percentage Interests. . . . . . . . . . . . . . . . . . . . . . . . . . .3
6. Allocations of Profit and Loss and Distributions. . . . . . . . . . . . 11
7. Management of Partnership.. . . . . . . . . . . . . . . . . . . . . . . 12
8. Disposition of Partnership Interests. . . . . . . . . . . . . . . . . . 16
9. Retention of Kingston and/or its Affiliates . . . . . . . . . . . . . . 19
10. Reconstitution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Records and Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
i
<PAGE>
FRANK-KING ASSOCIATES, L.P.
PROJECTED FINANCIAL STATEMENTS - 1998
ASSUMPTIONS
-----------
1. Woolworth gives up second and third floors beginning April 1, 1998.
2. Revised rent for Woolworth on groud floor is $225,000 on an annual basis.
3. Woolworth is paid $3,500,000 to give up second and third floors on April 1,
1998.
4. All construction and administration to renovate second and third floors
will cost $6,500,000 during June through November 1998.
5. In connection with their reduced tenancy, Woolworth pays 25% of operating
costs and real estate taxes instead of the present 45.92%.
6. There is no income from the new floors until February 1, 1999.
7. Meyers percentage rent continues to rise in the same ratio as 1996
($802,524) to 1997 ($873,171), or 8.8%.
<PAGE>
FRANK-KING ASSOCIATES, L.P.
PROJECTED STMT OF ASSETS, LIABILITIES AND PARTNERS' (DEFICIT)
INCOME TAX BASIS - AS OF DECEMBER 31, 1998
UNAUDITED
---------
<TABLE>
<CAPTION>
Dec 31, '98
---------------
<S> <C>
ASSETS
Current Assets
Checking/Savings
Cash in Bank 800,000.00
-------------
Total Checking/Savings 800,000.00
Accounts Receivable
Due from Tenants 300,000.00
-------------
Total Accounts Receivable 300,000.00
-------------
Total Current Assets 1,100,000.00
Fixed Assets
Real Estate 22,040,000.00
-------------
Total Fixed Assets 22,040,000.00
Other Assets
Def'd Financing Costs 172,622.00
Deferred Leasing Costs 3,470,035.00
Prepaid Expenses & Other 20,000.00
-------------
Total Other Assets 3,662,657.00
-------------
TOTAL ASSETS 26,802,657.00
=============
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 35,000.00
-------------
Total Accounts Payable 35,000.00
-------------
Total Current Liabilities 35,000.00
Long Term Liabilities
Construction Loan 9,500,000.00
Guaranteed Payment to Partners 1,879,166.00
Loan Payable-Land 0.00
Mortgage Payable 20,050,000.00
-------------
Total Long Term Liabilities 31,429,166.00
-------------
Total Liabilities 31,464,166.00
Equity
Partners' Capital (4,661,509.00)
-------------
Total Equity (4,661,509.00)
-------------
TOTAL LIABILITIES & EQUITY 26,802,657.00
=============
</TABLE>
<PAGE>
FRANK-KING ASSOCIATES, L.P.
PROJECTED STATEMENT OF REVENUE AND EXPENSES-INCOME TAX BASIS
JANUARY THROUGH DECEMBER 1998
UNAUDITED
---------
<TABLE>
<CAPTION>
Jan - Dec '98
-----------------
<S> <C>
Ordinary Income/Expense
Income
Base Rental Income 2,058,657.90
Operating 46,050.00
Percentage Rent 960,000.00
Real Estate Taxes 822,119.72
Utilities 83,400.00
--------------
Total Income 3,970,227.62
Expense
Administrative Expenses 311,412.00
Real Estate Tax Expense 966,119.72
Utilities Expense 93,600.00
400 - Operating Expenses 97,800.00
414 - Water & Sewer Charges 23,079.96
460 - Interest Expense 1,730,000.00
595 - Amortization Expense 230,000.04
596 - Depreciation Expense 699,999.96
--------------
Total Expense 4,152,011.68
--------------
Net Ordinary Income (181,784.06)
Other Income/Expense
Other Income
630 - Interest Income 6,000.00
--------------
Total Other Income 6,000.00
Other Expense
Lease Renegotiation 3,500,000.00
WOOLWORTH RENOVATIONS 6,499,999.98
OFFICE TOWER CONSTRUCTION 2,691,754.00
--------------
Total Other Expense 12,691,753.98
--------------
Net Other Income (12,685,753.98)
--------------
Net Income (12,867,538.04)
==============
</TABLE>
<PAGE>
FRANK-KING ASSOCIATES, L.P.
PROJECTED STATEMENT OF REVENUE AND EXPENSES-INCOME TAX BASIS
JANUARY THROUGH DECEMBER 1998
UNAUDITED
---------
<TABLE>
<CAPTION>
--------------- --------------- --------------- --------------- ---------------
Jan '98 Feb '98 Mar '98 Apr '98 May '98
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Ordinary Income/Expense
Income
Base Rental Income 188,742.32 188,742.32 188,742.32 165,825.66 165,825.66
Operating 0.00 0.00 6,450.00 0.00 0.00
Percentage Rent 0.00 0.00 10,000.00 0.00 0.00
Real Estate Taxes 174,593.31 25,593.31 25,593.31 122,593.31 25,593.31
Utilities 0.00 0.00 20,850.00 0.00 0.00
-------------- -------------- -------------- -------------- --------------
Total Income 363,335.63 214,335.63 251,635.83 288,418.97 191,418.97
Expense
Administrative Expenses 27,451.00 25,201.00 25,201.00 27,451.00 25,201.00
Real Estate Tax Expense 171,593.31 25,593.31 25,593.31 171,593.31 25,593.31
Utilities Expense 0.00 0.00 23,400.00 0.00 0.00
400 - Operating Expenses 0.00 0.00 7,950.00 0.00 0.00
414 - Water & Sewer Charges 1,923.33 1,923.33 1,923.33 1,923.33 1,923.33
460 - Interest Expense 142,000.00 142,000.00 142,000.00 142,000.00 142,000.00
595 - Amortization Expense 19,166.67 19,166.67 19,166.67 19,166.67 19,166.67
596 - Depreciation Expense 58,333.33 58,333.33 58,333.33 58,333.33 58,333.33
-------------- -------------- -------------- -------------- --------------
Total Expense 420,467.64 272,217.64 303,567.64 420,467.64 272,217.64
-------------- -------------- -------------- -------------- --------------
Net Ordinary Income (57,132.01) (57,882.01) (51,932.01) (132,048.67) (80,796.67)
Other Income/Expense
Other Income
630 - Interest Income 500.00 500.00 500.00 500.00 500.00
-------------- -------------- -------------- -------------- --------------
Total Other Income 500.00 500.00 500.00 500.00 500.00
Other Expense
Lease Renegotiation 0.00 0.00 0.00 3,500,000.00 0.00
WOOLWORTH RENOVATIONS 0.00 0.00 0.00 0.00 0.00
OFFICE TOWER CONSTRUCTION 246,917.00 246,917.00 246,917.00 246,917.00 246,917.00
-------------- -------------- -------------- -------------- --------------
Total Other Expense 246,917.00 246,917.00 246,917.00 3,746,917.00 246,917.00
-------------- -------------- -------------- -------------- --------------
Net Other Income (246,417.00) (246,417.00) (246,417.00) (3,746,417.00) (246,417.00)
-------------- -------------- -------------- -------------- --------------
Net Income (303,549.01) (304,299.01) (294,349.01) (3,878,466.67) (327,216.67)
============== ============== ============== ============== ==============
<CAPTION>
---------------
Jun '98
---------------
<S> <C>
Ordinary Income/Expense
Income
Base Rental Income 165,825.66
Operating 4,200.00
Percentage Rent 0.00
Real Estate Taxes 25,593.31
Utilities 20,850.00
--------------
Total Income 216,466.97
Expenses
Administrative Expenses 25,201.00
Real Estate Tax Expense 25,593.31
Utilities Expense 23,400.00
400 - Operating Expenses 7,950.00
414 - Water & Sewer Charges 1,923.33
460 - Interest Expense 142,000.00
595 - Amortization Expense 19,166.67
596 - Depreciation Expense 58,333.33
--------------
Total Expense 303,567.64
--------------
Net Ordinary Income (87,098.67)
Other Income/Expense
Other Income
630 - Interest Income 500.00
--------------
Total Other Income 500.00
Other Expense
Lease Renegotiation 0.00
WOOLWORTH RENOVATIONS 1,063,333.33
OFFICE TOWER CONSTRUCTION 208,167.00
--------------
Total Other Expense 1,291,500.33
--------------
Net Other Income (1,291,000.33)
--------------
Net Income (1,378,099.00)
==============
</TABLE>
<PAGE>
FRANK-KING ASSOCIATES, L.P.
PROJECTED STATEMENT OF REVENUE AND EXPENSES-INCOME TAX BASIS
JANUARY THROUGH DECEMBER 1998
UNAUDITED
---------
<TABLE>
<CAPTION>
--------------- --------------- --------------- --------------- ---------------
Jul '98 Aug '98 Sep '98 Oct '98 Nov '98
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Ordinary Income/Expense
Income
Base Rental Income 165,825.66 165,825.66 165,825.66 165,825.66 165,825.66
Operating 0.00 0.00 4,200.00 0.00 27,000.00
Percentage Rent 0.00 0.00 0.00 950,000.00 0.00
Real Estate Taxes 122,593.31 25,593.31 25,593.31 122,593.31 25,593.31
Utilities 0.00 0.00 20,850.00 0.00 0.00
-------------- -------------- -------------- -------------- --------------
Total Income 288,418.97 191,418.97 216,488.97 1,238,418.97 218,418.97
Expense
Administrative Expenses 27,451.00 25,201.00 25,201.00 27,451.00 25,201.00
Real Estate Tax Expense 171,593.31 25,593.31 25,593.31 171,593.31 25,593.31
Utilities Expense 0.00 0.00 23,400.00 0.00 0.00
400 - Operating Expenses 0.00 0.00 7,950.00 66,000.00 0.00
414 - Water & Sewer Charges 1,923.33 1,923.33 1,923.33 1,923.33 1,923.33
460 - Interest Expense 168,000.00 142,000.00 142,000.00 142,000.00 142,000.00
595 - Amortization Expense 19,166.67 19,166.67 19,166.67 19,166.67 19,166.67
596 - Depreciation Expense 58,333.33 58,333.33 58,333.33 58,333.33 58,333.33
-------------- -------------- -------------- -------------- --------------
Total Expense 446,467.64 272,217.64 303,567.64 486,467.64 272,217.64
-------------- -------------- -------------- -------------- --------------
Net Ordinary Income (158,048.67) (80,796.67) (87,098.67) 751,951.33 (53,796.67)
Other Income/Expense
Other Income
630 - Interest Income 500.00 500.00 500.00 500.00 500.00
-------------- -------------- -------------- -------------- --------------
Total Other Income 500.00 500.00 500.00 500.00 500.00
Other Expense
Lease Renegotiation 0.00 0.00 0.00 0.00 0.00
WOOLWORTH RENOVATIONS 1,083,333.33 1,083,333.33 1,083,333.33 1,083,333.33 1,083,333.33
OFFICE TOWER CONSTRUCTION 208,167.00 208,167.00 208,167.00 208,167.00 208,167.00
-------------- -------------- -------------- -------------- --------------
Total Other Expense 1,291,500.33 1,291,500.33 1,291,500.33 1,291,500.33 1,291,500.33
-------------- -------------- -------------- -------------- --------------
Net Other Income (1,291,000.33) (1,291,000.33) (1,291,000.33) (1,291,000.33) (1,291,000.33)
-------------- -------------- -------------- -------------- --------------
Net Income (1,449,049.00) (1,371,799.00) (1,378,099.00) (539,049.00) (1,344,799.00)
============== ============== ============== ============== ==============
<CAPTION>
---------------
Dec '98
---------------
<S> <C>
Ordinary Income/Expense
Income
Base Rental Income 165,825.66
Operating 4,200.00
Percentage Rent 0.00
Real Estate Taxes 100,593.31
Utilities 20,850.00
--------------
Total Income 291,468.97
Expenses
Administrative Expenses 25,201.00
Real Estate Tax Expense 100,593.31
Utilities Expense 23,400.00
400 - Operating Expenses 7,950.00
414 - Water & Sewer Charges 1,923.33
460 - Interest Expense 142,000.00
595 - Amortization Expense 19,166.67
596 - Depreciation Expense 58,333.33
--------------
Total Expense 378,567.64
--------------
Net Ordinary Income (87,098.67)
Other Income/Expense
Other Income
630 - Interest Income 500.00
--------------
Total Other Income 500.00
Other Expense
Lease Renegotiation 0.00
WOOLWORTH RENOVATIONS 0.00
OFFICE TOWER CONSTRUCTION 208,167.00
--------------
Total Other Expense 208,167.00
--------------
Net Other Income (207,667.00)
--------------
Net Income (294,765.67)
==============
</TABLE>
<PAGE>
FRANK-KING ASSOCIATES, L.P.
PROJECTED STATEMENT OF REVENUE AND EXPENSES-INCOME TAX BASIS
JANUARY THROUGH DECEMBER 1998
UNAUDITED
---------
<TABLE>
<CAPTION>
TOTAL
-----------------
Jan - Dec '98
-----------------
<S> <C>
Ordinary Income/Expense
Income
Base Rental Income 2,058,657.90
Operating 46,050.00
Percentage Rent 960,000.00
Real Estate Taxes 822,119.72
Utilities 83,400.00
--------------
Total Income 3,970,227.62
Expense
Administrative Expenses 311,412.00
Real Estate Tax Expense 966,119.72
Utilities Expense 93,600.00
400 - Operating Expenses 97,800.00
414 - Water & Sewer Charges 23,079.96
460 - Interest Expense 1,730,000.00
595 - Amortization Expense 230,000.04
596 - Depreciation Expense 699,999.96
--------------
Total Expense 4,152,011.68
--------------
Net Ordinary Income (181,784.06)
Other Income/Expense
Other Income
630 - Interest Income 6,000.00
--------------
Total Other Income 6,000.00
Other Expense
Lease Renegotiation 3,500,000.00
WOOLWORTH RENOVATIONS 6,499,999.98
OFFICE TOWER CONSTRUCTION 2,691,754.00
--------------
Total Other Expense 12,691,753.98
--------------
Net Other Income (12,685,753.98)
--------------
Net Income (12,867,538.04)
==============
</TABLE>
<PAGE>
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
PROJECTED STATEMENT OF CASH FLOWS - INCOME TAX BASIS
YEAR ENDED DECEMBER 31, 1998
UNAUDITED
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 303,216
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 700,000
Amortization and Write Off of Financing Costs 30,000
Amortization of Deferred Leasing Costs 200,000
Changes in Operating Assets and Liabilities:
Decrease in Due from Tenants
(Increase) Decrease in Prepaid Expenses
Decrease in Accrued Expenses (15,674)
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,217,542
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and Tenant Improvements (9,000,000)
Deferred Leasing Costs
Construction and Tenants Costs Payable 2,458
-----------
NET CASH (USED IN) INVESTING ACTIVITIES (8,997,542)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' Distributions (500,000)
Principal Repayment of Loan Payable - Land (20,000)
Partners' Contributions
Mortgage Principal Repayments (500,000)
Financing Costs
Proceeds from Construction Financing 9,000,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,980,000
-----------
NET INCREASE IN CASH 200,000
CASH AT BEGINNING OF THE YEAR 600,000
-----------
CASH AT END OF THE YEAR $ 800,000
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 2,000,000
===========
</TABLE>
<PAGE>
Exhibit 10.14
DEVELOPMENT AGREEMENT
BETWEEN
FRANK-KING ASSOCIATES LIMITED PARTNERSHIP
Owner
and
KINGSTON CONSTRUCTION COMPANY, LLC,
Development Manager
Project: The Woolworth Building
Boston, Massachusetts
Dated as of December __, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 APPOINTMENT OF DEVELOPMENT MANAGER . . . . . . . . . . . . . . . . 1
1.1. Engagement of Development Manager. . . . . . . . . . . . . . . . 1
1.2. Fiduciary Obligations. . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 SERVICES AND DUTIES OF DEVELOPMENT MANAGER . . . . . . . . . . . 3
2.1. Pre-construction; Construction . . . . . . . . . . . . . . . . . 3
2.2. Development Plan . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3. Annual Budget; Annual Budget Monitoring. . . . . . . . . . . . . 4
2.4. Obtain Required Approvals. . . . . . . . . . . . . . . . . . . . 5
2.5. Retain Architect . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6. Retain General Contractor/Construction Manager; Coordination of
Construction Activities. . . . . . . . . . . . . . . . . . . . . 5
2.7. Other Contractors and Consultants. . . . . . . . . . . . . . . . 5
2.8. Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9. Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.10. Maintain Insurance . . . . . . . . . . . . . . . . . . . . . . . 6
2.11. Compliance with Project Documents. . . . . . . . . . . . . . . . 7
2.12. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13. Leasing/Property Manager . . . . . . . . . . . . . . . . . . . . 7
2.14. Obligations Conditioned on Sufficient Funds. . . . . . . . . . . 7
ARTICLE 3 RESPONSIBILITIES OF DEVELOPMENT MANAGER. . . . . . . . . . . . . 7
3.1. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2. Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . 8
3.7. Operating Accounts . . . . . . . . . . . . . . . . . . . . . . . 8
3.8. Restrictions on Development Manager. . . . . . . . . . . . . . . 9
3.9. Due Diligence; Further Assurances. . . . . . . . . . . . . . . . 9
ARTICLE 4 RESPONSIBILITIES OF OWNER. . . . . . . . . . . . . . . . . . . . 10
4.1. Project Representative. . . . . . . . . . . . . . . . . . . . . 10
4.2. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4. Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5 COMPENSATION OF DEVELOPMENT MANAGER. . . . . . . . . . . . . . . 11
5.1. Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2. Pre-Development Fee. . . . . . . . . . . . . . . . . . . . . . . 11
5.3. Construction Management Fee. . . . . . . . . . . . . . . . . . . 11
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ARTICLE 6 TERM; TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . 11
6.1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3. Events Following Termination.. . . . . . . . . . . . . . . . . . 13
6.4. Final Reports, Accounts and Records. . . . . . . . . . . . . . . 13
ARTICLE 7 CONSENT AND APPROVAL . . . . . . . . . . . . . . . . . . . . . . 14
7.1. Consent and Approval . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 8 REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Development Manager Representations. . . . . . . . . . . . . . . 14
ARTICLE 9 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 10 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.1. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.2. Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 11 INDEMNIFICATION PROVISIONS; EXCULPATION. . . . . . . . . . . . . 16
11.1. Owner's Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 16
11.2 Development Manager's Indemnity. . . . . . . . . . . . . . . . . 17
11.3. Indemnity Procedures . . . . . . . . . . . . . . . . . . . . . . 17
11.4. Recovery of Litigation Costs . . . . . . . . . . . . . . . . . . 19
11.5. Exculpation of Owner . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 12 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 19
12.1. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 19
12.2. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.3. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.4. Benefits and Obligations . . . . . . . . . . . . . . . . . . . . 20
12.5. Prohibition on Assignment by Development Manager . . . . . . . . 20
12.6. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.7. Other Activities . . . . . . . . . . . . . . . . . . . . . . . . 20
12.8. Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . 20
12.9. Rights of Others . . . . . . . . . . . . . . . . . . . . . . . . 20
12.10. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 21
12.11. Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . 21
12.12. Independent Contractor . . . . . . . . . . . . . . . . . . . . . 21
12.13. Governing Law; Submission to Jurisdiction; Venue . . . . . . . . 21
12.14. Survival of Obligation . . . . . . . . . . . . . . . . . . . . . 21
12.15. Supplemental Documents . . . . . . . . . . . . . . . . . . . . . 21
12.16. Superseding Effect.. . . . . . . . . . . . . . . . . . . . . . . 22
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EXHIBITS
A. Additional Development Services
B. Development Plan
C. Initial Budget
D. Permitted Budget Variances
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DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "AGREEMENT") dated as of December
___, 1997 between FRANK-KING ASSOCIATES LIMITED PARTNERSHIP, a Massachusetts
limited partnership, having an address c/o Paul McDonough, Esq., Goodwin,
Procter & Hoar, Exchange Place, Boston, MA 02109-2881 ("OWNER") and Kingston
Construction Company, LLC, a Massachusetts limited liability company, having an
address at 598 Madison Avenue, New York, New York 10022 ("DEVELOPMENT MANAGER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Owner is the owner of a certain retail/office building
known as the Woolworth Building, located at 350 Washington Street, in the City
of Boston, Commonwealth of Massachusetts and related infrastructure, which
Owner intends to finance, redevelop, reconstruct, encumber, mortgage and lease
(the "PROPERTY"); and
WHEREAS, Owner desires to engage Development Manager for the
express purpose of providing certain development services in connection with the
redevelopment of the space, if any, recaptured from Woolworth's (the "Woolworth
Space") and the development/ construction of an approximately 500,000 square
foot office building addition to the Property (the "Tower Project" and
collectively with the redevelopment of the Woolworth Space, the "Project").
NOW, THEREFORE, for and in consideration of mutual promises herein
contained, and other good and valuable consideration, the receipt and legal
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
APPOINTMENT OF DEVELOPMENT MANAGER
1.1. ENGAGEMENT OF DEVELOPMENT MANAGER. Owner hereby appoints
Development Manager as exclusive developer to perform the services described
herein as agent of Owner, and Development Manager hereby accepts such
appointment, subject to the terms and conditions of this Agreement.
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1.2. FIDUCIARY OBLIGATIONS. Development Manager agrees to devote
such time and attention to the Project as may be necessary to accomplish the
purposes of this Agreement. In the discharge of its duties, Development Manager
acknowledges that it shall act as a fiduciary of Owner in exercising Development
Manager's authority and the fulfillment of Development Manager's
responsibilities in the manner provided in this Agreement and shall not be
entitled to receive or retain any compensation, fees or other emoluments related
directly or indirectly to the Project, except as may be specifically set forth
herein. Development Manager shall carry out its activities in the highest
professional manner with a view toward enhancing the reputations of Owner, the
parties constituting Owner and others associated with the Project.
1.3. PERSONNEL. Development Manager shall employ such personnel
as Development Manager shall from time to time consider adequate to enable it to
perform its obligations hereunder. Development Manager shall select, supervise,
direct and discharge all personnel (all such persons are collectively defined as
"DEVELOPMENT MANAGER'S EMPLOYEES"), from time to time, as Development Manager,
in its professional opinion reasonably deems necessary for the performance of
Development Manager's duties and obligations hereunder. Developer may itself or
through any of its affiliates or consultants perform any part or all of its
obligations hereunder, in which case the obligations of the Development Manager
shall be treated as satisfied when performed by any such affiliate or
consultant. In performing its obligations hereunder Development Manager may,
without any diminution of its obligations hereunder, delegate such work to
others under its supervision, and shall, as agent for Owner and in accordance
with terms and conditions as may be approved by Owner, select and employ such
architects, engineers, consultants, designers, suppliers and installers as in
its opinion are necessary for the completion of the Project in accordance with
the Project Documents. All Development Manager's Employees shall be direct
employees of Development Manager and shall be paid solely from the funds
allocated for such purpose in the Annual Budget (as hereinafter defined) (unless
Development Manager elects to pay such Development Manager's Employees
additional amounts from its own funds). Development Manager shall be solely
responsible to pay the salary, benefits and all other compensation howsoever
defined (collectively, "EMPLOYEE COMPENSATION") due or otherwise owing to all
Development Manager's Employees, and Development Manager shall be responsible to
(i) file all forms, reports and returns required by law relating to Development
Manager's Employees, (ii) carry such worker's compensation insurance and
employer's liability insurance with respect to such employees as may be required
by law, and (iii) withhold any taxes and social security contributions with
respect to such employees as may be required by law. Development Manager shall
indemnify and hold Owner harmless from any and all claims made by Development
Manager's Employees and any other employees, agents and personnel of Development
Manager against Owner for any Employee Compensation or any other matters
relating to their employment by Development Manager. Provided that at all times
Development Manager complies with the terms and provisions of this Agreement,
including this Section 1.3 hereof, Development Manager may itself or through any
of its affiliates or consultants perform any part or all of its obligations
hereunder, in which case the obligations
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of the Development Manager shall be treated as satisfied when performed by any
such affiliate or consultant. In performing its obligations the Development
Manager may, without any diminution of Development Manager's obligations
hereunder, delegate such work to others under its supervision.
ARTICLE 2
SERVICES AND DUTIES OF DEVELOPMENT MANAGER
2.1. PRE-CONSTRUCTION; CONSTRUCTION. Development Manager agrees
(i) to prepare and submit to Owner for its approval a development program (the
"DEVELOPMENT PLAN"), (ii) to use commercially reasonable efforts to cause the
development and construction of the Project to be carried out to completion in
accordance with the Development Plan and (iii) to perform or use commercially
reasonable efforts to cause to be performed all necessary services and duties in
connection therewith including, but not limited to, the activities set forth on
Exhibit A hereto. Development Manager, as an independent contractor, shall
perform the aforesaid services and duties and the other obligations set forth
herein in the name of Owner within the parameters and upon the terms and
conditions set forth herein. Unless otherwise provided in this Agreement, all
services and actions which Development Manager is required or permitted to
perform or to take, or cause to be performed or taken, under this Agreement in
connection with the development and construction of the Project shall be
performed or taken, as the case may be, on behalf of Owner and at Owner's sole
cost and expense.
2.2. DEVELOPMENT PLAN; PLANS AND SPECIFICATIONS. Development
Manager will prepare and submit to the Owner for its approval the Development
Plan. The Development Plan shall include a description of the Project, a
listing of the Project organization and development team (which may change from
time to time upon notice from Development Manager to the Owner), a Project
budget, and other matters, all of sufficient scope to establish a basis for the
performance of the Project. Development Manager shall update the Development
Plan no less frequently than every ninety (90) days to reflect the current
status of the Project and shall submit such modified and updated Development
Plan to Owner for approval. Development Manager shall develop and construct the
Project as contemplated by and provided for in the Development Plan and the
Plans and Specifications for the Project as approved by Owner. Owner may reject
or modify the Development Plan, and any subsequent revisions thereto, as
requested by Owner from time to time, in its sole discretion, and Development
Manager shall promptly revise the Development Plan or such future development
plan, as the case may be, to Owner's satisfaction. Development Manager shall
deliver to Owner, promptly following their preparation, all plans and
specifications and any schematic and conceptual presentations for the proposed
development of the Project for the approval by Owner and shall also deliver to
Owner such other details and information regarding the development as Owner
shall reasonably request from time to time including, without limitation,
proposals as to the identity of architectural and engineering firms,
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construction contractors, and other specialists and consultants to be used to
implement the Development Plan. Until a Development Plan is approved by Owner,
Development Manager must obtain Owner's consent for all actions to be taken
hereunder in accordance with the Development Plan. Once a Development Plan has
been approved by Owner, the Development Manager shall operate the Project in
accordance with the approved or deemed approved Development Plan until any
revision to a Development Plan has been approved by Owner. Any references
herein to the Development Plan shall mean the Development Plan and any
modifications or amendments thereto approved by Owner
2.3. ANNUAL BUDGET; ANNUAL BUDGET MONITORING. Attached hereto as
Exhibit B is the budget for tax period commencing the date hereof and ending
December 31, 1998, which budget contains the projections of cash expenditures,
working capital and necessary reserves with respect to the predevelopment,
development, construction, and marketing at the Project for such period (the
"INITIAL BUDGET"). On or before December 1st of each year thereafter,
Development Manager shall submit an Annual Budget to Owner for approval for the
ensuing fiscal year, which Annual Budget shall be based upon the Initial Budget
with such modifications and amendments as Development Manager deems necessary or
advisable (the Initial Budget and any such subsequent annual budget, as same may
be amended pursuant to the terms hereof, an "ANNUAL BUDGET"). Owner may elect,
at any time in its discretion, to modify or amend any Annual Budget or any
portion thereof without Development Manager's consent or approval if Owner
determines that same is necessary or desirable for the construction, operation,
maintenance, sale or marketing of the Project. Any references herein to an
Annual Budget shall mean an Annual Budget and any modifications or amendments
thereto approved by Owner.
(b) On a monthly basis, Development Manager shall (i) prepare
and deliver to Owner a report setting forth (a) the actual costs and expenses
incurred during such month and the estimated amount for the next quarter for
uncompleted work (i.e., the loan draw), and (b) variances between actual and
budgeted or projected costs where budgeted or projected costs exceed the line
item for such costs by more than ten (10%) percent and (ii) revise the Annual
Budget as necessary to reflect actual Project experience. If Development
Manager determines at any time that it is in the best interests of Owner to
incur any cost, expense or obligation to effect the purposes of the Development
Plan which requires any expenditure which deviates from any line item on the
Initial Budget, Development Manager shall obtain the approval of Owner prior to
incurring any such cost, expense or obligation. Owner shall be deemed to have
approved any variance from a line item on an Annual Budget if such variance is
reflected and highlighted on a draw request from Development Manager to Owner
and Owner fails to notify Development Manager that it objects to such variance
within 10 days of receipt of such request. For purposes of this Section 2.3, a
"LINE ITEM" shall refer to each line item of expense identified in the Annual
Budget. Notwithstanding the foregoing, prior to the approval of the Initial
Budget by Owner, Development Manager must obtain the consent of Owner to all
expenditures to be made by Development Manager hereunder. After the approval of
any Annual Budget, Manager shall perform its obligations hereunder in
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accordance with such Annual Budget, unless a modification thereto has been
approved or has been deemed approved by Owner.
2.4. OBTAIN REQUIRED APPROVALS. At Owner's sole cost and
expense, Development Manager shall use commercially reasonable efforts to obtain
all other necessary zoning and other approvals, consents, permits, licenses,
variances, access and traffic approvals, and authorizations required or
desirable for the construction, development and operation of the Project
consistent with the Development Plan (collectively, the "REQUIRED APPROVALS").
Development Manager hereby agrees to use its commercially reasonable efforts to
secure all Required Approvals, comply with all conditions set forth in such
Required Approvals or otherwise, prepare and provide all reports, notifications
and submissions for the benefit of Owner and the Project and take all necessary
and appropriate actions so that the Project shall be ready to open for sale or
lease to the general public on or prior to the date specified in the Development
Plan.
2.5. RETAIN ARCHITECT Subject to Owner's approval and at
Owner's sole cost and expense, Developer shall retain, on behalf of the Owner,
on terms to be approved by Owner, an architectural firm licensed in the State of
Massachusetts ("ARCHITECT") to prepare initial schematic and development
drawings. Developer shall cause the Architect to prepare preliminary and final
drawings, plans and specifications for the Project. The identity and terms of
employment of the Architect and any associated architects shall be subject to
Owner's approval.
2.6. RETAIN GENERAL CONTRACTOR/CONSTRUCTION MANAGER; COORDINATION
OF CONSTRUCTION ACTIVITIES. Development Manager shall retain, on behalf of
Owner and at Owner's sole cost and expense, either a construction manager for
the Project (the "CONSTRUCTION MANAGER") or a general contractor for the
construction, supply of materials, labor and other services to be performed in
connection with the Project (the "GENERAL CONTRACTOR"). The term of employment
of the Construction Manager or General Contractor and any associated general
contractors shall be subject to Owner's approval. Developer shall supervise the
Construction Manager or General Contractor in the performance of its duties,
including, without limitation, acting at Owner's discretion and on its behalf to
supervise and coordinate construction matters and matters involving governmental
agencies. The obligations and performance of the Construction Manager or
General Contractor under its construction contract shall be assured in full by a
payment and performance bond from the Construction Manager or General Contractor
if required by Owner or any lender ("LENDER") financing construction of the
Project.
2.7. OTHER CONTRACTORS AND CONSULTANTS. On behalf and in the
name of Owner, Development Manager shall, as agent for Owner, select, negotiate
and enter into contracts on terms and conditions approved by Owner and
Development Manager, with consultants, engineers, designers, contractors,
suppliers and installers (including, without limitation, a project architect) as
in its opinion are necessary for the completion of the Project
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in accordance with the Project Documents (as hereinafter defined). The identity
and terms of employment for such persons and firms shall be subject to Owner's
approval and the compensation payable for services rendered by such persons and
firms shall be only as provided for in the Annual Budget. Development Manager
shall supervise all contractors, consultants and engineers and the installation
of materials or equipment for all systems, such as heating, ventilation, air
conditioning, plumbing and electrical based on preliminary and/or final plans
and specifications.
2.8. FINANCING. Owner shall arrange for the construction
financing for the Project and Development Manager shall assist owner in
connection therewith, such assistance shall include, without limitation, (i)
assisting in negotiation of appropriate instruments and documents evidencing and
securing such financing, (ii) arranging for periodic disbursement of funds
pursuant to such financing, as requested by Owner, and (iii) preparing all
reports, financial statements and documents required by any lender and, after
receiving Owner's prior written approval of such reports, financial statements
and documents, coordinate the delivery of same to such lender.
2.9. PERMITS. Development Manager shall take such actions at
Owner's sole cost and expense as may be necessary to comply with laws,
ordinances, orders, rules, regulations and requirements of federal, state and
municipal governments and agencies, courts, departments, commissions, boards and
officers, or other bodies exercising similar functions, which may be applicable
to the Project, and obtain and maintain all building permits, certificates of
occupancy, licenses, Required Approvals and/or operating permits, if any, for
the Project including, without limitation, submission and administration of
applications and agreements in the name of Owner with utility companies, public
agencies and municipal and other governmental authorities with respect to
utility, sewer and water services. Owner agrees to execute and deliver any and
all applications and other documents reasonably requested by Development Manager
and otherwise to cooperate to the fullest extent with Development Manager in
applying for, obtaining and maintaining such certificates, Required Approvals,
licenses and permits as are reasonably required. Development Manager shall at
Owner's sole cost and expense use commercially reasonable efforts to take such
measures as may be reasonably required to cause the Project to be in compliance
with the terms, covenants and provisions contained in the Project Documents (as
hereinafter defined), any deed of trust or mortgage, operating agreement or
other agreement or obligation encumbering or affecting the Project or any
security agreement now or hereafter encumbering or affecting the personal
property located at the Project.
2.10. MAINTAIN INSURANCE. As more particularly provided in
ARTICLE 10 hereof, Development Manager shall prepare for Owner a schedule of all
required insurance coverage for the Project during the preconstruction, and at
Owner's sole cost and expense shall obtain and maintain such insurance coverage
on terms and with companies or agencies approved by Owner.
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2.11. COMPLIANCE WITH PROJECT DOCUMENTS. Development Manager
shall at Owner's sole cost and expense cause the Project to be planned,
constructed and operated substantially in accordance, in all material respects,
with the terms and conditions of all governmental approvals received for the
Project, the Development Plan, all construction and/or financing loan documents,
and the site plan for the Project (as same may be amended pursuant to Section
2.2 herein) (collectively, the "PROJECT DOCUMENTS").
2.12. SECURITY. Development Manager shall supervise the
preparation and implementation at Owner's sole cost and expense of a security
program for the Project to be in force during the development, design and
construction of the Project.
2.13. LEASING/PROPERTY MANAGER. Pursuant to that certain
Management and Leasing Agreement (the "Management Agreement") dated of even
date herewith between Owner and Kingston Realty Advisors LLC, as property
manager, (in such capacity "PROPERTY MANAGER"), Owner has engaged Property
Manager to manage the operation and leasing of the Project. Development
Manager shall cooperate with Property Manager in carrying out its duties.
2.14. OBLIGATIONS CONDITIONED ON SUFFICIENT FUNDS. Development
Manager's obligation to perform any duty under this Agreement which requires the
payment of a sum of money is conditioned upon Owner providing funds to
Development Manager necessary to perform such duty, as provided in each Annual
Budget, as the same may be amended from time to time in accordance with the
terms hereof.
ARTICLE 3
RESPONSIBILITIES OF DEVELOPMENT MANAGER
3.1. MEETINGS. Development Manager shall be available at
reasonable intervals and on reasonable notice to participate at such public and
private meetings and hearings for the Project as may be requested by Owner.
3.2. REPORTING. Development Manager shall (i) at all times keep
Owner advised of Development Manager's activities with respect to the Project,
(ii) Development Manager shall supervise and carry out to completion all
decisions made by Owner consistent with the terms of this Agreement in
connection with the Project, and (iii) meet with Owner's representatives no
less frequently than monthly at Development Manager's office and at any other
time reasonably requested by Owner to discuss the status of the development of
the Project and (iv) participate in regular meetings on at least a monthly basis
pursuant to Section 3.3(i) and shall provide Owner with a schedule of such
meetings and deliver to Owner the minutes and other records of such meetings and
the decisions made and Owner or its representative shall have the right to
participate in such meetings. Without limiting
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the foregoing, at least monthly, Development Manager shall furnish to Owner a
written status report, in such form as Owner shall designate, concerning various
aspects of the Project, including the status of planning and construction
activity, schedule compliance and updating, financial reports, problem areas,
status of governmental approvals and such other matters and in such forms as
Owner shall designate. Each report provided to Owner shall be certified as
correct to the best of knowledge of Development Manager.
3.3. CONSTRUCTION ADMINISTRATION. Development Manager shall at
Owner's sole cost and expense provide general administration and coordination of
the work of the Construction Manager or General Contractor and the other
contractors with each other and with the activities and responsibilities of
Development Manager and the architects and other consultants to complete the
Project.
3.4. INSURANCE. Development Manager shall investigate and make a
full written report of all accidents or claims for damage relating to the
ownership, operation and maintenance of the Project, including any damage or
destruction to the Project and the estimated cost of repair, and cooperate with
and make all reports required by any insurance company or insurance
adjuster/consultant. Development Manager will not vary or change any portion of
the insurance program maintained by Owner, but will review annually the
insurance program and make such recommendations to Owner as to changes as
Development Manager deems advisable or necessary.
3.5. PAYMENTS. Development Manager shall pay when due, at
Owner's expense from the Operating Account, all authorized expenses relating to
the development of the Project; provided, however, Development Manager shall
first obtain Owner's approval for any such expense or portion thereof which is
not provided for in the Annual Budget.
3.6. BOOKS AND RECORDS. Development Manager shall maintain
current, complete and accurate books, records and accounts of all costs and
expenses incurred and all income and receipts received in connection with the
Project. All such books and records of Development Manager which relate to the
Project shall be maintained at the office of Development Manager. Development
Manager shall deliver to Owner copies of all such financial statements, as well
as all federal, municipal and state tax returns. Development Manager will be
entitled to retain such copies of the books and records as Development Manager
deems appropriate. Owner or any of its authorized representatives shall have
access to such books, records and returns at all reasonable times during normal
business hours and shall be entitled to audit, at Owner's own expense, such
books, records and returns by an accounting firm of its choosing at any time and
from time to time.
3.7. OPERATING ACCOUNTS. Development Manager shall establish and
maintain, with funds provided by Owner in accordance with the Annual Budget, one
or more commercial accounts (collectively, the "OPERATING ACCOUNT"), in
Development Manager's name at such bank as Development Manager may select with
Owner's approval, and maintain
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in such account(s) sufficient working capital to fund the expenses of the
Project as they are incurred. Development Manager shall endeavor to cause the
Operating Accounts to be interest bearing accounts. Development Manager is
authorized, as agent of Owner, to draw on the Operating Account, as contemplated
by and in the amounts provided for in the Annual Budget (i) amounts necessary to
pay expenses incurred in connection with the development and construction of the
Project, (ii) amounts due and payable by Owner under any deed of trust, mortgage
or other security interests affecting the Project which secure a construction
loan and (iii) insurance premiums. Notwithstanding any other provision of this
Agreement, Development Manager is required to perform its duties to advance
monies to third parties and to itself only to the extent that funds are
allocated in the applicable Annual Budget and available to Development Manager
in the Operating Account, and in no event shall Development Manager be required
to use its own funds for such purposes. If and to the extent Development
Manager does use its own funds, Development Manager is entitled, upon notice to
Owner, to reimburse itself out of the Operating Account or, if sufficient funds
are not available in the Operating Account, Development Manager is entitled to
immediate reimbursement from Owner. Funds in the Operating Account will not be
commingled with other funds of Development Manager.
3.8. RESTRICTIONS ON DEVELOPMENT MANAGER. Notwithstanding
anything to the contrary contained herein, Development Manager shall not be
authorized to bind Owner or the Project to any contract, agreement or obligation
to expend sums or provide services unless (x) such contract, agreement or
obligation is consistent with, and contemplated by, the applicable Annual Budget
and/or Development Plan and in compliance with the terms and conditions of the
other Project Documents or (y) Owner has given written consent thereto.
Notwithstanding anything herein to the contrary, without the prior written
consent of Owner, Development Manager shall not have the authority to, and shall
not (i) enter into any agreement to sell, transfer, finance, pledge or
hypothecate the Project or any interest in the Project; (ii) incur any costs on
behalf of Owner or the Project, except in accordance with the applicable Annual
Budget approved by Owner; (iii) enter into any agreement modifying or waiving
any material term of any contract or agreement affecting the Project or, to
Development Manager's knowledge, the Owner; (iv) exercise any right to
accelerate the maturity of any mortgage loan or other indebtedness affecting
Owner or the Project; or (v) act on behalf of, or hold itself out as having the
authority to act on behalf of, Owner in any manner not expressly granted in this
Agreement or otherwise approved by Owner.
3.9. DUE DILIGENCE; FURTHER ASSURANCES. Development Manager
shall undertake and perform the duties and services required to be performed by
Development Manager under this Agreement in a commercially reasonable manner
consistent with and equivalent to professional developers of first class mixed
use retail/office buildings in Boston, Massachusetts (but only to the extent
consistent with the Annual Budget and the Development Plan).
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ARTICLE 4
RESPONSIBILITIES OF OWNER
4.1. PROJECT REPRESENTATIVE. Owner shall designate one or more
Project representatives who shall have the sole responsibility of representing
Owner during the term of this Agreement. Development Manager shall communicate
with and through such representatives on all matters relating to Development
Manager's performance under this Agreement and shall have the right to rely on
the representatives as being duly authorized to act for Owner on all matters
hereunder. The initial Project representatives of Owner shall be E. Peter
Krulewith and David Hamamoto. The Project representative may be changed by
Owner at any time and from time to time during the term of this Agreement by
delivery of notice to Development Manager.
4.2. COSTS AND EXPENSES. Owner will be responsible for the
payment of all costs of developing the Project as provided for in the Annual
Budget, and shall provide Development Manager with all of the funds necessary to
enable Development Manager to perform all of its obligations hereunder,
consistent with the Budget then in effect. Owner and Development Manager shall
develop a procedure to ensure that adequate funds are deposited in the Operating
Account in a timely fashion to pay costs related to the Project. In the event,
however, that sufficient funds are not available to pay such costs, Development
Manager will promptly notify Owner of the amount of the deficiency and Owner
will advance funds to Development Manager to pay such deficiency, or otherwise
instruct Development Manager as to the application of existing funds.
4.3. REPORTING. Owner shall keep Development Manager continually
advised of all matters and send copies of all bills, information and other data
relating to the Project or which may relate to or affect the ability of
Development Manager responsibly to carry out its obligations hereunder.
4.4. COOPERATION. Owner shall cooperate with the Development
Manager if requested by Development Manager, to develop and maintain liaison
with private and public entities which may have an interest in the Project and
those having approval or regulatory authority or funding capabilities regarding
the Project.
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ARTICLE 5
COMPENSATION OF DEVELOPMENT MANAGER
5.1. MANAGEMENT FEE. Development Manager and Owner agree that
Development Manager's sole compensation hereunder shall consist of (i) the
Pre-Development Fee during the Pre-Development Period (as provided for in
Section 5.2 below) and (ii) the Development Fee during the Development Period
(as provided for in Section 5.3 below). Development Manager acknowledges and
agrees that the Pre-Development Fee and the Development Fee constitute
reasonable and adequate compensation for performance of its duties hereunder and
reimbursement of its expenses hereunder, and that it shall not be entitled to
any other fees or compensation of any kind.
5.2. PRE-DEVELOPMENT FEE. Development Manager shall be entitled
to receive a fee during the period commencing on the date hereof and ending on
the date that construction of the Tower Project commences (such period, the
"PRE-DEVELOPMENT PERIOD"), in the amount equal to $275,000 per annum, which
amount shall be payable monthly (the "PRE-DEVELOPMENT FEE").
5.3. CONSTRUCTION MANAGEMENT FEE. Development Manager shall be
entitled to receive a fee (the "DEVELOPMENT FEE") during the period commencing
on the date construction of the Tower Project is commenced and ending on the
date on which construction of the Tower Project is substantially complete (such
period, the "DEVELOPMENT PERIOD") equal to three (3%) percent of the hard costs
incurred to date of constructing the Project, which amount shall be paid
monthly.
ARTICLE 6
TERM; TERMINATION
6.1. TERM. The term of this Agreement shall commence as of the
date hereof and shall continue until the earliest to occur of (i) the completion
of construction of the Project, (ii) the date of termination of the partnership
agreement among the partners of Owner (iii) the date Owner shall notify
Development Manager that it will not proceed with the Project, and (iv) the date
this Agreement is otherwise terminated pursuant to this Section 6.2.
6.2. TERMINATION BY OWNER. (a) Owner shall have the right to
terminate this Agreement at any time upon thirty (30) days' notice to
Development Manager for any reason whatsoever, or for no reason at all;
provided, however, this Agreement shall immediately terminate, if any of the
following events shall occur:
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(i) If Development Manager shall commit gross negligence or
willful malfeasance in the performance (or non-performance) of its
obligations hereunder that has a materially injurious or a materially
adverse effect upon Owner or upon the Project;
(ii) If Development Manager shall make an assignment for the
benefit of creditors, or file, or consent to, any petition in bankruptcy or
for reorganization under any bankruptcy or insolvency law, or for a
receiver or trustee for a substantial portion of its property, or to effect
a composition or extension of time to pay its debts, or for any alteration
or adjustment of a substantial part of its indebtedness; or if Development
Manager shall commence proceedings for or take any corporate action
authorizing or providing for its dissolution or liquidation; or if a
receiver or trustee shall be appointed for a substantial part of the
property of Development Manager and such appointment shall not be vacated
in ninety days; or if a petition in bankruptcy or insolvency or for
reorganization or liquidation of Development Manager or for alteration or
adjustment of a substantial part of the indebtedness of Development Manager
shall be filed against Development Manager under any bankruptcy, insolvency
or other law relating to debtors or to alteration or adjustment of
indebtedness, or if a petition, complaint or action shall be filed against
Development Manager seeking its liquidation, and any such petition,
complaint or action shall not be dismissed within ninety (90) days after
filing;
(iii) If Development Manager shall materially breach its
obligations under this Agreement, which breach is not cured within thirty
(30) days after notice from Owner, as such date may be extended, provided
Development Manager has commenced, and is diligently prosecuting to
completion, the cure of such breach;
(iv) If Development Manager or any officer, member or manager
therein shall be convicted of a felony which adversely affects the
reputation or image of the Project, or impedes Development Manager's
ability to perform its obligations hereunder;
(v) If Owner shall sell or otherwise transfer the Project.
(b) NorthStar Washington Street LLC shall have the right to
terminate this Agreement at any time, on behalf of Owner, if any of the
following events shall occur.
(i) If E. Peter Krulewitch ("PK") shall cease to, at all times,
direct, control and supervise Development Manager or shall die or become
bankrupt, insolvent, legally incompetent or permanently disabled for a
period of either ninety (90) consecutive days or 120 days in any 180 day
period or shall transfer his interest in Development Manager in violation
of Section 8.1 herein;
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(ii) The sale or disposition by PK of his interest in Kingston
Washington Associates Limited Partnership ("KWA") or the permitted
transferee of KWA's interest in Owner (the "PK PARTNER") the sale or
disposition by such PK Partner of its interest in Owner (pursuant to the
buy/sell provision of the Partnership Agreement or otherwise) or the
Project;
(iii) The removal of the PK Partner as general partner of Owner;
or
(iv) The occurrence of a default beyond applicable notice and
cure periods by (x) the PK Partner under the Partnership Agreement or (y)
the Manager under the Management Agreement.
(v) If the Tower Project is not commenced by December 31,1999.
Upon a discharge of Development Manager pursuant to this Section 6.2,
Development Manager shall not be entitled to receive any amounts in respect of
the Pre-Development Fee or Development Fee accruing subsequent to the date of
the event giving rise to such termination. If Development Manager is terminated
or discharged, Owner agrees to continue to employ Development Manager's
Employees at their current compensation rate for a period of thirty days from
the date of notice of such termination or discharge or for such longer term as
may be provided in any contract or employment agreement previously approved in
writing by Owner.
6.3. EVENTS FOLLOWING TERMINATION. Upon any termination of this
Agreement by either party hereto pursuant to this Article 6, Owner shall pay to
Development Manager all fees, disbursements and expenses incurred by Development
Manager which have accrued to the date of termination of this Agreement and such
termination shall not affect the continuing obligations (such as indemnity) of
the parties hereunder.
6.4. FINAL REPORTS, ACCOUNTS AND RECORDS. Within forty-five (45)
days after the termination of this Agreement by either party, Development
Manager shall furnish to Owner such statements, accounts and reports as are
required hereunder for the period commencing from the date of the last
statements, accounts or reports provided to Owner for tax, administration,
diligence or any other purpose or purposes to the date of termination. In
addition, Development Manager shall deliver to Owner all books, records and
other materials in Development Manager's possession related to the Project and
Development Manager shall cooperate in the transition. The provisions of this
Section 6.4 shall survive the expiration or sooner termination of this
Agreement.
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ARTICLE 7
CONSENT AND APPROVAL
7.1. CONSENT AND APPROVAL. No consent of Owner shall be
effective unless given by both general partners of Owner (the "GENERAL
PARTNERS"). In any instance under this Agreement in which the consent or
approval of Owner is required, Development Manager shall request the written
consent or approval of the General Partners by submitting the matter in writing
to the General Partners, together with all relevant information relating thereto
and any documents that will be required to be executed by Owner in connection
therewith. A General Partner may, in its discretion, withhold, condition or
delay any such consent or approval. If one or both General Partners shall
refuse to grant any requested consent or approval, then such General Partners
shall so notify Development Manager and any such notice of refusal shall
describe in detail the items to which such Managing Member objects and shall
specify the reasons for such objections. Development Manager shall consult with
such General Partner and shall endeavor to make such modifications as shall be
appropriate to remedy any such objections and shall resubmit the matter, as so
modified, to such General Partner for consent or approval in the manner
prescribed herein. Subsequent to a General Partner's consent or approval of any
matter, no material change shall be made with respect to the matter consented to
without submitting the matter to the General Partners for consent or approval.
As used herein, the term "MATERIAL CHANGE" shall mean any change which (i) is
reasonably likely to cost in excess of $50,000, (ii) has, will have, or is
likely to have, an injurious or adverse effect upon the Project or Owner or
(iii) will, or is likely to, result in violation of any law, rule or regulation
applicable to Owner or the Project.
ARTICLE 8
REPRESENTATIONS
8.1 DEVELOPMENT MANAGER REPRESENTATIONS. Development Manager
represents and warrants that P.K. is and shall remain throughout the term of
this Agreement, (i) the holder of 100% of the beneficial interests in
Development Manager and (ii) in control of Development Manager.
Notwithstanding the foregoing, and provided PK continues to control Development
Manager, PK may transfer interests in Development Manager to members of his
immediate family and entities and/or trusts comprised of or for the benefit of
such family members. For the purposes of this Agreement, control shall mean the
ownership of at least 51% of Development Manager and the ability to direct the
management and affairs of Development Manager.
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ARTICLE 9
NOTICES
9.1. NOTICES. Any notices or offer required or desired to be
given pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given if delivered or mailed by registered or certified mail, postage
prepared and return receipt requested, to the parties at the addresses set forth
at the beginning of this Agreement with a copy to (i) Battle Fowler LLP, 75 East
55th Street, New York, New York 10022, Attention: Robert J. Wertheimer, Esq., in
the case of Owner; and (ii) Richards & O'Neil, LLP, 885 Third Avenue, New York,
New York 10022, Attention: Robert Safron in the case of Owner and Development
Manager, or to such other address as any party may have furnished to the other
in writing in accordance herewith. All notices and offers shall be deemed
received on the date of delivery or, if mailed, on the date appearing on the
return receipt.
ARTICLE 10
INSURANCE
10.1. INSURANCE.(a) Development Manager shall be responsible for
maintaining the following insurance for itself and Owner at the sole cost and
expense of Owner.
(i) liability insurance, including a contractual liability
endorsement, in respect of the Project and the conduct or operation of business
therein and thereon, with limits of not less than $10,000,000 combined single
limit for bodily injury and property damage liability in any one occurrence;
(ii) employers liability and workers compensation insurance;
(iii) "Builder's Risk" and property insurance coverage in
form acceptable to Owner for the full cost of replacement of the entire Project
as of the time of any loss. This insurance shall include as named insured
Owner, Development Manager and contractors and subcontractors and shall insure
against loss from the perils of Fire, Extended Coverage and other casualty, and
shall include "All Risk" insurance for physical loss or damage including,
without duplication of coverage, theft, vandalism, malicious mischief, transit,
collapse, flood, earthquake testing, and damage resulting from defective design,
workmanship or material. Owner may, from time to time, direct Development
Manager to increase the limits of coverage, if necessary, to reflect estimated
replacement cost. Owner will be responsible for any co-insurance penalties or
deductibles; and
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(iv) such other insurance, with limits and coverage as Owner or
any lender to the Project may deem necessary or desirable from time to time.
(b) Property Insurance Loss Adjustment. Any insured loss shall
be adjusted by Development Manager, for itself and as agent for Owner, and any
proceeds shall be made payable to Owner.
10.2. WAIVER OF SUBROGATION. (a) Owner and Development Manager
waive all rights against each other, the project architect, and all contractors
and subcontractors for damages caused by perils covered by insurance, except
such rights as they may have to the proceeds of such insurance held by Owner as
trustee. Development Manager shall require similar waivers from the project
architect, and all contractors and subcontractors.
(b) Owner and Development Manager waive all rights against each
other and the project architect, the contractors and subcontractors for loss or
damages to any equipment used in connection with construction of Owner's
improvements and covered by any property insurance. Development Manager shall
require similar waivers from the project architect, and all contractors and
subcontractors.
(c) Development Manager shall use commercially reasonable efforts
to cause the project architect and the contractors and subcontractors performing
work on the project to agree to indemnify Owner and Development Manager and hold
them harmless from all claims of personal injury or property damage.
(d) If the policies of insurance referred to in this Section 10
require an endorsement to provide for continued coverage where there is a waiver
of subrogation, the owners of such policies will cause them to be so endorsed.
ARTICLE 11
INDEMNIFICATION PROVISIONS; EXCULPATION
11.1. OWNER'S INDEMNITY. OWNER WILL DEFEND, INDEMNIFY AND HOLD
HARMLESS DEVELOPMENT MANAGER, ITS AFFILIATES AND THEIR RESPECTIVE PARTNERS,
SHAREHOLDERS, DIRECTORS, OFFICERS, MEMBERS, EMPLOYEES AND AGENTS ("DEVELOPMENT
MANAGER INDEMNITIEES") ("DEVELOPMENT MANAGER INDEMNIFIED") FROM AND AGAINST ALL
LOSS, DAMAGE, CHARGES, LIABILITIES (DIRECT OR INDIRECT), CLAIMS, EXPENSES AND
SUITS OR OTHER CAUSES OF ACTION OF ANY NATURE WHATSOEVER (HEREINAFTER
COLLECTIVELY REFERRED TO IN THIS ARTICLE 10 AS "CLAIMS") ARISING FROM OR IN ANY
WAY CONNECTED WITH (A) THE PROPERTY OR THE PERFORMANCE OF DEVELOPMENT MANAGERS'S
OBLIGATIONS UNDER AND IN
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ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, (B) ANY OTHER ACTS PERFORMED BY
DEVELOPMENT MANAGER AT THE DIRECTION OF OWNER, (C) THE BREACH OF ANY MATERIAL
PROVISION OF THIS AGREEMENT BY OWNER, AND (D) OWNER'S FAILURE (OTHER THAN BY
REASON OF DEVELOPMENT MANAGER'S DEFAULT UNDER THIS AGREEMENT) OR REFUSAL TO
COMPLY WITH OR ABIDE BY ANY LEGAL REQUIREMENTS, UNLESS, FOLLOWING A FINAL
ADJUDICATION ON THE MERITS BY A COURT OF COMPETENT JURISDICTION, IT IS
DETERMINED THAT THE CLAIM WAS ATTRIBUTABLE TO ONE OF THE INDEMNIFIED OWNER
MATTERS DESCRIBED BELOW.
11.2 DEVELOPMENT MANAGER'S INDEMNITY. DEVELOPMENT MANAGER AGREES
TO INDEMNIFY, DEFEND AND HOLD HARMLESS OWNER, OWNER'S OFFICERS, DIRECTORS,
MEMBERS, EMPLOYEES, SERVANTS, ATTORNEYS, NOMINEES, SUBSIDIARIES, AFFILIATES,
AGENTS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, "OWNER INDEMNITEES") FROM AND
AGAINST ANY AND ALL CLAIMS DUE TO DEVELOPMENT MANAGER'S OR DEVELOPMENT MANAGER'S
EMPLOYEES' OR AGENTS' WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OR DEVELOPMENT
MANAGER'S BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT ("INDEMNIFIED OWNER
MATTERS"). DEVELOPMENT MANAGER AGREES TO REIMBURSE OWNER INDEMNITEES FOR AND
INDEMNIFY OWNER INDEMNITEES AGAINST THE PAYMENT OF ANY MONIES WHICH OWNER
INDEMNITEES ARE REQUIRED TO PAY OUT IN CONNECTION WITH OR AS AN EXPENSE
(INCLUDING REASONABLE ATTORNEYS' FEES) IN DEFENSE OF ANY CLAIM, CIVIL OR
CRIMINAL ACTION, PROCEEDING, CHARGE OR PROSECUTION MADE, INSTITUTED OR
MAINTAINED AGAINST DEVELOPMENT MANAGER, OWNER INDEMNITEES, OR OWNER INDEMNITEES
AND DEVELOPMENT MANAGER JOINTLY AND/OR SEVERALLY, DETERMINED BY A COURT OF
COMPETENT JURISDICTION TO HAVE BEEN DUE TO, CAUSED BY, OR ARISING OUT OF THE
INDEMNIFIED OWNER MATTERS.
11.3. INDEMNITY PROCEDURES. (a) If any claim is asserted, or any
action, suit or other proceeding is instituted (each, an "ACTION"), by a third
party against any Owner Indemnitee or Development Manager Indemnitee (each, an
"INDEMNIFIED PARTY"), with respect to any occurrence as to which the other party
(each, an "INDEMNIFYING PARTY") shall have any indemnity obligation under this
Agreement, such Indemnified Party shall timely commence and diligently continue
such defense, settlement or comprise of any such Action at Indemnifying Party's
sole expense. The Indemnifying Party shall have the right to select counsel for
such defense, subject to Indemnified Party's prior written approval, which
approval shall not be unreasonably withheld or delayed. The Indemnifying Party
shall have the right to settle or compromise any such Action without the prior
written consent of Indemnified Party shall satisfy and discharge any and all
liability of the Indemnified Party resulting therefrom or shall post security
reasonably satisfactory to the Indemnified Party to assure the ultimate
satisfaction and discharge of such liability. Except as provided in the
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preceding sentence, the Indemnifying Party shall not settle or compromise any
Action without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld or delayed. Should any such Action result in
a final and unappealable judgment, the Indemnifying Party's prior written
approval shall be required for any such settlement or compromise, which approval
shall not be unreasonably withheld or delayed. Should any such Action result in
a final and unappealable judgment, the Indemnifying Party shall promptly pay the
same. The Indemnified Party agrees to cooperate with the Indemnifying Party to
the extent the Indemnifying Party may reasonably request such cooperation but
at the sole expense of the Indemnifying Party. The Indemnifying Party shall
succeed to and have the benefit of all the defenses, claims and other rights of
each Indemnified party relating to or affecting any obligation or liability of
the Indemnifying Party under this indemnity, and each Indemnified Party agrees
to fully disclose any and all such defenses, claims and other rights to the
Indemnified Party and promptly execute any documents and take any other actions
(at the sole expense of the Indemnifying Party) necessary or desirable to
further assure unto the Indemnifying Party the right to benefit from such
defenses, claims or other rights. Indemnified Party shall have the right (but
shall not have the obligation) at any time and at its own cost and expense, upon
notice to the Indemnifying Party and failure of the Indemnifying Party to act,
to participate in the defense of any such Action, and to be represented by
counsel of its choice (provided, however, that the Indemnifying Party shall not
be liable under this subsection for any fees and expenses of the Indemnified
Party's counsel, unless a conflict of interest exists between or among
Indemnified Parties or between or among the Indemnifying Party or one or more of
the Indemnified Parties and to assert in any such Action any counterclaims or
cross claims the Indemnified Party may have.
(b) In the event the Indemnifying Party fails or refuses to timely
commence the defense, settlement or compromise of any such Action, the
Indemnified Party shall have the right (but shall not have the obligation),
after notice to the Indemnifying Party, to act, defend, settle, compromise or
take such other actions as the Indemnified Party shall deem necessary in
connection with any such Action. In the event it is determined that the
Indemnified Party was entitled to be indemnified under this Article by the
Indemnifying Party, the Indemnifying Party shall pay the Indemnified Party for
the entire cost of the Action including, defense, settlement, compromise or
other such actions taken by the Indemnified Party in connection therewith,
including reasonable attorneys' fees and disbursements and experts' fees and
expenses (including those incurred in connection with appellate proceedings).
Notwithstanding the foregoing, if any third party to such Action shall take any
action to create or impose any lien or encumbrance on any of the assets of the
Indemnified Party with respect to such Action or if any judgment shall be
entered which would result in the Indemnified Party being obligated to pay the
same, then the Indemnifying Party shall provide such bond, deposit or take such
other action as shall be required to prevent the creation or imposition of any
such lien, and to stay the execution of such judgment pending any appeal or
other proceeding prior to final entry thereof. The Indemnifying Party shall
have the right to settle or compromise any such Action without the prior written
consent of Indemnified Party shall satisfy and discharge any and all liability
of the Indemnified Party resulting therefrom or shall post security
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reasonably satisfactory to the Indemnified Party to assure the ultimate
satisfaction and discharge of such liability. Except as provided in the
preceding sentence, the Indemnifying Party shall not settle or compromise any
Action without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld or delayed. The failure or delay of the
Indemnified Party to promptly notify the Indemnifying Party of the institution
of any Action, shall not release or otherwise limit the indemnification
obligation of the Indemnifying Party under this Agreement, except to the extent
that the Indemnified Party shall be prejudiced by the failure or delay of the
Indemnified Party to give the Indemnifying Party notice of such Action.
11.4. RECOVERY OF LITIGATION COSTS. In the event any dispute
between the parties to this Agreement results in litigation, arbitration or
other proceeding, the court, arbitrator or mediator, as the case may be, shall
be requested to award to the prevailing party all reasonable costs and expenses,
including without limitation reasonable attorneys' fees and disbursements,
incurred by the prevailing party in connection with such litigation or other
proceeding and any appeal thereof. Such costs, expenses, fees and disbursements
shall be included and made a part of the judgment recovered by the prevailing
party, if any.
11.5. EXCULPATION OF OWNER AND MANAGER. (i) No direct or
indirect partner, shareholder or member in or of Owner (and no officer,
director, member, employee or agent of such partner or shareholder) will be
personally liable for the performance of Owner's obligations under this
Agreement. The liability of Owner for Owner's obligations under this Agreement
will be limited to Owner's interest in the Property and other assets and the
proceeds thereof. Nothing in this Section 11.4 will affect the rights of
Development Manager to seek appropriate relief against any Person to the extent
that such Person misappropriates funds of Development Manager or commits fraud
against Development Manager.
(ii) No direct or indirect partner, shareholder or member in or
of Development Manager (and no officer, director, member, employee or agent of
such partner or shareholder) will be personally liable for the performance of
Development Manager's obligations under this Agreement. The liability of
Development Manager for Development Manager's obligations under this Agreement
will be limited to its partnership assets. A negative capital account of any
partner will not be considered to be a partnership asset. Nothing in this
Section 11.4 will affect the rights of Owner to seek appropriate relief against
any person to the extent that such person misappropriates funds of Owner or
commits fraud against Owner.
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ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1. ENTIRE AGREEMENT. This Agreement embodies and constitutes
the entire understanding among the parties with respect to the matters contained
herein, and all prior or contemporaneous agreements, understandings,
representations and statements, oral or written, are merged into this Agreement.
No waiver or modification of any provision of this Agreement shall be valid
unless in writing and signed by the party to be charged, and then only to the
extent therein set forth.
12.2. CAPTIONS. The captions in this Agreement are intended only
for convenience of reference, do not constitute a part of this Agreement and
shall not be construed to define, interpret, describe or limit the scope or
intent of any provision of this Agreement.
12.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which will
constitute one and the same instrument.
12.4. BENEFITS AND OBLIGATIONS. Except as otherwise provided in
this Agreement, this Agreement shall be binding upon and shall inure to the
benefit of the respective successors and permitted assigns of the parties
hereto. Owner shall have the right to assign its interests in this Agreement to
any successor-in-interest of Owner's rights in, to or under the Project.
12.5. PROHIBITION ON ASSIGNMENT BY DEVELOPMENT MANAGER. The
rights, duties and performance of Development Manager hereunder are personal in
nature and may not be assigned or transferred to any other party.
12.6. NO WAIVER. No assent, express or implied, by either party
to any breach of or default in any term, covenant or condition contained herein
on the part of the other to be performed or observed shall constitute a waiver
of or assent to any succeeding breach of or default in the same or any other
term, covenant or condition hereof.
12.7. OTHER ACTIVITIES. Commencing from and after the date hereof
until the expiration or sooner termination of this Agreement pursuant to its
terms, Development Manager shall not (i) directly or indirectly engage any other
party to perform any of the duties and responsibilities of Development Manager
hereunder, except as provided herein, or (ii) perform any other activity which
would interfere with the ability of Development Manager to perform its duties
and responsibilities under this Agreement.
12.8. INVALIDITY OF PROVISIONS. In the event that any one or more
of the phrases, sentences, clauses or paragraphs contained in this Agreement
shall be declared invalid
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by the final and unappealable order, decree or judgment of any court, this
Agreement shall be construed as if it did not contain such phrases, sentences,
clauses or paragraphs.
12.9. RIGHTS OF OTHERS. Nothing in this Agreement, express or
implied, is intended to confer upon any person other than the parties hereto,
and their permitted successors and assigns, any rights or remedies under or by
reason of this Agreement.
12.10. FURTHER ASSURANCES. Each party agrees to execute and
deliver any and all additional instruments and documents and do any and all acts
and things as may be necessary or expedient to more fully effectuate this
Agreement and carry on the business contemplated herein.
12.11. AFFILIATE TRANSACTIONS. In the performance of its duties
hereunder, Development Manager may retain, employ or contract with on behalf of
Owner any affiliate, subsidiary or other related person or entity for the
furnishing of materials or services in connection with the Project; provided,
however, that the terms of any such agreement must be (i) approved in advance by
Owner or (ii) at least as favorable to Owner as would be obtainable by
Development Manager in a comparable arm's-length transaction with a person or
entity other than Development Manager's affiliate, subsidiary or other related
person or entity.
12.12. INDEPENDENT CONTRACTOR. Development Manager's performance
of its duties hereunder is as an independent contractor on behalf and for the
account of Owner. Under no circumstances will Development Manager be deemed to
be a partner or a joint venturer with Owner, nor will Development Manager have
any obligation or liability, in tort or in contract, with respect to the
Project, either by virtue of this Agreement or otherwise; and Development
Manager will have no authority to bind Owner other than as set forth in this
Agreement.
12.13. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. This
Agreement and the rights of the parties hereunder will be governed by, and
interpreted in accordance with, the laws of the State of New York and any
applicable laws of the United States of America. Any legal action or proceeding
with respect to this Agreement shall be brought in New York County, New York, in
the courts of the State of New York or of the United States for the District of
New York, and by execution and delivery of this Agreement, the parties hereby
irrevocably accept for themselves and in respect of their property, generally
and unconditionally, the jurisdiction of the aforesaid courts. The parties
hereby irrevocably waive any objection which they may now or hereafter have to
the laying of venue of any action or proceeding arising out of or in connection
with this Agreement brought in the aforesaid courts and hereby further
irrevocably waive and agree not to plead or claim that any such action or
proceeding has been brought in an inconvenient forum.
12.14. SURVIVAL OF OBLIGATION. All of the obligations,
representations, warranties and covenants made in this Agreement shall be deemed
to have been relied upon by
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the party to which it was made and to be material and shall survive the
execution and performance of any agreements related hereto to the extent that
they are by their terms, or by a reasonable interpretation of the context, to be
performed or observed after the performance of any such agreements.
12.15. SUPPLEMENTAL DOCUMENTS. Recognizing that the implementation
of the provisions hereof with respect to various actions of the parties hereto
may require the execution of supplemental documents the precise nature of which
cannot now be anticipated, each of the parties agrees to execute and deliver
such other and further documents as may be reasonably required by the other
party hereto so long as such other and further documents are consistent with the
terms and provisions hereof, shall not impose additional obligations on any
party, shall not deprive any party of the privileges herein granted to it and
shall be in furtherance of the intent and purposes of this Agreement.
12.16. SUPERSEDING EFFECT. Subject to the terms of the Partnership
Agreement of Owner and the documents executed in connection therewith, this
Agreement replaces and supersedes in its entirety any prior agreement between
the parties with regard to the subject matter thereof.
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IN WITNESS WHEREOF, the parties hereto have hereby duly executed
and delivered this Agreement as of the date first above written.
DEVELOPMENT MANAGER
Kingston Construction Company, LLC
By: /s/ E. Peter Krulewitch
-------------------------------
Name: E. Peter Krulewitch
Title: Member
OWNER
Frank-King Associates Limited Partnership
By: Kingston Washington Associates Limited
Partnership
By: /s/ E. Peter Krulewitch
--------------------------------
Name: E. Peter Krulewitch
Title: General Partner
By: NorthStar Washington Street LLC
By: /s/ Peter Ahl
--------------------------------
Name: Peter Ahl
Title: authorized person
<PAGE>
EXHIBIT A
Additional
DEVELOPMENT SERVICES
1. Design; Feasibility: Act as Owner's representative in all design matters.
Provide recommendations on relative construction feasibility, availability of
materials and labor, time requirements for installation and construction, and
factors related to costs including costs of alternative designs or materials,
preliminary budgets, and possible economies.
2. Development Plan: Develop in collaboration with the Project Architect the
Development Plan for the Site and develop changes in the Development Plan as
required from time to time.
3. Scheduling: Provide and periodically update a Project time schedule that
coordinates and integrates the Project Architect's services with construction
schedules.
4. Employment: Select, employ and negotiate the terms and conditions of
employment of all parties employed in the development of the Project.
5. Coordination: Coordinate, supervise and otherwise take action to promote
the integrated functioning of all parties who participate in all activities
associated in any way with the carrying out the development of the Project.
6. Contracts: Negotiate with all outside parties who are in any way related
or concerned directly or indirectly with the Project.
7. Governmental Approvals: Act as Owner's representative in all meetings with
public agencies and in negotiating all contracts with any agency, the
Commonwealth of Massachusetts or any political or quasi-political subdivision
thereof, subject to Owner's approval.
8. Project Budget: Prepare an Annual Budget for Owner's approval as soon as
major Project requirements have been identified and update periodically. Prepare
an estimate of construction cost based on a quantity survey of drawings and
specifications at the end of the schematic design phase for approval by Owner.
Update and refine this estimate for Owner's approval as the development of the
drawings and specifications proceeds, and advise Owner and the Project Architect
if it appears that the Annual Budget will not be met and make recommendations
for corrective action.
[9. Coordination of construction documents:
a. Advise on the method to be used for selecting contractors and
awarding contracts.]
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b. Investigate and recommend a schedule for purchase by Owner of all
materials and equipment requiring long lead time procurement, and
coordinate the schedule with the early preparation of construction
documents by the Project Architect. Expedite and coordinate
delivery of these purchases.
10. Labor: Provide an analysis of the types and quantity of labor required for
the Project and review the availability of appropriate categories of labor
required for critical phases.
a. Determine applicable requirements for any equal employment
opportunity programs to be included in the proposed construction
documents.
[11. Bidding: If the Project is to be bid, establish bidding schedules and
conduct pre-bid conferences to familiarize bidders with the bidding documents
and management techniques and with any special systems, materials or methods.]
a. Receive bids and prepare bid analysis.
[12. Contract Awards: Conduct pre-award conferences with successful bidders.
Prepare construction contracts.]
[13. Project Control: Act on behalf of Owner for all construction matters.
Provide sufficient personnel at the Project site with authority to achieve these
objectives.
a. Schedule and conduct pre-construction and progress meetings at
which Project Development Manager, Project Architect and
Development Manager can discuss jointly such matters as procedures,
progress, problems and scheduling.
b. Provide a detailed schedule for the operations on the Project,
including realistic activity sequences and durations, allocation of
labor and materials, processing of shop drawings and samples, and
delivery of products requiring long lead time procurement; include
Owner's occupancy requirements showing portions of the Project
having occupancy priority.
c. Provide regular monitoring of the schedule as construction
progresses. Identify potential variances between scheduled and
probable completion dates. Review schedule for work not started or
incomplete and recommend to Owner adjustments in the schedule to
meet the probable completion date. Provide summary reports of each
monitoring, and document changes in schedule.
d. Recommend courses of action to Owner when requirements of a
contract are not being fulfilled.
Cost estimates prepared by the Development Manager represent his best judgment
as a professional familiar with the construction industry. It is recognized,
however, that the
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Development Manager has no control over, or makes any warranty hereunder as to,
the cost of labor, materials or equipment, over contractors' methods of
determining bid prices, or other competitive bidding or market conditions.]
14. Permits and Fees: Supervise the obtaining of all building permits and
special permits for permanent improvements and in securing approvals from all
authorities having jurisdiction.
15. Owner's Consultants: Select and retain professional services of a
surveyor, special consultants and testing laboratories as required for the
Project. Coordinate these services.
16. Contract Performance: Consult with the Project Architect if any contractor
requests interpretations of the meaning and intent of the drawings and
specifications, and assist in the resolution of any questions which may arise.
Submit, on behalf of Owner, any disputes to arbitration under the terms of the
construction documents.
[17. Shop Drawings and Samples: In collaboration with the Project Architect,
establish and implement procedures for expediting the processing and approval of
shop drawings and samples.]
18. Reports and Records: Record the progress of the Project. Submit written
progress reports to Owner, including information on the contractors and work,
the percentage of completion and the number and amounts of change orders.
a. Maintain at the Project site, on a current basis: records of all
contracts; shop drawings; samples; purchases; materials; equipment;
applicable handbooks; federal, commercial and technical standards
and specifications; maintenance and operating manuals and revisions
which arise out of the construction documents or the work. Obtain
data from contractors and maintain a current set of record
drawings, specifications and operating manuals. At the completion
of the Project, deliver all such records to Owner.
[19. Owner-Purchased Items: Accept delivery and arrange storage, protection and
security for all Owner-purchased materials, systems and equipment which are a
part of the Work until such items are turned over to the contractors.]
20. Substantial Completion: Upon Development Manager's determination of
substantial completion of the work or designated portions thereof, direct the
Project Architect's preparation of a list of incomplete or unsatisfactory items
and schedule for their completion. After the Project Architect certifies the
date of substantial completion, direct the Project Architect in the supervision
of the correction and completion of work.
21. Start-Up: With Owner's maintenance personnel, direct the checkout of
utilities, operations systems and equipment for readiness and assist in their
initial start-up and testing.
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22. Final Completion: Coordinate the Project Architect's determination of
final completion and provide written notice to Owner and Project Architect that
the work is ready for final inspection. Secure and transmit to the Project
Architect required guarantees, affidavits, releases, bonds and waivers. Turn
over to Owner all keys, manuals, record drawings and maintenance stocks.
Any and all additional development services which Development Manager is
required or permitted to provide under this Agreement may be delegated to others
under its supervision employed by Development Manager on behalf of Owner and at
Owner's sole cost and expense.
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EXHIBIT B
[Initial Budget]
30
<PAGE>
EXHIBIT 10.15
GUARANTY
THIS GUARANTY dated as of January 9, 1998 is made by NORTHSTAR
PARTNERSHIP, L.P., a partnership having an address at 527 Madison Avenue,
New York, New York ("NSP") and KINGSTON WASHINGTON ASSOCIATES LIMITED
PARTNERSHIP, a Massachusetts limited partnership having offices c/o Paul
McDonough, Esq., Goodwin, Proctor & Hoar, Exchange Place, Boston, Massachusetts
("Kingston"; NSP and Kingston each being a "Guarantor" and collectively,
"Guarantors") and THE CHASE MANHATTAN BANK, a New York banking corporation
("Lender").
BACKGROUND
A. Frank-King Associates Limited Partnership, a Massachusetts
limited partnership ("Borrower"), is the maker of that certain Note dated as of
January 15, 1985 issued to the order of Manufacturers Hanover Trust Company
("MHT", a predecessor in interest to Lender) in the principal amount of
$16,000,000, which Note was amended by Endorsement No. 1 to Note dated as of
November 27, 1989 to increase it to the principal amount of $17,100,000 and was
further amended by Endorsement No. 2 to Note dated as of August __, 1991 (as so
amended, the "Original Mortgage Note").
B. Borrower is also the maker of that certain Revolving Credit Note
dated August 4, 1989 to the order of MHT in the maximum principal amount of
$4,000,000 (the "Revolving Credit Note"; the Original Mortgage Note and the
Revolving Credit Note collectively, the "Original Notes").
C. The Original Notes were consolidated, extended, amended and
restated pursuant to that certain Note Consolidation, Extension, Amendment and
Restatement dated as of October 14, 1992 between Borrower and Lender, as further
amended by that certain Note Modification and Restatement Agreement dated as of
May 23, 1995, as further amended by that certain Note Modification and
Restatement Agreement dated as of July 28, 1996 and as further amended by that
certain Note Modification and Restatement Agreement dated as of November 25,
1996 between Borrower and Lender (the Original Notes, as consolidated, extended,
amended and restated, the "Note"). The Note evidences a loan to Borrower in the
original principal amount of $25,500,000 (the "Loan").
D. The Note is secured, inter alia, by that certain Mortgage dated
as of January 15, 1985, recorded in the Office of the Clerk of Suffolk County,
Registry of Deeds, in Book 11357, Page 6 as amended and restated by that certain
Amendment and Restatement of Mortgage, dated as of January 10, 1986 (the
"Amendment and Restatement of Mortgage"), recorded in the Office of the Clerk of
Suffolk County, Registry of Deeds, in Book 12340, Page 071, as further amended
by that certain Second Amendment to Mortgage
<PAGE>
2
dated as of November 27, 1989 (the "Second Amendment to Mortgage"), recorded in
the Office of the Clerk of Suffolk County, Registry of Deeds, in Book 16051,
Page 066 and as Instrument No. 294, as further amended by that certain Third
Amendment to Mortgage and Spreader Agreement, dated as of October 14, 1992 (the
"Third Amendment to Mortgage and Spreader Agreement"), recorded in the Office of
the Clerk of Suffolk County, Registry of Deeds, in Book 17779, Page 265, as
further amended by that certain Agreement of Extension and Modification of
Mortgage dated as of May 23, 1995 (the "1995 Mortgage Modification"), recorded
in the Office of the Clerk of Suffolk County, Registry of Deeds as Instrument
No. 498, as further amended by that certain Agreement of Extension and
Modification of Mortgage dated as of June 28, 1996 (the "June, 1996 Mortgage
Modification") recorded in the Office of the Clerk of Suffolk County, Registry
of Deeds as Instrument No. __ and as further amended by that certain
Modification of Mortgage dated as of November 25, 1996 (the "November, 1996
Mortgage Modification") between Mortgagor and Mortgagee and recorded in the
Office of the Clerk of Suffolk County, Registry of Deeds, in Book 21037, Page
243 (such mortgage, as amended and restated by the Amendment and Restatement of
Mortgage, the Second Amendment to Mortgage, the Third Amendment to Mortgage and
Spreader Agreement, the 1995 Mortgage Modification, the June, 1996 Mortgage
Modification and the November, 1996 Mortgage Modification, being hereinafter
defined as the "Mortgage").
E. In connection with the Note and the Mortgage, Kingston and
Odyssey Partners, L.P., a Delaware limited partnership ("Odyssey"; Odyssey and
Kingston each being an "Existing Guarantor" and collectively, "Existing
Guarantors") executed and delivered to Lender that certain Amended and Restated
Guaranty dated as of October 14, 1992 between Guarantors and Lender, as amended
and reaffirmed by that certain Amendment and Reaffirmation of Amended and
Restated Guaranty dated as of May 23, 1995, as amended and reaffirmed by that
Certain Amendment and Reaffirmation of Amended and Restated Guaranty dated as of
June 28, 1996 and as amended and reaffirmed by that certain Amendment and
Reaffirmation of Amended and Restated Guaranty dated as of November 25, 1996
(collectively, the "Existing Guaranty"), which Existing Guaranty consolidated,
amended and restated the following guarantees: (i) that Guaranty dated as of
January 15, 1985 made by Existing Guarantors, Harold A. Theran ("Theran") and
Austin L. Cable ("Cable") in favor of MHT as amended by (a) Amendment to
Guaranty dated December 30, 1986 and (b) Second Amendment to Guaranty dated as
of November 27, 1989 and (ii) that certain Guaranty of Specific Obligations and
Security Agreement dated August 4, 1989 made by Theran, Cable and Odyssey in
favor of MHT. Pursuant to the Existing Guaranty, Existing Guarantors guaranteed
payment of Borrower's obligations under the Note, the Mortgage and the other
loan documents delivered in connection therewith, subject to certain limitations
set forth in the Existing Guaranty.
F. It is a condition of Lender's agreement to release the Existing
Guaranty that Guarantors execute and deliver this Guaranty.
Guarantors, jointly and severally, agree as follows:
l. Guaranty. Each Guarantor, as a primary obligor and not merely as
a surety, unconditionally and irrevocably guarantees to Lender the prompt and
complete payment when
<PAGE>
3
due, subject to the limitations hereinafter set forth, (whether at the stated
maturity, by acceleration or otherwise) of (i) all principal and interest due
under the Note, (ii) all real estate taxes and insurance obligations of Borrower
arising under or in connection with the Mortgage, (iii) all costs and expenses
of Borrower arising under the Note and (iv) all legal fees, costs and expenses
payable by Borrower to Lender under the Note, the Mortgage or any other document
or instrument evidencing, securing or otherwise relating to the Loan (the Note,
the Mortgage and any other document or instrument evidencing, securing or
otherwise relating to the Loan being referred to collectively as the "Loan
Documents"), and each Guarantor further agrees to pay any and all expenses which
may be incurred by Lender in collecting any or all of the obligations of
Guarantor under this Guaranty and/or enforcing any rights under this Guaranty.
The obligations and liabilities of each Guarantor to Lender under (i) and (ii)
above are referred to collectively in this Guaranty as the "Guaranteed
Obligations". The obligations of Borrower to Lender under the Loan Documents are
referred to collectively in this Guaranty as the "Obligations".
As used herein, the term "interest" shall mean the obligation of
Borrower to pay interest as provided in the Note when such payment is due,
whether before or after maturity (including after acceleration) and both before
and after judgment. For purposes of this definition (i) in the event of any
case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of Borrower, interest shall be deemed to accrue at the rate
stated in the Note and shall be included in the Guaranteed Obligations hereunder
whether or not a claim for post-filing or post-petition interest would be
allowed in such case, proceeding or action and (ii) the term "interest" shall be
deemed to include any monthly interest payments due by Borrower to Lender under
the Note.
Notwithstanding anything herein contained to the contrary or the
aggregate amount of the Obligations at any time or from time to time payable or
to be payable by Borrower to Lender, the liability of Guarantors to Lender
hereunder for the principal amount of the Note (the "Principal Guaranty Amount")
shall not exceed $2,266,000 in the aggregate plus the expenses of collection and
enforcement mentioned in the immediately preceding paragraph. Guarantors agree
that the Obligations may at any time and from time to time exceed the amount of
the liability of Guarantors hereunder without impairing this Guaranty or
affecting the rights and remedies of Lender hereunder. Guarantors agree that
whenever at any time or from time to time it shall make any payment to Lender
hereunder on account of Guarantors' liability hereunder, they will notify
Lender in writing that such payment is made under this Guaranty for such
purpose. Except as provided above, no payment or payments made by Borrower or
any other person or received or collected by Lender from Borrower or any other
person by virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Guaranteed Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of Guarantors hereunder which shall,
notwithstanding any such payment or payments, remain liable in the amount above
stated for the Guaranteed Obligations until the earlier of (i) the date upon
which the Obligations of Borrower under the Loan Documents are paid in full
or
(ii) the date upon which the Guaranteed Obligations under this Guaranty are paid
in full.
<PAGE>
4
2. Right of Set-Off. NSP irrevocably authorizes Lender upon the
occurrence of an Event of Default (as defined in the Mortgage), without notice
to NSP, to set off and apply any and all deposits and any other credits or
claims held or owing by Lender to or for the credit or the account of NSP, or
any part thereof in such amounts as Lender may elect, against and on account of
the obligations and liabilities of NSP to Lender under this Guaranty, whether or
not Lender has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. Lender agrees to notify
NSP promptly of any such set-off and the application made by Lender, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. This right of set-off applies only with regard to those
NSP accounts held which relate to this transaction.
Kingston irrevocably authorizes Lender upon the occurrence of an
Event Default (as defined in the Mortgage) without notice to Kingston to set
off and apply any and all deposits and any other credits or claims held or
owing by Lender to or for the credit or the account of Kingston, or any part
thereof in such amounts as Lender may elect, against and on account of the
obligations and liabilities of Kingston to Lender under this Guaranty, whether
or not Lender has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. Lender agrees to notify
Kingston promptly of any such set-off and the application made by Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
3. Waiver of Subrogation. Notwithstanding anything to the contrary
in this Guaranty, each Guarantor hereby irrevocably waives all rights which may
have arisen in connection with this Guaranty to be subrogated to any of the
rights (whether contractual, under the Federal Bankruptcy Code, including
Section 509 thereof, under common law or otherwise) of Lender against Borrower
or against any collateral security or guarantee or right of offset held by
Lender for the payment of the Obligations. Each Guarantor hereby further
irrevocably waives all contractual, common law, statutory or other rights of
reimbursement, contribution, exoneration or indemnity (or any similar right)
from or against Borrower or any other person which may have arisen in connection
with this Guaranty. So long as the Obligations remain outstanding, if any amount
shall be paid by or on behalf of Borrower to Guarantor on account of any of the
rights waived in this paragraph, such amount shall be held by such Guarantor in
trust, segregated from other funds of such Guarantor, and shall, forthwith upon
receipt by such Guarantor, be turned over to Lender in the exact form received
by such Guarantor (duly indorsed by such Guarantor to Lender, if required), to
be applied against the Obligations, whether matured or unmatured, in such order
as Lender may determine. The provisions of the first two sentences of this
Paragraph shall survive the term of this Guaranty and the payment in full of the
Obligations and the Guaranteed Obligations.
4. Amendments to Loan Documents; Demands. Each Guarantor shall
remain obligated under this Guaranty notwithstanding that, without any
reservation of rights against each Guarantor and without notice to or further
consent by such Guarantor, the Obligations, or the liability of any other party
upon or for any part of the Obligations, may, from time to time, in whole or in
part, be renewed, amended, amended, modified, accelerated, compromised, waived,
surrendered or released by Lender and the Note, the Mortgage or any of the other
Loan Documents may be amended, restated, replaced, modified, supplemented or
<PAGE>
5
terminated, in whole or in part. For the purposes of this Guaranty, any
reference to the Note, the Mortgage or any other Loan Document shall mean
such document as it now exists and as it may be modified, amended, restated,
replaced, renewed or amended from time to time. When making any demand against
any Guarantor, Lender may, but shall be under no obligation to, make a similar
demand on Borrower or any other guarantor and any failure by Lender to make any
such demand or to collect any payments from Borrower or any other guarantor
shall not relieve such Guarantor of any of its liabilities under this Guaranty
and shall not impair or affect the rights and remedies of Lender against such
Guarantor.
5. Guaranty Absolute and Unconditional; Waivers. Each Guarantor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Obligations or the Guaranteed Obligations and notice of or proof of
reliance by Lender upon this Guaranty or acceptance of this Guaranty. The
Guaranteed Obligations and the Obligations shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended or waived,
in reliance upon this Guaranty. Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon
Borrower with respect to the Obligations. Each Guarantor understands and agrees
that this Guaranty shall be construed as a continuing, absolute and
unconditional guaranty of payment without regard to (a) the validity, regularity
or enforceability of the Note, the Mortgage, any of the Loan Documents or any of
the Obligations or Guaranteed Obligations, (b) any defense, set-off or
counterclaim which at any time may be available to or be asserted by Borrower
against Lender or (c) any other circumstance whatsoever which constitutes, or
might be construed to constitute, an equitable or legal discharge of Borrower
for the Obligations or the Guaranteed Obligations, or of any Guarantor under
this Guaranty, in bankruptcy or in any other instance, except for payment in
full of such Obligations or Guaranteed Obligations. Each Guarantor waives any
right to require Lender to proceed against any collateral security in any manner
which would preserve any right of subrogation which such Guarantor might have
against Borrower and also waives any defense arising from any action by Lender
which may limit or affect adversely any such right of subrogation and any
defense based on any statutory or other limitation of the amount of any
deficiency judgment available to Lender after foreclosure or other proceedings
to realize upon any collateral security. When pursuing its rights and remedies
against any Guarantor, Lender may, but shall be under no obligation to, pursue
such rights and remedies as it may have against Borrower or any other person or
entity or against any collateral security or guaranty for the Obligations or the
Guaranteed Obligations and any failure by Lender to pursue such other rights or
remedies or to collect any payments from Borrower or any such other person or
entity or to realize upon any such collateral security or guaranty, or any
release of Borrower or any such other person or entity or any such collateral
security or guarantee, shall not relieve such Guarantor of any liability, and
shall not impair or affect the rights and remedies of Lender against such
Guarantor. This Guaranty shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon each Guarantor until the
earlier of (i) the date upon which all the Obligation of Borrower under the Loan
Documents are paid in full or (ii) the date upon which the Guaranteed
Obligations under this Guaranty are paid in full.
6. Reinstatement. This Guaranty shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the
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6
Obligations or Guaranteed Obligations is rescinded or otherwise must be restored
or returned by Lender upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of Borrower, or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, Borrower or any Guarantor or substantial part of its property, or
otherwise, all as though such payments had not been made.
7. Subordination. (a) All indebtedness, liabilities and obligations
of Borrower to any Guarantor, whether secured or unsecured and whether or not
evidenced by any instrument, now existing or subsequently created or incurred,
are and shall be subordinate and junior in right of payment to the Guaranteed
Obligations.
(b) No Guarantor shall sell, assign or otherwise transfer, in whole
or in part, or create, incur or suffer to exist any security interest, lien,
charge or other encumberance with respect to any indebtedness, liabilities or
obligations of Borrower to such Guarantor or any instrument or document
evidencing or securing the same unless, in any such case, the person or entity
to whom such sale, assignment or transfer is made or the beneficiary of such
security interest, lien, charge or encumbrance acknowledges the foregoing
subordination and agrees to be bound thereby.
(c) Each Guarantor shall cause each document or instrument
evidencing or securing any indebtedness, liabilities or obligations of Borrower
to such Guarantor to contain a statement or legend to the effect that such
indebtedness, liabilities or obligations are subordinate and junior in right of
payment to the Guaranteed Obligations in the manner and to the extent set forth
in this Guaranty.
(d) Should any payment or distribution or security, or any proceeds
thereof, be collected or received by any Guarantor in respect of any
indebtedness, liabilities or obligations of Borrower to such Guarantor, and such
collection or receipt is not permitted under the subordination provisions of
this Guaranty, such Guarantor shall immediately turn over such payment,
distribution or security or proceeds to Lender, in the form received, and, until
so turned over, the same shall be held in trust by such Guarantor as the
property of Lender.
(e) For purposes of this Guaranty "subordinate and junior in right
of payment" shall mean:
(i) No part of any subordinated indebtedness, liabilities or
obligations shall have any claim to the assets of Borrower on a
parity with or prior to the claim of the Guaranteed Obligations or
the principal amount of the Loan and other amounts due under the
Note, the Mortgage and the other Loan Documents. Unless and until
the Guaranteed Obligations shall have been fully paid and satisfied,
no Guarantor will take, demand or receive, directly or indirectly,
by set-off, redemption, purchase or in any manner, any payment or
security for the whole or any part of any subordinated indebtedness,
liabilities or obligations, and no Guarantor will accelerate the
scheduled maturities of any amounts owing on account of such
indebtedness, liabilities or obligations or demand payment thereof;
provided that so long as no default under this
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7
Guaranty or any Event of Default (as such term is defined in each of
the Loan Documents) under the Note, the Mortgage or any other Loan
Document exists or would be in existence immediately after giving
effect to such payment, such Guarantor may receive currently,
scheduled payments on account of such indebtedness, liabilities and
obligations; and
(ii) No Guarantor will enforce or take any action to enforce
or collect any subordinated indebtedness, liabilities or obligations
or any part thereof or to enforce any lien or security interest
securing payment or performance of subordinatedd indebtedness,
liabilities or obligations or exercise any claims, rights, remedies
or powers in connection with such indebtedness, liabilities or
obligations; provided that so long as no default under this Guaranty
or any Event of Default (as such term is defined in each of the Loan
Documents) under the Note, the Mortgage or any other Loan Document
exists or would be in existence immediately after giving effect to
such payment, such Guarantor may receive currently scheduled
payments on account of such indebtedness, liabilities and
obligations.
(iii) In the event of:
(A) any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or
otherwise, of all or any substantial part of the property, assets or
business of Borrower or the proceeds thereof, to any creditor or
creditors of Borrower, or
(B) any liquidation, dissolution or other winding-up of
Borrower or its business or any sale, receivership, insolvency,
reorganization or bankruptcy proceedings, assignment for the benefit
of creditors, arrangement or any proceeding by or against Borrower
for any relief under any bankruptcy, reorganization or insolvency
law or laws, Federal or state, or any law, Federal or state,
relating to the relief of debtors, readjustment of indebtedness,
reorganization, composition or extension, or
(C) any indebtedness of Borrower to any Guarantor being
declared due and payable prior to its stated maturity, or
(D) the indebtedness evidenced by the Note becoming or being
declared to be due and payable and not being paid in accordance with
its terms,
then and in any such event any payment or distribution of any kind or character,
whether in cash, property or securities which, but for the subordination
provisions contained herein would be payable or deliverable to any Guarantor
shall instead be paid over or delivered to Lender for application to payment or
prepayment of the Guaranteed Obligations, and no Guarantor shall receive any
such payment or distribution therefrom unless and until the Guaranteed
Obligations have been fully paid and satisfied.
<PAGE>
8
(f) Notwithstanding the foregoing, Guarantors shall be permitted to
receive distributions of net cash flow from the operation of the Mortgaged
Property made by Borrower to its partners.
8. Payments. Each Guarantor hereby agrees that payments under this
Guaranty will be paid to Lender without set-off or counterclaim in U.S. Dollars
at the office of Lender located at 380 Madison Avenue, New York, New York.
9. Representations and Warranties. (a) Each Guarantor represents and
warrants that:
(i) this Guaranty constitutes a legal, valid and binding obligation
of such Guarantor enforceable in accordance with its terms, except as
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity or the
availability of specific performance or other equitable relief; and
(ii) no litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the actual
knowledge of such Guarantor, threatened by or against such Guarantor or
against any of its properties or revenues (i) with respect to this
Guaranty or in any way relating to the Loan or (ii) which could have a
material adverse effect on the business, operations, property or financial
or other condition of such Guarantor.
(b) NSP represents and warrants that
(i) the most recent balance sheet of NSP, which NSP represents is
that balance sheet which is attached to the Offering Memorandum of NSP,
subject to completion, dated November 28, 1997, as the same may have been
updated in a final memorandum, has been prepared in accordance with
generally accepted accounting principles and received by independent
certified public accountants, and is complete and correct in all material
respects and presents fairly the financial condition of such Guarantor as
of such date. Since the date of such statement there has been no material
adverse change in the business, operations, property or financial or other
condition of such Guarantor. Such Guarantor has no material contingent
obligation, contingent liability or liability for taxes which is not
reflected on such balance sheet. All other financial information provided
by such Guarantor to Lender is complete and accurate in all material
respects;
(ii) Such Guarantor has filed or caused to be filed all tax returns
required to be filed by it, and has paid all taxes due on said returns or
on any assessments made against it (other than those being contested in
good faith by appropriate proceedings);
(iii) it qualifies as a "venture capital operating company" (a
"VCOC") or a "real estate operating company" (a "REOC") or otherwise
complies with an exception set forth in Department of Labor Regulations
codified at 29 C.F.R. Section 2510.3-101 (the "Plan Asset Regulation")
such that the assets of such Guarantor would not be subject
<PAGE>
9
to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"); and
(iv) the execution and delivery of this Guaranty and any other
agreement to be entered into in connection herewith by such Guarantor or
its affiliates, in and of itself, will not result in a nonexempt
"prohibited transaction" under Section 406(a) of ERISA or Section
4975(c)(1)(A)-(D) of the Code, between the Lender and any entity owning an
equity interest in such Guarantor which is an "employee benefit plan"
(within the meaning of Section 3(3) of ERISA) subject to Title I of ERISA
or a "plan" (within the meaning of Section 4975(c)(1) of the Code).
(c) Kingston represents and warrants that
(i) the most recent balance sheet of such Guarantor delivered to
Lender is complete and correct in all material respects and presents
fairly the financial condition of such Guarantor as of such date. Since
the date of such statement there has been no material adverse change in
the business, operations, property or financial or other condition of the
Guarantor. Such Guarantor has no material contingent obligation,
contingent liability or liability for taxes which is not reflected on
such balance sheet. All other financial information provided by such
Guarantor to Lender is complete and accurate in all material respects;
(ii) such Guarantor has filed or caused to be filed all tax returns
required to be filed by it, and has paid all taxes due on said returns or
on any assessments made against it (other than those being contested in
good faith by appropriate proceedings);
(iii) it qualifies as a "venture capital operating company" (a
"VCOC") or a "real estate operating company" (a "REOC") or otherwise
complies with an exception set forth in Department of Labor Regulations
codified at 29 C.F.R. Section 2510.3-101 (the "Plan Asset Regulation")
such that the assets of such Guarantor would not be subject to Title I of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(iv) the execution and delivery of this Guaranty and any other
agreement to be entered into herewith in connection by such Guarantor or
its affiliates, in and of itself, will not result in a nonexempt
"prohibited transaction" under Section 406(a) of ERISA or Section
4975(c)(1)(A)-(D) of the Code, between the Lender and any entity owning an
equity interest in such Guarantor which is an "employee benefit plan"
(within the meaning of Section 3(3) of ERISA) subject to Title I of ERISA
or a "plan" (within the meaning of Section 4975(e)(1) of the Code).
<PAGE>
10
10. Covenants. (a) Each Guarantor covenants and agrees that such
Guarantor will deliver to Lender as soon as available, but in any event within
120 days after the end of each fiscal year of such Guarantor, (i) with respect
to Kingston, a copy of the unaudited balance sheet of such Guarantor and (ii)
with respect to NSP, a copy of the balance sheet of such Guarantor as of the end
of such year and prepared in accordance with generally accepted accounting
principles and reviewed by independent certified public accountants acceptable
to Lender. All financial statements furnished by each Guarantor shall be
complete and correct in all material respects and, with respect to NSP, be
prepared in reasonable detail and in accordance with generally accepted
accounting principles.
(b) Kingston covenants and agrees that such Guarantor will deliver
or cause to be delivered to Lender as soon as available, but in any event within
120 days after the end of each calendar year a copy of the unaudited balance
sheet of E. Peter Krulewitch, a general partner in Kingston. All financial
statements furnished pursuant to this subsection shall be complete and correct
in all material respects and be prepared in reasonable detail.
(c) NSP shall at all times retain no less than a ten percent (10%)
legal and equitable ownership interest, direct or indirect, in Borrower.
(d) Neither Guarantor shall take any action, or omit to take any
action, which would give rise to a nonexempt prohibited transaction (as such
term is defined in Section 4975 of the Code or Section 406 of ERISA) that is
reasonably likely to subject the Lender to any material tax or penalty on
prohibited transactions imposed under Section 4975 of the Code or Section 502(i)
of ERISA.
(e) Neither Guarantor shall fail or cease to qualify as a REOC or a
VCOC or otherwise meet an exception under the Plan Assets Regulations where such
failure or cessation could result in the assets of the Guarantor being subject
to Title I of ERISA under circumstances that are reasonably likely to give rise
to a nonexempt prohibited transaction (as such term is defined in Section 4975
of the Code or Section 406 of ERISA) that could subject the Lender to any
material tax or penalty on prohibited transactions imposed under Section 4975 of
the Code or Section 502(i) of ERISA.
11. Severability. Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceablilty without invalidating the remaining provisions of this
Guaranty, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
12. No Waiver; Cumulative Remedies. Lender will not by any act,
delay, omission or otherwise be deemed to have waived any right or remedy under
this Guaranty or to have acquiesced in any default or event of default under the
Note, the Mortgage or any of the other Loan Documents. No failure to exercise,
nor any delay in exercising, on the part of Lender, any right, power or
privilege under this Guaranty shall operate as a waiver. A waiver by Lender of
any right or remedy under this Guaranty on any one occasion shall not be
construed as a bar to any right or remedy which Lender otherwise would have on
any future
<PAGE>
11
occasion. The rights and remedies provided to Lender are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
13. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Guaranty may be waived, amended or supplemented or
otherwise modified except by a written instrument executed by each Guarantor and
Lender. This Guaranty shall be binding upon the successors and assigns of each
Guarantor and shall inure to the benefit of Lender and its successors and
assigns.
14. Governing Law; Submission to Jurisdiction. This Guaranty is made
and delivered in New York, New York, and shall be governed by and construed and
interpreted in accordance with the laws of the State of New York, without regard
to principles of conflict of laws. All judicial actions, suits or proceedings
brought against any Guarantor with respect to its obligations, liabilities or
any other matter under or arising out of or in connection with this Guaranty or
any transaction contemplated or for recognition or enforcement of any judgment
rendered in any such proceedings may be brought in any state or federal court of
competent jurisdiction in the City of New York. By execution and delivery of
this Guaranty, each Guarantor accepts, generally and unconditionally, the
nonexecutive jurisdiction of such courts and irrevocably agrees to be bound by
any final judgment rendered thereby in connection with this Guaranty or any
transaction contemplated hereby from which no appeal has been taken or is
available. Each Guarantor irrevocably (a) agrees to notify Lender immediately by
registered or certified mail if such agent shall refuse to, or be prevented
from, acting as agent and, in such event, promptly to designate another agent in
the City of New York, satisfactory to Lender, to serve in place of such agent
and deliver to Lender written evidence of such substitute agent's acceptance of
such designation; (b) agrees to service of process in any legal proceeding by
mailing of copies thereof (by registered or certified mail, if practicable)
postage prepaid to the then active agent or each Guarantor with the name and
address set forth in Section 15, below, or such other address of which Lender
shall have been notified in writing, regardless whether such address is within
or without the jurisdiction of any such court; and (c) agrees that nothing
herein shall affect Lender's right to effect service of process in any manner
permitted by law, and that Lender shall have the right to bring any legal
proceedings (including a proceeding for enforcement of a judgment entered by
any of the aforementioned courts) against such Guarantor in any other court or
jurisdiction in accordance with applicable law. Each Guarantor and Lender hereby
irrevocably waives trial by jury and each Guarantor hereby irrevocably waives
any objections, including, without limitation, any objection to the laying of
venue or based on the grounds of forum non conveniens which it now or hereafter
may have to the bringing of any such action or proceeding in any such
jurisdiction. Nothing herein shall affect the right of Lender to serve process
in any other manner permitted by law or limit the right of Lender to bring any
action, suit or proceeding against any Guarantor in the court of any
jurisdiction. Each Guarantor acknowledges that final judgment against it in any
action, suit or proceeding referred to in this Section shall be conclusive and
may be enforced in any other jurisdiction, by suit on the judgment, a certified
or exemplified copy of which shall be conclusive evidence of the fact and of the
amount of such Guarantor's indebtedness.
15. Notices. All notices, requests and demands under this
Guaranty shall be in writing and shall be deemed to have been sufficiently
given or served when (i) presented
<PAGE>
12
personally, (ii) when delivered to an overnight courier service with guaranteed
next business day delivery or (iii), if deposited in the mail, postage prepaid,
certified or registered, addressed to NSP c/o NorthStar Capital Partners at 527
Madison Avenue, New York, New York, Attention: Peter Ahl and to Kingston c/o
Richards & O'Neill at 598 Madison Avenue, New York, New York, Attention: Robert
N. Saffron, to Lender at The Chase Manhattan Bank Real Estate Finance Group, 380
Madison Avenue, New York, New York, Attention: Fran M. Nuchims and to Battle
Fowler LLP, Park Avenue Tower, 75 East 55th Street, New York, New York 10022,
Attention: Robert J. Wertheimer Esq., upon actual receipt of such mailing. Any
party may change its address by notice to the other parties.
16. Limitation on Liability Not Applicable. The Note and the other
Loan Documents contain provisions which limit Lender's action upon a default
under the Note to an action of foreclosure and realization on the collateral
encumbered thereby and prohibit any action to recover a deficiency judgment
following foreclosure and realization on the collateral encumbered thereby. None
of the foregoing provisons shall be construed to abrogate or limit any
Guarantors' obligations hereunder.
<PAGE>
17. Non-Recourse. Anything contained in this Guaranty to the
contrary notwithstanding, Lender's recourse with respect to any claims arising
under or in connection with this Guaranty with respect to NSP shall be limited
solely to the assets of NSP, and none of any (i) affiliate of NSP, (ii) Person
owing, directly or indirectly, any legal or beneficial interest of NSP, or (iii)
partner, principal, officer, controlling person, beneficiary, trustee, advisor,
shareholder, employee, agent, nominee, affiliate or director of any person
described in clause (i) or (ii) above shall be personally liable for the
performance of any obligation hereunder or the payment of any amount due
hereunder.
This Guaranty has been duly executed by the undersigned.
NORTHSTAR PARTNERSHIP, L.P.
By: NORTHSTAR CAPITAL INVESTMENT
CORP.
By: /s/ W. Edward Scheetz
--------------------------------
Name: W. Edward Scheetz
Title:
KINGSTON WASHINGTON ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ E. Peter Krulewitch
-------------------------------
Name: E. Peter Krulewitch
Title:
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 9th day of January, 1998 before me came W. Edward Scheetz, to me
known, who, being duly sworn, did depose and say that he resides at
_____________________, that he is __________________ of NorthStar Capital
Investment Corporation, the general partner of NorthStar Partnership, L.P., the
partnership described in the foregoing instrument, and he acknowledged that he
executed the same as the free act and deed of the aforesaid general partnership.
/s/ Mary Lynn Sekosky
Notary Public
MARY LYNN SEKOSKY
Notary Public State of New York
No. 20-4631235
Qualified in Nassau County
Commission Expires March 30, 1998
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 9th day of January, 1998 before me came E. Peter Krulewitch, to me
known, who, being by me duly sworn, did depose and say that he resides at
_____________________, that he is a general partner of Kingston Washington
Associates Limited Partnership, the Massachusetts limited partnership described
in the foregoing instrument, and he acknowledged that the executed he same as
the free act and deed of the aforesaid general partnership.
/s/ Mary Lynn Sekosky
Notary Public
MARY LYNN SEKOSKY
Notary Public State of New York
No. 20-4631235
Qualified in Nassau County
Commission Expires March 30, 1998
<PAGE>
Exhibit 10.16
---------------------------------------------------------
LIMITED LIABILITY COMPANY AGREEMENT
OF KN ONE, LLC
---------------------------------------------------------
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT OF
KN ONE, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT ("AGREEMENT") is made and
entered into as of the 26th day of February, 1998 (the "Effective Date"), by and
between KREG-OC, L.P., a California limited partnership ("KOLL"), and KN STAR
CORP. ("NorthStar").
R E C I T A L S :
WHEREAS, Koll and NorthStar intend to form KN One, LLC, as a limited
liability company (the "COMPANY"), pursuant to the provisions of the Delaware
Limited Liability Company Act, 6 Del. C. Section 18-101 ET. SEQ., as the same
may be amended from time to time (the "ACT"); and
WHEREAS, the parties deem a limited liability company agreement to be
necessary and advisable and that this Agreement shall set forth the sole and
only rights of the "Members", as members of the Company, and shall govern the
conduct of business and the affairs of the Company from and after the Effective
Date.
A G R E E M E N T :
NOW, THEREFORE, the parties hereby agree as follows:
FORMATION AND PURPOSE OF COMPANY
1.1 FORMATION OF COMPANY. The Company shall be operated as a limited
liability company under the Act. The rights and obligations of the "Members"
(as defined below) in connection with the operation of the Company as herein
provided shall be conducted and construed in accordance with the Act. If there
is a conflict between the provisions of this Agreement and the Act, the
provisions of the Act shall control (it being understood that if the Act
provides for a particular rule but allows the members of a limited liability
company to provide to the contrary in their limited liability company, and if
the parties hereto have so provided hereunder, then such provisions shall not be
deemed to constitute a conflict for purposes of the
<PAGE>
foregoing). The Members shall execute and deliver and "Managing Member" (as
defined below) shall file an amendment to the Certificate of Formation of the
Company and any assumed or fictitious or business name statement or certificate
or any similar document required by the Act or applicable law to be filed in
connection with the formation and operation of the Company, and Managing Member
shall perform such other actions as are required under the Act and applicable
law in order to qualify the Company to conduct the business contemplated by this
Agreement (including any required publication). The Members further agree to
acknowledge, file, record, and publish as necessary, such amendments to the
foregoing as may be required by this Agreement, the Act or applicable law, and
such other documents as may be appropriate to comply with such requirements for
the formation, preservation, or operation of the Company. Upon termination of
the Company, Managing Member shall promptly execute and cause to be filed all
filings required under the Act and other applicable laws. Managing Member shall
promptly deliver to the Members copies of all filings made on behalf of the
Company in accordance with this Section.
1.2 NAME. The Company's business shall be conducted solely under the
name of "KN One, LLC" or any fictitious name upon which the Members may agree
and for which the appropriate certificate of fictitious name shall be filed with
the appropriate government agency.
1.3 TERMINATION. The Company shall be terminated on December 31,
2047, inclusive, unless sooner terminated as hereinafter provided. As used
herein, "COMPANY YEAR" means (a) that portion of the current calendar year
(i.e., the calendar year in which the date hereof occurs) which occurs on or
after the date hereof and prior to the termination of the Company in accordance
with this Agreement, (b) each full calendar year on or after the date hereof and
prior to the termination of the Company in accordance with this Agreement, and
(c) that portion of the calendar year in which the Company terminates in
accordance with this Agreement that is on or after the date hereof and prior to
such termination.
1.4 CHARACTER OF BUSINESS. The Company may engage in any lawful
purpose expressly approved in writing by the Members, except for banking or
insurance. The principal purpose of the Company shall be to acquire that
certain unimproved real property located at the southeast corner of Main Street
and MacArthur Boulevard, Irvine, California, consisting of approximately five
and 52/100 (5.52) acres of unimproved land legally described on EXHIBIT "A"
attached hereto (the "PROPERTY"), (ii) develop and construct a Class-A, eight
(8) story office building consisting of approximately one hundred seventy-eight
thousand (178,000) square feet of gross area and all related on-site and
off-site improvements located thereon, or
2
<PAGE>
if zoning entitlement approval for same is not granted, such other structures as
are in accordance with applicable zoning entitlement approval and is approved in
writing by both of the Members (the "IMPROVEMENTS"), (iii) operate, maintain,
lease, market and otherwise realize the economic benefit from the Property and
the Improvements (collectively, the "Project"), and to engage in all activities
related thereto.
1.5 NAMES AND ADDRESSES OF MEMBERS. The names and addresses of the
Members are as follows:
Koll NorthStar
- ---- ---------
KREG-OC, L.P. KN Star Corp.
c/o KREG Operating Co., Inc. c/o NorthStar Capital Partners, LLC
4343 Von Karman Avenue 527 Madison Avenue
Newport Beach, California 92660 New York, New York 10022
Attention: Mr. James C. Watson Attention: Mr. David Hamamoto
1.6 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE. The
registered office and registered agent for service of process of the Company
shall be The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801, or such other place as the Members may from time to time designate. The
principal place of business of the Company will be 4343 Von Karman, Newport
Beach, California 92260. The Company may maintain other offices at such other
locations as the Members shall determine from time to time. Managing Member
shall cause to be promptly delivered to the other Members a copy of any notice,
complaint or other material received by such agent on behalf of the Company.
1.7 CERTAIN DEFINITIONS. As used herein, the following terms have
the following meanings:
"ACCOUNTS" means the "Operating Account" and the "Money Market
Account", each as defined in Section 5.10.
"AFFILIATE" of a person or entity (or words of similar import, whether
or not capitalized) includes (1) any officer, director, trustee, shareholder,
member, partner or spouse or lineal descendant of the person or entity in
question; (2) any corporation, partnership, limited liability company, trust or
other entity controlling, controlled by or under common control with the person
or entity in question or any Affiliate of the person or entity in question
(whether directly or indirectly through one or more intermediaries); and (3) any
officer, director, trustee, shareholder, member or partner of any person or
entity described in (2) above. For the purpose of
3
<PAGE>
this definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies, whether
through the ownership of voting securities or by contract or otherwise.
"APPLICABLE RATE" means the lesser of (1) five percent (5%) in excess
of the prime rate as announced from time to time by Bank of America, N.T.S.A.,
or its successor from time to time; and (2) the maximum interest that may be
charged under any applicable usury law.
"BANKRUPTCY/DISSOLUTION EVENT" with respect to a person or entity,
means the commencement or occurrence of any of the following with respect to
such person or entity: (1) a case under Title 11 of the U.S. Code, as now
constituted or hereafter amended, or under any other applicable federal or
state bankruptcy law or other similar law; (2) the appointment of (or a
proceeding to appoint) a trustee or receiver of any property interest; (3) an
attachment, execution or other judicial seizure of (or a proceeding to attach,
execute or seize) a substantial property interest; (4) an assignment for the
benefit of creditors; (5) the taking of, failure to take, or submission to any
action indicating (after reasonable investigation) an inability to meet its
financial obligations as they accrue; or (6) a dissolution or liquidation;
provided, however, that the events described in clauses (1), (2) or (3) shall
not be included if the same are (a) involuntary and not at any time consented
to, (b) contested within 30 days of commencement and thereafter diligently and
continuously contested, and (c) dismissed or set aside, as the case may be,
within 90 days of commencement.
"BUSINESS AGREEMENT" shall mean any lease, rental agreement, loan
agreement, mortgage, easement, covenant, restriction or other agreement or
instrument at any time or times affecting all or a portion of any of the
"Company Property" (as defined below).
"BUSINESS PLAN" means the business plan for the Company which is
approved by NorthStar and adopted by the Company, as the same may be amended
from time to time with the approval of NorthStar (and Koll, so long as Koll is
the Managing Member) in accordance with this Agreement. Neither the Business
Plan nor any component thereof (including, as applicable, the "Pre-Development
Budget", "Development Budget", "Operating Budget", "Leasing Plan", as such terms
are hereinafter defined, or any other budgets or plans attached thereto) shall
be deemed to include any matter that has not been approved in writing by
NorthStar. The parties hereto agree on the date hereof no Business Plan (or any
component thereof) has been approved by the Members.
4
<PAGE>
"CLAIM" means any obligation, liability, claim (including any claim
for damage to property or injury to or death of any persons), lien or
encumbrance, loss, damage, cost or expense (including any judgment, award,
settlement, reasonable attorneys' fees and other costs and expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim including appellate proceedings, and any collection costs or enforcement
costs).
"COLLATERAL AGREEMENT" means any agreement, instrument, document or
covenant made or entered into under, pursuant to, or in connection or
concurrently with this Agreement, and any certifications made in connection
therewith or amendment or amendments made at any time or times heretofore or
hereafter to any of the same.
"COMPANY" means the limited liability company governed by this
Agreement.
"COMPANY PERCENTAGES" means the following respective percentages for
each of the Members:
Member Company Percentage
- ------ ------------------
Koll 40%
NorthStar 60%
"COMPANY PROPERTY" means all property, of whatever kind or nature,
owned by the Company from time to time, including the Project.
"CONTRIBUTION ACCOUNT" shall mean with respect to each Member, the sum
of its capital contributions, which shall be the amount of money and/or the
agreed upon fair market value (as determined by the Members) of any property
contributed by such Member to the capital of the Company (net of liabilities
secured by such contributed property that the Company is considered to assume or
take subject to under Section 752 of the Code) pursuant to Section 3.1B and 3.2
(on or following the date hereof), and DECREASED by the amount of money
distributed by the Company to each Member pursuant to Sections 4.2B and 4.3B and
D. and the agreed upon fair market value (as determined by the Members) of any
property distributed to each Member by the Company (net of liabilities secured
by such distributed property that each Member is considered to assume or take
subject to under Section 752 of the Code) pursuant to Sections 4.2B and 4.3B and
D.
5
<PAGE>
"CURE PERIOD" means (1) five (5) days after receipt of written notice
from a Member to a defaulting Member or Affiliate specifying the nature of a
default or breach under this Agreement or any Collateral Agreement, in
connection with a monetary default that is not a "Noncurable Default" (as
defined below); (2) thirty (30) days after receipt of written notice from a
Member to a defaulting Member or Affiliate specifying the nature of a default or
breach under this Agreement or any Collateral Agreement, in connection with a
non-monetary default that is not a Noncurable Default (provided, however, that
if such non-monetary default cannot reasonably be cured within such 30 day
period, and such defaulting Member or Affiliate, as applicable, promptly
commences (or causes to be commenced) the cure of such default and diligently
pursues such cure to completion, then such 30 day period shall be extended to
the extent reasonably necessary, but in no event after the date that is 90 days
after receipt of such written notice); and (3) no period at all for a Noncurable
Default. A "Noncurable Default" means any of the following: (a) a material
breach of a representation or warranty, (b) a breach of Section 8.1 or any other
restriction upon transfer or hypothecation, (c) an intentional breach, (d) a
breach of fiduciary duty or a breach constituting fraud, bad faith or willful
misconduct, (e) a breach of an obligation if there have been two prior breaches
of such obligation or a similar obligation within the immediately preceding one
year period (e.g., a failure to timely deliver information if there have been at
least two failures to timely deliver the same or different information within
the immediately preceding one year period), or (f) taking action on behalf of
the Company that is beyond the scope of authority established by this Agreement.
"DEVELOPMENT BUDGET" means the budget for development and marketing of
the Project which is approved by NorthStar and adopted by the Company, as the
same may be amended from time to time pursuant to the written approval of
NorthStar in accordance with this Agreement.
"DEVELOPMENT ELECTION" has the meaning set forth in Section 5.2A.
"DEVELOPMENT PREFERRED RETURN" shall mean an amount calculated like
interest and accrued on the balance standing from time to time in a Member's
Contribution Account at the rate of fourteen and one-half percent (14.5%) per
annum, compounded quarterly. For financial and income tax reporting purposes,
neither accrual nor payment of the Development Preferred Return shall be an
expense of the Company nor be treated as a guaranteed payment under Code Section
707(c).
"DISTRIBUTABLE OPERATING CASH" means, for the applicable period, the
amount by which (1) the gross cash revenues and funds received from Company
6
<PAGE>
operations during such period, excluding any "Net Sale Proceeds" and "Net
Financing Proceeds" (each defined below) received during such period; exceed (2)
the sum of (a) cash expenditures made by the Company or which the Company is
obligated to make for or during such period in connection with the Company's
operations or generally in connection with the Company Property, including
business taxes and real and personal property taxes and assessments, insurance
premiums, leasing commissions and fees, tenant improvements and other capital
costs, the Development Fee and the Lease Override Fee (if applicable), payable
to Koll, leasing fees payable to Leasing Agent under the "Leasing Agreement" (as
hereinafter defined), management fees payable to "Property Manager" (as
hereinafter defined) under the "Property Management Agreement" (as hereinafter
defined), and other operating costs (except to the extent paid from the "Working
Capital Reserve", as defined below, or other reserves established by Managing
Member with the approval of NorthStar), (b) all installments and payments of
principal and interest and other sums and amounts paid or payable for or during
such period on or in connection with any secured or unsecured indebtedness of
the Company (including required debt service and other payments required of the
Company in connection with any financing obtained by the Company with respect to
the Company Property), and (c) the establishment or additions to the Working
Capital Reserve and such other reserves as may be established by Managing Member
with the approval of NorthStar. If the amount described in clause (2) above for
the applicable period exceeds the amount described in clause (1) for such
period, then such excess shall be referred to herein as the "Negative Cash Flow"
for such period. For purposes of calculating Negative Cash Flow only, capital
contributions and loans from Members shall not be considered as gross cash
revenues and funds received by Company. Nothing contained in this paragraph
will limit Managing Member's obligations under this Agreement or Leasing Agent's
obligations under the Leasing Agreement, including their obligation to comply
with the Operating Budget, the Development Budget and the Leasing Plan.
"GOVERNMENTAL AUTHORITY" means any governmental, quasi-governmental,
regulatory, administrative or judicial agency, body or entity, including,
without limitation, any City of Irvine or County of Orange, California zoning,
planning or land use commission.
"IMPROVEMENTS" is defined in Section 1.4.
"INTERNAL RATE OF RETURN" means the annual rate, compounded quarterly,
at which the present value of all distributions, from all sources, to a Member
(discounted at such rate from the dates such distributions are actually received
by such Member), is equal to the present value of all the capital contribu-
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tions made by such Member to the Company (discounted at such rate from the
dates such capital contributions are actually made by such Member).
"KN OWNERSHIP FORM LLC AGREEMENT" means a form of limited liability
company (or limited partnership) agreement, agreed to by Donald Koll and
NorthStar Capital Partners LLC in connection with the KREG Transaction, as the
form joint venture agreement for any future development projects whereby KREG
(or its successor-in-interest) and NorthStar, or an Affiliate of NorthStar or
NorthStar Sister Corp. are the joint venture partners.
"KREG" means KREG Operating Co., a Delaware corporation, the 50%
general partner of Koll.
"KREG TRANSACTION" means a transaction pursuant to which an Affiliate
of NorthStar and Donald Koll (or an entity majority owned by Donald Koll)
purchase KREG (or substantially all of its assets) from Koll Real Estate Group,
Inc., for a price and on such terms as are mutually agreed to by such parties.
"LAWS" means all procedural and substantive federal, state and local
laws, moratoria, initiatives, referenda, ordinances, rules, regulations,
standards, orders and other governmental requirements (including those relating
to the environment, health and safety, or handicapped persons), applicable to
all or any portion of the Company Property, or the ownership, use, operation,
maintenance, sale, lease or other disposition thereof, including all permits,
licenses, approvals, entitlements and other governmental authorizations
applicable to the ownership, construction, use, operation or maintenance of all
or any portion of the Company Property, including any development agreement,
indemnity, surety or performance bond or other similar assurances to
governmental agencies in connection with the obtaining of entitlements and other
governmental approvals for the Company Property or the Project (as hereinafter
defined).
"LEASING AGENT" means such leasing agent as is mutually agreed upon by
the Members.
"LEASING AGREEMENT" means that certain agreement to be entered into by
and between Company, as owner, and Leasing Agent, as leasing agent, in a form to
be approved by Koll and NorthStar.
"LEASING PLAN" means the leasing plan for the Project which shall be
mutually agreed upon by the Members and adopted by the Company pursuant to the
terms of this Agreement and upon such approval and such adoption shall be
attached
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to the Business Plan, as the same may be amended from time to time with the
approval of NorthStar.
"LIMITED LIABILITY COMPANY AGREEMENT" or this "Agreement" means this
Agreement, as amended, modified or supplemented from time to time.
"MANAGING MEMBER" means Koll, subject to Section 7.2.
"MEMBER" means either Koll or NorthStar. "Members" means Koll and
NorthStar, collectively.
"NET FINANCING PROCEEDS" and "NET SALE PROCEEDS" mean, respectively,
the net proceeds from (1) any financing or refinancing of the Company Property
or any part thereof, and (2) any sale, disposition, taking or loss (including
the proceeds from any eminent domain proceeding or conveyance in lieu thereof or
from casualty insurance other than rental income insurance or title insurance)
of the Company Property or any part thereof. In the computation of Net
Financing Proceeds and Net Sale Proceeds there shall be deducted the payment of
all costs and other expenses related thereto and approved by Managing Member and
NorthStar and the satisfaction of any debt being refinanced or discharged and
any other debts or liabilities of the Company for which Managing Member and
NorthStar decide to use the same and the setting aside of any reserves therefrom
reasonably deemed proper by Managing Member and NorthStar. Notwithstanding
anything contained herein, in no event shall any funds from a construction loan
financing, used for development of the Project be considered "Net Financing
Proceeds" for purposes of making any distributions pursuant to Article IV
hereof.
"NORTHSTAR PURCHASE PRICE" means, in connection with Koll exercising
its right of first opportunity pursuant to Section 5.2C (after a NorthStar
Pre-Development Sale Election), an amount which would yield NorthStar, as of the
date of the purchase of its interest in the Company, an amount equal to the sum
of (x) the positive balance of its Contribution Account plus (y) the accrued and
unpaid Preferred Return thereon.
"NORTHSTAR SISTER CORP. means an entity formed by NorthStar Capital
Partners LLC as a sister corporation to act as a "paper clip" corporation with
NorthStar Capital Investment Corp. ("NSC"), in order to permit stockholders of
NSC to participate in the ownership of non-qualifying real estate investment
trust assets.
"OPERATING BUDGET" means the operating budget for the Company Property
which shall be mutually agreed upon by the Members and adopted by the
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Company pursuant to the terms of this Agreement, and upon such approval and such
adoption shall be attached to the Business Plan, as the same may be amended from
time to time pursuant to the written approval of NorthStar in accordance with
this Agreement.
"PLANS AND SPECIFICATIONS" has the meaning set forth in Section 5.4G.
"PRE-DEVELOPMENT BUDGET" means the budget for the Company to take
such actions as are reasonably necessary to commence building the Improvements,
including, without, limitation obtaining all necessary governmental approvals
for the Project, engaging architectural, engineering and other consultants
necessary for the development of Project plans and specifications, as is
submitted by Koll to NorthStar, following the date hereof, and approved by
NorthStar, in writing, as the Pre-Development Budget for the Company.
"PRE-DEVELOPMENT SALE ELECTION" has the meaning provided in Section
5.2A.
"PREFERRED RETURN" shall mean an amount calculated like interest and
accrued on the balance standing from time to time in a Member's Contribution
Account at the rate of fifteen percent (15%) per annum, compounded quarterly.
For financial and income tax reporting purposes, neither accrual nor payment of
the Preferred Return shall be an expense of the Company nor be treated as a
guaranteed payment under Code Section 707(c).
"PROJECT" is defined in Section 1.4.
"PROPERTY" is defined in Section 1.4.
"PROPERTY MANAGER" means a property manager to be determined by the
mutual agreement of the Members.
"PROPERTY MANAGEMENT AGREEMENT" means that certain agreement to be
entered into by and between Company, as owner, and Property Manager.
"REQUIREMENTS" means this Agreement, the Collateral Agreements, the
Business Plan (including the Operating Budget, the Development Budget and the
Leasing Plan), the Business Agreements and Laws, collectively.
"SUBSEQUENT CONTRIBUTIONS" means the contributions made or to be made
by Koll and NorthStar under Section 3.2 of this Agreement.
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1.8 TITLE TO PROPERTY. Title to the assets and property of the
Company shall be held in the name of the Company.
ARTICLE II
CERTAIN INCORPORATED MATTERS
2.1 TAX AND ACCOUNTING. Each and all of the provisions of EXHIBIT
"D" are incorporated herein and shall constitute part of this Agreement.
EXHIBIT "D" provides for, among other matters, the maintenance of capital
accounts, the allocation of profits and losses, and the maintenance of books and
records. The Company shall be operated as a partnership solely for tax
purposes.
ARTICLE III
CAPITALIZATION AND LOANS BY MEMBERS
3.1 CONTRIBUTIONS BY MEMBERS.
A. KOLL INITIAL CONTRIBUTION. In connection with the acquisition of
the Property and concurrently with the execution of this Agreement, Koll shall
assign or cause to be assigned to the Company all of the rights and obligations
of the buyer under the purchase and sale documentation for the acquisition of
the Property, without credit to Koll's Book Capital Account (as defined in
EXHIBIT "D" attached hereto) or Contribution Account. The parties hereto agree
that for purposes of this Agreement the foregoing contribution os valued at $0.
B. CONTRIBUTIONS OF THE MEMBERS. In connection with the acquisition
of the Property and concurrently with the execution of this Agreement, NorthStar
shall contribute to the capital of the Company approximately $6,627,267 to
acquire the Property and such additional sums as is necessary to pay the costs
and expenses in connection with the closing thereof (as are reasonably approved
by NorthStar), which amounts shall be credited to NorthStar's Book Capital
Account and Contribution Account concurrently with such contribution.
Additionally, NorthStar shall contribute up to $1,000,000 to the Company, from
time to time, to fund expenses of the Company after the date hereof in
accordance with Pre-Development Budget. Koll shall be credited a Book Capital
Account and Contribution Account of approximately $466,519 for its out-of-pocket
expenses in connection with the Project (other than payments to Affiliates of
Koll), through the date hereof, including, without limitation, all out-of-pocket
costs of Koll in connection with the pre-development of the Project and the
closing of the acquisition of the Property,
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upon receipt of documentation reasonably satisfactory to NorthStar evidencing
such expenditures.
3.2 ADDITIONAL CONTRIBUTIONS. NorthStar shall have the right, but
not the obligation, to contribute additional capital to the Company in
accordance with the Business Plan or is otherwise necessary, in NorthStar's
reasonable discretion for the Company to avoid default under a material
agreement to which the Company is a party or to remove a lien against the
Property. Koll shall not be permitted to make additional capital contributions
to the Company without the prior written consent of NorthStar. No additional
capital contributions shall be required by or permitted of the Members other
than as expressly provided in this Section 3.2.
A. DEVELOPMENT CONSULTANT. NorthStar reserves the right to retain a
development, architectural and/or engineering consultant (who is not an
Affiliate of NorthStar) ("DEVELOPMENT CONSULTANT"), at the Company's expense, as
NorthStar's consultant in connection with the Project, in order to advise
NorthStar in connection with all approvals requested of NorthStar under this
Agreement (including "Major Decisions" as defined below), and the administration
of all Contribution Requests. If a Development Consultant is retained, he shall
be furnished with copies of all information, reports, documents, notices and
other materials required to be provided to NorthStar pursuant to this Agreement,
at the same time furnished to NorthStar. In addition, NorthStar shall have the
right by written notice to Koll to cause Koll to furnish certain of such
information, reports, documents, notices and/or other materials solely to
Development Consultant as agent for NorthStar.
B. MEMBER LOANS. Except as otherwise expressly provided, a Member
making a loan to the Company shall be entitled to interest thereon at the
Applicable Rate, compounded monthly, and the same, together with interest as
aforesaid, shall be repaid before any distribution shall be made under Article
IV hereof. However, except as otherwise expressly provided under this
Agreement, no such loan to the Company shall be made without the prior written
consent of the Members.
ARTICLE IV
DISTRIBUTIONS
4.1 DISTRIBUTIONS OF DISTRIBUTABLE OPERATING CASH. Each distribution
of Distributable Operating Cash shall be made as follows:
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A. FIRST LEVEL. First, to the Members in proportion to, and to the
extent of, their accrued and unpaid Preferred Return, if any; and
B. SECOND LEVEL. Thereafter, to the Members in proportion to their
respective Company Percentages.
If NorthStar makes a Development Election and the Project, including, without
limitation, the Improvements is constructed, then the term Development Preferred
Return shall be deemed substituted for Preferred Return in this Section 4.1, as
of the date hereof.
4.2 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS.
Except in connection with a Pre-Development Sale Election made by NorthStar
pursuant to Section 5.2A, each distribution of Net Sale Proceeds and Net
Financing Proceeds shall be made as follows:
A. FIRST LEVEL. First, to the Members in proportion to, and to the
extent of, their accrued and unpaid Preferred Return, if any;
B. SECOND LEVEL. Second, to the Members in proportion to, and to
the extent of their positive balance in their Contribution Account, if any; and
C. THIRD LEVEL. Thereafter, to the Members in proportion to their
respective Company Percentages, subject to the provisions of Section 5.11B.
If NorthStar makes a Development Election and the Project, including, without
limitation, the Improvements is constructed, then the term Development Preferred
Return shall be deemed substituted for Preferred Return in this Section 4.1, as
of the date hereof.
4.3 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS IN
CONNECTION WITH A NORTHSTAR PRE-DEVELOPMENT SALE ELECTION. If NorthStar makes a
Pre-Development Sale Election made pursuant to Section 5.2A(2) and Koll does not
exercise its Right of First Opportunity (pursuant to Section 5.2C) and NorthStar
sells the Company Property each distribution of Net Sale Proceeds and Net
Financing Proceeds shall be made as follows:
A. FIRST LEVEL. First, to NorthStar in proportion to, and to the
extent of, its accrued and unpaid Preferred Return, if any;
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B. SECOND LEVEL. Second, to NorthStar in proportion to, and to the
extent of its positive balance in its Contribution Account, if any;
C. THIRD LEVEL. Third, to Koll in proportion to, and to the extent
of, its accrued and unpaid Preferred Return, if any;
D. FOURTH LEVEL. Fourth, to Koll in proportion to, and to the
extent of its positive balance in its Contribution Account, if any; and
E. FIFTH LEVEL. Thereafter, to the Members in proportion to their
respective Company Percentages.
Pursuant to Sections 4.2 and 4.3 the cash portion of the sale price of
any Company Property or any part thereof, together with all installments and
payments of cash (including interest) of or against any deferred portion of such
purchase price, shall be distributed in accordance with the levels provided
above, with each person or entity entitled to payment under a level receiving
the entire amount of such cash until the sum payable under such level shall have
been discharged in cash.
4.4 TIMING OF DISTRIBUTIONS. Distributions of Distributable
Operating Cash shall be made on a monthly basis concurrently with the date the
"Periodic Report" (as defined below) for such month is required to be delivered
pursuant to this Agreement, unless otherwise agreed by the Members.
Distributions of Net Sale Proceeds and Net Financing Proceeds shall be made as
soon as is practicable following the Company's receipt thereof. Each Periodic
Report shall include a calculation by Managing Member of the amount of
Distributable Operating Cash for such month and/or the amount of such Net Sale
Proceeds and Net Financing Proceeds, as applicable, and a calculation by
Managing Member of the respective distributions to the Members pursuant to this
Article IV (such calculation of the distributions to be made as of the first day
of the month immediately succeeding such calendar month).
4.5 DISTRIBUTIONS OF CAPITAL. Except as expressly provided in this
Agreement or as otherwise agreed by the Members, no Member shall receive
interest on its capital and no Member shall be entitled to withdraw capital or
to receive distributions of or against capital without the prior written consent
of, and upon the terms and conditions agreed upon by, all of the Members. Each
Member shall look solely to the assets of the Company for return of such
Member's capital contributions.
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ARTICLE V
POWERS, RIGHTS AND DUTIES OF MEMBERS
5.1 AUTHORITY OF MEMBERS. Management of the Company shall be vested
in the Members in accordance with this Agreement.
A. AUTHORITY OF KOLL AS MANAGING MEMBER. Except as otherwise
provided in this Agreement, Koll shall act as the Managing Member and shall have
full power and authority to manage the operations and affairs of the Company and
to act for and to bind the Company to the extent provided by the Act, and shall
have the duty and authority, on behalf of the Company, to do all things
appropriate to the accomplishment of the purposes of the Company, including the
following (but all subject to and in accordance with the Business Plan
including, without limitation, all budgets included therein):
(1) Filing appropriate organizational documents for the Company
with the appropriate governmental authorities.
(2) Developing and operating the Company Property.
(3) Employing consultants, attorneys, accountants and agents in
accordance with the Pre-Development Budget or the Development Budget, as
applicable.
(4) Executing contracts, agreements, and other writings in
accordance with the Pre-Development Budget or as otherwise approved in writing
by NorthStar.
(5) In general, managing the business and affairs of the Company
and taking such actions as may be necessary or appropriate thereto.
B. MAJOR DECISIONS. Managing Member shall fully consult with
NorthStar at all times, and each of the following matters ("Major Decisions")
must be previously approved in writing by NorthStar:
(1) Subject to subsection B(3) below, the adoption of, and any
supplement to, revision of, or deviation from the Business Plan (including (a)
any supplement to, revision of, or deviation from the Leasing Plan and (b) any
activity or expenditure which is inconsistent with the Business Plan).
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(2) Without limitation on subsection B(1) above, the adoption of, and
any supplement to, revision of, or deviation from the Operating Budget,
Development Budget or Leasing Plan (subject to subsection B(3) below). Managing
Member agrees to submit to NorthStar, at least 60 days prior to each calendar
year during the term hereof, the proposed Leasing Plan, Operating Budget and, to
the extent applicable, the Development Budget for such calendar year, which
shall be in the same form as the forms of the initial Development Budget and the
initial Leasing Plan and initial Operating Budget approved by the Members and
adopted by the Company pursuant to the terms of this Agreement, and which
proposed Leasing Plan, Operating Budget and Development Budget shall be subject
to the prior written approval of NorthStar.
(3) Any deviation from or expenditure inconsistent with the Operating
Budget, Development Budget and, if applicable, the Leasing Plan (or the entry
into any agreement therefor). Notwithstanding the foregoing, NorthStar's
consent to an expenditure payable to a third party exceeding the amount
specified for such expenditure in the Operating Budget, Development Budget or,
if applicable, the Leasing Plan, shall not be required in any of the following
circumstances: (a) Managing Member, in its reasonable judgment, deems there to
be an emergency requiring such expenditures to effectuate immediate action
necessary for the protection of the Company Property or persons; (b) such
expenditure would not (i) cause the line item in the applicable Operating
Budget, Development Budget or, if applicable, the Leasing Plan (as applicable,
the "Budget") to which such expenditure relates to exceed 110% of the budgeted
amount of such line item in the applicable Budget (taking into account the
amounts expended to date and reasonably anticipated expenses in connection with
such line item), or (ii) cause the aggregate amount of the expenses (excluding
the expenses described in clause (c) below) within the applicable Budget to
exceed 105% of the entire amount of budgeted expenses (excluding the expenses
described in clause (c) below) in the applicable Budget (taking into account the
amounts expended to date and reasonably anticipated expenses), or (c)
expenditures for real property taxes and assessments, utilities and insurance
for the Company. Managing Member shall promptly notify NorthStar, both by
telephone and in writing, of each expenditure made pursuant to this subsection
(3) and shall promptly supply NorthStar with such information with respect
thereto as NorthStar may reasonable request.
(4) Any material activity or expenditure (subject to subsection
B(3) above) which is materially inconsistent with the Business Plan (it being
understood that the Business Plan is a general outline only, and does not
contemplate every activity or expenditure which is customarily undertaken or
incurred in connection with properties similar to the Company Property).
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(5) The entry into any construction, development or other
agreement.
(6) Any modification or termination of the Leasing Agreement
and/or the Property Management Agreement. It is expressly acknowledged and
agreed that NorthStar shall have the right to remove and replace the Leasing
Agent without the consent of Koll.
(7) Any transaction or matter that is not in the ordinary course
of the Company's business relating to the Company Property.
(8) Without limitation on subsection B(7) above, taking any
action with respect to any new projects or acquisition of any property by the
Company other than the Company Property.
(9) Without limitation on subsection B(7) above, any capital
transaction (including any sale, financing or refinancing of the Company
Property or any portion thereof) and the terms thereof.
(10) Any compensation or reimbursement to, or other transaction
with any Affiliate of Managing Member other than compensation and reimbursement
to Leasing Agent set forth in the Leasing Agreement.
(11) The establishment and maintenance of reserves and
contributions thereto.
(12) Any litigation, arbitration or settlement involving the
Company or its assets. Notwithstanding the foregoing, NorthStar's consent shall
not be required in connection with the defense of Claims against the Company
which are covered by insurance of the Company, or in connection with necessary
legal action or proceedings for the collection of rent or other income from the
Property.
(13) All income tax elections, tax returns and significant
decisions relative to tax audits.
(14) Any construction within the Property.
(15) The entry into or any material concessions by or
restrictions on the Company, the Project or the Property in connection with
obtaining
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zoning, variances, map approval, entitlements, permits or other governmental
approvals.
(16) The entry into or any lease of all or any portion of the
Company Property (other than leases which are permitted to be entered into in
accordance with the Leasing Plan).
(17) Establishment and any modification to the lease form
approved by the Company in connection with the Leasing Plan.
(18) The employment and retention of a manager, leasing agent and
other personnel (other than Leasing Agent).
(19) Any other decision or action which requires the approval of
NorthStar as provided elsewhere in this Agreement.
The foregoing provisions are intended to address Major Decisions before and
during the NorthStar Decision Period and after such period (if NorthStar makes
or is deemed to have made the Development Election).
Any approval by NorthStar pursuant to this subsection B must be in
writing; provided, however, that Managing Member may give the other Member
written notice of any proposed Major Decision, and if NorthStar does not object
to the same or request further information with respect thereto within 10 days
after receipt of such notice, NorthStar shall be deemed to have rejected the
proposed Major Decision.
C. PROHIBITED ACTS. No Member shall have any authority to:
(1) Unilaterally amend this Agreement.
(2) Extend the term of the Company.
(3) Do any act in contravention of this Agreement or which would
make it impossible to carry on the business of the Company.
(4) Possess any Company Property or assign the rights of the
Company in specific Company Property for other than a Company purpose.
(5) Admit a person or entity as a Member except as provided in
this Agreement.
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(6) Permit the Company to merge or consolidate with any other
entity.
(7) Engage in any transaction with itself or an Affiliate, even
if approved by the Members, except upon terms which are fair as respects the
Company and competitive with the terms available to the Company from non-
Affiliates.
(8) Make, execute or deliver on behalf of the Company any
assignment for the benefit of creditors or any guarantee, indemnity bond or
surety bond, other than reasonable and customary bonds and assurances to
governmental agencies in connection with the obtaining of entitlements and other
governmental approvals or to lenders in connection with development or
construction financing; or obligate the Company or any Member as a surety,
guarantor or accommodation party to any obligation.
(9) Lend funds belonging to the Company or any Member to any
Member or third party or extend to any person, firm or corporation, credit on
behalf of the Company.
(10) Confess any judgment on behalf of the Company.
(11) File any petition, or consent to the appointment of a
trustee or receiver or any judgment or order, under the federal bankruptcy laws.
(12) Distribute any property in kind to any Member.
(13) Hire employees of the Company.
(14) Take any action outside the purposes specified in Section
1.4.
D. REQUIRED SIGNATURES. NorthStar's signature (or a written consent
granting Managing Member sole authority to sign) shall be required for all
contracts (including documents related to the sale, financing or transfer of any
portion of the Property) entered into by or on behalf of the Company; provided,
however, following the Development Election, if applicable, that only Managing
Member's signature will be required for contracts and agreements that are
provided for in the Operating Budget or Development Budget or are otherwise
permitted to be entered into without the consent of NorthStar under this
Agreement.
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E. AFFILIATE TRANSACTIONS. Notwithstanding anything to the contrary
herein, any decision by the Company to terminate or exercise any right
(including any right to approve or any right to receive documents) or remedy
under any contract between the Company and a Member or an Affiliate of a Member
shall be made exclusively by the other Member on behalf of the Company. If a
contract with an Affiliate is terminated, any substitute contract shall be with
a third party reasonably satisfactory to the Members. In addition,
notwithstanding anything to the contrary herein (including any loss of voting
rights), any act or other transaction between the Company, on the one hand, and
any Member and/or its Affiliates, on the other hand, shall require the prior
written approval of the other Member.
F. DETERMINATIONS BY THE MEMBERS. Except as expressly provided
herein, any approval, consent, judgment, option, rights or other determination
to be made by a Member under this Agreement shall be in writing and shall be in
the sole and absolute discretion of such Member. Except as expressly provided
herein, any approval, consent, judgment, or other determination to be made by
the Members under and in connection with this Agreement shall be made jointly by
the Members and shall therefore require their mutual written agreement.
5.2 PRE-DEVELOPMENT ELECTION PERIOD/UNILATERAL SALE RIGHTS.
A. The parties hereto acknowledge and agree that this Agreement was
entered into during the period when (1) an Affiliate of NorthStar was conducting
its due diligence review of the KREG Transaction and (2) while Donald Koll and
KREG were attempting to negotiate with Koll Real Estate Group, Inc. the business
terms of the KREG Transaction, and that neither NorthStar (or any affiliates
thereof), Donald Koll or Koll Real Estate Group, Inc., is under any affirmative
obligation to proceed with their review of or to consummate the KREG
Transaction. Section 5.2A(1) sets forth NorthStar's and Koll's rights if the
KREG Transaction is consummated on or prior to May 15, 1998 (the "KREG OUTSIDE
DATE") and the remainder of Section 5.2 sets forth each of Koll and NorthStar's
rights if the KREG Transaction is not consummated on or prior to the KREG
Outside Date.
(1) If the KREG Transaction is consummated on or prior to the
KREG Outside Date, within fifteen (15) days of consummation of the KREG
Transaction, unless otherwise agreed to in writing by Koll and NorthStar, Koll
and NorthStar shall amend and restate this agreement to be substantially in the
form of the KN Ownership Form LLC Agreement.
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(2) If the KREG Transaction is not consummated on or prior to
the KREG Outside Date, NorthStar shall have a one hundred and eighty (180) day
period following such date (the "NORTHSTAR DECISION PERIOD") to unilaterally
decide, by written notice to Koll, whether to: (1) proceed with the development
of the Project in accordance with the terms and conditions of this Agreement (a
"DEVELOPMENT ELECTION") or (2) unilaterally propose that the Company sell the
Company Property (and all matters incidental thereto), subject to compliance
with the provisions of Section 5.2 B and C (a "PRE-DEVELOPMENT SALE ELECTION").
If NorthStar fails to timely send Koll a Development Election or a
Pre-Development Sale Election, then NorthStar shall be deemed to have made a
Development Election.
(3) If NorthStar makes a Pre-Development Sale Election and Koll
does not purchase the Company Property pursuant to Section 5.2C, Koll shall, at
NorthStar's election, be obligated on behalf of the Company to carry out the
proposed sale of the Company Property.
(4) During the NorthStar Decision Period and the Pre-Development
Election Period, if applicable, Koll shall continue to use its reasonable best
efforts, in accordance with the Pre-Development Budget, to diligently advance
the development of the Project.
B. SALE TO AFFILIATE. No sale of the Project pursuant to this
Section 5.2 shall be made to an Affiliate of NorthStar, without the prior
written approval of Koll.
C. RIGHT OF FIRST OPPORTUNITY. Prior to consummating a proposed
sale pursuant to its Pre-Development Sale Election, NorthStar shall provide Koll
with a right to purchase the NorthStar's interest in the Company on and subject
to the terms and conditions hereinafter stated:
(1) NorthStar shall give written notice (the "PROPOSED SALE NOTICE")
to Koll setting forth that it is willing to sell its entire interest in the
Company to Koll at the NorthStar Purchase Price.
(2) Koll shall have 180 days (the "PRE-DEVELOPMENT ELECTION
PERIOD") after the giving of the Proposed Sale Notice by NorthStar to (a) elect
to purchase NorthStar's interest in the Company at the NorthStar Purchase Price
(calculated as of the date such sale occurs), such election to be made, if at
all, by giving written notice thereof to NorthStar within the Pre-Development
Election Period, and (b) to close such purchase.
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(3) If Koll fails to make the election to purchase and to close
such purchase within the Pre-Development Election Period, time of the essence,
then NorthStar may, at any time thereafter, either (A) close a sale of the
Company Property for any purchase price and terms as NorthStar so chooses (and
shall have all rights and to close same in the name of the Company, and is
hereby granted by Koll, an irrevocable power of attorney, coupled with an
interest to close same on behalf of the Company) or, (B) by written notice to
Koll, elect to proceed with the development of the Project, and such notice
shall be treated by the Members as though NorthStar sent Koll a Development
Election pursuant to Section 5.2A.
(4) If Koll makes the election to purchase during the
Pre-Development Election Period, then such election shall be deemed to create a
contract between Koll and NorthStar pursuant to which Koll agrees to acquire the
interest of NorthStar in the Company on the terms specified in subsection C(2)
above prior to the end of the Pre-Development Election Period. If Koll makes
the election to purchase but the closing fails to occur due to Koll's default,
then without limitation on NorthStar's other rights and remedies (including
specific performance and damages), Koll's rights under subsections 5.2C will be
permanently lost.
(5) If NorthStar makes the Development Election, NorthStar's and
Koll's unilateral sale rights shall thereafter be governed by Section 5.13.
5.3 BUY/SELL RIGHTS.
A. ELECTION. From and after the date which is 3 years after the
date of this Agreement, either Member (the "Initiating Member") may, in its sole
and absolute discretion exercised by delivery of written notice to the other
Member (the "Responding Member"), elect to institute the buy/sell procedure
prescribed by this Section by delivering to the Responding Member a written
notice of its intention to do so ("Buy/Sell Notice"), which such notice shall
include a statement stating the net value (after closing costs) it places on the
Company Property as of the date of such Buy/Sell Notice (such amount being
herein called the "Stated Value") and the manner in which prorations and closing
costs will be handled under subsection C(4)(c) below.
B. BUY/SELL. In the event the Initiating Member gives the
Responding Member a Buy/Sell Notice, then the Responding Member shall elect
either (1) to purchase the Initiating Member's interest in the Company, or (2)
to sell to the Initiating Member the interest of the Responding Member in the
Company, in either case on the terms and conditions set forth below in this
Section. Such election
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shall be made by written notice ("Election Notice") from the Responding Member
to the Initiating Member within 90 days after the giving of the Buy/Sell Notice;
if the Responding Member fails to give such notice within such 90-day period,
then it shall be deemed to have elected to sell its Company interest to the
Initiating Member.
C. PROCEDURE. Such sale shall be accomplished in accordance with
the following provisions:
(1) The purchase price of the Company interest of the selling
Member ("Selling Member") will be such as will produce for Selling Member the
same cash consideration as Selling Member would have received if the Company
Property had been sold on the "Buy/Sell Transfer Date" (as hereinafter defined)
in an all-cash sale yielding net proceeds (after closing costs and prorations)
equal to the Stated Value and the Company had been dissolved and wound up
following such sale, all contributions require under this Agreement had been
made and the proceeds of such sale and the other assets of the Company after
payments to creditors had been distributed to the Members in accordance with the
provisions of this Agreement.
(2) As used herein, the "Buy/Sell Transfer Date" shall be the
date which is 30 days after the earlier of the date the Election Notice is
delivered or 90 days after the date of delivery of the Buy/Sell Notice, or such
other date as may be agreed upon by the Members (but subject to extension as
provided in subsection C(3) below).
(3) Within 10 days after the earlier of the date of delivery of
the Election Notice or 90 days after the date of delivery of the Buy/Sell Notice
, the purchasing Member ("Purchasing Member") shall deposit with an escrow
company mutually acceptable ("Escrow Agent") to each Member a deposit by
certified or cashier's check or wire transfer of immediately available federal
funds in an amount equal to ten percent (10%) of the purchase price determined
above (the "Buy/Sell Deposit"). The Buy/Sell Deposit, if made, shall be
non-refundable to Purchasing Member in all events other than the failure of the
closing of the sale of Selling Member's Company interest to occur by reason of
the default by Selling Member (in which case the Buy/Sell Deposit shall be
promptly refunded to Purchasing Member). Upon the closing of the sale on the
Buy/Sell Transfer Date, the Buy/Sell Deposit shall be a credit against the
purchase price. In the event of a default in any material respect by Purchasing
Member, Selling Member may either (x) terminate the sale to be held on the
Buy/Sell Transfer Date and retain the Buy/Sell Deposit as liquidated damages (in
which event, Purchasing Member shall have no right thereafter to institute the
Buy/Sell procedure under this Section) or (y) specifically enforce Purchasing
Member's obligation to purchase without limita-
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tion upon any other remedy (other than termination or rescission except in
accordance with clause (x) above) that Selling Member may have against
Purchasing Member in connection with such default, including remedies under
Article VIII.
(4) The sale shall be consummated at a closing conference held
on the Buy/Sell Transfer Date at the office of the Escrow Agent or at such other
location as may be agreed upon by the Members. At such closing conference:
(a) Selling Member shall deliver to the Purchasing Member an
assignment of the interest designated hereunder as the Company interest of
Selling Member (including all right, title and interest of Selling Member in and
to the Company), which assignment shall be sufficient to transfer the same,
contain the warranty of Selling Member that Selling Member has (and Purchasing
Member shall acquire thereunder) good title to such Company interest, free and
clear of all liens, encumbrances, claims, rights and options of any kind or
character whatsoever (but subject to this Agreement) and otherwise be in form
reasonably satisfactory to both Selling Member and Purchasing Member;
(b) Purchasing Member shall deliver to Selling Member by certified or
cashier's check or wire transfer of immediately available federal funds the
purchase price, determined as set forth above, as adjusted by the prorations and
credits set forth below, and increased by an interest factor equal to interest
on the purchase price at the Applicable Rate, compounded quarterly from the date
the Buy/Sell Notice is delivered until the Buy/Sell Transfer Date; and
(c) The parties shall prorate, on the Buy/Sell Transfer Date as of
the date of the Buy/Sell Notice, operating expenses and income allocable to such
Company interest and the parties shall share closing costs including any
transfer taxes), in each case in the manner prescribed by the Buy/Sell Notice.
(5) Except to the extent waived in writing by Selling Member,
the obligation of Selling Member to sell Selling Member's Company interest
pursuant to this Section is conditioned upon the concurrent delivery by
Purchasing Member of the purchase price, as adjusted by the prorations and
credits and interest factor set forth in this Section.
(6) The purchase price shall be decreased by any distributions
of Distributable Operating Cash to Selling Member that is allocable to the
period after the date of the Buy/Sell Notice including Net Financing Proceeds or
Net Sale Proceeds distributed after the date of the Buy/Sell Notice (except to
the extent already taken into account under the prorations described above).
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(7) Purchasing Member may, at any time prior to such closing
conference, assign to any person, partnership, limited liability company,
corporation or entity its right to receive the assignment under this Section of
Selling Member's Company interest, but such assignment shall not relieve
Purchasing Member of its obligations and liabilities hereunder.
5.4 CERTAIN OBLIGATIONS OF MANAGING MEMBER.
A. GENERALLY. Managing Member shall at all times act in a fiduciary
capacity in exercising its power and authority and shall not engage in any
dealings having the appearance of impropriety. Managing Member shall fully and
faithfully discharge its obligations and responsibilities, shall devote such
time and attention to Company affairs as may be reasonably necessary for the
proper management and supervision of the Company's business and the discharge of
its duties under this Agreement. Managing Member shall diligently and
continuously pursue the development, renovation, operation, marketing and sale
of the Project in accordance with its reasonable business judgment, and shall
make its personnel and the personnel of its Affiliates available to the Company
to the extent necessary in order that its obligations may be adequately
discharged.
B. PROJECT ADMINISTRATION. Without limitation on the foregoing or
other provisions of this Article V, Managing Member shall coordinate and manage
the development and administration necessary for the planning, development,
construction, completion, marketing and sale of the Project within the time
schedules set forth in, and in full compliance with, all Requirements, and
shall, at all times, exercise good faith and shall use diligent and professional
efforts to promote and protect the best interests of the Project, the Property
and the Company (without consideration being made to the separate interests of
any particular Member, including the effect of any action or omission upon the
distributions provided for in Article IV). Without limiting the generality of
the foregoing, Managing Member shall have the following duties and obligations:
(1) Cooperation with NorthStar in connection with Managing
Member's preparation of and NorthStar's approval of the Business Plan (including
the Operating Budget, Development Budget and Leasing Plan) and all elements
thereof and amendments thereto, in a timely manner, and the construction,
development, marketing, leasing and completion of the Project in compliance
therewith.
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(2) Negotiation with governmental authorities to obtain any
agreements, governmental approvals, building permits and other permits and
licenses as are necessary for the Project.
(3) The engagement of the necessary or appropriate personnel and
consultants, including architects, engineers, general contractors,
subcontractors, material suppliers, consultants, attorneys, title companies,
escrow companies, brokers and marketing agents necessary for the Project and
provided for in the Development Budget (collectively, "Independent
Contractors"), and the direct supervision and coordination of the services of
such Independent Contractors in connection with the completion of the Project in
accordance with the Requirements.
(4) Monitoring the Project as a whole, and exerting diligent and
professional efforts so that the same is completed in accordance with the time
schedule set forth in the Business Plan.
(5) Monitoring on a regular and continuing basis the cost of
materials, labor, equipment and other items used in the planning, development,
construction and marketing of the Project, and exerting diligent and
professional efforts to meet the Development Budget and Leasing Plan (as
modified or supplemented from time to time pursuant to this Agreement), and,
where increases in costs will cause the Development Budget (or, if applicable,
the Leasing Plan) for a particular cost item to be exceeded, make
recommendations to the Company as to the most appropriate method of limiting the
effect of such cost increases.
(6) Establishing a procedure for making payments to Independent
Contractors in order to review, verify and make progress payments to the same;
and the approval of all bills and expenditures and the payment and discharge of
all costs, expenses, liabilities and obligations on behalf of the Company in
accordance with the Development Budget (or, if applicable, the Leasing Plan).
(7) Arranging and coordinating regular observations or
inspections by the architect and other appropriate consultants of all work on
the Project and using diligent and professional efforts to have all defects in
work, if any, corrected in such manner, if any, as is in the best interests of
the Company, in order to ensure the performance of all construction work in a
good, workmanlike and substantial manner, free from defect.
(8) Procurement of insurance for the Company and the Project
through an agent acceptable to NorthStar, including casualty, public liability,
workers' compensation and all other insurance required by law or under any
Business
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Agreement, and such other insurance as may be required by NorthStar, with the
amounts and coverage's approved by NorthStar; and requiring that all Independent
Contractors maintain such insurance as Managing Member reasonably deems
necessary to the extent such insurance is customarily maintained by such parties
in Irvine, California, in connection with projects similar to the Project in
order to protect the interests of the Company for all work, materials or
services to be provided by them hereunder.
(9) Developing and implementing a system for the preparation,
review and processing of "Change Orders" (as such term is hereinafter defined)
and recommending necessary or desirable changes to the Company and consultants,
reviewing requests for Change Orders, submitting recommendations to the Company
and consultants, and negotiation of Change Orders. As used herein, "Change
Orders" shall mean changes permitted by this Agreement or authorized by the
Members in the construction of the Project, including changes in materials,
labor or additional construction authorized by the Company or omissions of
certain aspects of the construction previously authorized by the Company. Each
Change Order shall comply with all Requirements and shall require the consent of
NorthStar if it involves an amount greater than $10,000.
(10) Direct coordination with and supervision of all Independent
Contractors in connection with all litigation and other legal matters, and the
preparation of all legal documentation, including sale contracts, and all other
necessary or appropriate documents and instruments.
(11) Payment or contestation of all real and personal property
taxes and assessments for the Property.
(12) Notification of the Members of any material adverse Claim or
dispute or any actual or threatened material litigation (or condemnation or
eminent domain proceeding or action) against the Company, the Project, any
Member, or any Independent Contractor of which Managing Member becomes aware;
provided, however that with respect to any litigation that involves only
Managing Member is not related to the Project, Managing Member shall be
obligated to notify the Company of such matter only if said matter could have an
adverse material impact on Managing Member.
(13) Direct coordination with and supervision of the Leasing
Agent in the preparation and implementation of marketing plans and promotional
activities and leasing programs for the leasing and sale of the Project in
accordance with the Requirements.
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(14) The use of diligent and professional efforts to prevent any
mechanic's or materialmen's liens to be filed by any Independent Contractor
against the Company Property or any portion thereof in connection with Managing
Member's duties and obligations under this Agreement, or against any monies due
or to become due on account of, arising out of or relating to the Company
Property or the Project. If any such lien is filed, Managing Member shall (i)
promptly notify the Company upon discovering the existence of such lien and (ii)
promptly take such action as Managing Member reasonably determines to be
necessary to protect the Company Property after consultation with NorthStar.
(15) The use of diligent and professional efforts to comply with
all Laws and Business Agreements in connection with the performance of Managing
Member's duties and obligations under this Agreement.
(16) Conducting meetings of the Company, as may be reasonably
required by NorthStar, for the purpose of reviewing the progress of the Project.
(17) Conducting periodic evaluations in order to determine
compliance by Independent Contractors under their engagement agreements, and the
diligent enforcement of the rights and remedies of the Company in connection
therewith.
C. BOOKS AND RECORDS. Managing Member shall cause to be kept proper
and complete records and books of account in which shall be entered fully and
accurately all transactions and other matters relating to the Company's business
as are usually entered into for business of a like character. The Company's
records and books shall be kept on a accrual basis, except as the Members may
otherwise determine. At all times, such books and records shall be available at
the Company's principal place of business for inspection, examination,
photocopying or audit by any Member, or the duly authorized representative
thereof, during reasonable business hours and upon reasonable advance notice.
D. REPORTS. Managing Member shall provide the Members with reports
as follows:
(1) An annual report of all income and all expenses within 90
days of the end of the calendar year, (and, if required by NorthStar, such
annual report shall be audited by an independent nationally recognized
accounting firm
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reasonably satisfactory to NorthStar). NorthStar hereby approves Arthur
Andersen, Ernst & Young or Deloitte & Touche as the auditor for the Company.
(2) Copies of the Company's annual federal and state income tax
returns together with a copy of that certain IRS form commonly referred to as a
"Schedule K-1," plus a copy of its California and Delaware equivalents, within
60 days following the end of each calendar year.
(3) A monthly report for each calendar month, certified by
Managing Member to be true, accurate and complete in all material respects, and
submitted to NorthStar within 30 days of the end of each such calendar month
(the "Periodic Report"). Each Periodic Report shall be in the form approved by
NorthStar, and shall include the following:
(a) An operating statement and report of financial condition of the
Company for such period.
(b) A variance report, comparing actual costs and expenses and
revenues with budgeted costs and expenses and revenues on a category basis along
with a reasonably detailed explanation of all material or significant variances
and all changes in any time schedules relating thereto.
(c) A leasing report, which shall describe in reasonable detail all
leasing efforts during such period.
(d) If applicable, a calculation by Managing Member of the amount of
Distributable Operating Cash or Net Sale Proceeds or Net Financing Proceeds for
the preceding calendar month and a calculation by Managing Member of the
respective distributions if any, to Members pursuant to Article IV.
(4) Such other reports as may be reasonably requested by
NorthStar.
E. WORKING CAPITAL RESERVE AND OTHER RESERVES. Managing Member and
NorthStar, in their reasonable discretion, shall establish and maintain
reasonable reserves for future costs, expenses and payments or for substantial
costs (including capital repairs, improvements and replacements).
F. FIDELITY BOND. Managing Member shall obtain, at Managing
Member's expense, and deliver to NorthStar a fidelity bond covering Managing
Member and its employees and agents with a liability amount of at least
$3,000,000,
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which such bond shall be maintained by Managing Member throughout the term of
this Agreement. NorthStar, in the exercise of its reasonable discretion, may
require Managing Member to increase the amount of such bond at Company expense
(except as provided above) if NorthStar determines that circumstances (including
the anticipated average balance of the Accounts) reasonably warrant such
increase in view of the risks involved.
G. APPROVAL OF PLANS AND SPECIFICATIONS. As to any item of the
construction work as to which plans, or plans and specifications, are typically
prepared in accordance with customary practice in the real estate construction
industry in the Irvine, California (collectively, the "Plans and
Specifications"), Managing Member shall use diligent and professional efforts to
ensure that such Plans and Specifications are prepared in accordance with all
Requirements and are otherwise sufficient to permit the affected portion of the
construction work to be completed in a good and workmanlike manner, free from
defects. All such Plans and Specifications shall be subject to the reasonable
prior written approval of NorthStar.
5.5 OTHER ACTIVITIES. Except as otherwise provided in this Agreement
or in any agreement among the Members: (1) each Member recognizes that the other
Member has an interest in investing in developing, constructing, operating,
transferring, leasing and otherwise using real property and interests therein
for profit, and engaging in any and all activities related or incidental thereto
and that each will make other investments consistent with such interests; (2)
neither the Company nor any Member shall have any right by virtue of this
Agreement or the Company relationship created hereby in or to any other ventures
or activities in which any Member is involved or to the income or proceeds
derived therefrom; (3) the pursuit of other ventures and activities by any
Member, even if competitive with the business of the Company, is hereby
consented to by the other Member and shall not be deemed wrongful or improper;
(4) no Member and no Affiliate of a Member shall be obligated to present any
particular investment opportunity to the Company, even if such opportunity is of
a character which, if presented to the Company, could be taken by the Company;
and (5) each Member and each Affiliate of a Member shall have the right to take
for its own account, or to recommend to others, any such particular investment
opportunity.
5.6 LIABILITY OF MEMBERS. Subject to the provisions of any other
agreement to which the Members are parties, and except for the obligations to a
Member or Members or the Company imposed under such other agreement, no Member
shall be liable, responsible or accountable in damages or otherwise to the
Company or the other Member for any action taken or failure to act by such
Member in its business judgment on behalf of the Company within the scope of the
authority
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conferred on it by this Agreement unless such action or omission constitutes a
breach or default under this Agreement, a breach of fiduciary duty, or tortious
or willful misconduct. Unless otherwise agreed upon in writing by the Members
or provided by the Act: (1) no Member shall be liable for the debts,
liabilities, contracts or any other obligations of the Company, (2) the Members
shall be liable to make contributions only to the extent required under this
Agreement, (3) no Member shall be required to make any other contributions or to
loan any amounts to the Company and (4) no Member shall have personal liability
for the repayment of the contributions or loans of any other Member. Except as
expressly provided in the Act, nothing in this Agreement shall confer any rights
or remedies under or by reason of this Agreement on any person or entity other
than the Members and their respective successors and assigns, nor shall anything
in this Agreement relieve or discharge the obligation or liability of any third
person to any party to this Agreement, nor shall any provision of this Agreement
give any third person any right of subrogation or action over or against any
party to this Agreement. Without limitation on the foregoing, no third party
shall have any right to enforce any contribution obligation on a Member, except
as may be required by the Act.
5.7 INDEMNITY OF MEMBERS. The Company shall indemnify, defend and
hold each Member harmless from and against any Claims suffered or sustained by
it by reason of any acts, omissions or alleged acts or omissions by such Member
on behalf of the Company within the scope of authority conferred on it by this
Agreement, including, any judgment, award, settlement, reasonable attorneys'
fees and other costs and expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim; provided that the acts or
omissions or alleged acts or omissions upon which such actual or threatened
action, proceeding or claim is based were in good faith in accordance with its
business judgment and did not constitute a breach or default under this
Agreement, a breach of fiduciary duty, or tortious or willful misconduct.
5.8 INDEMNIFICATION BY MEMBERS. Each Member shall indemnify,
protect, defend and hold the Company, each other Member, the Company Property
and the Project harmless from and against any and all Claims suffered or
sustained by it by reason of any act or omission constituting (a) a breach of
any representation or warranty by such Member under this Agreement or any
Collateral Agreement; (b) any other breach or default by such Member under this
Agreement or any Collateral Agreement; or (c) a breach of fiduciary duty, or
tortious or willful misconduct by such Member or any Affiliate.
5.9 ADDITIONAL MEMBERS. No person or entity shall become an
additional member without the prior written consent of all of the Members. In
the
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event such consent is granted, the existing Members and such new Member shall
execute such documents as may be reasonably required by the existing Members to
affect such admission, including, without limitation, an amendment to this
Agreement.
5.10 COMPANY ACCOUNTS. All funds of the Company shall be deposited by
Managing Member into a federally insured operating account ("Operating
Account"). In addition, Managing Member shall transfer portions of the balance
of the Operating Account which are not immediately needed to pay for Company
operations from time to time to a federally insured money market account in
accordance with sound cash management principles ( "Money Market Account").
The Operating Account and Money Market Account (collectively, the "Accounts")
shall be maintained in the name of the Company with a money center financial
institution approved by NorthStar. The funds within the Accounts shall be
segregated from, and not commingled with, any accounts of any Member or
Affiliate thereof, or any other accounts that the Members may hereafter
establish for the Company from time to time. The investment of the funds within
the Accounts shall be directed by Managing Member, subject to the approval by
NorthStar. Withdrawals from the Accounts shall be made upon such signature or
signatures as Managing Member may designate (and provided that such signatories
are approved by NorthStar and covered by the fidelity bond required pursuant to
this Agreement), and shall be made only in connection with expenses related to
the Company Property which are in conformance with the Requirements.
5.11 COMPENSATION TO KOLL. In addition to Koll's share of
distributions of Distributable Operating Cash, Net Sale Proceeds and Net
Financing Proceeds set forth in Article IV, the Company shall pay to Koll
compensation as follows:
A. If NorthStar makes the Development Election, a "DEVELOPMENT FEE"
equal to five percent (5%) of the "Hard Construction Costs," as that term shall
be more particularly defined in the Business Plan. At a minimum, however, "HARD
CONSTRUCTION COSTS" shall mean all Project costs, less the acquisition cost of
the Property, development fees, any direct financing costs (e.g., origination
fees and interest), permit fees and plan check fees. The Development Fee shall
be paid to Koll monthly in arrears as such Hard Construction Costs are funded by
the Company or the Company's lender(s).
B. If NorthStar makes the Development Election, following
NorthStar's receipt of distributions sufficient to cause NorthStar to achieve an
Internal Rate of Return on its total capital contributions to the Company of 22%
(the
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"IRR THRESHOLD"), Koll shall be entitled to receive "LEASE OVERRIDE FEE" equal
to one percent (1%) of gross rents to be derived from each lease of space within
the Project during the entire initial term of such lease. The Lease Override Fee
shall be paid to Koll upon the later of (x) NorthStar achieving the IRR
Threshold and (y) at the same time and in the same prorata percentages as
payments are made to any third party broker as agent for the Company or, if
there is no third party broker in connection with any lease, then fifty percent
(50%) of the Lease Override Fee in connection with such lease shall be paid to
Koll upon execution of the applicable lease agreement, with the remaining 50% of
the Lease Override Fee payable to Koll upon occupancy of the space leased by the
applicable tenant.
C. For financial and income tax reporting purposes the Development
Fee and the Lease Override Fee shall be treated as an expense of the Company and
as a guaranteed payment under Code Section 707(c).
In the event Koll is removed as Managing Member pursuant to the
provisions of Section 7.2, Koll shall only be entitled to the Development Fee,
or Lease Override Fee earned by Koll as of the effective date of the Termination
Notice (as defined in Section 7.2A), as such effective date is determined
pursuant to Section 7.2B, which earned fees shall be payable as otherwise
provided in Paragraphs A through B of this Section 5.11.
5.12 COMPENSATION OF MEMBERS. Except as set forth in this Agreement
and the Exhibits hereto, no Member shall receive any fee or other compensation
in connection with the performance by such Member of its obligations under this
Agreement. The Members may agree, however, to pay fees to Members and/or
Affiliates thereof for services rendered to Company from time to time.
5.13 UNILATERAL SALE RIGHTS IF NORTHSTAR MAKES A DEVELOPMENT ELECTION.
This Section shall only be applicable if NorthStar makes the Development
Election pursuant to Section 5.2. From and after the earlier to occur of (i)
December 31, 1998, if (x) a construction loan with respect to the Project,
acceptable to NorthStar has not been obtained by such date and (y) a deed of
trust evidencing same has not been recorded in the Orange County, California
real property records, or (ii) substantial completion of the shell improvements
of the Project as evidenced by the delivery to Company of a notice of completion
executed by the Company's general contractor and architect, either of NorthStar
or Koll shall have the right unilaterally (without the consent of the other) to
propose that the Company sell the Company Property (and all matters incidental
thereto), subject to compliance with the provisions of this Section 5.13. If
NorthStar is the proposing party and Koll is the Managing Member at such time,
Koll shall, at NorthStar's election, be obligated on
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behalf of the Company to carry out such proposed sale of the Company Property,
subject to compliance with the provisions of this Section 5.13.
A. SALE TERMS. Except as otherwise approved by Koll and NorthStar,
the purchase price for the Property or the portion thereof to be sold or
disposed of shall be payable (1) entirely in cash; or (2) by taking title
subject to or assuming existing indebtedness; or (3) both.
B. SALE TO AFFILIATE. No sale of the Project shall be made to an
Affiliate of a Member, without the prior written approval of the other Member.
C. RIGHT OF FIRST OPPORTUNITY. Prior to consummating a proposed
sale, the Member desiring to sell (thE "SELLING MEMBER") SHALL PROVIDE THE OTHER
MEMBER (THE "Non-Selling Member") with a right to purchase the Selling Member's
interest in the Company on and subject to the terms and conditions hereinafter
stated:
(1) Selling Member shall give written notice (the "PROPOSED SALE
NOTICE") to Non-Selling Member setting forth the "Basic Sale Terms" (as
hereinafter defined) of such proposed sale. As used herein, "BASIC SALE TERMS"
means the proposed purchase price, the amount of cash payable to the Company by
the purchaser at the closing, any other material economic terms of the proposed
sale, and the estimated closing date of the transaction. The Basic Sale Terms
shall comply with the requirements of subsection A above.
(2) Non-Selling Member shall have 90 days (the "Election
Period") after the giving of the Proposed Sale Notice to elect to purchase
Selling Member's interest in the Company (such election to be made, if at all,
by giving written notice thereof to Selling Member within the Election Period).
The purchase price of Selling Member's Company interest will be such as will
produce for Selling Member the same cash consideration as Selling Member would
have received if the proposed sale of the Project by the Company had been
consummated and the Company had been dissolved and wound up following such sale,
all contributions required under this Agreement had been made and the proceeds
of such sale and other assets of the Company after payments to creditors had
been distributed to the Members in accordance with the provisions of this
Agreement.
(3) If Non-Selling Member fails to make the election to
purchase, then Selling Member may close a sale at any time or times during the
six month period (the "CLOSING PERIOD") that commences on the first day after
the Election Period, for a purchase price and on terms which are at least as
favorable to the Company as the Basic Sale Terms contained in the Proposed Sale
Notice; but if a
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sale for such purchase price and on such terms is not consummated within such
period, then the rights of Non-Selling Member to notice and purchase as
aforesaid will continue as to any sale occurring subsequent to such period. A
sale shall be deemed "at least as favorable" as that set forth in the Proposed
Sale Notice if the net purchase price (after the payment by the Company of all
of its expenses associated with the sale, including any real estate commissions,
shall be at least as high as that set forth in the Proposed Sale Notice (after
deduction for the expenses therein set forth).
(4) If Non-Selling Member makes the election to purchase, then
such election shall be deemed to create a contract between Non-Selling Member
and Selling Member pursuant to which Non-Selling Member agrees to acquire the
interest of Selling Member in the Company on the terms specified in subsection
C(2) above, except that the closing date for such sale shall be the date which
is 30 days after the making of such election. If Non-Selling Member makes the
election to purchase but the closing fails to occur due to Non-Selling Member's
default, then without limitation on the Selling Member's other rights and
remedies (including specific performance and damages), Non-Selling Member's
rights under this subsection 5.13 will be permanently lost.
ARTICLE VI
TRANSFER OF COMPANY INTERESTS
6.1 RESTRICTIONS ON TRANSFER.
A. Except as otherwise set forth in this Agreement, no sale,
exchange, delivery, assignment, transfer, disposal, encumbrance, pledge or
hypothecation, whether voluntary, involuntary, by operation of law, or resulting
from death, disability or otherwise (a "TRANSFER") shall be made by a Member of
the whole or any part of its interest in the Company (including its interest in
the capital or profits of the Company) without the prior written consent of the
other Member. Notwithstanding the foregoing, NorthStar shall have the right to
pledge or hypothecate its interest in the Company, the right to transfer its
interest in the Company to an Affiliate of NorthStar or to NorthStar Sister
Corp. (or an Affiliate thereof) and the right to transfer up to 50% of the
ownership interests in NorthStar to non-affiliated third party(ies), without the
consent of Managing Member. In such event, NorthStar shall give Managing Member
written notice thereof (and Managing Member shall reasonably cooperate with
NorthStar in connection with such transfer, pledge or hypothecation).
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B. Except for transfers between the partners of Koll, or transfers
to employees of Koll Real Estate Group, Inc., or transfers to employees of the
successor-in-interest to KREG or employees of Affiliates thereof Koll shall
ensure that no Transfer shall be made of any direct or indirect interest in Koll
(and no issuance of additional ownership interests in Koll shall occur) without
the prior written consent of NorthStar. In no event shall KREG cease to be the
sole general partner of Koll without the prior written consent of NorthStar.
C. No Transfer in violation of the provisions hereof shall be valid
or effective for any purpose, and no consent to one or more of the same shall be
deemed consent to any other of the same.
6.2 EFFECT OF ASSIGNMENT; DOCUMENTS. In the event of any Transfer
permitted hereunder, subject to Article VIII, the Company shall not be
terminated but instead shall continue as before, with, however, the addition or
substitution of such new Member. No such Transfer shall relieve the assignor
from any of its obligations under this Agreement without the prior written
consent of the other Member (which consent shall not be unreasonably withheld
as to obligations assumed by an assignee provided, among other matters, the
assignment is permitted hereunder and the other Member is reasonably satisfied
that the assignee is sufficiently creditworthy to timely satisfy such
obligations). Notwithstanding the foregoing, as a condition to any sale or
assignment by a Member, the transferee or assignee must execute and deliver to
the other Member an assumption (in form reasonably satisfactory to the other
Member) of all the obligations of the assignee under this Agreement arising from
and after the date of such assignment. If any Transfer is made in violation of
this Article VI, the transferee shall have no right to become a Member and shall
have no right to participate in the management and affairs of the Company. The
transferee in such case shall be entitled only to receive from the transferor
(and not from the Company) the share of the distributions payable to it under
Article IV to which the transferring Member would have been entitled.
ARTICLE VII
CERTAIN REMEDIES
7.1 INTENTIONALLY DELETED.
7.2 TERMINATION OF MANAGEMENT RIGHTS.
A. TERMINATION NOTICE. Provided NorthStar is not then in material
default under this Agreement, NorthStar may deliver a termination notice to
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Koll ("TERMINATION NOTICE") removing Koll as Managing Member of the Company upon
the occurrence of any of the following events:
(1) Any act of fraud, dishonesty, willful misconduct or material
breach of fiduciary duty by Koll.
(2) Any material breach of this Agreement (including, without
limitation, a breach of Article VI or Sections 5.2 or 5.13 or a material breach
of a representation or warranty by Koll or its Affiliates hereunder or under a
Collateral Agreement) or any Collateral Agreement by Koll which is not cured
within the Cure Period.
(3) The failure by Koll to provide reasonably effective
management of the Company and the Company Property in its capacity as Managing
Member pursuant to Article V (excluding Sections 5.2 and 5.13) hereof in a
manner substantially consistent with prevailing commercial practices for the
development, operation, marketing and sale of property similar to the Company
Property (and such failure has or is reasonably expected to have a material and
adverse effect upon the Company Property or the Company), and the failure to
correct such deficiencies within the Cure Period.
(4) The occurrence of a Bankruptcy/Dissolution Event with
respect to Koll.
B. PROCEDURE; ARBITRATION. The Termination Notice shall specify
with particularity the basis for the same and shall become effective the later
of (1) ten (10) days after the date of the Termination Notice, or (2) if
applicable, after the expiration of the applicable Cure Period set forth above.
Notwithstanding the foregoing, Koll may dispute the existence of grounds for the
termination described in subsection A(1), A(2) or A(3) (but not subsection
A(4)) by written notice ("ARBITRATION NOTICE") to NorthStar within 10 days after
its receipt of the Termination Notice. In the event an Arbitration Notice is
given in the period set forth above, then (a) the dispute shall be resolved by
arbitration as provided in Section 7.3, (b) the applicable Cure Period set forth
above shall be tolled pending the resolution of the dispute by arbitration, and
(c) if the arbitrators uphold the termination, then the Termination Notice shall
become effective after the expiration of the applicable Cure Period set forth
above (subject to clause (b) above). A Termination Notice shall become
effective immediately solely in connection with a termination described in
subsection A(4) above.
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7.3 EFFECT OF TERMINATION NOTICE. If a Termination Notice becomes
effective, then:
(1) NorthStar or its designee shall become the sole Managing
Member of the Company with all the power and authority previously possessed by
Koll as Managing Member; and Koll shall remain a Member in the Company, but with
no power, authority or right to act for or bind the Company with respect to any
matter in connection with the Company or its operation except Koll shall have
the right to approve any matter with respect to which Koll will have recourse
liability.
(2) Any sums distributable or payable to Koll shall be offset
against any damages due the Company or NorthStar from Koll (as such damages are
determined by a final unappealable judgment from a court of proper jurisdiction)
and shall be paid instead to the Company or NorthStar in such order as NorthStar
shall determine.
(3) Koll shall execute and acknowledge any required amendments
to this Agreement reflecting the foregoing, in such form and content as
NorthStar may reasonably prescribe.
(4) Koll's obligations as a Member under this Agreement shall
continue (except that Koll shall no longer be obligated to perform those
obligations under Article V that require the authority of Koll as Managing
Member that has been terminated).
A. CUMULATIVE REMEDIES. NorthStar's right to deliver a Termination
Notice pursuant to this Section shall be in addition to, and not in lieu of, any
other remedy available to the Members or the Company at law or in equity
(including, the collection of monetary damages, the enforcement of this
Agreement in equity or the appointment of a receiver for all or part of the
Company Property) in the event of a breach by Koll of its obligations as
Managing Member under this Agreement.
B. ARBITRATION.
ARBITRATION OF DISPUTES
A. SUBJECT TO THE PROVISIONS OF THIS SECTION 7.3, ANY DISPUTE AMONG
THE MEMBERS UNDER SECTION 7.2 AS TO THE EFFECTIVENESS OF A TERMINATION NOTICE
SHALL BE RESOLVED BY ARBITRATION IN LOS ANGELES, CALIFORNIA (OR SUCH OTHER
LOCATION AGREED UPON BY THE MEMBERS), IN ACCORDANCE WITH THE FOLLOWING:
(1) THE MEMBER DESIRING ARBITRATION SHALL GIVE WRITTEN NOTICE OF
THAT FACT TO THE OTHER MEMBER, ACCOMPANIED BY A DESIGNATION OF AN ARBITRATOR; IF
THE OTHER MEMBER FAILS TO DESIGNATE ANOTHER ARBITRATOR BY WRITTEN NOTICE TO THE
FIRST MEMBER WITHIN THE TIME PERIOD DESCRIBED BELOW, THE ARBITRATOR SHALL BE THE
PERSON DESIGNATED BY THE FIRST MEMBER; IF THE OTHER MEMBER DESIGNATES ANOTHER
ARBITRATOR WITHIN SUCH PERIOD, THEN THE TWO ARBITRATORS SO DESIGNATED SHALL
SELECT A THIRD ARBITRATOR AS SOON AS PRACTICABLE THEREAFTER, AND THE ARBITRATION
SHALL BE CONDUCTED BY ALL THREE ARBITRATORS. FOR PURPOSES OF THE PRECEDING
SENTENCE, THE REQUIRED TIME PERIOD SHALL BE 15 DAYS AFTER SUCH DESIGNATION.
(2) THE MEMBERS AND THE ARBITRATORS SHALL USE THEIR MUTUAL
DILIGENT EFFORTS TO CAUSE THE ARBITRATION TO BE CONDUCTED AND A DECISION
RENDERED WITHIN 60 DAYS THEREAFTER.
(3) THE ARBITRATORS SHALL CONDUCT THE ARBITRATION GENERALLY IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, WITH SUCH
MODIFICATIONS THEREOF AS THEY MAY DEEM APPROPRIATE; WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THE ARBITRATORS MAY AFFORD THE PARTIES THE
OPPORTUNITY TO CONDUCT DISCOVERY IN ACCORDANCE WITH SUCH RULES AND LIMITATIONS
AS THE ARBITRATORS MAY PRESCRIBE.
(4) THE ARBITRATORS MAY RETAIN COUNSEL (WHICH ARE NOT AFFILIATES
OF ANY MEMBER) TO ADVISE THEM AS TO THE INTERPRETATION OF THIS AGREEMENT OR
OTHER LEGAL MATTERS, THE COST OF WHICH SHALL BE A COST OF THE ARBITRATION.
(5) THE ARBITRATORS SHALL BE ENTITLED TO REASONABLE COMPENSATION
AND REIMBURSEMENT OF EXPENSES AS
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MUTUALLY AGREED WITH THE MEMBERS, OR IF THEY ARE UNABLE TO AGREE THEN AS
REASONABLY DETERMINED BY THE ARBITRATORS.
(6) THE COMPENSATION OF THE ARBITRATORS AND OTHER COSTS OF THE
ARBITRATION SHALL BE PAID BY THE MEMBERS IN SUCH EQUITABLE PROPORTIONS AS MAY BE
DETERMINED BY THE ARBITRATORS.
(7) THE AWARD AND ALL OTHER DECISIONS OF THE ARBITRATORS SHALL
BE FINAL AND BINDING UPON THE MEMBERS AND THE COMPANY, AND A JUDGMENT MAY BE
RENDERED THEREON IN ANY COURT OF RECORD, EXCEPT THAT ANY MEMBER MAY CONTEST AND
OBTAIN JUDICIAL REVIEW OF THE REASONABLENESS OF THE ARBITRATORS' DETERMINATION
OF COMPENSATION PURSUANT TO CLAUSE (5) ABOVE.
B. THE ONLY ISSUES TO BE DETERMINED BY THE ARBITRATORS SHALL BE THE
EFFECTIVENESS OR INEFFECTIVENESS OF A TERMINATION NOTICE. THE ARBITRATORS SHALL
HAVE NO AUTHORITY TO AWARD ANY LEGAL OR EQUITABLE RELIEF (INCLUDING MONETARY
DAMAGES). THE PARTIES RESERVE THEIR RIGHT TO A TRIAL BY A COURT OF LAW OR
EQUITY OF ANY CLAIM FOR LEGAL OR EQUITABLE RELIEF AS A CONSEQUENCE OF ANY MATTER
COVERED BY SECTION 7.2, ALTHOUGH IN ANY SUCH TRIAL THE DECISION OF THE
ARBITRATORS SHALL BE BINDING WITH RESPECT TO THE ISSUES DETERMINED BY THEM.
C. DISPUTES UNDER PROVISIONS OF THIS AGREEMENT OTHER THAN SECTION
7.2 SHALL NOT BE RESOLVED BY ARBITRATION UNLESS THE PARTIES OTHERWISE AGREE,
EXCEPT THAT THE ARBITRATORS SHALL HAVE THE AUTHORITY TO DETERMINE ISSUES UNDER
OTHER PROVISIONS OF THIS AGREEMENT TO THE EXTENT NECESSARY TO RESOLVE A DISPUTE
UNDER SECTION 7.2 AS TO THE EFFECTIVENESS OF A TERMINATION NOTICE.
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D. EACH ARBITRATOR SHALL BE AN INDEPENDENT COMMERCIAL PROPERTY
SPECIALIST (SPECIALIZING IN DEVELOPMENT, CONSULTING OR MANAGEMENT) THAT IS THEN
ACTIVE (AND HAS AT LEAST FIVE YEARS' EXPERIENCE) WITH COMMERCIAL PROPERTIES
SIMILAR TO THE PROJECT. NO ARBITRATOR SHALL BE IN THE EMPLOY OF THE COMPANY,
ANY MEMBER OR ANY AFFILIATE OF THE FOREGOING DURING THE PENDENCY OF THE
ARBITRATION.
ASSENT TO ARBITRATION PROVISION
-------------------------------
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
/s/ Martin Kruphoff /s/ Peter Ahl
------------------------- ----------------------------
Koll NorthStar
7.4 NO PARTITION. Each Member hereby irrevocably waves any and all
rights that it may have to maintain any action for partition of any of the
Company Property.
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7.5 LITIGATION WITHOUT TERMINATION. Any Member shall be entitled to
maintain, on its own behalf or on behalf of the Company, any action or
proceeding against the other Member or the Company (including any action for
damages, specific performance or declaratory relief) for or by reason of breach
of such party of this Agreement or any other agreement entered into in
connection with the same, notwithstanding the fact that any or all of the
parties to such proceeding may then be Members in the Company, and without
resulting in a termination of the Company.
7.6 ATTORNEYS' FEES. Subject to Section 7.3, if the Company or any
Member obtains a judgment against any other Member in connection with a dispute
arising under or in connection with this Agreement (whether in an action or
through arbitration), such party shall be entitled to recover its court (or
arbitration) costs, and reasonable attorneys' fees (including the reasonable
value of in-house attorney services) and disbursements incurred in connection
therewith and in any appeal or enforcement proceeding thereafter, in addition to
all other recoverable costs.
7.7 CUMULATIVE REMEDIES. No remedy conferred upon the Company or any
Member in this Agreement is intended to be exclusive of any other remedy herein
or by law provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law, in equity or by statute (subject, however, to the limitations expressly
herein set forth).
7.8 NO WAIVER. No waiver by a Member or the Company of any breach of
this Agreement shall be deemed to be a waiver of any other breach of any kind or
nature, and no acceptance of payment or performance by a Member or the Company
after any such breach shall be deemed to be a waiver of any breach of this
Agreement, whether or not such Member or the Company knows of such breach at the
time it accepts such payment or performance. No failure or delay on the part of
a Member or the Company to exercise any right it may have shall prevent the
exercise thereof by such Member or the Company at any time such other may
continue to be so in default, and no such failure or delay shall operate as a
waiver of any default.
ARTICLE VIII
DISSOLUTION OF THE COMPANY
8.1 EVENTS GIVING RISE TO DISSOLUTION. No act, thing, occurrence,
event or circumstance shall cause or result in the dissolution of the Company;
except
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that the happening of any one of the following events (individually, a
"DISSOLUTION EVENT") shall work an immediate dissolution of the Company (unless
in connection with an event under subsection A below, (x) NorthStar exercises a
"Company Purchase Option" pursuant to Section 8.2 below or (y) Koll is removed
as Managing Member pursuant to Section 7.2):
A. The death, incapacity, insanity, retirement or voluntary
resignation of Managing Member, or the occurrence of a Bankruptcy/Dissolution
Event with respect to Managing Member.
B. The sale of all of the assets of the Company (provided, however,
that if a portion of the purchase price of such sale is evidenced by a
promissory note, the Company shall not be dissolved by reason of such sale so
long as the Company is the holder of such promissory note).
C. The unanimous agreement in writing by the Members to dissolve the
Company.
D. The termination of the term of the Company pursuant to Section
1.3 of this Agreement.
E. The failure of the Company to timely purchase the Property
(unless the Members otherwise agree to continue the Company in writing).
Without limitation on the other provisions hereof, neither the
assignment of all or any part of a Member's interest in the Company permitted
hereunder nor the admission of a new member shall work the dissolution of the
Company. Except as otherwise provided in this Agreement, each Member agrees
that, without the consent of the Members, a Member may not retire or withdraw
from or cause a voluntary dissolution of the Company (except that the foregoing
shall not be deemed to require NorthStar to exercise a Company Purchase Option).
8.2 COMPANY PURCHASE OPTION. In the event of a Dissolution Event
described in Section 8.1A (in which event Koll shall be referred to herein as
the "Dissolution Member" and NorthStar shall be referred to herein as the
"ELECTING MEMBER"), then Electing Member shall have the option, exercisable by
written notice to the Dissolution Member or its personal representative,
successor or assign, at any time within 90 days after it learns of the
Dissolution Event, to purchase the Company interest of the Dissolution Member on
the terms hereinafter set forth (each option being herein called the "COMPANY
PURCHASE OPTION"). Nothing herein shall be deemed to require Electing Member to
exercise such option. In the event of the
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exercise of the Company Purchase Option, the consideration for the Dissolution
Member's Company interest shall be the amount (if any) that will produce for the
Dissolution Member 95% of the same cash consideration as it would have received
if the Project owned by the Company at the date on which the Dissolution Event
occurs had been sold at its then fair market value (such 5% discount being
intended to reflect the reduction in value attributable to the sale of a partial
interest) and the Company had been dissolved and wound up following such sale,
all contributions required under this Agreement had been made and the
distributions of the proceeds of such sale and other assets of the Company after
payments to creditors had been distributed to the Members in accordance with the
provisions of this Agreement.
A. The fair market value of the Project shall be determined in
accordance with procedure set forth in EXHIBIT "F".
B. Any sum payable for the Dissolution Member's Company interest as
hereinabove determined must be paid in cash within 45 days after the
determination of the amount of the same as aforesaid. Concurrently with the
payment of such sum (or if no amount shall be payable for such interest, then
upon demand of the assignee), the assignor of such interest shall deliver or
cause to be delivered to such assignee such assignments of Company interest and
other instruments and documents confirming the assignment and transfer as such
assignee shall reasonably request. The acquisition of such Company interest as
aforesaid shall be deemed effective as of the date on which the Dissolution
Event occurred ("DISSOLUTION EVENT DATE"), and, accordingly, the assignee shall
be entitled to all profits and losses and distributions of Distributable
Operating Cash, Net Sale Proceeds and Net Financing Proceeds for any period
after the Dissolution Event Date.
C. The Electing Member may assign its rights under this Section 8.2
to purchase the Dissolution Member's Company interest.
8.3 PROCEDURE.
A. In the event of the dissolution or termination of the Company for
any reason, "Winding Up Member" (i.e., NorthStar if subsection A of Section 8.1
applies, and otherwise the Managing Member) shall commence to wind up the
affairs of the Company and to liquidate its investments. The Members shall
continue to share profits, losses, gain or loss on sale or disposition, and
Distributable Operating Cash during the period of liquidation in the same manner
and proportion as though the Company had not dissolved or terminated.
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B. Following the payment of all debts and liabilities of the Company
and all expenses of liquidation, and subject to the right of the Winding-Up
Member to set up such cash reserves as and for so long as it may deem reasonably
necessary in good faith for any contingent or unforeseen liabilities or
obligations of the Company, the proceeds of the liquidation and any other funds
of the Company shall be distributed in accordance with Section 4.2 hereof (after
deducting from the distributive share of a Member any sum such Member owes the
Company).
C. Each Member shall look solely to the assets of the Company for
all distributions with respect to the Company and its capital contribution
thereto and share of profits or losses thereof and shall have no recourse
therefor (in the event of any deficit in a Member's capital account or
otherwise) against the other Member; provided that nothing herein contained
shall relieve any Member of such Member's obligation to make the capital
contributions herein provided or to pay any liability or indebtedness owing the
Company by such Member, and the Company and the other Member shall be entitled
at all times to enforce such obligations of such Member. No holder of a Company
interest shall have any right to demand or receive property other than cash upon
dissolution and termination of the Company.
D. Upon the completion of the liquidation of the Company and the
distribution of all Company funds, the Company shall terminate and the
Winding-Up Member shall have the authority to execute and record a certificate
of termination of the Company, as well as any and all other documents required
to effectuate the dissolution and termination of the Company.
ARTICLE IX
PROJECT FINANCING; REPRESENTATIONS; CLOSINGS
9.1 REVISIONS TO BUSINESS PLAN, OPERATING BUDGET, DEVELOPMENT BUDGET
AND LEASING PLAN. If at any time Koll or NorthStar reasonably determines during
the pendency of the Project that the Project cannot be completed in material
conformity with the Requirements, then Koll, of its own initiative or at the
request of NorthStar (which request shall be in writing and shall specifically
set forth the reasons that NorthStar believes that the Project cannot be
completed in material conformity with the requirements), shall prepare a revised
Pre-Development Budget, Business Plan, Operating Budget, Development Budget and
Leasing Plan, and shall deliver the same to NorthStar and identify changes to
the same and the reasons therefor. Koll and NorthStar shall meet telephonically
or in person, as appropriate, in order to discuss such documents within ten (10)
business days after NorthStar's
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receipt thereof, and such documents shall be subject to the approval of
NorthStar as provided by Section 5.1 B.
9.2 REPRESENTATIONS AND WARRANTIES OF KOLL.
A. Koll hereby represents and warrants to NorthStar and the Company,
and each of them as follows: this Agreement and all agreements, instruments and
documents herein provided to be executed or to be caused to be executed by Koll
or KREG are and on the Closing Date will be duly authorized, executed and
delivered by and are and will be binding upon the same. Koll is a limited
partnership, duly organized, validly existing and in good standing under the
laws of the State of California, and is qualified to perform its obligations
under this Agreement and the Collateral Agreements and the documents it is
executing in connection with this transaction (including compliance with all
applicable doing business laws). Each of Koll and KREG is duly authorized and
qualified to enter into and do all things required of it under this Agreement
and the Collateral Agreements it is executing in connection with this
transaction. Neither this Agreement, any Collateral Agreement nor any
agreement, document or instrument executed or to be executed in connection with
the same, nor anything provided in or contemplated by this Agreement or any such
other agreement, document or instrument, breaches, invalidates, cancels, makes
inoperative or interferes with, or results in the acceleration or maturity of,
or requires any consent or authorization that has not been obtained under, any
contract, agreement, lease, easement, right or interest, law or regulation to
which Koll or KREG or, to the best knowledge of Koll, the Company Property, is
subject.
B. Additionally, Koll represents to its best knowledge to NorthStar:
(1) There is no pending litigation with respect to the Project
and neither Koll nor any of its affiliates have received any written notice of
threatened litigation with respect to the Project;
(2) No Governmental Authority has rejected any proposal by Koll
or any Affiliate thereof to change the existing Conditional Use Permit
83-CP-0501 for the Property as a hotel, including, without limitation, any
proposal to obtain a conditional use permit to construct an office building on
the Property;
(3) Neither the Koll Center Irvine North Owners Association, the
Irvine Company nor any other association having any jurisdictional review over
the Property, pursuant to recorded covenants, conditions or restrictions, has
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rejected any of the current Plans and Specifications to develop the Property for
office use;
(4) The Project (as a 178,000 square foot office building) is
consistent with the City of Irvine General Plan Land Use Designation of Urban
and Industrial (Irvine Business Complex);
(5) The Project (as a 178,000 square foot office building) is
consistent with the zoning designation of 5.1 Irvine Business Complex Multi-Use.
Office use is a permitted use within the zoning designation of 5.1; and
(6) Subject to the City of Irvine's approval of Koll's proposed
modification of the originally approved Conditional Use Permit 83-CP-0501 from a
551-room hotel to a 178,000 square foot office building, the Project (as a
178,000 square foot office building) shall be a permitted use for purposes of
the City of Irvine's General Plan and applicable zoning ordinance.
Koll and NorthStar acknowledge and agree that the foregoing representations and
warranties are a material inducement for NorthStar to enter into this Agreement,
NorthStar is relying on such representations, and without Koll having made such
representations and warranties, NorthStar would not have entered into this
Agreement.
9.3 REPRESENTATIONS AND WARRANTIES OF NORTHSTAR. NorthStar hereby
represents and warrants to Koll and the Company, and each of them, as follows:
This Agreement and all agreements, instruments and documents herein provided to
be executed or to be caused to be executed by NorthStar are and on the Closing
Date will be duly authorized, executed and delivered by and are and will be
binding upon the same. NorthStar is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware and
NorthStar is duly authorized and qualified to enter into and to do all things
required of it under this Agreement and the documents it is executing in
connection with this transaction (including compliance with all applicable doing
business laws). Neither this Agreement nor any agreement, document or
instrument executed or to be executed in connection with the same, nor anything
provided in or contemplated by this Agreement or any such other agreement,
document or instrument, breaches, invalidates, cancels, makes inoperative or
interferes with, or results in the acceleration or maturity of, or requires any
consent or authorization that has not been obtained under, any contract,
agreement, lease, easement, right or interest, law or regulation, to which
NorthStar is subject (other than as a result of its entry into this Agreement).
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ARTICLE X
MISCELLANEOUS
10.1 NOTICES. Any notice which a party is required or may desire to
give the other party shall be in writing and may be delivered (1) personally,
(2) by United States registered or certified mail, postage prepaid, (3) by
Federal Express or other reputable Courier service regularly providing evidence
of delivery (with charges paid by the party sending the notice); or (4) by
telecopy, provided that such telecopy shall be immediately followed by delivery
of such notice pursuant to clause (1), (2) or (3) above. Any such notice shall
be addressed as follows (subject to the right of a party to designate a
different address for itself by notice similarly given):
TO KOLL:
KREG-OC, L.P.
c/o KREG Operating Co.
4343 Von Karman Avenue
Newport Beach, California 92260
Attention: Mr. James C. Watson, Division President
Office: (714) 833-3030
Facsimile: (714) 252-9116
WITH COPIES TO:
KREG Operating Co.
4343 Von Karman Avenue
Newport Beach, California 92260
Attention: President
Office: (714) 833-3030
Facsimile: (714) 975-0136
Allen, Matkins, Leck, Gamble & Mallory LLP
18400 Von Karman Avenue, Fourth Floor
Irvine, California 92612-1597
Attention: Thomas C. Foster, Esq.
Office: (714) 553-1313
Facsimile: (714) 553-8354
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TO NORTHSTAR:
KN Star
c/o NorthStar Capital Partners, LLC
527 Madison Avenue
New York, New York 10022
Attention: Mr. David Hamamoto
Office: (212) 319-3400
Facsimile: (212) 319-4557
WITH A COPY TO:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
Forty-Fifth Floor
New York, New York 10022-3897
Attention: Benjamin F. Needell, Esq.
Office: (212) 735-3000
Facsimile: (212) 735-2000
Any notice so given by United States mail or courier service shall be deemed to
have been given on the date delivered (whether accepted or refused) as evidenced
by the return receipt or other proof of delivery. Any notice not so given by
U.S. mail or courier service shall be deemed to be given upon receipt of the
same by the party to whom the same is to be given.
10.2 ACKNOWLEDGMENT BY MEMBERS. Each Member acknowledges the
following: (A) it is familiar with the business proposed to be conducted by the
Company; (B) it has been advised that its interest in the Company may not be
sold, transferred, or otherwise disposed of except as provided herein; (C) it
understands that its interest in the Company has not been registered under the
Securities Act of 1933 (the "SECURITIES ACT"), or any State securities laws, in
reliance on an exemption for private offerings or the fact that it is not a
security and if its interest in the Company is a security, such Member may not
be able to resell it unless it is registered under the Securities Act and
applicable State securities laws or unless an exemption from such registration
is available; (D) it is a "sophisticated investor" with substantial prior
experience in high-risk business investments and is aware of and familiar with
the risks associated with a private limited liability company and would qualify
as an "accredited investor" as such is defined in Rule 501 of Regulation D, as
enacted pursuant to Sections 3(b) and 4(2) of the Securities Act; (E) it is
acquiring its interest in the Company for its own account, for investment only
and with no present
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intention of distributing, reselling, pledging, or otherwise disposing of its
interest; and (F) that it is familiar with the type of investment which its
interest in the Company constitutes and has reviewed the acquisition of such
interest with its tax and independent legal counsel and investment
representatives to the extent it deems necessary.
10.3 CONSTRUCTION. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Member (notwithstanding any rule of law requiring an
Agreement to be strictly construed against the drafting party).
10.4 TIME IS OF THE ESSENCE. Time is of the essence with respect to
this Agreement,
10.5 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties. This Agreement supersedes any prior agreement or
understandings between the parties.
10.6 AMENDMENTS. This Agreement may be amended by written agreement
of amendment executed by all Members, but not otherwise, unless expressly
provided herein.
10.7 GOVERNING LAW; VENUE. This Agreement and the rights of the
parties hereunder shall be governed by and interpreted in accordance with the
laws of the State of Delaware (without regard to conflicts of laws). Each party
hereby consents to the exclusive jurisdiction of any state or federal court
located within California, waives personal service of any and all process upon
it, consents to service of process by registered mail directed to it at the
address stated in Section 9.1, and acknowledges that service so made shall be
deemed to be completed upon actual delivery thereof (whether accepted or
refused). In addition, each party consents and agrees that venue of any action
instituted under this Agreement or any agreement executed in connection herewith
shall be proper only in California, and hereby waves any objection to venue.
10.8 SUCCESSORS AND ASSIGNS. Except as herein otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of the
parties and their legal representatives, successors and assigns.
10.9 CAPTIONS. Captions contained in this Agreement in no way define,
limit or extend the scope or intent of this Agreement.
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10.10 SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to the persons or circumstances, shall not be affected thereby.
10.11 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
10.12 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
expressed or implied, is intended to confer any rights or remedies upon any
person, other than the parties hereto and, subject to the restrictions on
assignment herein contained, their respective successors and assigns.
10.13 CERTAIN TERMINOLOGY.
A. Whenever the words "including", "include" or "includes" are used
in this Agreement, they should be interpreted in a non-exclusive manner as
though the words ", without limitation," immediately followed the same.
B. Except as otherwise indicated, all Article, Section and Exhibit
references in this Agreement shall be deemed to refer to the Sections and
Articles in, and the Exhibits to, this Agreement.
10.14 BROKERS. Each Member represents and warrants to the other
Member and the Company that no broker or finder has been engaged by it in
connection with any of the transactions contemplated by this Agreement or to its
knowledge is in any way connected with any of such transactions. In the event
of a Claim for broker's or finder's fee or commissions in connection herewith,
then each Member shall indemnify, protect, defend and hold the Company, the
other Member, and the Company Property harmless from and against the same if it
shall be based upon any statement or agreement alleged to have been made by it
or its Affiliates.
10.15 SURVIVAL. All warranties, representations, covenants,
obligations and agreements contained in this Agreement shall survive the closing
and any and all performances hereunder. All warranties and representations
shall be effective regardless of any investigation made or which could have been
made by the party benefiting from such warranties and representations. Unless
otherwise expressly provided herein, all obligations and liabilities accruing
prior to the termination of this Agreement shall survive the termination hereof.
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10.16 NON-BUSINESS DAYS. Whenever action must be taken (including
the giving of notice or the delivery of documents) under this Agreement during a
certain period of time or by a particular date that ends or occurs on a
non-business day (i.e., Saturday, Sunday or a holiday recognized by the U.S.
federal government or the State of California or Delaware), then such period or
date shall be extended until the immediately following business day.
10.17 INCORPORATION OF EXHIBITS. All exhibits attached and referred
to in this Agreement are hereby incorporated herein as fully set forth in (and
shall be deemed to be a part of) this Agreement.
10.18 EFFECTIVENESS. In no event shall any draft of this Agreement
create any obligation or liability, it being understood that this Agreement
shall be effective and binding only when a counterpart hereof has been executed
and delivered by each party hereto.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
"NORTHSTAR"
KN STAR CORP.,
a Delaware corporation
By: /s/ Peter Ahl
--------------------------
Name: Peter Ahl
Title: Vice President
"KOLL"
KREG-OC, L.P., a California limited partnership
By: KREG Operating Co.,,
a Delaware corporation,
Its: Sole General Partner
By: /s/ Martin Kruphoff
---------------------------
Name: Martin Kruphoff
-------------------------
Title: Exec. Vice President
------------------------
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EXHIBITS
--------
A - Legal Description of the Property
B - Intentionally Omitted
C - Intentionally Omitted
D - Certain Tax and Accounting Matters
E - Intentionally Omitted
F - Determination of Fair Market Value
54
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EXHIBIT A
LEGAL DESCRIPTION OF THE PROPERTY
55
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EXHIBIT B
BUSINESS PLAN
[Intentionally Omitted]
56
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EXHIBIT C
[Intentionally Omitted]
57
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EXHIBIT D
CERTAIN TAX AND ACCOUNTING MATTERS
[KN One, LLC]
CAPITAL ACCOUNTS
1.1 MAINTENANCE OF CAPITAL ACCOUNTS; GENERAL RULES. A separate "Book
Capital Account" (as defined in Section 1.2 of this EXHIBIT "D") shall be
maintained for each Member in accordance with the provisions of this Article I.
1.2 BOOK CAPITAL ACCOUNTS. A capital account (the "Book Capital
Account") for each Member shall be maintained at all times during the term of
the Company in accordance with this Section 1.2 and the capital accounting rules
set forth in Section 1.704-1(b)(2)(iv) of the Income Tax Regulations, as the
same may be amended from time to time ("Income Tax Regulations"). The Company
shall make all adjustments required by said Section 1.704-1(b)(2)(iv),
including, without limitation, the adjustments contained in Section
1.704-1(b)(2)(iv)(g) of the Income Tax Regulations (relating to "Section 704(c)
Property", as defined in Section 2.3B(1) of this EXHIBIT "D"). In the event
that at any time during the term of the Company it shall be determined that the
Book Capital Accounts shall not have been maintained as required by this Section
1.2, then said accounts shall be retroactively adjusted so that the same shall
conform to this Section 1.2.
A. BOOK BASIS OF COMPANY PROPERTY. As used herein, "Book Basis" of
an item of Company Property means the adjusted basis of such item as reflected
in the books of the Company, determined and maintained in accordance with the
capital accounting rules contained in Section 1.704-1(b)(2)(iv) of the Income
Tax Regulations.
B. INITIAL BOOK CAPITAL ACCOUNTS. The "Initial Book Capital
Account" of a Member, as of the Effective Date, shall be the amount contributed
by such Member on or before the Effective Date pursuant to Section 3.1 of the
Limited Liability Company Agreement to which this Exhibit is attached (the "LLC
Agreement").
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C. OPTIONAL REVALUATIONS OF COMPANY PROPERTY. The Company will, at
NorthStar's discretion, make the election to revalue Company Property permitted
under Section 1.704-1(b)(2)(iv)(f) of the Income Tax Regulations.
D. DETERMINATION OF BOOK ITEMS. Consistent with the provisions of
Section 1.704-1(b)(2)(iv)(g)(3) of the Income Tax Regulations: (1) "Book
Depreciation" (which means the depreciation, depletion or amortization deduction
or allowance that shall be allowable to the Company with respect to an item of
Company Property, determined in the manner hereinafter set forth) for each item
of Company Property shall be the amount that bears the same relationship to the
"Adjusted Book Basis" (which means, with respect to an item of Company Property,
the Book Basis of such item as the same may be adjusted from time to time by
Book Depreciation allowable with respect to such item of Company Property) of
such item of Company Property as the Tax Depreciation (as defined in Section
2.3A) with respect to such item of Company Property for such year bears to the
"adjusted basis" (within the meaning of Section 1011(a) of the Internal Revenue
Code of 1986, as amended the "Code") of such item of Company Property; and (2)
"Book Gain or Loss" shall be the gain or loss recognized by the Company from the
sale or other disposition of Company Property (such gain or loss determined by
reference to the Adjusted Book Basis, and not the adjusted tax basis, of such
property to the Company). If an item of Company Property shall have an
"adjusted basis" (as defined in the preceding sentence) equal to Zero, Book
Depreciation shall be determined under a reasonable method, which method shall
be selected by the Company.
E. BOOK ADJUSTMENTS ON DISTRIBUTIONS. With respect to all
distributions of Company Property to the Members, the Company shall comply with
the provisions contained in Section 1.704-1(b)(2)(iv)(e) of the Income Tax
Regulations (relating to adjustments to the Members' Book Capital Accounts in
connection with such distributions) and all allocations and adjustments made in
connection therewith shall be in accordance with Article II of this EXHIBIT "D".
ARTICLE II
ALLOCATION OF INCOME, LOSSES AND
DEDUCTIONS FOR BOOK AND TAX PURPOSES
2.1 PROFITS AND LOSSES. The "Profits" or "Losses" of the Company
(which means the Company's taxable income or loss, respectively, as calculated
in accordance with Section 703(a) of the Code with, however, (i) all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code being included in such taxable income or loss,
(ii) any income and gain
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that is exempt from tax, and all expenditures described in Section 705(a)(2)(B)
of the Code (or treated as expenditures so described pursuant to Section
1.704-1(b)(2)(iv)(i) of the Income Tax Regulations) being included in such
Profits or Losses, (iii) Book Depreciation (and not Tax Depreciation as defined
in Section 2.3A of this EXHIBIT "D") being included in calculating such Profits
or Losses, and (iv) Book Gain or Loss (and not Tax Gain or Loss as defined in
Section 2.3B of this EXHIBIT "D"]) being included in calculating such Profits or
Losses, but excluding in such calculation the amounts allocated under Sections
2.3, 2.4 and 2.5 immediately below) for each fiscal year of the Company, shall
be allocated to the Members in the following order and priority (an allocation
of Profits and Losses to a Member shall be deemed to be a prorata allocation to
such Member of each item of income, gain, loss, deduction or any other item
taken into account in computing such Profits and Losses and solely for purposes
of determining the amount of Losses previously allocated to a Member that have
been offset by an allocation of Profits to such Member under any subsection of
Section 2.1A, the amount of any allocation of income or gain to such Member
under Section 2.5A shall be treated as an allocation of Profits):
A. PROFIT. If there shall be Profits for such fiscal year, such
Profits shall be allocated among the Members as follows:
(1) first, to the Members (in proportion to the amounts of
Profits to a be allocated in accordance with this Section 2.1A(1)) until there
shall have been allocated to each Member Profits equal to the excess, if any, of
(X) the cumulative amount of Losses allocated to such Member pursuant to Section
2.1B(4) hereof through and including such fiscal year; over (Y) the cumulative
amount of Profits allocated to such Member pursuant to this Section 2.1A(1)
through and including such fiscal year;
(2) next, to the Members (in proportion to the amounts of Profits to
be allocated in accordance with this Section 2.1A(2)) until there shall have
been allocated to each Member Profits equal to the excess, if any, of (X) the
cumulative amount of Losses allocated to such Member pursuant to Section 2.1B(3)
hereof through and including such fiscal year; over (Y) the cumulative amount of
Profits allocated to such Member pursuant to this Section 2.1A(2) through and
including such fiscal year; and
(3) next, to the Members until there shall have been allocated to
each Member Profits equal to the X minus Y plus Z in the following: (X) the
cumulative amount of each such Member's accrued Preferred Return from the
effective date of the LLC Agreement through and including such fiscal year; (Y)
the
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cumulative amount of Profits allocated to such Member pursuant to this Section
2.1A(3) through and including such fiscal year; (Z) the cumulative amount of
Losses allocated to such Member pursuant to Section 2.1B(2) hereof through and
including such fiscal year;
(4) next, to the Members in proportion to their respective
Company Percentages.
B. LOSSES. If there shall be Losses for such fiscal year, such
Losses shall be allocated among the Members as follows:
(1) first, to the Members (in proportion to the amount of Losses
to be allocated in accordance with this Section 2.1B(1)), until there shall have
been allocated to each Member Losses equal to the excess, if any, of (X) the
cumulative amount of Profits allocated to such Member pursuant to Section
2.1A(4) hereof through and including such fiscal year; and (Y) the cumulative
amount of Losses allocated to such Member pursuant to this Section 2.1B(1)
through and including such fiscal year;
(2) next, to the Members (in proportion to the amount of Losses
to be allocated in accordance with this Section 2.1B(2)), until there shall have
been allocated to each Member Losses equal to the excess, if any, of (X) the
cumulative amount of Profits allocated to such Member pursuant to Section
2.1A(3) hereof through and including such fiscal year; and (Y) the cumulative
amount of Losses allocated to such Member pursuant to this Section 2.1B(2)
through and including such fiscal year;
(3) next, to the Members (in proportion to the amount of Losses
to be allocated in accordance with this Section 2.1B(3)) until there shall have
been allocated to each Member Losses equal to the excess, if any, of (X) the
cumulative amount of the contributions by such Member to the Company pursuant to
Article III of the LLC Agreement; over (Y) the cumulative amount of Losses
allocated to such Member pursuant to this Section 2.1B(3), net of the cumulative
amount of Profits allocated to such Member pursuant to Section 2.1A(2) hereof,
through and including such fiscal year; and
(4) next, to the Members in proportion to their respective
Company Percentages.
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C. If NorthStar makes the Pre-Development Sale Election pursuant to
Section 5.2A(2) of the Agreement and Koll does not exercise its right to
purchase NorthStar's interest in the Company pursuant to the provisions of
Section 5.2C of the Agreement, appropriate adjustment shall be made to the
allocation of Profits and Losses under this Section 2.1 in order to properly
reflect the distribution of Net Sale Proceeds and Net Financing Proceeds to the
Members pursuant to Section 4.3 of the Agreement.
2.2 INTENTIONALLY DELETED.
2.3 TAX ALLOCATIONS.
A. ALLOCATION OF TAX DEPRECIATION. Except to the extent required by
Section 704(c) of the Code or the regulations promulgated thereunder, "Tax
Depreciation" for each fiscal year of the Company (which means the depreciation,
depletion or amortization deduction or allowance that shall be allowable for
federal income tax purposes to the Company with respect to an item of Company
Property) shall be allocated to the Members in the same manner that Book
Depreciation shall have been allocated to the Members pursuant to Section 2.1 of
this EXHIBIT "D".
B. TAX GAIN OR LOSS. The gain or loss for federal income tax
purposes from the sale or other disposition of Company Property ("Tax Gain or
Loss") for each fiscal year of the Company shall be allocated to the Members as
provided in this Section 2.3. Tax gain or loss for purposes of this Section
shall be calculated (1) without including any income from interest on any
deferred portion of the sale price and (2) without including in the tax basis of
the Company Property any remaining special basis adjustment to Company Property
under Section 732(d) or 743 of the Code except to the extent that such special
basis adjustment is allocated to the common basis of Company Property under
Section 1.734-2(b)(1) of the Income Tax Regulations. The Members agree that the
tax effects of any special basis adjustment that is not included in the
calculation of tax gain or loss in accordance with clause (2) of the preceding
sentence shall be separately reflected in calculating the tax gain or loss of
the Member or Members to whom such special basis adjustment relates.
(1) IN GENERAL. In the case of "Section 704(c) Property" (as
hereinafter defined), Tax Gain or Loss (as the case may be) shall be allocated
in accordance with the requirements of Section 704(c) of the Code and the Income
Tax Regulations thereunder and such other provisions of the Code as govern the
treatment of Section 704(c) Property. Any gain or loss in excess of the amount
allocated pursuant to the preceding sentence (or, in the case of property which
is not
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Section 704(c) Property, all Tax Gain or Loss) shall be allocated among all the
Members in the same ratio that the book gain or loss with respect to such
property is allocated in accordance with Article II of this EXHIBIT "D";
provided, however, in the event that there is no book gain or loss, then any Tax
Gain or Loss in excess of the amount allocated pursuant to the preceding
sentence shall be allocated among the Members in accordance with Section 2.1A(4)
in the event of Tax Gain and Section 2.1B(4) in the event of Tax Loss. As used
herein, "Section 704(c) Property" means (i) each item of Company Property which
is contributed to the Company and to which Section 704(c) of the Code or Section
1.704-1(b)(2)(iv)(d) of the Income Tax Regulations applies, and (ii) each item
of Company Property which, as contemplated by Section 1.704-1(b)(4)(i) and other
analogous provisions of the Income Tax Regulations, is governed by the
principles of Section 704(c) of the Code (or principles analogous to the
principles contained in Section 704(c) of the Code) by virtue of (a) an increase
or decrease in the Book Capital Accounts of the Members to reflect a revaluation
of Company Property on the Company's books as provided by Section
1.704-1(b)(2)(iv)(f) of the Income Tax Regulations, (b) the fact that it
constitutes a receivable, account payable, or other accrued but unpaid item
which, under principles analogous to those applying to an item of Company
Property having an adjusted tax basis that differs from its Book Basis, is
treated as an item of property described in Section 1.704-1(b)(2)(iv)(g)(2) of
the Income Tax Regulations, or (c) any other provision of the Code or the Income
Tax Regulations (including, without limitation, Section 1.704-1(b)(4)(i) of the
Income Tax Regulations) as the same may from time to time be construed, to the
extent that, and for so long as, such item of Company Property continues to be
governed by the principles of Section 704(c) of the Code (or principles
analogous to the principles contained in Section 704(c) of the Code).
(2) RECAPTURE INCOME. If, in the event of a gain on any sale,
exchange or other disposition of Company Property, all or a portion of such gain
is characterized as ordinary income ("Recapture") by virtue of the recapture
rules of Section 1250, Section 1245 or otherwise, then the Recapture shall be
allocated between or among the Members in the same ratio that Tax Depreciation
allowable with respect to such Company Property had been allocated between or
among them; provided, however, that under no circumstances shall there be
allocated to any Member Recapture in excess of the gain allocated to such Member
under this subsection B (and such excess shall be allocated instead between or
among the Members as to which this proviso does not apply, in proportion to the
gain allocated between or among them).
(3) OTHER ITEMS RELATING TO SECTION 704(C) PROPERTY. Any item
of income, gain, loss or deduction relating to an item of Section 704(c)
Property
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shall be allocated in accordance with the requirements of Section 704(c) of the
Code and the Income Tax Regulation thereunder and such other provisions of the
Code as govern the treatment of Section 704(c) Property and the related book
item shall be allocated in a manner consistent with the Income Tax Regulations
promulgated under Section 704(b) of the Code.
2.4 EXCEPTIONS.
A. LIMITATIONS.
(1) GENERAL LIMITATION. Notwithstanding anything to the
contrary contained in this Article II, no allocation shall be made to a Member
which would cause such Member to have a deficit balance in its Adjusted Book
Capital Account which exceeds the sum of such Member's share of Company Minimum
Gain and such Member's share of Member Nonrecourse Debt Minimum Gain. If the
limitation contained in the preceding sentence would apply to cause an item of
loss or deduction to be unavailable for allocation to all Members, then such
item of loss or deduction shall be allocated between or among the Members in
accordance with Section 2.1B(4).
(2) NONRECOURSE DEDUCTIONS AND MEMBER NONRECOURSE DEDUCTIONS.
Notwithstanding anything to the contrary contained in this Article II hereof,
(i) Nonrecourse Deductions (as defined in Section 2.4C) shall be allocated to
the Members in proportion to their respective Company Percentages in effect for
the period with respect to which such allocation is being made and (ii) any and
all items of loss and deduction and any and all expenditures described in
Section 705(a)(2)(B) of the Code (or treated as expenditures so described
pursuant to Section 1.704-1(b)(2)(iv)(i) of the Income Tax Regulations)
(collectively, "Member Nonrecourse Deductions") that are (in accordance with the
principles set forth in Section 1.704-2(i)(2) of the Income Tax Regulations)
attributable to Member Nonrecourse Debt shall be allocated to the Member that
bears the Economic Risk of Loss for such Member Nonrecourse Debt. If more than
one Member bears such Economic Risk of Loss, such Member Nonrecourse Deductions
shall be allocated between or among such Members in accordance with the ratios
in which they share such Economic Risk of Loss. If more than one Member bears
such Economic Risk of Loss for different portions of a Member Nonrecourse Debt,
each such portion shall be treated as a separate Member Nonrecourse Debt.
B. MINIMUM GAIN CHARGEBACKS.
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(1) COMPANY MINIMUM GAIN. Except to the extent provided in
Section 1.704-2(f)(2), (3), (4) and (5) of the Income Tax Regulations, if there
is, for any fiscal year of the Company, a net decrease in Company Minimum Gain,
there shall be allocated to each Member, before any other allocation pursuant to
Article II hereof is made under Section 704(b) of the Code) of Company items for
such fiscal year, items of income and gain for such year (and, if necessary, for
subsequent years) equal to such Member's share of the net decrease in Company
Minimum Gain. A Member's share of the net decrease in Company Minimum Gain is
the amount of such total net decrease multiplied by the Member's percentage
share of the Company's Minimum Gain at the end of the immediately preceding
taxable year, determined in accordance with Section 1.704-2(g)(1) of the Income
Tax Regulations. Items of income and gain to be allocated pursuant to the
foregoing provisions of this Section 2.4B(1) shall consist first of gains
recognized from the disposition of items of Company Property subject to one or
more Nonrecourse Liabilities of the Company, and then of a pro rata portion of
the other items of Company income and gain for that year.
(2) MEMBER NONRECOURSE DEBT MINIMUM GAIN. Except to the extent
provided in Section 1.704-2(i)(4) of the Income Tax Regulations, if there is,
for any fiscal year of the Company, a net decrease in Member Nonrecourse Debt
Minimum Gain, there shall be allocated to each Member that has a share of Member
Nonrecourse Debt Minimum Gain at the beginning of such fiscal year before any
other allocation pursuant to Article II hereof (other than an allocation
required pursuant to Section 2.4B(1) that is made under Section 704(b) of the
Code) of Company items for such fiscal year, items of income and gain for such
year (and, if necessary, for subsequent years) equal to such Member's share of
the net decrease in the Member Nonrecourse Debt Minimum Gain. The determination
of a Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain
shall be made in a manner consistent with the principles contained in Section
1.704-2(g)(1) of the Income Tax Regulations. The determination of which items
of income and gain to be allocated pursuant to the foregoing provisions of this
Section 2.4B(2) shall be made in a manner that is consistent with the principles
contained in Section 1.704-2(f)(6) of the Income Tax Regulations.
(3) CERTAIN DEFINED TERMS. For purposes of this EXHIBIT "D",
(i) "Company Minimum Gain" shall have the meaning set forth in Section
1.704-2(b)(2) of the Income Tax Regulations; (ii) "Member Nonrecourse Debt"
shall have the meaning set forth in Section 1.704(b)-2(b)(4) of the Income Tax
Regulation; (iii) "Member Nonrecourse Debt Minimum Gain" shall have the meaning
set forth in Section 1.704-2(i)(2) of the Income Tax Regula-
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tions; (iv) "Nonrecourse Liability" shall have the meaning set forth in Section
1.704-2(b)(3) of the Income Tax Regulations; (v) "Adjusted Book Capital Account"
means the Book Capital Account of a Member reduced by any adjustments,
allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5)
or (6) of the Income Tax Regulations; (vi) "Economic Risk of Loss" shall have
the meaning set forth in Section 1.752-2 of the Income Tax Regulations; and
(vii) "Nonrecourse Deductions" shall have the meaning in Section 1.704-2(b)(1)
of the Income Tax Regulations.
2.5 QUALIFIED INCOME OFFSET AND SAVINGS CLAUSE.
A. Notwithstanding anything to the contrary in this EXHIBIT "D", in
the event any Member unexpectedly receives any adjustments, allocations or
distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the
Income Tax Regulations, there shall be specially allocated to such Member such
items of Company income and gain, at such times and in such amounts as will
eliminate as quickly as possible the deficit balance (if any) in its Book
Capital Account (in excess of the sum of such Member's share of Member Minimum
Gain and such Member's share of Member Nonrecourse Debt Minimum Gain) created by
such adjustments, allocations or distributions. To the extent permitted by the
Code and the Income Tax Regulations, any special allocations of items of income
or gain pursuant to this Section 2.5 shall be taken into account in computing
subsequent allocations of Profits or Losses pursuant to this Article II, so that
the net amount of any items so allocated and the subsequent Profits or Losses
allocated to the Members pursuant to this Article II shall, to the extent
possible, be equal to the net amounts that would have been allocated to each
such Member pursuant to the provisions of this Article II if such unexpected
adjustments, allocations or distribution had not occurred.
B. The parties intend that the foregoing tax allocation provisions
of this Article II shall produce final Capital Account balances of the Members
that would permit liquidating distributions, if such distributions were made in
accordance with final Capital Account balances (instead of being made in the
order of priorities set forth in Article IV of the LLC Agreement), to be made
(after unpaid loans and interest thereon, including those owed to Members, have
been paid) in a manner identical to the order of priority set forth in Article
IV of the LLC Agreement. To the extent that the tax allocation provisions of
this Article II would fail to produce such final Capital Account balances, (i)
such provisions shall be amended by the Members if and to the extent necessary
to produce such result and (ii) taxable income and taxable loss of the Company
for prior open years (or items of gross income and deduction of the Company for
such years) shall be reallocated among the Members to the extent it is not
possible to achieve such result without allocations of items of income
(including gross income) and deduction for the current year and future years, as
reasonably approved by the Members. This Section 2.5B shall control notwith-
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standing any reallocation or adjustment of taxable income, taxable loss, or
items thereof, by the Internal Revenue Service or any other taxing authority.
2.6 MEMBERS' INTERESTS IN COMPANY PROFITS FOR PURPOSES OF SECTION
752. As permitted by Section 1.752-3(a)(3) of the Income Tax Regulations, the
Members hereby specify that solely for purposes of determining their respective
shares of excess Nonrecourse Liabilities of the Company, the Members' respective
shares of Company profits shall be in proportion to their respective Company
Percentages in effect for the period with respect to which such allocation is
being made.
ARTICLE III
TAX AND ACCOUNTING MATTERS
A. The Company will be on the accrual basis for both tax and
accounting purposes.
B. The Company book and records shall be prepared in accordance with
tax accounting principles, consistently applied. Such books and records shall
be audited by such certified public accountants as selected by NorthStar.
C. The fiscal year of the Company shall end on the 31st day of
December in each year.
D. Managing Member shall comply with the requirements contained in
SECTION 1446 of the Code and comparable tax laws of any other State in which the
Company is engaged in business (regarding income tax withholding on certain
income that is allocated to Members who are non-U.S. persons) and any successor
or replacement provision or Provisions of law or administrative guidance (the
"Foreign Partner Withholding Law"). Managing Member is hereby authorized and
directed by each Member to withhold from the distributions or other amounts
payable to such Member under the LLC Agreement such amount or amounts ("Required
Foreign Partner Withholding") as Managing Member reasonably determines are
required by the Foreign Partner Withholding Law, and to remit the Required
Foreign Partner Withholding to the Internal Revenue Service and/or such other
applicable State taxing agency at such time or times as may from time to time be
required by the relevant taxing authority. If Managing Member determines, at
any time that the Required Foreign Partner Withholding with respect to a
particular Member exceeds the amount of distributions or other amounts payable
to such Member at such time (a "Cash Shortfall"), the Member in question shall
immediately
10
<PAGE>
make a cash contribution to the Company equal to the amount of such Cash
Shortfall, which the Managing Member shall use to effectuate the Required
Foreign Partner Withholding. When remitting the Required Foreign Partner
Withholding, Managing Member shall inform the relevant taxing authority of the
name and tax identification number of the Member for whose account such Required
Foreign Partner Withholding is being made. In complying with the provisions of
this paragraph, Managing Member shall be entitled to presume irrebuttably that a
Member is subject to the Foreign Partner Withholding Law unless: (i) Such
member shall have previously provided Managing Member with a completed and
signed certificate of non-foreign status, in the Form attached as Schedule "1",
such certificate was furnished to Managing Member not earlier than during the
third taxable year of the Company preceding the taxable year under
consideration, Managing Member has not been notified by such partner that its
status under such certificate has changed, and Managing Member does not have
actual knowledge that the status of such determines, based upon all facts and
circumstances (including, without limitation, the provisions contained in
Revenue Procedure 89-31, 1989-1 Cum. Bull. 895, or any successor Revenue
Procedure, guideline or administrative pronouncement), that the Foreign Partner
Withholding Law does not apply in a particular instance.
ARTICLE IV
NO DEFICIT FUNDING OBLIGATION
No Member having a negative balance in its Book Capital Account shall have
any obligation to the Company or to any other Member to restore its Book Capital
Account to zero.
ARTICLE V
ORDER OF APPLICATION
For purposes of this EXHIBIT "D", the following provisions set forth in
the LLC Agreement and this EXHIBIT "D" shall be applied in the following order:
A. Article IV of the LLC Agreement relating to distributions.
B. Section 2.4A(1) of this EXHIBIT "D" relating to general
limitations.
11
<PAGE>
C. Section 2.4A(2) of this EXHIBIT "D" relating to Member
Nonrecourse Deductions.
D. Section 2.4B(1) of this EXHIBIT "D" relating to chargeback of
company Minimum Gain.
E. Section 2.4B(2) of this EXHIBIT "D" relating to chargebacks of
Member Nonrecourse Debt Minimum Gain.
F. Section 2.5 of this EXHIBIT "D" relating to qualified income
offset.
G. Section 2.2 of this EXHIBIT "D" relating to allocations of item
of gross Losses.
H. Section 2.1 of this EXHIBIT "D" relating to allocations of
Profits and Losses.
These provisions shall be applied as if all contributions, distributions and
allocations with respect to a given fiscal year were made at the end of the
Company's fiscal year. Where any provision depends on the Book Capital Account
of any Member, such Book Capital Account shall be determined after the
application of all preceding provisions for the year.
ARTICLE VI
CLOSING OF COMPANY BOOKS IN CONNECTION
WITH ADMISSION OF NEW MEMBER OR
TRANSFER OF MEMBER'S INTEREST
Upon the effective date (the "Effective Date") of the admission of a new
Member into the Company or of a valid transfer of all or part of a Member's
interest in the Company pursuant to Article VI of the LLC Agreement, the books
of the Company shall be closed in accordance with Section 706(d) of the Code,
and consistent therewith: (X) items of income, deduction, gain, loss and/or
credit of the Company that are recognized prior to the Effective Date shall be
allocated among those persons or entities who were Members in the Company prior
to the Effective Date; and (Y) items of income, deduction, gain, loss and/or
credit of the Company that are recognized after the Effective Date shall be
allocated among the persons or entities who were Members after the Effective
Date.
12
<PAGE>
TAX MATTERS PARTNER
Managing Member shall be "the tax matters partner" of the Company as such
term is defined in SECTION 6231(a)(7) of Code (the "Tax Matters Partner"), and
it shall serve as such at the expense of the Company with all powers granted to
a tax matters partner under the Code. Managing Member shall use its best
efforts to cause the Company's accountant to prepare and file on a timely basis,
with due regard to extensions, all tax and information returns that the Company
may be required to file, all at Company expense. No tax or information return
shall be filed unless approved by NorthStar. The Company's accountants are (i)
to deliver all tax and information returns to the Members for their review and
reasonable approval at least thirty (30) days in advance of the required filing
date therefor (taking into account any extensions approved by the Members), and
(ii) to furnish the Members with a projection of the Company's taxable income or
loss for each fiscal and tax year of the Company by December of each such year
to assist in year-end tax planning, all at Company expense. Each Member shall
give prompt notice to each other Member of any and all notices it receives from
the Internal Revenue Service concerning the Company, including any notice of
audit, any notice of action with respect to a revenue agent's report, any notice
of a 30-day appeal letter and any notice of a deficiency in tax concerning the
Company's federal income tax return. The Tax Matters Partner shall at Company
expense furnish each Member with status reports regarding any negotiation
between the Internal Revenue Service and the Company, and each such Member, if
it so requests, may participate in such negotiation. The Tax Matters Partner
shall use its best efforts to cause the Company's accountants to prepare and
deliver to each Member an information reporting return (Schedule K-1) reflecting
each Member's distributive share of all income, gain, loss, deductions,
allowances or credits of the Company for each fiscal year, and will provide the
information necessary for such accountants to do so and to issue the other
reports required hereunder on a timely basis. The Tax Matters Partner shall not
enter into any settlement with any taxing authority (federal, state or local),
or extend the statute of limitations, on behalf of the Company or the Members
without the approval of NorthStar.
13
<PAGE>
EXHIBIT E
[Intentionally Omitted]
1
<PAGE>
EXHIBIT "F"
DETERMINATION OF FAIR MARKET VALUE
The following provisions set forth the procedure for determining fair market
value referred to in the limited liability company agreement (this "Agreement")
to which this Exhibit is attached and of which this Exhibit is a part. Except
as otherwise indicated, each capitalized term used herein shall have the meaning
set forth for the same elsewhere in this Agreement.
A. DEFINITION. "Fair Market Value" means the price (as determined
pursuant to this Exhibit) at which the property (the "Subject Property") to be
appraised would be sold for cash by a willing seller, not compelled to sell, to
a willing buyer, not compelled to buy, on a free and clear basis, unencumbered
by any financing (including, without limitation, any deeds of trust, mortgages,
ground leases in connection with sale/leaseback financing or other security
instruments securing any financing). However, the determination of the Fair
Market Value of the Subject Property shall take into account (and be reduced by)
the total closing costs (including attorneys' fees, title insurance costs,
brokers' fees and recordation costs) that would customarily be paid by the
seller of properties of like kind and stature.
B. AGREEMENT PROCEDURE. First, the Members shall attempt to
determine the Fair Market Value of the Subject Property by agreement in
accordance with this subsection B.
(1) PROPOSAL. On (or within 15 days before or after) the
date (the "Determination Date") as of which the determination of Fair Market
Value is to be made, Electing Member may give Dissolution Member written notice
of its proposed Fair Market Value of the Subject Property. If Dissolution
Member disagrees with such proposed Fair Market Value, Dissolution Member shall
notify Electing Member in writing, within 10 business days after Electing
Member's approval is delivered, of its disagreement and its counter-proposal
(and failure to do so within such 10-business day period shall be deemed to
constitute Dissolution Member's agreement with Electing Member's proposal).
Such 10-business day period is herein called the "Proposal Period".
(2) SUPPLEMENTAL DISCUSSION. If the parties fail to reach actual (or
deemed) agreement during the Proposal Period (or if the proposal described above
is not given), then the parties shall use good faith efforts to reach agreement
on the Fair Market Value of the Subject Property on or before the "Outside
Negotiation Date" (which, as used herein, means the date that is 20 business
2
<PAGE>
days after the Determination Date or, if later, 10 business days after the
Proposal Period, if any).
C. APPRAISAL PROCEDURE. If agreement is not reached (or deemed
reached) on or before the Outside Negotiation Date, then the Fair Market Value
of the Subject Property shall be determined by an appraisal made by a single
appraiser or by a board of three appraisers as hereinafter provided in this
subsection C.
(1) APPOINTMENT OF APPRAISERS.
(a) APPRAISER QUALIFICATIONS. Each appraiser selected under this
Exhibit must (i) be a reputable real estate appraiser, (ii) be a member of the
American Institute of Real Estate Appraisers or a successor body hereinafter
constituted exercising a similar function, (iii) have experience in appraising
property similar to the Subject Property (in terms of location, size,
improvements and quality) and(iv) have no direct or indirect financial or other
business interests in any party to this Agreement.
(b) SELECTION PROCESS. During the 15-day Period immediately
following the Outside Negotiation Date, the parties will endeavor to jointly
select, approve and appoint an appraiser to appraise the Subject Property for
the purposes of this Exhibit. If the parties have not jointly appointed an
appraiser by the date which is 15 days after the Outside Negotiation Date, then
except as hereinafter provided, the appraisal of the Subject Property for the
purposes of this Exhibit will be conducted by a board of three appraisers, one
appointed by Electing Member, one appointed by Dissolution Member and the third
appointed by the first two appraisers. In such event, the first two appraisers
shall be appointed by the parties by a date which is nor later than 30 days
after the Outside Negotiation Date, and the third appraiser shall be appointed
by the first two appraisers within 15 days after the appointment of the first
two appraisers, provided, however, that if only one Member appoints an appraiser
within 30 days after the Outside Negotiation Date, then such appraiser shall be
the sole appraiser to appraise the Subject Property. If the first two
appraisers are unable to agree on a third appraiser, such third appraiser shall
be appointed by the senior federal district court judge, or such other federal
district court judge as he may designate, for the district in which the Subject
Property is located, acting in his non-judicial capacity. If such federal
district court judge
3
<PAGE>
refuses to act within 15 days after such request, such third appraiser shall be
appointed pursuant to the rules of the American Arbitration Association.
(c) COSTS. The costs and expenses of each of the first two
appraisers shall be paid by the party appointing such appraiser, and the costs
and expenses of the third appraiser (or the single appraiser, if one appraiser,
instead of three appraisers, is used) shall be shared equally by the parties.
(2) DETERMINATION BY APPRAISERS.
(a) APPRAISAL BY ONE APPRAISER. If appraisal is to be conducted by a
single appraiser, the appraiser appointed shall proceed to appraise the Subject
Property and notify parties by written notice of the amount of the Fair Market
Value of the Subject Property, which notice shall be accompanied by a copy of
this appraisal report, not later than the earlier to occur of the date which is
30 days after the appointment of such appraiser and the date which is 45 days
after the Outside Negotiation Date, and such appraiser's determination of the
Fair Market Value of the Subject Property shall be deemed to be the Fair Market
Value of the Subject Property.
(b) APPRAISAL BY THREE APPRAISERS. If the appraisal is to be
conducted by a board of three appraisers, the appraisers shall proceed to
appraise the Subject Property and notify the parties by written notice of the
amount of their determinations of the Fair Market Value of the Subject Property,
which notices shall be accompanied by copies of their appraisal reports and be
given not later than 30 days after the appointment of the third appraiser. If
the determinations of the Fair Market Value of the Subject Property of any two
or all three of the appraisers shall be identical in amount, such amount shall
be deemed to be the Fair Market Value of the Subject Property, but if such
determinations of all three appraisers shall be different in amount, then the
Fair Market Value of the Subject Property shall be determined as follows:
(i) If neither the highest nor the lowest appraised value differs
from the middle appraised value by more than 10% of the middle appraised value
or if highest and lowest appraised values each differ from the middle appraised
value by the same amount, then the Fair Market Value of the Subject Property
shall be deemed to be the average of the three appraised values; and
(ii) Otherwise, the Fair Market Value of the Subject Property shall be
deemed to be the average of the middle appraised value and the appraised value
closer in amount to the middle appraised value.
4
<PAGE>
D. CONCLUSIVE DETERMINATION. Fair Market Value of the Subject
Property determined in accordance with the provisions of this Exhibit shall be
binding and conclusive on the parties.
5
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
FORMATION AND PURPOSE OF COMPANY
---------------------------------
1.1 FORMATION OF COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 CHARACTER OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 NAMES AND ADDRESSES OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . 3
1.6 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE . . . . . . . . . . 3
1.7 CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 TITLE TO PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE II
CERTAIN INCORPORATED MATTERS
----------------------------
2.1 TAX AND ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
CAPITALIZATION AND LOANS BY MEMBERS
-----------------------------------
3.1 CONTRIBUTIONS BY MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 ADDITIONAL CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 MEMBER LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV
DISTRIBUTIONS
-------------
4.1 DISTRIBUTIONS OF DISTRIBUTABLE OPERATING CASH . . . . . . . . . . . . . 13
4.2 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS . . . . . 13
4.3 DISTRIBUTIONS OF NET SALE PROCEEDS AND NET FINANCING PROCEEDS IN
CONNECTION WITH A NORTHSTAR PRE-DEVELOPMENT SALE ELECTION . . . . . . . 13
4.4 TIMING OF DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 DISTRIBUTIONS OF CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . 15
-i-
<PAGE>
ARTICLE V
POWERS, RIGHTS AND DUTIES OF MEMBERS
------------------------------------
5.1 AUTHORITY OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 PRE-DEVELOPMENT ELECTION PERIOD/UNILATERAL SALE RIGHTS. . . . . . . . . 21
5.3 BUY/SELL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 CERTAIN OBLIGATIONS OF MANAGING MEMBER. . . . . . . . . . . . . . . . . 26
5.5 OTHER ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.6 LIABILITY OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.7 INDEMNITY OF MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8 INDEMNIFICATION BY MEMBERS. . . . . . . . . . . . . . . . . . . . . . . 33
5.9 ADDITIONAL MEMBERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10 COMPANY ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.11 COMPENSATION TO KOLL. . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12 COMPENSATION OF MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . 35
5.13 UNILATERAL SALE RIGHTS IF NORTHSTAR MAKES A DEVELOPMENT ELECTION. . . . 35
ARTICLE VI
TRANSFER OF COMPANY INTERESTS
-----------------------------
6.1 RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . 37
6.2 EFFECT OF ASSIGNMENT; DOCUMENTS . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VII
CERTAIN REMEDIES
----------------
7.1 INTENTIONALLY DELETED . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 EFFECT OF TERMINATION NOTICE. . . . . . . . . . . . . . . . . . . . . . 39
7.4 NO PARTITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.5 LITIGATION WITHOUT TERMINATION. . . . . . . . . . . . . . . . . . . . . 43
7.6 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.7 CUMULATIVE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.8 NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-ii-
<PAGE>
ARTICLE VIII
DISSOLUTION OF THE COMPANY
--------------------------
8.1 EVENTS GIVING RISE TO DISSOLUTION . . . . . . . . . . . . . . . . . . . 44
8.2 COMPANY PURCHASE OPTION . . . . . . . . . . . . . . . . . . . . . . . . 45
8.3 PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IX
PROJECT FINANCING; REPRESENTATIONS; CLOSINGS
--------------------------------------------
9.1 REVISIONS TO BUSINESS PLAN, OPERATING BUDGET, DEVELOPMENT BUDGET AND
LEASING PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.2 REPRESENTATIONS AND WARRANTIES OF KOLL. . . . . . . . . . . . . . . . . 48
9.3 REPRESENTATIONS AND WARRANTIES OF NORTHSTAR . . . . . . . . . . . . . . 49
ARTICLE X
MISCELLANEOUS
-------------
10.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.2 ACKNOWLEDGMENT BY MEMBERS. . . . . . . . . . . . . . . . . . . . . . . 51
10.3 CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.4 TIME IS OF THE ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . 52
10.5 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.6 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.7 GOVERNING LAW; VENUE . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.8 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . 53
10.9 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.10 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.11 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.12 NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . 53
10.13 CERTAIN TERMINOLOGY. . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.14 BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.15 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.16 NON-BUSINESS DAYS. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.17 INCORPORATION OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . 54
10.18 EFFECTIVENESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
-iii-
<PAGE>
EXHIBITS
A - Legal Description of the Property
B - Intentionally Omitted
C - Intentionally Omitted
D - Certain Tax and Accounting Matters
E - Intentionally Omitted
F - Determination of Fair Market Value
-iv-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------
NorthStar Partnership, LP
Sextant Holding, LLC
Polaris I Capital, LLC
NorthStar Washington Street I, LLC
NorthStar Washington Street II, LLC
PoleStar Hotel Corp.
NorthStar Golf Corp.
KN Star Corp.
NorthStar Residential Brokerage Corp.
PoleStar Fifth Holding, LLC
PoleStar Fifth Funding, LLC
PoleStar Fifth Property Associates, LLC
PoleStar Fifth Optionee, LLC
PoleStar Forty-Fourth Holding, LLC
PoleStar Forty-Fourth Funding, LLC
PoleStar Forty-Fourth Property Associates, LLC
PoleStar Forty-Fourth Optionee, LLC
NorthStar II Corp.
NorthStar IV LLC
NS Caribbean Retail, LLC
NS Caribbean Management Services, Inc.
Gotham Investments, LLC
Sextant Trading, LLC
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in this registration statement on
Form S-11 of NorthStar Capital Investment Corp.
ARTHUR ANDERSEN LLP
New York, New York
March 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> NOV-25-1997
<PERIOD-END> DEC-31-1997
<CASH> 271,874
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 271,874
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 271,874
<CURRENT-LIABILITIES> 595
<BONDS> 0
0
0
<COMMON> 131
<OTHER-SE> 271,148
<TOTAL-LIABILITY-AND-EQUITY> 271,874
<SALES> 0
<TOTAL-REVENUES> 387
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37
<INCOME-TAX> 0
<INCOME-CONTINUING> 37
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37
<EPS-PRIMARY> .011
<EPS-DILUTED> .011
</TABLE>
